Franchise News

RBB Bancorp (NASDAQ:RBB) and its subsidiaries, Royal Business Bank ("the Bank") and RBB Asset Management Company ("RAM"), collectively referred to herein as "the Company", announced financial results for the quarter ended June 30, 2019.

The Company reported net income of $10.1 million, or $0.50 diluted earnings per share, for the three months ended June 30, 2019, compared to net income of $10.4 million, or $0.51 diluted earnings per share, and $9.4 million, or 0.54 diluted earnings per share, for the three months ended March 31, 2019 and June 30, 2018, respectively.

"We are pleased with our operating performance for the second quarter," said Mr. Alan Thian, Chairman, President and CEO. "We made significant progress on our balance sheet initiatives, selling $175.0 million in residential mortgage loans during the quarter and reducing our reliance on wholesale funding by $235.0 million. Our focus on increasing core deposits helped drive our deposit growth and we continued to experience low credit costs and well-managed expenses.  These factors all contributed to another solid quarter of net income.

"Our integration of First American International Corp. is nearly complete. We have optimized its operational footprint, with the closing of two non-banking offices and one branch and the opening of one new branch. We have also renegotiated and entered into new contracts with our core system vendor.  We are making good progress on introducing our business deposit and commercial lending products to the First American branch network and anticipate future growth from that franchise.  Our last project is to implement a common residential mortgage origination platform for both regions.

"With our balance sheet repositioning nearly complete and given our loan pipeline, we are looking forward to resuming growth at a more normalized rate. In addition to organic growth opportunities, we plan to continue to expand our franchise through a combination of acquisitions and de novo branch openings," concluded Mr. Thian.

Key Performance Ratios

Net income of $10.1 million for the second quarter of 2019 produced an annualized return on average assets of 1.43%, an annualized return on average tangible common equity of 12.51%, and an annualized return on average equity of 10.42%.  This compares to an annualized return on average assets of 1.44%, an annualized return on average tangible common equity of 13.26%, and an annualized return on average equity of 10.98% for the first quarter of 2019.  The efficiency ratio for the second quarter of 2019 was 50.0%, compared to 50.9% for the prior quarter. Normalizing for the 1,035,000 shares issued for options in 2018 and the 3,011,787 shares issued as a result of the First American International Corp. acquisition, diluted earnings per share would have been $0.52 for the quarter ended June 30, 2019 and $0.48 for the quarter ended June 30, 2018.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $24.3 million for the second quarter of 2019, compared to $25.9 million for the first quarter of 2019.  The $1.6 million decrease was primarily attributable to a $94.7 million decrease in average loans held for sale and a $6.3 million decrease in average total loans held for investment, partially offset by a $74.3 million decrease in average interest-bearing liabilities.  Net interest income was also impacted by a 20 basis point decrease in the net interest margin.  Accretion of purchase discounts contributed $753,000 to net interest income in the second quarter of 2019, compared to $1.1 million in the first quarter of 2019.

Compared to the second quarter of 2018, net interest income, before provision for loan losses, increased from $17.8 million. The increase was primarily attributable to a $1.0 billion increase in average earning assets, partially offset by a 73 basis point decrease in the net interest margin.

Net interest margin was 3.64% for the second quarter of 2019, a decrease from 3.84% in the first quarter of 2019. The decrease was primarily attributable to a 12 basis point increase in the cost of interest bearing liabilities, and a 14 basis point decrease in the yield on average earning assets resulting from lower average loan yields.  Loan discount accretion contributed 11 basis points to the net interest margin in the second quarter of 2019, compared to 16 basis points in the first quarter of 2019.

Noninterest Income

Noninterest income was $5.5 million for the second quarter of 2019, an increase of $1.3 million from $4.2 million in the first quarter of 2019.  The increase was driven by an increase in gain on loan sales of $922,000, higher service charges and fees of $402,000, higher net loan servicing fees of $59,000, and an increase in recoveries on loans acquired in business combinations of $49,000. These were partially offset by a decrease in unrealized gain on equity investments of $147,000.

The Company sold $175.0 million in mortgage loans for a net gain of $2.5 million during the second quarter of 2019, compared to $129.8 million in mortgage loan sales for a net gain of $1.9 million during the first quarter. The Company originated $28.3 million in mortgage loans for sale for the second quarter of 2019, compared with $49.0 million during the prior quarter.

The Company sold $10.0 million in SBA loans for a net gain of $616,000 during the second quarter of 2019, compared to $3.7 million in SBA loans sold for a net gain of $125,000 during the first quarter of 2019. 

The Company sold $1.6 million in commercial real estate loans for a net gain of $24,000 in the second quarter of 2019.  In the prior quarter, $8.8 million loans were sold for a gain of $154,000. 

Compared to the second quarter of 2018, noninterest income increased by $2.7 million from $2.8 million. The increase was primarily attributable to an increase of $1.0 million in gain on sale of loans and a $776,000 increase in service charges and fees, and an increase of $841,000 in net loan servicing fees, mostly attributable to the First American International Bank merger.

Noninterest Expense

Noninterest expense for the second quarter of 2019 was $14.9 million, compared to $15.3 million for the first quarter of 2019.  The $426,000 decrease was primarily attributable to a $949,000 decrease in salaries and employee benefits expenses and a $235,000 decrease in merger and other expenses, partially offset by a $422,000 increase in occupancy and equipment expenses, of which $225,000 was for prior period New York City property taxes, a $231,000 increase in legal and professional expenses and a $210,000 increase in data processing expenses, of which $82,000 was for duplicative services which were not yet converted.

Compared to the second quarter of 2018, noninterest expense increased from $8.2 million to $14.9 million. The $6.7 million increase was primarily due to an increase in salaries and employee benefits of $3.5 million, occupancy and equipment expenses of $1.8 million, data processing expenses of $732,000, and amortization of intangibles of $308,000.  The increase in salary expense is attributable to additional staff for expansion and the First American acquisition.  The increase in occupancy expense is mainly due to the First American International Corp. acquisition, including the new branch in Flushing, NY and our new Irvine location in Orange County, CA.

Income Taxes

The effective tax rate was 30.3%, including the tax impact for stock options exercised in the amount of $52,000 for the second quarter of 2019, 27.1%, including the impact of a deduction for stock options exercised in the amount of $92,000, for the first quarter, and 19.5% for the second quarter of 2018, which included the impact of a deduction for stock options exercised in the amount of $1.2 million. 

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $2.1 billion as of June 30, 2019, a decrease of $28.0 million from March 31, 2019, and an increase of $808.4 million from June 30, 2018.  The slight decline in loans held for investment from the end of the first quarter was primarily due to loans sold that were previously classified as loans held for investment of $107.7 million, partially offset by an increase in loan production.

Mortgage loans held for sale were $249.6 million as of June 30, 2019, a decrease of $125.8 million from $375.4 million at March 31, 2019. 

Deposits

Deposits were $2.2 billion at June 30, 2019, an increase of $51.0 million from March 31, 2019, and an increase of $810.9 million from June 30, 2018. The increase in total deposits from the end of the prior quarter was primarily attributable to a $91.3 million increase in retail time deposits, partially offset by a decrease of $47.9 million in brokered time deposits.  We continue to experience customers moving funds to time deposits from savings, NOW and money market accounts, given the current expectations for lower interest rates. Non-maturity deposits decreased by $1.8 million in the quarter. As of June 30, 2019, deposits included $135.0 million in brokered CDs.

In the second quarter, noninterest-bearing deposits increased $16.7 million to $435.6 million as of June 30, 2019. The increase was due to a partial return of deposits that were withdrawn in the first quarter due to customer concern over uncertain international trade issues. Compared to June 30, 2018, noninterest-bearing deposits increased $129.3 million from $306.4 million. 

Asset Quality

Nonperforming assets totaled $8.6 million, or 0.31% of total assets at June 30, 2019, compared to $4.6 million, or 0.16%, of total assets at March 31, 2019. The increase in nonperforming assets was primarily due to the addition of a $2.9 million SBA loan. Nonperforming assets consist of Other Real Estate Owned, loans modified under troubled debt restructurings (TDR), non-accrual loans, and loans past due 90 days or more and still accruing interest. 

Loans held-for-investment 30 to 89 days past due decreased to $3.4 million at June 30, 2019, from $5.2 million at March 31, 2019. 

In the second quarter of 2019, there was one charge-off of $32,000 attributed to a commercial and industrial loan.  There were $109,000 in net recoveries in the first quarter.

The Company recorded a provision for loan losses of $357,000 for the second quarter of 2019, which was primarily attributable to a change in the loan mix during the quarter. 

The allowance for loan losses totaled $18.6 million, or 0.89% of total loans held for investment at June 30, 2019, compared with $18.2 million, or 0.86%, of total loans at March 31, 2019. 

Properties

Our headquarters office is located at 1055 Wilshire Blvd. in Los Angeles, California. In 2019, we have closed one non-banking office and one branch and opened one new branch in New York City, with one additional non-banking office vacant but still paying rent.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California.  The Company has total assets of $2.8 billion. Its wholly-owned subsidiary, the Bank is a full service commercial bank, which provides business banking services to the Chinese-American communities in Los Angeles County, Orange County and Ventura County in California, in Las Vegas, Nevada, and in Brooklyn, Queens, and Manhattan in New York.  Bank services include remote deposit, E-banking, mobile banking, commercial and investor real estate loans, business loans and lines of credit, commercial and industrial loans, SBA 7A and 504 loans, 1-4 single family residential loans, automobile lending, trade finance, a full range of depository account products and wealth management services.  The Bank has ten branches in Los Angeles County, two branches in Ventura County, one branch in Irvine, California, one branch in Las Vegas, Nevada, and nine branches and two loan offices in Brooklyn, Queens and Manhattan in New York. The Company's administrative and lending center is located at 1055 Wilshire Blvd., Los Angeles, California 90017, and its finance and operations center is located at 7025 Orangethorpe Avenue, Buena Park, California 90621. The Company's website address is www.royalbusinessbankusa.com.

Conference Call

Management will hold a conference call at 11:00 a.m. Pacific time/2:00 p.m. Eastern time on Tuesday, July 23, 2019, to discuss the Company's second quarter 2019 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 4677186. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 4677186, approximately one hour after the conclusion of the call and will remain available through July 30, 2019.

The conference call will also be simultaneously webcast over the Internet; please visit our Royal Business Bank website at www.royalbusinessbankusa.com and click on the "Investors" tab to access the call from the site. This webcast will be recorded and available for replay on our website approximately two hours after the conclusion of the conference call.

Disclosure

This press release contains certain non-GAAP financial disclosures for tangible common equity and tangible assets and adjusted earnings. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. Please refer to the tables at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.

Safe Harbor

Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company's current business plans and expectations and our future financial position and operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities; our ability to attract deposits and other sources of funding or liquidity; supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate; a prolonged slowdown or decline in real estate construction, sales or leasing activities; changes in the financial performance and/or condition of our borrowers, depositors or key vendors or counterparties; changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs; the costs or effects of acquisitions or dispositions we may make, including our recently completed acquisition of FAIC, whether we are able to obtain any required governmental or shareholder approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions; the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, employment, executive compensation, insurance, vendor management and information security) with which we and our subsidiaries must comply or believe we should comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk; inflation, interest rate, securities market and monetary fluctuations; changes in government interest rates or monetary policies; changes in the amount and availability of deposit insurance; cyber-security threats, including loss of system functionality or theft or loss of Company or customer data or money; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, drought, or the effects of pandemic diseases; the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by our customers and potential customers; the Company's relationships with and reliance upon vendors with respect to the operation of certain of the Company's key internal and external systems and applications; changes in commercial or consumer spending, borrowing and savings preferences or behaviors; technological changes and the expanding use of technology in banking (including the adoption of mobile banking and funds transfer applications); the ability to retain and increase market share, retain and grow customers and control expenses; changes in the competitive and regulatory environment among financial and bank holding companies, banks and other financial service providers; volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions; fluctuations in the price of the Company's common stock or other securities; and the resulting impact on the Company's ability to raise capital or make acquisitions, the effect of changes in accounting policies and practices, as may be adopted from time-to-time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, consumer or employee class action litigation), regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews; our ongoing relations with our various federal and state regulators, including the SEC, FDIC, FRB and California DBO; our success at managing the risks involved in the foregoing items and all other factors set forth in the Company's public reports, including its Annual Report as filed under Form 10-K for the year ended December 31, 2018, and particularly the discussion of risk factors within that document. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company's earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

Tangible Book Value Reconciliations (non-GAAP)

The tangible book value per share is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance. The following is a reconciliation of tangible book value to the Company shareholders' equity computed in accordance with GAAP, as well as a calculation of tangible book value per share as of June 30, 2019 and 2018.