RBB Bancorp

Good day, everyone, and welcome to the RBB Bancorp Earnings Conference Call for the first quarter 2022. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. Please note that today's event is being recorded. It is now my pleasure to turn the program over to Ms. Catherine Way. Ma'am, please begin.

Thank you. Good day everyone, and thank you for joining us to discuss RBB Bancorp's financial results for the first quarter of 2022. With me today for management is Interim President and CEO and CFO David Morris, EVP and Chief Credit Officer Jeffrey Yeh, EVP and Chief Strategy Officer Simon Pang, and EVP and Chief Risk Officer Vincent Liu. David will provide a brief summary of the results, which can be found in the earnings press release that is available on our investor relations website, and then we'll open up the call to your questions. During this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks and uncertainties and other factors relating to RBB Bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. For a detailed discussion of these risks and uncertainties, please refer to the documents the company has filed with the SEC. If any of these uncertainties materialize or any of these assumptions prove incorrect, RBB Baincourt's results could differ materially from its expectations as set forth in these statements. The company assumes no obligation to update such forward-looking statements unless required by law. Now, I'd like to turn the call over to David Morris. David?

Thank you, Catherine. Good day, everyone, and thank you for joining us today. With me today, I have our Chairman of the Board, Dr. James Kalb, and Board Member Christina Kalb. Royal Business Bank had a great first quarter start to the year, as loans held for investments topped $3 billion for the first time. Average non-interest-bearing deposits increased by 10%, and net interest income grew. Importantly, our results demonstrate the strength of our business we have built and our ability to grow profits in a variety of economic environments. I know that recent personnel announcements have raised questions, but I feel confident that our strategy will continue to be an effective driver of shareholder value. I appreciate the support the Board has given me and look forward to working with the rest of the RBB team to drive the bank forward. Turning to the financial results, net income declined by 6.9% from last quarter's record performance. but increased by 17.4% from the years earlier to $14.6 million, or 74 cents per diluted share in the first quarter. Net income benefited from several factors. A $167.7 million increase in average earning assets and improving yield drove a $1.3 million increase in net interest income from the prior quarter. Net interest income also benefited from a decline in interest expense due to a decline in average interest-bearing liabilities and a decline in deposit costs. First quarter non-interest income decreased by $212,000 from the previous quarters primarily due to lower Fannie Mae loan sales. Non-interest expense increased from last quarter due to a $2.5 million increase in compensation expense, a $420,000 increase in data processing, and a $400,000 increase in director's fees. The increase in compensation and director's fees was due to converting executive bonuses from 100% cash to a combination of cash and RSUs. This resulted in a reversal in bonus expenses both for the executives, and for directors in the fourth quarter. The increase in data processing was due to a number of special projects and reclassification of mortgage systems expenses. These first quarter non-interest expense increases were offset by a $680,000 decrease in legal and professional expenses. Net interest margin was 3.49%, percent for the first quarter, an increase of six basis points from the fourth quarter and a decrease of 24 basis points from a year prior. Annualized ROA and ROTCE decreased in the first quarter to 1.39 percent and 14.91 percent. Net loans held for investments exceeded $3 billion as of March 31. which was a $75 million increase from last quarter. We had a good growth in CNI, construction, and mortgage, while SBA, commercial real estate, decreased from the prior quarter. On the positive side, our non-QM mortgage production, which is our most profitable mortgage product, is beginning to show signs of life. Our yield on average earning assets for the quarter increased 3%. basis points to 4%, but was down 49 basis points from the prior year. As with the NIM, this year-over-year decrease was due entirely to lower returns on our excess capital. With respect to funding, commercial customer activity drove $124 million of growth in average non-interest-bearing deposits over the quarter. Our average cost of interest-bearing deposits for the quarter was 0.44%, which was down three basis points from the prior quarter and 29 basis points from the prior year. Non-performing assets were stable at $21 million at the end of the first quarter, but declined by about $7 million in early April as three non-performing loans were fully repaid. As of April 15th, we had no loans and COVID-19 deferment. We took a provision for credit loss of $366,000 in the first quarter, primarily attributable to loan growth. Our capital levels remain strong with all of our capital ratios well above regulatory minimums. With that, we are happy to take your questions. Operator, please open up the call.