Q3 2020 RBB Bancorp Earnings Call

Good day, everyone and welcome to the RB Bancorp's earnings conference call for the third quarter of Twentytwenty. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star and the number one on your telephone keypad to withdraw the question.

And press the pound key and please note that today's event is being recorded. Thank you at this time I would like to turn the conference over to Catherine White. Please go ahead.

Thank you Chris.

Everyone and thank you for joining us to discuss RVP Bancorp <unk> financial results for the third quarter of <unk>.

[laughter] me today from management are chairman, President and CEO, Alan can you VP and Chief Financial Officer, Dan Good morning, VP, and Chief Credit Officer, Jeffrey R., and D., VP and Chief risk Officer instant live.

Management will provide a brief summary of the results, which can be found in the earnings press release that is available on our Investor Relations website, and then we'll open up 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.

Active 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 risks and uncertainties and other factors relating to RVP banks operations and business environment.

All of which are difficult to predict and many of which are beyond the control of the company.

Our decompression of these risks and uncertainties. Please refer to the required documents, we have filed with the SBC. If any of these uncertainties materialize or any of these assumptions prove incorrect RVP Bancorp <unk> results could differ materially from its expectations [laughter] Andy.

The company assumes no obligation to update such forward looking statements unless required by law.

Now I'd like to turn the call over to Alan Alan.

Alan.

Thank you Patrick good.

Good day, everyone and thank you for joining you asked today [laughter] by probably do that brief overview of our quarterly itself and then they will discuss our financial performance in more detail.

Uh huh.

Watches results demonstrated the strength addressing then she oh I spend in country as we generate the strong and means net interest margin and asset and deposit growth before.

<unk> management of commercial real estate said, she and I have no exposure in fewer squatter create that hey, Paul GBP to <unk> cookie bones, it market in which our competitors were forced to pull back much of this growth came from the New York region, which we entered two years, but.

Goal with pocket, because she should office America international apparent.

I'm sure, we'll get questions, but we feel coffee does that we've maintained our rigorous underwriting standards for this new launch we believe the school, but he thinks Australia Gee I should mention and not optimistic that the growth will continue as that economy slowly returned to normal.

Our strong people should grow.

Was accompanied by declines in deposit costs actually benefits us from ongoing efforts to improve our deposit franchise.

And a declining rate environment.

Efforts to improve the deposit franchise, our peaking.

<unk> effects, I said quality remains solid and remain well capitalized with adequate access to liquidity before.

FIFA loans outstanding decreased 55% over the 76% over the quarters to just 4% of loans outstanding.

Given our improved results and consistent with our guidance that we would increase the bbten when they.

I mean, I'll just be kind of more sudden the board decided to increase the dividend to nine cents a share at this point to why not a food restoration to the 12 cents, we were paying before dependent I mean, we believe that this increase.

When combining to get that at least some shares of stock repurchase program.

[noise] select the proper capital allocation that is well be mandiant maximum flexibility in the event of southern economics Deteriorations.

I'm very pleased with the quarter financial performance, we delivered strong opinions, while growing our loan portfolios and improving occupancy franchise.

As spending mission a presence combined with a flexible balance sheets focus on serving seemed the financial needs of our clients. Our conservative credit culture has positioned us too much from the pending stronger than ever.

I will now turn the call over to David for further discussion of our second quarter results.

David.

Thank you Alan.

Five reviewing some of the highlights of our income statement before moving on to our balance sheet.

Other income grew 31% from last quarter, and 6% from a year earlier to 8.5 million or 43 cents.

For diluted share in the third quarter.

We reported record pretax pre provision income of 16 million an increase.

3.6 million profit.

Our quarter.

Our net income benefited from several factors first net interest income increased 2.2 million due to the growth and improvement in our cost of the profit.

Said.

Non interest income increased by about a half a million dollar as we were able to sell more loan.

As market activity return, mainly in the Fannie Mae qualified market.

For non interest expense declined by about $800000 as temporary merger related expenses begins to roll off.

Net interest margin was 3.59 for the third quarter, an increase from 3.42%.

In the second quarter and stable from a year prior as decline in the cost of our liabilities more than made up for the decline in the yield on earning assets and the excess liquidity we continue to carry.

Loans held for investments totaled 2.8 billion.

As of September 30.

Increasing $160.5 million.

From June Thirtyth.

This 24.6% annualized ROE was primarily due to organic loan growth and included.

A 74.9 million increase in commercial real estate loans.

$37.8 million increase in construction and land development.

And a 50.4 million increase in commercial and industrial loans.

I think it's worth expanding on Alans comments that much of our growth. This quarter was made possible by effective management of our CRB and CNK exposure in prior quarter and our capital levels at 300% regulatory capital our cost CRT concentration is relatively low compared to our peers.

[music].

As a result of this we can take advantage of opportunities.

To make high quality CRM SCM high loan when our competitors are forced to stuff back.

Single family residential mortgages.

Relatively flat for the quarter at $1.2 billion and remain part.

Our largest asset class at 42% of loans.

Given industry wide concerns about credit quality, it's worth noting that the average LTV on our residential mortgage portfolio was 61%.

Our average.

Yeah, so for the quarter was 4.63%.

Which was down only two basis points from the prior quarter.

But 66 basis points from the prior year.

Deposits were $2.6 billion at September Thirtyth.

So the 175 million.

June Thirtyth.

Non interest bearing deposits increased by $68 million.

And the increase in interest bearing non maturity deposits increased by 52.

Hi deposits increased by 55 million, including a 15 million increase as well.

TV.

As we took advantage of favorable rates for fund our loan growth.

Hi, Paul.

Cost of interest bearing deposits for the quarter was.

1.14%, which was down 28 basis points from the prior quarter and 80 basis points from the prior year.

We expect the cost of our process to continue to decline in the fourth quarter as higher cost Cds mature and off and are replaced by lower cost deposits.

Nonperforming assets increased by $800000 to $18.3 million in the third quarter, but due to our growth declined by two basis points to 54.

Zero point, 54% of total assets.

We took a provision for credit losses of $3.9 million in the third quarter, primarily attributable to higher loan balances and the impact of COVID-19 pandemic.

Our allowance for loan losses has been close to our target, 1%. So absent any deterioration in credit quality, we expect the COVID-19 related provision could be moderated.

Future quarters.

Our capital levels remain strong with all our capital ratios are well above regulatory minimum.

I'll finish with a quick word on deferrals before we open it up for questions.

The dollar amount of the football came down.

76% from June Thirtyth to October 20, Threerd at most of our borrowers borrowers resumed maintain regular payment.

The first 12 to.

Too much CRT loans represent 30% of the remaining $105 million. This for deferrals outstanding Wonderful General retail loan for 22.7 million with an LTV of 65% and one that's a commercial office another well for $17 million.

Principal only go for our men and the LTV of about.

63.4% and both cases, we are working with the borrower.

With that we're happy to take your questions. Operator, Please open up the call yes, Sir at this time I would like to remind everyone that if you would like to ask a question to press star one on your telephone keypad now again Thats star one for any.

Questions over the phone line well pause for just a moment to compile the acuity roster.

Okay. We do have a question from Nick could you at least with Piper Sandler. Please go ahead.

Hi, guys good afternoon.

Hey, Matt.

Good afternoon.

And on the mortgage sales I heard your commentary on that line returning to previous levels in the fourth quarter can you help quantify your expectation over the coming quarters.

Hi, Okay, Nick I know.

I don't think we said it will be coming back to the previous levels in the fourth quarter, but I do think we are going to have.

Continued increase in mortgage sales mix.

Especially the effect on the Fannie Mae side and lift in the fourth quarter and then.

First quarter, I think that the non QM loan.

Loan production comes back.

Hello.

Prior levels, we don't expect that to increase in the first or second quarters of next year. Okay.

Okay.

And then you're expecting a relatively consistent single family production or just a little bit higher percentage of the production to be so.

I would expect that production.

To be about the same okay. We okay.

Yes thats the.

Can you just remind us how many shares remained on your current repurchase authorization.

There's about 600000.

Okay.

And then lastly, just on the on the moderated provision remarks, you continue to prudently build the allowance you pretty much hit your previous guidance for 10 basis points of increase in the reserve this quarter.

Understanding that credit it's a fluid situation is your expectation that the provision will be more of a function of loss content in future periods or do you anticipate the continued reserve build.

We still have about three basis points.

Hi, Bill.

That we want to do.

Three to five basis points I would say we will continue on.

As far as from losses, our concern.

We only know of.

Two other loans.

Two hotel loans that we've talked about.

It seems like every quarter, our haven't closed yet and we do expect them to close in the fourth quarter. There may be some cleanup loss there of around $200000 at maximum we believe and besides that we don't have anything on the horizon until.

I guess until the COVID-19 crisis has declared over.

Thank you for taking my questions.

The next question is from Kelly Motta with KBW. Please go ahead.

Hey, everyone. Good afternoon [noise] Ivan.

I was I really appreciated the commentary about about loan growth and your ability to be proactive when others are pulling back I was wondering.

If theres been any change now early in the fourth quarter of the competitive landscape and if you expect that can continue.

Continue to help help you grow your your loan balances at a rapid clip. Thanks.

Okay, just to let you know Kelly that typically our best two quarters for loan growth over the second and third quarter of the year and then followed by the fourth and first quarter is the worst quarter. So I I don't expect that we will grow at strong in the fourth quarter as we.

In the third quarter.

Although we have a very very strong pipeline.

We don't believe we'll be able to grow that much.

The second thing I think you have to realize there's a lot of our growth is in.

I would call safer class CRT multifamily.

And so forth, although we did have a lot of construction growth this last quarter.

Hi, Thanks, you actually eat you lead into kind of my next question there.

You mentioned a lot of that theory growth rates in the.

In New York City market I'm wondering if you could [laughter].

No.

Yes.

Okay got that thanks.

Yeah.

That's.

Yes.

Okay.

Elyse average at 65%.

Great. Thank you.

And if I, if I could sneak another one in Denmark.

Sorry, not the six month apartment plus the six months of Pmnine on top of that okay.

So every well that we do believe it's required a PNR reserve of six months.

That's not booked into the underwriting forgot it so okay.

Yeah. That's helpful. And then and then we think margin it really held up.

Core basis, really strong and loan yields.

Seem to hang in a bit more and it kind of helps the pressure on average earning assets.

I'm wondering if there was anything unusual or any any unusually high loan fees or anything like that that was helping in the quarter or if it was just on.

A function of mix.

No.

A function of mix really right now and so something is a function of the decrease in the well you're talking about the yields is really a function on that.

[music].

Overall him, it's a function of the mix and the decrease in the deposit.

Right.

Okay and just as a final question can you can you just help me out on kind of where new CRM production is coming in in terms of yield versus resi mortgage.

The mortgage.

The non QM is still at five.

I'm going to say Wow, our other.

Other loans.

Well gosh Ann.

Were probably about the same rate for 75 five.

Construction is even a little bit higher than that okay.

Okay.

Great. Thank you.

And once again, if he would like to ask a question. Please press star one again Thats star one for any questions or comments, we'll pause for just a moment.

And at this time there are no further questions I would like to turn the conference over to Alan Scion for any closing comments.

Once again thank.

Thank you all for joining US today, we look forward to speaking to many of you in the coming days and weeks have a nice day.

Thank you. Thank you.

Ladies and gentlemen, thank you for participating in today's conference call you may now disconnect.

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