RBB Bancorp Reports First Quarter Earnings for 2018

LOS ANGELES, April 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 March 31, 2018.

The Company reported net income of $8.8 million, or $0.52 diluted earnings per share, for the three months ended March 31, 2018, compared to net income of $4.9 million, or $0.29 diluted earnings per share, and $5.5 million, or $0.40 diluted earnings per share, for the three months ended December 31, 2017 and March 31, 2017, respectively.

"We saw a significant increase in our profitability during the first quarter, as our earnings per share increased by 30% over the prior year," said Mr. Alan Thian, Chairman, President and CEO of RBB Bancorp. "We continue to see strong demand for residential mortgage loans, which drove an over 20% annualized increase in total loans during the quarter.  We continue to fund this loan demand with lower cost sources, as our noninterest-bearing demand deposits increased by more than 10% from the end of the prior quarter.  Our loan pipeline remains strong, which should lead to continued improvement in revenue and earnings as we move through the year.  In addition to the strong organic growth we are generating, the acquisition of First American International Corp. announced today will provide us with another catalyst for growing our franchise and creating additional long-term value for our shareholders."

Key Performance Ratios

Net income of $8.8 million for the first quarter of 2018 produced an annualized return on average assets of 2.15% and an annualized return on average equity of 13.27%. This compares to an annualized return on average assets of 1.18% and an annualized return on average equity of 7.31% for the fourth quarter of 2017.  The efficiency ratio for the first quarter of 2018 was 43.85%, compared to 31.74% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $16.4 million for the first quarter of 2018, compared to $17.9 million for the fourth quarter of 2017.  The decrease was primarily attributable to a 36 basis point decrease in the net interest margin partially offset by a $29.0 million increase in average earning assets.  Accretion of purchase discounts contributed $353,000 to net interest income in the first quarter of 2018, compared to $2.7 million in the fourth quarter of 2017. The decrease in accretion income followed the early payoff of one large acquired loan in the fourth quarter.

Compared to the first quarter of 2017, net interest income, before provision for loan losses, increased from $13.5 million. The increase was primarily attributable to a $216.5 million increase in average earning assets, combined with a 20 basis point increase in the net interest margin.

Net interest margin was 4.26% for the first quarter of 2018, a decrease from 4.62% in the fourth quarter of 2017. The decrease was primarily attributable to a 32 basis point decrease in the yield on earning assets, primarily due to lower loan discount accretion income, partially offset by a favorable shift in the mix of earning assets. Loan discount accretion contributed 9 basis points to the net interest margin in the first quarter of 2018, compared to 71 basis points in the fourth quarter of 2017.

Compared to the first quarter of 2017, net interest margin increased from 4.06%. The increase was primarily attributable to a 20 basis point increase in the yield on earning assets, combined with a $216.5 million increase in average earning assets.

Noninterest Income

Noninterest income was $2.5 million for the first quarter of 2018, a decrease of $1.3 million from $3.8 million in the fourth quarter of 2017.  In the first quarter, gain on loan sales decreased by $1.1 million.

The Company sold $38.5 million in mortgage loans for a net gain of $983,000 million during the quarter ended March 31, 2018, compared to $90.3 million in mortgage loans for a net gain of $2.0 million during the quarter ended December 31, 2017. The Company originated $126.5 million in mortgage loans for the quarter ended March 31, 2018, compared with $120.5 million during the quarter ended December 31, 2017.

The Company sold $17.3 million in SBA loans for a net gain of $833,000 during the first quarter of 2018, compared to $16.6 million in SBA loans sold for a net gain of $970,000 during the fourth quarter of 2017.  SBA loan originations for the first quarter were $4.6 million, compared to $1.9 million for the fourth quarter of 2017. The decrease in SBA loan originations was attributable to the departure of certain SBA business development officers.

Compared to the first quarter of 2017, noninterest income increased slightly by $23,000. The gain on loan sales increased by $318,000, partially offset by a decrease in net loan servicing fees.

Noninterest Expense

Noninterest expense for the first quarter of 2018 was $8.3 million, compared to $6.9 million for the fourth quarter of 2017.  The increase was primarily attributable to a $735,000 increase in salaries and employee benefits expense, an increase in data processing costs of $115,000, and increase in legal and professional expenses of $154,000 and an increase in other expenses of $380,000.

Compared to the first quarter of 2017, noninterest expense increased from $6.6 million. The $1.7 million increase was primarily due to an increase in salaries and employee benefits of $768,000, an increase in data processing costs of $121,000, an increase in legal and professional expenses of $645,000 and an increase in other expenses of $143,000.

Income Taxes

On December 22, 2017, the "Tax Cuts and Jobs Act", was signed into law, among other items, reducing the federal corporate tax rate to 21% effective January 1, 2018.  As a result, the Company concluded that the reduction in the federal corporate tax rate required the revaluation of the Company's net deferred tax assets.    The Company performed an analysis and determined that the value of the deferred tax assets had declined by $2.6 million.   To reflect the decline in the value of the deferred tax assets, the Company recorded additional tax expense of $2.6 million during the fourth quarter of 2017.

The effective tax rate for the three months ended March 31, 2018 was 15.2% (includes the impact of a deduction for stock options exercised in the amount of $1.2 million) and 60.5% for the three months ended December 31, 2017 (includes the impact of the deferred tax asset write-down of $2.6 million), respectively. 

As a result of the newly enacted tax legislation, the Company estimates that its effective tax rate for 2018 will be in the range of 27% and 29%. The estimated annual effective tax rate will vary depending upon tax-advantaged income, stock option exercises, and available tax credits.

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $1.26 billion as of March 31, 2018, an increase of $12.9 million, or 4.17% annualized growth, from $1.25 billion at December 31, 2017, and an increase of $122.4 million, or 10.74%, from March 31, 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 $183.4 million as of March 31, 2018, an increase of $57.6 million from $125.8 million at December 31, 2017. 

Deposits

Deposits were at $1.37 billion at March 31, 2018, an increase of $36.2 million, or 10.99% annualized growth, from $1.34 billion at December 31, 2017, and an increase of $125.2 million, or 10.0%, from March 31, 2017. The increase in total deposits from the end of the prior quarter was attributable to growth in noninterest-bearing demand deposits and certificates of deposit, partially offset by decreases in interest-bearing non-maturity deposits.

Noninterest-bearing deposits increased to $316.0 million as of March 31, 2018, compared to $285.7 million at December 31, 2017 and $215.7 million at March 31, 2017. 

Asset Quality

Nonperforming assets totaled $4.8 million, or 0.28% of total assets at March 31, 2018, an increase from $2.9 million, or 0.17%, of total assets at December 31, 2017.  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 a $1.4 million SBA loan that was placed on nonaccrual status as of March 31, 2018 because it doesn't meet the Company's cash flow requirements, but has become current subsequent to quarter end.  The Company believes that no impairment exists, as there is more than sufficient collateral value supporting the loan.

Loans held-for-investment 30 to 89 days past due decreased to $2.2 million at March 31, 2018, from $3.6 million at December 31, 2017. 

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

The Company recorded provision for loan losses of $184,000 for the first quarter of 2018, which was primarily attributable to the growth in total average loans during the quarter.

The allowance for loan losses totaled $14.0 million, or 1.11% of total loans, at March 31, 2018, compared with $13.8 million, or 1.10%, of total loans at December 31, 2017. 

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 expires 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 we expect to occupy in June 2018. In February 2018 the Company signed a lease for a new branch in Irvine, California which we expect to occupy in May 2018.  In September 2017 the Company signed a lease to occupy a new location in Oxnard which we occupied on March 26, 2018.

Corporate Overview

RBB Bancorp is a $1.7 billion in assets bank holding company headquartered in Los Angeles, California. Its wholly-owned subsidiary, Royal Business Bank (the "Bank"), is a full service commercial bank which provides business banking services to the Chinese-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 10:00 a.m. PDT/1:00 p.m. EDT on Monday, April 23, 2018, to discuss the Company's first quarter 2018 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 7889999. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 7889999, approximately one hour after the conclusion of the call and will remain available through April 30, 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, whether we are able to obtain any required governmental 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.