RBB Bancorp Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 4, 2025
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Operator

Greetings, and welcome to the RBB Bancorp 4th Quarter 2024 Earnings Conference Call. At this time, all participants are on a listen only mode and a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Ms. Rebecca Rico.

Operator

Ma'am, the floor is yours.

Rebeca Rico
AVP & Financial Analyst at Royal Business Bank

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the Q4 of 2024. With me today are Johnny Lee, David Morris, Lynn Hopkins and Jeffrey Yeh. David, Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding forward looking statements in the investor presentation and the company's SEC filings.

Rebeca Rico
AVP & Financial Analyst at Royal Business Bank

Now I'd like to turn the call over to RBV Bancorp's Chief Executive Officer, David Morris. David?

David Morris
David Morris
Director & CEO at RBB Bancorp

Thank you, Rebecca. Good day, everyone, and thank you for joining us today. First, as a bank headquartered in Los Angeles, it's important to acknowledge the tremendous devastation and impact to many Southern California communities due to the wildfires. We are proud of our team's effort to support the affected communities and are committed to assisting with the long recovery process. We've partnered with non profit organizations serving low to moderate income communities, collecting donated supplies in our branches and donated $30,000 to provide essential services to affected families.

David Morris
David Morris
Director & CEO at RBB Bancorp

While many in Southern California have been impacted by the fires, we are grateful our Royal Business Bank team is safe and we're not aware of any significant exposure to the bank's loan portfolio or the bank's operations. We reported 4th quarter net income of $4,400,000 or $0.25 per share. The decrease in earnings compared to the prior quarter relates mostly to credit, which we are actively addressing and we will discuss in detail on today's call. On a more positive note, the net interest margin increased by 8 basis points due primarily to a 33 basis point decline in the cost of interest

David Morris
David Morris
Director & CEO at RBB Bancorp

bearing

David Morris
David Morris
Director & CEO at RBB Bancorp

deposits, which was a welcome reversal to an extended period of increases. Loan balances declined in the 4th quarter, but as Johnny will explain, we are confident that growth will resume in the coming quarters. Deposits declined slightly from the last quarter, but we did see a $20,000,000 increase in non interest bearing deposits. Finally, before I hand it over to Johnny, I'd like to congratulate him on his new role as President and Chief Executive Officer of RBB Royal Business Bank. I am confident that the bank is well positioned to succeed under his leadership.

David Morris
David Morris
Director & CEO at RBB Bancorp

And while I look forward to retirement, I will remain on the Board of Directors of both RBB Bancorp and Royal Business Bank, where I will continue to offer my support to Johnny and the rest of the team.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Johnny? Thank you, David. I appreciate the confidence the Board has in me and look forward to continue to build shareholder value as we serve the financial needs of the Asian American community. I would also like to personally thank David for his leadership and contributions as the Chief Executive Officer of Royal Business Bank and for his willingness to remain on the Board of Directors, where his input and guidance will ensure a smooth transition. RVB is a relationship driven business bank, which combines the lending expertise of a large bank with the speed and personalized service of a community bank to provide a full suite of financial services to individuals in small to medium sized enterprises.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

We achieved $126,000,000 of loan production in the 4th quarter. And after consideration of loans sold, total loans declined about $28,000,000 We continue to see surprisingly high levels of pay downs due to aggressive refi offers from competitors and borrowers who repay loans using their own funds. Due to last year's successful efforts to hire experienced commercial lenders and broaden our lending capabilities, we have maintained and grown a healthy pipeline, so we do expect to resume loan growth in the coming quarters. While we are confident in our ability to prudently and profitably grow loans over time, we are also focused on resolving a number of nonperforming loans, the majority of which were originated prior to 2022. Starting on Slide 9 of the investor presentation, we provide some additional details on credit.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Non performing assets totaled $81,000,000 or 2% of total assets at the end of the Q4. The $20,000,000 increase from the 3rd quarter was mainly due to $26,000,000 in deed loans that migrated to nonaccrual status. At year end, we had 8 NPLs that were greater than $1,000,000 including a C and D loan that was moved to nonperforming after going past due in early January. It is secured by a mixed use construction project near major sports and entertainment venue in Los Angeles. Len will provide some additional details about our substandard and non performing loans, but I want to emphasize that we are focused on resolving them as quickly as possible while minimizing the impact to earnings and capital.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

It will take time, but we feel comfortable we have a good handle on them and can work effectively to resolve them. Lynn?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I share my comments on the company's Q4 of 2024 financial performance. Slide 3 of our investor presentation has a summary of our Q4 results. As David mentioned, net income was $4,400,000 or $0.25 per diluted share. We did see the net interest margin we've been expecting with NIM increasing 8 basis points to 2.76 due to the decrease in the cost of deposits offset by the impact of an increase of on balance sheet liquidity.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

The higher liquidity was due to the timing of loan production and in anticipation of $150,000,000 in FHLB advances that will mature in the Q1. Non interest income was $2,700,000 in the 4th quarter following a $2,800,000 recovery of a fully charged off acquired loan that temporarily elevated the 3rd quarter results. 4th quarter noninterest expenses were relatively stable, increasing by $297,000 to $17,600,000 due to an increase in legal and professional expenses, mostly due to year end accruals. The provision for credit losses was $6,000,000 compared to $3,300,000 in the prior quarter. The 4th quarter provision was primarily due to partial charge offs on 3 loans moved to held for sale in the 4th quarter and an increase of $4,500,000 in specific reserves for the CND loan, which migrated to nonperforming as of year end.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

The 4th quarter provision also took into consideration the size of our loan portfolio and improved economic forecast and our general credit quality trends. Slides 56 have additional color on our loan portfolio and yields. The overall loan portfolio yield decreased 10 basis points to 6.03 percent with the decrease attributed to an 18 basis point decrease in the CRE loan yield due to higher prepayment fees in the 3rd quarter. As Johnny mentioned, 4th quarter loan production totaled $126,000,000 and had an average yield of 7 point $7.11. Slide 7 has details about our $1,500,000,000 residential mortgage portfolio, which remains stable and consists of well secured non QM mortgages, primarily in New York and California, with an average LTV of 56%.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

The $20,400,000 increase in nonperforming loans from the 3rd quarter was mainly due to the $26,400,000 C and D loan that migrated to nonaccrual status offset by pay downs and payoffs of $6,700,000 and partial charge offs of $2,000,000 The charge offs related almost entirely to the 3 loans moved to held for sale in the 4th quarter. They are all under contract and are expected to be sold in the Q1. Special mention loans decreased $12,200,000 and totaled $65,300,000 at the end of the 4th quarter. The decrease was primarily due to upgrades on 2 performing CRE loans totaling $11,800,000 after the borrowers paid their delinquent property taxes. Otherwise, there were 3 other CRE loans totaling $13,400,000 that are current but remain classified as special mention due to unpaid property taxes.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

The $44,000,000 C and D loan on a completed hotel that was downgraded in the Q3 is current and its property taxes have been paid, but it remained on special mention as it is still awaiting its certificate of occupancy. Substandard loans totaled $100,000,000 and included $81,000,000 of nonperforming loans and $19,000,000 of loans on accrual status. This included $11,700,000 related to a C and D loan on a completed multifamily project that was in the process of transitioning to permanent financing at the end of the year. Since that time, we received a pay down of $1,500,000 and it has been refinanced with a new CRE loan. The ratio of our allowance for loan losses to total loans held for investments increased by 15 basis points to 1.56%, inclusive of specific reserves, while the coverage ratio of our allowance for loan losses to non performing loans held for investment decreased to 68% from 72%.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

When we exclude specific reserves and individually reviewed loans, the ratio of our allowance for loan losses to loans held for investment and those not individually evaluated was up 2 basis points to 1.35% at the end of the year. Slide 13 has details about our deposit franchise. Total deposits remained stable from the 3rd quarter at $3,100,000,000 with some minor movement between categories. Our average all in cost of deposits decreased by 30 basis points to 3.35 in the 4th quarter, including an estimated quarter end spot rate of 3.15. Tangible book value per share decreased slightly to 24.51 dollars as earnings were offset by $4,200,000 increase in accumulated other comprehensive losses and $2,900,000 in dividends paid to our shareholders.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Our capital levels remain strong with all capital ratios above regulatory well capitalized levels. With that, we are happy to take your questions. Operator, please open up the call.

Operator

Thank you. Ladies and gentlemen, at this time, we'll be conducting our question and answer Our first question is coming from Brendan Nosow with Hovde Group. Your line is live.

Brendan Nosal
Director - Equity Research at Hovde Group

Hey folks, hope you're doing well and congratulations to David and Johnny on the announcement not too long ago.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Great.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Thank you.

David Morris
David Morris
Director & CEO at RBB Bancorp

Thank you.

Brendan Nosal
Director - Equity Research at Hovde Group

Yes, you bet. Maybe starting off here on the $26,000,000 C and D loan. Can you just give us kind of a little more color on a few things like just kind of curious what drove the migration? How close to completion the project is? How much undrawn commitment is left on kind of that project?

Brendan Nosal
Director - Equity Research at Hovde Group

And any evaluation on whether there needs to be in additional advance of funds to get the project over the finish line? Thanks.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. I'll start and then I'll turn it over to credit. That was a huge question. I think some analysts get this because this move to non accrual so close to the end of the quarter, we took a little bit extra time to make sure that we could get the right estimate of fair value done. It did involve working with an appraiser and also our fund control since the project is in completion.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

It is over 50%, but I don't know if getting into all of the specifics is kind of necessary in the sense that it is $26,500,000 outstanding. We're working with those parties. I think we've taken a $4,500,000 specific reserve to get to what we estimate the fair value is as of year end.

Brendan Nosal
Director - Equity Research at Hovde Group

Okay. That's helpful.

David Morris
David Morris
Director & CEO at RBB Bancorp

Anything else, Brandon?

Brendan Nosal
Director - Equity Research at Hovde Group

Again, then maybe turning to capital for a moment. I think you folks completed the 1,000,000 share buyback earlier in 2024 during Q3. Just kind of curious for any thoughts around appetite for another repurchase program or just capital allocation decisions in general as you move through this year? Thanks.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. Yes, thanks for recognizing what we were able to complete in 2024. I think we would be interested in looking at a stock buyback again in 2020 5. I think we needed to focus on credit kind of in the last quarter here. And then we can maybe look back at starting up a stock buyback again.

Brendan Nosal
Director - Equity Research at Hovde Group

All right, great. Thanks for taking the questions.

Operator

Thank you. Our next question is coming from Matthew Clark with Piper Sandler. Your line is live.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Hey, good morning, everyone. Thanks for the questions. Just a few questions around the margin. Lind, the average margin in December, maybe on an adjusted basis for any noise on credit? And then just remind us how much you have in CDs coming due in the 1st and second quarter, the rates on those and where do you expect them to renew at?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. So there's a few things at play that you pointed out. So I'll try to walk through a few of them. I would say relative to the Q4, the NIM itself is moving up over the course of the quarter as our CDs continue to price down into the current rate environment. So it's a little bit higher, call it, about 5 basis points.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

As we look to the 1st and second quarter, in the Q1, we have about $650,000,000 of CDs that have a weighted average maturity of about 4.60. We estimate that those would have an opportunity to come into the market now closer to a 4, 4.10 idea. At the same time, we do have the FHLB advances, which are only $150,000,000 are maturing in the March timeframe. They are priced at $118,000,000 We look to replace those with retail deposits, wholesale deposits and potentially some FHLB advances, but they'll obviously be priced higher than what they're maturing at. I think we'll see the impact of all of this more in the Q2.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

So the Q1 has an opportunity to continue to expand because we are liability sensitive. And then once those funds reprice, the NIM may flatten out a little bit from there. Also with the Fed maybe on pause till June, then as rates that they move down further, we have the NIM would have an opportunity to start expanding again maybe in the second half of the year. So I think those are the things that play. I think one of the biggest drivers of our net interest margin will be loan production, which we have some visibility to the pipeline and that also has a positive impact on our net interest margin.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Great. Thank you. And then just on the growth outlook, can you give us a sense for where the pipeline is year over year or relative to the prior quarter, maybe on a percentage basis? And kind of what are you assuming for loan and kind of core deposit growth this year?

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Hi, Matt. This is Johnny. So I can maybe just provide a little bit of highlight. So ever since last year, at any given time, we have about, I would say, dollars 200,000,000 $225,000,000 on average at any given time that we're looking at in our pipeline. Obviously, our efforts are trying to identify the ones that fits our sort of credit standards and ensuring that they're generating proper return to us.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Obviously, we'll get through that, but pipeline has always been staying healthy in that respect, average around that range. So we are for better quality credits, we are being more flexible as far as aggressively allowing our RMs to aggressively pursue those relationships a little bit on the pricing side. But obviously, we measure determining pricing based on risk profile, right? So the better quality of credits that we feel that it's going to build great relationships for us, I mean, long term, we will go more aggressive on those rates. But overall, the pipeline has always been healthy.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

It just matters our selection, if you will, and making sure that we are bringing in good relationship that's going to help us continue to expand on and grow the bank.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

I think in the investor deck, Page 9, here at the bottom, we put in the production that we were able to achieve in the 3rd Q4. We were up at about 175 in the 3rd quarter, little bit lower, 126 in the 4th quarter. And then the pipeline has been building a little bit here into the Q1. So I think we're looking at kind of leveraging off of those levels from a production standpoint. And then obviously, net growth has been a little bit contingent on what prepayments we see.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Okay. Low single digit though seems like a reasonable assumption for the year with maybe single family being flat to down?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

I don't know if I'm

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

going to be able to comment on all of those numbers. Go ahead.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Probably still early right now to but the I guess overall, yes, we're trying to maintain, yes, I would say, low to mid low single digits, I think, are certainly reasonable. But again, we do have a lot of deals that we're looking at any given time in the pipeline. So I guess it's just a matter of how aggressively we want to compete on those deals to generate sort of the to secure these relationships. I mean, we can give up on our credit standard, underwriting standards or be more price aggressive, but certainly, we do our best to avoid that. We don't want to compromise on credit, that's for sure.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

But we are willing to be more aggressive on the pricing side and then we just secure relationships.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Okay, great. And then last one for me, just on the expense run rate going forward into the New Year here, what kind of range should we assume?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. So in the 4th quarter, we were kind of up a little bit above the I think during 2024, we were kind of 17% to 17.5%. And in the Q4, we were a little bit higher than that. I think as we turn the page to 2025, we brought on some new people looking at maybe some modest growth and initiatives. I think the expenses might be a little bit above that $17,500,000 run rate.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Obviously, Q1 kind of get the timing of payroll taxes. So it's probably a little bit higher than that

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

in the

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Q1.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Okay, great. And then just on the legal professional line, should we expect more meaningful relief in that going forward? Or do you think that's going to remain kind of stubborn stubbornly high with kind of the workout on the credit side?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Yes. I think that's probably a fair statement. We've got a little bit of a road to walk down related to that in 2025.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Okay. Thank you.

Operator

Thank you. Our next question is coming from Andrew Terrell with Stephens. Your line is live.

Jackson Laurent
Research Associate at Stephens Inc

Good morning. This is Jackson Loren on for Andrew Terrell.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Hi, Jackson.

David Morris
David Morris
Director & CEO at RBB Bancorp

Hi, Jackson.

Jackson Laurent
Research Associate at Stephens Inc

If I could just start off on deposits. I was wondering if you'd give us a little bit more color on what drove the strength in NIBs this quarter. And then just what your expectations are for non interest bearing deposits moving forward?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

So you're the focus on the increase in non interest bearing deposits?

Jackson Laurent
Research Associate at Stephens Inc

Yes, correct.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Okay.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Well, actually, the non interest bearing deposits specifically, what we did in the Q4, there was 1 or 2 larger sort of commercial clients that brought in the deposits. So these are our efforts and obviously continue to try to develop and expand on our C and I content. So I would say, as we bring in last year, we brought in some new commercial lenders and also continue to build out the talents there. So as we bring in these new lenders, certainly the expectation would be able to continue to contribute to our noninterest bearing deposit generation as well.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

And sorry, Jackson, the second half of your question, can you repeat it?

Jackson Laurent
Research Associate at Stephens Inc

Well, I think Johnny just answered it. I was just kind of looking for expectations moving forward on non interest bearing deposits. So thank you for that. And then I guess last one for me. Can you just remind us your interest on M and A in this environment and if the strategy overall has changed?

David Morris
David Morris
Director & CEO at RBB Bancorp

The strategy has not changed. We are continuing to look at other Asian American banks in our market areas to strengthen our branch network and go into San Francisco Bay Area. So it has not changed at all.

Jackson Laurent
Research Associate at Stephens Inc

Great. Thank you for taking my questions.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Great. Thanks, Jackson.

Operator

Thank you. Our next question is coming from Kelly Motta with KBW. Your line is live.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Hi, good morning. Thanks for the question. I did want to circle back on credit. I appreciate all the detail on the slides and it looks like construction, it's your 3 biggest NPLs, and it looks like almost a quarter of the construction book is in NPL right now. Have you made any changes?

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Is it idiosyncratic? Any changes you've made in order to potentially mitigate problems ahead? Have you done a deep dive into the construction book as well and relative comfort level in the rest of it? And then kind of third part of that question is, you provided some loan to values on your NPLs. I'm assuming those are

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

updated

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

valuations given C and D 92% weighted average LTV in NPL, but also just wanted to confirm that?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. I'll take the I'll start with the last one. We are looking at as current valuations as possible since they did make it to NPL. We do get current valuations and try to get them at fair value as we go through our CECL process. I think as far as your question on kind of the deep dive, I think we have done some additional work to make sure that we understand those.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

You're right that it represents about a third of our quarter to a third of our construction portfolio. I think Johnny mentioned that we looked at those are just before 2022, maybe 2020, 2021 loans. I don't think they're loans similar to those in the portfolio.

David Morris
David Morris
Director & CEO at RBB Bancorp

And I'll give you a little more color. The characteristics of these loans were they were done during COVID. They were initiated or originated during COVID and they had problems with getting materials, problems with getting people to complete the projects and so forth. So that's where they stem from and so forth. And we are looking to make sure if we have any more, we have identified them and try to shore them up now before they go any further.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. That's helpful. And I think maybe on the last quarter call or the call before, we were talking about kind of working through some of these legacy credit issues and hopefully kind of cleaning the slate by mid-twenty 25. Is that still a reasonable timeline here? Just wondering how you're thinking about this resolution process playing out.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

I think the mentioned you're looking to kind of minimize losses as you work through. So just from a high level, it seems like that's kind of this last leg of this nice remediation work you've done over the past couple of years. So just trying to put some guidepost as to how we can think through this timing.

David Morris
David Morris
Director & CEO at RBB Bancorp

Okay. Given that we just put on this large look on nonperforming, we're probably pushing that out to probably the end of 2025 to get all of these addressed. I do believe we are working hard on these. We have 2 of them that are on this list on sole deals that we hope to close within the next couple of weeks actually. So we're hoping that we'll begin to see this number go down.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. Maybe last question for me to round it out. You kind of alluded to you've gotten through the buyback authorization this quarter and did a good job with that, and have talked a little bit about M and A. Is it fair to say like the near term focus is on the resolution of these NPAs and then you can kind of return to your strategy? Or you do have a ton of capital, are you able to juggle kind of both at once?

David Morris
David Morris
Director & CEO at RBB Bancorp

Well,

David Morris
David Morris
Director & CEO at RBB Bancorp

we're working on both items right now. But clearly, cleaning up the NPAs is a very high issue. We have a special team now working on that, that's reporting directly to the DLC. The team meets twice a week. I mean, get into the weeds here.

David Morris
David Morris
Director & CEO at RBB Bancorp

But it's very important for us to do that. But clearly, we're working on both. I'm still meeting with people, other banks, bankers and so forth to see if they're interested in joining us and so forth, okay, while I'm still here.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. Thank you for all the color. I just wanted to walk through those pieces. I'll step back.

David Morris
David Morris
Director & CEO at RBB Bancorp

Now we have Tim.

Operator

Thank you. We have a question from Tim Coffey with Janney. Your line is live.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. Thanks. Good morning, everybody.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Hi, Tim.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Lynn, if I can start with you and talk a little bit about deposit costs. I guess the rate of change in the quarter was a bit more than I had anticipated. Was it programs that were initiated during the quarter to bring those deposit costs down? Was it just kind of the final efforts of hard work? Can you kind of give us some color on what brought those costs down?

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Sure. So I am going to give a lot of credit out to our branch network. It is a lot of hard work to bring in our deposits in the communities and branches where we're located. We brought down our wholesale funding percent to just barely 4% at the end of the year. So a lot of local deposits.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

But the interest rate environment was walking down and we saw 50 basis points in September and then another 50 basis points during the Q4. So what we saw in the Q4 was really the benefit of the September cuts. And a lot of our deposits which we've talked about in the past are basically 12 months CD product. So we have a very nice ladder and as it matures it re prices into the current environment. So 92% of our CDs now mature within the next 12 months.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

And with the weighted average interest rate on those is 4.30 kind of top end non brokered is around 4%. So it has the opportunity to just naturally reprice. And I mentioned earlier, $650,000,000 has a weighted average price of about $460,000,000 and that has an opportunity to reprice in the Q1 of 2025. So I think we're seeing this is why we say we're liability sensitive. We're seeing them just reprice into the environment even if they are fully priced at a 12 month CD at about 4%.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

So

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

as I mentioned, yes, the FHLB advances, we'll see that in the Q2, which will they'll kind of offset each other, if you will, which will be nice to not have a big impact there. And then with loan production, we still have an opportunity to maintain our NIM or continue to grow it this year.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay, great. Thank you. And Johnny, if I can talk a little bit about kind of the pace of loan growth expected through 2025, aim for the low to mid single digits for the year, got Is it expected that or is it reasonable to think that growth might be heavier in the second half

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

of the year than the first half?

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Well, obviously, from the get go, starting January 1, I've been pushing the loan production. But I think, yes, typically, Q1 is maybe a little bit slower, but then do expect Q2, Q3 to really ramp up.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

I think also, Tim, and don't know what everyone else has seen out there, but the Fed is on pause right now. Fed fund futures indicate maybe March or June. And then again in the 2nd part of the year, the curve ended up being a little steeper in the longer term. So I think we're still navigating through a little bit of change. So I think earlier we've mentioned lowtomidsingledigits.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

I think it is probably still a little bit of a challenging environment given the interest rate environment and some transition out there and talks of things like tariffs and other things that might impact the marketplace. So I think your comment is a good one, and I think that's what we're seeing right now as well.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Yes. Sure. I'll just add that obviously, we're able to successfully bring in some more additional talents on the commercial lending side at the beginning of this year. So hopefully, they will be able to contribute to our overall sort of strategic initiatives that we're driving.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. Okay, great. Appreciate that. And then, Johnny, this is my last question. When it comes to mitigating payoffs, is the company or do you plan to employ any new strategies to slow that as much as you can?

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

I mean, I understand some things are just out of your control, but if there are things that are in your control, are you what are you doing to get out in front of them?

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Sure. No, I appreciate the question. That's a good question. And actually since last year, we've actively looked through our portfolio with all the RMs, with all our teams. And actually, we do try to look ahead, looking at the maturities and so on and trying to get ahead in a quarter or 2 to start having that dialogue conversation, just kind of get a feel of what the borrowers may be planning to do or what their thought is.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

But unfortunately, maybe because of the elevated high interest costs, some of our borrowers who have excess funds on hand, sometimes they just decide to just go and pay these loans off. And then obviously, we there are some by our own business decision we decided to let go that we felt potentially maybe problematic. And then yes, that's we always try and stay ahead by looking ahead at these bars and see if we can get in front of them to establish some retention sort of strategy.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

And then half of our portfolio, Tim, is our mortgage products. And so I think we some of it is commoditized, some of it is specialized. And I think there's opportunities there to try to be preemptive and encourage renewals in the current environment. I think as we know, a portion of it is their hybrid. So they reprice after 5 or 7 years.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

So these aren't 30 year mortgages. So some of our borrowers have sensitivity to the interest rate environment. So trying to work to retain that business as it moves from its fixed to floating period. So I'd say we have some programs there as well.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. Great.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Well, thank you very much. Those are my questions.

Lynn Hopkins
Lynn Hopkins
Executive VP & CFO at RBB Bancorp

Thanks, Tim. And then I'm sorry, go ahead, Donnie. We do have any closing remarks.

Johnny Lee
Johnny Lee
President & CEO at RBB Bancorp

Okay. Well, once again, thank you for joining us today. We look forward to speaking to many of you in the coming days weeks. Have a great day.

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Executives
    • David Morris
      David Morris
      Director & CEO
    • Johnny Lee
      Johnny Lee
      President & CEO
    • Lynn Hopkins
      Lynn Hopkins
      Executive VP & CFO
Analysts
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Earnings Conference Call
Genpact Q4 2024
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