Q1 2021 RBB Bancorp Earnings Call
Improving economy.
We reported.
Our record net income.
Improving margins.
Stable credit quality.
And strong growth in non interest bearing deposits.
Per.
First quarter earnings benefit that.
Further improvement in our net interest margin and an increase in revenue related to loan sales.
First quarter net.
<unk> expenses were modestly higher than fourth quarter expenses due to mortgage commissions and taxes paid on compensation.
As expected we.
Limited loan growth in the first quarter, but steel aspect to have healthy growth for the remainder of the year.
We raised $20 million of subordinated debt, which increases our ability to pursue profitable organic and strategic growth opportunities.
We believe we are well positioned to accelerate our profitable growth in 2021 by providing exceptional customer service to the individuals businesses and communities.
We serve.
Given the bank record net income and our outlook on the future a.
Part of directors increase the dividend by 8% to 13 cents per share and renewed the share repurchase program.
With that I'll turn the call over to David to discuss some of the quarter's financial highlights before opening up the call for questions David.
Thank you Alan I'll start by reviewing some of the highlights of our income statement before moving on from our balance sheet.
Net income grew 12% from last quarter, and 85% from a year earlier to a record $12 5 million or <unk> 63 per diluted share in the first quarter, we reported record pre tax pre provision income of $19 6 million, which was up slight.
Lee from last quarter's $18 9 million.
Our net income benefited from several factors for.
Net interest income increased $2 1 million due to stable interest income improvement in our cost of deposits and a decrease in provision for loan losses.
Second.
Non interest income increased by about $1 $4 million as well on sales continued to increase mainly in the Fannie Mae qualified market. We continue to be cautiously optimistic that loan sales will continue at a similar pace in the second quarter net.
Net interest margin was 373% for the first quarter, an increase from $3 six 7% in the fourth quarter of 2020 and up from $3 three 7%.
A year prior.
We continue to increase on non interest bearing deposits and drive down the cost of our interest bearing deposits, while holding the yield of our loan portfolio stable.
On loans.
Loans held for investment totaled $2 7 billion as of March 31, increasing $8 4 million from December 31.
2020.
We had good growth in commercial real estate, which grew at a 24% annual rate and construction, which grew at a 49% annual rate.
Our non QM mortgage originations continue to lag due to the low interest rate environment, which went from buying.
<unk> with pay offs and the sale of mortgages resulted in a meaningful $83 million decrease.
In our mortgage loan portfolio we.
We continue to take action to revitalize the non QM origination channels, but could face continued headwinds if the rate environment does not improve.
Our average yield on earning assets.
For the quarter was $4 four 9% down six basis points from the prior quarter of 37 basis points from the prior year.
Deposits grew $186 million from the fourth quarter with a.
With a $170 million increase in non interest bearing deposits as our efforts to attract these deposits from our banking clients gained traction.
Our average cost of interest bearing deposits for the quarter was.
Zero point, 73%.
Which was down 20 basis points from the prior quarter and 99 basis points from the prior year.
We expect the cost of our deposits to continue to.
The decline in the second quarter as higher cost Cds mature and are replaced by lower cost deposits.
The end of the quarter, we completed a $120 million sub debt offering at a 4% rate, which was used in part to redeem 50 million six 5% sub debt issuance.
That we had outstanding we believe the additional low cost capital increases our ability to pursue attractive organic and strategic growth opportunities.
Nonperforming assets increased by $400000 to $22 million in the first quarter decreasing four basis points to zero point for 55% of total assets as of April 15th we had 21 loans and deferments totaling about $18 million with.
Provision for credit losses of $1 5 million in the first quarter, primarily attributable to remaining COVID-19 related economic risk and loan growth.
Our capital levels remained strong.
With all of our capital ratios well above regulatory minimums.
With that we're happy to take your questions. Operator, Please open up the call.
As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad.
Again that is star one if you would like to ask a question.
Your first question is from Nick <unk> of Piper Sandler.
Hi, everyone how are you.
Great net Teva is up.
Very well thanks, so it looks like you had a similar level of 1% for production as the fourth quarter, but sales were certainly a lot higher on the first quarter can you give us some color on that decision and strategically how youre thinking about the trade off between keeping those loans on balance sheet compared to sales.
Right now $83 million for those sales was <unk>.
Fannie Mae.
The rest of those.
We're a holdover from the <unk>.
Fourth quarter that we already had commitments to sell okay. So we.
We honored the commitments on the not for them.
<unk>.
Okay.
In the future and the future, we expect that Fannie Mae.
Selling will be up a little bit less than the $83 million, but similar.
<unk>.
And we see the non QM dropping off.
Secondly on.
Especially coming to the third quarter.
Okay, that's very helpful volume.
So.
Yes.
And then given the sub debt issuance in the quarter. Your capital levels are quite strong as you mentioned can you update us on your appetite for M&A in specific geographies that are top of mind.
We're very interested in merchants on acquisitions.
Basically in the.
The San Francisco Bay area.
Texas.
Seattle, and we would even expand.
The merger here in Southern California.
Yes.
If the analytics look good.
And then on.
Do you feel as though you have some room for further improvement given the liability repricing dynamic you discussed.
We will have about.
300 and.
Thank you for 45.
Sorry, $286 million repriced in the second quarter.
And from a CD rate right now was about.
909.
And going down for point for that.
On the issue is that we have so much cash.
Net.
Is in.
That is very hard to invest into anything that makes any money right at the moment.
I believe youll see continued cost of funds improvement.
But.
You will see the yield on non loan investments.
<unk> be coming down because the amount of cash.
So basically I am, saying <unk> be about flat without or increasing slightly.
Okay.
That's very helpful. Thanks for taking my questions.
Okay.
Your next question is from Kelly Motta of K B W.
Hi, Thanks.
The question.
Over there.
Thanks Kelly.
Okay.
Turning to expenses day, okay.
We're a little bit higher during the quarter.
I think mortgage.
Commissions for probably a part of that.
Looking ahead is this kind of a good run rate to go through or are there any moving pieces that we should.
Keep in mind, we're not.
Looking forward towards the rest of the year.
I think our lead.
Level with a little high for this quarter as it typically is is typically about 400 for $500000 higher than the rest of the year.
I expect that yes.
The costs go down.
Okay got it and then.
Looking at the loan portfolio, you had really good CRE growth continued to be really strong.
Can you as.
As long as construction on can you give us maybe provide what categories you're seeing on the demand in in kind of the.
The outlook there.
Well this is Alan on.
On the construction loan side I would say debt.
<unk> much we see contract.
I'll touch on growth actually is in Los Angeles at Shaw.
New York.
Most of the contracts.
Multifamily units with mixed use where you may have.
Commercial on the.
Graff Ross and then you could have condominium apartments in the offer for US and then the ratio of the make shoes normally would be.
About 10%.
Sure and 90% on makes yields up either condo apartments and most of the.
Size on the construction on projects property, we are looking at about.
Maybe a 10000.
<unk>.
8000.
Residential.
<unk> and then may be between 30% to 50 units on the mixed use of condos or apartments.
<unk> as we are.
The financing on about 65% loan to cost on <unk>.
65%, 60% loan to value.
Great. Thank you.
Step back.
As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one to ask a question.
Your next question is from Brett <unk> of Hockey group.
Hey, good morning, everyone. Good morning, good morning.
I wanted to make sure I understood the dynamic around on fee income going forward.
Well, so you mentioned that the Fannie Mae loans, you saw a little bit less of that going forward and I know you originated.
I think it was 37 million or $38 million of SBA loan loans and <unk> is the way to think about.
<unk> around those two pieces going forward as SBA probably continues.
To increase well for sales on the Fannie Mae loans declines.
Can you give us any additional color on how you see those two components interacting going forward.
Hi.
Okay right now the big gain on and on our SBA portfolio was we did round two of PPP.
Although our SBA program is going strong right now because of the 90%.
Guarantee.
The big growth in the first quarter was mostly PPP.
PPP loans.
Having said that I think over time.
Over time you see.
From residential.
On.
Sales go down and SBA sales go up.
As.
SBA loan.
Thats SBA Department gets more traction in originating regular all seven day loans.
Okay. That's helpful.
Thats somewhat IC Nic's Fannie.
For the foreseeable foreseeable future I see that non QM market.
Being really.
All about treading water.
Just replacing what is rolling off.
Although we did have we do have some commitments out there to sell this quarter, but not very much.
And I see Fannie Mae.
Coming down slightly.
We cleared out our backlog.
Due to the COVID-19 issues, we had last year and we will just be selling new originations.
Okay.
Helpful Color and then just around.
On provisioning on reserves it would seem like.
I recognize that non seasonal filers are still going to need to maybe.
Keep bolstering reserves, a little bit, but it doesn't seem like youre going to have on your asset quality issues to speak of.
As we think about forward provisioning.
On what seemed like it could be even less than it was in.
<unk>, depending on growth I, suppose, but any any color around how you're thinking about provisioning going forward.
Thank you just need to take one to two five times our growth and net.
I don't.
See any additional large losses, plus plus any loss losses.
And Thats our provision.
Okay. Okay.
I do think there will be a time when we will recapture.
<unk>.
Recapture the $2 $9 million that's out there in the Disney COVID-19.
Special COVID-19 reserve.
On.
But we decided not to do that on the fourth quarter, you can see how everything shakes out on the second quarter.
But at some point in time, you will see that coming back to the bank. If we don't have losses that go against that and we don't see any volume.
Okay. That's helpful. Thanks for on the color.
Okay.
Your final question is from Andrew <unk> with Stephens.
Hi, Hey, good afternoon.
Hey.
Hey, I just wanted to circle back to the expense base really quickly David I appreciate the comments about <unk> typically running about.
For 500000 higher than kind of the rest of the year I guess should we should we also see a step down kind of on this next quarter from that.
I think it was $428000 data processing expense that you called out in the release just trying to put it.
Brush on neon.
The go forward expense run rate.
Yes, some of that was.
Some of that as we are converting off of one system on to another and we had to pay zone.
Duplicate.
Amounts so that will be going away.
Okay.
Over the next couple of months.
Okay.
Perfect I appreciate that and then just thinking about loan yields may have held on around this low kind of 5% level over the past couple of quarters or few quarters, I guess, just thinking about loan yields moving forward what kind of yield are you getting on new originations currently and has the competitive dynamic changed more recently that might put some pressure on.
New origination yields and portfolio yields going forward.
Yes, okay on the on the CRE side, and so forth we are seeing.
Our rates are.
Crime.
Plus 252 75, depending on what type of loan it is.
And so forth. So you add that up that's above 5%.
When we when we looking at our our multifamily loans you're talking about.
On a four five start rate 5% rate.
And so forth unless there are very good customers. They have a lot of deposits with us we will make exceptions.
So we're seeing really the pressure I think it's going to be on the mortgage side, the non QM mortgages.
We're replacing the runoff.
That's five coupon, let's say on a $5 25 coupon with a for coupons are for 25 coupon. So that's what's creating the pressure in our book right at them.
At the moment, yes, right so on the come.
I will say that on the commercial side.
Our commercial real estates.
We are looking at.
<unk>, 5% to five to five.
Multifamily we are looking at for $75, two fived and <unk>.
<unk>, we are looking at.
For two five.
We will not do any loans are less than 12%.
Okay.
Thanks, Alan and thanks, David Thanks.
Color and then just last question for me I saw the.
The dividend.
Renewed buyback yesterday morning, just.
Is it fair to assume you guys are still planning to be active on the buyback going forward given that announcement.
Yes, yes.
Yes.
Okay perfect. That's it for me thanks for taking my questions.
Okay.
There are no further questions in queue do you all have any closing remarks.
On my question.
Okay.
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 your participation you may now disconnect.
Yes.
Okay.
Okay.
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