RBB Bancorp
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
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ANALYSIS OF THE RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Financial Performance
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| (dollars in thousands, except per share data) | |||||
| Interest income | $52,886 | $54,795 | $57,002 | $107,681 | $110,753 |
| Interest expense | 28,921 | 29,918 | 25,076 | 58,839 | 44,726 |
| Net interest income | 23,965 | 24,877 | 31,926 | 48,842 | 66,027 |
| Provision for credit losses | 557 | — | 380 | 557 | 2,394 |
| Net interest income after provision for credit losses | 23,408 | 24,877 | 31,546 | 48,285 | 63,633 |
| Noninterest income | 3,488 | 3,372 | 2,493 | 6,860 | 4,855 |
| Noninterest expense | 17,124 | 16,969 | 18,517 | 34,093 | 37,428 |
| Income before income taxes | 9,772 | 11,280 | 15,522 | 21,052 | 31,060 |
| Income tax expense | 2,527 | 3,244 | 4,573 | 5,771 | 9,141 |
| Net income | $7,245 | $8,036 | $10,949 | $15,281 | $21,919 |
| Share Data | |||||
| Earnings per common share (1): | |||||
| Basic | $0.39 | $0.43 | $0.58 | $0.83 | $1.15 |
| Diluted | 0.39 | 0.43 | 0.58 | 0.82 | 1.15 |
| Performance Ratios | |||||
| Return on average assets, annualized | 0.76% | 0.81% | 1.08% | 0.79% | 1.10% |
| Return on average shareholders’ equity | 5.69% | 6.30% | 8.78% | 6.00% | 8.91% |
| Return on average tangible common equity, annualized (2) | 6.65% | 7.37% | 10.33% | 7.01% | 10.49% |
| Efficiency ratio (3) | 62.38% | 60.07% | 53.80% | 61.21% | 52.80% |
| Tangible common equity to tangible assets (2) | 11.53% | 11.56% | 10.64% | 11.53% | 10.64% |
| Tangible book value per share (2) | $24.06 | $23.68 | $22.40 | $24.06 | $22.40 |
| (1) | Basic earnings per share is calculated by dividing earnings to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options and restricted stock units using the treasury stock method. |
| (2) | Return on average tangible common equity, tangible common equity to tangible assets and tangible book value per share are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures. |
| (3) | Ratio calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income. |
Average Balance Sheet, Interest and Yield/Rate Analysis
The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2024 and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. For additional information see “Capital Resources and Liquidity Management” and Part I, Item 3.* "Quantitative and Qualitative Disclosures about Market Risk*" included in this Report.
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the periods presented. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination fees and costs accounted for as yield adjustments.
| Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | |||||||
| Average | Interest | Yield / | Average | Interest | Yield / | Average | Interest | Yield / | |
| Balance | & Fees | Rate | Balance | & Fees | Rate | Balance | & Fees | Rate | |
| (dollars in thousands) | |||||||||
| Interest-earning assets: | |||||||||
| Cash and cash equivalents | $255,973 | $3,608 | 5.67% | $364,979 | $5,306 | 5.97% | $164,023 | 2,360 | 5.77% |
| FHLB Stock | 15,000 | 327 | 8.77% | 15,000 | 331 | 8.88% | 15,000 | 259 | 6.93% |
| Securities (1) | |||||||||
| Available for sale | 318,240 | 3,608 | 4.56% | 320,015 | 3,589 | 4.51% | 348,343 | 3,547 | 4.08% |
| Held to maturity | 5,203 | 46 | 3.56% | 5,207 | 46 | 3.55% | 5,720 | 51 | 3.58% |
| Mortgage loans held for sale | 3,032 | 57 | 7.56% | 1,215 | 26 | 8.61% | 52 | 1 | 6.65% |
| Loans held for investment: | |||||||||
| Real estate | 2,828,339 | 41,590 | 5.91% | 2,837,603 | 41,765 | 5.92% | 3,064,633 | 46,304 | 6.06% |
| Commercial | 185,679 | 3,673 | 7.96% | 179,605 | 3,756 | 8.41% | 207,493 | 4,503 | 8.70% |
| Total loans held for investment | 3,014,018 | 45,263 | 6.04% | 3,017,208 | 45,521 | 6.07% | 3,272,126 | 50,807 | 6.23% |
| Total interest-earning assets | 3,611,466 | $52,909 | 5.89% | 3,723,624 | $54,819 | 5.92% | 3,805,264 | $57,025 | 6.01% |
| Noninterest-earning assets | 240,016 | 246,341 | 244,316 | ||||||
| Total assets | $3,851,482 | $3,969,965 | $4,049,580 | ||||||
| Interest-bearing liabilities: | |||||||||
| NOW | $56,081 | $276 | 1.98% | $58,946 | $298 | 2.03% | $59,789 | $202 | 1.36% |
| Money market | 431,559 | 3,877 | 3.61% | 411,751 | 3,526 | 3.44% | 432,384 | 2,519 | 2.34% |
| Saving deposits | 164,913 | 800 | 1.95% | 157,227 | 654 | 1.67% | 111,214 | 57 | 0.21% |
| Time deposits, less than $250,000 | 1,049,666 | 12,360 | 4.74% | 1,175,804 | 13,805 | 4.72% | 1,221,760 | 12,391 | 4.07% |
| Time deposits, $250,000 and over | 772,255 | 9,490 | 4.94% | 785,172 | 9,517 | 4.88% | 709,803 | 6,778 | 3.83% |
| Total interest-bearing deposits | 2,474,474 | 26,803 | 4.36% | 2,588,900 | 27,800 | 4.32% | 2,534,950 | 21,947 | 3.47% |
| FHLB advances | 150,000 | 439 | 1.18% | 150,000 | 439 | 1.18% | 160,220 | 579 | 1.45% |
| Long-term debt | 119,275 | 1,296 | 4.37% | 119,180 | 1,295 | 4.37% | 173,780 | 2,194 | 5.06% |
| Subordinated debentures | 15,011 | 383 | 10.26% | 14,957 | 384 | 10.33% | 14,793 | 356 | 9.65% |
| Total interest-bearing liabilities | 2,758,760 | 28,921 | 4.22% | 2,873,037 | 29,918 | 4.19% | 2,883,743 | 25,076 | 3.49% |
| Noninterest-bearing liabilities | |||||||||
| Noninterest-bearing deposits | 529,450 | 528,346 | 606,015 | ||||||
| Other noninterest-bearing liabilities | 51,087 | 55,795 | 59,760 | ||||||
| Total noninterest-bearing liabilities | 580,537 | 584,141 | 665,775 | ||||||
| Shareholders' equity | 512,185 | 512,787 | 500,062 | ||||||
| Total liabilities and shareholders' equity | $3,851,482 | $3,969,965 | $4,049,580 | ||||||
| Net interest income / interest rate spreads | $23,988 | 1.67% | $24,901 | 1.73% | $31,949 | 2.52% | |||
| Net interest margin | 2.67% | 2.69% | 3.37% | ||||||
| Total cost of deposits | $3,003,924 | $26,803 | 3.59% | $3,117,246 | $27,800 | 3.59% | $3,140,965 | $21,947 | 2.80% |
| Total cost of funds | $3,288,210 | $28,921 | 3.54% | $3,401,383 | $29,918 | 3.54% | $3,489,758 | $25,076 | 2.88% |
| (1) | Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis. |
| Six Months Ended June 30, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Average | Interest | Yield / | Average | Interest | Yield / | |
| Balance | & Fees | Rate | Balance | & Fees | Rate | |
| (dollars in thousands) | ||||||
| Interest-earning assets: | ||||||
| Cash and cash equivalents | $310,476 | $8,914 | 5.77% | $130,075 | $3,367 | 5.22% |
| FHLB Stock | 15,000 | 658 | 8.82% | 15,000 | 524 | 7.04% |
| Securities: (1) | ||||||
| Available for sale | 319,127 | 7,197 | 4.54% | 312,971 | 6,057 | 3.90% |
| Held to maturity | 5,205 | 94 | 3.63% | 5,724 | 103 | 3.63% |
| Mortgage loans held for sale | 2,124 | 83 | 7.86% | 70 | 2 | 6.55% |
| Loans held for investment: | ||||||
| Real estate | 2,832,971 | 83,356 | 5.92% | 3,078,572 | 91,208 | 5.97% |
| Commercial | 182,642 | 7,428 | 8.18% | 228,585 | 9,541 | 8.42% |
| Total loans held for investment | 3,015,613 | 90,784 | 6.05% | 3,307,157 | 100,749 | 6.14% |
| Total interest-earning assets | 3,667,545 | $107,730 | 5.91% | 3,770,997 | $110,802 | 5.93% |
| Total noninterest-earning assets | 243,178 | 242,148 | ||||
| Total average assets | $3,910,723 | $4,013,145 | ||||
| Interest-bearing liabilities: | ||||||
| NOW | $57,513 | $574 | 2.01% | $61,585 | $310 | 1.02% |
| Money market | 421,655 | 7,403 | 3.53% | 445,531 | 4,659 | 2.11% |
| Savings deposits | 161,070 | 1,454 | 1.82% | 115,928 | 105 | 0.18% |
| Time deposits, $250,000 and under | 1,112,735 | 26,165 | 4.73% | 1,068,081 | 19,816 | 3.74% |
| Time deposits, greater than $250,000 | 778,713 | 19,007 | 4.91% | 736,140 | 12,759 | 3.50% |
| Total interest-bearing deposits | 2,531,686 | 54,603 | 4.34% | 2,427,265 | 37,649 | 3.13% |
| FHLB advances | 150,000 | 878 | 1.18% | 194,807 | 1,988 | 2.06% |
| Long-term debt | 119,228 | 2,591 | 4.37% | 173,708 | 4,389 | 5.10% |
| Subordinated debentures | 14,984 | 767 | 10.29% | 14,766 | 700 | 9.56% |
| Total interest-bearing liabilities | 2,815,898 | 58,839 | 4.20% | 2,810,546 | 44,726 | 3.21% |
| Noninterest-bearing liabilities | ||||||
| Noninterest-bearing deposits | 528,898 | 651,928 | ||||
| Other noninterest-bearing liabilities | 53,441 | 54,469 | ||||
| Total noninterest-bearing liabilities | 582,339 | 706,397 | ||||
| Shareholders' equity | 512,486 | 496,202 | ||||
| Total liabilities and shareholders' equity | $3,910,723 | $4,013,145 | ||||
| Net interest income / interest rate spreads | $48,891 | 1.71% | $66,076 | 2.72% | ||
| Net interest margin | 2.68% | 3.53% | ||||
| Total cost of deposits | $3,060,584 | $54,603 | 3.59% | $3,079,193 | $37,649 | 2.47% |
| Total cost of funds | $3,344,796 | $58,839 | 3.54% | $3,462,474 | $44,726 | 2.60% |
| (1) | Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis. |
The following table summarizes the extent to which changes in (1) interest rates and (2) volume of average interest-earning assets and average interest-bearing liabilities affected our net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.
| Three Months Ended June 30, 2024 compared with Three Months Ended March 31, 2024 · Three Months Ended June 30, 2024 compared with Three Months Ended June 30, 2023 · Six Months Ended June 30, 2024 compared with Six Months Ended June 30, 2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Change due to: | Change due to: | Change due to: | |||||||
| Volume | Yield/Rate | Interest Variance | Volume | Yield/Rate | Interest Variance | Volume | Yield/Rate | Interest Variance | |
| Interest-earning assets: · (dollars in thousands) | |||||||||
| Cash and cash equivalents | $(1,453) | $(245) | $(1,698) | $1,529 | $(281) | $1,248 | $5,156 | $391 | $5,547 |
| FHLB Stock | — | (4) | (4) | — | 68 | 68 | — | 134 | 134 |
| Securities: (1) | |||||||||
| Available for sale | (100) | 119 | 19 | (1,324) | 1,385 | 61 | 122 | 1,018 | 1,140 |
| Held to maturity | — | — | — | (5) | — | (5) | (9) | — | (9) |
| Mortgage loans held for sale | 53 | (22) | 31 | 56 | — | 56 | 80 | 1 | 81 |
| Loans held for investment: | |||||||||
| Real estate | (115) | (60) | (175) | (3,568) | (1,146) | (4,714) | (7,106) | (746) | (7,852) |
| Commercial | 594 | (677) | (83) | (459) | (371) | (830) | (1,850) | (263) | (2,113) |
| Total loans held for investment | 479 | (737) | (258) | (4,027) | (1,517) | (5,544) | (8,956) | (1,009) | (9,965) |
| Total interest-earning assets | $(1,021) | $(889) | $(1,910) | $(3,771) | $(345) | $(4,116) | $(3,607) | $535 | $(3,072) |
| Interest-bearing liabilities | |||||||||
| NOW | $(15) | $(7) | $(22) | $(79) | $153 | $74 | $(62) | $326 | $264 |
| Money market | 173 | 178 | 351 | (33) | 1,391 | 1,358 | (731) | 3,475 | 2,744 |
| Saving deposits | 33 | 113 | 146 | 41 | 702 | 743 | 55 | 1,294 | 1,349 |
| Time deposits, less than $250,000 | (1,842) | 397 | (1,445) | (7,563) | 7,532 | (31) | 866 | 5,483 | 6,349 |
| Time deposits, $250,000 and over | (554) | 527 | (27) | 632 | 2,080 | 2,712 | 784 | 5,464 | 6,248 |
| Total interest-bearing deposits | (2,205) | 1,208 | (997) | (7,002) | 11,858 | 4,856 | 912 | 16,042 | 16,954 |
| FHLB advances | — | — | — | (31) | (109) | (140) | (389) | (721) | (1,110) |
| Long-term debt | 1 | — | 1 | (626) | (272) | (898) | (1,235) | (563) | (1,798) |
| Subordinated debentures | 7 | (8) | (1) | 5 | 22 | 27 | 11 | 56 | 67 |
| Total interest-bearing liabilities | (2,197) | 1,200 | (997) | (7,654) | 11,499 | 3,845 | (701) | 14,814 | 14,113 |
| Changes in net interest income | $1,176 | $(2,089) | $(913) | $3,883 | $(11,844) | $(7,961) | $(2,906) | $(14,279) | $(17,185) |
| (1) | Interest income and average rates for tax-exempt securities are presented on a tax-equivalent basis. |
Net Interest Income/Average Balance Sheet
Net interest income was $24.0 million for the second quarter of 2024, compared to $24.9 million for the first quarter of 2024. The $912,000 decrease in net interest income was due to a decrease in interest income of $1.9 million offset by a decrease in interest expense of $997,000. The decrease in interest income was due to lower interest income on interest-earning deposits in other financial institutions of $1.7 million and loans of $227,000. Interest and fees on loans included a reversal of interest income for loans that migrated to nonaccrual of $710,000 for the second quarter of 2024 compared to $190,000 for the first quarter of 2024 reflecting the $18.7 million increase in nonperforming loans during the second quarter. The decrease in interest expense was due to $114.4 million in lower average interest-bearing deposits for the second quarter of 2024.
Net interest margin ("NIM") was 2.67% for the second quarter of 2024, a decrease of 2 basis points from 2.69% for the first quarter of 2024. The decrease was due to a 3 basis point decrease in the yield on average interest-earning assets combined with no change in the overall cost of funds. The yield on average interest-earning assets decreased to 5.89% for the second quarter of 2024 from 5.92% for the first quarter of 2024 due mainly to a 3 basis point decrease in the yield on average loans to 6.04% for the second quarter of 2024 combined with a change in the mix of average interest-earning assets. Average loans represented 84% of average interest-earning assets in the second quarter of 2024 compared to 81% in the first quarter of 2024. During the second quarter, $22.5 million in loans migrated to nonaccrual, which reduced the second quarter's average loan yield by 9 basis points and the NIM by 8 basis points. In comparison, during the first quarter, $7.7 million in loans migrated to nonaccrual, which reduced the first quarter's average loan yield by 2 basis points and the NIM by 2 basis points. The overall cost of funds remained flat at 3.59% due to the average cost of interest-bearing deposits increasing 4 basis points to 4.36% in the second quarter of 2024, which was offset by an improvement in the overall funding mix. The ratio of average noninterest-bearing deposits to average total funding sources increased to 16.1% in the second quarter of 2024 from 15.5% in the first quarter of 2024.
Net interest income was $24.0 million for the second quarter of 2024, compared to $31.9 million for the second quarter of 2023. The $8.0 million decrease in net interest income was primarily due to higher interest expense of $3.8 million and lower interest income of $4.1 million. The decrease in interest income was due to lower interest income on loans of $5.5 million, partially offset by higher interest income on interest-earning deposits in other financial institutions of $1.2 million. The decrease in interest income was primarily due to a change in the mix of average interest-earning assets including higher average interest-earning deposits and lower average loan balances as compared to the same quarter last year. Average loans represented 84% of average interest-earning assets in the second quarter of 2024 compared to 86% in the second quarter of 2023. Interest and fees on loans included a reversal of interest income for loans that migrated to nonaccrual of $710,000 for the second quarter of 2024 compared to $567,000 for the second quarter of 2023. The increase in interest expense was due to higher average rates paid on interest-bearing deposits, and a change in the mix of total deposits.
NIM was 2.67% for the second quarter of 2024, a decrease of 70 basis points from 3.37% for the second quarter of 2023. The decrease was primarily due to a 12 basis point decrease in the yield on average interest-earning assets combined with a 66 basis point increase in the overall cost of funds. The cost of interest-bearing deposits increased 89 basis points due to increased market rates including the Federal Reserve raising the target Federal Funds Rate during 2023 and peer bank deposit competition.
The Federal Reserve increased the target Federal Funds Rate 100 basis points between January 1, 2023 and July 31, 2023, including 50 basis points in the first quarter of 2023, 25 basis points in the second quarter of 2023 and another 25 basis points in the third quarter of 2023. The weighted average effective Federal Funds Rate was 5.33% for the second quarter of 2024 compared to 4.99% for the second quarter of 2023.
Interest and fees on loans HFI for the second quarter of 2024 were $45.3 million compared to $50.8 million for the second quarter of 2023. The $5.5 million decrease was primarily due to a $258.1 million decrease in the average balance of loans HFI outstanding. The decrease in the average loan balance was primarily due to strategic loans sales and moderated loan production to improve the risk profile of the loan portfolio and strengthen overall on-balance sheet liquidity in response to market conditions during 2023. For the three months ended June 30, 2024 and 2023, the yield on loans HFI was 6.04% and 6.23%.
Interest expense on deposits increased to $26.8 million for the second quarter of 2024 as compared to $21.9 million for the second quarter of 2023. The $4.9 million increase in interest expense on deposits was primarily due to the increase in the average rates paid on interest-bearing deposits, offset by a $60.5 million decrease in average interest-bearing deposits. Average noninterest-bearing deposits decreased $76.6 million to $529.5 million in the second quarter of 2024 from $606.0 million in the second quarter of 2023. Average noninterest-bearing deposits as a percentage of total average deposits was 17.6% for the second quarter of 2024 compared to 19.3% for the second quarter of 2023.
Net interest income was $48.9 million for the six months ended June 30, 2024, compared to $66.1 million for the six months ended June 30, 2023. The $17.2 million decrease in net interest income was primarily due to higher interest expense of $14.1 million and lower interest income of $3.1 million. The increase in interest expense was due to higher average rates paid on interest-bearing deposits, and a change in the mix of total deposits. The decrease in interest income was primarily due to a change in the mix of average interest-earning assets including lower average loan balances as compared to the same period last year. Average loans represented 82% of average interest-earning assets in the first half of 2024 compared to 88% in the first half of 2023.
NIM was 2.68% for the six months ended June 30, 2024, a decrease of 85 basis points from 3.53% for the six months ended June 30, 2023. The decrease was primarily due to a 121 basis point increase in the cost of interest-bearing deposits, partially offset by an increase in the yield on interest-earning deposits in other financial institutions, and investment securities. The cost of interest-bearing deposits increased due to increased market rates including the Federal Reserve raising the target Federal Funds Rate 100 basis points between January 1, 2023 and July 31, 2023, and peer bank deposit competition. The weighted average Federal Funds Rate was 5.33% for the first half of 2024 compared to 4.75% for the first half of 2023.
Interest and fees on loans HFI for the six months ended June 30, 2024 were $90.8 million compared to $100.7 million for the six months ended June 30, 2023. The $10.0 million decrease was primarily due to a $291.5 million decrease in the average balance of total loans outstanding primarily, due to strategic loans sales and moderated loan production to improve the risk profile of the loan portfolio and strengthen overall on-balance sheet liquidity in response to market conditions during 2023. Interest and fees on loans included a reversal of interest income for loans that migrated to nonaccrual of $900,000 for the first six months of 2024 compared to $607,000 for the first six months of 2023. For the six months ended June 30, 2024 and 2023, the yield on loans HFI was 6.05% and 6.14%.
Interest expense on deposits increased to $54.6 million for the six months ended June 30, 2024 as compared to $37.6 million for the six months ended June 30, 2023. The $17.0 million increase in interest expense on deposits was primarily due to the increase in market rates and average rates paid on interest-bearing deposits and a $104.4 million increase in average interest-bearing deposit balances. Average interest-bearing deposits increased, in part, to help offset a decrease in noninterest-bearing deposits as we worked to lower concentration risk in our deposit portfolio coupled with the impact of customers preferring higher yielding deposit products in response to higher market interest rates. Average noninterest-bearing deposits decreased $123.0 million to $528.9 million in the first six months of 2024 from $651.9 million in the first six months of 2023. Average noninterest-bearing deposits as a percentage of total average deposits was 17.3% for the first half of 2024 compared to 21.2% for the first half of 2023.
Provision for Credit Losses
We recorded a $557,000 provision for credit losses for the second quarter of 2024 compared to no provision for credit losses for the first quarter of 2024. The second quarter provision took into consideration factors including changes in the loan portfolio mix, ongoing uncertainty in the economy related to inflation and the outlook for market interest rates, and credit quality metrics, including higher nonperforming loans at the end of the second quarter of 2024 compared to the end of the first quarter of 2024.
We recorded a provision for credit losses of $557,000 for the second quarter of 2024 compared to a $380,000 provision for the second quarter of 2023. There were $551,000 in net loan charge-offs in the second quarter of 2024, as compared to $580,000 in net loan charge-offs in the second quarter of 2023. The higher provision for the second quarter of 2024 was reflective of factors including changes in the loan portfolio mix, ongoing uncertainty in the economy related to inflation and the outlook for market interest rates and credit quality metrics, including the level of classified and nonperforming loans at June 30, 2024.
We recorded a provision for credit losses of $557,000 for the six months ended June 30, 2024 compared to a $2.4 million provision for the six months ended June 30, 2023. There were $735,000 in net loan charge-offs for the six months ended June 30, 2024, as compared to $737,000 in net loan charge-offs for the six months ended June 30, 2023. The provision for the first six months of 2024 was lower than the first six months of 2023 due to a decline in the average balance of the loan portfolio since June 2023 and the Company recording a provision in the first quarter of 2023 related to classified loans and nonperforming loans at that date.
Noninterest Income
The following table sets forth the major components of our noninterest income for the periods presented:
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| Noninterest income: · (dollars in thousands) | |||||
| Service charges and fees | $1,064 | $992 | $1,120 | $2,056 | $2,143 |
| Loan servicing income, net of amortization | 579 | 589 | 606 | 1,168 | 1,337 |
| Increase in cash surrender of bank owned life insurance | 385 | 382 | 344 | 767 | 679 |
| Gain on sale of loans | 451 | 312 | 18 | 763 | 47 |
| Gain on OREO | 292 | 724 | — | 1,016 | — |
| Other income | 717 | 373 | 405 | 1,090 | 649 |
| Total noninterest income | $3,488 | $3,372 | $2,493 | $6,860 | $4,855 |
Noninterest income for the second quarter of 2024 was $3.5 million, an increase of $116,000 from $3.4 million in the first quarter of 2024. This increase was due to higher income from equity investments (included in other income) of $359,000 and higher gain on sale of loans of $139,000, partially offset by lower gain on OREO of $432,000. Income from equity investments is recorded based on the most recent information available from the investee and fluctuates based on their underlying performance. OREO totaling $1.1 million was sold during the second quarter of 2024 for a gain of $292,000. This compared to a $560,000 gain on transfer of loans to OREO and gain on the sale of OREO of $164,000 in the first quarter of 2024. There was no OREO outstanding at June 30, 2024.
Noninterest income increased $995,000 to $3.5 million for the second quarter of 2024, compared to $2.5 million for the same quarter in the prior year. The increase was primarily attributable to higher gain on sale of loans of $433,000, higher income from equity investments (included in other income) of $359,000, and higher gain on OREO of $292,000, offset by lower service charges and fees of $56,000 and lower loan servicing income, net of amortization of $27,000.
Noninterest income increased $2.0 million to $6.9 million for the six months ended June 30, 2024, compared to $4.9 million for the same period in the prior year. The increase was due to higher gain on OREO of $1.0 million, higher gain on sale of loans of $716,000 and higher income from equity investments (included in other income) of $359,000, partially offset by lower loan servicing income, net of amortization of $169,000. The decrease in loan servicing income was due to a decrease in average loans being serviced including higher pre-payments on such loans.
The following table presents information on loans servicing income for the periods presented:
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| Loan servicing income, net of amortization: · (dollars in thousands) | |||||
| Single-family residential loans | $412 | $443 | $514 | $854 | $1,080 |
| SBA loans | 167 | 146 | 92 | 314 | 257 |
| Total | $579 | $589 | $606 | $1,168 | $1,337 |
During the three and six months ended June 30, 2024 and 2023, we serviced SFR mortgage loans for other financial institutions, Federal Home Loan Mortgage Corporation ("FHLMC"), and Federal National Mortgage Association ("FNMA").
The following table presents loans serviced for others as of the dates indicated:
| As of · June 30, 2024 Compared to | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | March 31, 2024 | June 30, 2023 | |
| Loans serviced: · (dollars in thousands) | |||||
| Single-family residential loans serviced | $967,005 | $990,930 | $1,063,541 | $(23,925) | $(96,536) |
| SBA loans serviced | 100,958 | 100,713 | 104,885 | 245 | (3,927) |
| Commercial real estate loans serviced | 3,786 | 3,798 | 3,952 | (12) | (166) |
| Construction loans serviced | 5,521 | 5,096 | 4,110 | 425 | 1,411 |
| Total | $1,077,270 | $1,100,537 | $1,176,488 | $(23,267) | $(99,218) |
The following table presents information on loans sold and gain on sale of loans for the periods presented:
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| Loans sold: · (dollars in thousands) | |||||
| SBA | $4,251 | $3,407 | $— | $7,659 | $127 |
| Single-family residential mortgage (1) | 13,950 | 5,288 | 1,410 | 19,238 | 2,246 |
| $18,201 | $8,695 | $1,410 | $26,897 | $2,373 | |
| Gain on sale of loans: | |||||
| SBA | $266 | $220 | $— | $486 | $10 |
| Single-family residential mortgage | 185 | 92 | 18 | 277 | 37 |
| $451 | $312 | $18 | $763 | $47 | |
| (1) | SFR mortgage loans sold with servicing rights retained were $7.0 million, $3.6 million, and $1.4 million for the three months ended June 30, 2024, March 31, 2024 and June 30, 2023. SFR mortgage loans sold with servicing rights retained were $10.5 million and $2.2 million for the six months ended June 30, 2024 and June 30, 2023. |
Noninterest Expense
The following table sets forth major components of our noninterest expense for the periods presented:
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, 2024 | March 31, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |
| Noninterest expense: · (dollars in thousands) | |||||
| Salaries and employee benefits | $9,533 | $9,927 | $9,327 | $19,460 | $19,191 |
| Occupancy and equipment expenses | 2,439 | 2,443 | 2,430 | 4,882 | 4,828 |
| Data processing | 1,466 | 1,420 | 1,356 | 2,886 | 2,655 |
| Legal and professional | 1,260 | 880 | 2,872 | 2,140 | 5,885 |
| Office expenses | 352 | 356 | 350 | 708 | 725 |
| Marketing and business promotion | 189 | 172 | 252 | 361 | 552 |
| Insurance and regulatory assessments | 981 | 982 | 809 | 1,963 | 1,313 |
| Core deposit premium | 201 | 201 | 235 | 402 | 472 |
| Other expenses | 703 | 588 | 886 | 1,291 | 1,807 |
| Total noninterest expense | $17,124 | $16,969 | $18,517 | $34,093 | $37,428 |
Noninterest expense for the second quarter of 2024 was $17.1 million, an increase of $155,000 from $17.0 million for the first quarter of 2024. This increase was primarily due to higher legal and professional expenses and other expenses, partially offset by a decrease in salaries and employee benefits expense due to the timing of taxes and benefits. The increase in legal and professional expenses was primarily due to higher legal expenses for credit matters in the second quarter and the first quarter of 2024 including an insurance reimbursement of $165,000. There was no similar insurance reimbursement in the second quarter of 2024.
Noninterest expense for the second quarter of 2024 was $17.1 million, a decrease of $1.4 million from $18.5 million for the second quarter of 2023. The decrease was mostly due to lower legal and professional expenses of $1.6 million offset by higher insurance and regulatory assessments of $172,000. The decrease in legal and professional expenses was due to a previously disclosed internal investigation that has been subsequently resolved and lower external auditor fees. Insurance and regulatory assessments increased primarily due to a $125,000 increase in our FDIC assessment due in part to the consent order issued in October 2023.
*Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 *
Noninterest expense for the six months ended June 30, 2024 was $34.1 million, a decrease of $3.3 million from $37.4 million for the six months ended June 30, 2023. The $3.7 million decrease in legal and professional expenses was partially offset by a $650,000 increase in insurance and regulatory assessments. The decrease in legal and professional expenses was primarily due to a previously disclosed internal investigation that has been subsequently resolved and lower external auditor fees. There were no similar investigation expenses in the first six months of 2024. Insurance and regulatory assessments increased primarily due to a $560,000 increase in our FDIC assessment due in part to the consent order issued in October 2023.
Income Tax Expense
We recorded an income tax provision of $2.5 million and $3.2 million, reflecting an effective tax rate of 25.9% and 28.8%, for the three months ended June 30, 2024 and March 31, 2024. The decrease in the effective tax rate in the second quarter of 2024 was due in part to utilizing a higher level of tax credits.
We recorded an income tax provision of $2.5 million and $4.6 million, reflecting an effective tax rate of 25.9% and 29.5%, for the three months ended June 30, 2024 and 2023. The decrease in the effective tax rate in the second quarter of 2024 was due in part to utilizing a higher level of tax credits.
We recorded an income tax provision of $5.8 million and $9.1 million, reflecting an effective tax rate of 27.4% and 29.4%, for the six months ended June 30, 2024 and 2023. The decrease in the effective tax rate for the first six months of 2024 was due in part to utilizing a higher level of tax credits.
The higher level of tax credits was due to a combination of two factors. First, our low- income housing tax credits represented a higher portion of our pre-tax net income. Second, we recognized additional new tax credits which reflect our intent to purchase qualifying federal tax credits under the Inflation Reduction Act of 2023.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.