HANMI FINANCIAL CORP

Previous wording

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three and six months ended June 30, 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended June 30, 2024 (this “Report”).

Current wording

The following is management’s discussion and analysis of our results of operations and financial condition as of and for the three and nine months ended September 30, 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended September 30, 2024 (this “Report”).

Previous wording

Net income was $14.5 million, or $0.48 per diluted share, for the three months ended June 30, 2024 compared to $20.6 million, or $0.67 per diluted share, for the same period a year ago. The decrease in net income was driven by a $6.8 million decrease in net interest income, a $1.0 million increase in credit loss expense, and a $1.0 million increase in noninterest expense, offset by a $2.5 million decrease in income tax expense. Credit loss expense for the second quarter of 2024 was $1.0 million compared to a $0.1 million recovery for the second quarter of 2023. Credit loss expense for the second quarter of 2024 consisted of a $1.2 million provision for loan losses, offset by a $0.3 million recovery for off-balance sheet items. Credit loss recovery for the second quarter of 2023 included a $0.5 million provision for loan losses, offset by a $0.6 million recovery for off-balance sheet items.

Current wording

Net income was $14.9 million, or $0.49 per diluted share, for the three months ended September 30, 2024 compared to $18.8 million, or $0.62 per diluted share, for the same period a year ago. The decrease in net income was driven by a $4.8 million decrease in net interest income, a $2.8 million decrease in noninterest income, and a $0.9 million increase in noninterest expense, offset by decreases in credit loss expense of $2.9 million and income tax expense of $1.7 million. Credit loss expense for the third quarter of 2024 was $2.3 million compared to a $5.2 million expense for the third quarter of 2023, and consisted of provision for loan losses for both periods.

Previous wording

For the six months ended June 30, 2024, net income was $29.6 million, or $0.97 per diluted share, compared to $42.6 million, or $1.39 per diluted share, for the same period a year ago. The decrease in net income was primarily driven by a decrease in net interest income of $14.0 million, and a $4.6 million increase in noninterest expense, offset by decreases in credit loss expense of $0.9 million and income tax expense of $5.3 million. Credit loss expense for the six months of 2024 was $1.2 million compared to a $2.1 million for the same period a year ago. Credit loss expense for the six months of 2024 consisted of a $1.7 million provision for loan losses, offset by a $0.5 million recovery for off-balance sheet items. Credit loss expense for the first six months of 2023 included a $2.7 million provision for loan losses, offset by a $0.6 million recovery for off-balance sheet items.

Current wording

For the nine months ended September 30, 2024, net income was $44.5 million, or $1.47 per diluted share, compared to $61.4 million, or $2.01 per diluted share, for the same period a year ago. The decrease in net income was primarily driven by a decrease in net interest income of $18.8 million, a $3.3 million decrease in noninterest income, and a $5.5 million increase in noninterest expense, offset by decreases in credit loss expense of $3.7 million and income tax expense of $6.9 million. Credit loss expense for the nine months of 2024 was $3.5 million compared to a $7.2 million for the same period a year ago. Credit loss expense for the nine months of 2024 consisted of a $4.0 million provision for loan losses, offset by a $0.5 million recovery for off-balance sheet items. Credit loss expense for the first nine months of 2023 included a $7.9 million provision for loan losses, offset by a $0.7 million recovery for off-balance sheet items.

Previous wording

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.

Current wording

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin on a taxable-equivalent basis for the periods indicated. All average balances are daily average balances.

Previous wording

For the three months ended June 30, 2024 and 2023, net interest income was $48.6 million and $55.4 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended June 30, 2024, were 1.16% and 2.69%, respectively, compared to 1.79% and 3.11%, respectively, for the same period in 2023. Interest and dividend income increased $7.9 million, or 8.7%, to $98.7 million for the three months ended June 30, 2024 from $90.8 million for the same period in 2023, primarily due to higher average interest-earning asset yields, primarily related to loans, and an increase in the average balance of loans and securities. Interest expense increased $14.7 million, or 41.6%, to $50.0 million for the three months ended June 30, 2024 from $35.3 million for the same period in 2023 primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings. The increases in average interest-earning asset yields and deposit and borrowing rates were due to the rising interest rate environment.

Current wording

For the three months ended September 30, 2024 and 2023, net interest income was $50.1 million and $54.9 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the quarter ended September 30, 2024, were 1.19% and 2.74%, respectively, compared to 1.64% and 3.03%, respectively, for the same period in 2023. Interest and dividend income increased $6.3 million, or 6.7%, to $100.4 million for the three months ended September 30, 2024 from $94.1 million for the same period in 2023, primarily due to higher average interest-earning asset yields, and an increase in the average balance of loans and securities. Interest expense increased $11.1 million, or 28.4%, to $50.4 million for the three months ended September 30, 2024 from $39.2 million for the same period in 2023 primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings.

Previous wording

The average balance of interest earning assets increased $148.3 million, or 2.1%, to $7.30 billion for the six months ended June 30, 2024, from $7.15 billion for the six months ended June 30, 2023. The average balance of loans increased $170.9 million, or 2.9%, to $6.11 billion for the six months ended June 30, 2024, from $5.94 billion for the six months ended June 30, 2023. The average balance of securities decreased $1.5 million, or 0.2%, to $974.6 million for the six months ended June 30, 2024, from $976.1 million for the six months ended June 30, 2023. The average balance of interest-bearing deposits at other banks decreased $21.1 million, or 9.9%, to $191.0 million for the six months ended June 30, 2024, from $212.0 million for the six months ended June 30, 2023.

Current wording

The average balance of interest earning assets increased $93.0 million, or 1.3%, to $7.30 billion for the three months ended September 30, 2024, from $7.20 billion for the three months ended September 30, 2023. The average balance of loans increased $196.9 million, or 3.3%, to $6.11 billion for the three months ended September 30, 2024, from $5.92 billion for the three months ended September 30, 2023. The average balance of securities increased $30.6 million, or 3.2%, to $986.0 million for the three months ended September 30, 2024, from $955.5 million for the three months ended September 30, 2023. The average balance of interest-bearing deposits at other banks decreased $134.5 million, or 42.4%, to $183.0 million for the three months ended September 30, 2024, from $317.5 million for the three months ended September 30, 2023.

Previous wording

The average yield on interest-earning assets, on a taxable equivalent basis, increased 44 basis points to 5.46% for the six months ended June 30, 2024, from 5.02% for the six months ended June 30, 2023. The average yield on loans increased to 6.00% for the six months ended June 30, 2024, from 5.58% for the six months ended June 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.12% for the six months ended June 30, 2024, from 1.70% for the six months ended June 30, 2023. The average yield on interest-bearing deposits in other banks increased 56 basis points to 5.18% for the six months ended June 30, 2024, from 4.62% for the six months ended June 30, 2023. The increased yields were primarily due to increases in market interest rates.

Current wording

The average yield on interest-earning assets, on a taxable equivalent basis, increased 29 basis points to 5.48% for the three months ended September 30, 2024, from 5.19% for the three months ended September 30, 2023. The average yield on loans increased to 6.00% for the three months ended September 30, 2024, from 5.73% for the three months ended September 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.27% for the three months ended September 30, 2024, from 1.79% for the three months ended September 30, 2023.

Previous wording

The average balance of interest-bearing liabilities increased $391.8 million, or 9.1%, to $4.68 billion for the three months ended June 30, 2024 compared with $4.29 billion for the three months ended June 30, 2023. The average balances of time deposits and money market and savings accounts increased $49.5 million and $382.6 million, respectively, offset partially by decreases in interest-bearing demand deposits and borrowings of $13.6 million and $27.3 million, respectively.

Current wording

The average balance of interest-bearing liabilities increased $286.3 million, or 6.5%, to $4.67 billion for the three months ended September 30, 2024 compared with $4.38 billion for the three months ended September 30, 2023. The average balances of money market and savings accounts and borrowings increased by $284.0 million and $23.1 million, respectively, offset partially by decreases in interest-bearing demand deposits and time deposits of $11.1 million and $10.4 million, respectively.

Previous wording

The average cost of interest-bearing liabilities was 4.30% and 3.30% for the three months ended June 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 102 basis points to 4.27% for the three months ended June 30, 2024, compared with 3.25% for the three months ended June 30, 2023. The average cost of time deposits increased 108 basis points to 4.78% for the three months ended June 30, 2024 compared with 3.70% for the three months ended June 30, 2023. The average cost of money market and savings accounts increased 106 basis points to 3.77% for the three months ended June 30, 2023 compared with 2.71% for the three months ended June 30, 2023.The average cost of subordinated debentures increased 13 basis points to 5.07% for the three months ended June 30, 2024 compared with 4.94% for the three months ended June 30, 2023. The average cost of borrowings increased 117 basis points to 4.50% for the three months ended June 30, 2024 compared with 3.33% for the three months ended June 30, 2023. The increased costs were primarily due to increases in market interest rates.

Current wording

The average cost of interest-bearing liabilities was 4.29% and 3.55% for the three months ended September 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 74 basis points to 4.27% for the three months ended September 30, 2024, compared with 3.53% for the three months ended September 30, 2023. The average cost of time deposits increased 84 basis points to 4.79% for the three months ended September 30, 2024 compared with 3.95% for the three months ended September 30, 2023. The average cost of money market and savings accounts increased 68 basis points to 3.77% for the three months ended September 30, 2023 compared with 3.09% for the three months ended September 30, 2023. The average cost of borrowings increased to 4.33% for the three months ended September 30, 2024 compared with 2.48% for the three months ended September 30, 2023.

Previous wording

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.

Current wording

The following table shows the average balance of assets, liabilities and stockholders’ equity; the amount of interest income, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin on a tax-equivalent basis for the periods indicated. All average balances are daily average balances.

Previous wording

For the six months ended June 30, 2024 and 2023, net interest income was $99.3 million and $113.3 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the six months ended June 30, 2024, were 1.22% and 2.74%, respectively, compared to 1.94% and 3.20%, respectively, for the same period in 2023. Interest and dividend income increased $20.2 million, or 11.3%, to $198.3 million for the six months ended June 30, 2024 from $178.1 million for the same period in 2023, primarily due to higher average interest-earning asset yields and an increase in the average balance of loans. Interest expense increased $34.2 million, or 52.8%, to $99.0 million for the six months ended June 30, 2024 from $64.8 million for the same period in 2023, primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings. The increases in average interest-earning asset yields and deposit and borrowing rates were due to the rising interest rate environment.

Current wording

For the nine months ended September 30, 2024 and 2023, net interest income was $149.3 million and $168.1 million, respectively. The net interest spread and net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2024, were 1.21% and 2.74%, respectively, compared to 1.84% and 3.14%, respectively, for the same period in 2023. Interest and dividend income increased $26.5 million, or 9.7%, to $298.7 million for the nine months ended September 30, 2024 from $272.1 million for the same period in 2023, primarily due to higher average interest-earning asset yields and an increase in the average balance of loans. Interest expense increased $45.3 million, or 43.6%, to $149.3 million for the nine months ended September 30, 2024 from $104.0 million for the same period in 2023, primarily due to increases in deposit rates and average deposit balances and, to a lesser extent, an increase in the cost of borrowings.

Previous wording

The average yield on interest-earning assets, on a taxable equivalent basis, increased 37 basis points to 5.46% for the three months ended June 30, 2024, from 5.09% for the three months ended June 30, 2023. The average yield on loans increased to 5.99% for the three months ended June 30, 2024, from 5.64% for the three months ended June 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.17% for the three months ended June 30, 2024, from 1.73% for the three months ended June 30, 2023. The average yield on interest-bearing deposits in other banks increased 31 basis points to 5.16% for the three months ended June 30, 2024, from 4.85% for the three months ended June 30, 2023. The increased yields were primarily due to increases in market interest rates.

Current wording

The average yield on interest-earning assets, on a taxable equivalent basis, increased 39 basis points to 5.47% for the nine months ended September 30, 2024, from 5.08% for the nine months ended September 30, 2023. The average yield on loans increased to 6.00% for the nine months ended September 30, 2024, from 5.63% for the nine months ended September 30, 2023. The average yield on securities, on a taxable equivalent basis, increased to 2.17% for the nine months ended September 30, 2024, from 1.73% for the nine months ended September 30, 2023. The average yield on interest-bearing deposits in other banks increased 29 basis points to 5.16% for the nine months ended September 30, 2024, from 4.87% for the nine months ended September 30, 2023.

Previous wording

The average balance of interest-bearing liabilities increased $454.4 million, or 10.7%, to $4.69 billion for the six months ended June 30, 2024 compared with $4.24 billion for the six months ended June 30, 2023. The average balances of time deposits and money market and savings accounts increased $166.3 million and $372.0 million, respectively, offset partially by decreases in interest-bearing demand deposits and borrowings of $18.3 million and $66.2 million, respectively.

Current wording

The average balance of interest-bearing liabilities increased $397.8 million, or 9.3%, to $4.69 billion for the nine months ended September 30, 2024 compared with $4.29 billion for the nine months ended September 30, 2023. The average balances of time deposits and money market and savings accounts increased $106.9 million and $342.3 million, respectively, offset partially by decreases in interest-bearing demand deposits and borrowings of $15.8 million and $36.1 million, respectively.

Previous wording

The average cost of interest-bearing liabilities was 4.24% and 3.08% for the six months ended June 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 121 basis points to 4.21% for the six months ended June 30, 2024, compared with 3.00% for the six months ended June 30, 2023. The average cost of time deposits increased 120 basis points to 4.72% for the six months ended June 30, 2024 compared with 3.52% for the six months ended June 30, 2023. The average cost of money market and savings accounts increased 134 basis points to 3.72% for the six months ended June 30, 2023 compared with 2.38% for the six months ended June 30, 2023. The average cost of subordinated debentures increased 15 basis points to 5.06% for the six months ended June 30, 2024 compared with 4.91% for the six months ended June 30, 2023. The average cost of borrowings increased 82 basis points to 4.30% for the six months ended June 30, 2024 compared with 3.48% for the six months ended June 30, 2023. The increased costs were primarily due to increases in market interest rates.

Current wording

The average cost of interest-bearing liabilities was 4.26% and 3.24% for the nine months ended September 30, 2024 and 2023, respectively. The average cost of interest-bearing deposits increased 104 basis points to 4.23% for the nine months ended September 30, 2024, compared with 3.19% for the nine months ended September 30, 2023. The average cost of time deposits increased 107 basis points to 4.74% for the nine months ended September 30, 2024 compared with 3.67% for the nine months ended September 30, 2023. The average cost of money market and savings accounts increased 111 basis points to 3.74% for the nine months ended September 30, 2023 compared with 2.63% for the nine months ended September 30, 2023. The average cost of subordinated debentures increased to 5.06% for the nine months ended September 30, 2024 compared with 4.97% for the nine months ended September 30, 2023. The average cost of borrowings increased 104 basis points to 4.31% for the nine months ended September 30, 2024 compared with 3.27% for the nine months ended September 30, 2023.

Previous wording

For the second quarter of 2024, the Company recorded $1.0 million of credit loss expense, comprised of a $1.2 million provision for loan losses, partially offset by a $0.3 million recovery for off-balance sheet items. For the same period in 2023, the Company recorded $0.1 million of credit loss recovery, comprised of a $0.5 million provision for loan losses, offset by a $0.6 million recovery for off-balance sheet items.

Current wording

For the third quarter of 2024, the Company recorded $2.3 million of credit loss expense, comprised of a $2.3 million provision for loan losses. There was no provision recorded for off-balance sheet items. For the same period in 2023, the Company recorded $5.2 million of credit loss expense, comprised of a $5.2 million provision for loan losses. There was no provision for off-balance sheet items. The decrease in credit loss expense was primarily due to a reduction in net charge-offs during the third quarter of 2024, compared to the third quarter of 2023.

Previous wording

For the six months ended June 30, 2024, the Company recorded $1.2 million of credit loss expense, comprised of a $1.7 million provision for loan losses, partially offset by a $0.5 million recovery for off-balance sheet items. For the same period in 2023, the Company recorded $2.1 million of credit loss expense, comprised of a $2.7 million provision for loan losses, partially offset by a $0.6 million recovery for off-balance sheet items.

Current wording

For the nine months ended September 30, 2024, the Company recorded $3.5 million of credit loss expense, comprised of a $4.0 million provision for loan losses, partially offset by a $0.5 million recovery for off-balance sheet items. For the same period in 2023, the Company recorded $7.2 million of credit loss expense, comprised of a $7.9 million provision for loan losses, partially offset by a $0.7 million recovery for off-balance sheet items. The decrease in credit loss expense was primarily due to a reduction in net charge-offs during the first nine months of 2024, compared to the same period in 2023.

Previous wording

For the three months ended June 30, 2024, noninterest income was $8.1 million, an increase of $0.1 million, or 1.5%, compared to $7.9 million for the same period in 2023, due primarily to an increase in the gains on sales of SBA and mortgage loans and in bank-owned life insurance benefit income, offset partially by a decrease in all other operating income. The $0.9 million decrease in all other operating income was mainly attributed to a one-time $0.6 million increase in income related to equipment financing agreements in the second quarter in 2023. During the second quarter of 2024, the Company sold $19.5 million of residential loans and recognized a net gain of $0.4 million. In the second quarter of 2024 the Company also sold $23.5 million of SBA loans and recognized a net gain of $1.6 million. For the three months ended June 30, 2024, trade premiums on SBA loan sales increased 79 basis points, to 8.54%, from 7.75% for the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, noninterest income was $8.4 million, a decrease of $2.8 million, or 24.8%, compared to $11.2 million for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in the third quarter of 2023, compared to a $0.9 million sale-leaseback gain in the same period in 2024, offset by a $0.4 million increase in gain on sale of SBA loans in 2024. During the third quarter of 2024, the Company sold $20.9 million of residential loans and recognized a net gain of $0.3 million. In the third quarter of 2024, the Company also sold $23.0 million of SBA loans and recognized a net gain of $1.5 million. During the third quarter of 2023, the Company sold $21.0 million of SBA loans and recognized a net gain of $1.2 million. For the three months ended September 30, 2024, trade premiums on SBA loan sales increased 170 basis points, to 8.54%, from 6.84% for the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, noninterest income was $15.8 million, a decrease of $0.5 million, or 3.0%, compared to $16.3 million for the same period in 2023, due primarily to a decrease in all other operating income, offset primarily by bank-owned life insurance benefit income in the second quarter of 2024, and gain on sale of mortgage loans. The $1.6 million decrease in all other operating income was mainly attributed to a one time $0.6 million increase in income related to equipment financing agreements in the second quarter in 2023, and $0.6 million in swap fee income in the six months ended June 30, 2023. During the first six months in 2024, the Company sold $49.2 million of residential loans and recognized a net gain of $0.8 million.

Current wording

For the nine months ended September 30, 2024, noninterest income was $24.2 million, a decrease of $3.3 million, or 11.9%, compared to $27.5 million for the same period in 2023, due primarily to a $4.0 million gain on the sale-leaseback of a branch property in the third quarter of 2023, compared to a $0.9 million sale-leaseback gain for the same period in 2024, and a $1.8 million decrease in all other operating income, offset partially by $1.1 million in gain on sale of mortgage loans in the first nine months of 2024. The decrease in all other operating income was mainly attributed to a $0.9 million increase in income related to equipment financing agreements and $0.6 million in swap fee income in the nine months ended September 30, 2023.

Previous wording

For the three months ended June 30, 2024, noninterest expense was $35.3 million, an increase of $1.0 million, or 2.9%, compared with $34.3 million for the same period in 2023. The increase was mainly attributed to a $0.4 million increase in professional fees, $0.3 million in branch consolidation expense due to the consolidation of three branches; two branches in Texas and one branch in California, and a $0.3 million increase in repossessed personal property expense. The increase in professional fees was mainly attributed to increases in legal and consulting expenses. Repossessed personal property expense increased due to a loss on sale of lease assets.

Current wording

For the three months ended September 30, 2024, noninterest expense was $35.1 million, an increase of $0.8 million, or 2.4%, compared with $34.2 million for the same period in 2023. The increase was mainly attributed to a $0.5 million increase in salaries and employee benefits, and a $0.3 million increase in data processing expense. The increase in salaries and employee benefits was mainly attributed to annual merit increases. Data processing expense increased due to an increase in software license and maintenance expense.

Previous wording

For the six months ended June 30, 2024, noninterest expense was $71.7 million, an increase of $4.6 million, or 6.9%, compared with $67.1 million for the same period in 2023. Salaries and employee benefits increased $1.0 million due to higher salaries, group insurance, and share-based compensation expense, offset primarily by capitalized labor costs associated with the Company's investment in a new loan origination system. Professional fees increased $0.9 million due to higher consulting and legal expenses. All other operating expenses increased $1.2 million mainly due to a $0.5 million increase in loan related expense and a $0.4 million SBA servicing asset adjustment. Repossessed personal property expense increased due to a $0.6 million loss on sale of lease assets.

Current wording

For the nine months ended September 30, 2024, noninterest expense was $106.8 million, an increase of $5.5 million, or 5.4%, compared with $101.3 million for the same period in 2023, primarily attributable to increases in salaries and employee benefits, data processing, professional fees, and other operating expenses. Salaries and employee benefits increased $1.5 million due to higher salaries, group insurance, and share-based compensation expense, offset primarily by capitalized labor costs associated with the Company's investment in a new loan origination system. Data processing expense increased $0.9 million due to an increase in software license and maintenance expense in 2024. Professional fees decreased $0.9 million primarily due to increases in consulting fees, and legal fees related to loan matters. All other operating expenses increased $1.3 million mainly due to a $0.6 million increase in loan and deposit-related expenses and a $0.4 million SBA servicing asset adjustment. Repossessed personal property expense increased mainly due to a $0.8 million loss on sale of lease assets.

Previous wording

Income tax expense was $6.0 million and $8.5 million for the three months ended June 30, 2024 and 2023, respectively, representing an effective income tax rate of 29.3% for both periods. Income tax expense was $12.5 million and $17.8 million representing an effective income tax rate of 29.7% and 29.5% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Income tax expense was $6.2 million and $7.9 million, representing an effective income tax rate of 29.5% and 29.6% for the three months ended September 30, 2024 and 2023, respectively. Income tax expense was $18.8 million and $25.7 million, representing an effective income tax rate of 29.7% and 29.5% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Securities increased $11.9 million to $877.6 million at June 30, 2024 from $865.7 million at December 31, 2023, mainly attributed to $78.5 million in securities purchases, partially offset by $58.8 million in paydowns and maturities, and an increase in unrealized securities losses of $6.4 million during the six months ended June 30, 2024.

Current wording

Securities increased $43.2 million to $908.9 million at September 30, 2024 from $865.7 million at December 31, 2023, mainly attributed to $128.3 million in securities purchases, partially offset by $105.9 million in payments and maturities, and a decrease in unrealized securities losses of $22.7 million during the nine months ended September 30, 2024.

Previous wording

As of June 30, 2024 and December 31, 2023, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $6.11 billion. For the six months ended June 30, 2024, there was $507.9 million in new loan production, which included $24.7 million in SBA loan purchases, offset partially by $333.0 million in loan sales and payoffs, and amortization and other reductions of $181.0 million. Loan production consisted of commercial real estate loans of $147.7 million, residential mortgages of $83.3 million, commercial and industrial loans of $109.8 million, equipment financing agreements of $81.7 million and SBA loans of $85.3 million.

Current wording

As of September 30, 2024 and December 31, 2023, loans receivable (excluding loans held for sale), net of deferred loan fees and costs, discounts and allowance for credit losses, were $6.19 and $6.11 billion, respectively. For the nine months ended September 30, 2024, there was $855.6 million in new loan production, which included $38.4 million in SBA loan purchases, offset partially by $454.4 million in loan sales and payoffs, and amortization and other reductions of $325.9 million. Loan production consisted of commercial real estate loans of $258.0 million, residential mortgages of $124.1 million, commercial and industrial loans of $214.9 million, equipment financing agreements of $121.8 million and SBA loans of $136.9 million.

Previous wording

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including hybrids), as of June 30, 2024.

Current wording

The table below shows the maturity distribution of outstanding loans, before the allowance for credit losses, with floating or variable interest rates (including floating, adjustable and hybrids), as of September 30, 2024.

Previous wording

Loans 30 to 89 days past due and still accruing were $13.8 million at June 30, 2024, compared with $10.3 million at December 31, 2023, attributable to an increase of $1.4 million in past due residential loans and an increase of $2.6 million in equipment financing arrangements, offset by payoffs and other reductions.

Current wording

Loans 30 to 89 days past due and still accruing were $15.0 million at September 30, 2024, compared with $10.3 million at December 31, 2023, attributable to an increase of $5.6 million in past due residential loans, offset by payoffs and other reductions.

Previous wording

Nonaccrual loans were $19.2 million and $15.5 million as of June 30, 2024 and December 31, 2023, respectively, representing an increase of $3.7 million, or 23.7%. The increase in nonaccrual loans resulted from additions to nonperforming loans of $10.6 million, offset by payoffs, paydowns, and upgrades of $6.9 million. The additions to nonperforming loans consisted of equipment financing agreements of $2.6 million and two SBA loans for $0.7 million. As of June 30, 2024 and December 31, 2023, 1.61% and 1.25% of equipment financing agreements were on nonaccrual status, respectively. As of June 30, 2024 and December 31, 2023, all loans 90 days or more past due were classified as nonaccrual.

Current wording

Nonaccrual loans were $15.2 million and $15.5 million as of September 30, 2024 and December 31, 2023, respectively, representing a decrease of $0.3 million, or 2.1%. As of September 30, 2024 and December 31, 2023, 1.90% and 1.25% of equipment financing agreements were on nonaccrual status, respectively. At September 30, 2024 there were $242,000 loans 90 days or more past due and still accruing interest. At December 31, 2023, all loans 90 days or more past due were classified as nonaccrual.

Previous wording

The $19.2 million of nonperforming loans as of June 30, 2024 had individually evaluated allowances of $6.8 million, compared to $15.5 million of nonperforming loans with individually evaluated allowances of $3.4 million as of December 31, 2023.

Current wording

The $15.2 million of nonperforming loans as of September 30, 2024 had individually evaluated allowances of $5.2 million, compared to $15.5 million of nonperforming loans with individually evaluated allowances of $3.4 million as of December 31, 2023.

Previous wording

Nonperforming assets were $20.0 million at June 30, 2024, or 0.26% of total assets, compared to $15.6 million, or 0.21%, at December 31, 2023. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $1.2 million and $1.3 million at June 30, 2024 and December 31, 2023, respectively.

Current wording

Nonperforming assets were $16.3 million at September 30, 2024, or 0.21% of total assets, compared to $15.6 million, or 0.21%, at December 31, 2023. Additionally, not included in nonperforming assets were repossessed personal property assets associated with equipment finance agreements of $1.2 million and $1.3 million at September 30, 2024 and December 31, 2023, respectively.

Previous wording

Individually evaluated loans were $19.2 million and $15.5 million as of June 30, 2024 and December 31, 2023, respectively, representing an increase of $3.7 million, or 24.0%. Specific allowances associated with individually evaluated loans increased $3.4 million to $6.8 million as of June 30, 2024 compared with $3.4 million as of December 31, 2023, mainly attributed to a $1.9 million specific reserve allocation on a commercial and industrial loan in the health-care industry.

Current wording

Individually evaluated loans were $15.2 million and $15.4 million as of September 30, 2024 and December 31, 2023, respectively, representing a decrease of $0.2 million, or 1.3%. Specific allowances associated with individually evaluated loans increased $1.8 million to $5.2 million as of September 30, 2024 compared with $3.4 million as of December 31, 2023, mainly attributed to specific reserve allocation on newly added nonperforming equipment finance agreements.

Previous wording

No loans were modified to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023.

Current wording

No loans were modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

Previous wording

For all loans utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. For each of these loan segments, the Company applied an annualized historical PD/LGD using all available historical periods. Since reasonable and supportable forecasts of economic conditions are embedded directly into the DCF model, qualitative adjustments are considered but were minimal.

Current wording

For all loans utilizing the DCF method, the Company determined that four quarters represented a reasonable and supportable forecast period and reverted to a historical loss rate over twelve quarters on a straight-line basis. For this loan segment, the Company applied an annualized historical PD/LGD using all available historical periods. Since reasonable and supportable forecasts of economic conditions are embedded directly into the DCF model, qualitative adjustments are considered but were minimal.

Previous wording

The allowance for credit losses was $67.7 million and $69.5 million at June 30, 2024 and December 31, 2023, respectively. The allowance attributed to individually evaluated loans was $6.8 million and $3.4 million as of June 30, 2024 and December 31, 2023, respectively. The allowance attributed to collectively evaluated loans was $60.9 million and $66.1 million as of June 30, 2024 and December 31, 2023, respectively, and considered the impact of changes in macroeconomic assumptions, normalized interest rate forecasts for the subsequent four quarters, and a net reduction in specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.

Current wording

The allowance for credit losses was $69.2 million and $69.5 million at September 30, 2024 and December 31, 2023, respectively. The allowance attributed to individually evaluated loans was $5.2 million and $3.4 million as of September 30, 2024 and December 31, 2023, respectively. The allowance attributed to collectively evaluated loans was $64.0 million and $66.1 million as of September 30, 2024 and December 31, 2023, respectively, and considered the impact of changes in macroeconomic assumptions, normalized interest rate forecasts for the subsequent four quarters, and a net reduction in specific qualitative factors allocated to criticized hospitality loans impacted by the pandemic.

Previous wording

For the three months ended June 30, 2024, gross charge-offs decreased $0.4 million from the same period in 2023. Gross recoveries for the three months ended June 30, 2024 decreased $0.4 million from the same period in 2023. Gross charge-offs for the three months ended June 30, 2024 and 2023 primarily consisted of equipment financing agreements charge-offs of $2.2 million and $2.6 million, respectively.

Current wording

For the three months ended September 30, 2024, gross charge-offs decreased $5.6 million from the same period in 2023. Gross recoveries for the three months ended September 30, 2024 increased $2.4 million from the same period in 2023. Gross charge-offs for the three months ended September 30, 2024 primarily consisted of a $1.1 million charge-off on a previously identified construction loan, equipment financing agreements charge-offs of $2.5 million, and commercial and industrial charge-offs of $0.2 million. Gross charge-offs for the three months ended September 30, 2023 primarily consisted of $6.1 million of commercial and industrial loans, $2.8 million of equipment financing agreements, $0.2 million of SBA loans secured by business assets and $0.2 million of SBA loans secured by real estate. Gross recoveries for the three months ended September 30, 2024 primarily consisted of a $1.7 million recovery on a commercial loan, $0.7 million in recoveries on real estate loans, and $0.5 million in recoveries on equipment financing agreements.

Previous wording

Net loan charge-offs were $1.8 million, or 0.12% of average loans and $1.7 million, or 0.12% of average loans for the three months ended June 30, 2024 and 2023, respectively. Net loan charge-offs were $3.4 million, or 0.11% of average loans, and $3.2 million, or 0.11% of average loans, for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Net loan charge-offs were $0.9 million, or 0.06% of average loans and $8.9 million, or 0.60% of average loans for the three months ended September 30, 2024 and 2023, respectively. Net loan charge-offs were $4.3 million, or 0.09% of average loans, and $12.1 million, or 0.27% of average loans, for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Total deposits were $6.33 billion and $6.28 billion as of June 30, 2024 and December 31, 2023, respectively, representing an increase of $48.8 million, or 0.8%. The increase in deposits was primarily driven by a $100.1 million increase in money market and savings deposits and a $3.3 million increase in time deposits, partially offset by a $43.6 million decline in noninterest-bearing demand deposits. The changes in deposit composition were primarily due to the increase in deposit rates. At June 30, 2024, the loan-to-deposit ratio was 97.6% compared to 98.4% at December 31, 2023.

Current wording

Total deposits were $6.40 billion and $6.28 billion as of September 30, 2024 and December 31, 2023, respectively, representing an increase of $122.6 million, or 2.0%. The increase in deposits was primarily driven by a $164.2 million increase in money market and savings deposits and a $48.2 million increase in noninterest-bearing demand deposits, partially offset by a $81.6 million decrease in time deposits. At September 30, 2024, the loan-to-deposit ratio was 97.7% compared to 98.4% at December 31, 2023.

Previous wording

As of June 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.58 billion. The aggregate amount of uninsured time deposits was $670.0 million. Other uninsured deposits, such as demand and money market and savings deposits were $1.91 billion. In addition, $1.16 billion of total uninsured deposits were in accounts with balances of $5.0 million or more at June 30, 2024. As of December 31, 2023, the aggregate amount of uninsured deposits was $2.52 billion. The aggregate amount of uninsured time deposits was $681.0 million.

Current wording

As of September 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $2.67 billion. The aggregate amount of uninsured time deposits was $651.4 million. Other uninsured deposits, such as demand and money market and savings deposits were $2.02 billion. At September 30, 2024, $1.17 billion of total uninsured deposits were in accounts with balances of $5.0 million or more. As of December 31, 2023, the aggregate amount of uninsured deposits was $2.52 billion. The aggregate amount of uninsured time deposits was $681.0 million.

Previous wording

Other uninsured deposits, such as demand, money market and savings deposits were $1.84 billion. In addition, $1.09 billion of total uninsured deposits were in accounts with balances of $5.0 million or more at December 31, 2023.

Current wording

Other uninsured deposits, such as demand, money market and savings deposits were $1.84 billion. At December 31, 2023, $1.09 billion of total uninsured deposits were in accounts with balances of $5.0 million or more.

Previous wording

The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits as well as State of California time deposits. As of June 30, 2024 and December 31, 2023, the Bank had $292.5 million and $325.0 million of FHLB advances, and $28.2 million and $58.3 million of brokered deposits, respectively, and $120.0 million of State of California time deposits, as of June 30, 2024 and December 31, 2023.

Current wording

The Bank’s wholesale funds historically consisted of FHLB advances, brokered deposits as well as State of California time deposits. As of September 30, 2024 and December 31, 2023, the Bank had $300.0 million and $325.0 million of FHLB advances, and $13.2 million and $58.3 million of brokered deposits, respectively, and $120.0 million of State of California time deposits, as of September 30, 2024 and December 31, 2023. The decrease in brokered deposits was due to the Bank utilizing more overnight FHLB borrowings as a funding source.

Previous wording

Borrowings mostly take the form of FHLB advances. At June 30, 2024 and December 31, 2023, FHLB advances were $292.5 million and $325.0 million, respectively. FHLB open advances were $180.0 million and $212.5 million at June 30, 2024 and December 31, 2023, respectively. For the same periods, term advances were $112.5 million and $112.5 million, respectively. Funds from deposit growth not used to fund loan production were used to pay off borrowings.

Current wording

Borrowings mostly take the form of FHLB advances. At September 30, 2024 and December 31, 2023, FHLB advances were $300.0 million and $325.0 million, respectively. FHLB open advances were $200.0 million and $212.5 million at September 30, 2024 and December 31, 2023, respectively. For the same periods, term advances were $100.0 million and $112.5 million, respectively. Funds from deposit growth not used to fund loan production were used to pay off borrowings.

Previous wording

The weighted-average interest rate of all FHLB advances at June 30, 2024 and December 31, 2023 was 4.98% and 4.69%, respectively.

Current wording

The weighted-average interest rate of all FHLB advances at September 30, 2024 and December 31, 2023 was 4.81% and 4.69%, respectively.