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RBB Bancorp 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 June 30, 2020<\/span>.<\/p>\n The Company reported net income of $6.5 million<\/span>, or $0<\/span>.33 diluted earnings per share, for the three months ended June 30, 2020<\/span>, compared to net income of $6.7 million<\/span>, or $0.33<\/span> diluted earnings per share, and $10.1 million<\/span>, or $0<\/span>.50 diluted earnings per share, for the three months ended March 31, 2020<\/span> and June 30, 2019<\/span>, respectively.<\/p>\n “While the COVID-19 pandemic had an impact on our operating performance for the second quarter, we were able to make progress towards returning to future earnings growth,” said Mr. Alan Thian<\/span>, Chairman, President and CEO of RBB Bancorp. “We grew our core loans by over 18% on an annualized basis and our loan pipeline remains strong. We continued to drive down our deposit costs while increasing our core noninterest-bearing deposits during the quarter. Our average loan yields also declined, but at a slower pace than the decrease in our funding costs, enabling us to expand our net interest margin. While our results were impacted by lower loan sales and an increased provision for loan losses, our credit quality improved, and our operating expenses were in line with our expectations.<\/p>\n “We are encouraged that 85% of our clients that received loan payment deferrals in April resumed making payments in July,” added Mr. Thian. “It is difficult to predict the ultimate impact that this pandemic will have on our clients, given economic uncertainty, the original government stimulus package ending soon, and the number of new COVID-19 cases continuing to increase across some of our primary markets. However, we are well-capitalized and well-positioned to manage through this public health crisis and we continue to evaluate opportunities to expand our franchise beyond our existing markets.<\/p>\n “Our board of directors approved a quarterly dividend of $0.06<\/span> per share, consistent with the second quarter, and we anticipate being able to restore the dividend to a higher level once we obtain more clarity on future business conditions and the earnings potential of the company,” Mr. Thian concluded.<\/p>\n Key Performance Ratios<\/strong><\/p>\n Net income of $6.5 million<\/span> for the second quarter of 2020 produced an annualized return on average assets of 0.83%, an annualized return on average tangible common equity of 7.77%, and an annualized return on average equity of 6.34%. This compares to an annualized return on average assets of 0.90%, an annualized return on average tangible common equity of 8.13%, and an annualized return on average equity of 6.60% for the first quarter of 2020. The efficiency ratio for the second quarter of 2020 was 54.40%, compared to 57.70% for the prior quarter.<\/p>\n Net Interest Income and Net Interest Margin<\/strong><\/p>\n Net interest income, before provision for loan losses, was $25.0 million<\/span> for the second quarter of 2020, compared to $23.6 million<\/span> for the first quarter of 2020. The $1.4 million<\/span> increase was primarily attributable to a $128.8 million<\/span> increase in average earning assets and a $72.3 million<\/span> increase in average noninterest-bearing deposits, partially offset by a $48.6 million<\/span> increase in average interest-bearing liabilities. Net interest income was also favorably impacted by a 5 basis point increase in the net interest margin. Accretion of purchase discounts from prior acquisitions contributed $818,000<\/span> to net interest income in the second quarter of 2020, compared to $685,000<\/span> in the first quarter of 2020.<\/p>\n Compared to the second quarter of 2019, net interest income, before provision for loan losses, increased $717,000<\/span> from $24.3 million<\/span>. The increase was primarily attributable to a $264.4 million<\/span> increase in average earning assets and a $149.7 million<\/span> increase in average noninterest-bearing deposits, partially offset by a 22 basis point decrease in the net interest margin, and a $136.2 million<\/span> increase in average interest-bearing liabilities. The increases in average earning assets and total deposits were primarily due to the Pacific Global Bank (“PGB”) acquisition. <\/p>\n Net interest margin was 3.42% for the second quarter of 2020, an increase from 3.37% in the first quarter of 2020. The increase was primarily attributable to a 30 basis point decrease in the cost of total deposits and a 106 basis point decrease in the cost of subordinated debentures, partially offset by a 21 basis point decrease in the yield on average earning assets. Loan discount accretion contributed 14 basis points to the net interest margin in the second quarter of 2020, compared to 10 basis points in the first quarter of 2020.<\/p>\n Noninterest Income<\/strong><\/p>\n Noninterest income was $2.2 million<\/span> for the second quarter of 2020, a decrease of $2.4 million<\/span> from $4.6 million<\/span> in the first quarter of 2020. The decrease was driven by a decrease in gain on loan sales of $2.6 million<\/span> as the Company sold fewer loans in the second quarter than in the prior quarter generally due to subdued market activity as a result of the COVID-19 pandemic. The Company expects gain on sale of loan income to return to prior levels in the fourth quarter. <\/p>\n The Company sold $5<\/span>.2 million in FNMA direct mortgage loans for a net gain of $105,000<\/span> during the second quarter of 2020, compared to $31.5 million<\/span> in FNMA direct and indirect mortgage loans, and $69.2 million<\/span> in mortgage loans to private investors for a net gain of $1.4 million<\/span> and $1.2 million<\/span>, respectively during the first quarter of 2020. <\/p>\n The Company sold $1<\/span>.4 million in SBA loans for a net gain of $70,000<\/span> during the second quarter of 2020, compared to $1.2 million<\/span> in SBA loans sold for a net gain of $89,000<\/span> during the first quarter of 2020. <\/p>\n Compared to the second quarter of 2019, noninterest income decreased by $3.3 million<\/span> from $5.5 million<\/span>. The decrease was primarily attributable to a decrease of $3.0 million<\/span> in gains on loan sales.<\/p>\n Noninterest Expense<\/strong><\/p>\n Noninterest expense for the second quarter of 2020 was $14.8 million<\/span>, compared to $16.3 million<\/span> for the first quarter of 2020. The $1.4 million<\/span> decrease was primarily attributable to a $1.4 million<\/span> decrease in salaries and employee benefits expenses, $127,000<\/span> decrease in merger expenses, $260,000<\/span> decrease in data processing expense, $103,000<\/span> decrease in marketing and business promotion expenses, partially offset by a $123,000<\/span> increase in occupancy and equipment expenses, a $66,000<\/span> increase in legal and professional fees and $189,000<\/span> increase in other expenses including a $366,000<\/span> write-down of mortgage servicing rights. <\/p>\n RBB incurred $276,000<\/span> in merger and conversion expenses in the second quarter of 2020, of which $77,000<\/span> related to the First American International Corp. acquisition and $199,000<\/span> to the PGB acquisition, a decrease of $127,000<\/span> from the prior quarter.<\/p>\n Noninterest expense decreased from $14.9 million<\/span> in the second quarter of 2019. The $80,000<\/span> decrease was primarily due to a $147,000<\/span> decrease in occupancy and equipment expenses, a $205,000<\/span> decrease in marketing and business promotion expenses and $51,000<\/span> decrease in insurance and regulatory expenses. These were partially offset by a $261,000<\/span> increase in merger expenses. The increases in merger expenses was due to the acquisition of PGB.<\/p>\n Income Taxes<\/strong><\/p>\n The effective tax rate was 30.8% for the second quarter of 2020, 32.5% for the first quarter of 2020, and 30.3% for the second quarter of 2019. The lower effective tax rate in the second quarter of 2020 was a result of affordable housing tax credits. <\/p>\n Loan Portfolio<\/strong><\/p>\n Loans held for investment, net of deferred fees and discounts, totaled $2.6 billion<\/span> as of June 30, 2020<\/span>, an increase of $108.7 million<\/span> from March 31, 2020<\/span>, and an increase of $449.1 million<\/span> from June 30, 2019<\/span> excluding loans transferred from held-for-sale to held-for-investment of $53.1 million<\/span> and PPP loans of $32.8 million<\/span>. The increase from the prior quarter was primarily due to organic loan growth. Single-family residential mortgages increased by $51.2 million<\/span>, net of payoffs, paydowns and loan sales, excluding the net transfer of loans from the available for sale category, and was driven by new production. Commercial real estate loans increased by $45.7 million<\/span>, construction and land development loans increased by $25.6 million<\/span>, SBA loans increased by $26.5 million<\/span>, and commercial and industrial loans decreased by $8.1 million<\/span>. <\/p>\n During the second quarter of 2020, single-family residential mortgage production was $117.6 million<\/span> (mortgage loans held for investment and held for sale), payoffs and paydowns were $36.0 million<\/span>, and single-family residential mortgage loan sales were $5.2 million<\/span>. During the first quarter of 2020, single-family residential mortgage production was $106.6 million<\/span>, payoffs and paydowns were $39.3 million<\/span>, and loan sales were $100.5 million<\/span>.<\/p>\n Mortgage loans held for sale were $15.5 million<\/span> as of June 30, 2020<\/span>, a decrease of $36.6 million<\/span> from $52.1 million<\/span> at March 31, 2020<\/span> and a decrease of $234.1 million<\/span> from $249.6 million<\/span> as of June 30<\/span>, 2019. The Company originated approximately $19<\/span>.0 million in mortgage loans for sale for the second quarter of 2020, compared with $32.4 million<\/span> during the prior quarter. In the second quarter, SBA loan production was $33.1 million<\/span>, which consisted exclusively of PPP loans, and total loan sales were $1.4 million<\/span>. In the prior quarter, SBA loan production was $6.2 million<\/span> and total loan sales were $1.2 million<\/span>.<\/p>\n Deposits<\/strong><\/p>\n Deposits were $2.4 billion<\/span> at June 30, 2020<\/span>, an increase of $31.3 million<\/span> from March 31, 2020<\/span>, and an increase of $317.2 million<\/span> from June 30, 2019<\/span>, excluding brokered deposits. The increase in total deposits from the prior quarter was primarily attributable to organic deposit growth. Noninterest-bearing deposits increased by $70.2 million<\/span> and interest-bearing non-maturity deposits increased by $30.1 million<\/span>. Time deposits decreased by $99.8 million<\/span>, including a $30.7 million<\/span> decrease in brokered CDs. As of June 30, 2020<\/span>, time deposits included $2.4 million<\/span> in brokered CDs, as compared to $33.1 million<\/span> as of March 31, 2020<\/span> and $135.0 million<\/span> as of June 30, 2019<\/span>.<\/p>\n Asset Quality<\/strong><\/p>\n Nonperforming assets totaled $17.5 million<\/span>, or 0.56% of total assets at June 30, 2020<\/span>, compared to $20.8 million<\/span>, or 0.66%, of total assets at March 31, 2020<\/span>. The decrease in nonperforming assets was primarily due to the sale of two hotel franchise loans and one loan returning to accrual status, for a combined total of $3.0 million<\/span>. 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. <\/p>\n Loans held-for-investment 30 to 89 days past due increased to $23.9 million<\/span> at June 30, 2020<\/span>, up from $22.5 million<\/span> at March 31<\/span>, 2020. <\/p>\n In the second quarter of 2020, there were $319,000<\/span> in net charge-offs, due to the sale of the two hotel franchise loans, down from $631,000<\/span> in the prior quarter.<\/p>\n The Company recorded a provision for credit losses of $3.0 million<\/span> for the second quarter of 2020, an increase from $1.9 million<\/span> in the prior quarter, primarily attributable to the higher loan balances and the impact of the COVID-19 pandemic. <\/p>\n The allowance for loan losses totaled $22.8 million<\/span>, or 0.88% of loans held for investment at June 30, 2020<\/span>, compared with $20.1 million<\/span>, or 0.84%, of total loans at March 31, 2020<\/span>.<\/p>\n The following table, as of June 30, 2020<\/span>, is intended to summarize the Company’s overall loan exposure to major industries that are considered “at-risk” for business interruption due to the COVID-19 pandemic:<\/p>\n Industry \/ Property Type<\/strong><\/span><\/p>\n<\/td>\n Total Exposure ($000)<\/strong><\/span><\/p>\n<\/td>\n % of Total HFI Loans<\/strong><\/span><\/p>\n<\/td>\n General retail (excluding SBA)<\/span><\/p>\n<\/td>\n $<\/span><\/p>\n<\/td>\n 217,865<\/span><\/p>\n<\/td>\n 8.4<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Mixed use commercial<\/span><\/p>\n<\/td>\n 176,902<\/span><\/p>\n<\/td>\n 6.8<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Hospitality (excluding SBA)<\/span><\/p>\n<\/td>\n 54,232<\/span><\/p>\n<\/td>\n 2.1<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Service stations (excluding SBA)<\/span><\/p>\n<\/td>\n 22,518<\/span><\/p>\n<\/td>\n 0.9<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n SBA loans<\/span><\/p>\n<\/td>\n 108,806<\/span><\/p>\n<\/td>\n 4.2<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Shared National Credits (excluding Airlines and Cruise Lines)<\/span><\/p>\n<\/td>\n 38,513<\/span><\/p>\n<\/td>\n 1.5<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Airlines and Cruise Lines (SNC)<\/span><\/p>\n<\/td>\n 9,678<\/span><\/p>\n<\/td>\n 0.4<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Restaurants (excluding SBA)<\/span><\/p>\n<\/td>\n 8,497<\/span><\/p>\n<\/td>\n 0.3<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n Total loans<\/span><\/p>\n<\/td>\n $<\/span><\/p>\n<\/td>\n 637,011<\/span><\/p>\n<\/td>\n 24.6<\/span><\/p>\n<\/td>\n %<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<\/div>\n In the above table, the general retail exposure now includes warehouse loans and the mixed use commercial exposure now includes residential mixed use loans.<\/p>\n As of June 30, 2020<\/span>, borrowers representing 258 loans totaling $32.8 million<\/span>, or 1.3% of the Company’s total loan portfolio, have funded under the SBA’s Paycheck Protection Program due to the COVID-19 pandemic. As of July 20, 2020<\/span> 85.2% of our borrowers that received loan payment deferrals in April, representing $184.6 million<\/span> in loan balances, have resumed making payments. The following table provides details regarding the Company’s COVID-19 loan deferral activity through July 20, 2020<\/span>.<\/p>\n As of June 30, 2020<\/strong><\/span><\/p>\n<\/td>\n As of July 20, 2020<\/strong><\/span><\/p>\n<\/td>\n Deferred Loans<\/strong><\/span><\/p>\n<\/td>\n Loans Resuming<\/strong><\/span><\/p>\n\n\n\n\n\n
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