Q1 2025 RBB Bancorp Earnings Call
Good day, everyone and good luck with the R. B B Bancorp first quarter 2025 earnings call.
Unknown Executive: Good day everyone and welcome to the RBB Bancorp first quarter 2025 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
Rebeca Rico: It is now my pleasure to turn the floor over to your host, Rebeca Rico. Ma'am, the floor is yours. Good day everyone and thank you for joining us to discuss RBB Bancorp results for the first quarter of 2025. With me today are Johnny Lee, David Morris, Lynn Hopkins, and Jeffrey Yang. David, Johnny, and Lynn will briefly summarize the results which can be found in the earnings press release and investor presentation. They're available on our investor relations website and then we'll open up the call to your questions.
It is now my pleasure to turn the floor over to your host Rebecca Rico Ma'am the floor is yours.
Speaker Change: Thank you Matthew.
Rebecca Rico: <unk>, everyone and thank you for joining us to discuss <unk> bancorp's results for the first part of that.
Speaker Change: With me today are John Amy Stephen Ward.
Hotcakes: Hotcakes at Jefferies.
Speaker Change: David Johnny Lynne will briefly summarize the results, which can be found in the earnings press release and Investor presentation are available on our Investor Relations website, and then well open up the call for your questions.
Unknown Executive: I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC file.
Speaker Change: I would ask that everyone. Please refer to the disclaimer regarding forward looking statements.
Speaker Change: That's your presentation and the company's SEC filings.
David Morris: Now I'd like to turn over the call to RBB Bancorp's Chief Executive Officer, David Morris. David? Thank you, Rebeca. Good day, everyone, and thank you for joining us today. First quarter, net income declined to $2.3 million, or $0.13 per share, as we took decisive strategic action to address our non-performing assets. We reduced our non-performing assets by 20% and our net exposure to non-performing loans by 32% to $51 million. To accomplish this, we sold 18 million of loans, recognized provisions of $6.7 million, and received paydowns of $1.8 million. We believe the provisions we have taken over the last few quarters have addressed the vast majority of potential losses in our non-performing loans.
Speaker Change: Now I'd like to turn over the call to RBC Bank.
Speaker Change: The executive officers, Dave any worries David Thank you Rebecca Good day, everyone and thank you for joining US today first quarter net income declined to $2 3 million or <unk> 13 per share as we took decisive strategic actions to address our nonperforming assets.
Speaker Change: We reduced our non performing assets by 20% and our net exposure to nonperforming loans by 32% to $51 million.
Speaker Change: To accomplish this we sold $18 million up loss recognized provisions of six.
Speaker Change: $7 million.
Speaker Change: <unk> received paydowns of one $8 million, we believe the provision we have taken up in the last few quarters have addressed the vast majority of potential losses, and our nonperforming loans.
Speaker Change: As we said last quarter.
David Morris: As we said last quarter, we are focusing on resolving our non-performing loans as quickly as possible while minimizing the impact of earnings and capital, and we think our actions in the first quarter helped accomplish this. We continue to work through our remaining non-performing assets and expect to be able to report additional progress in the coming quarters. We did downgrade a $5.3 million New York CRE loan to non-performing in the first quarter after the largest tenant moved out. While unfortunate, we feel relatively confident that it will be resolved without any loss of principal as the borrower is actively working to fill the vacancy and has also listed the property for sale.
Speaker Change: We are focusing on resolving our nonperforming loans as quickly as possible, while minimizing the impact to earnings and capital and we think our actions in the first quarter helped accomplish this.
Speaker Change: We continue to work through our remaining nonperforming assets and expect to be able to report additional progress in the coming quarters.
Speaker Change: We did downgrade a $5 3 million dollar New York CRE loan to nonperforming in the first quarter. After the largest tenants moved out while unfortunate.
Speaker Change: We feel relatively confident.
Speaker Change: It will be resolved without any loss of principal that's the borrower is actively working to fill the vacancy and has also lifted the property for sale.
David Morris: A recently completed appraisal on the property indicates an LTV of about 85%.
Speaker Change: A recently completed an appraisal on the property and the case.
Speaker Change: LTV of about 85%.
Johnny Lee: Now I'll hand it over to Johnny to talk about happier subjects like loan growth and margin expansion. Thank you, David. As David mentioned, in addition to making good progress resolving our troubled loans, we had strong loan growth in the first quarter, another quarter of NIM expansion. Loan-helpful investment grew by $90 million, or 12% on an annualized basis. driven by the thinking and execution of our growth initiatives. Growth in commercial SBA and SFR balances more than offset a decline in C&D loans. We've seen especially strong results from our in-house mortgage origination business, which despite the rare environment, originated $112 million in mortgages in the first quarter.
Speaker Change: Now I'll hand, it over to Johnny to talk about happier subjects like loan growth and margin expansion Johnny.
Johnny: Thank you David.
Johnny: As I mentioned in addition to making good progress resolving all travel.
Johnny: We had strong loan growth in the first quarter and another quarter of NIM expansion.
Johnny: Loans held for investment grew by $90 million or 12% volume an annualized basis.
Johnny: Driven by the continued execution of our growth initiatives.
Johnny: Growth in commercial SBA, and SF, our balances more than offset a decline in sea and Ddos.
We are seeing especially strong results from our in house market origination business, which despite the rate environment, Fortunately $112 million of mortgages in the first quarter.
Johnny: These contributed nicely to our total first quarter loan originations of $201 million at blended.
Johnny Lee: These contribute nicely to our total first quarter loan originations of $201 million at a blended yield of 6.77%. which will continue to support our asset yields and margins going forward. Our pipelines remain full, so we expect to continue to see long growth, though likely at a more moderate pace than we experienced in the first quarter. Net interest margin increased 12 basis points to 2.88% due primarily to a 29 basis point decline in the cost of our interest bearing deposit, which drove a 17 basis point decline in our overall cost of funds. We expect some incremental decreases in funding costs from here, but likely at a slower pace than we've seen since they peaked in the third quarter last year.
Johnny: Blended yield of 677%.
Johnny: Which will continue to support our asset yields and margins going forward.
Johnny: Our pipelines remain full so we expect to continue to see loan growth.
Johnny: Likely at a more moderate pace than we experienced in the first quarter.
Johnny: Net interest margin increased 12 basis points to two 8% due primarily to a 29 basis point decline in cost of our interest bearing deposit, which drove a 17 basis point decline in our overall cost of funds.
Johnny: Yes.
Johnny: We expect some incremental decreases in funding costs from here, but likely at a slower pace than we've seen since they peaked in the third quarter last year.
Johnny: It's worth highlighting that since that time, we've reduced the cost of deposits by 50 basis points and the total cost of funds by 42 basis points.
Johnny Lee: It's worth highlighting that since that time, we've reduced the cost of deposits by 50 basis points and the total cost of funds by 42 basis points.
Lynn Hopkins: With that, I'll hand it over to Lynn to talk about the results in more detail. Thank you, Johnny. Please feel free to refer to the investor presentation we've provided as I share my comments on the company's first quarter of 2025 financial performance.
Speaker Change: With that I'll hand, it over to lend to talk about it results in more detail then.
Speaker Change: Thank you Tony.
Speaker Change: Please feel free to refer to the Investor presentation, we've provided as I share my comments on the company's first quarter of 2025 financial performance.
Speaker Change: Slide three of our Investor presentation has a summary of our first quarter results.
Lynn Hopkins: Slide 3 of our investor presentation has a summary of our first quarter results. As David mentioned, net income was $2.3 million, or $0.13 per diluted share. First quarter results were negatively impacted by a $6.7 million pre-tax provision for credit losses as we worked to address several non-performing assets. Net interest income before the provision increased for the 3rd consecutive quarter to $26.2 million. We are optimistic that lower future provisions and the redeployment of capital previously tied up in non-performing assets will result in increasing net interest income after provisions in the coming quarters. As Johnny mentioned, we have another quarter of net interest margin expansion, our third in a row.
Speaker Change: David mentioned net income was $2 3 million or 13 cents per diluted share.
Speaker Change: First quarter results were negatively impacted by a $6 $7 million pretax provision for credit losses.
Speaker Change: We worked to address several nonperforming assets.
Net interest income before the provision increase for the third consecutive quarter to $26 2 million.
Speaker Change: We're optimistic that a lower future provisions and the redeployment of capital previously tied up in nonperforming assets will result in increasing net interest income after provisions in the coming quarters.
Speaker Change: As Johnny mentioned, we had another quarter of net interest margin expansion, our third in a row.
Lynn Hopkins: primarily driven by the decrease in the cost of deposits. Our spot rate on deposits on March 31st was 3.06%, or 7 basis points below the average of 313 for the first quarter. So costs are likely to continue to decrease, but at a more measured pace in future quarters. Funding costs also included the first quarter maturity of $150 million of low-cost FHLB term advances, which were largely replaced with $110 million of FHLB advances with an average rate of $388. Non-interest income declined by $4.34 million to $2.3 million in the first quarter due to lower gain on sale of loans and other income that was partially offset by higher fees and servicing income.
Speaker Change: Primarily driven by the decrease in the cost of deposit.
Speaker Change: Our spot rate on deposits at March 31st was 3.06% or seven basis points below the average of $3 13 for the first quarter.
Speaker Change: So costs are likely to continue to decrease but at a more measured pace in future quarters.
Speaker Change: Funding costs also included the first quarter maturity of $150 million of low cost that's HIV, chairman advances, which were largely replaced with $110 million.
Speaker Change: S H there'll be advances with an average rate of 388.
Noninterest income declined by 434 to $2 3 million in the first quarter due to lower gain on sale of loans and other income net was partially offset by higher fees and servicing income.
Lynn Hopkins: First quarter non-interest expenses increased by $873,000 to $18.5 million due to a seasonal increase in comp and benefits, higher data processing fees, and an increase in legal and professional expenses. We expect comp and benefit expenses to normalize next quarter, and for legal and professional expenses to trend down from here. Turning to credit, the provision for credit losses was $6.7 million compared to $6 million in the prior quarter. The first quarter provision was due to an increase in specific reserves of $2.8 million, net charge-offs of $2.6 million, and an increase in general reserves of $1.3 million due mainly to loan growth.
Speaker Change: First quarter noninterest expenses increased by 873000 to $18 5 million due to a seasonal increase in comp and benefits higher data processing fees and an increase in legal and professional expenses we.
Speaker Change: We expect comp and benefit expenses to normalize next quarter and for legal and professional expenses to trend down from here.
Speaker Change: Turning to credit the provision for credit losses was $6 7 million compared to $6 million in the prior quarter. The first quarter provision was due to an increase in specific reserves of $2 8 million net charge offs of $2 6 million and an.
Speaker Change: Kris and general reserves of one 3 million due mainly to loan growth.
Lynn Hopkins: The increase in specific reserves relates mostly to two lending relationships. Net charge-offs included $1.2 million related to an $8.8 million loan that was moved to REO and subsequently sold, and $1.4 million related to a bulk sale of $10.8 million of underperforming SFR mortgages, of which $6.5 million were on non-accrual at year-end.
Speaker Change: The increase in specific reserves relate mostly to two lending relationships.
Speaker Change: Charge offs included one 2 million related to an $8 8 million dollar loan that was moved to Oreo and subsequently sold and $1 4 million related to a bulk sale of $10 8 million of underperforming SSR mortgages of which $6 5 million were on non accrual at year end.
Speaker Change: Yeah.
Speaker Change: Slide five and six have additional color on our loan portfolio and yields.
Lynn Hopkins: Slide 5 and 6 have additional color on our Loan Portfolio and Yields. The Loan Portfolio Yields was stable from the fourth quarter at 6.03%.
Speaker Change: The portfolio yield was stable from the fourth quarter at six 3%.
Lynn Hopkins: Slide 7 has details about our $1.5 billion residential mortgage portfolio, which remains stable and consists of well-secured, non-QM mortgages, primarily in New York and California, with an average LTV of 55%. Slides 9-12 have details on asset quality, some of which David has already covered in detail. MPOs decreased $20.7 million or 25% to $60.4 million and represent 1.92% of loans held for investment at quarter end. With the increase in specific reserves to $9.7 million, our net exposure to MTL decreased 32% to $50.6 million. So standard loans decreased $24 million and totaled $76.4 at the end of the first quarter.
Speaker Change: Slide seven details about our $1 $5 billion residential mortgage portfolio, which remains stable and consistent well secured non QM mortgages, primarily in New York, and California, with an average LTV of 55%.
Speaker Change: Slide nine through 12 have details on asset quality.
David: Of which David has already covered in detail.
David: Npls decreased $20 7 million or 25% to $60 4 million and represent 192% of loans held for investment at quarter end.
David: With the increase in specific reserve to $9 $7 million, our net exposure to npls decreased 32% to $50 $6 million.
David: Substandard loans decreased 24 million and totaled $76 four at the end of the first quarter. The decrease was primarily due to $11 seven.
Lynn Hopkins: The decrease was primarily due to $11.7 million in loan sales. Transfers to REO totaling $12.8 million, of which $8.8 million was subsequently sold. And payoffs and paydowns totaling $5.4 million. These decreases were partially offset by downgrades of two loans totaling $6.2 million. Of the total substandard loans at March 31, $16 million were on accrual status. The ratio of our allowance for loan losses to total loans held for investment increased by 9 basis points to 1.65%, inclusive of the specific reserves, while the coverage ratio of our allowance for loan losses to non-performing loans increased to 86%, up from 68%.
David: $7 million in loan sale.
David: First to ARIA totaling $12 8 million.
David: With $8 8 million was subsequently sold and payoffs and pay downs totaling $5 4 million.
David: These decreases were partially offset by downgrades of two loans totaling $6 2 million.
David: Of the total substandard loans at March 31st 16 million were on accrual status.
David: The ratio of our allowance for loan losses to total loans held for investments increased by nine basis points to 165% inclusive of the specific reserve, while the coverage ratio of our allowance for loan losses to nonperforming loans increased to 86%.
David: Up from 68%.
Lynn Hopkins: When we exclude specific reserves and individually reviewed loans, the ratio of allowance for loan losses to loans held for investment was up one basis point to 1.36 percent at the end of the first quarter.
When we exclude specific reserves and individually reviewed loans the ratio of allowance for loan losses to loans held for investment was up one basis point to 136% at the end of the first quarter.
Lynn Hopkins: 5313.
David: Slide 313.
Lynn Hopkins: have details about our deposit franchise. Total deposits increased at an 8% annualized rate from the fourth quarter to $3.14 billion with growth in money market accounts and CDs more than offsetting the decline in non-interest bearing accounts. Our tangible book value per share increased to $24.63. Our capital ratios remain strong with all capital ratios above regulatory well-capitalized levels.
David: As details about our deposit franchise.
David: Total deposits increased at an 8% annualized rate in the fourth quarter to $3, one 4 billion.
David: We have growth in money market accounts, and Cds more than offsetting a decline in noninterest bearing accounts.
David: Our tangible book value per share increased to $24 six three.
David: Our capital ratios remained strong with all capital ratios above regulatory well capitalized levels.
David Morris: Now I'd like to hand it back over to David and Johnny for a few closing remarks. Thank you, Lynn.
Speaker Change: Now I'd like to hand, it back over to David and Johnny for a few closing remarks.
Speaker Change: Thank you Lynn.
David Morris: As this is my last earnings call here at RBB, I want to take a moment to express my gratitude to all of our employees, customers, the board, and our shareholders. We have had our share of challenges over the last few years, but have not lost sight of our goal to be the bank of choice for Asian Americans nationwide. I've enjoyed the friendships I've built since joining RBB over 15 years ago, and I look forward to continuing to be of service on our board of directors.
Speaker Change: This is my last earnings call here at RBC I don't want to take a moment to express my gratitude to all all of our employees customers the board and our shareholders.
Speaker Change: We have had our share of challenges over the last few years, but have not lost sight of our goal to be the bank of choice for Asian Americans nationwide.
Speaker Change: <unk> joins the friendships.
Speaker Change: Since joining RVP over 15 years ago.
Speaker Change: Look forward to continuing to be serviced.
Speaker Change: Our board of directors.
Johnny Lee: Johnny. Thank you, David, and thank you for your years of leadership and contributions to the oil business. We are particularly grateful for all the work you have done over the last year to work through our non-performing aspects. And we look forward to your continuing input and guidance as a member of board directors.
Speaker Change: Johnny.
Speaker Change: Thank you David and thank you for your years of leadership and contributions to our business plan.
Speaker Change: We are particularly grateful for all the work you have done over the last year to work through our nonperforming assets.
Speaker Change: And we look forward to your continued important guidance as a member of board of directors.
Unknown Executive: With that, we are happy to take your questions.
Speaker Change: With that we're happy to take your questions. Operator, Please open up the call.
Unknown Executive: Operator, please open up the call. Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone.
Certainly everyone at this time, we'll be conducting a question and answer session.
Speaker Change: You have any questions or comments. Please press star one on your phone at this time we.
Speaker Change: We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Your first question is coming from Brendan Nosal from Hovde Group. Your line is live.
Brendan Nosal: Your first question is coming from Brendan Nosal from Hovd Group. Your line is live. Good afternoon, everybody. Hope you're doing well. Thank you.
Speaker Change: Thank you everybody hope you're doing well.
Speaker Change: Okay.
Speaker Change: Maybe just starting off here on capital.
Lynn Hopkins: Maybe just starting off here on capital, we'd just love to get your thoughts, your updated thoughts that is on potential for sharing purchase at some point this year. Feels like you're getting better line of sight toward asset quality resolution and made progress this quarter. Capital ratios are strong and obviously the pricing for a buyback would remain pretty attractive. Thank you and thanks for starting with that. I think we all can recognize that with our current share price and our capital ratios, a buyback is one of the best uses of our excess capital. So we are working hard to put a buyback in place and hope to have more to report to everyone soon.
Speaker Change: Love to get your thoughts.
Speaker Change: So your updated thoughts on potential for share repurchases. Some point this year it feels like Youre getting a better line of sight toward asset quality resolution and made progress this quarter capital ratios are strong and obviously the the pricing for a buyback would remain pretty attractive.
Speaker Change: Thank you and thanks for starting with that I think we all can recognize that with our current share price and our capital ratios. A buyback is one of the best uses of our excess capital. So we are working hard to put a buyback in place and hope to have more to report to everyone. Soon.
Speaker Change: Okay. Thanks for that link.
Lynn Hopkins: Thanks for that, Lynn.
Lynn Hopkins: Maybe moving over to a couple of dynamics within the margin, maybe just first, when during the quarter exactly did that FHLB roll from the lower cost to the higher cost one, just to get a sense of how much that is embedded in this quarter's margin? Probably could answer that a couple of different ways. It's fully priced into our March net interest margin, and I would say our March net interest margin is a little bit below the whole quarter's average. Obviously, the FHLB advances at $150 million are just a fraction of our total funding base, even though they needed to come up into the mid- to high-3s.
Speaker Change: Maybe moving over to a couple of dynamics within the margin maybe just first one during the quarter exactly did that at <unk>.
Speaker Change: Roll from the lower cost to the higher cost well I used to get a sense of how much that is embedded in this quarter's margin.
Speaker Change: Probably could answer that a couple of different ways.
Speaker Change: Fully priced into our March.
Speaker Change: Net interest margin and I would say our net margin net interest margin is a little bit below the full quarter of average obviously, the FHFA advances that $150 million or just a fraction of our total Fannie Mae even though they needed to come up.
Speaker Change: So the mid to high threes.
Speaker Change: Okay. That's helpful.
Brendan Nosal: Okay, that's helpful.
Brendan Nosal: Last one for me before I step back here. Just wanted to hit on the interplay of the margin and non-accruals for a minute. Can you just give us a sense of how much margin drag you're currently experiencing from the non-accrual base at the moment? I don't know that I translated it completely into basis points, but there's certainly a drag on our net interest margin. Last year when we were reversing our interest income, when we were placing them on non-accrual, those were expensive. I think when we look at $20 million able to come back onto accrual status at 6%, it's about $1.2 million in the year.
Speaker Change: Last one for me before I step back here just wanted to hit on the interplay of.
Speaker Change: The margin in non accruals for a minute can you just give us a sense of how much of a margin drag you're currently experiencing from the nonaccrual base at the moment.
I don't have any translated completely into basis points.
Speaker Change: There is certainly.
Speaker Change: A drag on our net interest margin last year, when we were reversing.
Speaker Change: Interest.
Speaker Change: Income when we are placing them on nonaccrual.
Speaker Change: Those were expensive.
Speaker Change: I think when we look at just $20 million, you're able to come back onto accrual status at 6% that's about one $2 million in the year.
Speaker Change: So that's probably how I would look at it and we have.
Brendan Nosal: That's probably how I would look at it. 60 million more to go, so. Yeah, yeah.
Speaker Change: $60 million more to go.
Speaker Change: <unk>.
Speaker Change: Yes, yes.
Brendan Nosal: All right. Fantastic. Thanks for taking the question. Yeah, no, thank you. Thank you.
Speaker Change: Alright fantastic thanks for taking the questions.
Speaker Change: Yeah. Thank you.
Thank you. Your next question is coming from Matthew Clark from Piper Sandler Your line is live.
Matthew Clark: Your next question is coming from Matthew Clark from Piper Sandler. Your line is live. Hey, good morning, everyone. I'm just on the... Staying on the margin, did you have any kind of outsized interest recoveries in the quarter from? You know, unloading some of these problem loans, just trying to get a sense if There was any outsized reversals in the quarter. Fair question. The short answer is no. We tried to, I think, articulate that in the earnings release. So for this quarter, the resolution of the non-performing assets did not result in the recapture of any interest.
Matthew Clark: Hey, good morning, everyone.
Speaker Change: Hum.
Speaker Change: Just on the.
Speaker Change: Staying on the margin.
Speaker Change: Did you have any.
Speaker Change: <unk>.
Speaker Change: Kind of outsized interest recoveries in the quarter from.
Speaker Change:
Speaker Change: Unloading some of these problem loans I'm, just trying to get a sense.
Speaker Change: There was any outsized.
Speaker Change: Reversals in the quarter.
Speaker Change: Sure.
Speaker Change: Fair Fair question and I did.
Speaker Change: The short answer is now.
Speaker Change: We tried to I think articulate that in our earnings.
Speaker Change: I think really so for this quarter are the resolution of the nonperforming assets did not result in a recapture of any interest.
Matthew Clark: income, with the lungs being sold and then also a couple of them moving to REO.
Speaker Change: Income.
Speaker Change: The loans being sold.
Speaker Change: And then also a couple of them moving to ARIA.
Speaker Change: Okay.
Matthew Clark: Okay, and what's your appetite for doing more of these problem loan sales at this stage? Okay, we believe we want to keep all of our options open. However, we believe that we're well reserved. for future write-offs with Eddie. Yeah. Okay.
Speaker Change: And what's your appetite for doing more of these problem loan sales at this stage.
Speaker Change: Okay, we believe.
We want to keep all of our options open. However, we believe that we're well reserved.
Speaker Change: For future.
Speaker Change: Write offs of deferred.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: I think they were let me add I think we were opportunistic and the sales that occurred in the first quarter. Obviously, we took some charge offs associated with them.
Matthew Clark: So I think they were, let me add, I think we were opportunistic in the sales that occurred in the first quarter. Obviously we took some charge-offs associated with them. One was it's a unique property, we would have had operating costs. We took the opportunity to get that closed by quarter end. I think having the opportunity to approach a bulk sale where a majority of them had been on nonaccrual at year-end, and then we were able to fold in some other less desirable SFRs, and again, get it done by quarter-end, helped move it forward. I think for what's left, we believe that we're adequately reserved for what we would need to do to take action, and we are open to sales, working with the borrowers to return them to accrual status if that was a possibility, but do look to add them back to being performing assets or redeploying the money into earning assets.
Speaker Change: One that was a unique property we would have had operating costs, we took the opportunity to get back to close by quarter end.
Speaker Change: I think having the opportunity to.
Speaker Change: Approach a bulk sale our a majority of them had been on non accrual at year end and then we were able to fold in some other less desirable FSFR.
Speaker Change: And again get it done by quarter and help to move it forward.
Speaker Change: Thanks for what's left.
Speaker Change: We believe that were adequately reserved for what we would need to do to take action.
Speaker Change: And we are open to.
Speaker Change: Now sales.
Speaker Change: Working with the borrowers.
Speaker Change: Turn them to accrual status if that was a possibility.
Speaker Change: But do you look to add them back to being performing assets or redeploying the money into earning assets.
Speaker Change: Yes.
Speaker Change: Okay, and then just on.
Matthew Clark: Okay, and then just on...
Speaker Change: The tariff war have you have you all I know, it's probably still a little early but have you made.
Unknown Executive: The tariff war, have you all, you know, it's probably still a little early, but have you made Have you done any work to try to... ring fence or quantify what exposure you might have from kind of an import-export perspective and maybe even from an indirect perspective.
Speaker Change: Have you done any work to try to.
Speaker Change: Ring fence or quantify what exposure you might have from kind of an import export perspective, and maybe even from an indirect perspective.
Johnny: Hi, Matthew this is Johnny.
Johnny Lee: I am happy to do this, Johnny. I guess, you know, we have reached out to our top 10 customers just to do a health check, if you will. So far, yeah, we don't observe any potential financial impacts at this time. Obviously, things are, you know, still... There's still uncertainty here with the, you know, changing.
Speaker Change: Yes.
Speaker Change: We have reached out to us.
Speaker Change: Top 10 customers in just two.
Speaker Change: Held shift if you will.
Speaker Change: So far yes.
Speaker Change: We don't.
Speaker Change: Observe any potential financial impact at this time obviously.
Speaker Change: Still.
Speaker Change: There is still uncertainty here with the changing.
Speaker Change: So returns associated with these tiers and know how it's going to be upon everything, but so far it's a judgment.
Speaker Change: Observe any.
Speaker Change: Potential financial impact and also just keep in mind that our overall eni to refinance mix of the loan to our total portfolio.
Unknown Executive: Unknown Executive, Robert Terrell, Geraldine Pannu, James Kao, Johnny Lee, Geraldine Pannu, Geraldine Pannu, Geraldine Pannu, Geraldine Pannu, Geraldine Pannu, Geraldine Pannu, Okay. Okay.
Speaker Change: The portfolios contribute occurrence of a 4% only.
Speaker Change: So again.
Speaker Change: Rocket interest mix of our loan portfolio at this time.
Speaker Change: Okay.
Matthew Clark: And the last one for me, just on the gain on sale this quarter, a little light, maybe speak to the weakness there and your outlook, if you could. I'll start, so I'll start. Loan sales were a little bit lower in the first quarter. We did take the opportunity to keep some of it on the balance sheet. I believe that there is a little bit of a pipeline building on SBA that has larger gains. And I think our outlook is that it would return to more normalized levels that we at least saw in the fourth quarter.
Speaker Change: And then last one for me just on the gain on sale this quarter a little light.
Speaker Change: Let me speak to the weakness there and your outlook.
Speaker Change: If you could.
Mr Stark: Certainly Mr Stark.
So I'll start.
Mr Stark: <unk> sales were a little bit lower in the first quarter, we did take the opportunity to keep some of it on the balance sheet.
Mr Stark: We believe that there is a little bit of a pipeline building.
Speaker Change: On SBA that have larger gains.
Speaker Change: And I think our outlook is that it would return to more normalized levels that we at least saw saw in the fourth quarter.
Speaker Change: Yeah, Okay, great. Thank you.
Matthew Clark: Yeah, okay.
Matthew Clark: Thank you.
Speaker Change: Yes.
Speaker Change: You want to add on to an office just wanted to ask a comment on the SBA side, we did have new hires.
Matthew Clark: I want to add comment on the SBA side. We did have new hires right now at the beginning of January, so yeah, they're coming online. So we do expect a higher volume of SBA loans being funded.
Speaker Change: Beginning of January.
Speaker Change: So yes, they're coming online so we do expect.
Speaker Change: The higher volume of SBA loans being funded.
Speaker Change: In Q2.
Speaker Change: Great. Thanks again.
Matthew Clark: Great, thanks again.
Speaker Change: Thank you. Your next question is coming from Andrew <unk> from Stephens. Your line is live.
Unknown Executive: Thank you.
Andrew Terrell: Your next question is coming from Andrew Terrell from Stevens. Your line is live. Hey, good afternoon, good morning. Hey, I wanted to ask on just I heard some of the comments early on, it sounds like expectations around loan growth are still generally positive, maybe at a slower pace relative to a pretty, pretty strong quarter here in the first quarter.
Speaker Change: Hi, good afternoon or good morning.
Speaker Change: Hey, I wanted to ask on just.
Speaker Change: I heard the comments now early on it sounds like expectations around loan growth are still.
Speaker Change: Generally positive maybe at a slower pace relative to a pretty pretty strong corner here in the first quarter, but you know what.
Lynn Hopkins: But, you know, I wanted to shift to the deposits and, you know, just get a sense on, you know, expectations around ability to core fund that, that expected loan growth, the sensitivity around the 100% loan to deposit ratio, if any. And then I also wanted to drill down a bit on if you have any color on the non interest bearing deposit trends, it looks like off a bit towards the end of the period, any color as to what what's a drove the NIB rotation this quarter. Sure, I'll start and you can add. So, good question, Andrew, thank you.
Speaker Change: It does shift the deposits and just get a sense.
Speaker Change: Spectation around ability to core fund that.
Speaker Change: Expected loan growth the sensitivity around the 100% loan and deposit ratio if any and then I also wanted to drill down a bit on mix.
Speaker Change: Any color on the noninterest bearing deposit trends it looks like off a bit towards the end of the period any color as to what drove the niv irritation in this quarter.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Sorry man so.
Speaker Change: Good question, Andrew Thank you.
Lynn Hopkins: With respect to the non-interfering deposits, I think some of it was seasonal business activities we observed, and then we did observe some migration into higher-yielding money market and CD products. So, I think we did observe some of that in the first quarter. We did have a successful CD campaign in the first quarter that we were able to reduce our reliance on wholesale funding a little bit when you consider FHLB advances and our brokered funds. I think that we foresee success in being able to fund our loan growth organically. And again, our reliance on wholesale funding, I think, is modest.
Speaker Change: With respect to the noninterest bearing.
Speaker Change: Deposit and then some of it was seasonal business activities we have.
Speaker Change: Served and then we did observe some migration into higher yielding money market and CD products.
Speaker Change: So I did I think we did observe some of that in the first quarter.
Speaker Change: We did have a successful CD campaign in the first quarter.
Speaker Change: That we were able to reduce our reliance on wholesale funding a little better when you consider FHL the advances and our brokered funds.
Speaker Change: I think that we foresee success and being able to fund our loan growth organically.
Speaker Change: And again, our reliance on wholesale funding I think is modest we have some room there.
Lynn Hopkins: We have some room there to the extent that loan growth remains at the similar levels.
Speaker Change: To the extent that loan growth remains at a similar level and then we still remain focused on <unk>.
Lynn Hopkins: And then we still remain focused on CNI production, how we can bring in some additional non-interfering deposits, but that will take a lot longer time period. Got it. Thank you. Thank you, Lynn. I appreciate it. And then also, just do you have the weighted average? It looks like the FHLB that you added in the quarter had varying maturities. Do you have the weighted average term or the range of terms there? Sure, um, so, uh... A hundred and thirty million of them are put-able advances with the longest final terms at seven years. However, the put options at the FHLB side range from, I'm thinking, June until September this year, so pretty short on the FHLB's call option side of things with final maturities at three, four, and seven years.
Speaker Change: C&I production, how we can bring in some additional noninterest bearing deposit.
Speaker Change: We will take a lot longer time periods.
Speaker Change: Got it. Thank you thank you and I appreciate it.
Speaker Change: Then also just do you have the weighted average I mean, it looks like the average will be that you added in the quarter.
Speaker Change: At varying maturities do you have the weighted average term for the range of terms there.
Speaker Change: Sure.
Speaker Change: So.
Speaker Change: $130 million of them are puttable advances with our longest final terms at seven years.
The put options.
Speaker Change: Okay.
Speaker Change: <unk> side range.
Speaker Change: Our range from Im thinking then June until September of this year, so pretty short on.
Speaker Change: <unk> call option side of things with final maturities.
Speaker Change: Three four and seven years.
Lynn Hopkins: I got it. Okay. I appreciate it.
Speaker Change: Got it okay I appreciate it.
Andrew Terrell: And yeah, I just want to say, David, it's been a pleasure speaking with you on these quarterly calls for a while now. So congratulations. Okay, thanks. Thanks. Thank you.
David: Hey, I just wanted to say David it's been a pleasure speaking with you on these quarterly calls for for a while now so congratulations.
Speaker Change: Okay. Thanks.
Speaker Change: Yes.
Speaker Change: Thank you and once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Unknown Executive: And once again, everyone, if you have any questions or comments, please press star, then one on your phone.
Kelly Motta: Your next question is coming from Kelly Motta from KBW. Your line is live. Hi, thank you so much for the question. I just, again, want to echo the sentiments of David.
Speaker Change: Your next question is coming from Kelly Motta from <unk>. Your line is live.
Kelly Motta: Hi, Thank you so much for the question I, just again want to echo those sentiments as David has been a pleasure working with you and congrats on a well deserved retirement and congrats again Johnny on.
Kelly Motta: It's been a pleasure working with you and congrats on a well-deserved retirement and congrats again, Johnny, on the upcoming role. I guess with the credit, I apologize if you've addressed this at this point, but in terms of the workout, I know you talked a bit about your approach to the sales. I'm just wondering in terms of the timeframe of this workout, I think originally you were hopeful that would be completed by mid this year. However, it feels like that might get pushed out a bit. Do you have any sense in terms of the timeframe in your ability to work out these credits, understanding that there's a lot of parties, insurance involved, etc?
Speaker Change: The upcoming role.
I guess with with the credit I apologize its use.
Speaker Change: <unk> addresses at at this point, but in terms of the work out I know you talked a bit about your approach to the sales I'm just wondering in terms of the timeframe of this work out I think originally you were hopeful that.
That would be completed by mid this year it feels like that might get pushed out a bit do you have any sense in terms of the timeframe in the your ability to work out these credits understanding that theres a lot of parties insurance involved et cetera.
Kelly Motta: Thanks for the question. It is really hard for us to tell exactly when the NPLs are going to come off our balance sheet and to decrease it down to our normal baseline. However, we believe that by the second half of 2025, that could be our target. NPLs will continue to be lumpy through 2025. It's going to continue to be out there. and so forth. But we are making steady progress on all of these right now. We're making steady progress and we expect to see more to go off in the second quarter. Got it. That's really helpful.
Kelly Motta: Yes Kelly.
Kelly Motta: Thanks for the question. It is really hard for us to tell exactly when the npls are going to come off our balance sheet.
Kelly Motta: And to decrease it down to our normal baseline.
Kelly Motta: However, we believe that by the second half of 2025.
Kelly Motta: That could be our target.
Kelly Motta: Npls will continue to be lumpy through.
Kelly Motta: 2025, it's going to continue to be out there.
Kelly Motta: And so forth, but we are making steady progress.
Kelly Motta: On qualities.
Kelly Motta: Right now, we're making steady progress and we expect to see more to go off in the second quarter.
Got it that's that's.
Kelly Motta: And I appreciate the color on the trade finance and the C&I component. I know it's relatively small, but digging in a little further, I believe a lot of those factories in China have shifted production during the last Trump administration.
Kelly Motta: Really helpful and.
Kelly Motta: And I appreciate the color on the trade finance in the CNI component I know.
Kelly Motta: It's relatively small but.
Kelly Motta: Digging in a little further a I believe a lot of those factories in China have shifted.
Speaker Change: Auction during the last Trump administration do you do you have any.
Speaker Change: Ballpark as to your exposure to China versus.
Kelly Motta: Ballpark as to your exposure to China versus some other countries, given you're a Chinese-American bank and might get lumped into that narrative with that. that niche there, just trying to understand what the actual exposure might be.
Speaker Change: Some other some other.
Speaker Change: Countries given your.
Speaker Change: Chinese American bank and might get.
Speaker Change: Lumped into that narrative.
Speaker Change: With that.
Speaker Change: That niche Theyre, just trying to understand what the actual exposure might be.
Johnny Lee: Kelly, that's a good question. And all I can say is right now, as of today, all we know is that there's that 10% baseline, right, that impacts all countries. And then for me personally, I separate them into two buckets, one that's US-China and US-Russia. So right now, U.S.-China, I mean, the China tariff is obviously up to, what, 145%. and Russell D. Wuerl. They're stood up based on 10, and then additionally there will be, you know, obviously depending on the trade balance between the U.S. and those respective countries, there will be different tariffs potentially applied to them.
Speaker Change: Kevin that's a good question.
Speaker Change: All I can say is right now as of today.
Speaker Change: We know there is that 10% baseline right.
Speaker Change: All countries.
Speaker Change: So.
Speaker Change: For me personally to separate into two buckets one our.
Speaker Change: U S China U S rough in the World. So right now U S. China RMB in China carriers, often is up 245%.
Speaker Change: Rugby world stood.
Speaker Change: Stood up based on 10 and <unk>.
Speaker Change: Additionally.
Speaker Change: Obviously.
Speaker Change: Trading balance between us in those respective countries there'll be different tiers.
Speaker Change: Potentially a platform for ONEOK to pause.
Johnny Lee: But right now it's at a pause. So it remains to be seen how that all going to play out. Obviously, it impacts different industries or different types of businesses that get impacted somewhat differently. So it remains to be played out.
Speaker Change: So.
Speaker Change: And to be seen how is that all going to play out obviously you impacts.
Speaker Change: You have different industries or different types of businesses impacted somewhat differently.
Speaker Change: So it remains to be played out.
Lynn Hopkins: And Kelly, in addition to Johnny's comments, you know, our loan portfolio, the 4% we mentioned, about $120 million in trade finance, you know, the portion that's China specific versus other countries or markets where they might have taken action. I don't think we have that exactly broken down within that category. But again, I think, anecdotally, with the reach out, we're not identifying anything at this point. Yeah, nothing at this point. And in fact, our existing borrowers, they're all very seasoned. You know, obviously, they've either made preparations in advance already, or they have contingency plans going in place.
Kelly Motta: And Kelly.
In addition to Tony's comments.
Kelly Motta: Our loan portfolio, the 4%, we mentioned about $120 million.
Kelly Motta: In trade finance.
Kelly Motta: The port the portion that's China specific versus other countries or markets, where they might have taken action and I don't think we have that exactly broken down within that category.
Kelly Motta: But again, I think anecdotally with the reach out right or not identifying anything it Brian.
Speaker Change: Yes, nothing at this point in.
Kelly Motta: In fact, our existing policyholders season.
Speaker Change: Dave under made preparations in advance already or.
Kelly Motta: <unk> strategic plans put in place.
Kelly Motta: That's all I'm going to have to do.
Kelly Motta: Yes.
Kelly Motta: Okay.
Kelly Motta: That's it.
Kelly Motta: That's all. Thanks a lot. Got it.
Kelly Motta: I'll pick up.
Kelly Motta: Got it.
Kelly Motta: Last question for me. It sounds like, again, there's a lot of optimism about the loan growth pipeline, obviously not as strong as what was a really strong first quarter, but wondering if you could provide some insight as to the composition of that pipeline, either if there's any particular markets that are particularly strong that you're seeing, or which categories the pipeline is weighted to. Sure, I can answer that. So, our pipeline remains strong and pretty much still primarily contributed by our CRE loans and single family residents. However, our CNI are starting to pick up that that takes time, but because of the new hires that we have recently, since it began this year, I do expect that to incrementally contribute to that pipeline.
Speaker Change: Last question for me it sounds like again Theres a lot of optimism about the loan growth pipeline, obviously not is not as strong as what was a really strong first quarter, but wondering if you could provide some insight as to the composition of that pipeline either.
Kelly Motta: If there's any particular markets that.
Kelly Motta: Our particularly strong that you're seeing or which categories.
Kelly Motta: The.
Kelly Motta: Pipeline is weighted too.
Kelly Motta: Oh sure I recognize that.
Kelly Motta: So.
Kelly Motta: Pipeline remains strong and pretty much still a primary contributor.
Kelly Motta: CRE loans yet.
Kelly Motta: Single family residence.
Kelly Motta: However, our C&I are starting to pick up it does take time, but because of the new hires that we have recently.
Kelly Motta: Since the beginning of this year.
Speaker Change: Do you expect that to.
Kelly Motta: <unk> contribute to that.
Kelly Motta: But at this time, the pipeline is predominantly made up of CRE, MFRs, and SFRs primarily, even though it is a relatively small mix of the loan, but I think we're gaining very good momentum on it.
Kelly Motta: Pipeline.
Kelly Motta: At this time the pipeline is predominantly made up of.
Kelly Motta: CRD Mfr's fsfr's, primarily even though it is a.
Kelly Motta: Relatively small mix of the loan, but I think we are doing.
Speaker Change: Hey, good momentum on Isobutanol.
Speaker Change: Thank you so much I'll step back.
Kelly Motta: Thank you so much.
Kelly Motta: I'll step back.
Kelly Motta: Okay.
Kelly Motta: Yeah.
Unknown Executive: Thank you.
Speaker Change: Thank you. Your next question is coming from Tim Coffey from Janney. Your line is live.
Tim Coffey: Your next question is coming from Tim Coffey from JANI. Your line is live. Thank you for the opportunity to ask a question or two here.
Thank you.
Speaker Change: To ask a question or two here.
Speaker Change: Yeah.
Lynn Hopkins: Lynn, apologies if this is already discussed, but I have a question about non-interest expenses going forward. I heard the comments you made in the prepared remarks. Is it reasonable to think that expenses could look a little bit like they did the second half of last year versus the first half of last year? Yes. I think that's reasonable. I think we are still looking at our OPEC. ratio to be around the 180 of average assets. So we do think they were a bit elevated in the first quarter. kind of as I talked about in our prepared remarks and especially with Salary Benefits moderating down and I think there's opportunity in OPS to also trend down.
Speaker Change: Apologize if this is already with us.
Speaker Change: Just a question about non interest expenses.
Speaker Change: Forward.
Speaker Change: Yeah I heard the comments you made in the prepared.
Speaker Change: Is it reasonable to.
Speaker Change: Thanks.
Speaker Change: Expenses could look a little bit like they did the second half of last year versus the first half of last year.
Speaker Change: Yes, I think thats reasonable.
Speaker Change: So looking at our.
Speaker Change: Opex.
Speaker Change: Ratio to be around the 180 of average assets. So we do think they were a bit elevated in the first quarter.
Speaker Change: <unk>.
Speaker Change: Kind of as I talked about in our prepared remarks.
Speaker Change: And.
Speaker Change: Especially with <unk>.
Speaker Change: Salary and benefits moderating down and I think there is opportunity in <unk>.
Speaker Change: To also trend down.
Lynn Hopkins: And how much added to expenses are the new hires and the lending side going to be, if at all? It's a little hard to say in the sense that you have people coming in that are new and in charge of certain things, but then we're also rationalizing the expense in other places. So I don't think it's a direct add. I would just stick with the idea that we would estimate our operating expense run rate to be in kind of $17.5 to $18 million, maybe, you know, with some puts and takes.
Speaker Change: And how much.
Speaker Change: How much did additives expenses all of the new hires in London, So I'm gonna be if at all.
Speaker Change: It's a little hard to say in the sense that you have people come in and that are now in charge of certain things. But then we're also rationalizing expense in other places so I don't think its a direct ad.
Speaker Change: Just stick with the idea that we would estimate our operating expense run rate.
Speaker Change: BN com 17, $5 million to $18 million maybe.
Speaker Change: Yeah, with some puts and takes.
Speaker Change: Okay.
Tim Coffey: Okay, all right, those are my questions. Thank you.
Okay. All right those are my questions. Thank you.
Tim Coffey: Thanks, Tim.
Speaker Change: Thank you that concludes our Q&A session I will now hand, the conference back to our host for closing remarks. Please go ahead.
Unknown Executive: That concludes our Q&A session. I'll now hand the conference back to our host for closing remarks. Please go ahead. 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 great day. Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Speaker Change: Once again, thank you for joining US today, we look forward to speaking to many of you in the compensation weeks have a great day.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Speaker Change: You for your participation.