RBB Bancorp Reports Third Quarter Earnings for 2018

LOS ANGELES, Oct. 22, 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 September 30, 2018.

The Company reported net income of $8.3 million, or $0.48 diluted earnings per share, for the three months ended September 30, 2018, compared to net income of $9.4 million, or $0.54 diluted earnings per share, and $6.6 million, or $0.42 diluted earnings per share, for the three months ended June 30, 2018 and September 30, 2017, respectively.

"We had a very strong quarter of business development activity, generating exceptional loan growth driven by continued momentum in mortgage and commercial real estate originations and a return to our previous level of SBA loan production," said Mr. Alan Thian, Chairman, President and CEO. "We recorded a lower gain on loan sales than expected as the usual buyers for our residential mortgage loan production had less capacity for purchases in the third quarter.  We anticipate selling more of our loans held-for-sale into traditional secondary market channels, which we currently believe should result in higher gain-on-sale income during the fourth quarter.  Our loan pipeline remains strong, although we expect our loan growth to be more heavily weighted towards our commercial and commercial real estate portfolios as we resume selling more of our residential mortgage production.

"On October 15, 2018, we closed the acquisition of First American International Corp. adding over $800 million in assets and eight branches in the New York market.  We are pleased to have FAIC directors Raymond Yu and Alfonso Lau join our Board.  We look forward to capitalizing on the synergies projected for this transaction and enhancing the value of our franchise as we grow our presence in the New York area," said Mr. Thian.

Key Performance Ratios

Net income of $8.3 million for the third quarter of 2018 produced an annualized return on average assets of 1.73%, an annualized return on average tangible common equity of 12.70%, and an annualized return on average equity of 11.34%.  This compares to 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% for the second quarter of 2018.  The efficiency ratio for the third quarter of 2018 was 41.76%, compared to 39.72% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $18.6 million for the third quarter of 2018, compared to $17.8 million for the second quarter of 2018.  The increase was primarily attributable to a $163.6 million increase in average earning assets, partially offset by a decrease of 26 basis points in the net interest margin.  Accretion of purchase discounts contributed $208,000 to net interest income in the third quarter of 2018, compared to $921,000 in the second quarter of 2018. The decrease in accretion income was due to decreased loan payoff activity in our purchased loan pools.

Compared to the third quarter of 2017, net interest income, before provision for loan losses, increased from $14.7 million. The increase was primarily attributable to a $305.8 million increase in average earning assets, combined with a 20 basis point increase in the net interest margin.

Net interest margin was 4.11% for the third quarter of 2018, a decrease from 4.37% in the second quarter of 2018. The decrease was primarily attributable to a 7 basis point decrease in the yield on earning assets resulting from lower loan discount accretion and lower yields on loans, together with a higher cost of deposits.  Loan discount accretion contributed 5 basis points to the net interest margin in the third quarter of 2018, compared to 23 basis points in the second quarter of 2018.

Noninterest Income

Noninterest income was $2.1 million for the third quarter of 2018, a decrease of $688,000 from $2.8 million in the second quarter of 2018.  In the third quarter, gain on loan sales decreased by $960,000.

The Company sold $15.1 million in mortgage loans for a net gain of $308,000 during the quarter ended September 30, 2018, compared to $52.9 million in mortgage loan sales for a net gain of $1.2 million during the quarter ended June 30, 2018. The decrease in mortgage loan sales is believed to be temporary as we currently expect to sell a greater volume of mortgages in the fourth quarter. The Company originated $113.1 million in mortgage loans for sale for the quarter ended September 30, 2018, compared with $105.8 million during the quarter ended June 30, 2018.

The Company sold $23.8 million in SBA loans for a net gain of $817,000 during the third quarter of 2018, compared to $18.2 million in SBA loans sold for a net gain of $885,000 during the second quarter of 2018.  SBA loan originations for the third quarter were $20.0 million, compared to $11.1 million for the second quarter of 2018. The increase in SBA loan originations was attributable to the hiring of new SBA business development officers.

Compared to the third quarter of 2017, noninterest income decreased by $1.7 million. The decrease was primarily attributable to a $1.5 million decline in gain on loan sales, and a decline of $177,000 in loan servicing fees.  The decrease in loan servicing fees is due to the prepayment of SBA loans.

Noninterest Expense

Noninterest expense for the third quarter of 2018 was $8.7 million, compared to $8.2 million for the second quarter of 2018.  The increase was primarily attributable to a $207,000 increase in salaries and employee benefits expense and an $180,000 increase in occupancy and equipment expenses.

Compared to the third quarter of 2017, noninterest expense increased from $7.2 million to $8.7 million. The $1.5 million increase was primarily due to an increase in salaries and employee benefits of $738,000, occupancy and equipment expenses of $309,000, and other expenses of $169,000.  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 $348,000 and provision for unfunded commitments of $66,000.

Income Taxes

The effective tax rate was 19.7% (including the impact of a deduction for stock options exercised in the amount of $991,000) for the three months ended September 30, 2018, 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, and 37.8% for the three months ended September 30, 2017. 

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $1.4 billion as of September 30, 2018, an increase of $97.1 million, or 30.0% annualized growth, from $1.3 billion at June 30, 2018, and an increase of $184.7 million, or 15.4%, from $1.2 billion at September 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 $378.9 million as of September 30, 2018, an increase of $97.2 million from $281.8 million at June 30, 2018. 

Deposits

Deposits were $1.6 billion at September 30, 2018, an increase of $140.6 million, or 39.2% annualized growth, from $1.4 billion at June 30, 2018, and an increase of $246.7 million, or 18.7%, from $1.3 billion at September 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 (including $107.9 million in brokered CDs), partially offset by decreases in noninterest-bearing demand deposits.  Excluding brokered deposits, total deposits increased $32.6 million from June 30, 2018, or 9.1% annualized growth.

Noninterest-bearing deposits decreased to $287.3 million as of September 30, 2018, compared to $306.4 million at June 30, 2018.  The decrease is due to one large customer moving noninterest-bearing deposits to money market deposits.  Compared to September 30, 2017 noninterest-bearing deposits decreased $300,000 from $287.6 million. 

Asset Quality

Nonperforming assets totaled $6.9 million, or 0.32% of total assets at September 30, 2018, an increase from $6.8 million, or 0.38%, of total assets at June 30, 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.

Loans held-for-investment 30 to 89 days past due increased to $1.4 million at September 30, 2018, from $1.1 million at June 30, 2018. 

There was one charge-off for $175,000 during the third quarter of 2018.

The Company recorded a provision for loan losses of $1.7 million for the third 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 $700,000 during the second quarter of 2018 and $700,000 during the third quarter of 2017.

The allowance for loan losses totaled $16.2 million, or 1.17% of total loans held for investment, at September 30, 2018, compared with $14.7 million, or 1.14%, of total loans at June 30, 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, to which a portion of the staff has moved. 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 opened on October 16, 2018. 

Corporate Overview

RBB Bancorp is a community-based bank holding company headquartered in Los Angeles, California.  Including FAIC, the Company has total assets of approximately $2.7 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 now 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 eight 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, October 23, 2018, to discuss the Company's third quarter 2018 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 5168219. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 5168219, approximately one hour after the conclusion of the call and will remain available through October 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 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, 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.