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.

“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.