RBB Bancorp (RBB) 2017 Q2 法說會逐字稿

Thank you for joining us to discuss RBB Bancorp's financial results for the second quarter ended June 30, 2017. With me today from management are Chairman and President, CEO, Alan Thian; EVP and Chief Financial Officer David Morris and EVP and Chief Credit Officer, Jeffrey Yeh. Also we have Vincent Liu, Executive Vice President and Chief Risk Officer.

Management will provide a brief summary of the results and then we'll open up the call for your questions. During the course of 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 RBB Bancorp.

For a detailed description of these risks and uncertainties, please refer to the SEC required documents that the bank files 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. RBB Bancorp assumes no obligation to update such forward-looking statements.

At this time, I'd like to turn the call over to Alan Thian.

Thank you for attending our earnings conference phone call.

I'm very pleased to report that we had a good second quarter in which the Company earned $8.5 million of net income, which equals to $0.67 basic earnings per share and $0.62 diluted earnings. Included in the net income is the $4.2 million recapture of provision for loan losses of $4.2 million. Currently for this one-time event, earnings will have been approximately $6 million with a diluted earnings per share of $0.47.

During the quarter, loans increased $74.5 million and non-interest-bearing deposits increased $41.4 million.

Net interest margin for the quarter was 4.02%, a four basis point decrease from the first quarter. The margin adjustment for this current acquisition was about the same as for last quarter of 3.77%.

Concerning the loan qualities, the $12.7 million loan that was delinquent 30 to 89 days is now current.

We are now ready for the questions.

(Operator Instructions)

Aaron Deer of Sandler O'Neill.

Just a follow-up question on that delinquency, so judging by the way you characterize that, it sounds as though the property has not been sold and that the borrower brought the loan current. Is that correct?

Yes, it is correct. However, the property is still in escrow. According to the borrower, this property should be disposed of within one or two months. It's just that the buyer of the property would need a little more time for the contingency. However, the loan he will, from now, probably agree that he will keep current. Also for your information, the current value that was in escrow is approximately $40 million.

That's great. Thank you. I appreciate that. And then just kind of reflecting, I guess, partly on that as a potential pay-down, as you look at the pipeline in your expectations for this quarter maybe to year end, as you see some of the pay-downs come in and what's in the pipeline, how would you characterize your expectations for loan growth for the remainder of the year?

Jeffrey?

Okay. For the loan growth, I think we are practically at the same pace as we reported in the road show. We have about 12% to 14% loan growth.

Of course, it will be paid off, however, we have a long pipe line for loan production so basically what we are talking about is about 12% to 14% loan growth. We have already factored in all of those pay-offs.

Relatively, what are your thoughts on the expectations for anticipated loan volumes in terms of your sales for single family, residential and SBA in the back half of the year? Would you anticipate any change in the gain on sale premiums on either of those categories?

Okay. On the mortgage production it is actually ahead of schedule. We do anticipate that we will be selling $40 million. It may be this quarter and maybe a little bit higher than that, but basically we're selling $40 million a quarter. I do believe we're going up on our premium on the mortgage loans by 25 basis points.

As far as SBA is concerned, I don't see any change in premiums right now. We anticipate on selling approximately $22 million this quarter. Our production is going to be about $30 million this quarter, so we're pretty much on target. We set originally $120 million a year on SBA origination.

Jackie Bowen of TBW.

Just in light of Aaron's questions on loan growth, just looking at the other side of the balance sheet, if you could talk a little bit about your deposit growth expectations and how you're looking to fund that loan growth.

Right now we don't have any problems with funding. Well, right now we have plenty of cash and all. We're just talking about a number of customers bringing in about $35 million in deposits just in this month. So right now we don't see that as an issue.

We are concentrating on lower cost deposits right now. We're really trying to bring in DDAs, and I believe that is beginning to work based upon the second quarter of the year, and it looks like it's continuing to work for us up through the information I have through today.

Right now we're sitting on plenty of cash, which we are trying to deploy as quickly as possible. I'll just go through an area you haven't asked yet but trying to deploy. We will do some investing not, terribly, but[KC1] a lot of investing, but we would like to invest some of it and get the cash deployed as soon as possible.

Okay, so you're just looking at securities for that, for kind of the interim period until it deployed into the loan.

(Multiple Speakers)

Loans, too. We want to do it in bulk, but there's the opportunity cost here. And we think that we should put $25 million to $50 million of it in investments and try to get a 2.75% to 3% yield on that. And we can probably do that with some Sub-Debt bonds, some Fannie Mae and Ginnie Mae multi-family type of bonds, and even MBSs so now in the 2.50 range MBS typical mortgages so.

Okay, so looking at doing that through the quarter then.

Yes.

Okay.

Some of it. We're not going to do it all and then we want the rest to be deployed in loan growth, yes.

Yes, understood. And then understanding that you're concentrating on lower-cost deposits and generating some DDAs, how are your existing accounts behaving just with the rising rates that we saw and that we haven't had an increase since June, but if you could just give us an update on some of that.

Well, we are seeing pressure from our existing customers, and we have increased our rates slightly to protect our balances. Right now, our cost of funds over the last 12 month period of time has gone up about by 10 basis points, I believe. So we expect that it still go up slightly for the remainder of the year.

Okay. And how do you view your asset sensitivity overall?

If you're doing an [immediate] shock, Okay, I believe the 10-Q will say about a 7.5%, 100 up. So we're still asset-sensitive, but there's a lot of things going on in our balance sheet. And as we unwind the TomatoBank portfolio, the amount that we're getting the discount accretion will continue to go down, down and down. You may not see a huge increase on our net interest margin because we got that offset from the accretion of the discounts.

Yes, understood. But on a core basis, would you expect the margin to trend upward --

It should.

--excluding the TomatoBank? Okay.

Yes, yes, it should.

Okay, great. Thank you very much.

It also depends on how quickly we get the cash deployed.

Yes, yes, and just the timing on that.

FX margins.

(Operator Instructions)

Tyler Stafford of Stephens Inc.

On fee income, the servicing revenue, you guys got off the mortgage servicing portfolio was negative this quarter. Was there an MSR, negative fair value MSR hit to that this quarter? Did you guys sell some of that book or any detail on what's going on there?

No, you get to hear the good, bad and the ugly here. What basically happened is we had a procedure where every six months we look at the servicing and we correct, take out all the loans that paid off and make correction and what's supposed to actually be is every six months. We didn't do it in March, but we did do it in June so we had nine months there, which created the issue. And we had a lot of pay-offs in the second half of the year.

Do you have what that servicing portfolio was at quarter end, at least the balance of it, but it's still around $400 million?

Mortgage --

If you don't have it handy, that's fine.

I don't have it right here, but I can get it back to you. Let me check to see if I have it in here. I don't have it right with me, but Jeffrey may be able to find it on one of the board reports.

Yes, I may be able to.

He talked to the network so.

We can follow-up offline after. It's not a big deal.

Okay, that's fine.

And then maybe just current thoughts on kind of growth, expense growth expectations from here, how we should be thinking about the expense line. It looks like the comp line, each of the last few years and the third quarter has declined. I'm just wondering if that's some of the acquisitions or if that's some kind of seasonal aspect in the compensation expense line item.

For the expense line, the compensation has declined. However, the last three quarters is what you said?

It looks like in each of the last few years, but in the third quarter, compensation expense line item has declined and I'm just curious if there's anything quirky in that line item that we need to be thinking about for the third quarter and just generally overall that the expense[KC2] growth from here.

Okay. Some of it is vacation pattern. I see now you have to accrue for vacations. Most of our staff take vacations in July, August and September -- very heavy in September and also October, but that's the only thing that I could see.

We did let go last year a bunch of people from TomatoBank in the third quarter, so that may have impacted it also, but that would not have been the impact in 2015.

Yes, Okay.

Okay.

Okay. And last one for me just --

Okay.

And just curious, for 2018 that will be a little bit in the weeds, but shares outstanding after all the options vest it looks like there's a fairly wide discrepancy for the share accounts for next year and estimates. I'm just curious if you had any color or thoughts about that once all the options do vest. Is it more --

I don't know if we're providing --

-- low 17 million or --

Okay. So we had about 13 million shares before we started. We added about another 2.75 million shares, so that brings us up to about 15, 16. There's about 1 million shares, a little bit over 1 million shares that will be -- that are vested now that expire -- about 1 million shares that expire at the end of 2018. I would expect most of those to be exercised.

That will be closer to 17 million or 18 million?

Hold on, let me see real quick 15, 16. Yes, it will be closer to 17 million.

Okay, got it.

Okay. If you want me to do a full like -- and Aaron and also Jackie, you're on the line, if you want me to do a full like little reconciliation and show that to you, I'm more than willing to send that off to you. Okay?

(Operator Instructions)

And I'm showing no further questions at this time. I will hand the call back over to management for any closing remarks.

We just want to thank you for attending our first conference call. And I will be working with you all to determine when the best time is for our earnings release and to have our conference call in the future, because I know all of you get bombarded on certain days. So I'll talk to you all individually later.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.

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