Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RBB Bancorp (RBB, Financial) reported a net income of $7.2 million for the second quarter of 2024.
- The company saw modest loan growth with loans increasing by $20 million in the second quarter.
- Interest expenses declined as reliance on wholesale funding was reduced to 4% of total deposits.
- Noninterest income increased slightly to $3.5 million, benefiting from distributions on an equity investment and higher gain on sale of loans.
- Tangible book value per share increased to $24.06 due to earnings and accretive share repurchases.
Negative Points
- Net interest margin declined by 2 basis points, primarily due to the impact of nonaccrual loans.
- Nonperforming loans increased by $22 million, leading to a 48% rise in nonperforming assets.
- Net interest income decreased by $912,000 to $24 million, impacted by nonaccrual loans.
- Average cash balances decreased by $109 million quarter over quarter.
- Allowance to nonperforming loans ratio decreased to 76% due to the increase in nonperforming loans.
Q & A Highlights
Q: You struck a bullish tone on both loan growth and the margin for the back half of the year. Can you help us size up the opportunities in these areas over the next two quarters?
A: (Lynn Hopkins, CFO) We are cautiously optimistic. We reported no net growth in the first quarter and $20 million net growth in the second quarter. We expect increased growth relative to these quarters. Regarding the net interest margin, the impact of non-accrual loans reduced it by 8 basis points. We are optimistic that ongoing loan growth and the absence of additional large non-accruals will stabilize and possibly improve the net interest margin.
Q: How would you characterize the migration of the three nonaccrual loans? Are there any common drivers?
A: (David Morris, CEO) There is no common driver among the loans that migrated to nonaccrual.
A: (Lynn Hopkins, CFO) We don't see any concerning trends based on these loans moving to nonaccrual. Each loan has been individually reviewed, and we haven't identified any similar exposures in our portfolio.
Q: Can you provide color on the loan sales this quarter and the pipeline for loan sales in the back half of the year?
A: (David Morris, CEO) Most of the loan sales were SBA, but we also saw some traction in our mortgage portfolio.
A: (Lynn Hopkins, CFO) The majority of the sales were SBA, and we are seeing wide spreads in this area.
Q: What was the driver behind the slight increase in securities yields? Are you reinvesting cash flows into the securities book?
A: (Lynn Hopkins, CFO) The increase in securities yields was primarily due to a higher percentage of short-term commercial paper, given the inversion in the yield curve. This had the most impact on the securities yield increase.
Q: What are your updated plans for the $150 million of FHLB maturing in the first quarter at [118]?
A: (Lynn Hopkins, CFO) Given our high loan-to-deposit ratio and desire to maintain on-balance sheet liquidity, we may look at the wholesale market for the best options, whether it's FHLB advances or other sources. We expect interest rates to decrease, so we might see some repricing higher in the first quarter next year.
Q: Any change in the loan growth message? Last quarter, we talked about low to mid-single digits.
A: (Lynn Hopkins, CFO) We still expect low to mid-single digits for the year. The second half of the year should be better relative to the first half.
A: (David Morris, CEO) Our pipelines are strong, but we also have payoffs to consider. It's a challenging environment, but we expect better performance in the second half.
Q: Any change in the composition of the loan pipeline compared to three or six months ago?
A: (David Morris, CEO) The composition remains roughly 50-50 between commercial and residential loans.
Q: Have you lowered spreads on new loans? Last quarter, we talked about 8.3% new origination yield, but this quarter, it's 7.4%.
A: (Lynn Hopkins, CFO) The 8.3% last quarter was likely due to specific examples like C&I loans. The 7.4% this quarter is a blended rate, reflecting a mix of products.
A: (David Morris, CEO) Mortgage rates are about 7.25%, and commercial rates range from 6.75% to 10%, depending on the product.
Q: What is your appetite for continuing share repurchases given the recent price increase?
A: (Lynn Hopkins, CFO) We still have a strong appetite for repurchases since our stock price is below tangible book value. We have 0.5 million shares under our authorization and will consider all aspects, possibly moderating repurchases.
Q: Can you provide more color on the NPAs and your confidence in recouping without losses?
A: (David Morris, CEO) The uptick in NPAs was not due to any specific review or audit. We obtained new appraisals and discounted them to calculate impairment. We expect to accept a deed in lieu of foreclosure for one loan to expedite selling the property.
A: (Lynn Hopkins, CFO) All nonperforming loans have been specifically reviewed and measured. We have limited specific reserves on these loans and will work through them in the third and fourth quarters.
Q: What is the noninterest expense run rate going forward after the seasonal decline in compensation?
A: (Lynn Hopkins, CFO) We expect the expense run rate to remain at a similar level to the second quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
