RBB Bancorp Reports Second Quarter Earnings for 2018

LOS ANGELES, July 23, 2018 /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 June 30, 2018.

The Company reported net income of $9.4 million, or $0.54 diluted earnings per share, for the three months ended June 30, 2018, compared to net income of $8.8 million, or $0.52 diluted earnings per share, and $8.5 million, or $0.62 diluted earnings per share, for the three months ended March 31, 2018 and June 30, 2017, respectively.

"We are very pleased with our operating performance for the second quarter," said Mr. Alan Thian, Chairman, President and CEO. "We delivered another solid quarter of net income, driven by continued momentum in mortgage originations, improved fee income, strong credit quality and careful management of expenses. Our loan pipeline remains strong and we are ramping up our SBA loan production, which is approaching historical levels, although we are seeing an elevated level of SBA loan payoffs impacting our servicing income.

"We are proud to receive an award from the Department of Treasury's Bank Enterprise Award Program as a result of our community investments in the markets that we serve," added Mr. Thian. "We also look forward to closing the previously announced acquisition of First American International Corp. in the second half of this year."   

Key Performance Ratios

Net income of $9.4 million for the second quarter of 2018 produced an annualized return on average assets of 2.18%, an annualized return on average tangible common equity of 15.13%, and an annualized return on average equity of 13.45%.  This compares to an annualized return on average assets of 2.15%, an annualized return on average tangible common equity of 15.01%, and an annualized return on average equity of 13.27% for the first quarter of 2018.  The efficiency ratio for the second quarter of 2018 was 39.72%, compared to 43.85% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $17.8 million for the second quarter of 2018, compared to $16.4 million for the first quarter of 2018.  The increase was primarily attributable to an 11 basis point increase in the net interest margin, combined with a $69.9 million increase in average earning assets.  Accretion of purchase discounts contributed $921,000 to net interest income in the second quarter of 2018, compared to $353,000 in the first quarter of 2018. The increase in accretion income was due to increased loan payoff activity in our purchased loan pools.

Compared to the second quarter of 2017, net interest income, before provision for loan losses, increased from $14.0 million. The increase was primarily attributable to a $236.7 million increase in average earning assets, combined with a 35 basis point increase in the net interest margin.

Net interest margin was 4.37% for the second quarter of 2018, an increase from 4.26% in the first quarter of 2018. The increase was primarily attributable to a 24 basis point increase in the yield on earning assets resulting from higher loan discount accretion and higher yields on loans, partially offset by a higher cost of deposits.  Loan discount accretion contributed 23 basis points to the net interest margin in the second quarter of 2018, compared to 9 basis points in the first quarter of 2018.

Noninterest Income

Noninterest income was $2.8 million for the second quarter of 2018, an increase of $338,000 from $2.5 million in the first quarter of 2018.  In the second quarter, gain on loan sales increased by $270,000.

The Company sold $52.9 million in mortgage loans for a net gain of $1.2 million during the quarter ended June 30, 2018, compared to $38.9 million in mortgage loans for a net gain of $983,000 during the quarter ended March 31, 2018. The Company originated $105.8 million in mortgage loans for sale for the quarter ended June 30, 2018, compared with $76.0 million during the quarter ended March 31, 2018.

The Company sold $18.2 million in SBA loans for a net gain of $885,000 during the second quarter of 2018, compared to $17.3 million in SBA loans sold for a net gain of $833,000 during the first quarter of 2018.  SBA loan originations for the second quarter were $11.1 million, compared to $4.6 million for the first quarter of 2018. The increase in SBA loan originations was attributable to the hiring of new SBA business development officers.

Compared to the second quarter of 2017, noninterest income decreased by $382,000. The decrease was primarily attributable to a $204,000 decline in gain on loan sales, and a decline of $200,000 in service charges, fees and other.

Noninterest Expense

Noninterest expense for the second quarter of 2018 was $8.2 million, compared to $8.3 million for the first quarter of 2018.  The decrease was primarily attributable to a $242,000 decrease in salaries and employee benefits expense, partially offset by an increase in legal and professional expenses of $165,000.

Compared to the second quarter of 2017, noninterest expense increased from $7.0 million. The $1.2 million increase was primarily due to an increase in salaries and employee benefits of $466,000, an increase in occupancy and equipment expenses of $107,000, an increase in data processing costs of $33,000, an increase in legal and professional expenses of $127,000 and an increase in other expenses of $508,000.  The increase in salary expense is attributable to additional staff for expansion.  The increase in occupancy expense is mainly due to rent at our Irvine location and temporary space for units pending the completion of our new headquarters office.  The increase in other expenses is attributable to merger expenses of $183,000 and provision for unfunded commitments of $376,000.

Income Taxes

The effective tax rate was 19.5% (including the impact of a deduction for stock options exercised in the amount of $1.1 million) for the three months ended June 30, 2018, 15.2% (including the impact of a deduction for stock options exercised in the amount of $1.4 million) for the three months ended March 31, 2018, and 40.9% for the three months ended June 30, 2017. 

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $1.28 billion as of June 30, 2018, an increase of $22.2 million, or 7.04% annualized growth, from $1.26 billion at March 31, 2018, and an increase of $138.1 million, or 12.05%, from June 30, 2017.  The increase in loans held for investment from the end of the prior quarter was primarily attributable to growth in the commercial real estate and residential real estate portfolios.

Mortgage loans held for sale were $281.8 million as of June 30, 2018, an increase of $98.4 million from $183.4 million at March 31, 2018. 

Deposits

Deposits were $1.42 billion at June 30, 2018, an increase of $50.9 million, or 14.86% annualized growth, from $1.37 billion at March 31, 2018, and an increase of $146.0 million, or 11.42%, from June 30, 2017. The increase in total deposits from the end of the prior quarter was attributable to growth in interest-bearing non-maturity deposits and certificates of deposit, partially offset by decreases in noninterest-bearing demand deposits.

Noninterest-bearing deposits decreased to $306.4 million as of June 30, 2018, compared to $316.0 million at March 31, 2018.  The decrease is due to one large customer moving noninterest-bearing deposits to money market deposits.  Compared to June 30, 2017 noninterest-bearing deposits increased $90.7 million from $215.7 million. 

Asset Quality

Nonperforming assets totaled $7.0 million, or 0.38% of total assets at June 30, 2018, an increase from $4.8 million, or 0.28%, of total assets at March 31, 2018.  Nonperforming assets consist of Other Real Estate Owned (foreclosed properties), loans modified under troubled debt restructurings (TDR), non-accrual loans, and loans past due 90 days or more and still accruing interest. Nonperforming assets exclude purchase credit impaired (PCI) loans acquired in prior acquisitions.  The increase in nonperforming assets was primarily due to an increase of $2.1 million consisting of two TDR loans which are still performing.

Loans held-for-investment 30 to 89 days past due decreased to $1.1 million at June 30, 2018, from $2.2 million at March 31, 2018. 

There were no net charge-offs during the second quarter of 2018.

The Company recorded a provision for loan losses of $700,000 for the second quarter of 2018, which was primarily attributable to the growth in total average loans during the quarter.  The Company recorded a provision for loan losses of $184,000 during the first quarter of 2018 and a recapture of $4.2 million during the second quarter of 2017.

The allowance for loan losses totaled $14.7 million, or 1.14% of total loans held for investment, at June 30, 2018, compared with $14.0 million, or 1.11%, of total loans at March 31, 2018. 

Properties

Our headquarters office is located at 660 South Figueroa Street, Suite 1888, Los Angeles, California. It is in downtown Los Angeles at "Metro Center" and houses our risk management unit, including compliance and BSA groups, and our single-family residential mortgage group. The lease expired in May 2018. In October 2017, the Company signed a lease for a new headquarters office at 1055 Wilshire Boulevard, Suite 1220, Los Angeles, California, which a portion of the staff has moved into. However, we will designate this location as our headquarters in the fourth quarter 2018.  In February 2018, the Company signed a lease for a new branch in Irvine, California which we expect to occupy in September 2018. 

Corporate Overview

RBB Bancorp is a $1.8 billion in assets financial holding company headquartered in Los Angeles, California. Its wholly-owned subsidiary, the Bank, is a full service commercial bank which provides business banking services to the Asian-American communities in Los Angeles County, Orange County, Ventura County and in Las Vegas, Nevada, including 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, trade finance and a full range of depository accounts. The Bank has ten branches in Los Angeles County, located in downtown Los Angeles, San Gabriel, Torrance, Rowland Heights, Monterey Park, Silver Lake, Arcadia, Cerritos, Diamond Bar, and west Los Angeles, two branches in Ventura County, located in Oxnard and Westlake Village, and one branch in Las Vegas, Nevada. The Company's administrative and lending center is located at 123 E. Valley Blvd., San Gabriel, California 91176, and its finance and operations center is located at 7025 Orangethorpe Avenue, Buena Park, California 90621. RBB'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, July 24, 2018, to discuss the Company's second quarter 2018 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 3679019. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 3679019, approximately one hour after the conclusion of the call and will remain available through July 31, 2018.

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 the Company's 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 First American International Corporation ("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, 2017, 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.

Additional Information about the Proposed Acquisition of FAIC

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.  In connection with the proposed acquisition transaction, the Company intends to file a registration statement on Form S-4 (the "Registration Statement") with the SEC, which will include a prospectus of RBB Bancorp and a proxy statement of FAIC (collectively, the "proxy statement/prospectus").  SHAREHOLDERS OF FAIC AND RBB BANCORP ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED ACQUISITION.  Investors and security holders will be able to obtain the documents, and any other documents RBB Bancorp has filed with the SEC, free of charge at the SEC's website, www.sec.gov.  In addition, documents filed with the SEC by RBB Bancorp will be available free of charge by (1) accessing RBB Bancorp's website at www.royalbusinessbankusa.com under the "Investor Relations" link and then under the heading "SEC Filings", (2) writing RBB Bancorp at 7025 Orangethorpe Avenue, Buena Park, CA 90621, Attention: Investor Relations, or (3) writing FAIC at 79 Bayard Street, New York, NY 10013, Attention: Corporate Secretary.

The directors, executive officers and certain other members of management and employees of the Company may be deemed to be participants in the solicitation of proxies in respect of the proposed acquisition.  Information about the Company's directors and executive officers is included in the definitive proxy statement for its 2018 annual meeting of RBB Bancorp shareholders, which was filed with the SEC on April 23, 2018.  The directors, executive officers and certain other members of management and employees of FAIC may also be deemed to be participants in the solicitation of consents in favor of the acquisition from the shareholders of FAIC.  Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the proxy statement/prospectus regarding the proposed acquisition when it becomes available.  Free copies of this document may be obtained as described in the preceding paragraph.