RBB Bancorp — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019 unless otherwise noted. RBB Bancorp is a bank holding company serving business and individual customers across Southern California, Las Vegas, Chicago and the New York City area. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial results and condition
| Metric | Q1 2020 / March 31, 2020 | Comparable / prior date |
|---|---|---|
| Interest income | $34.0 million | $37.2 million in Q1 2019 |
| Net interest income | $23.6 million; net interest margin 3.37% | $25.9 million; margin 3.84% in Q1 2019 |
| Provision for loan losses | $1.9 million | $0.6 million in Q1 2019 |
| Noninterest income / expense | $4.6 million / $16.3 million | $4.2 million / $15.3 million in Q1 2019 |
| Net income / diluted EPS | $6.7 million / $0.33 | $10.4 million / $0.51 in Q1 2019 |
| Cash flows | Operating $78.2 million; investing $(40.8) million; financing $141.8 million; cash increased $179.2 million | Operating $111.8 million; investing $(4.1) million; financing $(5.3) million; cash increased $102.4 million in Q1 2019 |
| Total assets / loans held for investment, net of allowance / deposits | $3,128.7 million / $2,379.9 million / $2,436.0 million | $2,788.5 million / $2,178.1 million / $2,248.9 million at December 31, 2019 |
| Cash and cash equivalents | $361.0 million | $181.8 million at December 31, 2019 |
| Borrowings | $150.0 million of FHLB advances; $104.1 million long-term debt; $14.1 million subordinated debentures | No FHLB advances at December 31, 2019; long-term debt $104.0 million and subordinated debentures $9.7 million |
| Shareholders’ equity | $408.0 million | $407.7 million at December 31, 2019 |
- Profitability: Net income fell 35.0% year over year. The efficiency ratio rose to 57.65% from 50.89%; annualized return on average assets declined to 0.90% from 1.44%, and return on average equity to 6.60% from 10.98%.
- Credit: The allowance for loan losses was $20.1 million, or 0.84% of loans, versus $18.8 million, or 0.86%, at year-end. Nonperforming loans were $20.5 million (0.85% of loans) versus $13.2 million (0.60%); 30–89-day delinquencies increased to $22.5 million from $5.3 million. Q1 charge-offs were $0.6 million.
- Capital and liquidity: The bank reported a 14.44% Tier 1 leverage ratio, 19.79% CET1 ratio and 20.77% total risk-based capital ratio, above stated well-capitalized thresholds. Adjusted core deposits were 85.31% of deposits. The company reported $381.1 million of additional FHLB borrowing capacity at quarter-end.
Material changes and significant events
- RBB acquired PGB Holdings/Pacific Global Bank on January 10, 2020, adding three Chicago branches, approximately $173.2 million of loans and $188.4 million of deposits. The acquisition generated $11.2 million of goodwill; purchase accounting remained incomplete at the filing date.
- Loans held for investment increased $203.0 million from year-end, including the acquired portfolio; mortgage loans held for sale declined $56.1 million. Total deposits increased $187.0 million.
- The company raised $150.0 million in five-year FHLB advances at a fixed weighted-average rate of 1.18% to bolster liquidity amid the pandemic. It repurchased 348,094 shares during the quarter for approximately $5.3 million.
- Net interest income declined 8.9% year over year as lower asset yields and lower average loans held for sale outweighed reduced funding costs. Lower interest expense on FHLB borrowings partly reflected materially lower average advances than in Q1 2019.
Outlook, commentary and risks
- Management said the COVID-19 pandemic’s financial impact was uncertain. It expected lower Q2 2020 net interest income following Federal Reserve rate cuts, lower loan-sale volume and gains, and potentially higher loan losses after deferral arrangements expire. It anticipated similar single-family loan growth but a shift toward more FNMA-eligible originations; commercial real estate originations were expected to remain stable under tighter underwriting.
- As of April 30, 2020, borrowers representing approximately 510 single-family mortgage loans totaling $230.4 million had requested payment deferrals. The filing also reports PPP activity in two differently described figures—approximately 100 applications/loans totaling $206.4 million and 234 loans totaling $31.6 million—whose relationship is not clear from the filing text.
- Management reported no goodwill impairment from its March 31 assessment but warned that a prolonged downturn could result in future impairment. Key risks include pandemic-related borrower stress, loan deferrals, real estate collateral values, geographic and real estate lending concentrations, interest-rate volatility, acquisition integration and LIBOR transition.
- No quantified full-year earnings or revenue guidance is provided. Management expected purchased-loan discount accretion to decline through the remainder of 2020 as acquired loans pay off. The company elected CARES Act relief from TDR accounting for qualifying COVID-related loan modifications.
- On April 20, 2020, RBB announced a $0.06-per-share cash dividend, payable May 13, 2020 to shareholders of record April 30.
Most important facts for investors to verify
- Reconcile the filing’s two April 30 PPP activity figures and confirm how each is defined.
- Review subsequent-quarter loan deferrals, delinquencies, nonperforming assets, charge-offs and allowance coverage, particularly in SBA, commercial and real estate exposures.
- Track the effect of rate cuts on net interest margin, deposit costs, loan-sale activity and earnings, and compare actual results with management’s stated expectations.
- Confirm final PGB acquisition fair values, integration costs and realized contribution to earnings; monitor goodwill and acquired-loan discount accretion.
- Reconcile operating cash flow: the cash flow statement reports $78.2 million, while MD&A attributes $89.2 million to operating activities. Also confirm dividend declarations: the income statement lists $0.12 per share for Q1, while the subsequent-event note announces $0.06 per share.