CATHAY GENERAL BANCORP

Previous wording

Net income for the quarter ended March 31, 2024, was $71.4 million, a decrease of $24.6 million, or 25.6%, compared to net income of $96.0 million for the same quarter a year ago. Diluted earnings per share for the quarter ended March 31, 2024, was $0.98 per share compared to $1.32 per share for the same quarter a year ago.

Current wording

Net income for the quarter ended June 30, 2024, was $66.8 million, a decrease of $26.4 million, or 28.3%, compared to net income of $93.2 million for the same quarter a year ago. Diluted earnings per share for the quarter ended June 30, 2024, was $0.92 per share compared to $1.28 per share for the same quarter a year ago.

Previous wording

Return on average stockholders’ equity was 10.40% and return on average assets was 1.23% for the quarter ended March 31, 2024, compared to a return on average stockholders’ equity of 15.39% and a return on average assets of 1.76% for the same quarter a year ago.

Current wording

Return on average stockholders’ equity was 9.63% and return on average assets was 1.15% for the quarter ended June 30, 2024, compared to a return on average stockholders’ equity of 14.47% and a return on average assets of 1.67% for the same quarter a year ago.

Previous wording

Net interest income before provision for credit losses decreased $23.8 million, or 12.4%, to $168.6 million during the first quarter of 2024, compared to $192.4 million during the same quarter a year ago. The decrease was due primarily to an increase in interest expense from deposits, offset by an increase in interest income from loans and securities.

Current wording

Net interest income before provision for credit losses decreased $16.2 million, or 8.9%, to $165.3 million during the second quarter of 2024, compared to $181.5 million during the same quarter a year ago. The decrease was due primarily to an increase in interest expense from deposits, offset by an increase in interest income from loans and securities.

Previous wording

The net interest margin was 3.05% for the first quarter of 2024 compared to 3.74% for the first quarter of 2023.

Current wording

The net interest margin was 3.01% for the second quarter of 2024 compared to 3.44% for the second quarter of 2023.

Previous wording

For the first quarter of 2024, the yield on average interest-earning assets was 6.01%, the cost of funds on average interest-bearing liabilities was 3.87%, and the average cost of interest-bearing deposits was 3.78%. In comparison, for the first quarter of 2023, the yield on average interest-earning assets was 5.54%, the cost of funds on average interest-bearing liabilities was 2.46%, and the average cost of interest-bearing deposits was 2.40%. The increase in the yield on average interest-bearing liabilities and on average interest-earning assets resulted mainly from higher interest rates. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 2.14% for the quarter ended March 31, 2024 compared to 3.08% for the same quarter a year ago.

Current wording

For the second quarter of 2024, the yield on average interest-earning assets was 6.05%, the cost of funds on average interest-bearing liabilities was 3.97%, and the average cost of interest-bearing deposits was 3.94%. In comparison, for the second quarter of 2023, the yield on average interest-earning assets was 5.68%, the cost of funds on average interest-bearing liabilities was 2.99%, and the average cost of interest-bearing deposits was 2.91%. The increase in the yield on average interest-bearing liabilities and on average interest-earning assets resulted mainly from higher interest rates. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 2.08% for the quarter ended June 30, 2024, compared to 2.69% for the same quarter a year ago.

Previous wording

The Company recorded a provision for credit losses of $1.9 million in the first quarter of 2024 compared with $8.1 million in the first quarter of 2023. As of March 31, 2024, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $0.7 million to $164.4 million, or 0.85% of gross loans, compared to $163.7 million, or 0.84% of gross loans, as of December 31, 2023. The change in the allowance for credit losses during the first quarter of 2024 consisted of a $1.9 million provision for credit losses, and $1.1 million in net charge-offs.

Current wording

The Company recorded a provision for credit losses of $6.6 million in the second quarter of 2024 compared with $9.2 million in the second quarter of 2023. As of June 30, 2024, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, decreased $0.7 million to $163.0 million, or 0.84% of gross loans, compared to $163.7 million, or 0.84% of gross loans, as of December 31, 2023. The change in the allowance for credit losses during the second quarter of 2024 consisted of a $6.6 million provision for credit losses, and $8.0 million in net charge-offs.

Previous wording

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $6.6 million for the first quarter of 2024, a decrease of $7.6 million, or 53.5%, compared to $14.2 million for the first quarter of 2023. The decrease was primarily due to an increase of $13.9 million in unrealized loss on equity securities offset, in part, by an increase of $4.1 million in securities gains and $1.7 million in Wealth Management fees, when compared to the same quarter a year ago.

Current wording

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $13.2 million for the second quarter of 2024, a decrease of $9.9 million, or 42.9%, compared to $23.1 million for the second quarter of 2023. The decrease was primarily due to an increase of $12.1 million in unrealized loss on equity securities offset, in part, by an increase of $2.0 million in Wealth Management fees, when compared to the same quarter a year ago.

Previous wording

Non-interest expense increased $10.0 million, or 12.0%, to $93.2 million in the first quarter of 2024 compared to $83.2 million in the same quarter a year ago. The increase in non-interest expense in the first quarter of 2024 was primarily due to an increase of $5.3 million in salaries and employee benefits, an increase of $2.9 million in FDIC and State Assessments, and an increase of $1.1 million in marketing expense offset, in part, by a decrease of $1.2 million in amortization expense of investments in low-income housing and alternative energy partnerships when compared to the same quarter a year ago. The efficiency ratio was 53.22% in the first quarter of 2024 compared to 40.25% for the same quarter a year ago.

Current wording

Non-interest expense increased $6.6 million, or 7.1%, to $99.4 million in the second quarter of 2024 compared to $92.8 million in the same quarter a year ago. The increase in non-interest expense in the second quarter of 2024 was primarily due to an increase of $3.4 million in salaries and employee benefits, an increase of $1.7 million in amortization expense of investments in low-income housing and alternative energy partnerships, and an increase of $1.4 million in OREO expenses offset, in part, by a decrease of $943 thousand in marketing expense when compared to the same quarter a year ago. The efficiency ratio was 55.65% in the second quarter of 2024 compared to 45.36% for the same quarter a year ago.

Previous wording

The effective tax rate for the first quarter of 2024 was 10.8% compared to 16.8% for the first quarter of 2023. The effective tax rate includes the impact of alternative energy investments and low-income housing tax credits.

Current wording

The effective tax rate for the second quarter of 2024 was 7.9% compared to 9.2% for the second quarter of 2023. The effective tax rate includes the impact of alternative energy investments and low-income housing tax credits.

Previous wording

Total assets were $23.40 billion as of March 31, 2024, an increase of $0.32 billion, or 1.4%, from $23.08 billion as of December 31, 2023.

Current wording

Total assets were $23.24 billion as of June 30, 2024, an increase of $153.7 million, or 0.7%, from $23.08 billion as of December 31, 2023.

Previous wording

Securities available-for-sale having a carrying value of $30.6 million as of March 31, 2024, and $134.2 million as of December 31, 2023, were pledged to secure public deposits and other borrowings.

Current wording

Securities available-for-sale having a carrying value of $18.9 million as of June 30, 2024, and $134.2 million as of December 31, 2023, were pledged to secure public deposits and other borrowings.

Previous wording

Gross loans held for investment were $19.43 billion at March 31, 2024, a decrease of $119.4 million, or 0.6%, from $19.55 billion at December 31, 2023. The decrease was primarily due to an increase of $92.2 million, or 0.9% in commercial real estate loans, and an increase of $2.4 million, or 0.04% in residential mortgage loans and equity lines, offset, in part, by a decrease of $172.5 million, or 5.2%, in commercial loans, and a decrease of $39.9 million, or 9.4% in real estate construction loans.

Current wording

Gross loans held for investment were $19.36 billion at June 30, 2024, a decrease of $190.6 million, or 1.0%, from $19.55 billion at December 31, 2023. The decrease was primarily due to an increase of $156.4 million, or 1.6% in commercial real estate loans, offset, in part, by a decrease of $214.3 million, or 6.5%, in commercial loans, a decrease of $65.7 million, or 15.5% in real estate construction loans, and a decrease of $56.5 million, or 1.0% in residential mortgage loans.

Previous wording

The ratio of non-performing assets to total assets was 0.53% as of March 31, 2024, compared to 0.40% as of December 31, 2023. Total non-performing assets increased $31.8 million, or 34.1% to $125.1 million at March 31, 2024, compared to $93.3 million at December 31, 2023, primarily due to an increase of $31.4 million, or 47.1%, in non-accrual loans and an increase of $0.4 million, or 5.6%, in accruing loans past due 90 days or more.

Current wording

The ratio of non-performing assets to total assets was 0.56% as of June 30, 2024, compared to 0.40% as of December 31, 2023. Total non-performing assets increased $35.7 million, or 38.3% to $129.0 million at June 30, 2024, compared to $93.3 million at December 31, 2023, primarily due to an increase of $40.6 million, or 60.9%, in non-accrual loans offset, in part, by a decrease of $3.7 million, or 51.9% in accruing loans past due 90 days or more, and a decrease of $1.2 million in other real estate owned.

Previous wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets were 0.64% as of March 31, 2024, compared to 0.48% as of December 31, 2023. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, decreased to 155.56% as of March 31, 2024, from 221.58% as of December 31, 2023.

Current wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets were 0.67% as of June 30, 2024, compared to 0.48% as of December 31, 2023. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, decreased to 147.21% as of June 30, 2024, from 221.58% as of December 31, 2023.

Previous wording

The following table sets forth the changes in non-performing assets and accruing modifications to borrowers experiencing financial difficulties as of March 31, 2024, compared to December 31, 2023, and to March 31, 2023:

Current wording

The following table sets forth the changes in non-performing assets as of June 30, 2024, compared to December 31, 2023, and to June 30, 2023:

Previous wording

As of March 31, 2024, total non-accrual loans were $98.1 million, an increase of $31.4 million, or 47.1%, from $66.7 million at December 31, 2023, and an increase of $24.5 million, or 33.3%, from $73.6 million at March 31, 2023. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly.

Current wording

As of June 30, 2024, total non-accrual loans were $107.3 million, an increase of $40.6 million, or 60.9%, from $66.7 million at December 31, 2023, and an increase of $38.3 million, or 55.5%, from $69.0 million at June 30, 2023. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly.

Previous wording

For non-accrual loans, the amounts previously charged-off represent 4.4% of the contractual balances for non-accrual loans as of March 31, 2024, and 15.8% as of December 31, 2023. As of March 31, 2024, $83.5 million, or 85.1%, of the $98.1 million of non-accrual loans were secured by real estate compared to $52.3 million, or 78.4%, of the $66.7 million of non-accrual loans that were secured by real estate as of December 31, 2023. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

Current wording

For non-accrual loans, the amounts previously charged-off represent 11.6% of the contractual balances for non-accrual loans as of June 30, 2024, and 15.8% as of December 31, 2023. As of June 30, 2024, $103.2 million, or 96.2%, of the $107.3 million of non-accrual loans were secured by real estate compared to $52.3 million, or 78.4%, of the $66.7 million of non-accrual loans that were secured by real estate as of December 31, 2023. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

Previous wording

The allowance for loan losses to non-performing loans was 146.3% as of March 31, 2024, compared to 209.3% as of December 31, 2023. The decrease was due primarily to an increase in non-accrual loans. Non-accrual loans also include those modified loans to borrowers experiencing financial difficulty that do not qualify for accrual status.

Current wording

The allowance for loan losses to non-performing loans was 138.6% as of June 30, 2024, compared to 209.3% as of December 31, 2023. The decrease was due primarily to an increase in non-accrual loans. Non-accrual loans also include those modified loans to borrowers experiencing financial difficulty that do not qualify for accrual status.

Previous wording

As of March 31, 2024, construction loans of $190.7 million were disbursed with pre-established interest reserves of $36.6 million, compared to $220.6 million with pre-established interest reserves of $41.3 million at December 31, 2023. The balance for construction loans with interest reserves that have been extended was $8.3 million with pre-established interest reserves of $0.4 million at March 31, 2024, compared to $6.4 million with pre-established interest reserves of $0.5 million at December 31, 2023. Land loans of $16.1 million were disbursed with pre-established interest reserves of $0.4 million at March 31, 2024, compared to $12.9 million of land loans disbursed with pre-established interest reserves of $0.4 million at December 31, 2023. There were no land loans with interest reserves which have been extended as of March 31, 2024, and December 31, 2023.

Current wording

As of June 30, 2024, construction loans of $194.5 million were disbursed with pre-established interest reserves of $33.9 million, compared to $220.6 million with pre-established interest reserves of $41.3 million at December 31, 2023. The balance for construction loans with interest reserves that have been extended was $5.1 million with pre-established interest reserves of $0.2 million at June 30, 2024, compared to $6.4 million with pre-established interest reserves of $0.5 million at December 31, 2023. Land loans of $13.3 million were disbursed with pre-established interest reserves of $45 thousand at June 30, 2024, compared to $12.9 million of land loans disbursed with pre-established interest reserves of $0.4 million at December 31, 2023. There were no land loans with interest reserves which have been extended as of June 30, 2024, and December 31, 2023.

Previous wording

Most of the Company’s business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company has no specific industry concentration, and generally our loans are collateralized with real property or other pledged collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the collateral. There were no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of March 31, 2024, or as of December 31, 2023.

Current wording

Most of the Company’s business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company has no specific industry concentration, and generally our loans are collateralized with real property or other pledged collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the collateral.

Previous wording

The federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate (“CRE”) loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution’s total risk-based capital, and (2) both total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. The Bank’s loans for construction, land development, and other land represented 17% and 19% of the Bank’s total risk-based capital as of March 31, 2024, and December 31, 2023, respectively. Total CRE loans represented 287% of total risk-based capital as of March 31, 2024, and 292% as of December 31, 2023, which were within the Bank’s internal limit of 400%, of total capital.

Current wording

The federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate (“CRE”) loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution’s total risk-based capital, and (2) both total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. The Bank’s loans for construction, land development, and other land represented 16% and 19% of the Bank’s total risk-based capital as of June 30, 2024, and December 31, 2023, respectively. Total CRE loans represented 288% of total risk-based capital as of June 30, 2024, and 292% as of December 31, 2023, which were within the Bank’s internal limit of 400%, of total capital.

Previous wording

The Company’s total CREC loan portfolio is diversified by property type with an average CREC loan size of $1.8 million as of both March 31, 2024, and December 31, 2023. The following table summarizes the Company’s total CREC loans by property type as of March 31, 2024, and December31, 2023:

Current wording

The Company’s total CREC loan portfolio is diversified by property type with an average CREC loan size of $1.8 million as of both June 30, 2024, and December 31, 2023. The following table summarizes the Company’s total CREC loans by property type as of June 30, 2024, and December 31, 2023:

Previous wording

There were 48% of total CREC loans concentrated in California as of both March 31, 2024, and December 31, 2023. Changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses.

Current wording

There were 49% of total CREC loans concentrated in California as of both June 30, 2024, and December 31, 2023. Changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses.

Previous wording

The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $7.08 billion as of March 31, 2024, compared with $7.06 billion as of December 31, 2023, and accounted for 36% of total loans held-for-investment, not including loans held for sale, as of both March 31, 2024, and December 31, 2023. Interest rates on CRE loans may be fixed or variable. As of March 31, 2024, 24% and 40% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2023, 25% and 40% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Current wording

The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $7.11 billion as of June 30, 2024, compared with $7.06 billion as of December 31, 2023, and accounted for 37% of total loans held-for-investment, not including loans held for sale, as of both June 30, 2024, and December 31, 2023. Interest rates on CRE loans may be fixed or variable. As of June 30, 2024, 24% and 39% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2023, 25% and 40% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Previous wording

The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $2.67 billion as of March 31, 2024, compared with $2.60 billion as of December 31, 2023, and accounted for 14% and 13% of total loans held-for investment, not including loans held for sale, as of March 31, 2024, and December 31, 2023, respectively. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans. As of March 31, 2024, 19% and 40% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2023, 20% and 40% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively.

Current wording

The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $2.68 billion as of June 30, 2024, compared with $2.60 billion as of December 31, 2023, and accounted for 14% and 13% of total loans held-for investment, not including loans held for sale, as of June 30, 2024, and December 31, 2023, respectively. The Company offers a variety of first lien mortgages, including fixed- and variable-rate loans. As of June 30, 2024, 18% and 40% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2023, 20% and 40% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively.

Previous wording

Construction and land loans provide financing for diversified projects by real estate property type. Construction and land loans totaled $450.1 million as of March 31, 2024, compared with $494.5 million as of December 31, 2023, and accounted for 2% and 3% of total loans held-for-investment, not including loans held for sale, as of March 31, 2024, and December 31, 2023, respectively. Construction loan exposure was made up of $382.8 million in loans outstanding, plus $231.2 million in unfunded commitments as of March 31, 2024, compared with $422.6 million in loans outstanding, plus $280.5 million in unfunded commitments as of December 31, 2023. Land loans totaled $67.3 million as of March 31, 2024, compared with $71.8 million as of December 31, 2023.

Current wording

Construction and land loans provide financing for diversified projects by real estate property type. Construction and land loans totaled $446.0 million as of June 30, 2024, compared with $494.5 million as of December 31, 2023, and accounted for 2% and 3% of total loans held-for-investment, not including loans held for sale, as of June 30, 2024, and December 31, 2023, respectively. Construction loan exposure was made up of $357.0 million in loans outstanding, plus $197.5 million in unfunded commitments as of June 30, 2024, compared with $422.6 million in loans outstanding, plus $280.5 million in unfunded commitments as of December 31, 2023. Land loans totaled $89.0 million as of June 30, 2024, compared with $71.8 million as of December 31, 2023.

Previous wording

The allowance for loan losses was $154.6 million and the allowance for off-balance sheet unfunded credit commitments was $9.8 million at March 31, 2024, which represented the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $164.4 million at March 31, 2024, compared to $163.6 million at December 31, 2023. The allowance for credit losses represented 0.85% of period-end gross loans and 155.56% of non-performing loans at March 31, 2024. The comparable ratios were 0.84% of period-end gross loans and 221.58% of non-performing loans at December 31, 2023.

Current wording

The allowance for loan losses was $153.4 million and the allowance for off-balance sheet unfunded credit commitments was $9.6 million at June 30, 2024, which represented the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $163.0 million at June 30, 2024, compared to $163.6 million at December 31, 2023. The allowance for credit losses represented 0.84% of period-end gross loans and 147.21% of non-performing loans at June 30, 2024. The comparable ratios were 0.84% of period-end gross loans and 221.58% of non-performing loans at December 31, 2023.

Previous wording

In calculating our allowance for credit losses in the first quarter of 2024, the change in Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes, did not result in a significant impact to the increase in the allowance for credit losses. The increase in the allowance for credit losses was primarily due to the worsening average risk rating of the overall loan portfolio during the quarter. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

Current wording

In calculating our allowance for credit losses in the second quarter of 2024, the change in Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes did not result in a significant impact to the allowance for credit losses. The decrease in the allowance for credit losses was primarily due to the decrease in total loans and the charge-off of a previously reserved for loan. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

Previous wording

Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from 2007 to the fourth quarter of 2022. Loss given default rates are computed based on the net charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

Current wording

Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of the six loan portfolios from the fourth quarter of 2007 through the fourth quarter of 2022. Loss given default rates are computed based on the net charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

Previous wording

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the March 31, 2024, allowance for credit losses consisted of three scenarios as provided by an outside forecaster. Because the December 2022 baseline scenario did not forecast a recession in the forecast period, we increased the weighting of the downside scenario to reflect our expectations that a recession in the forecast period was more likely than not. During the third quarter of 2023, in light of the continued strength of the economy, we reduced the weighting of the most severe scenario slightly. The baseline scenario reflects modest ongoing GDP growth and a modest increase in the unemployment rate peaking at 4.1% in the first quarter of 2025. Relative to the baseline scenario, the upside scenario reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in slightly higher inflation, though the Federal Reserve is projected to cut the Fed funds rate starting in the third quarter of 2024. The downside scenario contemplates a recession as concerns about inflation keep the Fed funds rate elevated before the weakening economy prompts the Fed to lower the fed funds rate below the baseline starting in the third quarter of 2024, resulting in negative GDP growth for three quarters peaking at 3.6% in the third quarter of 2024, rising unemployment that peaks at 7.7% in the second quarter of 2025, a decline in CRE prices of 18.3% and a decline in residential home prices of 14.9% during the forecast period. As of March 31, 2024, we placed the same weight on our downside and base scenario, with a small weighting on the upside scenario.

Current wording

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the June 30, 2024, allowance for credit losses consisted of three scenarios as provided by an outside forecaster. Because the December 2022 baseline scenario did not forecast a recession in the forecast period, we increased the weighting of the downside scenario to reflect our expectations that a recession in the forecast period was more likely than not. During the third quarter of 2023, in light of the continued strength of the economy, we reduced the weighting of the most severe scenario slightly. The baseline scenario reflects modest ongoing GDP growth and a modest increase in the unemployment rate peaking at 4.08% in the first quarter of 2025. Relative to the baseline scenario, the upside scenario reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in slightly higher inflation, though the Federal Reserve is projected to cut the Fed funds rate starting in the third quarter of 2024. The downside scenario contemplates a recession as concerns about inflation keep the Fed funds rate elevated before the weakening economy prompts the Fed to lower the fed funds rate below the baseline starting in the third quarter of 2024, resulting in negative GDP growth for three quarters peaking at 3.7% in the fourth quarter of 2024, rising unemployment that peaks at 7.95% in the third quarter of 2025, a decline in CRE prices of 16.6% and a decline in residential home prices of 12.9% during the forecast period. As of June 30, 2024, we placed the same weight on our downside and base scenario, with a small weighting on the upside scenario.

Previous wording

Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of March 31, 2024, would have been approximately $50.0 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

Current wording

Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of June 30, 2024, would have been approximately $52.9 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

Previous wording

The allowance allocated to commercial loans decreased $2.5 million, or 4.6%, to $51.3 million at March 31, 2024, from $53.8 million at December 31, 2023. The decrease was mainly due to net charge-offs of $1.1 million.

Current wording

The allowance allocated to commercial loans decreased $5.2 million, or 9.7%, to $48.6 million at June 30, 2024, from $53.8 million at December 31, 2023. The decrease was mainly due to net charge-offs of $9.3 million.

Previous wording

The allowance allocated to construction loans increased $0.3 million, or 3.7% to $8.5 million at March 31, 2024, from $8.2 million at December 31, 2023. The increase is due primarily to an increase in nonaccrual real estate construction loans.

Current wording

The allowance allocated to construction loans increased $0.7 million, or 8.5% to $8.9 million at June 30, 2024, from $8.2 million at December 31, 2023. The increase is due primarily to an increase in nonaccrual real estate construction loans.

Previous wording

The allowance allocated to commercial real estate loans increased $2.6 million, or 3.5%, to $77.0 million at March 31, 2024, from $74.4 million at December 31, 2023. The increase is due primarily to an increase in commercial real estate loans.

Current wording

The allowance allocated to commercial real estate loans increased $4.1 million, or 5.5%, to $78.5 million at June 30, 2024, from $74.4 million at December 31, 2023. The increase is due primarily to an increase in commercial real estate loans.

Previous wording

The allowance allocated for residential mortgage loans and equity lines decreased $0.4 million, or 2.2% to $17.7 million at March 31, 2024, compared to $18.1 million at December 31, 2023.

Current wording

The allowance allocated for residential mortgage loans and equity lines decreased $0.7 million, or 3.9% to $17.4 million at June 30, 2024, compared to $18.1 million at December 31, 2023. The decrease is due primarily to a decrease in residential mortgage loans.

Previous wording

Total deposits were $19.85 billion as of March 31, 2024, an increase of $520.8 billion, or 10.8% from $19.33 billion as of December 31, 2023.

Current wording

Total deposits were $19.77 billion as of June 30, 2024, an increase of $447.6 million, or 2.3% from $19.33 billion as of December 31, 2023.

Previous wording

The Company calculates its uninsured deposits based on the methodologies and assumptions used for regulatory reporting. Total uninsured deposits were $8.82 billion as of March 31, 2024, increased approximately $0.11 billion, from $8.71 billion as of December 31, 2023. Excluding $0.73 billion in collateralized deposits, the uninsured and uncollateralized deposits of $8.09 billion was 40.8% of total deposits as of March 31, 2024. Our unused borrowing capacity from the Federal Home Loan Bank as of March 31, 2024, was $7.21 billion and unpledged securities at March 31, 2024, was $1.62 billion. These sources of available liquidity, including cash and short term investments, were more than 100% of uninsured and uncollateralized deposits as of March 31, 2024.

Current wording

The Company calculates its uninsured deposits based on the methodologies and assumptions used for regulatory reporting. Total uninsured deposits were $9.00 billion as of June 30, 2024, increased approximately $286.4 million, from $8.71 billion as of December 31, 2023. Excluding $779.2 million in collateralized deposits, the uninsured and uncollateralized deposits of $8.22 billion was 41.6% of total deposits as of June 30, 2024. Our unused borrowing capacity from the Federal Home Loan Bank as of June 30, 2024, was $7.30 billion and unpledged securities at June 30, 2024, was $1.63 billion. These sources of available liquidity, including cash and short-term investments, were more than 100% of uninsured and uncollateralized deposits as of June 30, 2024.

Previous wording

Total equity was $2.78 billion as of March 31, 2024, an increase of $41.5 million, from $2.74 billion as of December 31, 2023, primarily due to net income of $71.4 million, stock-based compensation of $0.9 million, proceeds from dividend reinvestment of $0.7 million and purchase of treasury stock of $8 thousand, offset by, common stock cash dividends of $24.7 million, other comprehensive loss of $6.9 million, and shares withheld related to net share settlement of RSUs of $24 thousand.

Current wording

Total equity was $2.79 billion as of June 30, 2024, an increase of $56.7 million, from $2.74 billion as of December 31, 2023, primarily due to net income of $138.3 million, stock-based compensation of $2.2 million, and proceeds from dividend reinvestment of $1.5 million, and stock issued to directors of $850 thousand, offset by, common stock cash dividends of $49.5 million, purchase of treasury stock of $25.3 million, other comprehensive loss of $7.6 million, and shares withheld related to net share settlement of RSUs of $3.7 million.

Previous wording

The following table summarizes changes in total equity for the three months ended March 31, 2024:

Current wording

The following table summarizes changes in total equity for the six months ended June 30, 2024:

Previous wording

The Company declared a cash dividend of $0.34 per share on 72,669,738 shares outstanding on February 28, 2024, for distribution to holders of our common stock on March 11, 2024. The Company paid total cash dividends of $24.7 million in the first quarter of 2024.

Current wording

The Company declared a cash dividend of $0.34 per share on 72,838,734 shares outstanding on May 30, 2024, for distribution to holders of our common stock on June 10, 2024. The Company paid total cash dividends of $24.8 million in the second quarter of 2024.