RBB Bancorp

Previous wording

In this Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), the term “Bancorp” refers to RBB Bancorp and the term “Bank” refers to Royal Business Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively. This Report contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be

Current wording

In this Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), the term “Bancorp” refers to RBB Bancorp (“RBB”) and the term “Bank” refers to Royal Business Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively. This Report contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be

Previous wording

A sensitivity analysis of our ACL was performed as of June 30, 2024. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $943,000, or 2%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.2 million, or 3%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $717,000, or 2%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $678,000, or 2%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

Current wording

A sensitivity analysis of our ACL was performed as of September 30, 2024. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $1.4 million, or 3.18%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.7 million, or 3.59%, increase to the ACL. Additionally, a one percentage point increase in the unemployment rate would result in a $1.1 million, or 2.32%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.46%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considers the results when evaluating the qualitative factor adjustments.

Previous wording

On a quarterly basis, we stress test the qualitative factors, which are lending policy, procedures and strategies, economic conditions, changes in nature and volume of the portfolio, credit and lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan types were set at “Moderate Risk” while in the Major Stress scenario, the status of all nine risk factors across all pooled loan types were set at “Major Risk.” Under the Moderate Stress scenario, the ACL would increase by $3.5 million, or 8%, as of June 30, 2024. Under the Major Stress scenario, the ACL would increase by $18.9 million, or 45%, as of June 30, 2024.

Current wording

On a quarterly basis, we stress test the qualitative factors, which are lending policy, procedures and strategies, economic conditions, changes in nature and volume of the portfolio, credit and lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan types were set at “High-Moderate Risk” while in the Major Stress scenario, the status of all nine risk factors across all pooled loan types were set at “Major Risk.” Under the Moderate Stress scenario, the ACL would increase by $9.3 million, or 21.38%, as of September 30, 2024. Under the Major Stress scenario, the ACL would increase by $24.4 million, or 56.10%, as of September 30, 2024. Management compares the stress test results to our internal forecasts for earnings and capital and has concluded that the Company would remain well capitalized under these stressed scenarios.

Previous wording

RBB is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned subsidiaries, the Bank and RBB Asset Management Company (“RAM”). RAM was formed to hold and manage problem assets acquired in business combinations. When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis. At June 30, 2024, we had total assets of $3.9 billion, gross loans held for investment ("HFI") of $3.0 billion, total deposits of $3.0 billion and total shareholders' equity of $511.3 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

Current wording

RBB Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned subsidiaries, the Bank and RBB Asset Management Company (“RAM”). RAM was formed to hold and manage problem assets acquired in business combinations. When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis. At September 30, 2024, we had total assets of $4.0 billion, gross loans held for investment ("HFI") of $3.1 billion, total deposits of $3.1 billion and total shareholders' equity of $509.7 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

Previous wording

The Bank provides business-banking products and services predominantly to the Asian-American communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii). The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, mobile banking and treasury management services.

Current wording

The Bank provides business-banking products and services predominantly to Asian-centric communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii). The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, mobile banking and treasury management services.

Previous wording

We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A minority depository institution is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs. We intend to maintain our minority depository institution designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The minority depository institution designation has been historically beneficial to us, and we continue to use the program for technical assistance.

Current wording

We operate as a minority depository institution ("MDI"), which is defined by the FDIC as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A MDI is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs. We intend to maintain our MDI designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance.

Previous wording

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited financial statements included in our 2023 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

Current wording

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited financial statements included in our 2023 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

Previous wording

We reported net income of $7.2 million, or $0.39 diluted earnings per share, for the quarter ended June 30, 2024, compared to net income of $8.0 million, or $0.43 diluted earnings per share, for the quarter ended March 31, 2024 and $11.0 million, or $0.58 diluted earnings per share for the quarter ended June 30, 2023.

Current wording

We reported net income of $7.0 million, or $ 0.39 diluted earnings per share, for the quarter ended September 30, 2024, compared to net income of $7.2 million, or $0.39 diluted earnings per share, for the quarter ended June 30, 2024 and $8.5 million, or $0.45 diluted earnings per share for the quarter ended September 30, 2023.

Previous wording

At June 30, 2024, total assets were $3.9 billion, a decrease of $157.8 million, or 3.9%, from total assets of $4.0 billion at December 31, 2023, primarily due to a $178.6 million decrease in cash and cash equivalents, partially offset by a $17.1 million increase in gross loans, including loans held for sale (“HFS”) and a $6.6 million increase in available for sale ("AFS") investment securities. The decrease in cash and cash equivalents was primarily due to a decrease of $284.9 million in wholesale deposits, partially replaced by retail deposits. Wholesale deposits include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.

Current wording

At September 30, 2024, total assets were $4.0 billion, a decrease of $35.5 million from December 31, 2023, primarily due to an $82.0 million decrease in cash and cash equivalents and a $13.3 million decrease in available for sale ("AFS") investment securities, partially offset by a $60.0 million increase in gross loans HFI. The decrease in cash and cash equivalents was primarily due to a decrease in wholesale deposits, offset by an increase in retail deposits and FHLB advances. Wholesale deposits include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.

Previous wording

At June 30, 2024, AFS investment securities totaled $325.6 million, inclusive of a pre-tax net unrealized loss of $30.2 million, compared to $319.0 million, inclusive of a pre-tax unrealized loss of $28.1 million at December 31, 2023. The pre-tax unrealized loss was due to a decline in the value of AFS investment securities due to continued higher market interest rates in 2024.

Current wording

At September 30, 2024, AFS investment securities totaled $305.7 million, inclusive of a pre-tax net unrealized loss of $23.2 million, compared to $319.0 million, inclusive of a pre-tax unrealized loss of $28.1 million at December 31, 2023. The pre-tax unrealized loss was due to a decline in the value of AFS investment securities due to continued higher market interest rates in 2024.

Previous wording

Total loans HFI, net of deferred fees and discounts, increased $15.9 million, or 0.5%, to $3.0 billion at June 30, 2024 from December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $22.4 million, and construction and land development ("C&D") loans of $21.0 million, partially offset by decreases in single-family residential ("SFR") mortgages of $20.0 million, commercial and industrial (“C&I”) loans of $3.4 million, Small Business Administration (“SBA”) loans of $1.8 million and other loans of $2.3 million. In addition, mortgage loans HFS increased $1.2 million to $3.1 million at June 30, 2024. The loan to deposit ratio was 99.4% at June 30, 2024, compared to 94.2% at December 31, 2023, and 99.3% at June 30, 2023.

Current wording

Total loans HFI, net of deferred fees and discounts, increased $60.0 million, or 2.0%, to $3.1 billion at September 30, 2024 from December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $84.8 million, partially offset by decreases in single-family residential ("SFR") mortgages of $14.4 million, Small Business Administration (“SBA”) loans of $4.0 million, construction and land development ("C&D") loans of $1.3 million, commercial and industrial (“C&I”) loans of $1.2 million, and other loans of $3.9 million. The loan to deposit ratio was 98.6% at September 30, 2024, compared to 94.2% at December 31, 2023, and 97.6% at September 30, 2023.

Previous wording

Total deposits were $3.0 billion as of June 30, 2024, a $151.2 million, or 4.8%, decrease compared to $3.2 billion as of December 31, 2023. This decrease was due to a decrease in interest-bearing deposits. Noninterest-bearing deposits increased $3.4 million to $543.0 million at June 30, 2024, or 18.0% of total deposits, compared to $539.6 million, or 17.0% of total deposits at December 31, 2023. The decrease in interest-bearing deposits included a decrease in time deposits of $169.5 million, offset by an increase in non-maturity deposits of $15.0 million. The decrease in time deposits included a $284.9 million decrease in wholesale deposits, partially replaced by an increase of $115.4 million in retail deposits. Wholesale deposits totaled $120.7 million at June 30, 2024 and $405.6 million at December 31, 2023.

Current wording

Total deposits were $3.1 billion as of September 30, 2024, an $82.6 million, or 2.6%, decrease compared to $3.2 billion as of December 31, 2023. This decrease was due to lower interest-bearing deposits. Noninterest-bearing deposits increased $4.0 million to $543.6 million at September 30, 2024, or 17.6% of total deposits, compared to $539.6 million, or 17.0% of total deposits at December 31, 2023. The decrease in interest-bearing deposits included a decrease in time deposits of $119.9 million, offset by an increase in non-maturity deposits of $33.4 million. The $119.9 million decrease in time deposits included a $258.3 million decrease in wholesale deposits, partially replaced by an increase of $138.4 million in retail deposits. Wholesale deposits totaled $147.3 million at September 30, 2024 and $405.6 million at December 31, 2023.

Previous wording

As of June 30, 2024, the ACL totaled $42.4 million and was comprised of an allowance for loan losses (“ALL”) of $41.7 million and a reserve for unfunded commitments (“RUC”) of $ 624,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.4 million comprised of an ALL of $41.7 million and a RUC of $671,000 at March 31, 2024. The ACL for the second quarter of 2024 included a $557,000 provision for credit losses, net charge-offs of $551,000. Although nonperforming loans increased, additional specific reserves were not required based on sufficient collateral for individually reviewed, collateral dependent loans. Charge-offs in the second quarter of 2024 were mostly related to a CRE non-owner occupied loan, which migrated to nonaccrual status and was written-down to its estimated fair value. The ALL as a percentage of loans HFI was 1.37% at June 30, 2024, compared to 1.38% at March 31, 2024. The ALL as a percentage of nonperforming loans was 76% at June 30, 2024, a decrease from 116% at March 31, 2024 due to the $18.7 million increase in nonperforming loans during the second quarter of 2024.

Current wording

As of September 30, 2024, the ACL totaled $44.5 million and was comprised of an allowance for loan losses (“ALL”) of $43.7 million and a reserve for unfunded commitments (“RUC”) of $779,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.4 million comprised of an ALL of $41.7 million and a RUC of $624,000 at June 30, 2024. The $2.1 million increase in the ACL for the third quarter of 2024 was due to a $3.3 million provision for credit losses, including higher specific reserves of $2.5 million, offset by net charge-offs of $1.2 million. The increase in specific reserves and charge-offs in the third quarter of 2024 was primarily due to a decrease in the estimated fair value of collateral-dependent loans, including estimated selling costs. Charge-offs in the third quarter of 2024 were related to one C&D loan and one CRE loan, which were written-down to their estimated fair value. The ALL as a percentage of loans HFI was 1.41% at September 30, 2024, compared to 1.37% at June 30, 2024. The ALL as a percentage of nonperforming loans was 72% at September 30, 2024, a decrease from 76% at June 30, 2024. The decrease in the ALL as a percentage of nonperforming loans was due in part to an increase in individually evaluated loans, which required no ALL.

Previous wording

At June 30, 2024, total shareholders' equity was $511.3 million, a $2.7 million decrease compared to March 31, 2024, and an $11.0 million increase compared to June 30, 2023. The decrease in shareholders' equity for the second quarter of 2024 was due to dividends paid of $3.0 million and common stock share repurchases totaling $8.1 million, offset by net earnings of $7.2 million, stock option exercises and other equity award activity of $1.1 million and lower net unrealized loss on AFS securities of $67,000. Book value per share increased to $28.12 from $27.67 and tangible book value per share increased to $24.06 from $23.68. For additional information, see “Non-GAAP Financial Measures.”

Current wording

At September 30, 2024, total shareholders' equity was $509.7 million, a $1.6 million decrease compared to June 30, 2024, and a $7.2 million increase compared to September 30, 2023. The decrease in shareholders' equity for the third quarter of 2024 was due to accretive common stock repurchases of $11.0 million and common stock cash dividends paid of $2.9 million, offset by net income of $7.0 million, lower net unrealized loss on available-for-sale securities of $4.8 million and equity compensation activity of $527,000. Book value per share and tangible book value per share increased to $28.81 and $24.64 at September 30, 2024, up from $28.12 and $24.06 at June 30, 2024. For additional information, see “Non-GAAP Financial Measures.”

Previous wording

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.

Current wording

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans, cash 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.

Previous wording

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.

Current wording

NIM was 2.68% for the third quarter of 2024, a decrease of 19 basis points from 2.87% for the third quarter of 2023. The decrease was primarily due to a 39 basis point increase in the overall cost of funds, partially offset by a 16 basis point increase in the yield on interest earnings assets to 5.94% for the third quarter of 2024 from 5.78% for the third quarter of 2023. The increase in the yield on interest earning assets was due mainly to a 14 basis point increase in the yield on loans HFI to 6.13% for the third quarter of 2024 compared to 5.99% for the third quarter of 2023. The cost of interest-bearing deposits increased 56 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 Funds Rate averaged 5.26% during the third quarter of 2024, unchanged from the same period in 2023.

Previous wording

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%.

Current wording

Interest and fees on loans HFI for the third quarter of 2024 were $47.3 million compared to $47.6 million for the third quarter of 2023. The $301,000 decrease was primarily due to an $87.0 million decrease in the average outstanding balance of loans HFI. 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 September 30, 2024 and 2023, the yield on loans HFI was 6.13% and 5.99%.

Previous wording

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.

Current wording

The increase in interest expense was due to higher average interest-bearing deposits, higher average rates paid on such deposits and the impact of a lower percentage of noninterest-bearing deposits, offset by lower average long-term debt. In the fourth quarter of 2023, we redeemed $55 million of subordinated debt, which lowered interest expense by $2.7 million. Interest expense on deposits increased $19.7 million to $82.3 million for the nine months ended September 30, 2024 from $62.6 million for the nine months ended September 30, 2023. The increase in interest expense on deposits was primarily due to a 98 basis point increase in the cost of interest-bearing deposits due to increases in market rates and peer competition combined with a $46.5 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 customers looked to higher yielding deposit products in response to higher market interest rates. Average noninterest-bearing deposits decreased $96.2 million to $528.6 million for the first nine months of 2024 from $624.8 million for the first nine months of 2023. Average noninterest-bearing deposits as a percentage of total average deposits was 17.3% for the first nine months of 2024 compared to 20.1% for the first nine months of 2023.

Previous wording

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.

Current wording

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 83% of average interest-earning assets in the first nine months of 2024 compared to 86% in the first nine months of 2023. Interest and fees on loans HFI for the nine months ended September 30, 2024 was $138.1 million compared to $148.4 million for the nine months ended September 30, 2023. The $10.3 million decrease was primarily due to a $222.7 million decrease in the average outstanding loan balances due to strategic loans sales and moderated loan production described above combined with a relatively unchanged yield on loans HFI year over year.

Previous wording

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.

Current wording

NIM was 2.68% for the nine months ended September 30, 2024, a decrease of 63 basis points from 3.31% for the nine months ended September 30, 2023. The decrease was primarily due to a 75 basis point increase in the total cost of funds, partially offset by a 4 basis point increase in the yield on interest-earning assets. The cost of interest-bearing deposits increased 98 basis points 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 5.31% for the first nine months of 2024 compared to 4.92% for the first nine months of 2023.

Previous wording

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.

Current wording

Noninterest income increased $3.0 million to $5.7 million for the third quarter of 2024 from $2.8 million for the same quarter in the prior year. This increase was mostly due to the $2.8 million recovery of a fully charged off loan as previously described, and higher gain on sale of loans of $235,000, partially offset by lower net gain on OREO of $190,000.

Previous wording

The following table presents information on loans servicing income for the periods presented:

Current wording

The following table presents information on loan servicing income for the periods indicated:

Previous wording

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").

Current wording

During the three and nine months ended September 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").

Previous wording

The following table presents information on loans sold and gain on sale of loans for the periods presented:

Current wording

The following table presents information on loans sold and gain on sale of loans for the periods indicated:

Previous wording

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.

Current wording

Noninterest expense for the nine months ended September 30, 2024 was $51.5 million, a decrease of $2.8 million compared to $54.3 million for the nine months ended September 30, 2023. This decrease was due to lower legal and professional expenses of $3.8 million due to a previously disclosed internal investigation that has been subsequently resolved and lower external auditor fees, partially offset by higher insurance and regulatory assessments of $578,000 mostly due to a higher FDIC assessment associated with the consent order issued in October 2023 and subsequently terminated in August 2024. These decreases were partially offset by higher salaries and employee benefits expense of $533,000 due in part to higher loan production.

Previous wording

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.

Current wording

We recorded an income tax provision of $2.6 million and $3.6 million, reflecting an effective tax rate of 26.9% and 29.9%, for the three months ended September 30, 2024 and 2023. The decrease in the effective tax rate in the third quarter of 2024 was due in part to utilizing a higher level of tax credits.

Previous wording

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.

Current wording

We recorded an income tax provision of $8.3 million and $12.8 million, reflecting an effective tax rate of 27.2% and 29.6%, for the nine months ended September 30, 2024 and 2023. The decrease in the effective tax rate for the first nine months of 2024 was due in part to utilizing a higher level of tax credits.

Previous wording

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.

Current wording

The higher level of tax credits was due to LIHTCs representing a higher portion of our pre-tax net income and the addition of new tax credits related mostly to commitments to purchase Federal transferable tax credits made available under the Inflation Reduction Act of 2023.

Previous wording

At June 30, 2024, total assets were $3.9 billion, a decrease of $157.8 million, from total assets of $4.0 billion at December 31, 2023, primarily due to a $178.6 million decrease in cash and cash equivalents, partially offset by a $15.9 million increase in loans HFI, and a $6.6 million increase in AFS investment securities. The decrease in cash and cash equivalents was primarily due to a decrease of $284.9 million in wholesale deposits, partially offset by an increase in retail deposits.

Current wording

At September 30, 2024, total assets were $4.0 billion, a decrease of $35.5 million, from total assets of $4.0 billion at December 31, 2023, primarily due to an $82.0 million decrease in cash and cash equivalents and a $13.3 million decrease in AFS investment securities, partially offset by a $60.0 million increase in gross loans HFI. The decrease in cash and cash equivalents was primarily due to a decrease of $258.3 million in wholesale deposits, offset by an increase in retail deposits and FHLB advances.

Previous wording

The weighted-average life on the total investment portfolio at June 30, 2024 was 4.9 years. This compares to a weighted-average life of 5.1 years at December 31, 2023. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Current wording

The weighted-average life on the total investment portfolio at September 30, 2024 was 5.3 years compared to a weighted-average life of 5.1 years at December 31, 2023. The increase in the weighted average life is due to a decrease in commercial paper, which generally has a 3 month term. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Previous wording

The table below shows our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2024 and December 31, 2023. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 4 —* *Investment Securities" of our audited consolidated financial statements included in our 2023 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Current wording

The table below shows our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be impaired under the current expected credit loss model. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 4 —* *Investment Securities" of our audited consolidated financial statements included in our 2023 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Previous wording

The loan portfolio is the largest category of our interest-earning assets. Total loans HFI increased $15.9 million, or 0.5%, to $3.05 billion at June 30, 2024 as compared to $3.03 billion at December 31, 2023. The increase was primarily due to an increase in CRE loans of $22.4 million, and C&D loans of $21.0 million, partially offset by decreases in SFR mortgages of $20.0 million, C&I loans of $3.4 million, SBA loans of $1.8 million and other loans of $2.3 million. SFR mortgage loans represent approximately 48% of our total loans as of June 30, 2024 and 49% at December 31, 2023.

Current wording

The loan portfolio is the largest category of our interest-earning assets. Total loans HFI increased $60.0 million, or 2.0%, to $3.09 billion at September 30, 2024 as compared to $3.03 billion at December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $84.8 million, partially offset by decreases in SFR mortgages of $14.4 million, SBA loans of $4.0 million, C&D loans of $1.3 million, C&I loans of $1.2 million, and other loans of $3.9 million. In addition, mortgage loans held for sale ("HFS") decreased $1.1 million to $812,000 at September 30, 2024. SFR mortgage loans HFI represent approximately 48% of our total loans as of September 30, 2024 and 49% at December 31, 2023.

Previous wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 81.2% of our loan portfolio. Loans secured by collateral in other states represented approximately 18.8% of our portfolio and the majority of these loans are secured by CRE with a weighted average loan-to-value (“LTV”) of 53.4% at June 30, 2024.

Current wording

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 81.4% of our loan portfolio. Loans secured by collateral in other states represented approximately 18.6% of our portfolio and the majority of these loans are secured by CRE with a weighted average loan-to-value (“LTV”) of 56.9% at September 30, 2024.

Previous wording

C&D loans increased $21.0 million, or 11.6%, to $202.5 million at June 30, 2024 as compared to $181.5 million at December 31, 2023, as originations exceeded loan repayments.

Current wording

C&D loans decreased $1.3 million, or 0.7%, to $180.2 million at September 30, 2024 as compared to $181.5 million at December 31, 2023.

Previous wording

*Commercial real estate loans.*CRE loans include owner-occupied and non-owner occupied CRE, multi-family residential and SFR mortgage loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. The multi-family residential loan portfolio was $586.0 million as of June 30, 2024 and $573.4 million as of December 31, 2023. The SFR mortgage loan portfolio originated for a business purpose totaled $43.4 million as of June 30, 2024 and $48.7 million as of December 31, 2023.

Current wording

*Commercial real estate loans.*CRE loans include owner-occupied and non-owner occupied CRE, multi-family residential and SFR mortgage loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. The multi-family residential loan portfolio was $619.3 million as of September 30, 2024 and $573.4 million as of December 31, 2023. The SFR mortgage loan portfolio originated for a business purpose totaled $54.1 million as of September 30, 2024 and $48.7 million as of December 31, 2023.

Previous wording

CRE loans increased $22.4 million, or 1.9%, to $1.19 billion at June 30, 2024, compared to $1.17 billion at December 31, 2023.

Current wording

CRE loans increased $84.8 million, or 7.3%, to $1.25 billion at September 30, 2024, compared to $1.17 billion at December 31, 2023.

Previous wording

SFR Loans. As of June 30, 2024, we had $1.5 billion of SFR mortgage loans, representing 48.2% of our loans HFI portfolio. SFR mortgage loans decreased $20.0 million, or 1.3%, during the first half of 2024 due to higher payoffs and paydowns relative to originations. As of June 30, 2024, the weighted-average LTV of the portfolio was 60.0%, the weighted average FICO score was 763, and the average duration was 2.8 years. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian-American market. The SFR loans HFI are generally originated through our retail branch network to our customers. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgage loans and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment.

Current wording

SFR Loans. As of September 30, 2024, we had $1.5 billion of SFR mortgage loans, representing 47.7% of our loans HFI portfolio. SFR mortgage loans decreased $14.4 million, or 1.0%, during the first nine months of 2024 due to higher payoffs and paydowns relative to originations. As of September 30, 2024, the weighted-average LTV of the portfolio was 55.8%, the weighted average FICO score was 763, and the average duration was 2.9 years. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The SFR loans HFI are generally originated through our retail branch network to our customers. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgage loans and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment.

Previous wording

There were $3.1 million loans HFS as of June 30, 2024 compared to $1.9 million loans HFS as of December 31, 2023. The loans sold to other banks are sold with no representations or warranties and have a replacement feature for the first 90-days if the loan pays off early. For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days. As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

Current wording

There were $812,000 loans HFS as of September 30, 2024 compared to $1.9 million loans HFS as of December 31, 2023. The loans sold to other banks are sold with no representations or warranties and have a replacement feature for the first 90-days if the loan pays off early. For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days. As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

Previous wording

C&I loans decreased $3.4 million, or 2.6%, to $126.6 million as of June 30, 2024 compared to $130.1 million at December 31, 2023 primarily due to decreases in mortgage warehouse lines and a decrease in usages of the credit lines due to increases in market rates of interest. The interest rate on these loans are generally Wall Street Journal Prime rate based.

Current wording

C&I loans decreased $1.2 million, or 0.9%, to $128.9 million as of September 30, 2024 compared to $130.1 million at December 31, 2023 primarily due to decreases in mortgage warehouse lines and a decrease in usages of the credit lines due to increases in market rates of interest. The interest rate on these loans are generally Wall Street Journal Prime rate based.

Previous wording

SBA loans decreased $1.8 million, or 3.4%, to $50.3 million at June 30, 2024 compared to $52.1 million at December 31, 2023. We originated SBA loans of $14.7 million during the first six months of 2024. Offsetting these loan originations were loan sales of $7.7 million and net loan payoffs and paydowns of $8.8 million during the first six months of 2024.

Current wording

SBA loans decreased $4.0 million, or 7.7%, to $48.1 million at September 30, 2024 compared to $52.1 million at December 31, 2023. We originated SBA loans of $21.9 million during the first nine months of 2024. Offsetting these loan originations were loan sales of $9.8 million and net loan payoffs and paydowns of $16.1 million during the first nine months of 2024.