RBB Bancorp Q1 FY2025 earnings call

• Addressed non-performing assets by selling $18M of loans, recognizing $6.7M in provisions, and receiving $1.8M in paydowns. Non-performing assets reduced by 20%, net exposure to non-performing loans by 32%.
• Strong loan growth: $201M in total loan originations, $112M in mortgages from in-house origination; pipeline full but moderate growth expected.
• Net interest margin expanded for the third consecutive quarter, driven by a 29-basis-point decline in deposit costs.
• Credit: Provision for credit losses was $6.7M; net charge-offs $2.6M; specific reserves increased for two lending relationships.
• Deposit franchise: Total deposits grew at 8% annualized rate, with money market and CDs contributing, and $150M of low-cost FHLB term advances matured and replaced with $110M of higher-cost FHLB advances.

First quarter net income was $2.3 million or $0.13 per share. Non-performing assets were reduced by 20% and net exposure to non-performing loans by 32% to $51 million. Loan held for investment grew by $90 million (12% annualized) driven by commercial, SBA, and SFR balances. Net interest margin increased 12 basis points to 2.88% due to a decline in deposit costs. Non-interest income decreased 4.34% to $2.3 million, and non-interest expenses increased to $18.5 million. Total deposits increased at an 8% annualized rate from the fourth quarter.

• Expect additional progress on resolving non-performing assets in coming quarters.
• Anticipate net interest income after provisions to increase as non-performing assets are resolved.
• Comp and benefit expenses expected to normalize next quarter; legal and professional expenses to trend down.
• Working on share buyback, aiming to have more details to report soon.

• Downgraded a $5.3M New York CRE loan to non-performing due to a major tenant moving out, but confident it will be resolved without principal loss.
• Uncertainty around tariffs and their potential impact on import-export and borrowers.
• Potential impact of remaining non-performing assets on earnings and capital if not resolved promptly.

Q: Brendan Nosal asked about potential share buyback, timing of FHLB roll, and margin drag from non-accruals.

A: Lynn Hopkins said a buyback is a good use of excess capital, FHLB roll is fully priced into March net interest margin, and there's a margin drag from non-accruals but $20M of non-accruals could come back to accrual at 6% adding $1.2M annually.

Q: Matthew Clark asked about interest recoveries from problem loan sales, appetite for more sales, tariff exposure, and gain on sale.

A: Lynn Hopkins said no outsized interest recoveries in the quarter, open to more problem loan sales if needed, Johnny Lee noted no observed tariff impact on top 10 customers as of yet, and Lynn Hopkins said gain on sale was lower due to keeping some loans on balance sheet with SBA pipeline building.

Q: Andrew Terrell asked about deposits, FHLB maturities, and pipeline composition.

A: Lynn Hopkins said non-interest-bearing deposits had seasonal migration to higher yielding products, FHLB advances have puttable options with final terms up to seven years but short call options, and pipeline is predominantly CRE, MFRs, and SFRs with SBA gaining momentum.

Q: Kelly Motta asked about credit workout timeline, trade finance exposure, and loan growth pipeline composition.

A: David Morris said target to resolve NPLs by second half of 2025, Johnny Lee and Lynn Hopkins said trade finance exposure is ~4% of portfolio with no identified impact yet, and Johnny Lee said pipeline is weighted to CRE, MFRs, SFRs with C&I starting to pick up with new hires.

Q: Tim Coffey asked about non-interest expenses and impact of new hires.

A: Lynn Hopkins said non-interest expenses could normalize to second half 2024 levels, and new hires' impact is not a direct additive to expenses as expense rationalization is happening elsewhere.