Q1 2024 RBB Bancorp Earnings Call
Good day, ladies and gentlemen, and welcome to the RVP Bancorp first quarter 2024 earnings conference call.
At this time all participants are placed on a listen only mode.
The floor will be opened for questions and comments.
Blowing presentation.
It is now my pleasure to turn the floor over to your host.
Catherine way Investor Relations Officer, Bob <unk>.
May begin.
Thank you good day, everyone and thank you for joining us to discuss our BB Bank cards results for the first quarter of 'twenty 'twenty four.
With me today are Chief Executive Officer, David Morris, President, Johnny Lee Chief Financial Officer, Lynn Hopkins, Chief Credit Officer, Jeffrey Yeh, Chief administrative officer, Gary fan and Chief Risk Officer Vincent Liu.
David and Lynn will briefly summarize the results, which can be found in the earnings press release and Investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions I would ask that everyone. Please refer to the disclaimer regarding forward looking statements and the investor presentation and the company's SEC.
Billings now I'd like to turn the call over to <unk>, Chief Executive Officer, David Morris David.
Thank you Catherine Good day, everyone and thank you for joining us today.
First I'm happy to share that Lynn Hopkins has been formally appointed as our Chief Financial Officer.
We appreciated her expertise since joining hobby.
In late 2023, as interim CFO and look forward to her ongoing contributions.
And a special member of our leadership team.
Yeah.
Turning to our first quarter performance earnings and margin showed signs of stabilizing and loan balances remaining flat.
Net interest margin.
Declining four basis points and earnings declined two cents per share from last quarter's results. When we exclude the income from the C. D F I Award.
While changing expectations about the timing and size of our of rate.
Great cuts makes forecasting challenging we are cautiously optimistic that margins should start to creep back up as the.
Positive cost stabilized loan yields continued to increase.
Loans held for investment.
Remain stable this quarter at 3 billion after a few quarters of intentional declines.
We had expected some loan growth in the first quarter, but we're surprised by the pricing in the market and held back originations rather than adding loans at levels that would put further pressure on our profitability.
That's it.
We did originate approximately $69 million of commercial loans in the first quarter at a yield of eight 3%.
Coupled with renewal and other repricing activities.
Contributed to an 11 basis point increase in our overall loan portfolio yield of 6.07%.
With that I hand, it over to Lynn, who can go into some more detail about the quarter Linda.
Thank you David please.
Please feel free to refer to the Investor presentation, we have provided as I share my comments on the company's first quarter of 2024 financial performance.
Slide three of our Investor presentation has a summary of first quarter results net income was $8 million or <unk> 43 cents per diluted share so relatively stable compared to last quarter's 45 cents per share after adjusting for last quarter's $5 million C. D. F. I income there was no similar.
Income in the first quarter of 2024.
As David mentioned, our net interest margin decreased four basis points as our cost of funds increased 16 basis points, while our yield on interest, earning assets increased by 10 basis points from last quarter.
The earning asset yield expansion is mostly due to our total loan yield increasing 11 basis points.
Interest income remained stable at 54.8 million.
The increase in total cost of funds to 3.54% was due to the continued pressure on the cost of interest bearing deposits, which increased by 24 basis points, but was offset by the benefit of our $55 million redemption of subordinated notes during the fourth quarter and a small decline.
Line in average noninterest bearing liabilities.
As a result net interest income decreased 792000.
Noninterest income of $3 4 million decreased primarily due to the positive impact of last quarter's 5 million dollar C. D. F. I E. R. P Award.
The first quarter also benefited from the 724000 and gains on Oreo due to current appraisals on two properties and the sale of one property in the quarter.
As expected noninterest expenses increased by $576000 to $17 million due to seasonally high salaries and benefits offset by lower legal fees, which included a legal expense recovery of $165000 and lower regulatory.
Assessment fees.
Noninterest expenses in the second quarter are expected to remain around $17 million level.
Nonperforming loans increased to 36 million due to $7 7 million being placed on nonaccrual.
Distant consisting primarily of low L. T V single family mortgages, offset by $3 million of payoffs and pay downs non.
Nonperforming assets at March 31 totaled 37 million and included $1 1 million and two new Ariose.
Our allowance for loan losses remained stable at 1.3% of total loans held for investment and represented 116% of nonperforming loans.
Commercial real estate loans, and construction and land development loans were stable at 39% and 7% of our total loans.
On slide six and seven have additional details about our exposure in these portfolios.
Slide eight has details about our $1 5 billion dollar residential mortgage portfolio, which consists of work secured non QM mortgages, primarily in New York, and California, with an average LTV of 61%.
Slide 10 details about our deposit franchise total deposits were $3 billion at the end of the first quarter of $146 million decrease compared to the fourth quarter as we let more expensive time deposits roll off and maintain noninterest bearing deposits relatively stable.
Our average all in cost of deposits for the first quarter with $3 five 9%.
An increase of 21 basis points from the fourth quarter.
We continue to see upward pressure on our funding costs. The actions we took in the last two quarters, namely redeeming 55 million of subordinated notes and reducing wholesale deposits has reduced the pace of increase there.
We continue to implement longer term strategies to attract lower cost deposit, which we expect will contribute to improved funding costs over time.
Our tangible book value per share increased 1% during the first quarter to $23 68, due to earnings and accretive share repurchases offset by a $1.5 million increase in unrealized losses on our securities portfolio and dividends of $3 million.
We authorized a share repurchase plan of up to 1 million shares at the end of February our Richard repurchased about 80000 shares during the first quarter.
Our capital levels remained strong with all capital ratios above the regulatory well capitalized levels.
With that we're happy to take your questions. Operator would you. Please open up the call.
Thank you ladies and gentlemen, the floor is now open for questions.
If you have any questions or comments. Please press star one on your phone at this time.
We ask that we're posing your question you. Please pick up your handset if on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Okay.
Thank you.
Our first question is coming from Nathan race with Piper Sandler Your line is life, yes.
Hi, everyone Congrats.
Appointment formally.
Thank you Nathan.
Just a question on the margin outlook I think David alluded to in his comments.
First quarter me.
Mark a trough there. So just curious if that's actually the case and how you guys see.
Margin trending going forward and are hard for longer rate environment and also.
Sure.
Uh huh.
Rates on the short end of the curve.
You can start I'm, sorry think of them. We're looking at our net interest margin. We were pleased with the four basis point compression compared to the prior quarter and I think with the higher for longer outlook in the shape of the yield curve.
I think deposit pricing is still going to have some upward pressure on it however, we've taken that into consideration.
The modest I think originations in the first quarter and the repricing them, we were able to see that it resulted in just four basis points of compression.
So with I think some opportunity for loan growth, we would expect that our net interest margin would have the ability to come up a little bit, but I think it's still pretty challenging them currently.
So I don't know if I would say on trough is a strong word, but I think based on the opportunity for growth current interest rates our funding.
We have the opportunity for it to be stabilized well come up a little bit.
Okay, Great. That's helpful and I appreciate it's a pretty fluid environment, but just curious if you guys have any thoughts on just the pace of both loan and deposit growth going forward. This year.
Hi.
Loan and deposit growth would be.
Half of this year I think that's going to be in the low.
Yeah.
Low to mid single digits.
And I think loan growth will be more.
Still to the end of the year.
We're lucky enough to get a rate cut you may see some stimulation with that.
We're lucky enough to get one.
I think we've we've been noticing the pipelines are filling up though and I think those remained healthy it's really coming down to I think some price competition and so being selective on how we're able to grow the portfolio.
I think you saw that in the first quarter, because we pivot to look into the rest of the year and there's some opportunities there.
Okay, Great very helpful and just one last one for me I think last quarter unexpected when we were talking about since in the house for this quarter you guys. Obviously came in a little bit here in <unk>, just curious how you're thinking about the overall run rate trending.
Three two as well.
Sure Yeah, I think last quarter, we talked about a range of 17 to 17 and a half a million you know first quarter can be a little bit higher with taxes and benefits.
I think theres, an opportunity for those to sort of stabilize and we did have a recovery in this quarter was pushed down on a one of the line items. So I think that's being around 17 million mm looks approximately correct. However, as we participate and more.
More production and some modest loan growth.
Could come up a little bit off of that but.
Around $17 million is appropriate.
Okay great.
Most of that.
Thank you.
Our next question is coming from Kelly Motta with K B W. Your line is live.
Yeah.
Yeah.
To draw.
Hi, Kelly your line is life you might be on mute.
Okay, we can't appear to hear Kelly this time.
I will skip to the next question if Kelly wants to rejoin the queue. Please do.
Our next question is coming from Erik Zwick with half the group your line is nice.
Thank you Hello, everyone.
Wanted to start with maybe a follow up Lynn for you you mentioned that the you know what.
<unk> pipeline our loan pipeline.
Somewhat active today I'm curious if you could provide any color in terms of if theres any particular kind of product types or geographic regions.
That are particularly stronger than others, you know where youre seeing activity today.
Okay.
We're seeing activity.
Not in one specific area for seeing that both in the.
New York and California.
We're seeing it over all loan categories and types.
<unk>.
And all we're saying that the us including our retail mortgage.
Market is getting stronger.
And then we also see that the commercial side is getting much stronger too so weak.
Kind of encouraging.
At this time.
Hi.
It is very price competitive.
That is it's extremely price competitive right now.
So.
Okay. Thanks, David I appreciate the commentary there and I guess, the kind of the read there are lots of competitive on price.
Structure from your perspective is it still reasonable or you're not seeing any competitors, maybe kind of weakening there tend to be more competitive.
Our main competitors, we do not see anything changing we do have some competitors and they are.
In the marketplace that Oh.
That are not our main competitors that we will take our loans without deposits.
Which is not our strategy at this time.
Okay.
And then just from the press release I think you.
You mentioned about 288 million of securities available for sale are maturing over the next 12 months curious what the kind of average weighted yield on those might be and if you would just intend to kind of roll those back into new securities at higher yields and I assume that's maybe already contemplated in the commentary you gave on the outlook for the margin.
At this point.
Sure I think Scott how you phrased it is a reasonable assumption on our securities portfolio is appropriately sized for our balance sheet and with the securities Rolling off we are planning to reinvest in the portfolio.
There is good opportunity now to move up the yield on the securities portfolio as we reinvest them given the current.
Environment, but still looking to keep duration.
But relatively short I'm kind of in the four four to five year range.
Okay. Thank you.
I've been kind of switching over to you you mentioned when you've kind of put in place some strategies on the deposit side to improve the cost over time.
Color you could add there in terms of you know, what what you've changed or what you've got implemented recently.
Yeah.
Sure I think everyone can appreciate them maybe in a deposit base is is slow over time, it's a very competitive landscape.
We're focused on opportunities to maybe transitioned a little bit of our C. D base too savings and money market, maybe non maturity deposits with the expectation that we would be in a.
Declining rate environment, but you think it's going to take a few quarters for that to.
And be able to demonstrate any progress.
I think we've shared that we're focused on growing our C&I portfolio and the opportunities that are there.
With the expectation that that would have a positive impact on our noninterest bearing deposits.
As we move forward.
Thanks, and a quick follow up there just in terms of how the relationship managers and lenders are compensated any changes to kind.
Kind of at the incentives that would in a place.
A more favorable on bringing deposits in today.
To lunch.
So I can start others can follow up.
Generally no I'm not I think we can all recognize that again stiff competition. So we think that we have a good incentive program for them the folks here and.
We focus on bringing in noninterest bearing deposits. So I don't think there's any big changes and that's reflected in our operating results.
Thanks for taking my questions today.
Yeah. Thank you.
Yeah.
Thank you.
Ladies and gentlemen, if there would be any more questions or comments. Please indicate so no by pressing star one on your phone.
Thank you.
Uh huh.
Another question from Nathan race with Piper Sandler Your line is life.
Yes, hi.
Just a follow up on the expectations for share repurchases going forward.
Obviously slowed versus <unk>. So just curious for any updated thoughts.
I'll do it organization from a few weeks ago I believe.
Sure.
I think there was a little bit of a pause as we move through the process of reauthorizing or program. So I think at this point in time, given where our stock is priced and our tangible book value we.
Expects that we would remain active in our share repurchase the.
The maximum level that we're able to but.
Yeah, it's subject to market conditions, and we'd be evaluating it from time to time, but I. Appreciate the first quarter looked a little bit lighter than the fourth quarter as we transitioned into authorizing a new program.
Gotcha, So as things stand today do you think it would be closer to <unk> level in terms of future repurchases at least over the next quarter or two.
So I think look I think everyone needs to make their own investment decision and yeah, I think that we need to be able to pivots. So I appreciate what you're asking them.
Oh, I really want to comment on at this point is explained why we're a little bit lower for this quarter versus the fourth quarter.
And it's only a million shares out there. So I think we have the cash and the capital levels. If we choose to participate and so I think you can probably make a reasonable assumption there.
Understood sounds good and then just on the fee income going forward looks.
It looks like the.
Speaker Change: Gain on sale revenue ticked up nicely versus the fourth quarter any thoughts on just the overall run rate for fees going forward.
Sure. Thanks for that question, we we have been successful in originating loans and participating in the secondary market and selling them I think we see that growing a bit as we move forward into 'twenty 'twenty four mm.
So that would be our expectation and what the team is working on.
Okay.
Okay, Great and then just one last one just thinking about the reserve or ACO level going forward and you know obviously there was a nice improvement in credit quality. When you look at sub standard and our classified loans in the quarter just any thoughts on just kind of the <unk>.
Appetite to just continue to operate with this.
Bob.
A question are you guys can see that trending down or do you kind of want to keep it where it has come on the first quarter, just given expectations for loan growth going forward.
Right right, we do spend a lot of time analyzing that and we go through our process I think some of it is going to be dependent on how the credit cycle continues to unfold, how the economic environment.
But we have I think our portfolio is well protected where.
Speaker Change: I think the expectation is generally we like the level that it's at based on all the information that we have now until the extent that we have some growth I think we would potentially have some reserves, but I think we got to continue to evaluate it going forward. We have a lot of capital I think it's a healthier.
Or.
But we will have to monitor of the year as it unfolds.
Okay great.
I appreciate guys.
Taking my follow ups. Please again, yeah no. Thanks Nathan.
Yeah.
Thanks Keith.
We have no further questions on the line at this time I will hand, the call back over to Mr. David Morris for any closing remarks.
Once again, thank you for joining US today, we look forward to speaking to many of you in the coming days and weeks.
Have a nice day.
Bye bye.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.