RBB Bancorp Reports Fourth Quarter Earnings for 2018
Conference Call and Webcast Scheduled for Tuesday, January 29, 2019 at 11:00 a.m. Pacific Time/2:00 p.m. Eastern Time\
- Net income was $9.9 million, or $0.50 diluted earnings per share
- RBB’s acquisition of First American International Corp. (“FAIC”) was completed on October 15, 2018
- Total loans, including loans held for sale of $434.5 million, increased by $816.6 million from the end of the prior quarter, and include $727.9 million in total loans from FAIC
- On a combined basis, organic loan growth was $88.8 million, representing 14.3% annualized growth
Los Angeles, CA, January 28, 2019 – 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, 2018.
The Company reported net income of $9.9 million, or $0.50 diluted earnings per share, for the three months ended December 31, 2018, compared to net income of $8.3 million, or $0.48 diluted earnings per share, and $4.9 million, or $0.29 diluted earnings per share, for the three months ended September 30, 2018 and December 31, 2017, respectively.
“We are very pleased with our financial performance for our first full year as a public company, 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. “We continued our positive momentum in the fourth quarter, generating strong loan growth, significantly improved fee income and continued excellent asset quality.”
“In 2019, we plan to continue expanding our franchise, primarily through a combination of organic growth and de novo branch openings. We are investing in the business to diversify our revenue mix and provide additional catalysts for generating increased profitability. Our loan pipeline remains strong, but we anticipate selling more of our loans, which we believe will result in higher gain- on-sale income and cause our loan growth to be more heavily weighted to the second half of the year.”
“On October 15, 2018, we closed the acquisition of First American International Corp., adding over $800 million in assets and eight branches in the New York City market. We want to welcome our new customers, shareholders and employees into the RBB Bancorp family, as we combine two organizations with a shared vision, mission and culture. We are also pleased to have FAIC directors Raymond Yu and Alfonso Lau join our Board. We are excited about the opportunity to expand into the attractive New York market
and we believe that the combined company will be well positioned to continue growing the RBB franchise and enhancing value for our shareholders in the years ahead,” concluded Mr. Thian.
Key Performance Ratios
Net income of $9.9 million for the fourth quarter of 2018 produced an annualized return on average assets of 1.41%, an annualized return on average tangible common equity of 12.83%, and an annualized return on average equity of 11.47%. This compares to an annualized return on average assets of 1.73%, an annualized return on average tangible common equity of 12.70%, and an annualized return on average equity of 11.34% for the third quarter of 2018. The efficiency ratio for the fourth quarter of 2018 was 49.9%, compared to 41.8% for the prior quarter.
Net Interest Income and Net Interest Margin
Net interest income, before provision for loan losses, was $25.6 million for the fourth quarter of 2018, compared to $18.6 million for the third quarter of 2018. The increase was primarily attributable to an $819.4 million increase in average earning assets, mainly due to the FAIC acquisition. Net interest income was adversely impacted by a decrease of 23 basis points in the net interest margin. Accretion of purchase discounts contributed $951,000 to net interest income in the fourth quarter of 2018, compared to $208,000 in the third quarter of 2018. The increase in accretion income was due to loans acquired in the FAIC merger.
Compared to the fourth quarter of 2017, net interest income, before provision for loan losses, increased from $17.9 million. The increase was primarily attributable to a $1.1 billion increase in average earning assets, partially offset by a 74 basis point decrease in the net interest margin.
Net interest margin was 3.88% for the fourth quarter of 2018, a decrease from 4.11% in the third quarter of 2018. The decrease was primarily attributable to a 7 basis point decrease in the yield on earning assets, resulting from lower yields on loans and a 16 basis increase in the cost of funds, partially offset by higher loan discount accretion. Loan discount accretion contributed 14 basis points to the net interest margin in the fourth quarter of 2018, compared to 5 basis points in the third quarter of 2018.
Noninterest income was $5.5 million for the fourth quarter of 2018, an increase of $3.4 million from $2.1 million in the third quarter of 2018. In the fourth quarter, gain on loan sales increased by $976,000 and service charges, fee and other income increased by $1.9 million.
The Company sold $123.9 million in mortgage loans for a net gain of $1.8 million during the quarter ended December 31, 2018, compared to $15.1 million in mortgage loan sales for a net gain of $308,000 million during the quarter ended September 30. 2018. The Company originated $74.5 million in mortgage loans for sale for the quarter ended December 31, 2018, compared with $113.1 million during the quarter ended September 30, 2018.
The Company sold $7.3 million in SBA loans for a net gain of $312,000 during the fourth quarter of 2018, compared to $23.8 million in SBA loans sold for a net gain of $817,000 during the third quarter of 2018. SBA loan originations for the fourth quarter were $9.6 million, compared to $20.0 million for the third quarter of 2018.
Compared to the fourth quarter of 2017, noninterest income increased by $1.7 million. The increase was primarily attributable to a $2.0 million increase in service charges, fees and other income, an increase of $535,000 in loan servicing fees, partially offset by an $848,000 decrease in gains on sales of loans.
Noninterest expense for the fourth quarter of 2018 was $15.5 million, compared to $8.7 million for the third quarter of 2018. The increase was primarily attributable to a $3.8 million increase in salaries and employee benefits expenses, mainly due to increased personnel from the FAIC acquisition, a $900,000 increase in occupancy and equipment expenses, also primarily due to the acquisition, and a $738,000 increase in merger expenses.
Compared to the fourth quarter of 2017, noninterest expense increased from $6.9 million to $15.5 million. The $8.6 million increase was primarily due to an increase in salaries and employee benefits of $4.5 million, occupancy and equipment expenses of $1.2 million, and merger expenses of $1.1 million. The increase in salary expense is attributable to additional staff for expansion and the FAIC acquisition. The increase in occupancy expense is mainly due to the FAIC acquisition, rent at our Irvine location and temporary space for units pending the completion of our new headquarters office.
The effective tax rate was 27.5% (including the impact of a deduction for stock options exercised in the amount of $401,000) for the three months ended December 31, 2018, 19.7% (including the impact of a deduction for stock options exercised in the amount of $991,000) for the three months ended September 30, 2018, and 60.5% for the three months ended December 31, 2017, which included an additional tax expense of $2.4 million to reflect the decline in the value of the Company’s deferred tax assets, resulting from the change in the federal tax rates.
Loans held for investment, net of deferred fees and discounts, totaled $2.1 billion as of December 31, 2018, an increase of $761.1 million, from $1.4 billion at September 30, 2018, and an increase of $893.2 million from $1.25 billion at December 31, 2017. The increase in loans held for investment from the end of the prior quarter was primarily due to the FAIC acquisition, which added approximately $726 million in loans. On a combined basis, loans held for investment increased organically by $35.1 million from September 30, 2018.
Mortgage loans held for sale were $434.5 million as of December 31, 2018, an increase of $55.6 million from $378.9 million at September 30, 2018. RBB acquired approximately $1.9 million in loans held for sale as a result of the FAIC acquisition.
Deposits were $2.1 billion at December 31, 2018, an increase of $579.6 million, from $1.6 billion at September 30, 2018, and an increase of $807.3 million, from $1.3 billion at December 31, 2017. The increase in total deposits from the end of the prior quarter was attributable to the FAIC acquisition. As of December 31, 2018 deposits included $113.8 million in brokered CDs, compared to $107.9 at September 30, 2018.
Noninterest-bearing deposits increased to $439.3 million as of December 31, 2018, compared to $287.3 million at September 30, 2018. The increase is due to the FAIC acquisition. Compared to December 31, 2017 noninterest-bearing deposits increased $153.6 million from $285.7 million.
Nonperforming assets totaled $6.2 million, or 0.21% of total assets at December 31, 2018, compared to $6.9 million, or 0.32%, of total assets at September 30, 2018. 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.
Loans held-for-investment 30 to 89 days past due increased to $4.5 million at December 31, 2018, from $1.4 million at September 30, 2018, primarily due to 11 loans in this category, including 3 from the FAIC acquisition.
There was an additional charge-off of $526,000 added to one SBA loan which was initially charged off during the third quarter of 2018.
The Company recorded a provision for loan losses of $1.9 million for the fourth quarter of 2018, which was primarily attributable to the growth in total average loans during the quarter. The Company recorded a provision for loan losses of $1.7 million during the third quarter of 2018 and $2.4 million during the fourth quarter of 2017.
The allowance for loan losses totaled $17.6 million, or 0.82% of total loans held for investment, at December 31, 2018, compared with $16.2 million, or 1.17%, of total loans at September 30, 2018.
Our headquarters office is located at 1055 Wilshire Blvd., suite 1200, Los Angeles, California. It is in downtown Los Angeles and also houses our risk management unit, including compliance and BSA groups, and our single-family residential mortgage group. In February 2018, the Company signed a lease for a new branch in Irvine, California which we opened on October 16, 2018. With the October 15, 2018 acquisition of First American International Corp., we added eight branches and two loan offices in the New York City market.
RBB Bancorp is a community-based bank holding company headquartered in Los Angeles, California. Including FAIC, the Company has total assets of approximately $2.98 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 now 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, and eight branches and two loan offices in Brooklyn, Queens and Manhattan in New York. 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.
Management will hold a conference call at 11:00 a.m. PT/2:00 p.m. ET on Tuesday, January 29, 2019, to discuss the Company’s fourth quarter 2018 financial results.
To listen to the conference call, please dial 1-833-659-7620 or 1-430-775-1348, passcode 8099618. A replay of the call will be made available at 1-855-859-2056 or 1-404-537-3406, passcode 8099618, approximately one hour after the conclusion of the call and will remain available through February 5, 2019.
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.
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.
Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including 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 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; 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, 2017, 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.