RBB Bancorp Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2023

There are 12 speakers on the call.

Operator

Good day, everyone, and welcome to the RBB Bancorp Results for the Q2 of 2023. At this time, all participants have been placed on a listen only mode, It is now my pleasure to turn the floor over to your host, Catherine Wei. Ma'am, the floor is yours.

Speaker 1

Thank you. Good day, everyone, and thank you for joining us to discuss RBV Bank Card's results for the Q2 of 2023. With me today is Chief Executive Officer, David Morris President and Chief Banking Officer, Johnny Leaf Chief Financial Officer, Alex Co, Chief Credit Officer, Jeffrey Yeh Chief Administrative Officer, Gary Pham and Chief Risk Officer, Vincent Liu. David, Johnny and Alex will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations Web And then we'll open up the call to your questions. During this conference call, statements made by management may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Such forward looking statements are based upon assumptions that may or may not prove correct. Forward looking statements are also subject to known and unknown risks and uncertainties And other factors relating to RBV Bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. For a detailed discussion of these risks and uncertainties, please refer to the documents the company has filed with If any of these uncertainties materialize or any of these assumptions prove incorrect, RBB Binkla's results could differ materially from its The company assumes no obligation to update such forward looking statements unless required by law. Now, I'd like to turn the call over to David Moyer. David?

Speaker 2

Thank you, Catherine. Good day, everyone, and thank you for joining us today. First thing first, I would like to welcome Johnny Lee to the Royal Business Bank family as President and Chief Banking Officer and say how pleased we are to have someone with his experience and reputation Join us in a leadership role. Johnny's hiring is one of the more visible steps we've taken over the past 15 months to strengthen our management team, enhance our Board of Directors and adopt industry leading Corporate Governance Policies. These actions are summarized on Page 3 of our earnings presentation.

Speaker 2

Since I was named CEO in February of last year, we have added a new President, Chief Financial Officer, Chief Administrative Officer, SBA Manager, Commercial Lending Manager and the East Coast Head of Branch Banking. These additions to the RBB team have deepened our management bench and improved our ability to run a nationwide banking franchise. In addition to the new employees, We enhanced our Board of Directors with 6 new directors with extensive regulatory, Executive leadership, wealth management, risk management and community banking experience. Of our 10 directors, 9, including our Chairman, are classified as independent directors. We also adopted new corporate governance policies and standards, which include enhanced Director independent standards and independent Board Chair, update Board Committee charters and a new code of ethics.

Speaker 2

I want to mention these actions because I think they show how serious we are about serving our community, increasing shareholder value and preventing a repeat of the events that led to the departure of former employees and directors. And we are hopeful that folks will look at us, not as the bank we were a year ago, but as the bank we are today. With all that said, I think it's important to address a couple items In the quarter before I hand it over to Alex. First, we are aware of the increase in nonperforming loans. While nonperforming loans increased in the 2nd quarter, classified, special mention and loans delinquent between 30 90 days decreased from the last quarter.

Speaker 2

Specifically, special mentions to loans decreased significantly to $24,000,000 from $89,000,000 in the past quarter. 2nd, we strengthened our liquidity and are well on our way to bring The bank's loan to deposit ratio down to our sub-ninety 5 percent target. These efforts have resulted in a decrease in loans as we have slowed our lending, tightening credit and increased our liquidity over the past few quarters. We continue to lend to our core customers and expect Shawnee's experience and C and I lending will create new opportunities to originate loans that come with significant deposits. Now I'll hand the call over to Johnny, who will make a few comments before handing it over to Alex to discuss the financial results.

Speaker 2

Johnny?

Speaker 3

Thank you, David. I'd just like to say how excited I am to join Royal Business Bank as President and Chief Banking I've been here for a little more than a month and have been impressed by the energy and dedication of the whole team. We have a real opportunity to continue to build on a successful track record of the bank and to bear shareholder value. As David mentioned, I believe my 33 years of experience in C and I lending will expand opportunities to diversify our loan portfolio while adding lower cost deposits. I look forward to meeting many of you in person and to reporting on our progress in the quarters to come.

Speaker 3

With that, I'll hand it over to Alex, who will discuss the financial results. Alex?

Speaker 4

Thank you, Johnny. Slide 4 has a summary of 2nd quarter results. Increasing loan yield drove another quarter of record interest income, but were offset by increase in interest expenses. As a result, net income for the quarter was stable at $10,900,000 or $0.58 per share. Non interest income of $2,500,000 increased slightly from the Q1 as $271,000 increase in service charges offset $125,000 decline in loan servicing fees.

Speaker 4

Non interest expenses decreased $394,000 due to decreases in salaries and legal expenses, offset by increases in occupancy, Data processing and regulatory assessment. 2nd quarter net interest margin of 3 point 37% decreased 43 basis points from the last quarter, as deposit cost increases continue to outpace Slide 5 includes summary balance sheet information And you can see that the biggest change was net loans held for investment, which decreased by $146,000,000 As we began to see the impact from the slowdown in origination we discussed last quarter. All loan category balances declined with the exception of residential mortgages, which increased slightly. The net loan to deposit ratio at the end of the second quarter was 99%. So, we were pleased with our progress on this important goal.

Speaker 4

Our yield on average earning assets increased to 6.01% in the 2nd quarter, which was a 17 basis point increase from the last quarter and a 135 basis point increase from the Q2 of 2022. The increase in yield from last quarter was due to increasing yield on virtually all of our interest earning assets. Starting on slide 6 of the earnings presentation, We provide additional detail about our loan portfolio, which totaled $3,200,000,000 At the end of the Q2, with an annualized yield of 6.23%. Commercial real estate loans comprise 45% of our loans and slide 78 have some details about our exposure. Our CRE office portfolio is relatively small at $45,000,000 and has an Average weighted LTV of 57%.

Speaker 4

Our CRE loans consist of 44% of Multifamily loans. Slide 9 has a snapshot of our 1,550,000,000 Dollar's residential mortgage portfolio, which mostly consists of non QM mortgages in New York and California. Moving on to slide 11. Our total deposit balance increased steadily for the last two quarters. Average interest bearing deposits increased by $217,000,000 due to increases in time deposits.

Speaker 4

Average non interest bearing deposits declined at a slower pace than last quarter. We have had a steady decline in uninsured deposits, which now stands at 29% of total deposits, partially due to converting to SEDAR's deposits. Our average cost of interest bearing deposits for the quarter was 3.47%, up 72 basis points from the prior quarter and a slight decline from the 82 basis point increase we saw in the Q1. We continue to expect the pace of increases and deposit costs to slow in future quarters. Moving on to credit.

Speaker 4

As detailed on slide 12, Non performing loans increased to $42,500,000 from $26,400,000 from the last quarter due to primarily to 3 loans totaling $17,800,000 One of these loans is a CRE office loan and 2 of them are residential mortgage loans. Also during the Q2, 13 loans totaling $3,500,000 were removed from the non performing categories, with 7 of them totaling $3,100,000 paying off and 5 of them totaling $100,000 being charged off. As David mentioned, and you can see on slide 14, We saw a $68,500,000 decline in special mention and classified loans in the 2nd quarter. The largest part of this improvement was an upgrade of $55,000,000 multifamily construction loan. The company recorded a $380,000 provision for credit losses, which when combined with a decline in loans Outstanding took our allowance for credit losses to 1.35 percent of total loans.

Speaker 4

As noted on slide 15, non interest income increased slightly from the last quarter, mainly due to an increase in deposit service fees. Slide 16 shows detail of operating expenses. Our efficiency ratio slightly increased mainly due to reduced net interest income, offset by a decrease in salary and employee benefit expenses. Non interest expenses to average Asset ratio improved slightly to 0.46%, mainly reflecting the reduction of non interest expense Quarter over quarter. Our capital levels remain strong with all capital ratios well above Regular to well capitalized ratio, which we believe is prudent given the market rates risks.

Speaker 4

With that, we are happy to take your questions. Operator, please open up the call.

Operator

Certainly, everyone at this time will be conducting a question and answer session. Your first question is coming from Nate Kelly Mota from KBW. Your line is live.

Speaker 5

Hi, Good morning. Thanks for the questions. I think maybe I'll kick it off with your broader comments On building the bench, I know you guys have done a tremendous job, adding independent members to the Board as well as Adding to the bench on the management team, just wondering, as you look at what you've done and brought on, Do you feel like you have the team in place now to, kind of execute in terms of the next stages? Or are you still looking to add executives, in some areas.

Speaker 2

Kelly, this is Dave. Good morning. I believe that as far as our executive management team, we have everybody on board. We do have Some holes and for example, we need to have a C and I lender that we would need to put on, and a couple other positions like that within the organization.

Speaker 5

Right. And then on the loan growth I believe your release and commentary suggested that you're pulling back in some non core areas, Maybe non core regions, can you expand on kind of where you are, more specifically where you're pulling back as well as where you continue to see good risk adjusted returns. And also as we look towards the second half of the year, loan balances I know you've laid out where you want to get to on your loan to deposit ratio. How much That comes from just pulling back on the loan growth as we look towards the back half of the year.

Speaker 2

Okay. I will I'll attempt to answer the first and second part. When we say non core growth, we're talking about Customers who do not have a core relationship with us, meaning they do not have a deposit relationship with us also or their main deposit relationship. And most many of these are out of our market, okay, maybe in the state of Washington or Oregon, Texas, and so forth. We're also pairing back in some of our other areas of non core business like our Auto lending, we have ceased auto lending and we're bringing down mortgage a little bit also.

Speaker 2

We're not growing mortgage like we used to. As far as The second part of your question, most of our decrease our decrease is going to come In both areas, but most of the decrease in our loan to deposit ratio and It's going to be probably from loans rolling off in those areas that I talked about earlier. Okay. While at the same time, we're going to probably bring on $40,000,000 a quarter or So in deposits. So that's what's going on.

Speaker 5

Got it. And then, maybe last Question for me and then I'll let others into the queue. But on the non interest bearing deposits, I know you had some larger accounts and there's been declines over the past several quarters now, some of that letting go, some of those customers that are But just as we look ahead, like where do you see non interest bearing settling out as a percentage of Deposits are at 18% now. And is that pace of, non interest bearing runoff Showing any signs of slowing, any sort of color around the details of flows would be helpful as we look ahead.

Speaker 2

Kelly, I'm going to have Gary answer that question for you.

Speaker 6

Hey, Kelly. Yes, we definitely see the Trend of that slowing, I think ultimately, with Johnny coming on board and with some of the new management team, that's the primary focus of our deposit growth. For the Reminder of this year, we're like every other bank trying to deal with the market shifts and the way that we're looking at our current customer base, but the investments we're making in people, In systems, products and services, that's all in line to help us grow the non interest bearing deposit segment of our deposit book. So that's something, I don't think you'll see immediate results in the next, let's say, 30, 45 days, but I would expect us to see some positive momentum before the end of this calendar year.

Speaker 5

Great. Appreciate it. I'll step back.

Operator

Your next question is coming from Nathan Race from Piper Sandler. Your line is live.

Speaker 7

Yes. Hi, Hi, everyone. Good morning. Thanks for taking my questions. Question on some of the balance sheet dynamics in the quarter.

Speaker 7

Cash balances remain fairly high, but you were also able to bring down your FHLP advances in the quarter. So just curious to Here, how we should kind of think about those two areas going forward?

Speaker 4

Sure, Nathan. Good to talk to you. Yes, you're correct. As you know, we have a strategy to lower our loan to deposit ratio at a bank level. So I think we are on track.

Speaker 4

So with kind of monitoring or control the growth on the loan side, We are and also continue to increase the deposit side. We park those money in the investment security as well as to just boosting our Liquidity, we parked on the cash and different banks. Compared to last Year same quarter Q2, we have about $22,000,000 increase. And I think it is prudent To keep the cash and the liquidity being at this level, it might go a little bit down as we And our funding mechanism as we grow in loan size in Q4 maybe might decrease a little bit, But I feel comfortable with, let's say, $240,000,000 $50,000,000 of cash level. I think it is adequate.

Speaker 4

And also investment security wise, it did increase from last quarter, quite big increase Around like close to $100,000,000 So that is actually we are doing a barbell strategy to short term, make sure we have liquidity Matters, but also it helps us boosting our some interest income as well.

Speaker 7

Right. Got it. And then maybe changing gears and thinking about the expense run rate. I think last quarter, we were talking to getting closer to 17 In the back half of this year, just curious with the decrease in comp that we saw this quarter relative to the Still relatively all these legal costs. How should we think about those two areas in particular relative to kind of the guidance provided last quarter?

Speaker 4

Sure. Yes. We did say that. We are expecting to the professional So the legal field is expected to go down. Yes, it did go down, but not to the level of the Decrease that we expected actually happened this quarter.

Speaker 4

But I think going forward, the run rate, we expect that will continue to go down. And in fact, just to give you a magnitude of the legal fees and other professional fee last 6 months as we incurred about $3,000,000 of legal fees, I do not think continue going forward. It will be reduced. And also one thing to note is Obviously, there is some insurance coverage. They will reimburse certain expenses, which include certain legal fees as well.

Speaker 4

So but I would expect to continue to report the gross basis of total our expenses related to legal Matters, so you will see some elevated level, but not to the level of Q2 or Q1, But some expenses going forward, but we I would expect to see some sort of a reimbursement from the Insurance company for that legal expenses. So I hope that will continue that will help us To lower our efficiency ratio and also non interest expense over average asset ratio, You mentioned the salary and benefit like compensation expenses. I think it did decrease a little bit For this quarter, but I think given we have new key persons join the bank and also we are Strengthening for the bench. So I think the salary and compensation expense might go up a little bit. So that will kind of offset A little bit to the increase of legal expenses and other kind of operating expenses such as like Assessment fee, I would expect small amount like $100,000 or something will decrease going forward because I did see Some one off increase in the Q2.

Speaker 4

So having said that, I would expect like $18,000,000 Plus minus might be the run rate that I can foresee for now, but there is a certain aspect that obviously some legal fees, all those kind of things might be some Out of management's control, but I would feel comfortable in the neighborhood of $18,000,000 run rate for Our interest expense will be comfortable.

Speaker 7

Okay, great. That's very helpful. And then just any additional details you can provide on the office Commercial real estate loan that moved to non accrual in the quarter. I appreciate all the details in the deck, but just any additional color in terms of occupancy rates and Kind of how you guys are working through that credit in particular?

Speaker 4

Yes. Maybe I can attempt. Jeffrey is here with me, so Jeffrey can We try to have kind of a little bit more details about the CRE office portfolio. Nathan, actually, we provide a slide more details on the earnings presentation, Page 7, which have LTV distribution And also by regional breakdown. But actually office exposure itself, we have a very minimum, dollars 45,000,000 total, This is the 1.5% of our total loans.

Speaker 4

So that's I believe to start with, we have a small amount of exposure. However, one loan that kind of migrated into non accrual loan this quarter happened to be Those office portfolio. And we did perform impairment analysis, which is about 90% of net Loan to value ratio. And there is another real reserve or loss content For now, based on the appraisal that we have. And we believe that is a kind of isolated The one off office portfolio, because I don't see any other office Type of portfolio in our even small portfolio have a similar nature of risk content.

Speaker 4

So I think that is kind of isolated, but we are watching very Closely because office space itself is industry wide, it's a high risk area. So we are watching carefully. And just to give you a little bit more color, more on the overall office portfolio, we have average weighted LTV is very low, like a 57%. So one off 90% that NPL is a kind of one off item and we have Low LTV, again, like 57%. And also 80% Or more, it's all in the areas that we serve in our New York, New Jersey areas.

Speaker 7

Okay, got it. Very helpful. And if I could just ask one more on capital management priorities. I imagine you guys want to continue to build excess capital in this type of environment, but also just curious to give me updated thoughts on just when maybe share repurchases can resume And if the ongoing SEC investigation that was in the 8 ks last night has any impact on your timing or ability to resume share repurchases?

Speaker 2

We don't know the timing on the share repurchases at this time, But we want to start repurchasing as soon as we can.

Speaker 7

Okay, Great. That's all I have.

Speaker 8

I appreciate you guys taking the questions and all the color Alex and David.

Operator

Your next question is coming from Andrew Terrell from Stephens. Your line is live.

Speaker 9

Hey, good morning. Good morning. Hey, If I could just follow-up on the office loan, I understand the portfolio overall is very small. It looks like very well underwritten here. For the one office loan that went nonperforming, it sounds like the LTV is right around 90%, but you maybe had gotten A recent appraisal on that, I was just curious before the updated appraisal, what was the LTV beforehand?

Speaker 9

So I guess in other words, what was the kind of value degradation that the property saw?

Speaker 10

Yes. Hi, this is Jeffrey. Before it was appraised before it was reappraised, the LTV is about 65%. We did do appraisal With the new appraisal because of the drop of operating income, also that you know that the building is 100% occupied. And it's just the reason of the drop is mainly because of the tenant negotiate for the lower rent.

Speaker 10

So then it impacts it actually impacts the value because if you're using the income approach to evaluate our property And on top of it, there is a short term rental disagreement. So then there's a reason why that we put it into NPL, just for your information.

Speaker 9

Understood. That's very helpful color. I appreciate it. And then maybe on the other side of the credit front, I mean, it was good to see the special mention improvement this quarter. I just want to make sure I heard correctly.

Speaker 9

Was it one specific multifamily construction loan for $55,000,000 or a handful of multifamily Construction deals for that aggregate amount that drove the decrease in special mentions?

Speaker 10

Yes. That is true. That is A big decrease of special mention because of this property. Just

Speaker 2

give you

Speaker 10

a little color of this property. This property is 100% completed And then they are in 2 they are breaking into 2 projects. The project 1 is more than 90% of these and then the Project 2 is just completed and they are doing a pre leasing. And also then just for your information that Because we are because of their market they are in the group market area, so actually they already received a commitment later From the other financial institution to take them out. And then also that because and because of Things are very clear right now.

Speaker 10

So then that is the reason why we upgraded this loan from a special mention.

Speaker 9

Yes. Understood. Okay. I appreciate the color and it's great to see that improvement. David, on the I want to go back to your comments, kind of around loan growth and maybe letting some of the not what you would deem non core, Maybe roll off and I know you made some comments on some kind of out of market lending.

Speaker 9

I was hoping you could maybe ring fence just Well, within your portfolio, I guess, how much in aggregate would you deem out of market? And similar question, how much would you view as non And what I'm trying to get at here is you gave us an idea of targeting kind of $40,000,000 per quarter in deposit growth. Just trying to get a sense on the loan growth moving forward. Would you expect a similar amount of loan decreases over the next couple Quarters or is that pool that you would deem non core kind of mostly work through at this point?

Speaker 2

First of all, I don't think we'll have as much come off the books next quarter as we have today, this last past quarter. I'm going to pass this over to Jeffrey, who has The concentration report who can tell you, what we have in different states, but I don't and how much we project to roll off. Unfortunately, Andrew, that $55,000,000 loan we just talked about It is actually a core customer of ours, but we could not compete on rate. So we the rate was Significantly lower. So we do not play the rate game.

Speaker 2

So unfortunately that Customer is taking one of this loan. We have other loans with him to another bank.

Speaker 10

Yeah. This is Jeffrey again. So basically, out of market or out of area alone that we define as low as David mentioned earlier, Those loans that do not have a complete relationship such as lending and deposit. So those are the loans that we That is part of our de risk strategy to gradually upload those loans. Just give you a little bit of Carter,

Speaker 8

on the

Speaker 10

out of state lending, okay. We used to have about $400,000,000 of out of state lending in the beginning of the year. Right now, Dan, we are that is already reduced to about $300,000,000 close to $320,000,000 That happened in 6 months and that tell you that when we decide to go this route and then we actually I'm really serious about

Speaker 9

executing it. And so is that $320,000,000 remaining kind The last of what you would deem non core?

Speaker 10

Most of them we will consider non core as long as they do not have Total relationship with us, especially the deposit relationship.

Speaker 9

Yes. Understood. Okay. Thank you for taking the questions. I'll step back in the

Operator

Your next question is coming from Tim Coffey from Janney.

Speaker 11

David, Alex, do you have any kind of visibility into when margin might trough? Say, is that something later this year event or early next Well,

Speaker 2

Tim, we know that there's about $1,000,000,000 of CDs that come up for renewal in the 3rd Q4. And we also know that they're Presently priced at around 4%. So we don't see a huge repricing Issue there. And I think we're holding the rate steady from since about January or February of this year on our offering rates on CDs. So I really think it's more of the end of the year, 1st of next year, Before and then if we see any decreases in rates, we'll begin seeing hopefully a little bit, it takes about a year Our margin to improve as we begin to see decreases in rates and so forth.

Speaker 2

Alex, any more color than that?

Speaker 4

Sure. That's a great point. Just one point to add, there's obviously a deposit lagging impact. We have seen Quite a big increase on the market rate in the beginning of the year and the last year Q4, Q3, But those were kind of repriced already or it will continue to reprice this quarter and next two quarters. So once that kind of repricing can set, I think we'll have a much more normalized, the deposit cost.

Speaker 4

And we will also have an increase on the asset side. As you know, we have decreased our earning assets With good reasons, for these reasons, with help from Johnny and the teams going back to the market of the Variable rate loans and other good earning assets, it will definitely help our net interest margin going forward To increase, but I will say next quarter Q3, we will have a compression. But again, as David kind of alluded, it's not To the level of what we have seen in this quarter, we have a 33 basis point compression. I don't think it will be that level. It will be less level, but it will continue.

Speaker 4

And I'm hoping by end of the year, starting next year or something, we would like to see the kind of bouncing back our net interest margin.

Speaker 11

Okay. And Alex, do you have the spot rate for interest bearing deposits for June?

Speaker 4

Yes, I do have. I have spot rate for money market is 2.73%. And I have only breakdown of the CD For less than $200,000 is up 3.83 percent and deposit over $250,000 is 4.5%.

Speaker 11

Okay, great. Okay, thank you very much for that. David, switching gears, Do you have any visibility on when the SEC inquiry might conclude? Because it's not uncommon that the SEC will launch an investigation and then never close it.

Speaker 2

I don't know if I can really answer that question, Tim, because I really don't know either. I could just tell you that it's progressing enough to where we felt very comfortable in announcing publicly and I think 8 ks of the of what's going on or at least what we can say of what's going

Speaker 11

Okay. That's fair. And then just final question for me. On the 3 loans added to non performers in this quarter, Were any of them out of your primary service area?

Speaker 10

There are 3 of them, 2 of them are residential mortgage. They are in our area and then they are I mean just also for your information, their LTV actually is 1 is by 59, 1 is by 67 66, which we think is covered. The other one is the one that I mentioned about our office. That is out of state, but that is in

Speaker 2

It's in Springfield, Illinois, which is Technically out of our market area, but we do have branches in that state. Right.

Speaker 11

Okay. All right. Well, thank you very much. Those are my questions. Thank you.

Speaker 4

Thank you.

Operator

Thank you. Your next question is coming from Kelly Mota from KBW. Your line is live.

Speaker 5

Hi. Thanks Just a follow-up, kind of on that note of, the investigation, just wondering if there's any implications at all for the pending gateway And if you could remind us, when that deal needs to be renegotiated,

Speaker 2

The contract expires September 30. That's all I can say about Gateway right now.

Speaker 5

Thank you.

Operator

Your next question is coming from Nathan Race from Piper Sandler. Your line is live.

Speaker 7

Yes. I appreciate you guys taking the follow-up as well. I just want to clarify on the margin expectations. I know there's a handful of Moving parts to it, but Alex, it sounds like you expect the pace of compression to slow into the next couple of quarters or Can you just kind of circle back on how you're kind of thinking about the trajectory during 3Q and 4Q this year?

Speaker 4

Yes, Sure. I would like to say one more time, yes, it will compress, but not to the level that we have experienced in 2 and Q1. Q2, we have a 33 basis point margin compression, maybe half of that. I don't have a real crystal quantifying it, but I would say it will be substantially lower than 33% 33 basis point Compression that we have experienced in Q2. So going forward, Q3 probably will be compressed And Q4 maybe, but I'm hoping that Q1 of next year, we might see the expansion.

Speaker 7

Okay, great. And then just lastly on kind of the reserve outlook. It sounds like you're well securing that office Real Estate loan that moved to non accrual in the quarter and you guys obviously had a nice increase in your ACL here in 2Q. Should we expect the reserve to continue to grow at this point or just how you guys kind of think about future provisioning in light of maybe some continued Longstreet Kitchener term and then maybe a return to growth in 4Q.

Speaker 4

Yes. I will attempt to As a first, but Jeffrey might chime in. I would say our allowance coverage ratio as of Q2 is quite I feel comfortable with it. Let me give you a little bit more color of $380,000 of provision for this quarter, Because we have $146,000,000 of a reduction of our portfolio, that if you kind of estimate how much of impact it would have, Just to multiply 1.35 percent of our ACL coverage, that's a $2,100,000 of the Provision for credit losses, but obviously we do have a positive $380,000 provision for credit losses this quarter. Reason for that is, considering some sort of economic macro uncertainties and also we did see some pop up on the Nonperforming loans, right, that did increase even though other classification has improved.

Speaker 4

So we want to be prudent Our ACL coverage, so to answer your question, I think 1.35 percent allowance coverage ratio Relative to our peers, I think we feel it's adequate. And going forward, I don't think we are Trying to build the reserve going forward unless it is necessary. So we will monitor the credit very carefully. Given we have some maybe it might be a one off item that we have an increase in the nonaccrual, but we are taking serious. And our underwriting Criteria, all those kind of things, we actually are quite strengthened.

Speaker 4

So, we'll monitor the allowance coverage ratio, but I don't Anticipate we need to continue to build the reserve unless there is a macroeconomic or will create quality for the deteriorates.

Speaker 10

Yes. I think that is basically.

Speaker 2

Yes. I would agree with what Alex said.

Speaker 7

Okay, great. Thanks again.

Operator

Your next question is coming from Ben Gurlinger from Hoth Group. Your line is live.

Speaker 8

Hey, good morning. Yes, good morning, everyone.

Speaker 2

Hey, Ben.

Speaker 8

During the course of this call, there's been a rumor that 2 Los Angeles competitors are Likely to announce a merger anytime soon. I was curious just on overall deposit pricing within the Los Angeles area, have you seen anything Material than any sort of outsized pricing where people are, for lack of our word, kind of scrambling to retain their clients? Or is it really not that impactful to overall deposit costs?

Speaker 2

I don't see any We don't see anything like what you're talking about. Okay?

Speaker 8

Got you. Fair enough. And then, I mean, a lot of the we've had a few different questions about The margin is potentially peaking, let's call it around the end of the year or excuse me, the margin troughing around the end of the year before rebounding higher. I was curious if you'd be open to sharing potentially where you think that NIM is. I get that it's a bit cloudy out there over the next 6 months, especially with Pricing and mix shift, but just curious if you'd be open to sharing where your margin potentially troughs at, at least in your model today?

Speaker 4

Yes. Actually, to be honest, there's a lot of moving component. The deposit pricing, again, we will continue to grow. Even though we will focus on the non interest 5% bank level net loan to deposit ratio. We have some sort of a deposit matters.

Speaker 4

But I would kind of it's difficult to give a kind of accurate NIM transaction by end of the year or Q1, because there is so many moving parts. Also, not only the deposit side, but also loan side. Our as David mentioned, we will Compute with the deposit I'm sorry, loan pricing, but we are not going to just retain for the sake of the growth by By allowing the high loan rate or if they are asking for. So again, sorry, it's too hard for me to give you a real accurate, the new margin guidance is Fair enough. Yes.

Speaker 3

Fair enough. Yes.

Speaker 8

Yes. I figured it worth a shot. I completely understand. I appreciate the color. That's it for me.

Speaker 2

Any others?

Operator

Thank you. That concludes our Q and A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

Speaker 2

Once again, thank you all for joining us today. We look forward to speaking to many of you in the coming days weeks. Have a great afternoon.

Operator

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
RBB Bancorp Q2 2023
00:00 / 00:00
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