RBB Bancorp Q3 FY2024 earnings call

• David Morris mentioned net income, net interest margin (increased by 1 basis point but expected to expand in next few quarters), loan and deposit growth, and resolution of the Consent Order in August.
• Johnny Lee discussed loan growth (5.8% annualized rate in Q3, $175 million loan production), non-performing loans ($60.7 million, 99% in operating market), and details on special mention and substandard loans.
• Lynn Hopkins provided financial details (net income $7 million, $0.39 per diluted share), deposit franchise details (total deposits $3.1 billion, average all-in cost of deposits 3.63%), and allowance for credit losses increase to $2.1 million.

Net income for Q3 2024 was $7 million, or $0.39 per share. Net interest margin increased by 1 basis point to 2.68%. Loans grew by $44 million in the third quarter, with loan production of $175 million at a weighted average rate of 7.26%. Deposits increased by $69 million. Commercial real estate loans were 41% of total loans, while C&D loans were 6%. Non-performing loans totaled $60.7 million, 1.52% of total assets, with an increase from the second quarter due to loans migrating to non-accrual status.

• Expect net interest margin to expand over next few quarters with expected decline in short-term market interest rates.
• Loan balances to continue growing at moderate pace, accelerating as more seasoned commercial lenders are hired.
• Expect resolution of majority non-performing loans by mid-next year.

• Dependence on wholesale deposits, though less than a year ago (still 4.8% of total deposits).
• Credit risk associated with non-performing, special mention, and substandard loans.
• Impact of interest rate changes on margin and funding costs, particularly with CD repricing and deposit cost dynamics.

Q: Dig into the margin and potential magnitude of expansion into 2025 A: Lynn Hopkins mentioned deposit spot cost at 3.53% is an indication of cost trend down, CD portfolio majority reprices over next 12 months with $800 million repriceable in next quarter, loan production higher than average loan rate, and 60% of loan portfolio not eligible to reprice yet.

Q: Signs of life in secondary market for loan sales A: Lynn Hopkins and Johnny Lee discussed SBA premiums relatively consistent, volume lower, and mortgage banking margins thin with competition.

Q: Margin in September, CD repricing, securities mix, buyback expectation A: Lynn Hopkins estimated margin close to 2.75 in September, $800 million CDs coming off at under 5%, expectation to re-up buyback after taking down $20 million, and commercial paper in securities portfolio matured with investment in longer duration securities and loan portfolio shift.

Q: Credit migration, loan production opportunities, normalized credit range A: Johnny Lee discussed working on nine non-performing loans over $1 million, expecting 70% resolution by mid-next year, and healthy pipeline in CRE MFR, SBA, and non-QM products while managing weaker borrowers.

Q: Margin progression, securities mix, FHLB advances refinancing A: Lynn Hopkins discussed margin progression with CD ladder maturing over next 12 months, securities book floating rate mix details, and plans to refinance $150 million FHLB advances due in March next year using loan growth and deposit opportunities