Good day, everyone, and welcome to the RBB Bancorp Earnings Conference Call for the Fourth Quarter and Full Year 2021. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call maybe recorded. [Operator Instructions] I would now like to turn the conference over to Catherine Wei.

Thank you. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's financial results for the fourth quarter of 2021. With me today from management are President and CEO, Alan Thian; EVP and Chief Financial Officer, David Morris, EVP and Chief Credit Officer, Jeffrey Yeh; and EVP and Chief Risk Officer, Vincent Liu. Management will provide a brief summary of the results, which can be found in the earnings press release that is available on our Investor Relations website, and then we'll open the call to your questions. During this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks and uncertainties and other factors relating to RBB Bancorp's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. For a detailed discussion of these risks and uncertainties, please refer to the documents the Company has filed with the SEC. If any of these uncertainties materialize or any of these assumptions prove incorrect, RBB Bancorp's results could differ materially from its expectations as set forth in these statements. The Company assumes no obligation to update such forward-looking statements unless required by law. Now, I'd like to turn the call over to Alan Thian. Alan?

Thank you, Catherine. Good day, everyone, and thank you for joining us today. Royal Business Bank excellent fourth quarter results contributed to a record year of growth and performance since 2021. Our expansion strategy has proven to be an effective driver of earnings, loan growth, improvements in our deposit franchise and most importantly, shareholder value. Our nationwide footprint gives us the ability to focus our loan and deposit origination efforts in region with high economic growth. Our focus on serving the financial needs of under bank first generation Americans gives us access to deposits and loans that have long been ignored by commercial banks. And our long history of underwriting and monitoring this differentiator assets give us the confidence that we are appropriately pricing risks and addressing issues as they arise. Our recent expansion into the Hawaiian market and our announced acquisition of Gateway bank in the San Francisco Bay area will provide us with additional opportunities to bring our unique model to new markets. We now have a physical presence in six of our nine target markets, and expect to have additional expansion opportunities to discuss in the near future. While, we are pleased with our record financial results, we are also proud to have been recognized for our service to the communities in which we serve and operate. Last year, both Simon Pang our EVP and Chief Strategy Officer, and I were appointed to national commissions to advice on community developments. And we were awarded a 1.8 million CDFI grant by the U.S. Treasuries. We believe these appointments and the grant are a testament to the work we do in the communities we serve. With that, I will turn the call over to David to discuss some of the quarter's financial highlights before opening up the call for questions. David.

Thank you, Alan. I'll start by reviewing some of the highlights of our income statement, before moving on to our balance sheet. Net income grew 2.2% from last quarter and 40.9% from a year earlier to a record $15.9 million or $0.79 per diluted share in the fourth quarter. Net income benefited from several factors a $135.9 million increase in average earning assets and a stable yield drove a $1.6 million increase in net interest income from the prior quarter. Net interest income also benefited from a decline in interest expense due to a decline in average interest bearing liabilities and a modest decline in deposit costs. Fourth quarter non-interest income decreased by $2.4 million from the previous quarter, primarily due, to last quarter CDFI grants and some unrealized losses on equity investments and derivatives this quarter. Non-interest expense decreased from last quarter as a $2 million decrease in compensation expense was offset by a $940,000 increase in legal and professional expenses. The decrease in compensation expense was due in part to an increase the percentage of compensation paid and restricted stock units that will vest over time. The increase in legal and professional expense is were due, in part to expenses related to the acquisition of the branch in Honolulu and the announced acquisition of Gateway Bank and the revision of the compensation plan. Net interest margin was 3.43% for the fourth quarter, an increase of five basis points from the third quarter and a decrease of 24 basis points from a prior year. Annualized return on average assets and return on tangible common equity were relatively stable in the fourth quarter at 1.52% and 15.98%, following the impact of the CDFI grant in the third quarter. Net loans held for investments totaled $2.9 billion as of December 31,…

Certainly [Operator Instructions] And we will take our first question from Nick Cucharale with Piper Sandler. Your line is now open.

I'd like to start with the exceptional deposit growth this quarter. So you noted the expanding relationships with a number of your commercial clients. But can you give us some more detail on this? Are there any concentrations in this quarter's growth that we should be aware of?

Yes there's - we have a couple of big clients who have come on board. We have watching they come on board, we had one client that that took some money out at the end of the third quarter and put some money back in. And we have had a growth in another client - significant growth in another client also, okay.

Are we talking about like a majority of this quarter's growth coming from one or two clients? I just like to kind of decipher that a little bit?

I would say it's - the majority of the growth is coming from few clients, but then also he had some good growth in our franchises, okay.

Okay. Just from an overarching perspective, are you expected non-interest bearing deposits to increase the percentage of total deposits from this level?

No, we actually anticipate as the COVID, all the COVID money goes away and as interest rates go up. We expect $300 million to $500 million of non-interest bearing deposits to either run off the bank - run out of the bank or go into higher instruments.

Okay. And then related to that, just to stay on the topic, you've driven your cost of funds down significantly due to both rate and mix? Now, does this significant change in the funding base change the strategy at all?

I don't think.

I'll just add - we don't think so. It was just that the interest rate environment have been so low for these past years that, we just continue to drive our interest rate lower. Again, I will say that one of the reasons is because during the pandemic in this past two years, what we found in common was that - it could be a lot depositors, they're afraid to come to the bank, and a lot of the renewal of the interest rate, they're just they will not that - that came in bargaining on the rate a little bit. So we see very little bargain or negotiation of the rate from our existing customer in the last few years. They or because and remain so low that it doesn't make sense for them to come in and close the CD, closer the account and move to the next bank, just for one, two or five basis points. So I believe that helps a lot to be, because in the last two years, we find that actually, it's very easy for us to deal with our customer, because - I really see people come and negotiate rate with us. However, that just - like David mentioned, when rate get to step that low, our customer may not even want to negotiate one or two or five basis points. But however, it really depends on if, this year if interest rate is really move up four times and if every time its 25 basis points, the story could be different. So there is still something that we are waiting to see. However, there are some banks in our communities is already promoting 68 basis points for a year and 88 basis points for one and a half years. So again, we are not going to follow that. But however, some smaller bank is already trying to lock in are trying to offer higher rate to lock in the money.

That's very helpful. And just my last question just on loan growth, can you update us on your organic targets for 2022? And just how the pipeline compares to this time last quarter?

Yes, again our loan growth was still between I would say that it's still, between 8% to 10% again, pending on the how fast would be the interest rate increase because when the interest rates flip, because we grow a lot on the commercial side. So when interest rate moved up fast and I see that maybe we may see loan - may be well instead of 10% we'll see 7% or 8%. One of the reason it means that when interest rate moved up 50 basis point or 75 basis point that will impact the debt coverage ratio. And then again, because the stress-test, we are going to raise our stress - our interest rate on stress test as well. So, I anticipate that some of the loans that previously would qualify, because of lower interest rates will not qualify in the future. So, that may, either we have to reduce the loan amount or maybe they will, if this is a purchase, they may not qualify at all. So, there still - it will be a lot of moving - a lot of moving parts. But however, I believe we are still looking at - on the conservative side, we are still looking at 7% to 8% growth.

And we'll take our next question from Andrew Terrell with Stephens Inc. Your line is open.

Hi, I just want to circle back to the non-interest bearing deposit increase we saw this quarter. And just to clarify, do you expect some of the increase, this quarter to be transitory potentially run-off in the next couple of quarters and if so, can us quantify that amount?

Yes, we do expect that it's transitory. We expect that you know, that we were talking about $175 million in average balances. We expect close to half of what came on over the quarter probably go off and then in the next six months.

Okay. And is that incremental to the - I think you reference $300 million to $500 million of non-interest bearing that you expected either run- off like I think?

No quite a less.

Okay got it. Looking at the kind of mortgage gain on sale margin, it looks like it ticked up a little bit this quarter, I guess, should we expect the gain on sale margin for mortgage to kind of step down a little bit from here given the outlook on interest rates? And then can you just provide and updated, expectation on mortgage production or sold volume for both the QM and non-QM business as we head into 2022?

Okay, the volume for non-QM business right now is zero for mortgage sales. For Fannie Mae, we're still hoping that we can meet our $8 million to $10 million mark, which will give us our gain on sale that we would need to have that we've talked about in the past. Okay, as far as this - what we earn on our Fannie Mae loans right now. In August, we went to mandatory delivery. And we began hedging all of our mortgages, that is end up being a good place for us, because we have ended up earning about four-point more than what we were earning prior. Having said that, right now, servicing is part of the gain is right now, at an all-time high, and as rates go up, that will go down, okay. So as rates go up, we would expect our - the amount that we earn on our mortgage, sales go down maybe 50 basis points. Depends on how quickly and how high they go yes.

Okay, thank you. And then just on the expense base, it was nice to see kind of the quarter-on-quarter decline this quarter, if you adjust for some of the merger. Can maybe help us think about I get the kind of full year 2022 gets a little bit lumpy with kind of some of the cost safes and added deal and expenses. But can you help us think about kind of run rate for expenses heading into the first quarter?

I think our expenses are going to be very close, if not a little bit higher than our third quarter of 2021. It's going to probably be higher than that, because our salaries must have - the demand on our employees. Our demand for our employees I should say is extremely high. And I think even our average performers are probably getting close to 5%. And our better performers are getting up to 10% okay. And that's only because we cannot see that - we need to retain our staff.

[Operator Instructions] And we'll take our next question from Kelly Motta with KBW. Your line is now open.

Hi, thank you so much for the question. Most of mine have been asked and answered already. But I maybe since you have the time. You could give us an update on the M&A environment. I know you've the deal pending, you just closed the Hawaii Bridge acquisition does this kind of keep you out for the next year or so? Or do you still have the capacity and desire to continue to look for acquisitions?

Well, I would say that our strategy all along is to grow both organically and through M&A. So, our strategy on organic growth is pretty much like 8% on loans 11% to 12% on deposits, The M&A side it is really depends on - at a certain point or at any point is there a bank of our interest becomes available. So, knowing that we are looking at a specific market an area where the financial institution is serving the first generation immigrants or possible other un-served or underserved markets. So there - is just a different market segment we are getting into. So there are a few institutions we always have our eye on, such as area like Seattle, such an area like Texas, and some and areas like some of the metropolitan city, like Phoenix, Miami, Atlanta. Those are still the targets that we are looking at. So again, it's really whether we can pick up a particular institution, it's really to see whether we have any of this institution that we're looking at become available. Kelly?

And we have a follow-up question from Andrew Terrell with Stephens Inc. Your line is now open.

Thanks for taking the follow-up. I did want to ask one quick one just on the buyback. I saw you purchase some shares I think 75,000 shares back during the quarter. Obviously, we've seen an improvement in price from there and you've got a pending acquisition now. Just wanted to get kind of updated thoughts on appetite as it pertains to the buyback moving forward? Thanks.

Okay, right now we're over our - I guess, target price for the buyback. So, that will there probably won't be any buyback for the - as long as we're still at a $29 price, that we are right now. There won't be, but if the prices, does go back down, it's already preset, so it will kick in at that level, okay. We still have 333,000 shares. I believe close to that, that we can do. And our problem is the volume. There are days when we're buying - when we're in the market. We're buying you know, less than 1,000 shares.

And we have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

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

This does conclude today's program. Thank you for your participation. You may disconnect at this time and have a wonderful day.