Q1 2022 RBB Bancorp Earnings Call
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Good day, everyone and welcome to the R. P. P E B, incorporating <unk> conference call for the first quarter 2022.
At this time all participants are in a listen only mode.
Later, you will have an opportunity to ask questions. During the question and answer session.
You May Register if you ask a question at any time that pressing D star and one on your Touchtone phone.
Please note that today's event is being recorded.
Now my pleasure to turn the program over to MS. Katherine way Ma'am. Please begin. Thank you good day, everyone and thank you for joining us to discuss <unk> Bancorp's financial results for the first quarter of 2022 .
With me today from management is interim president and CEO and CFO , David Morris, EVP, and Chief Credit Officer, Jeffrey Yeh, EVP, and Chief strategy Officer, assigning P and EVP and Chief risk Officer.
David 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 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 risks uncertainties and other factors relating to our Bebe Bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company right.
For a detailed discussion of these risks and uncertainties. Please refer to the documents. The company has filed with the SEC If any of these uncertainties materialize or any of these assumptions prove incorrect RVB bancorp's results could differ materially from its expectations as set forth in 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 David Morris David.
Thank you Catherine Good day, everyone and thank you for joining us today with me today I have our chairman of the board Dr. James Cow and Board member Christiana Cal Royal.
Royal business Bank had a great first quarter start to the year as loans held for investments topped $3 billion for the first time.
Average non interest bearing deposits increased by 10% and net interest income grew and importantly, our results demonstrate the strength of our business, we have built and our ability to grow profits in a variety of economic environments.
I know that recent personnel announcements have raised questions but.
But I feel confident that our strategy will continue to be an effective driver of shareholder value.
I appreciate the support the board has given me and look forward to working with the rest of the RP B team to drive the bank forward.
Turning to the financial results.
And then net income declined by six 9% from last quarter's record performance, but increased by 17, 4% from the years earlier to a $14.6 million or 74 cents per diluted share in the first quarter.
Net income benefited from several factors.
167.7 million increase in the average, earning assets and improving yield drove a 1.3 million increase in net interest income from the prior quarter.
Net interest income also benefited from a decline in interest expense due to a decline in average interest bearing liabilities and a decline in deposit cost.
First quarter noninterest income decreased by.
$212000 from the previous quarters.
Primarily due to lower Fannie Mae loan sale.
Interest expense increased from last quarter due to a $2.5 million increase in compensation expense.
420000 increase in data processing, and a 400000 increase in directors' fees.
Increase in compensation of directors fees was due to converting executive bonuses.
100% cash to a combination of cash and our S use this.
This resulted in a reversal and bonus expenses both for.
The executives and board of directors in the fourth quarter.
The increase in data processing was due to a number of special projects and reclassification of mortgage systems expenses.
These first quarter non interest expense increases were offset by a 600 and Eddie Bauer.
The dollar decrease in legal and professional expenses.
Net interest margin was 349.
<unk> for the first quarter, an increase of six basis points from the fourth quarter and a decrease of 24 basis points from a year prior.
Annualized ROE away and R. O T C decreased in the first quarter to 139% and 14.91%.
Net loans held for investments.
Exceeded 3 billion.
As of March 31.
Which was a $75 million increase from last quarter.
We had good growth in C&I construction and mortgage well S. P. A commercial real estate decreased from the prior quarter.
On the positive side, our non QM mortgage production, which is our most profitable mortgage product is beginning to show signs of life.
Yes.
Our yield on average earning assets for the quarter increased three.
Basis points to 4%.
It was down 49 basis points from the prior year.
As with the NIM this year over year decrease was due entirely.
Two lower returns on our excess capital.
With respect to funding commercial customer activity drove a $124 million of growth in average non interest bearing deposits over the quarter.
Our average cost of interest bearing deposits for the quarter was 0.44%, which was down three basis points from the prior quarter and 29 basis points from the prior year.
Nonperforming assets were stable at 21 million at the end of the first quarter, but declined by about $7 million in early April as three nonperforming loans were fully repaid.
As of April 15th we had no loans in COVID-19 did from them.
We took a provision for credit loss of 366000 in the first quarter, primarily attributable to 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.
Yeah.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
Once again that is star and wanted to ask a question.
For a moment to allow questions to queue.
Our first question will come from Kelly Motta with K B W.
Good morning.
Thanks for the question.
<unk>.
Our loan growth was quite good and I I heard US you mentioned on the call that your non QM product is.
But showing signs of life again.
What's the outlook for for growth as we look ahead.
And you know with what's going on with rates.
Does that temporary at all what you're expecting for the non QM going forward, but what's going on with <unk>.
Okay rising mortgage.
Well.
But it's going on with our with our mortgage Department is I guess, a switch from our Fannie Mae production to the non QM as rates go up it seems like our product does much better in that environment than a Fannie Mae product does so I think youre going to see our production increase in and.
In non QM, we have not made any decision yet if we're going to hold those on our books at a four o'clock sell them.
Or sell them okay.
Yeah.
Okay.
Helpful. And then also with.
The prospect for you now.
Couple rate hikes now going forward.
How do you expect the balance sheet to perform.
And and NIM expansion.
A rising rate environment you.
Have kind of a rule of thumb property 25 basis points of height of what we should see in terms of NII or NIM.
You would probably only see.
Yeah.
Just three years or five basis points increase.
You got to remember our cash most of our investments will reprice quickly.
Because we're in very short term.
Items.
So they'll they'll reprice or some of them already have repriced.
Very quickly but the.
C D's only about a $350 million will reprice.
And we are holding the C D line pretty.
Pretty <unk>.
Strong right now.
So we haven't moved our pricing at all yet I expect with this 50 basis point increase.
We're thinking it's 50 basis point increase in May.
We'll probably have to begin and adjusting our hub.
Our CD pricing.
And our money.
Money market pricing.
As far as our commercial loans are concerned.
Oh, all of our commercial loans that are prime.
Driven will automatically move up.
So and that's about it.
<unk>, 35% to 40% of our portfolio.
Okay. Thank you David.
And then with with Alan's departure ear now in the interim CEO role well as well as.
So CFO .
Can you share any any thoughts of you would know board in terms of.
Where you're looking to replace or have you started at a CEO search yet or are you looking to sell more on them.
As CFO I just.
I'm interested in kind of the go forward outlook for the executive management team.
Okay right now we just finished the the announcement about Allen and so forth. So.
Now that that is done the board is now going to concentrate on.
Finding a replacement for Alan over the next few months.
Okay.
Okay. Thanks, David I will step back for the time being I appreciate it.
Right.
Thank you our.
Our next question will come from Andrew Carrol with Stephens.
Hi, Andrew Hey, good morning.
Maybe just dovetailing off of the last point.
I know you mentioned the board was going to be concentrating on finding a replacement for Alan but where do we stand in terms of replacement of chief lending officer.
We decided not to hire a chief lending officer that position was create created last year.
And we don't believe we need it and we will be replacing that with two or three lenders.
Yeah.
Yeah.
Okay.
And then outside of kind of what has been announced have you seen any other.
Christian on the lending front at the bank.
Okay.
Okay.
We haven't really seen.
Of course, we have loans that are that are maturing and what whether or not we get those loans. It depends on the competitiveness of the bank.
And we are being extremely competitive right now.
Sure.
We will not we are going to defend our book to the best of our ability.
Hum.
Okay.
Having said that.
Most of our loans are two to five years in maturity in most of our loans have prepayment penalties. So if they do leave.
There will be some type of.
Incremental income.
Related to that.
Okay.
And then David or maybe darker Cowen.
Have to hear just kind of thoughts on it.
Realize you are kind of engaged in a search process for a new CEO , Glenn wondering how youre thinking about potentially maybe other strategic alternatives, including kind of a partnership with another institution that can maybe kind of.
Solve that problem as well.
Yeah.
Okay.
Answer that.
Two you know of course, we always are.
I'm looking at strategic alternatives.
But our stock price right now does not reflect the value of the institution.
Yeah.
Okay.
Fair enough and then if I could just sneak one more in David on the SBA gain on sale this quarter.
Just looking at the reported income versus what was sold it looks like the gain on sale margin came down from about seven 9% last quarter to five 6% this quarter.
So how about a 240 basis points swing I was hoping you could just discuss what what the driver behind that gain on sale margin compression was within SBA, specifically and then the outlook kind of going forward is five 6% kind of the level four.
SBA gain on sale margins or how are you thinking about it.
That's because of the rate that was.
Offered on those loans.
Okay.
So the SBA margin, it's all based upon the length of the loan and the rate of Prime plus whatever so they were a.
A little bit lower yielding.
This is all <unk>.
Yesterday morning.
Okay I'll step back for now thanks.
Yeah.
Alright, thank you.
Our next question will come from Nick.
<unk>.
With Piper Sandler.
Good day, everyone how are you.
Fine how about yourself.
Thank you just to piggyback on the non QM commentary can you update us on your full year organic loan growth targets.
I think our full year organic loan growth is going to be between five and 6% instead of eight and 10.
Okay.
Mainly Pal clause.
Mainly because you know.
We have a couple of commercial lenders.
That are not here anymore, and we have one SBA alright, SBA team leader.
The bank also but we have we hired for the SBA 18 late already.
So.
Okay.
Okay, and then comparing the end of period versus average cash balances. It seems to suggest a sizable move up in the NIM at least in the near term at this point in the quarter has the excess liquidity position continued to decline.
Can you help us think about the your expectation for the NIM more generally.
Our excess liquidity is down okay right at the moment.
And.
The in general that's why I've said over the last year that we would begin losing deposits.
And we have begun to lose.
Our deposits from.
On our non interest bearing DDA as expected.
The late third quarter.
In late.
The linked March and has continued on through April as we predicted.
So.
I don't expect our NIM to be increasing as much as people think it should be I mean will be I would see five you know five to 10 basis points a quarter at the most okay.
Okay, and then just to expand on the SBA discussion.
Can you update us on your expectations for the gain on sale business in total and shall we expect consistency from this quarter's level.
I think youll see only.
I don't think you'll see any SBA loan sales this quarter and only Fannie Mae loan sales, which are also.
Declining because of the market so I don't.
I don't see us being at our $2 million target per quarter until maybe the third or fourth quarter of this year.
Thank you for taking my questions.
Hey.
Alright, thank you.
Our.
Question will come from Ben Garlinger Windsor Health group.
Hey, good morning.
Yeah.
I was curious if we could touch base a little bit.
On the capital.
<unk> slowing a little bit.
As I said your price doesn't reflect.
What do you think the company is worth on the stocks.
Share repurchases are going to be a bigger priority or is there something that progressing with it.
Neil.
No.
In fact, the board has just reauthorized another 500000 shares in our stock repurchase plan.
It's restricting us as the volume.
There are some days that we only have 2000 shares traded at 5000 shares trade. It. So it takes quite a bit of time to go through the 500000.
500000 shares okay.
So probably this year to do that yes, no the liquidity constraint I totally understand.
And then when you think about expenses.
I know you said, the chief lending officers I'd be kind of being converted three roles.
Assuming we meet that.
The cost of the Earth.
Salaries associated with that kind of makes space. There were three people, but when you think about expenses going forward you kind of have a full year target.
Just trying to get.
The growth historically.
It's been very well managed because we generally see expenses.
Hmm.
Lower.
Yes.
Okay.
Okay.
Again, I think as always our first quarter is our highest quarter.
And.
Because of.
Bonuses and certain other expenses that we pay it.
Hey.
I believe we will be you'll see.
Over the next two quarters reductions.
From the $16 million level down to maybe a.
15, five to $15 3 million dollar level.
Got it Okay. That's helpful. I appreciate it.
Alright, thank you.
Again to ask a question please press star one.
And our next question will come from Nick <unk> with Piper Sandler.
And just a quick follow up are you still expecting the gateway transaction to close in the second quarter.
No we're expecting it to be closed in the second half of the year.
Thank you very much.
Okay.
Yeah.
Alright, thank you.
It appears that we have no further questions in the queue at this time.
Yeah.
Okay.
He has to everybody.
Yes.
Thank you ladies and gentlemen, this does conclude today's program. Thank you for your participation and you may disconnect at any time.
Yeah.
Okay.
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