Q2 2025 RBB Bancorp Earnings Call
Unknown Executive: Second Quarter 2025 Earnings Call. At this time all participants are on a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded.
Greetings and welcome to the rbb. Bangor second quarter 2025 earnings call.
At this time, all participants are on a listen-only mode. And a question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Rebeca Rico: I will now turn the conference over to your host, Rebeca Rico.
Please note this conference is being recorded.
Rebeca Rico: Mom, the floor is yours. Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the second quarter of 2025. With me today are President and CEO, Johnny Lee, Chief Financial Officer, Lynn Hopkins, and Chief Credit Officer, Jeffrey Yang.
I will now turn the conference over to your host. Rebecca Rico, mom.
Sorry, is yours.
Rebecca Rico: Thank you, Ali. Good day, everyone and thank you for joining us to discuss rbb bankrupt's results for the second quarter of 2025 with me today, our president and CEO Johnny Lee.
Rebeca Rico: Johnny and Lynn will briefly summarize the results which can be found in the Earnings Personnees and Investor Presentations that are available on our Investor Relations website and then we'll open up the call to your questions.
Speaker Change: Chief Financial Officer Ben Hopkins and chief credit officer Jeffrey. Yay.
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 filings.
Speaker Change: Johnny, and then we'll Briefly summarize the results which can be found in the earnings, press sunnis, and investor presentation. They're available on our investor relations website, and then we'll open up the call to your questions.
Johnny Lee: Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Thank you, Rebeca. Good day, everyone, and thank you for joining us today. Second quarter net income totaled $9.3 million, or $0.52 per share, and included $2.9 million of after-tax net income for an employee retention tax credit refund. The increase in net income was also driven by another quarter of solid loan growth and stable earning asset yields, which supported a $1.2 million increase in net interest income and a four basis point increase in net. Loans held for investment grew by $92 million, or 12% on an annualized basis, with growth in almost all categories.
Speaker Change: I would ask that everyone, please refer to the disclaimer, regarding forward-looking statements in the investor presentation and the company's SEC filings.
Speaker Change: Now, I'd like to turn the call over to rbb bank Corps, president and chief executive officer. Johnny Lee, Johnny,
Thank you, Rebecca. Good day, everyone and thank you for joining us today.
Speaker Change: Second quarter, net income, total 9.3 million or 52 cents per share and included 2.9 Million of after tax. Net income for an employee retention tax credit refund,
Speaker Change: The increase in net income was also driven by another quarter of solid long growth.
Speaker Change: In stable earning asset yields, which supported at 1.2 million. Increase in net interest income in a 4 basis. Point increase in net.
Johnny Lee: We continue to see strong results from our in-house mortgage origination business, which originated $120 million of mortgages in the second quarter. These contributed to our total second quarter loan originations of $183 million at a blended yield of 6.76%, which will continue to support our asset yields and margins going forward. Our pipelines remain full, so we expect... continue to see long growth, though likely at a more moderate pace than we experienced in the first and second quarters. We're pleased with our loan growth so far this year and believe we're making good progress on our efforts to expand Origination.
Speaker Change: Long's health health for Investment Group by 92 million or 12% on an annualized basis with growth in almost all categories.
Speaker Change: We continue to see strong results from our in-house mortgage origination business which originated 120 million dollars of mortgages in the second quarter.
Speaker Change: These contribute to our total second quarter long, originations of 183 million at a blended yield of 6.76%.
Speaker Change: Which will continue to support our effort yields and margins going forward.
Speaker Change: Our pipelines remain full. So we expect
Speaker Change: To continue to see long growth though, likely at a more moderate Pace than we experienced in the first and second quarters.
Speaker Change: Well, pleased with our long grow so far this year and believe we're making good progress on our efforts to expand originations.
Johnny Lee: Net interest margin increased to 2.92% and has increased by 25 basis points over the last four quarters. After some rate cuts, our funding costs are likely close to stabilizing at this level. And at the same time, we may see increases in yields on earning assets, which should support incremental margin increases over the next few quarters. We remain focused on resolving our non-performing loans as quickly as possible, while minimizing the impact to earnings and capital. We did have some charge-offs, which Lynn will discuss in more detail, but we did not see any increase in our total non-performing loans in the second quarter.
Speaker Change: Net interest, margin increased to 2.92% and has increased by 25 basis point over the last 4 quarters.
Speaker Change: After some rate cuts are finding cars are likely close to stabilizing at this level.
Speaker Change: And at the same time, we may see increases in yields on earning assets which should support incremental, margin increases over the next few quarters.
We remain focused on resolving, our non-performing loans as quickly as possible.
Speaker Change: while minimizing the impact to earnings and capital,
we did have some charge offs which Len will discuss in more detail.
Johnny Lee: Criticized and classified assets increased, however, the majority of the additions this quarter are loans that remain on accrual status.
Johnny Lee: We continue to work through our remaining non-performing, criticized, and classified assets and expect to be able to report additional progress in the coming quarters.
Lynn Hopkins: With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn? Thanks, Johnny. Please feel free to refer to the investor presentation we have provided as I share my comments on the company's second quarter of 2025 financial performance. Slide 3 of our investor presentation has a summary of our second quarter results. As Johnny mentioned, net income was $9.3 million or $0.52 per diluted share. Second quarter results benefited from the recognition of a $5.2 million Employee Retention Credit, or ERC, refund, which has included another income. We also recognized related ERC advisory costs of $1.2 million, which are included in professional service fees.
Speaker Change: We have provided as I share my comments on the company's second quarter of 2025 financial performance.
Speaker Change: Slide, 3 of our investor presentation has a summary of our second quarter results.
Speaker Change: As Johnny mentioned, net income was 9.3 million or 52 cents per diluted share.
Lynn Hopkins: There is no similar income or expense in any of the other quarterly periods presented. Adjusted for the ERC refund and associated fees, net income would have been $6.5 million or $0.36 per diluted share.
Lynn Hopkins: Also excluding ERC related income and expense. Pre-tax, pre-provision income increased $1.4 million due to higher net interest income of $1.2 million and higher non-interest income items of $1 million offset by higher non-interest expense items of approximately $800,000. Net interest income increased for the fourth consecutive quarter to $27.3 million and was driven by long growth and stable asset yields. The overall loan yield remained above 6% and was supported by the quarter's average production yield of 6.76% and loans repricing in the current higher Interest Rate Environment. As Johnny mentioned, we had another quarter of net interest margin expansion, our fourth in a row, driven primarily by an eight-basis point reduction in total deposit costs.
Lynn Hopkins: Our spot rate on deposits on June 30th was 2.95%, which was 10 basis points below the second quarter's average of 3.05%, so we may get incremental improvement in the fourth quarter. But until we get some rate cuts, we are likely to see big reductions in our funding costs. The second quarter also included a full quarter of more expensive FHLB term advances after they were refinanced late in the first quarter. Second quarter non-interest expenses increased by $2 million to $20.5 million, of which $1.2 million was directly related to the receipt of the ERC refund from the IRS.
Lynn Hopkins: Higher compensation expenses related to executive management transitions and incentive payments for increased loan production also contributed to the increase.
Lynn Hopkins: We expect non-interest expenses to return to an annualized run rate of about $18 million in future quarters. Slides 5 and 6 have additional color on our loan portfolio and yield. The loan portfolio yield was relatively stable at just over 6% when compared to the last two quarters. Slide 7 has details about our $1.6 billion residential mortgage portfolio, which increased modestly and consists of well-secured, non-QM mortgages primarily in New York and California with an average LTV of 55%. Slides 9 through 11 have details on asset quality, and I'll make a couple specific points. The $2.4 million provision for credit losses was due to $1.5 million for net loan growth and the impact of economic forecasts.
Lynn Hopkins: and a $924,000 increase in specific reserves for a loan on a partially completed construction project. Net turnoff of $3.3 million, which had previously been established as a specific reserve. were related almost entirely to one lending relationship. MPL has decreased $3.6 million or 6% to $56.8 million and represented 1.76% of loans held for investment at quarter end. Accounting for our specific reserves of $7.4 million, our net MPL exposure decreased 3% to $49.4 million. Substandard loans increased $14.6 million and totaled $91 million at the end of the quarter. The increase was primarily due to a couple of downgrades totaling $20.6 million, partially offset by charge-offs of $3.3 million, and payoffs and paydowns totaling $2.7 million.
Lynn Hopkins: Of the total substandard loans of June 30, $30.2 million were on accrual status. Past few loans increased $12.1 million to $18 million, due mostly to additions, and include one $8.5 million CRE loan, which has since been brought current.
Lynn Hopkins: And it gets worth noting that with the 1.58% allowance for loan losses to total loans held for investment ratio, we believe we have appropriately addressed the risk in our non-performing loans. Slide 12 has details about our deposit franchise. Total deposits increased at a 6% annualized rate from the first quarter to 3.2 billion with growth in non-interest bearing deposits and CDs more than offsetting a decline in money market accounts. Our tangible value per share increased to 2511. Our capital levels remain strong with all capital ratios above regulatory well-capitalized levels.
Lynn Hopkins: With that, we are happy to take your questions. Operator, please open up the line. Thank you.
Unknown Executive: At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you.
Brendan Nosal: Our first question is coming from Brendan Nosal with Hofda Group. Your line is live. Everybody, thanks for taking the question. Hope you're doing well. Hi Brendan. Maybe just starting off here on capital and the buyback, I think you announced the 18 million buyback in the middle of the second quarter, used a little bit of it in the month or so you had it. Can you just speak to how active you want to be with that new program, just given where shares are trading, but also factoring in, you know, credit workout?
Unknown Executive: Sure.
Johnny Lee: Thanks, Brendan, for the question. So based on the timing of when we had the opportunity to announce the buyback, I think that's a little bit why you've seen the modest participation. We obviously view our stock attractive at its current trading price relative to our tangible book value. The amount that got approved based on current trading prices would represent about 5% of our stock. So we view it as a modest amount of cash. I think we have sufficient liquidity and affordability. And with respect to how it relates to the fact that we have been working through kind of our higher elevated MPL levels, we've had plenty of capital to support that initiative, plus our high coverage ratio I just kind of concluded my comments with.
Brendan Nosal: So I think we're able to do both. Okay. All right. Great.
Johnny Lee: And then maybe turning to asset quality, can you offer a little more color on the loans that were downgraded both to substandard and special mention for the quarter? Over the quarter, we have about $27 million of the fundraisers, special mention mainly because of the bank actually is enhancing our credit quality control. The difference is that we have more frequent control for those credits. Those credits are mainly those bridge and gate loans that we see a little bit of delay in stabilizing their income. They are paying their degree and then the LTVR is still manageable. However, this is one of the management's efforts to enhance our credit control on that.
Johnny Lee: So you can see an increase of the special mention that is notable to the information that compared to the previous quarter, but we consider it as a credit enhancement.
Speaker Change: Is there a credit enhancement.
Johnny Lee: And then on the few downgrades to substandard, I mentioned it was mostly driven by two credits that remain on accrual status. And there are examples of, one, transitioning to the higher interest rate environment and working with a borrower. So again, current and going through transition. So we believe there's some conservatism in our view. But nonetheless, felt that that was the appropriate classification for the end of June for those couple of credits. There were some smaller ones as well, but those are two main credits that got added during the second quarter.
Speaker Change: And then on the few downgrades to set a standard I mentioned it was mostly driven by two credits.
Speaker Change: Does that remain on accrual status.
Speaker Change: And.
Speaker Change: There are examples of one that transitioning into the higher interest rate environments.
Speaker Change: Working with our borrowers so again currency.
Speaker Change: And going through transition. So we believe there is some conservatism in our view.
Speaker Change: But nonetheless felt that that was the appropriate classification for the end of June.
Speaker Change: For those couple of credits there were some smaller ones as well.
Speaker Change: Two main credits.
Speaker Change: Got added during the second quarter.
Brendan Nosal: Okay. That's helpful.
Speaker Change: Okay. Okay. That's helpful. Maybe I'll just sneak one more in here.
Johnny Lee: Maybe I'll just sneak one more in here. You know, this year you've been kind of pursuing this dual path of growing loans again and trying to kind of move the top line higher while also working through asset quality issues. I mean, like, for how long is that dual path sustainable for? Like, if we're still seeing inflows into criticized, presumably it takes a little longer to work that out. Is there still the ability to, you know, a desire to keep growing loans at the same time as you work through credit issues? Yeah, I think, Johnny, I think we certainly can continue to do that.
Speaker Change: This year, you've been kind of pursuing this dual path of growing loans again.
Speaker Change: Trying to kind of moves the topline higher while also working through asset quality issues I mean like for how long has that dual path sustainable for I guess, we're still seeing inflows into.
Speaker Change: Criticized presumably it takes a little longer to work that out is there still the ability to.
Speaker Change: And desire to keep growing loans at the same time as you work through credit issues.
Speaker Change: Yes.
Speaker Change: Johnny I think we certainly can continue to do that we're also continuing to be very laser focus on resolving some of these.
Johnny Lee: We're obviously continuing to be very laser-focused on resolving some of the MPL that's on our hand. I think we're, you know, making good progress in that respect. And at the same time, on the growth side, I mean, our, you know, just as the economy and previous workers, it's always been very healthy, you know, always have a very healthy pipeline. So, So, you know, certainly we feel that we can manage that well with the dual path that we're taking.
Speaker Change: NPL this honor R&R.
Speaker Change: Making good progress in that respect I understand on the growth side.
Speaker Change: Our <unk>.
Speaker Change: Calling in previous quarter.
Speaker Change: Quarters, it's always been very healthy and also have a very healthy pipeline. So.
Speaker Change: So certainly we feel that we can.
Speaker Change: <unk> will work with the dual path that we're taking.
Brendan Nosal: Okay, great. Thank you for taking the questions.
Speaker Change: Okay, great. Thank you for taking my questions, Yeah, Brendan I would just add to Tony's comments.
Lynn Hopkins: Yeah, Brendan, I would just add to Johnny's comment. I think we're executing on the business model, right? So healthy pipeline, able to convert them into 12% annualized loan growth. We've shown strength in both our mortgage portfolio and commercial portfolio. I think you saw some additional loan sales this quarter. We would expect potentially some of that to increase in the second half of the year, which I think kind of speaks to how we continue to manage our loan-to-deposit ratio. And then, you know, we're already covering, you know, when we had our loan growth this quarter, when you exclude our specific reserves, our coverage ratio is up at about 136, 138.
Speaker Change: Think we're executing on the business model right, so healthy pipeline able to convert them into 12% annualized loan growth. We have shown strength in both our mortgage portfolio and commercial portfolio. Thank you saw some additional loan sales this quarter, we would expect.
Speaker Change: Potentially some of that to increase in the second half of the year.
Speaker Change: Which I think kind of speaks to how we continue to manage our loan to deposit ratio.
Speaker Change: And then.
Speaker Change: Already covering you know when we had our loan growth this quarter when you exclude our specific reserves our coverage ratio is up at about $136 38.
Lynn Hopkins: And given that it's future-looking, I think there's still opportunity for, you know, maybe that would actually come down a little bit as we finish resolving some of these larger credits that have taken center stage the last couple quarters.
Speaker Change: And given that its future looking and I think there is still opportunity for maybe that would actually come down a little bit as we finished resolving.
Speaker Change: These larger credits.
Speaker Change: Taken center stage for last couple of quarters.
Brendan Nosal: Okay. Thank you, Lynn. That's helpful.
Speaker Change: Okay. Thank you that's helpful.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Matthew Clark: Our next question is coming from Matthew Clark with Piper Sandler. Your line is live. Hey, good morning. Thanks for the questions.
Speaker Change: Next question is coming from Matthew Clark with Piper Sandler Your line is live.
Matthew Clark: Hey, good morning, Thanks for the questions.
Speaker Change: Yes.
Matthew Clark: Just the first one, just on the on the loan and deposit growth, you know, deposits, trailing loans here, loan to deposit ratio, obviously up over 100 now. But it does sound like the pipeline on the loan side remains healthy. And you also expect maybe a more measured pace of growth going forward. So just trying to kind of think through those moving parts. And is there some deliberate effort to maybe tighten the screws a little bit on the pipeline? And just any commentary around your outlook for deposits.
Speaker Change: First one just on the on the loan and deposit growth.
Speaker Change: Deposits trailing loans here loan to deposit ratio, obviously up over 100 now.
Speaker Change: But it does sound like the pipeline on the loan side remains healthy.
Speaker Change: And you also expect maybe a measure more measured pace of growth going forward. So just trying to kind of think through.
Speaker Change: Yeah.
Speaker Change: Those moving parts.
Speaker Change: Is it.
Speaker Change: Is there some deliberate effort to maybe tighten the screws a little bit on the pipeline.
Speaker Change: And just any commentary around your outlook for deposits.
Speaker Change: Yeah.
Johnny Lee: Well, I can comment as long as I'm happy to, John. Well, I guess we've been timing through on the loans because we've always focused on quality first, with all these new loans that we are bringing to the bank or new relationships. So we've always been very selective so far as far as the new loans or new relationships we're bringing to the bank. Obviously, the deposit side, we're continuously trying to find ways to originate more organically new deposits through various, you know, You know, we, for example, recently launched a special promotion program, a money market DDA sort of bundle package that's bringing in pretty good, you know, again, pretty good traction as far as bringing in new deposits as well to support the, you know, our funding.
Speaker Change: Well I can comment at all.
Speaker Change: Thanks, John.
Speaker Change: While we I guess, we bad timing SKU updated loss because we.
Speaker Change: We've always silicones on quality first with all the new loans that we are bringing to the bank.
Speaker Change: New relationships.
Speaker Change: So all of our spin.
Speaker Change: So far as far as the new loans.
Speaker Change: A relationship oriented bank.
Speaker Change: Obviously, the deposit side, we continuously trunk volume way through auctioning more organically new deposits through Garrett.
Speaker Change: For example, recently launched.
Speaker Change: A special promotion broke on the money market sort of bundled.
Speaker Change: Packaged just bring in pretty good.
Speaker Change: Doing pretty good traction associated as far as bringing in new deposits as of August <unk>.
Speaker Change: No.
Speaker Change: Funding.
Speaker Change: So we're good.
Lynn Hopkins: So we're, we're, we're, you know, I recognize the non-deposit ratio is high, but I think toward the second half, as we continue to grow the loan, there's certainly potential opportunities for us to maybe sell some loans to take the pressure off a little bit, but, you know, we, again, we will continue to manage that, just, you know, trying to keep that in mind. Matthew, I think in the investor materials we've shared, our new production levels is over 180 million this quarter. at a rate of kind of 6.75 and how that, you know, compares to prior quarters.
Speaker Change: Recognizing our deposit ratio is our highest priority towards the second half as we continue to grow in the longer term.
Speaker Change: The opportunities for us too.
Speaker Change: Manish.
Speaker Change: Sell some loans to take the pressure off a little bit.
Speaker Change: But.
Speaker Change: Again, we will continue to manage this.
Speaker Change: <unk>.
Speaker Change: Chunky goodwill.
Speaker Change: Matthew I think.
Speaker Change: The investor materials.
Speaker Change: Sure.
Speaker Change: Our new production levels of over $180 million this quarter.
Speaker Change: At a rate of 675, and how that compares to the prior quarter, so our annualized growth rate of.
Lynn Hopkins: So our annualized growth rate up at 12 percent, I think it was slightly higher than that in the first quarter. I think... It's been strong, and we've kept our origination rates fairly high. I think we're evaluating that. I think that there's probably some net loan growth. We would expect potentially some loan sale activity to pick up in the second half of the year. And then just to comment on deposits, I think that we have been very successful in growing organic deposits, and we can, we have plenty of deposits in the U.S. right now. We have a lot of capacity for wholesale funding, so there's room to bring the loan to deposit ratio down a little bit if need be.
Speaker Change: 12% I think was slightly higher than that in the first quarter I think.
Speaker Change: It's been strong and we've kept our origination rates fairly high.
Speaker Change: Given the current market so.
Speaker Change: We're evaluating that.
Speaker Change: I think that there is probably from a net loan growth we would expect potentially.
Speaker Change: Loan sale activity to pick up in the second half of the year.
Speaker Change: And then just a comment on deposits.
Speaker Change: I think that we have been very successful and growing organic.
Speaker Change: Deposits and we can.
Speaker Change: We have plenty of capacity for wholesale funding so there's room to bring down our loan to deposit ratio down.
Speaker Change: Down a little bit.
Lynn Hopkins: So I think we're watching it closely, but very comfortable with where we kind of ended the quarter. Okay, great. And then on the deposit cost side, You know, an expectation for maybe some stabilization without fed rate cuts, spot rate obviously down, which is helpful going into three Q. Do you feel like, even when the Fed does start to cut, that deposit costs might not come down as much as you previously thought, just because you need to... You know, keep rates up to generate the deposit growth.
Speaker Change: If need be so I think we're watching that closely but very comfortable with where we ended the quarter.
Speaker Change: Okay, Great and then.
Speaker Change: On the deposit cost side.
Your expectation for maybe some stabilization without.
Speaker Change: Fed rate cuts spot rate, obviously down I'm, just hopeful going into <unk>, but.
Speaker Change: Do you feel like even when the fed does start to cut deposit costs might not come down as much as you previously thought just because you need to.
Speaker Change: Keep rates up to generate the deposit growth.
Okay.
Lynn Hopkins: That I would like a crystal ball for. Look, I think there's a lot of competition for liquidity, and I don't think that's going to change even when rates come down. But we were successful in moving our deposit rates down almost 100% after rates moved down 100 basis points. So while there could be somewhat of a lag, I would expect we would be successful in moving down our cost of funds should rates decrease. We remain liability sensitive, but it doesn't happen overnight, and it would stair step down. But that would be our expectation that we would be able to push down on our...
Speaker Change: So that I would like a crystal ball for.
Speaker Change: Look I think there's a lot of competition for liquidity and I don't think thats going to change even when rates come down, but we were successful in moving our deposit rates down.
Speaker Change: 100% after rates move down 100 basis points. So while there could be somewhat of a lag I would expect we would be successful in moving down our cost of funds.
Speaker Change: Should rates decrease we remain liability sensitive.
Speaker Change: But it doesn't happen overnight and it would stair step down but that would be our expectation that we would be able to push down on our.
Lynn Hopkins: deposit card. I think historically we've shared. To the extent helpful, if we look out over the next quarter or so, we have about a third of our CDs that are maturing that are coming off at about $4.15, $4.20. And I think those have an opportunity to price down into the current market, you know, not a significant amount because rates are higher for longer, but somewhat. Okay. And just to clarify, the amount of CDs that are coming due this quarter, and I assume new pricing is around four? Yeah. So, it's basically all of our CDs. So, all of our CDs mature within 12 months, I think, like 99.5%.
Speaker Change: Deposit cost.
Speaker Change: I think historically we've shared.
Speaker Change: To the extent helpful. As we look out over the next quarter or so you have about a third of our Cds that are maturing.
Speaker Change: That are coming off at about 415 for 'twenty.
Speaker Change: Those have an opportunity to add.
Speaker Change: Price down in the current markets.
Speaker Change: Not a significant amount because rates are higher for longer but.
Speaker Change: Somewhat.
Speaker Change: Okay, and just to clarify the amount of Cds that are coming.
Speaker Change: Coming to this quarter and I assume new pricing is around four.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: So it's basically all of our Cds, So all of our Cds mature within 12 months I think like 99, 5% and then a third of mature next quarters, and we've had a pretty even.
Lynn Hopkins: And then a third of them mature next quarter. And we've had a pretty even CD ladder over a 12-month horizon. And those have continued to reprice into the current market. Okay, great.
Speaker Change: CD ladder for a 12 month horizon and those have continued to just re pricing of the current market.
Speaker Change: Okay, Great and last one from me just to clarify.
Lynn Hopkins: And the last one for me, just to clarify, the expense run rate going forward, I think I may have heard you say $18 million, but I think if you exclude some of the noise, it was around $19 million this quarter. So just wondering where the relief is coming from. Sure. So the rest of it, we have a little bit of extra costs associated with the executive management transition. I think there is some timing items related to, I think, some of our director compensation. We filed some form fours associated with that. And then, I think just the timing on some legal costs.
Speaker Change: The expense run rate going forward I think I may have heard you say $18 million, but.
Speaker Change: I think if you exclude some of the some of the noise is around 19. This quarter. So just wondering where the relief is coming from.
Speaker Change: Sure so the rest of it.
Speaker Change: We had a little bit of extra costs associated with executive management transition I think there is some timing items related to.
Speaker Change: I think some of our director compensation, we filed form fours associated with that.
Speaker Change: And then.
Speaker Change: Just the timing on some legal costs.
Lynn Hopkins: Accumulated this quarter, so I think some of that's expected to normalize and bring us back down to about $18 million.
Speaker Change: Accumulated this quarter. So I think some of that is expected to normalize in <unk>.
Speaker Change: Bring us back down to about $18 million.
Unknown Executive: Okay, thanks again. Yeah, thanks, Fabio.
Speaker Change: Okay. Thanks again.
Matthew Clark: Yeah. Thanks Matthew.
Speaker Change: Thank you.
Andrew Terrell: Our next question is coming from Andrew Terrell with Stevens. Your line is live. Hey, good morning.
Speaker Change: Our next question is coming from Andrew <unk> with Stephens. Your line is life.
Andrew: Hey, good morning.
Andrew Terrell: Have a good one. Um, I wanted to go back to some of the credit discussion, you know, in in some of the I think an answer to a prior question, it sounded like you mentioned you were maybe changing up or tightening kind of a credit control process. I was hoping you could just kind of expand on that point a little bit more. And, you know, does that necessitate kind of a more full portfolio review under newer standards? Or could you just maybe kind of elaborate on that a little bit?
Speaker Change: Hi, there good morning.
Speaker Change: I wanted to go back to some of the credit discussion.
Speaker Change: And some of the can answer to a prior question. It sounded like you mentioned you were.
Speaker Change: Maybe changing board tightening kind of a credit control process I was hoping you could just kind of expand on that point a little bit more in.
Speaker Change: Does that necessitate in kind of a more full portfolio review under newer standards or could you just maybe kind of elaborate on that a little bit.
Johnny Lee: Andrew, Lynn, I'm going to turn it over to Jeffrey in a second. I just want to make one comment regarding that. So in the majority of the special mention, it relates to one type of loan, which was our gap and bridge financing. And that is a smaller part of the portfolio. So it's not all the way across all loan categories. And I think the majority have been addressed and are reflected in the results that you see in the second quarter. And then We'll carry that forward and then we'll move them, you know, special mentions expected to be a temporary holding place for them.
Speaker Change: Andrew as when I'm going to turn it over to Jeff for your second I just wanted to make one comment regarding that so in the majority of that special mention it relates to one type of loan.
Speaker Change: Which was our GAAP and bridge financing.
Speaker Change: And that is.
Speaker Change: Smaller part of the portfolio. So it's not necessarily all the way across all loan categories.
Speaker Change: And I think the majority have been addressed and are reflected in the results that you see in the second quarter and then.
Speaker Change: We will carry that forward and then we'll move them special mentioned is expected to be a temporary holding platform.
Johnny Lee: So Jeffrey can answer it more fully. It just, that was how I would clarify. We're just simply taking a more conservative approach to making sure we're staying, keeping an eye on these credits, but they're very, very matchable, don't devalue ratio, global cash flow is strong, and none of these borrowers here that I've moved to special mention have passed due, they're all current and available. Okay, understood. I appreciate that.
Speaker Change: Yeah, Geoffrey can answer it more fully but yes.
Speaker Change: That was how I would clarify.
John: This is John it was just simply taking a more conservative approach.
John: Two making sure we're safe and we're keeping an eye on these credits.
John: Sure.
John: Very much lower loan to value ratio global cash flow is strong.
John: None of these borrowers here doesn't move to special mention.
John: Past dues are all current.
John: Okay.
John: I appreciate that.
John:
Lynn Hopkins: And Lynn, I think you talked about maybe some more loan sales and in the back half of the year, I'm assuming that's that single family. And, you know, do you have the amount that was sold this quarter as you pick up in the gain on sale? line.
Matthew Clark: And then Lynn I think you talked about maybe some more loan sales in the back half of the year I'm, assuming that that single family.
Matthew Clark: Do you have the amount that was sold this quarter I see a pick up in the gain on sale.
Lynn Hopkins: Just wonder if you have any kind of expectation for the back half. I don't know that there's anything that we can, you know, share for modeling purposes. I think it's more the level of production, the type of products that we have, and managing the size of the portfolio relative to the whole balance sheet, so we see opportunity there. On the single-family portfolio, I would just share that the premiums are pretty small in the market. Obviously, if rates come down, those might have a better opportunity, depending on how prepayment fees play out, but we also have opportunity with our SBA loan portfolio, and I believe Johnny's spoken in the past, we've added some resources in that area, so I think that's an area that increased some production, and we usually sell the guaranteed portion, so the combination of the two would be what would be generating any gains.
Matthew Clark: Lyne just wondering if you have any kind of expectation from for the back half.
Matthew Clark: I don't know if there is anything that we can.
Matthew Clark: Yes sure for <unk>.
Matthew Clark: Our modeling purposes, I think it's more.
Matthew Clark: The level of production and the type of products that we have and managing the.
Matthew Clark: The size of the portfolio relative to the whole balance sheet. So we see opportunity there on the single family portfolio I would share that the premiums are pretty small in the markets. Obviously if rates come down those might have a better opportunity.
Matthew Clark: Depending on how prepayments fees play out, but we also have opportunity with our SBA.
The loan portfolio and I believe John has spoken in the past we've added some resources in that area. So I think thats an area that increased some production and we usually sell the guaranteed portion. So the combination of the two would be what we'd be generating any gains.
Matthew Clark: Okay. That's it for me. Thank you for taking my questions.
Andrew Terrell: Okay, that's it for me. Thank you for taking the questions. happened. Thank you.
Speaker Change: Thanks, Jason.
Speaker Change: Thank you just as a reminder, ladies and gentlemen, if you do have any questions. Please press star one on your telephone keypad.
Unknown Executive: Just as a reminder, ladies and gentlemen, if you do have any questions, please press star one on your telephone keypad.
Kelly Motta: Our next question is coming from Kelly Motta with KBW, your line is live. Hey, thank you for the question. Most of mine have been addressed at this point, but I did want to touch base on on the deposit side of things. You did have some nice non interest bearing growth this past quarter. I'm wondering if you could provide some color as to the drivers of that. I know CNI has been a focus here and you did have some growth now for the last several quarters. So, I'm wondering if you could provide your track record with gaining commercial customers and how that's tracking in any sort of color as to what drove the non interest bearing increase this quarter.
Kelly Motta: Our next question is coming from Kelly Motta with <unk>. Your line is live.
Kelly Motta: Hey, Thank you for the question.
Matthew Clark: Most of mine have been addressed at this point, but I did want to touch base on on the deposit side of things. So you did have some nice noninterest bearing growth. This past quarter I'm wondering if you could provide some color as to the drivers of that I know.
Matthew Clark: C&I has been a focus here and you did have some growth now for that the last several quarters. So I'm wondering if you could provide.
Matthew Clark: Your.
Matthew Clark: Track record with gaining commercial customers and how that's tracking and any sort of color as to what drove that noninterest bearing increase this quarter. Thanks.
Johnny Lee: Thanks.
Johnny Lee: Hi Kelly, that's Johnny. I can make some comments, maybe colleagues you can also add if you'd like. Thanks for the questions. First of all, I think the combination of things. I think to our frontline associates credit, we have a branch of commercial lenders. We've been very focused on ways to deepen and expanding the relationship that we have right now. And certainly that has brought some additional BDA deposits into us. Also, with the new relationships that we bring in, obviously, we're very much focused on, particularly on the CNI side, you know, overall banks, total mix-up, as long as it's still relatively small, but then they do contribute to good BDA deposits for us, for any of these new CNI relationships that we bring in as well.
Matthew Clark: Hi, Kelly this is Johnny conventional comment maybe I'll call you can also add good luck.
Matthew Clark: Well. Thanks for your question first of all the.
Matthew Clark: I think the combination of things I think two.
Matthew Clark: To our frontline associates quite the undergraduate commercial vendors.
Matthew Clark: We get very focused on.
Matthew Clark: Ways to deepen and expanding.
Matthew Clark: A relationship that we have right now and certainly that has cross sell them additional.
Matthew Clark: DDA deposits.
Matthew Clark: And to US also with the.
Matthew Clark: New relationship that we can bring in obviously, we very much focus on the C&I.
Matthew Clark: C&I sized single console.
Matthew Clark: Overall bank's total mix up as long as it's still relatively small but in.
Matthew Clark: <unk> contributed to good.
Matthew Clark: DDA deposits for us.
Matthew Clark: These are new C&I relationships that we bring in as well. So I think it's accomplished in hospitals I mentioned earlier.
Matthew Clark: We have some promotional so the promotions that we launch to trying to do.
Matthew Clark: Good morning relationships by.
Matthew Clark: Money market and DDA sort of.
Matthew Clark: Our product.
Lynn Hopkins: And we just, we only launched that just, I think, beginning of June, June 1st when we first launched that. And actually that's been, you know, building up very good momentum for us as far as bringing new relationships that, you know, provide not only money market sort of deposits, but at the same time, a combination of including BDA deposits as well. And Kelly, I think when you're looking at our trends, what we observed was, I think we had a couple or one or a couple larger withdrawals in the first quarter. And I think the composition and, you know, more granularity to our non-interfering deposits with sort of the efforts that Johnny described.
Matthew Clark: We only launched it just I think beginning of June June 1st when we first launched shut in.
Matthew Clark: <unk>.
Matthew Clark: You can have very good momentum for us as far as we.
Matthew Clark: We are new relationships.
Matthew Clark: Ed provide known in money market deposits, but at the same time combination, including DDA deposits as well.
Kelly Motta: And Kelly.
Speaker Change: I think when you are looking at our trends.
Kelly Motta: What we observed was.
Kelly Motta: I think we had a couple or one couple larger withdrawals in the first quarter and I think the composition and more granularity to our non interest bearing deposits with sort of the efforts that Tony described so that's what we're observing.
Lynn Hopkins: So that's what we're observing.
Lynn Hopkins: Right, that's helpful. And then maybe just one last modeling question from me, Lynn, your tax rate was a little lower this quarter, I think it was around 28%. Is this a good run rate on a go forward basis? And I'm wondering if this change in the California tax law has any material impact on on your your outlook for the Sure. So, good. Good question on the California tax rates. We did include the impact to our taxes in this quarter. So, it did have a small catch-up impact in the second quarter, and it won't have a material impact overall, but we will actually have a little bit of a benefit from that.
Speaker Change: Great. That's helpful. And then maybe just one last modeling question for me Len your tax rate with little lower.
Speaker Change: Lower this quarter I think it was around 28% is this a good.
Speaker Change: Run rate on a go forward basis, and I am wondering if.
Speaker Change: This change in the California tax law has any.
Speaker Change: Zero impact on on your your outlook for the tax rate.
Speaker Change: Sure.
Speaker Change: Good.
Speaker Change: Good question on the California tax rates.
Speaker Change: This includes the impact to our taxes in this quarter. So it did have a small catch up impact in the second quarter and it won't have a material impact overall, but we will actually have a little bit of a benefit from.
Speaker Change: From that so I think it's a reasonable tax rate.
Kelly Motta: So, I think it's a reasonable tax rate. We've been below the effective or the statutory rate anyway, but yeah, both are in there, Kelly. Got it. Thank you. I'll step back. Thank you.
Speaker Change: We have been below the effective or the statutory rate.
Kelly Motta: Anyway, but yes, both are in there Kelly.
Kelly Motta: Got it thank you I'll step back.
Kelly Motta: Yes.
Kelly Motta: Thank you.
Johnny Lee: As we have no further questions on the lines at this time, I would like to hand it back to Mr. Lee for any closing comments. Thank you 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 ladies and gentlemen.
Speaker Change: We have no further questions on the lines at this time I would like to hand, it back to Mr. Li for any closing comments.
Speaker Change: Thank you once again, thank you for joining US today, we look forward to speaking to many of you in accommodation weeks have a great day.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and we thank you for your participation.
Unknown Executive: This does conclude today's conference. You may disconnect your lines at this time and we thank you for your participation.