RBB Bancorp Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 4, 2025

Key Takeaways

  • Q4 Net Income was $4.4 million ($0.25 per share), down from the prior quarter primarily due to higher credit provisions against nonperforming loans.
  • Net Interest Margin expanded 8 basis points to 2.76%, driven by a 33 basis point decline in the cost of interest-bearing deposits.
  • Originated $126 million of new loans in Q4, but total loans fell by $28 million due to pay-downs and sales; management expects loan growth to resume in upcoming quarters backed by a healthy ~$200 million pipeline.
  • Nonperforming assets rose to $81 million (2% of assets) after a $26 million construction-to-permanent loan moved to nonaccrual; the bank is targeting resolution of legacy problem credits by end of 2025.
  • Deposits held steady at $3.1 billion with a $20 million uptick in non-interest bearing balances; average deposit costs fell 30 basis points to 3.35% and remain liability-sensitive.
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Earnings Conference Call
RBB Bancorp Q4 2024
00:00 / 00:00

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Operator

Greetings, and welcome to the RBB Bancorp fourth 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Miss Rebeca Rico. Ma'am, the floor is yours.

Rebeca Rico
Rebeca Rico
Assistant Vice President and Financial Analyst at RBB Bancorp

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter 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. Now, I'd like to turn the call over to RBB Bancorp's Chief Executive Officer, David Morris. David?

David Morris
David Morris
CEO at RBB Bancorp

Thank you, Rebeca. 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 nonprofit organizations serving low to moderate-income communities, collecting donated supplies in our branches, and donated $30,000 to provide essential services to affected families. While many in Southern California have been impacted by the fires, we are grateful our Royal Business Bank team is safe, and we are not aware of any significant exposure to the bank's loan portfolio or the bank's operations. We reported fourth quarter net income of $4.4 million, or $0.25 per share.

David Morris
David Morris
CEO at RBB Bancorp

The decrease in earnings compared to the prior quarter relates mostly to credit, which we are actively addressing and will discuss in detail on today's call. On a more positive note, the net interest margin increased by eight basis points due primarily to a 33 basis point decline in the cost of interest-bearing deposits, which was a welcome reversal to an extended period of increases. Loan balances declined in the fourth 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 million 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 Bancorp and Royal Business Bank. I am confident that the bank is well positioned to succeed under his leadership.

David Morris
David Morris
CEO at RBB Bancorp

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?

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Thank you, David. I appreciate the confidence the Board has in me and look forward to continuing 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 inputs and guidance will ensure a smooth transition. RBB 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 and small to medium-sized enterprises. We achieved $126 million of loan production in the fourth quarter, and after consideration of loans sold, total loans declined about $28 million.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

We continue to see surprisingly high levels of paydowns 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 non-performing loans, the majority of which were originated prior to 2022. Starting on slide nine of the investor presentation, we provide some additional details on credit. Non-performing assets totaled $81 million, or 2% of total assets at the end of the fourth quarter. The $20 million increase from the third quarter was mainly due to $26 million in C&D loans that migrated to non-accrual status.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

At year-end, we had eight NPLs that were greater than $1 million, including the C&D loan that was moved to non-performing after going past due in early January. It is secured by a mixed-use construction project near a major sports and entertainment venue in Los Angeles. Lynn 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. 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
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 fourth quarter of 2024 financial performance. Slide three of our investor presentation has a summary of our fourth quarter results. As David mentioned, net income was $4.4 million, or $0.25 per diluted share. We did see the net interest margin we've been expecting, with NIM increasing eight 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. The higher liquidity was due to the timing of loan production and in anticipation of $150 million in FHLB advances that will mature in the first quarter. Non-interest income was $2.7 million in the fourth quarter, following a $2.8 million recovery of a fully charged-off acquired loan that temporarily elevated the third quarter results.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Fourth quarter non-interest expenses were relatively stable, increasing by $297,000 to $17.6 million due to an increase in legal and professional expenses, mostly due to year-end accruals. The provision for credit losses was $6 million compared to $3.3 million in the prior quarter. The fourth quarter provision was primarily due to partial charge-offs on three loans moved to held for sale in the fourth quarter and an increase of $4.5 million in specific reserves for the C&D loan, which migrated to non-performing as of year-end. The fourth quarter provision also took into consideration the size of our loan portfolio, an improved economic forecast, and our general credit quality trends. Slides five and six have additional color on our loan portfolio and yields.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

The overall loan portfolio yield decreased 10 basis points to 6.03%, with the decrease attributed to an 18 basis points decrease in the CRE loan yield due to higher prepayment fees in the third quarter. As Johnny mentioned, fourth quarter loan production totaled $126 million and had an average yield of 7.711%. Slide seven has details about our $1.5 billion 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%. The $20.4 million increase in non-performing loans from the third quarter was mainly due to the $26.4 million C&D loan that migrated to non-accrual status, offset by paydowns and payoffs of $6.7 million and partial charge-offs of $2 million. The charge-offs related almost entirely to the three loans moved to held for sale in the fourth quarter.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

They are all under contract and are expected to be sold in the first quarter. Special mention loans decreased $12.2 million and totaled $65.3 million at the end of the fourth quarter. The decrease was primarily due to upgrades on two performing CRE loans totaling $11.8 million after the borrowers paid their delinquent property taxes. Otherwise, there were three other CRE loans totaling $13.4 million that are current but remain classified as special mention due to unpaid property taxes. The $44 million C&D loan on a completed hotel that was downgraded in the third quarter 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 million and included $81 million of non-performing loans and $19 million of loans on accrual status.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

This included $11.7 million related to a C&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 paydown of $1.5 million, and it has been refinanced with a new CRE loan. The ratio of our allowance for loan losses to total loans held for investment 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%. 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 two basis points to 1.35% at the end of the year. Slide 13 has details about our deposit franchise.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Total deposits remained stable from the third quarter at $3.1 billion, with some minor movement between categories. Our average all-in cost of deposits decreased by 30 basis points to 3.35% in the fourth quarter, including an estimated quarter-end spot rate of 3.15%. Tangible book value per share decreased slightly to $24.51 as earnings were offset by a $4.2 million increase in accumulated other comprehensive losses and $2.9 million in dividends paid to our shareholders. Our capital levels remained 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 will be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Brendan Nosal with Hovde Group. Your line is live.

Brendan Nosal
Brendan Nosal
Director of 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
CFO at RBB Bancorp

Great.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Thank you. Thank you.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Yeah, you bet. Maybe starting off here on the $26 million C&D loan, can you just give us kind of a little more color on a few things? 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? And any evaluation on whether there needs to be an additional advance of funds to get the project over the finish line? Thanks.

Lynn Hopkins
Lynn Hopkins
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 guessed it because this moved 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. It is over 50%, but I don't know if getting into all of those specifics is kind of necessary in the sense that it is $26.5 million outstanding. We're working with those parties. I think we've taken a $4.5 million specific reserve to get to what we estimate the fair value is as of year-end.

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Okay. Okay. That's helpful.

David Morris
David Morris
CEO at RBB Bancorp

Anything else, Brendan?

Brendan Nosal
Brendan Nosal
Director of Equity Research at Hovde Group

Yeah. And then maybe turning to capital for a moment. I think you folks completed the one-million-share buyback earlier in 2024 during the third quarter. 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
CFO at RBB Bancorp

Sure. Yeah. 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 2025. 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 the stock buyback again.

Brendan Nosal
Brendan Nosal
Director of 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
Principal of Equity Research at Piper Sandler

Hey, good morning, everyone. Thanks for the questions. Just a few questions around the margin. Lynn, do you have 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 first and second quarter, the rates on those, and where you expect them to renew at.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Sure. So there's a few things at play that you've pointed out. So I'll try to walk through a few of them. I would say relative to the fourth quarter, 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 five basis points. As we look to the first and second quarter, in the first quarter, we have about $650 million of CDs that have a weighted average maturity of about 460. We estimate that those would have an opportunity to come into the market now closer to a 4.10% area. At the same time, we do have the FHLB advances, which are only $150 million, are maturing in the March timeframe. They are priced at 1.18%.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

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 second quarter. The first quarter has an opportunity to continue and expand because we are liability sensitive. Then once those funds reprice, the NIM may flatten out a little bit from there. Also, with the Fed, may be on pause till June, then as rates, if they move down further, the NIM would have an opportunity to start expanding again maybe in the second half of the year. I think those are the things at play.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

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
Principal of Equity Research at Piper Sandler

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 and Chief Banking Officer at RBB Bancorp

Hi. Hi Matt, this is Johnny. So I can maybe just provide a little bit of a highlight. So ever since last year, at any given time, we have, I'd say, $200 million-$225 million on average, at any given time that we're looking at in our pipeline. Obviously, our efforts are trying to identify the ones that fit our sort of credit standards and ensuring that they're generating proper returns to us. Obviously, we'll get through that. But the pipeline's always been staying healthy in that respect, and we're on average around that range. So 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?

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

So the better quality credits that we feel that's going to build great relationships for us on the long term, we will go more aggressively on those rates. But overall, the pipeline's always been healthy. It just matters our selection, if you will, and making sure that we are bringing in good relationships that's going to help us continue to expand on and grow the bank.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

I think in the investor deck, page nine, kind of at the bottom, we put in the production that we were able to achieve in the third and fourth quarter. We were up at about $175 in the third quarter, a little bit lower, $126 in the fourth quarter. And then the pipeline's been building a little bit here for the first quarter. So I think we're looking at kind of leveraging off of those levels from a production standpoint. And then obviously, that growth has been a little bit contingent on what prepayments we see.

Matthew Clark
Matthew Clark
Principal of Equity Research at Piper Sandler

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
CFO at RBB Bancorp

I don't know if I'm going to be able to comment on all of those numbers. Go ahead.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Probably still early right now, but I guess overall, yeah, we're trying to maintain, yeah, I would say mid- and low- to mid-low single digits. I think it's certainly reasonable. But again, we do have a lot of deals that we're looking at at any given time in the pipeline. So I guess it just matters 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. But we are willing to be a little bit more aggressive on the pricing side in order to secure relationships.

Matthew Clark
Matthew Clark
Principal of Equity Research at Piper Sandler

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
CFO at RBB Bancorp

Sure. So in the fourth quarter, we were kind of up a little bit above the, I think during 2024, we were kind of $17 million-$17.5 million. And in the fourth quarter, 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 $17.5 million run rate. Obviously, first quarter kind of gets that timing of payroll taxes, so it's probably a little bit higher than that in the first quarter.

Matthew Clark
Matthew Clark
Principal of Equity Research at Piper Sandler

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 stubbornly high with kind of the work out on the credit side?

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Yeah. 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.

Matthew Clark
Matthew Clark
Principal of Equity Research at Piper Sandler

Okay. Thank you.

Operator

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

Jackson Laurent
Jackson Laurent
Equity Research Associate at Stephens

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

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Hi, Jackson.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Hi, Jackson.

Jackson Laurent
Jackson Laurent
Equity Research Associate at Stephens

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
CFO at RBB Bancorp

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

Jackson Laurent
Jackson Laurent
Equity Research Associate at Stephens

Yes. Correct.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Okay.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Actually, the non-interest-bearing deposits specifically, what we did near the end of the fourth quarter, there was one or two larger sort of commercial clients that brought in deposits. So these are our efforts in obviously continuing to try to develop and expand on our C&I clientele. So I would say as we bring in, well, last year brought in some new commercial lenders, also continue to build out the talents there. So as we bring in these new lenders, certainly, the expectation would be that they would be able to continue to contribute to our non-interest-bearing deposit generations as well.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

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

Jackson Laurent
Jackson Laurent
Equity Research Associate at Stephens

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

Johnny Lee
Johnny Lee
President and Chief Banking Officer 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 the San Francisco Bay Area, so it has not changed at all.

Jackson Laurent
Jackson Laurent
Equity Research Associate at Stephens

Great. Thank you for taking my questions.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Great. Thanks, Jackson.

Operator

Thank you. Once again, if you have any questions or comments, please press star one on your telephone keypad. Our next question is coming from Kelly Motta with KBW. Your line is live.

Kelly Motta
Kelly Motta
Director of Equity Research at 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 three biggest NPLs, and it looks like almost a quarter of the construction book is in NPL right now. Have you made any changes? 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 updated valuations given C&D 92% weighted average LTV in NPL, but also just wanted to confirm that.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Sure. 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. You're right that it represents about a third of our quarter or 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 there are loans similar to those in the portfolio. And David.

David Morris
David Morris
CEO at RBB Bancorp

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
Kelly Motta
Director of Equity Research at 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-2025. Is that still a reasonable timeline here? Just wondering how you're thinking about this resolution process playing out. I think the release mentions 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 guideposts as to how we can think through this timing.

David Morris
David Morris
CEO at RBB Bancorp

Okay. Given that we just put on this large loan on non-performing, we're probably pushing that out to probably the end of 2025 to get all of these addressed. I do believe we're working hard on these. We have two of them that are on this list on sold 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
Kelly Motta
Director of Equity Research at KBW

Got it. Maybe last question from 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&A. Is it fair to say 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
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, getting into the weeds here, but it's very important for us to do that. But clearly, we're working on both. I'm still meeting with people, other bankers, and so forth to see if they're interested in joining us and so forth, okay, while I'm still here.

Kelly Motta
Kelly Motta
Director of Equity Research at 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
CEO at RBB Bancorp

Now we have Tim.

Operator

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

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

Okay. Thanks for it, everybody.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Hey, there.

David Morris
David Morris
CEO at RBB Bancorp

Hi, Tim.

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

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 me some color on what brought the costs down?

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Sure. So I am going to give a lot of credit out to our branch network. It was 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
CFO at RBB Bancorp

But the interest rate environment was walking down, and we saw 50 basis points in September and then another 50 during the fourth quarter. So what we saw in the fourth quarter 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-month CD product. So we have a very nice ladder, and as it matures, it reprices into the current environment. So 92% of our CDs now mature within the next 12 months. 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 million has a weighted average price of about 4.60%, and that has an opportunity to reprice in the first quarter of 2025.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

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%, so.

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

Great. That's helpful. Thank you.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

As I mentioned, yeah, the FHLB advances, we'll see that in the second quarter, which will 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.

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

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

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

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

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

I think also, Tim. I don't know what everyone else is seeing out there, but the Fed's on pause right now. Fed Funds futures indicate maybe March or June, and then again, in the second part of the year, the curve ended up being a little steeper in the longer term. I think we're still navigating through a little bit of change. Earlier was mentioned low to mid-single digits. 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. Your comment is a good one, and I think that's what we're seeing right now as well.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Yeah. I'll just add that obviously, we were 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.

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

Okay. Okay. Great. Appreciate that. And then, sorry, 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? I mean, I understand some things are just out of your control, but if there are things that are in your control, what are you doing to get out in front of them?

Johnny Lee
Johnny Lee
President and Chief Banking Officer 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 two to start having that dialogue conversation, just to kind of get a feel of what the borrowers may be planning to do or what their thought is. 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, there are some, by our own business decision, we decided to let go that we felt potentially may be problematic.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Yeah, we always try to stay ahead by looking ahead at these borrowers and see if we can get in front of them to establish some retention sort of strategies.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

And then half of our portfolio, Tim, is our mortgage products. And so I think 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 hybrids. So they reprice after five or seven years. 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.

Tim Coffey
Tim Coffey
Managing Director and Associate Director of Depository Research at Janney

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

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Thank you.

Lynn Hopkins
Lynn Hopkins
CFO at RBB Bancorp

Thanks, Tim. And then, I'm sorry, go ahead, Johnny. We do have one closing remark.

Johnny Lee
Johnny Lee
President and Chief Banking Officer at RBB Bancorp

Oh, okay. Is that all the questions? Yeah. Okay. Well, once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day.

Executives
    • Johnny Lee
      Johnny Lee
      President and Chief Banking Officer
    • Lynn Hopkins
      Lynn Hopkins
      CFO
    • Rebeca Rico
      Rebeca Rico
      Assistant Vice President and Financial Analyst
    • David Morris
      David Morris
      CEO
Analysts
    • Kelly Motta
      Director of Equity Research at KBW
    • Matthew Clark
      Principal of Equity Research at Piper Sandler
    • Brendan Nosal
      Director of Equity Research at Hovde Group
    • Tim Coffey
      Managing Director and Associate Director of Depository Research at Janney
    • Jackson Laurent
      Equity Research Associate at Stephens
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