Q4 2020 RBB Bancorp Earnings Call
Okay.
Good day, everyone and welcome to the Bancorp earnings conference call for the fourth quarter and fiscal year 2020.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. You asking the question. During the session you will need the press star one on your telephone if you require any further assistance. Please press star Zero and please note that today's event is being recorded.
I'd now like to turn the conference over to Katherine way.
Thank you good day, everyone and thank you for joining us to discuss RVB Bancorp financial results for the fourth quarter of 2020 with me today from management of our Chairman President and CEO, Alan <unk>, EVP, and Chief Financial Officer, David Maura, and EVP and Chief Credit Officer Jeffrey yet.
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 this conference call statements made by management May include forward looking statements within the meaning of private Securities Litigation Reform Act of 1095.
Forward looking statements are based upon specific assumptions that may or may not fit.
We're looking statements are also subject to known and unknown risks and uncertainties and other factors relating to RVB Bancorp operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company for a detailed discussion of these risks and uncertainties. Please refer to the required documents the company has.
Filled with the SEC if any of these uncertainties materialize and use the assumptions prove incorrect RVB bancorp the results could differ materially from its expectations as set forth on these statements. 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.
Yeah.
Thank you.
Good day, everyone and thank you for joining us today, we finished <unk>.
'twenty 'twenty with strong fourth quarter results conclude in a challenging year that demonstrate the.
Resilience of our differentiated business model.
For the full year, our pretax pre provision of Inc. Com increased modestly from 2019, as we manage expenses, while growing our assets significantly.
Fourth quarter, and it's benefited from an increase in on net interest margin and gains on sales.
We anticipate well continue in the first quarter.
How do you anticipate the loan payoffs in the fourth quarters, resulting in a modest reduction of our loan portfolio. Following the strong growth we saw in the third quarter the ante.
They meet the low growth in the first quarter, but expect to finish the year with growth similar to last year's.
Asset quality remains solid and we remain all well kept as the lives with access to liquidity.
The first loans continued to decrease and now represent less than two per cent of loans.
All four of them.
Last week.
Our board of directors approved a quarterly dividend of <unk> 12 per share. This increased returns to return to its pre pandemic level and is consistent with our guidance.
We would restart the dividend at a higher level once we have more credibility on future business conditions and the earnings potential of the company.
Before I hand, the call over to David I'd like to take a moment to thanks, all of our banks and price for their hard work and dedication and the strong support from ours.
The best US over this last year, the pandemic has disrupted the economy and People's lives.
All of our embrace of <unk>.
The focus on serving the financial needs of our clients and the common piece, we surfed David.
Thank you Alan I'll start by reviewing some of the highlights of our income statement before moving onto our balance sheet.
Net income grew 31% from last quarter, and 4% from a year early or to a record of 11 $1 million or 56 cents per diluted share in the fourth quarter.
We reported record pretax pre provision income of $18 $9 million, an increase of $2.9 million from the prior quarter.
Our net income benefited from several factors first net interest income increased $2 $4 million due to higher average, earning assets and improvement in our cost of deposits.
The second noninterest income increased by about $1.8 million as loans sales continued to increase mainly in the Fannie Mae qualified market.
Although it can be difficult to forecast, we are cautiously optimistic that loans sales will continue at a similar pace in the first quarter.
Net interest margin was 367% for the third.
For the fourth quarter, an increase from $3 five 9% in the third quarter and up from three point.
Four 7% of your prior as declines in the cost of our liabilities continue to outpace the clients and the yield of our earning assets.
Loans held for investments totaled $2 $7 billion as of.
Of December 31 decreased from $48 $3 million from September 30th higher than anticipated CRE payoffs.
Payoffs of $97 million reduced the impact of an otherwise robust of $127 million of CRE originations in the quarter.
Mortgage payoffs and loan sales.
See the mortgage originations for the quarter, resulting in a 40 million dollar decrease in our portfolio of mortgage loans.
C&I.
And SBA loans also decreased.
In the quarter due to normal payoffs of some loan sales as Alan mentioned, we anticipate our loan portfolio will grow slightly in the first quarter, but expect the loan growth for the year to be similar to that of last year.
Our average yield on earning assets for the quarter was four point.
The 5% down eight basis points from the prior quarter and 54 basis points from the prior year.
Deposits were relatively stable at $2.6 billion from the end of the third quarter with the usual decrease in demand deposits that we see every December.
Our cost of interest bearing deposits for the quarter was.
Zero point, 93%, which was down 21 basis points from the prior quarter end of 100 basis points.
From the prior year.
We expect the cost of our deposits to continue to decline.
In the first quarter.
As higher cost Cds mature and are replaced by lower cost deposits.
Nonperforming assets increased by $1 $6 million two of the 19 $8 million from the quarter.
The increasing five basis points to 0.59% of total assets as Alan mentioned, the FERC loans.
Has continued to decrease as of January 15th we had 35.
Hum loans.
And the permits.
Totaling about $50 million of the.
These.
Two loans with outstanding principal of 23 $5 million per month.
Principal the permit.
Only and are still making their interest payments.
We took a provision of credit losses of $3 million since the fourth quarter, primarily attributable to the higher.
Loan balances and the impact of COVID-19 pandemic.
Our allowance for loan losses is now slightly above our target of 1%. So absent of any deterioration in credit quality, we expect our COVID-19 related provision to moderate in future quarters.
Capital levels remained strong with our capital ratios well above regulatory minimums.
With that we're happy to take your questions. Operator, Please open up the call.
You asked the question you will need the press star one on your telephone to withdraw your question press the pound. The key please standby will be compile the Q&A roster.
Okay.
On it until the first.
Okay. Your first question is from the Nick O'carroll with Piper Sandler.
Hey, Nick Hi, Hey, guys, it's showing all the Ole on for Nick.
Okay.
So it was nice to see the rebound in the gain on sale of business. I was wondering if you could give us a little color on the margin expansion in the sales to private investors.
The Mark is this these were mostly Fannie Mae loans that were sold.
And we're getting.
The 301 of four on pricing on Fannie Mae loans right now.
So.
Okay.
And it's the only 10 million of non QM loans.
And they are our price debt one of one of 275.
Got it.
Okay. Thank you.
I appreciate the commentary on the the all in deposit costs in the Cds maturing into <unk> 'twenty, one just curious.
What are your current offering rates on Cds and do you have the amount scheduled to mature in the quarter ended.
March 31 off hand.
Yes, I do just give me one second so I can pull it up I haven't quite hit on Wednesday.
Well we have.
And to set the fine, but I have it.
Okay.
Our interest rates for 102 of.
Four of our CD over $100000.
It's about 0.4% right now okay.
Right now we have $328 million in CD.
Cds that will reprice in the first quarter the average rate of one point.
Five 8%.
Okay.
That's perfect perfect. Thank you.
And then just one last one if I could.
The reinstated the the repurchase program back in October it looks like you may have bought back some shares in the <unk> just curious as to what your appetite is for repurchasing shares and can you remind us of the share quantity on your current authorization.
Well.
There is only about 325000 shares left in the plan.
Okay.
And so we still have our we're still under the <unk>.
The blackout periods. So the plan that we put the specifics that we've told our hub.
People to repurchase the still in place.
And that will probably continue if we continue the plan right now it will probably take another two to three months to get through that 300000 shares because of the volume limitations and the volume of trading right now.
Okay, Okay got it.
Okay. Thank you for taking my questions.
Okay.
Your next question is from Kelly Motta with K B W.
Hey, Kelly Ray Hi, good afternoon, or good morning to you guys I guess.
Aye.
I was hoping on.
Maybe just some clarity on the loan growth outlook I appreciate the comment on.
And it would be similar to last year I was just wanted to clarify on.
Do you mean, similar to 2020 organic growth or stripping out.
P G P R.
Or is that inclusive of it okay.
Our organic growth.
I think we said last year, we will grow.
Loans and deposits by.
High single digits, very low double digits and that's what our plans are for the near term.
Okay.
That is helpful. Thank you very much.
Then.
Building off the prior question about buybacks just wondering given.
You know where your stocks trading below tangible book value was the.
The decision to not be more active on the repurchase last quarter.
More of a function of of volume rather than on appetite I'm just.
We were out there in the LIBOR.
I mean.
We were out there every day, just we couldnt give that shares back.
Okay.
We're out there every day.
I mean, sometimes we bought back of 1000 shares.
Got it.
Okay.
And then.
Maybe on credit can you can you.
Remind me when you're adopting Cecil and if theres any additional cost.
To prepare for that that Youre expecting net next year.
Seasonal has to be fully implemented by <unk> by December 31, 2022, because.
That's when we are AGC runs out okay.
So that's why we have to we have to put our.
Our entry towards the the equity or debt.
And so forth at that point in time, and we have to be running Cecil.
Starting on January one 2023.
Having said that we will have to have the silos.
Sure, it's six months prior and our Q six months prior to that so.
So our game plan is to have concrete numbers better.
Have our first validation of the model sometime in early 2022, okay.
Okay.
We don't have right now we do not have the expense of the validation of the model.
And we do not have we don't know.
Right at the moment of either and we do not have any.
The extra data that we may have the buy such as.
Yeah.
No.
The economic reports of whatever that we may have to put into the model we don't have that.
Also at this time.
Okay. So if I'm just just if I'm understanding you correctly, the actual Cecil implementation will be that for Q2 2022.
Four of models, Okay and then.
With expenses are there any other kind of incremental expense adds or or saves.
Of that we should keep it mind off of best mid 14 billion dollar number for Q I know you went through in your release, there I know you're doing a bunch of things.
With your your branches and shifting costs around the that so just wondering how.
Kind of like the Gibson takes the expense.
Outlook relative to where you are now okay.
Typically our.
Our first quarter is our highest expense month high of highest.
Highest expense quarter of the year although.
And it will probably be very similar to the fourth quarter.
But typically after that.
Our expenses go down a couple of hundred yourself from dollars every day.
For the remainder of the year.
Okay per.
For quarter.
So I would see that our.
For the next quarter will be about the same and then I think youll see the reduction of a couple of hundred thousand dollars after that.
I mean, a lot of it.
Tax the tax expense that the tire for the first quarter and there is benefit expenses that are higher for the first quarter and Theres also.
The expenses professional services expenses that are higher in the first quarter.
Yes.
Got it thank you very much.
And the reminder, ladies and gentlemen, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.
Your next question is from Andrew <unk> with Stephens.
Hey, Good morning, Hi, Andrew how are you still are you guys.
Good good.
Hey, I just wanted to start on the growth commentary just to make sure I've got this right.
Similar rates of last year on in terms of loan growth kind of on an organic basis does that include any kind of assumption for pvp round, two loans or is that going to be exclusive of that.
That is exclusive of.
Excluding PPP.
We were not a huge player on PPP it at $32 million.
Last year in.
I don't think we will see.
I don't know.
Okay getting to do it now, but I don't think we will see more than that.
The net.
This year, plus we're beginning to get the.
Patients the.
Steve just GAAP.
The kitchen dispute day, yes, yes, but just getting the applications now on that but we also are just getting some of the forgiveness and so we'll probably see that just wipe out any growth as the forgiveness.
On the first on the first go round.
Yeah.
Okay got it that's helpful.
Maybe just on the margin really quickly so the six.
<unk> stepped down about another 30 31 basis points. This quarter I'm just curious what type of yield are you getting on new securities that you are purchasing right now and is it just safe to assume just given the yield the book of that debt kind of further purchases are margin accretive from here.
Well if I go out Tonight, what what we have right now is about $200 million in.
What I would call.
Lick liquid money in lower yielding.
Money, which we're probably going to put to use the something better than that in the first quarter.
And what I mean by that is we have a lot of money in the commercial paper and so forth and we used to be able to get.
50, 60 basis points, and we're now getting the only 30 basis points on that money. So we're kind of.
Put some of that fee is the longer longer securities.
During the first quarter.
Okay.
Perfect.
And then last one from me just quickly on the reserves you guys book the reserve up to about.
Plus the one 1% I guess just thoughts on how the reserve trends over the next couple of quarters do you think it's fair to start maybe releasing some reserve here or would you like to kind of maintain a flat with where it's at.
Or kind of keep the the reserve where there are.
On releasing any reserves.
<unk> dollar amounts I mean, there could be some from reason, we'd do a little tiny bit.
Because until Covid as is.
Our fully know and at that time.
The at that time, we will be adjusted in the reserves then.
We budget.
Our reserve at <unk>.
125%. So that's how you get on growth. So that's how you should.
View it in your model.
That's a pretty good average so.
As we continued to grow our provision will continue to grow because it's.
The artificially depressed because of the purchase of discounts that we have that we do not include the loans that we purchased in our K Triple L model.
As such so.
Okay. Okay.
I'll step back thanks for taking my questions. Okay No problem.
Your next question is from Kelly Motta with K B W.
Hey, Kelly.
Hey, Thanks for the follow up just on.
You know you you've talked about on M&A in the past and you've been buying in the past couple of years that the small bank of year.
And you've got a ton of capital I'm just wondering.
If there was any.
The changes in the pace of conversations.
Given that it just seems like M&A across the banking industry is picking up on that thanks.
I would say that there is some increase in in park.
There is nothing that is Panama.
We as our stock price gets stronger we will.
<unk>.
Really begin to be active in that but right now our main goal is to buy the is the use of our extra capital to buyback our stock is our main goal right at the moment.
Okay very good thank you.
There are no further questions in queue at this time.
Yes.
No question of the crush of thoughts.
Yes.
Okay.
Yes.
But once again, 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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