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 nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.

We reported net income of $7.0 million, or $ 0.39 diluted earnings per share, for the quarter ended September 30, 2024, compared to net income of $7.2 million, or $0.39 diluted earnings per share, for the quarter ended June 30, 2024 and $8.5 million, or $0.45 diluted earnings per share for the quarter ended September 30, 2023.

At September 30, 2024, total assets were $4.0 billion, a decrease of $35.5 million from December 31, 2023, primarily due to an $82.0 million decrease in cash and cash equivalents and a $13.3 million decrease in available for sale ("AFS") investment securities, partially offset by a $60.0 million increase in gross loans HFI. The decrease in cash and cash equivalents was primarily due to a decrease in wholesale deposits, offset by an increase in retail deposits and FHLB advances. Wholesale deposits include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.

At September 30, 2024, AFS investment securities totaled $305.7 million, inclusive of a pre-tax net unrealized loss of $23.2 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 $60.0 million, or 2.0%, to $3.1 billion at September 30, 2024 from December 31, 2023. The increase was primarily due to an increase in commercial real estate ("CRE") loans of $84.8 million, partially offset by decreases in single-family residential ("SFR") mortgages of $14.4 million, Small Business Administration (“SBA”) loans of $4.0 million, construction and land development ("C&D") loans of $1.3 million, commercial and industrial (“C&I”) loans of $1.2 million, and other loans of $3.9 million. The loan to deposit ratio was 98.6% at September 30, 2024, compared to 94.2% at December 31, 2023, and 97.6% at September 30, 2023.

Total deposits were $3.1 billion as of September 30, 2024, an $82.6 million, or 2.6%, decrease compared to $3.2 billion as of December 31, 2023. This decrease was due to lower interest-bearing deposits. Noninterest-bearing deposits increased $4.0 million to $543.6 million at September 30, 2024, or 17.6% 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 $119.9 million, offset by an increase in non-maturity deposits of $33.4 million. The $119.9 million decrease in time deposits included a $258.3 million decrease in wholesale deposits, partially replaced by an increase of $138.4 million in retail deposits. Wholesale deposits totaled $147.3 million at September 30, 2024 and $405.6 million at December 31, 2023.

Borrowings, consisting of Federal Home Loan Bank ("FHLB") advances, long-term debt and subordinated debentures, were $334.5 million at September 30, 2024, an increase of $50.5 million from $284.1 million as of December 31, 2023. At September 30, 2024, we had $200.0 million of advances, of which $150 million had an original term of five years, a maturity date in the first quarter of 2025, and an average fixed rate of 1.18%. A putable advance of $50 million was executed on September 30, 2024 with a four year final maturity with a one-time option for the FHLB to call the debt after a one-year lock out period and prepayment symmetry at a rate of 3.42%.

As of September 30, 2024, the ACL totaled $44.5 million and was comprised of an allowance for loan losses (“ALL”) of $43.7 million and a reserve for unfunded commitments (“RUC”) of $779,000 (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 $624,000 at June 30, 2024. The $2.1 million increase in the ACL for the third quarter of 2024 was due to a $3.3 million provision for credit losses, including higher specific reserves of $2.5 million, offset by net charge-offs of $1.2 million. The increase in specific reserves and charge-offs in the third quarter of 2024 was primarily due to a decrease in the estimated fair value of collateral-dependent loans, including estimated selling costs. Charge-offs in the third quarter of 2024 were related to one C&D loan and one CRE loan, which were written-down to their estimated fair value. The ALL as a percentage of loans HFI was 1.41% at September 30, 2024, compared to 1.37% at June 30, 2024. The ALL as a percentage of nonperforming loans was 72% at September 30, 2024, a decrease from 76% at June 30, 2024. The decrease in the ALL as a percentage of nonperforming loans was due in part to an increase in individually evaluated loans, which required no ALL.

At September 30, 2024, total shareholders' equity was $509.7 million, a $1.6 million decrease compared to June 30, 2024, and a $7.2 million increase compared to September 30, 2023. The decrease in shareholders' equity for the third quarter of 2024 was due to accretive common stock repurchases of $11.0 million and common stock cash dividends paid of $2.9 million, offset by net income of $7.0 million, lower net unrealized loss on available-for-sale securities of $4.8 million and equity compensation activity of $527,000. Book value per share and tangible book value per share increased to $28.81 and $24.64 at September 30, 2024, up from $28.12 and $24.06 at June 30, 2024. 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. The repurchase program permitted 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. The Company repurchased 508,275 shares at a weighted average share price of $21.53 during the third quarter of 2024 and completed the authorized program.