RBB Bancorp (RBB) Earnings Call Transcript & Summary

Hello. This is David Morris with Royal Business Bank and RBB Bancorp welcoming you to our Annual Shareholder Meeting.

Good morning. I'm Alan Thian, Chairman of the Board, President and CEO of RBB Bancorp. I'd like to welcome you and express thanks on behalf of the Board of Directors for your attendance today. Will the meeting please come to order? Before moving to our formal agenda, I would like to introduce those of our Board Members who are present here or by the phone today: Peter Chang, Wendell Chen, James Kao, Christina Kao, Christopher Koo, Al Lau, Christopher Lin.

Yes.

Richard Lin, Ko-Yen Lin.

Yes.

Paul Lin, Catherine Thian and Raymond Yu. Mr. Peter Chang will act as secretary of the meeting. Mr. David Morris has been appointed to act as inspector of election. John Carrington, Partner from Eide Bailly LLP, is also present at the meeting. During the question-and-answer period at the end of the meeting, he will be available to answer questions concerning the company's financial statement. At this time, Mr. Peter Chang, secretary of the company, will present proof of the due calling of the meeting. Peter?

I present the following: a copy of the printed Notice of Annual Meeting of Shareholders stating the time, place and purpose of this meeting, and a copy of the proxy statement furnished in connection with the solicitation of proxies for use at this meeting. A complete list of shareholders of the company of record as of March 16, 2020, each of whom is entitled to the notice of and to vote at this meeting, this list, which will be available for inspection throughout the course of this meeting, shows that as of March 16, 2020, there were 19,955,421 common shares of the company issued and outstanding. My affidavit is showing that I caused to be mailed on or about April 17, 2020, to each shareholder of record a copy of the Notice of the Annual Meeting of Shareholders, the proxy statement and the proxy.

Thank you. Please file a copy of the Notice of Annual Meeting together with the affidavit of mailing in the minutes book as part of the minutes of this meeting. The minutes book is here and will be kept open for the inspection of our shareholders throughout the course of the meeting. The Board of Directors of the company has appointed David Morris as the inspector of election for this meeting. The Board has also appointed Peter Chang and myself as management's proxyholders for this meeting. The inspector of election has duly taken his oath of office. I directed that the oath is filed with the minutes of this meeting. At this time, to be certain a quorum is present, I ask the inspector of election to now make the poll of the shareholders' shares represented at the meeting in person or by proxy and to report the results. David?

Has everybody voted who wishes to vote?

Anybody?

Okay. It seems so. There are present in person or by proxy at this meeting of shareholders that have subscribed to an aggregate of 13,614,125 common shares or 68.223% of the issued and outstanding common shares of the company stock.

Thank you. By reason of fact that shareholders owning a majority of issued and outstanding shares of the company entitled to vote at this meeting are present in person or by proxy, a quorum is present for all purposes. The meeting is now being legally convened and ready to transact business. After the meeting has been adjourned, management will present our report as to the condition and operation of the company. We ask that you hold off your questions until I have completed this report, and you will then be provided with ample opportunity to ask questions. The first matter of business will be the election of 13 directors to the Board of Directors of the company to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified. On behalf of the Board of Directors, I hereby nominate the following individuals: Peter Chang, Wendell Chen, James Kao, Christina Kao, Christopher Koo, Al Lau, Christopher Lin, Richard Lin, Ko-Yen Lin, Paul Lin, Catherine Thian, Alan Thian and Raymond Yu. Is there a second for the proposal?

Usually, I second.

Yes. I will second it.

Is there any shareholder present who wishes to revoke his or her proxy? Are there any shareholders present who have not submitted proxies and wish to vote by written ballot? The 13 nominees receiving the highest number of votes will be elected. I hereby declare the polls closed. It appears that the inspector of election has finished counting the votes in connection with the election of directors. Will the inspector of election please report the results of the election?

Mr. Thian, all of management nominees have been elected.

Thank you. The report of the inspector of election shows that the shareholders of the company have voted for the election of Peter Chang, Wendell Chen, James Kao, Christina Kao, Christopher Koo, Al Lau, Christopher Lin, Richard Lin, Ko-Yen Lin, Paul Lin, Catherine Thian, Alan Thian, Raymond Yu. They are hereby declared elected to serve as directors of the company until the next Annual Meeting of Shareholders and until their successors are elected and have qualified. The report of the inspector of election is approved. The second matter of business will be to approve on an advisory and nonbinding basis the compensation paid to the company's named executive officers as described in proposal 2 of the proxy statement dated April 17, 2020. On behalf of the Board of Directors, I hereby move that proposal 2 contained in the proxy statement dated April 17, 2020, be approved. Is there a second to the motion?

Second.

I second.

Okay. Each of you second. The proposal must receive at least a majority of the shares present in person or represented by proxy and voting at this meeting is required to approve on a nonbinding advisory basis the 2019 compensation of our named executive officers as described in our April 17, 2020, proxy statement. Is there any shareholder present who wishes to revoke his or her proxy? Are there any shareholders present who did not submit proxies and wish to vote by written ballot? I hereby declare the voting closed. Will the inspector of election please report the results of the vote?

Mr. Thian, proposal 2 has been approved by a majority of the shares present in person or represented by proxy and voting at this meeting.

Thank you. The report of the inspector of election shows that the stockholders of the company approved on a nonbinding advisory basis the company's 2019 compensation of our named executive officers. The report of the inspector of election is approved. The third matter of business was to ratify the appointment of Eide Bailly LLP as the company's independent auditors for the fiscal year ended December 31, 2020, as described in proposal 3 of the proxy statement dated April 17, 2020. On behalf of the Board of Directors, I hereby move that proposal 3 contained in the proxy statement dated April 17, 2020, be approved. Is there a second to the motion?

Second.

The proposal must receive at least a majority of the shares present in person or represented by proxy and voting at this meeting to ratify the appointment of Eide Bailly LLP as our independent auditors for the fiscal year ending December 31, 2020, as described in our April 17, 2020, proxy statement. Is there any shareholder present who wishes to revoke his or her proxy? Are there any shareholders present who did not submit proxies and wish to vote by written ballots? I hereby declare the voting closed. Will the inspector of election please report the result of the vote?

Mr. Thian, proposal 3 is approved by a majority of the shares present in person or represented by proxy and voting at this meeting.

The report of the inspector of election shows that stockholders of the company has ratified the appointment of Eide Bailly LLP as our independent auditors for the financial year ending December 31, 2020, as described in our April 17, 2020, proxy statement. The report of the inspector of the election is approved. Thank you for attending today's meeting. The meeting is adjourned. At this time, I would like David Morris to present a report as to the condition and operation of the company. After he has finished his report, there will be a question-and-answer session. [Operator Instructions] David?

Good morning, everyone. I'm -- for those who are on GoToMeeting, I am sharing our screen with you and the presentation there. Those of you who are Board members or executive officers of Royal Business Bank, you will find it in your Board packet for the shareholder meeting and so forth. Okay. So going to Page 3, we just want to give everybody some background history. If you don't know who we are, we were established in 2008, headquartered in Los Angeles, California. We're a $3.1 billion Chinese-American, business-oriented community bank. We have 24 branches, 13 located in Southern California, 9 -- sorry, 7 located in New York, 3 in Chicago and 1 in Nevada. We have completed 6 acquisitions since 2010. And we are a Certified Community Development Financial Institution, and we're very active in the communities that we serve in all areas. As I just stated, we're about $3.1 billion in assets. We're about $2.5 billion in gross loans. Total deposits, about $2.5 billion also. And our NPAs and assets are about 0.66%. Our return on average annualized assets, about 0.9%. Return on average tangible common equity, 8.13% at this time. Our full tax equivalent net interest margin at 3.37%. On to Page 4. I'm not really going to go over this page. This is basically our background, who we are and so forth. One thing I do want to make sure everybody realizes off of this page is insider ownership has at least 34% of the shareholder vote. And that's not including all the extended families, okay? If you go to Page 5, the biggest question that I get from investors is perhaps what's going on with our stock and our stock price. And if you see here, we have -- there's some graphs of what stock performance has been and so forth. And if you look at the 1 year -- the average 1-year decrease in the stock price has been about 39.1% for the Asian-American market. We have been about 39.5%, a little bit higher. The same thing if you look year-to-date, 41% in the market, in the Asian-American market, and we're at 43% -- 43.2% decrease. Turning -- going to the next page. This is our COVID-19 impact and response. It's probably one of the biggest things that everybody is asking us about. So as of April 30, we have some 234 SBA PPP loans for a total amount of 31.9 -- $31.6 million, okay? This is the next table just to kind of show you the exposure that we have in what we would call markets that could be affected by COVID-19: general retail, mixed-use commercial and so forth. You can see on the schedule there our percent of held-for-investment loans and the average loan to value for the asset groups. That is loan type, I should say. You can see hospitality, which is hotel and motel, its average loan to value is 51.1% -- 51.5%, sorry. And then the footnote down below, of the -- approximately 40% of the 5.4% of the total exposure to hospitality, service stations and restaurants are SBA loans. Presently, all SBA loans that were in good standing prior to the COVID-19 outbreak, all principal and interest payments are being paid by the SBA for the next 6 months, and we have received April payment already. If you go to the next screen, you will see the amount of deferrals we have received and the dollar amount. It's -- we have about $436 million of deferrals that have been granted both in mortgage loans and in the groups that are listed above. About half of it's with mortgage, single-family residents, and half of it's in commercial loans. You can also see the average loan to value of those loans, and you can finally see also what their -- the monthly deferred amount. This is the amount that we're not receiving in cash payments in thousands, okay? You can see our history. The next screen just shows our history of the results and so forth that we have obtained and things that we have done over the past -- 2018. Yes, you can go to the next page, just the page of our footprint and where we are. Chicago and New York, it's -- that's overlapping each other. We do have 2 branches in Chinatown in Chicago. We have 3 branches in Flushing, New York and 2 in Brooklyn. So they're all right on top of each other, so it's kind of hard to see. Now going to the next page, you can see some of our indications here. Some of this is a little bit misleading because we just bought a bank. So you got about $150 million, $160 million in deposits and loans this year and so forth. One of the questions is, is why did loans dip in 2019. That was on purpose because of the amount of mortgage loans we put on, and we wanted to decrease our mortgage booked with the FAIB acquisition. And we also wanted to improve our liquidity. So that's what that is all about. And then as you can see, our return numbers and our net income numbers have decreased. But in the first quarter, you may know that the Fed decreased rates by 150 basis points. And in way of COVID-19 that has hit us that has caused a ripple effect. It will affect our balance sheet and will affect our income statement as the periods go on. So most of it is the effects of the margin decreasing plus dipping in -- from 2018 to 2019 in loans. So if we go to the next screen, 11 of 18, you can see that -- you can see what our diluted earnings per share were. What we have declared as a dividend in the first quarter, we paid out in first quarter. Today, we're paying out another dividend today. You can see the comparisons to prior years and so forth. You can see that our book value is $20.67, and our tangible book value is $16.83. So the next page, it's partially what I have been talking about. Our performance ratios have gone down, and maintenance has gone down mainly because of our interest rate profile and the dropping of our average loan balances. So we have been crushed -- well, I shouldn't say crushed, that's the wrong word. Our NIM has gone down from over 4% down to about 3.33%. So we've had almost a 65% drop in our net interest margin. The next screen shows you our diversified loan portfolio. The following screen shows our disciplined credit culture. Although we have had a pickup in nonperforming assets, they all are SBA loans that are 75% guaranteed, and we've already taken most of the write-offs on those. There may be a couple hundred thousand more in write-offs on those as we liquidate those loans. Deposit portfolio. Most of our loans -- most of our deposits, sorry, are relationship-driven, and we had very strong deposits with our Board members and significant customers. And finally, you can see what I was talking about on the -- our NIM, you can see we're at 3.37% versus over 4% in 2017 and 2018. And of course, our efficiency ratios increased and our profitability to be lower. And the good news in all of this is we have plenty of capital. We should be able to weather the storm. The final slide is where we are in an interest rate cycle. When was the last one? [ We didn't have. ] You can see that if you just look at these direct charts, you can see that we are interest rate neutral right now. And we would expect -- if rates go up, we would expect our net interest margin to go up a little bit. And if rates go down, we would expect it to go down a little bit. So are there any questions? Are there?

No.

Well, if there's no other question, let's adjourn the meeting, and thank you for attending. Goodbye.