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. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

We reported net income of $7.2 million, or $0.39 diluted earnings per share, for the quarter ended June 30, 2024, compared to net income of $8.0 million, or $0.43 diluted earnings per share, for the quarter ended March 31, 2024 and $11.0 million, or $0.58 diluted earnings per share for the quarter ended June 30, 2023.

At June 30, 2024, total assets were $3.9 billion, a decrease of $157.8 million, or 3.9%, from total assets of $4.0 billion at December 31, 2023, primarily due to a $178.6 million decrease in cash and cash equivalents, partially offset by a $17.1 million increase in gross loans, including loans held for sale (“HFS”) and a $6.6 million increase in available for sale ("AFS") investment securities. The decrease in cash and cash equivalents was primarily due to a decrease of $284.9 million in wholesale deposits, partially replaced by retail deposits. Wholesale deposits include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.

At June 30, 2024, AFS investment securities totaled $325.6 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 2024.

Total loans HFI, net of deferred fees and discounts, increased $15.9 million, or 0.5%, to $3.0 billion at June 30, 2024 from December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $22.4 million, and construction and land development ("C&D") loans of $21.0 million, partially offset by decreases in single-family residential ("SFR") mortgages of $20.0 million, commercial and industrial (“C&I”) loans of $3.4 million, Small Business Administration (“SBA”) loans of $1.8 million and other loans of $2.3 million. In addition, mortgage loans HFS increased $1.2 million to $3.1 million at June 30, 2024. The loan to deposit ratio was 99.4% at June 30, 2024, compared to 94.2% at December 31, 2023, and 99.3% at June 30, 2023.

Total deposits were $3.0 billion as of June 30, 2024, a $151.2 million, or 4.8%, decrease compared to $3.2 billion as of December 31, 2023. This decrease was due to a decrease in interest-bearing deposits. Noninterest-bearing deposits increased $3.4 million to $543.0 million at June 30, 2024, or 18.0% of total deposits, compared to $539.6 million, or 17.0% of total deposits at December 31, 2023. The decrease in interest-bearing deposits included a decrease in time deposits of $169.5 million, offset by an increase in non-maturity deposits of $15.0 million. The decrease in time deposits included a $284.9 million decrease in wholesale deposits, partially replaced by an increase of $115.4 million in retail deposits. Wholesale deposits totaled $120.7 million at June 30, 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 $284.4 million at June 30, 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 June 30, 2024, the ACL totaled $42.4 million and was comprised of an allowance for loan losses (“ALL”) of $41.7 million and a reserve for unfunded commitments (“RUC”) of $ 624,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.4 million comprised of an ALL of $41.7 million and a RUC of $671,000 at March 31, 2024. The ACL for the second quarter of 2024 included a $557,000 provision for credit losses, net charge-offs of $551,000. Although nonperforming loans increased, additional specific reserves were not required based on sufficient collateral for individually reviewed, collateral dependent loans. Charge-offs in the second quarter of 2024 were mostly related to a CRE non-owner occupied loan, which migrated to nonaccrual status and was written-down to its estimated fair value. The ALL as a percentage of loans HFI was 1.37% at June 30, 2024, compared to 1.38% at March 31, 2024. The ALL as a percentage of nonperforming loans was 76% at June 30, 2024, a decrease from 116% at March 31, 2024 due to the $18.7 million increase in nonperforming loans during the second quarter of 2024.

At June 30, 2024, total shareholders' equity was $511.3 million, a $2.7 million decrease compared to March 31, 2024, and an $11.0 million increase compared to June 30, 2023. The decrease in shareholders' equity for the second quarter of 2024 was due to dividends paid of $3.0 million and common stock share repurchases totaling $8.1 million, offset by net earnings of $7.2 million, stock option exercises and other equity award activity of $1.1 million and lower net unrealized loss on AFS securities of $67,000. Book value per share increased to $28.12 from $27.67 and tangible book value per share increased to $24.06 from $23.68. For additional information, see “Non-GAAP Financial Measures.”