Q2 2020 RBB Bancorp Earnings Call
Based on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If your question has been answered and you wished removed yourself from the Q press the pound key.
Please note that today's event is being recorded I would now like to turn the conference over to Larry Clark from Financial Profiles, Inc. Please go ahead Mr. Clark.
Thank you Laurie.
Good day, everyone and thank you for joining us to discuss our BB Bancorp's financial results for the second quarter of 2020.
With me today for management, or chairman and President and CEO Alan to yen.
He VP and Chief Financial Officer, David Morris.
VP and Chief Credit Officer, Jeff for years.
And he VP and Chief risk Officer, Vincent New.
Management will provide a brief summary of the results and then we'll open the call to your questions.
During the course of this conference call statements made by management May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Such forward looking statements are based upon specific assumptions that may or may not prove correct.
Forward looking statements are also subject to known and unknown risk and uncertainties and other factors relating to RV bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control the company.
For detailed discussion of these risks and uncertainties. Please refer to wired documents. The company has filed with the FCC.
If any of these uncertainties materialize or any of these assumptions prove incorrect arby's results could differ materially from its expectations are set forth. In these statements. The company assumes no obligation to update such forward looking statements unless required by law.
This time I'd like to turn the call over to Alan Kid Ellen.
Thank you Larry.
Good day, everyone and thank you for trying to get us today.
I will stop I'd, probably be a brief overview I'll financial performance and then they did well discuss I'll be self it must be too.
That's a corporate banking crisis continues to impact our country and the quality I'll, probably think remains the health.
And when you say customer.
I'm, sorry, <unk> and her team flawlessly lucky picks to support our local businesses as a company that is so given this difficult times.
Despite the attorney just cost side that has done that you see LIBOR, who performance in a number of evidence there was the second quarter.
Including going pass car loans and deposits.
Our net interest margin.
Actually we will present quality.
Operating expenses in line with expectation.
Well all financial performance was impacted by lower loan sales.
<unk> increased cohesion all loan losses.
We managed to maintain RVP assay and 32 cents per share.
We are using a potential future new school.
Our long life remains strong as you can feel too right. So I want people to cost.
While increasing I'll call non interest bearing deposits.
Yeah, that's about to we've seen higher loan sales by default Pago actually adjust to off production levels as a matter cookies and well known Chelsea pool.
We continue to work with all of our customer.
Well I certified this crisis, probably been guided supports it could be lumpy, let me be needed.
Well the Ed.
Okay. That's entertainment media on football my with 11, even loans.
Across the entire places you know loan portfolio.
Represented 15.8% help the puzzle.
Correct.
Oh I look at 92, neither of these havent before us to our commercial customers.
Okay and IP needn't.
While this too I see good time to be breakeven luggage bullish.
I'm pleased to report that I saw you lap and funded.
Hello, and 85 years, all this off 45% off these loans have which you might get painless.
Yes, fair, but a good looks like these and all orcas at 45% our loan.
The lock stock and easily deeper until may and 85% of the loans that we see.
Before I see April have we feel they can pay lynch.
To date.
He has been missing requests plus second row deferrals and at this time, we anticipate that that's that 25% all our loan balances.
As stated in the first of all of the program.
Let me thank you should I system.
We can be said he speaks to both the high quality off I'm I'm portfolio at the strength of our local markets.
However, it is difficult to predict the housekeeping impact that this patent pending we'll have to pause on customer give maybe call. It makes uncertainties. The original government stimulus package and him soon and the number off mute Covenant I think takes us continuing to increase across some of our primary markets.
So we believe that boasted NB. So they can strongly KBB and giving a point Oh, we decided to have the base. It's true that at this time.
With respect to lock dividend.
Walk you set up that you was prudent to again be crash six cents to share CV events. This quarter the ongoing uncertainty around the pending.
Over the as you said they'd be able to we thought it would be because to a higher level. Once we have 10 more clarity on future updates as conditions and the additional picture on the comedy.
I'm generally <unk>.
Good.
Our second quarter financial performance and that's out the other nice talking to until some of the comedy.
Because the casinos why would you like new loans across all of our business lines.
Disciplined manner as we remain focused on maintaining strong liquidity to help a suite in customer.
Okay.
This crisis.
We also continue to execute on our strategic goals by growing up and tries organically.
If we didnt buckets and bike, especially I've touched me on I should say markets.
Actually I thought I'd be family plus our dedication to our customers and the hard work actually administered with this and my Roman.
So he meant more work to do.
Coffee does that affect well have much from this pandemic age from the organization.
I will now turn the call. This is David for further discussion of Africa father, Lisa. Thank you.
Thank you Alan.
We have provided a greater level of detail in our press release, so I'm going to focus only on those items with some additional discussion as warranted.
Total loan held for investment.
Oh, just over $140 million during the quarter driven both by organic loan growth across most of our second and also did to $33 million of new PPP loan.
We also transfer $53 million a single family mortgage just from the available for sale bucket as part of our ongoing balance sheet strategy.
Total single family loan production and the second quarter was $118 million up from 107 million in the first quarter payoffs and Paydowns work also modestly lower in the second quarter.
We only four or $5 million the mortgage is in the second quarter.
Down from $101 million than the first quarter going forward, we expect to sell more of our residential mortgage production, but it will depend upon market conditions in our production level.
And as Alan mentioned, we plan to continue making new loans in a disciplined manner helfer given uncertainty surrounding the economy, we likely won't see the same demand that we fall in the second quarter now turning to the positive.
Total deposit excluding brokered deposits increased by $62 million during the quarter.
Mainly due to the healthy increase a noninterest bearing deposits and non maturity deposits, which increased by $100 million in the quarter.
Partially offsetting this increase was 100 million dollar decline in our time deposit.
Which included a $32 million decrease and our brokered deposits.
We but higher fees.
Higher cost cities run off the balance sheet.
Given our strength strong core deposit gathering activities.
What's what three is pardon me for wholesale funding.
Our average cost of interest bearing deposits was down 30 basis points in the quarter experience lower cost from both our non shrink deposits and on our TV given the lower interest rate environment.
Going forward, we expect the cost of hypothesis to be down as the gap between the rates that we pay on mid Fiftys and their rates, we paid on maturing Cds continued to work in our favor.
Moving on to the net interest margin.
NIM increased by five basis points on reported basis.
NIM and one basis point when adjusted for purchase discount accretion.
Our relatively positive net performance was driven by on lower overall deposit cost due to both rate and mix and the fact that our loan yields didn't decline as much as our deposit costs. In addition, we are still being impacted by carrying liquidity due to the uncertainty surrounding.
The the pet pandemic.
Going forward.
We believe that our net interest margin should be slightly up but it depends on a number of factors that are very hard to predict at this point, including the direction of loan yields and the ongoing levels up liquidity that we will carry on our balance sheet.
Turning to non interest income and expense.
On the on noninterest income was down in the second quarter, mainly due to fewer slow sales in the quarter as previously discussed.
Our total noninterest expense was down meaningful from the first quarter driven lower sequential.
Senses and salaries and benefits.
Marketing and business promotion data processing and merger expense.
We saw modest increases in occupancy and equipment expenses.
Insurance and regulatory assessments legal and professional and other expenses.
The latter being driven by $366000 write down on our mortgage sorts you might.
In the current environment, we continue to maintain our focus on controlling costs.
Going for a total non interest expense should be relatively stable to slightly increasing that's a status of branch comes online and we enhance our online capability.
However, long collection expense main pre depending upon the duration of severity of economic downturn.
Shifting to income taxes.
Our effective tax rate for the quarter was 31% slightly lower than the first quarter due to the impact of affordable housing tax credits.
We anticipate an effective tax rate of between 29 and 33% for the full year of 2020.
Excluding the impact from stock option activity that we may experience from quarter to quarter.
Now turning to be asset quality.
Our nonperforming loans decreased by $3.3 million during the quarter. That's we sold two hotel franchises and they had one loan returned to accrual status as a result, arent npls to total loans improved 10 basis points to 56 basis point at quarter end.
During the quarter, we had $319000 net charge offs related to the two hotels we fall.
This was down 631000 in the first quarter.
Provision for loan losses was $3 million for the second quarter up from 1.9 million in the first quarter and Chris with due to higher loan balances some expected impact of a pembina.
Allowance for loan losses.
0.88%.
Total help to investment on from 0.84% at the end of March as Alan mentioned.
We believe that it as couldn't continue to build reserves until we get more clarity on the ultimate impact that the economic slowdown may have on our asset quality. We are encouraged by the number of our customers resuming their payments and we expect to see continued improvement going forward.
Our capital levels remain strong and we believe that we have to liquidity to help our clients whether it's warm.
We also believes that we will emerge from this a stronger company.
Well positioned to continues to pursue it how far long term ball of wealth and value creation.
Organically have free strategic acquisition with that we are happy to take your questions. Operator, Please open the call.
As a reminder, if you'd like to asking questions. Please press Star then the number one on your telephone keypad again that is star one.
Your first question comes from the lineup Kelly Motta of KBW.
Good morning Kelly.
Hi, Good morning, sorry, I was I had needed myself [noise].
I had your internal trends looked really encouraging but thanks for the color on that 85% poultry right, but you had I just wanted to clarify.
The ones that I presume, making peanuts ours are those back to school.
Payments status or or are they still you know just thinking partial payments.
Okay. That's fair made their fault P and I payment for the month of July.
Thanks, Mark made a partial payment or they came back and said a they made their payment on that one another deferral, but or if they didn't make their payment.
We treat them as not making their payment okay.
Great and then.
I guess when her on loan.
Hi mortgage sales.
Your prepared comments or that you expect they're gonna have returned to normal.
Both later this year.
You know.
You expect any loans held in Threeq, you or do you think it's really going to take killed.
We ended the year to kind of get that pipeline went up and down right. Okay. Just you know that are we still sell for Fannie Mae and I don't know what's that volume would be for this quarter.
That was 5 million last quarter, I'm, hoping that we'll get back to posting to our normal levels.
About $30 million, Okay, I'm not sure if that will happen or not we also have about a test we have a 11 million dollar contract out with another bank that will settle this year is that.
But there is nothing from the brick wall Street from.
Our this anything from the Fannie Mae pool health and wellness.
Okay, we hopefully more expect so theres a lot of discussion with US right now, but I don't if we don't have a contract by the end of this week, it's not going ahead, that's what it'll be a fourth quarter.
Okay.
Great and then maybe last keep again, so the third and loan growth. It's obviously cheaper strong you didnt, even without the impact is TPP.
What's really driving notwithstanding that the demand didnt.
Weve, you know you being selective going forward and and on your comments that.
Loan growth.
Yes, the won't be at at this level, what's what's kind of reasonable to expect.
From here.
Okay. Kelly, there's multiple reasons why we are seeing such lost a strong loan growth. The first reason is you know the lower.
The lower rate and.
People have cash and want to put that cash work. The second reason then.
There are other banks that are not as well capitalized since we are we're pulling back on their on there.
Capabilities, Okay, and and so forth and that's what we're mainly seen in the and in the market right now I see our.
Commercial production being very strong for the second quarter right now very strong for the whatever.
Maybe slightly lower than the first quarter, but even in the second quarter, but [noise].
Getting but may be very close to that and then of course, if we don't sell any mortgage loans, we would have.
You know, it's an increase on that also.
[noise]. Thank you.
Okay.
Once again, if you'd like to ask your question. Please press Star One. Your next question comes from the line of Nekoosa rally of Piper Sandler.
And that could take guys how are you.
Doing well are you good good good doing okay doing okay. Just just a follow up on the gain on sale side. So I I heard the commentary on Fannie or you see no going of private sales at this point in a was that part of your remarks for return in the fourth quarter.
Yeah. So we're seeing some falling there, but like I said, if we don't have a deal done by you and this into this week, we won't be able to close probably by the ended the quarter.
Okay.
It takes got it too.
We have to have the at least an ally and so I'm understanding or at least discussions around Hello lie and although we're talking with a number of.
Huh people.
Including Fannie Mae by the way for the you know there's nothing concrete yet.
Okay, and then with respect to expenses. Thanks for your commentary on the run rate is it fair to say that the cost savings from the PGP deal or complete at this point.
Yes.
And what you're going to see it's probably a little bit of increase because in expenses we.
We'll be putting that it's an online pretty soon near the end of the quarter. We also have some expenses for additional.
A couple of real systems were putting in a big but we're also to higher saw mob when higher for people to backfill Hum.
The people that we have lost within the quarter okay.
To help with copper.
That's helpful and then into CD book, where does your current offering rate and how much of the portfolio is expected to mature in the September quarter.
Okay, we expect $313 million to mature at a two hours to rate I expect that to go in that under a one.
You know our post at rates I believe right now our points like 0.78, or so I expect you know there may be some people who could the one but I expect most people to be below one.
Great. Thanks, so much for taking my questions.
Okay.
Once again, if you'd like to ask your question. Please press star one for next question as a follow up from Kelly Motta KBW.
Hey, Kelly.
Hey, Thanks, so much I wanted to follow up.
On the margin here on your loan yields it seem to hold in.
Pretty well up better than expected.
New production coming on relative to the Buck in <unk> and then.
I I know you said you expect them to be up but I'm, just kind of interested in how <unk>, how how production coming in versus roll off.
Well, let's break it down the mortgage Nonqm mortgage loan for you know I start rate is around 475.
On this call it's on the East coast good for free.
One point I believe it is so [noise].
You know and on T. already.
Most of lets see how are you starting at around 450 [noise].
Okay, we do feel do for very good customers like a coalition say this outlet well north of America classified loans below 4.5, but they have to be very good deposit base customers for.
[noise] [noise] crate. That's that's helpful. And then in your release I I really appreciate the comments about the dividend and you huh.
Really strong topped off and you mentioned that you're so you know.
We'll evaluate expansions and in other markets I'm wondering with we'd be environment really challenging and multiples the class like it.
You know.
Do you think this is an opportunity for kind of.
Thanks to turn that the towel and you could you don't fight for new partnerships or is it just kind of a wait and see <unk> at this point with all the uncertainty going on.
I think.
I think.
It depends on how long this goes because yes, I think there won't be people, who will be throwing in the town.
And so forth, but I don't think I think everybody all that [noise].
Well in you know, what's within a quarter to from now and you know, but there won't be a lot of fall out and depending upon the capital level.
Whether they come and that.
So the fallout.
But there will be.
[noise] number of businesses that will not ever open again.
Okay.
Well, we know that and we know that at some point in time.
[noise] there won't be bank.
[noise] out there.
Going to market.
Okay.
Thank you that's helpful.
At this time there no further questions I'll now turn the call back to mR.T.N. for any additional for closing remarks.
Okay.
Well.
Once again.
Thank you off like any of us today.
We look forward to speaking to many of you either come in base and we.
Have a nice to have a nice safe and stay safe.
Thank you.
Thank you for participating in the RPP Bancorp earnings conference call for the second quarter of 2020, you may now disconnect your lines and have a wonderful thing.
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