RBB Bancorp Reports Fourth Quarter and Full Year Earnings for 2019

LOS ANGELES, Jan. 27, 2020 /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 December 31, 2019.

The Company reported net income of $10.7 million, or $0.52 diluted earnings per share, for the three months ended December 31, 2019, compared to net income of $8.0 million, or $0.39 diluted earnings per share, and $9.5 million, or $0.47 diluted earnings per share, for the three months ended September 30, 2019 and December 31, 2018, respectively.

"We are very pleased with our financial performance for the year, as we generated the highest level of net income in the history of the Company," said Mr. Alan Thian, Chairman, President and CEO of RBB Bancorp. "Our strong results were driven by significant revenue growth, due to both record net interest and noninterest income, well-managed expenses and disciplined balance sheet management. We continued our positive momentum in the fourth quarter, growing our held for investment loan portfolio while also generating strong fee income from loan sales.  While our net interest margin was negatively impacted by temporary excess liquidity, our ongoing low credit costs and well-managed expenses enabled us to deliver increased profitability for the quarter."  

On January 10, 2020 the Company completed the acquisition of PGB Holdings, Inc. and its wholly-owned subsidiary Pacific Global Bank based in Chicago, IL ("PGB") in a cash transaction valued at approximately $32.9 million. Principally serving the Chinese-American communities in Chicago, Pacific Global Bank has three branches located in the Chicago neighborhoods of Chinatown and Bridgeport, offering consumer and business banking and loan products and services. The bank owns two of its three branches with an estimated fair market value of approximately $2 million in excess of book value. The transaction is expected to result in earnings per share accretion in the high single-digits in 2020.

Mr. Thian added, "We want to welcome Pacific Global Bank's customers and employees to RBB Bancorp.  Pacific Global is an excellent cultural fit with RBB, as we have complementary business models, strong residential mortgage loan production platforms, and a focus on the Chinese-American market. We plan to supplement the lending products offered by PGB with our mortgage, SBA 7A, small C&I and construction lending products. We believe this expanded suite of product offerings will provide a superior banking experience for our customers, as well as allowing us to win a greater share of their banking business." 

"We are excited to be entering the Chicago market and intend to open two new branches in metro Chicago in the next two years. We now have a strong presence in the largest Asian-American markets in three of the top major metro areas in the country, positioning RBB to continue our robust growth. Since we went public in 2017, we have more than doubled the size of RBB and built a strong business model centered around core community banking that we believe will produce attractive long-term returns for our shareholders," Mr. Thian concluded.

Key Performance Ratios

Net income of $10.7 million for the fourth quarter of 2019 produced an annualized return on average assets of 1.51%, an annualized return on average tangible common equity of 12.50%, and an annualized return on average equity of 10.49%.  This compares to an annualized return on average assets of 1.15%, an annualized return on average tangible common equity of 9.56%, and an annualized return on average equity of 7.99% for the third quarter of 2019.  The efficiency ratio for the fourth quarter of 2019 was 46.52%, compared to 52.40% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $23.1 million for the fourth quarter of 2019, compared to $23.5 million for the third quarter of 2019.  The $389,000 decrease was primarily attributable to a $10.2 million increase in average interest-bearing liabilities, partially offset by a $40.6 million increase in average earning assets and a $21.0 million increase in average noninterest-bearing deposits.  Net interest income was also impacted by a 12 basis point decrease in the net interest margin.  Accretion of purchase discounts from prior acquisitions contributed $633,000 to net interest income in the fourth quarter of 2019, compared to $624,000 in the third quarter of 2019.

Compared to the fourth quarter of 2018, net interest income, before provision for loan losses, decreased $2.5 million from $25.6 million. The decrease was primarily attributable to a 41 basis point decrease in the net interest margin, partially offset by a $55.9 million decrease in average interest-bearing liabilities, a $22.4 million increase in average earning assets and a $22.8 million increase in average noninterest-bearing deposits.  FHLB advances were paid off during the quarter.  The increases in average earning assets and total  deposits were primary due to the First American International Corp. ("FAIC") acquisition in the fourth quarter of 2018.  

Net interest margin was 3.47% for the fourth quarter of 2019, a decrease from 3.59% in the third quarter of 2019. The decrease was primarily attributable to a 20 basis point decrease in the yield on average earning assets resulting from higher balances and lower yields on cash equivalents and short term securities, and lower average loan yields partially offset by a 9 basis point decrease in the cost of interest bearing liabilities.  Loan discount accretion contributed 10 basis points to the net interest margin in the fourth quarter of 2019, consistent with the third quarter of 2019.

Noninterest Income

Noninterest income was $5.8 million for the fourth quarter of 2019, an increase of $3.0 million from $2.8 million in the third quarter of 2019.  The increase was driven by an increase in gain on loan sales of $2.9 million.

The Company sold $61.3 million in FNMA direct and indirect mortgage loans, and $100.3 million in mortgage loans to private investors for a net gain of $1.9 million and $1.7 million, respectively during the fourth quarter of 2019, compared to $5.8 million in total mortgage loan sales for a net gain of $182,000 during the third quarter of 2019.    

The Company sold $3.8 million in SBA loans for a net gain of $171,000 during the fourth quarter of 2019, compared to $11.3 million in SBA loans sold for a net gain of $631,000 during the third quarter of 2019. 

Compared to the fourth quarter of 2018, noninterest income increased by $334,000 from $5.5 million. The increase was primarily attributable to an increase of $1.7 million in gains on loan sales partially offset by a $1.3 million decrease in recoveries on loans acquired in business combinations.

Noninterest Expense

Noninterest expense for the fourth quarter of 2019 was $13.5 million, compared to $13.8 million for the third quarter of 2019.  The $321,000 decrease was primarily attributable to a $477,000 decrease in data processing expenses, $118,000 decrease in legal and professional expenses, partially offset by a $177,000 increase in OREO expense, and a $134,000 increase in marketing and business promotion expenses. 

RBB incurred $231,000 in merger expenses in the fourth quarter of 2019, of which $159,000 related to FAIC and $72,000 to PGB, an increase of $77,000 from the prior quarter.  For 2019, RBB incurred $471,000 in merger expenses, of which $367,000 related to FAIC and $104,000 to PGB.  The merger expense in 2019 decreased $1.2 million from $1.7 million in 2018.

Noninterest expense decreased from $15.5 million in the fourth quarter of 2018.  The $2.0 million decrease was primarily due to an $857,000 decrease in salaries and employee benefits, a $209,000 decrease in data processing expenses, a $159,000 decrease in insurance and regulatory assessments, and a $855,000 decrease in merger expense.  These were partially offset by a $476,000 increase in occupancy and equipment expense and a $164,000 increase in OREO expense.    Following the FAIC acquisition in the fourth quarter of 2018, we implemented various cost savings initiatives and real estate consolidations, resulting in a reduction of certain operating expenses which were fully realized by the end of 2019.

Income Taxes

The effective tax rate was 28.0%, with no stock options exercised in the fourth quarter of 2019, 31.5% for the third quarter of 2019 including the tax impact for stock options exercised in the amount of $38,000, and 30.6% for the fourth quarter of 2018 including the tax impact of a deduction for stock options exercised in the amount of $401,000. 

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $2.2 billion as of December 31, 2019, an increase of $70.8 million from September 30, 2019, and an increase of $54.9 million from December 31, 2018. The increase from September 30^th to December 31^st was driven by a $68.7 million increase in single-family residential mortgages, which includes a combination of strong production and approximately $95.8 million net transfer of loans from the available for sale category.  In addition commercial real estate loans increased by $5.3 million and SBA loans increased by $4.0 million.  These increases were partially offset by decreases of $5.6 million in construction loans and $1.9 million in C&I loans.

During the fourth quarter of 2019, single-family residential mortgage production was $125.8 million (mortgage loans held for investment and held for sale), payoffs and paydowns were $46.2 million, and single-family residential mortgage loan sales were $161.7 million.  Compared to the third quarter of 2019, production was $92.0 million, payoffs and paydowns were $48.3 million, and loan sales were $5.9 million.

Mortgage loans held for sale were $108.2 million as of December 31, 2019, a decrease of $151.1 million from $259.3 million at September 30, 2019 and a decrease of $326.3 million from $434.5 million as of December 31, 2018.  The Company originated approximately $38.1 million in mortgage loans for sale for the fourth quarter of 2019, compared with $46.1 million during the prior quarter. 

In the fourth quarter, SBA loan production was $4.7 million and total loan sales were $3.8 million.  In the third quarter, SBA loan production was $7.5 million and total loan sales were $11.3 million.

Deposits

Deposits were $2.2 billion at December 31, 2019, a decrease of $2.9 million from September 30, 2019, and an increase of $105.0 million from December 31, 2018. The decrease in total deposits from the end of the prior quarter was primarily attributable to a $59.1 million decrease in time deposits (including a $35.5 million decrease in brokered CDs), partially offset by a $12.7 million increase in noninterest-bearing deposits and a $43.5 million increase in interest-bearing non-maturity deposits.  As of December 31, 2019, time deposits included $67.1 million in brokered CDs, as compared to $102.6 million as of September 30, 2019 and $113.8 million as of December 31, 2018. Excluding brokered deposits, total deposits increased by $32.6 million from September 30, 2019.

Asset Quality

Nonperforming assets totaled $13.5 million, or 0.48% of total assets at December 31, 2019, compared to $10.9 million, or 0.39%, of total assets at September 30, 2019.  The increase in nonperforming assets was primarily due to the additions of three SBA loans totaling $5.1 million, and a mortgage loan in the amount of $440,000, partially offset by a $1.0 million commercial real estate loan payoff, and a $974,000 decrease in other real estate owned (OREO).  Nonperforming assets consist of OREO, loans modified under troubled debt restructurings (TDR), non-accrual loans, and loans past due 90 days or more and still accruing interest. 

Loans held-for-investment 30 to 89 days past due decreased to $4.4 million at December 31, 2019, from $4.6 million at September 30, 2019. 

In the fourth quarter of 2019, there were $1.2 million in net charge-offs.

The Company recorded a provision for credit losses of $659,000 for the fourth quarter of 2019, which was primarily attributable to a $92,000 reserve for two non-accrual loans and normal loan growth. 

The allowance for credit losses totaled $18.8 million, or 0.86% of loans held for investment at December 31, 2019, compared with $19.4 million, or 0.91%, of total loans at September 30, 2019. 

Properties

Our headquarters office is located at 1055 Wilshire Blvd., 12^th floor, in Los Angeles, California. In 2019, we closed one non-banking office and one branch and opened one new branch in New York City.

The Bank plans to open a new full service banking branch in Edison, New Jersey in the third quarter of 2020.  The branch will be located at 561 US-1, in the Wicks Shopping Plaza in Edison.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California.  The Company has total assets of $2.8 billion. Its wholly-owned subsidiary, the Bank is a full service commercial bank, which provides business banking services to the Chinese-American communities in Los Angeles County, Orange County and Ventura County in California, in Las Vegas, Nevada, and in Brooklyn, Queens, and Manhattan in New York.  Bank services include 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, automobile lending, trade finance, a full range of depository account products and wealth management services.  The Bank has ten branches in Los Angeles County, two branches in Ventura County, one branch in Irvine, California, one branch in Las Vegas, Nevada, eight branches and one loan operation center in Brooklyn, Queens and Manhattan in New York, and three branches in Chicago, Illinois. The Company's administrative and lending center is located at 1055 Wilshire Blvd., Los Angeles, California 90017, and its finance and operations center is located at 7025 Orangethorpe Avenue, Buena Park, California 90621. The Company's website address is www.royalbusinessbankusa.com.

Conference Call

Management will hold a conference call at 10:00 a.m. Pacific time/1:00 p.m. Eastern time on Tuesday, January 28, 2020, to discuss the Company's fourth quarter 2019 financial results.

To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 9625188. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 9625188, approximately one hour after the conclusion of the call and will remain available through February 4, 2020.

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 our 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 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, including our recent acquisition of PGB Holdings, Inc. and its wholly-owned subsidiary, Pacific Global Bank, and our recently completed acquisition of FAIC, whether we are able to obtain any required governmental or shareholder 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, including ASU 2016-13 (Topic 326), "Measurement of Credit Losses on Financial Instruments", commonly referenced as the Current Expected Credit Loss ("CECL") model, which will change how we estimate credit losses and may increase the required level of our allowance for credit losses after adoption; 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, 2018, 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.