RBB Bancorp

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited financial statements included in our 2023 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report.

We reported net income of $8.0 million, or $0.43 diluted earnings per share, for the quarter ended March 31, 2024, compared to net income of $12.1 million, or $0.64 diluted earnings per share, for the quarter ended December 31, 2023 and $11.0 million, or $0.58 per share for the quarter ended March 31, 2023. The results for the quarter ended December 31, 2023 included a Community Development Financial Institution (“CDFI”) Equitable Recovery Program (“ERP”) award of $5.0 million on a pre-tax basis; there was no similar income in the other periods presented.

At March 31, 2024, total assets were $3.9 billion, a decrease of $148.0 million, or 3.7%, from total assets of $4.0 billion at December 31, 2023, primarily due to a $162.1 million decrease in cash and cash equivalents and a $2.5 million decrease in gross loans, including loans held for sale (“HFS”), partially offset by a $16.2 million increase in available for sale ("AFS") investment securities. The decrease in cash and cash equivalents was primarily due to a decrease of $208.0 million in wholesale deposits. Wholesale deposits include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.

At March 31, 2024, AFS investment securities totaled $335.2 million, inclusive of a pre-tax net unrealized loss of $30.2 million, compared to $319.0 million, inclusive of a pre-tax unrealized loss of $28.1 million at December 31, 2023. The pre-tax unrealized loss was due to a decline in the value of AFS investment securities due to continued higher market interest rates in 2023 and the first quarter of 2024.

Total loans held for investment (“HFI”), net of deferred fees and discounts, decreased $4.5 million, or 0.15%, to $3.0 billion at March 31, 2024, from $3.0 billion at December 31, 2023. The decrease was primarily due to a decrease in single-family residential ("SFR") mortgages of $24.3 million and commercial and industrial (“C&I”) loans of $8.7 million, partially offset by increases in construction and land development ("C&D") loans of $16.6 million, commercial real estate ("CRE") loans of $10.6 million, and Small Business Administration (“SBA”) loans of $2.6 million. In addition, mortgage loans HFS were $3.9 million at March 31, 2024, compared to $1.9 million at December 31, 2023. The loanto deposit ratio was 98.6% at March 31, 2024, compared to 94.2% at December 31, 2023, and 104.7% at March 31, 2023.

Total deposits were $3.0 billion as of March 31, 2024, a $146.4 million, or 4.6%, decrease compared to December 31, 2023. This decrease was due to a decrease in interest-bearing deposits as noninterest-bearing deposits remained relatively stable at $539.5 million. At March 31, 2024, noninterest-bearing deposits represented 17.8% of total deposits, compared to 17.0% at December 31, 2023. The decrease in interest-bearing deposits included a decrease in time deposits of $156.4 million, offset by an increase in non-maturity deposits of $10.1 million. The decrease in time deposits included a $208.0 million decrease in wholesale deposits. Wholesale deposits totaled $197.6 million at March 31, 2024 and $405.6 million at December 31, 2023.

Borrowings, consisting of Federal Home Loan Bank ("FHLB")advances, long-term debt and subordinated debt, were $284.2 million at March 31, 2024, relatively unchanged compared to $284.1 million as of December 31, 2023. These balances include FHLB term advances of $150.0 million, which mature in the first quarter of 2025.

As of March 31, 2024, the ACL totaled $42.4 million and was comprised of an ALL of $41.7 million and a reserve for unfunded commitments of $671,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.5 million comprised of an ALL of $41.9 million and a reserve for unfunded commitments of $640,000 at December 31, 2023. The ACL decreased $184,000 during the first quarter of 2024 due to net charge-offs. The allowance for loan losses (“ALL”) as a percentage of loans HFI was 1.38% at March 31, 2024, unchanged from December 31, 2023. The ALL as a percentage of nonperforming loans was 116% at March 31, 2024, a decrease from 133% at December 31, 2023.

At March 31, 2024, total shareholders' equity was $514.0 million, a $2.7 million increase compared to December 31, 2023, and a $19.2 million increase compared to March 31, 2023. The increase in shareholders' equity for the first quarter was due to net earnings of $8.0 million and $541,000 from the exercise of stock options, offset by dividends paid of $3.0 million, common stock share repurchases totaling $1.5 million, and higher net after tax unrealized losses on AFS securities of $1.5 million. As a result, book value per share increased to $27.67 from $27.47 and tangible book value per share increased to $23.68 from $23.48. For additional information, see “Non-GAAP Financial Measures.”

On February 29, 2024, the Board of Directors authorized the repurchase of up to 1,000,000 shares of common stock, of which 956,465 shares were available as of March 31, 2024. The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with SEC Rules 10b5-1 and 10b-8. We repurchased 80,285 shares at a weighted average share price of $18.39 during the first quarter of 2024.

Our capital ratios under the revised capital framework referred to as Basel III remain well capitalized. As of March 31, 2024, the Company’s Tier 1 leverage capital ratio was 12.16%, the common equity Tier 1 ratio was 19.10%, the Tier 1 risk-based capital ratio was 19.72%, and the total risk-based capital ratio was 25.91%. As of December 31, 2023, the Company's Tier 1 leverage capital ratio was 11.99%, common equity Tier 1 ratio was 19.07%, Tier 1 risk-based capital ratio totaled 19.69%, and total risk-based capital ratio was 25.92%. See “Analysis of Financial Condition -- Regulatory Capital Requirements” herein for further discussion of our regulatory capital requirements.