RBB Bancorp isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone, and welcome to the RBB Bancorp’s Fourth Quarter 2023 Earnings Call. At this time, all participants are on a listen-only mode, a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the floor over to your host, [Brian Stevens]. Sir the floor is yours.
Unidentified Company Representative: Thank you, Matt. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter of 2023. With me today are Chief Executive Officer, David Morris; President, Johnny Lee; Interim Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; Chief Administrative Officer, Gary Fan; and Chief Risk Officer, Vincent Liu. David 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 Bank's SEC filings. Now, I'd like to turn the call over to RBB's Chief Executive Officer, David Morris.
David Morris: Thank you, Brian. Good day, everyone, and thank you for joining us. We undertook several initiatives last year to position RBB for the future. We strengthened our management team by adding respected senior executives, including Johnny Lee as President, and Lynn Hopkins as Interim Chief Financial Officer. We restructured our operations and established a more formal reporting structure to better manage our national franchise business. We increased liquidity and mitigated balance sheet risk by reducing our loan to deposit ratio and strategically exiting certain higher risk loan relationships. We also addressed regulatory concerns by adopting enhanced corporate governance policies and reconstituting our Board of Directors.
With respect to the consent order we disclosed in October, we believe we have addressed all the deficiencies identified, but there could be no guarantee that additional measures will not be required. We are also pleased to share that we were notified by the SEC that they have concluded its investigation and that it did not intend to recommend any enforcement action against the bank. Some of the actions we took last year, namely corporate governance and AML related expenses, increased liquidity and payment of our target 95% loan to deposit ratio and a reduction in higher risk, higher yielding loans did impact results. But with the majority of the work behind us, we are better positioned to create long-term shareholder value and expect profitability to improve over the coming quarters as we resume deposit funded loan growth and take steps to optimize our cost of financing.
In the fourth quarter, we were able to recognize the $5 million CDFI ERP award that I mentioned last quarter as we distributed the funds to related recipients. Before I hand it over to Lynn, who we are thrilled to have as part of our team, I did want to mention that we were active buyers of our shares in the fourth quarter and invested approximately $6.7 million to repurchase almost 400,000 shares. We have exhausted our current buyback authorization but recognize the benefits of having a buyback in place and expect to discuss a reauthorization at the next board meeting. Lynn, welcome and take it away.
A bustling city street corner with an ATM machine, symbolizing the bank's offerings of deposit services.
Lynn Hopkins : Thank you, David. I've been here for about a month and half, I'm still getting up to speed but needless to say, I'm very happy to be part of the RBB team. I look forward to reconnecting with everyone in the coming weeks. Please feel free to refer to the investor presentation we have provided, as I share my comments on the company's fourth quarter of 2023 financial performance. Slide 3 of our investor presentation has a summary of fourth quarter results. We achieved $12.1 million in net income or $0.64 per diluted share. Net income for the fourth quarter benefited from the recognition of a pre-tax $5 million CDFI ERP award. Adjusting for this revenue, fourth quarter net income would have been $8.6 million or $0.45 per diluted share.
Tangible book value per share increased 4% during the fourth quarter to end the year at $23.48 due to net earnings, lower unrealized losses on our securities portfolio and share repurchases. Yield on our interest earning assets was relatively stable from last quarter, but interest income declined slightly due to a $102 million reduction in average loans held for investment. This reduction combined with a rate related increase in interest expenses resulted in a $1.9 million decrease in net interest income and further pressure on net interest margin which declined to 2.73% in the fourth quarter. Credit quality improved in the fourth quarter, with nonperforming loans decreasing by 21% to $31.6 million. This decrease was primarily due to the payoff of a $9.9 million nonperforming construction loan with no additional losses.
Our allowance for loan losses remained stable at 1.38%, of total loans, compared to 1.36% at the end of the third quarter. Noninterest expenses totaled $16.4 million, and declined by 2.9%, compared to the prior quarter, primarily due to lower salaries and benefits expense. We anticipate total noninterest expenses to increase in the first quarter, due to a temporary seasonal increase related mostly to taxes and to reflect compensation adjustments as we start the New Year. As a result, noninterest expenses are expected to be around $17.5 million. Slide 4 includes summary balance sheet information, and you can see the decline in loans held for investment. As David mentioned, we believe there are near-term steps, we can take to reduce our funding costs, which should benefit margins and net interest income.
Slide 5 provides additional detail about our loan portfolio, which totaled $3 billion at the end of the year and had a fourth quarter annualized yield of 5.96%. Commercial real estate loans, which include construction and land development loans, comprised 45% of our total loans, and Slides 6 and 7 have some details about our exposure. We continue to have limited CRE office loan exposure, which stood at $43 million and represented 1.4% of total loans at the end of the fourth quarter. Slide 8 has details about our $1.5 billion residential mortgage portfolio, which consists of well-secured non-QM mortgages in New York and California, with an average LTV of 61%. Slide 10 has some details about our deposit franchise, total deposits were $3.2 billion at the end of the fourth quarter, $20.7 million increase compared to the third quarter.
This increase was due to a $53.5 million increase in interest-bearing deposits, and a $32.8 million decrease in noninterest-bearing demand deposits. Included in the increase in interest-bearing deposits was a $20.4 million reduction in wholesale deposits, which were replaced by non-maturity deposits. Our average cost of interest-bearing deposits for the fourth quarter was 4.08%, an increase of 25 basis points from the third quarter, versus the 36 basis point increase from the second quarter to the third quarter. We continue to expect the pace of increases in our deposit costs to slow in future quarters. Our capital levels remain strong with all capital ratios above the regulatory well-capitalized thresholds. With that, we are happy to take your questions.
