RBB Bancorp

Good day, everyone, and welcome to the RBB Bancorp Earnings Conference Call for the third quarter 2022. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your touch-tone phone. You may withdraw yourself from the queue by pressing star 2. Please note this call is being recorded. I will be standing by if you should need any assistance. And now I would like to turn the conference over to Ms. Catherine Way. Please go ahead.

Catherine Way Thank you. Good day, everyone. And thank you for joining us to discuss RBB Bancorp's financial results for the third quarter of 2022. With me today are President, CEO, and CFO David Morris, EVP and Chief Credit Officer Jeffrey Yeh, EVP Chief Risk Officer Vincent Liu, EVP Chief Strategy Officer Simon Ping, SEP, and Chief Accounting Officer Shalom Chang. 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 Bancorp'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, Kathryn. Good day, everyone, and thank you for joining us today. Increasing rates continue to drive performance to record levels in the third quarter, with net income of $16.7 million and earnings per share of 87 cents. Net interest income increased to a record $37 million as loans grew and margins improved. Third quarter non-interest income decreased by $887,000 from the previous quarter due primarily to the second quarter gain of $757,000 on a corporate real estate asset that we sold. As expected, non-interest expense decreased from last quarter, primarily due to the $1.2 million decrease in expenses related to the substantially completed Board of Directors investigation. I hope to be able to announce the conclusion and findings of the investigation during the fourth quarter. Net interest margin continued to increase during the quarter from 4.08% in the second quarter to 4.31% in the third quarter and 3.38% a year ago. We are cautiously optimistic that we'll be able to maintain an elevated NIN in the quarters to come. as we anticipate that asset yields will continue to increase more quickly than deposit costs. Annualized ROA and ROTCE increased in the third quarter to 1.72% and 16.58% respectively. Return on equity, which excludes the impact of AOCI, also increased to 13.93% from 13.3% in the second quarter and 13.52% last year. Net loans held for investments increased by about $173 million to $3.2 billion in the third quarter with CRE and residential mortgages showing good growth and CNI construction and other loans all decreasing from the last quarter. Our yield on average earning assets increased to 5.13%, which was 47 basis point increase from the last quarter and 116 basis point increase from the prior year. With respect to funding, commercial customer activity drove a $118 million decrease in average non-interest-bearing deposits over the quarter. Our average cost of interest-bearing deposits for the quarter was 0.82%, which was up 33 basis points from the prior quarter. As I mentioned last quarter, the increase was expected and most likely to continue for the next few quarters. We continue to be below our competitors on deposit pricing, but have been forced to increase rates to retained deposits. Non-performing loans decreased to $11.5 million from $13.9 million last quarter. Loans 30 to 89 days delinquent increased to $39.9 million in the third quarter, compared to $8.3 million in the second quarter. The increase was due in part to two loans, one was a construction loan of $11.3 million on a project that is substantially complete that was delinquent for 52 days due to administrative delays in processing and extension. And one was a commercial real estate loan of $8.8 million that was also delinquent for 52 days due to similar delays. Both extensions were planned well in advance but unfortunately could not be completed on schedule and so led to the increase in delinquent loans. as of October 21. On 30 to 89 days, delinquent had decreased to $14.5 million. So while the September 30 numbers look alarming, we do not think it is a sign of deteriorating credit. We took a provision for credit losses of $1.8 million in the third quarter, primarily attributable to loan growth. Our capital levels remain strong with all of our capital ratios well above regulatory minimums. We continue to repurchase shares in the third quarter with 95,000 shares repurchased and an average price of $20.93. We have 482,000 shares left on the buyback and intend to continue to utilize it as appropriate. With that, We are happy to take your questions. Operator, please open up the call.