RBB Bancorp Reports First Quarter Earnings for 2019

LOS ANGELES, April 22, 2019 /PRNewswire/ -- 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 March 31, 2019.

The Company reported net income of $10.4 million, or $0.51 diluted earnings per share, for the three months ended March 31, 2019, compared to net income of $9.5 million, or $0.48 diluted earnings per share, and $8.8 million, or $0.52 diluted earnings per share, for the three months ended December 31, 2018 and March 31, 2018, respectively.

"We are pleased with our operating performance for the first quarter," said Mr. Alan Thian, Chairman, President and CEO. "We delivered another solid quarter of net income, driven by an increase in average loan balances, stable fee income and strong credit quality. We continued to execute on our plan to reduce the size of our loans held for sale, as we sold $129.8 million during the first quarter and plan to sell approximately $150 million per quarter going forward."

"We are making progress with our integration of First American International Corp., introducing many of our business deposit products to their branch network, with commercial lending to follow. We are also on schedule for additional systems conversion, which we anticipate will generate incremental savings. In addition, we have been successful in selling some of First American's FNMA loan portfolio as part of our balance sheet management strategy."

"We see 2019 as a rebalancing year, as we remain focused on reducing the size of our portfolio of loans held for sale, which will likely offset the growth in our loans held for investment. We will continue to invest in our business to diversify our revenue mix and provide additional catalysts for generating increased profitability, all with the view of creating additional long-term value for our shareholders," concluded Mr. Thian.

Key Performance Ratios

Net income of $10.4 million for the first quarter of 2019 produced an annualized return on average assets of 1.44%, an annualized return on average tangible common equity of 13.29%, and an annualized return on average equity of 10.98%.  This compares to an annualized return on average assets of 1.35%, an annualized return on average tangible common equity of 12.29%, and an annualized return on average equity of 10.98% for the fourth quarter of 2018.  The efficiency ratio for the first quarter of 2019 was 50.9%, compared to 49.9% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $25.9 million for the first quarter of 2019, compared to $25.6 million for the fourth quarter of 2018.  The $330,000 increase was primarily attributable to a $119.1 million increase in average earning assets, mainly due to a $106.2 million increase in average total loans, partially offset by a $112.7 million increase in interest-bearing liabilities.  Net interest income was slightly impacted by a decrease of 4 basis points in the net interest margin.  Accretion of purchase discounts contributed $1.1 million to net interest income in the first quarter of 2019, compared to $0.9 million in the fourth quarter of 2018. The increase in accretion income was due to loans acquired in the First American merger.

Compared to the first quarter of 2018, net interest income, before provision for loan losses, increased from $16.4 million. The increase was primarily attributable to a $1.2 billion increase in average earning assets, partially offset by a 42 basis point decrease in the net interest margin.

Net interest margin was 3.84% for the first quarter of 2019, a decrease from 3.88% in the fourth quarter of 2018. The decrease was primarily attributable to a 26 basis point increase in the cost of interest bearing liabilities, partially offset by an 18 basis point increase in the yield on average earning assets resulting from higher yields on loans and higher loan discount accretion.  Loan discount accretion contributed 16 basis points to the net interest margin in the first quarter of 2019, compared to 14 basis points in the fourth quarter of 2018.

Noninterest Income

Noninterest income was $4.2 million for the first quarter of 2019, a decrease of $1.3 million from $5.5 million in the fourth quarter of 2018.  In the first quarter, recoveries on loans acquired in business combinations decreased by $1.4 million, service charges, fees and other decreased by $307,000.  These were partially offset by the gain on loan sales increase of $97,000 and net loan servicing fees increased by $154,000.

The Company sold $129.8 million in mortgage loans for a net gain of $1.9 million during the quarter ended March 31, 2019, compared to $123.9 million in mortgage loan sales for a net gain of $1.8 million during the quarter ended December 31, 2018. The Company originated $66.2 million in mortgage loans for sale for the quarter ended March 31, 2019, compared with $74.5 million during the quarter ended December 31, 2018.

The Company sold $3.7 million in SBA loans for a net gain of $125,000 during the first quarter of 2019, compared to $7.3 million in SBA loans sold for a net gain of $312,000 during the fourth quarter of 2018.  SBA loan originations for the first quarter were $6.7 million, compared to $9.6 million for the fourth quarter of 2018.

The company sold $8.8 million in commercial real estate loans for a net gain of $154,000 in the first quarter of 2019.  None were sold in the prior quarter or in the first quarter of 2018.

Compared to the first quarter of 2018, noninterest income increased by $1.7 million. The increase was primarily attributable to a $354,000 increase in service charges, fees and other income, an increase of $383,000 increase in gains on sales of loans and an increase of $871,000 in loan servicing fees. 

Noninterest Expense

Noninterest expense for the first quarter of 2019 was $15.3 million, compared to $15.5 million for the fourth quarter of 2018.  The decrease was primarily attributable to a $1.0 million decrease in merger related expenses and a $230,000 decrease in legal and professional expenses, partially offset by a $440,000 increase in salaries and employee benefits expenses, a $338,000 increase in occupancy and equipment expenses, and a $157,000 increase in data processing expenses.

Compared to the first quarter of 2018, noninterest expense increased from $8.3 million to $15.3 million. The $7.0 million increase was primarily due to an increase in salaries and employee benefits of $4.2 million, occupancy and equipment expenses of $1.5 million, data processing expenses of $536,000, and amortization of intangibles of $307,000. 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 acquisition, including the new Roosevelt Avenue location in Flushing, NY and also due to our new Irvine location in Orange County, CA.

Income Taxes

The effective tax rate was 27.1%, including the impact of a deduction for stock options exercised in the amount of $133,000. for the three months ended March 31, 2019, 30.6%, including the impact of a deduction for stock options exercised in the amount of $401,000, for the three months ended December 31, 2018, and 15.2% for the three months ended March 31, 2018, which included the impact of a deduction for stock options exercised in the amount of $1.4 million. 

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $2.1 billion as of March 31, 2019, a decrease of $21.6 million from December 31, 2018, and an increase of $858.5 million from March 31, 2018.  The decrease in loans held for investment from the end of the prior quarter was primarily due to loan sales, as we reclassified certain loans that were held for investment during the quarter and subsequently sold them for a premium.    

Mortgage loans held for sale were $375.4 million as of March 31, 2018, a decrease of $59.1 million from $434.5 million at December 31, 2018. 

Deposits

Deposits were $2.2 billion at March 31, 2019, an increase of $40.3 million from December 31, 2018, and an increase of $810.8 million from March 31, 2018. The increase in total deposits from the end of the prior quarter was primarily attributable to a $69.0 million increase in brokered time deposits.  We experienced customers moving funds to time deposits from savings, NOW and money market accounts, given the current outlook for stable interest rates. Those non-maturity deposits decreased by $118.1 million in the quarter. As of March 31, 2019, deposits included $182.8 million in brokered CDs.

Noninterest-bearing deposits decreased $19.8 million to $419.0 million as of March 31, 2019. The decrease was driven by a number of factors, including certain import customers investing in inventory ahead of potential additional tariffs on Chinese imports, as well as other customers drawing on their funds to make investments. Compared to March 31, 2018 noninterest-bearing deposits increased $102.9 million from $316.0 million. 

Asset Quality

Nonperforming assets totaled $4.6 million, or 0.16% of total assets at March 31, 2019, compared to $4.4 million, or 0.15%, of total assets at December 31, 2018.  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 increased to $5.7 million at March 31, 2019, from $4.1 million at December 31, 2018. 

In the first quarter of 2019, net recoveries were $109,000, which was for a commercial and industrial loan. There were no charge-offs in the first quarter.

The Company recorded a provision for loan losses of $550,000 for the first quarter of 2019, which was primarily attributable to the growth in total average loans during the quarter. 

The allowance for loan losses totaled $18.2 million, or 0.86% of total loans held for investment at March 31, 2019, compared with $17.6 million, or 0.82%, of total loans at December 31, 2018. 

Properties

Our headquarters office is located at 1055 Wilshire Blvd. in Los Angeles, California, and also houses our risk management unit, including compliance and BSA groups, and our single-family residential mortgage group. With the October 15, 2018, acquisition of First American, we added eight branches and two loan offices in the New York City market. We plan to close two non-banking offices and one branch in 2019. We have also opened one additional branch in Flushing, NY in February 2019.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California.  The Company has total assets of approximately $3.0 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. PDT/2:00 p.m. EDT on Tuesday, April 23, 2019, to discuss the Company's first quarter 2019 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 9854556. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 8099618, approximately one hour after the conclusion of the call and will remain available through April 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.