RBB Bancorp

ANALYSIS OF RESULTS OF OPERATIONS

Financial Performance

Average Balance Sheet, Interest and Yield/Rate Analysis

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans, cash and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2026 and 2025. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. For additional information see “Capital Resources and Liquidity Management” and Part I,Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Report.

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the periods presented. The average balances are daily averages and, for loans, include both performing and nonperforming balances.

The following table summarizes the extent to which changes in (1) volume and (2) interest rates of average interest-earning assets and average interest-bearing liabilities affected our net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.

Net Interest Income/Average Balance Sheet

Net interest income increased $994,000 to $30.5 million for the first quarter of 2026, compared to $29.5 million for the fourth quarter of 2025. Net interest income increased despite 2 fewer days in the current quarter and was comprised of a $1.4 million decrease in interest expense, offset by a $390,000 decrease in interest income. The decrease in interest expense was due mostly to the impact of fewer days in the quarter and a decrease in the cost of interest-bearing liabilities while average balances remained relatively unchanged quarter over quarter. The decrease in interest expense was comprised of a $3.4 million decrease in interest on time deposits, offset by a $2.0 million increase in interest on non-maturity interest-bearing accounts as a portion of maturing time deposits moved to a high-yield savings product. The decrease in interest income was due mostly to fewer days in the quarter and the impact of a lower yield on cash and securities, offset by the impact of a higher loan yield and a special FHLB dividend in addition to their normal quarterly dividend. The decrease in interest income was comprised of a $509,000 decrease in loan interest income and a $315,000 decrease in interest on cash and investment securities, offset by the FHLB special dividend of $430,000.

The net interest margin (“NIM”) increased 16 basis points to 3.15% for the first quarter of 2026, from 2.99% for the fourth quarter of 2025. The NIM increase included an 8 basis point increase in the yield on average total interest-earning assets and an 8 basis point decrease in the overall cost of funds. The yield on average total interest-earning assets increased to 5.86% for the first quarter of 2026 from 5.78% for the fourth quarter of 2025 due mostly to the impact of a 7 basis point increase in the yield on average loans and a 4 basis point increase from the FHLB special dividend. Average loans represented 84% of average interest-earning assets in the first quarter of 2026, which was unchanged from the fourth quarter of 2025.

The average total cost of funds decreased to 2.96% for the first quarter of 2026 from 3.04% for the fourth quarter of 2025, due mostly to a 10 basis point decrease in the overall cost of deposits to 2.86% for the first quarter of 2026. The total cost of deposits decreased due to a 12 basis point decrease in the cost of average interest-bearing deposits to 3.39% due to the mix of deposits and the continued repricing of deposits into the current rate environment. The average overnight Federal Funds Rate was 3.64% for the first quarter of 2026 compared to 3.90% for the fourth quarter of 2025. Average noninterest-bearing deposits represented approximately 16% of average total deposits for the first quarter of 2026 and fourth quarter of 2025. The period end weighted average interest rate for total deposits was 2.79% at March 31, 2026.

Net interest income increased $4.3 million to $30.5 million for the first quarter of 2026, compared to $26.2 million for the first quarter of 2025. The increase in net interest income was due to an increase in interest income of $4.5 million, offset by a $127,000 increase in interest expense. The increase in interest income was driven by loan growth as average total interest-earning assets were $252.1 million, or 6.8%, higher for the first quarter of 2026 compared to the same quarter in 2025. The increase in interest expense was primarily due to an increase in the average balance of interest-bearing deposits, offset by lower rates paid on those deposits.

The $4.5 million increase in interest income was due mainly to a $4.3 million increase in interest income from average total loans, of which $3.3 million was attributed to higher average balances and $1.0 million was attributed to an increase in rates. Average total loans increased $216.9 million due to strong loan growth since the end of the first quarter of 2025. The yield on average total loans increased 13 basis points to 6.14% for the quarter ended March 31, 2026 compared to 6.01% for the quarter ended March 31, 2025.

The $127,000 increase in interest expense was due mainly to higher interest expense on FHLB advances of $144,000 and an increase of $16,000 in interest expense on average interest-bearing deposits. Interest expense on FHLB advances increased due mainly to a 126 basis point increase in the average rate paid on FHLB advances as $150 million of fixed rate term advances matured during the first quarter of 2025 and were replaced in the higher rate environment, offset partially by the effect of the decrease in the average balance of outstanding FHLB advances. The increase in interest expense on average total interest-bearing deposits was primarily due to an increase of $281.6 million in the average balance of interest-bearing deposits, offset almost entirely by the impact of a 38 basis point decrease in the interest rate paid on total average interest-bearing deposits as deposits repriced in the current rate environment. The Federal Reserve lowered market interest rates 75 basis points since the end of the first quarter of 2025. The average overnight Federal Funds Rate was 3.64% for the first quarter of 2026 compared to 4.33% for the first quarter of 2025.

The NIM was 3.15% for the first quarter of 2026, an increase of 27 basis points from 2.88% for the first quarter of 2025. The increase was primarily due to a 19 basis point decrease in the total cost of funds to 2.96% combined with a 10 basis point increase in the yield on average total interest-earning assets to 5.86% for the first quarter of 2026 when compared to the rates for the first quarter of 2025. The increase in the yield on average total interest-earning assets was due mainly to an increase in loan rates, as well as the impact of the FHLB special dividend in the first quarter of 2026; there was no FHLB special dividend in 2025. The decrease in funding costs was due to the lower average total cost of interest-bearing deposits, offset by the higher average total cost for FHLB advances. Average noninterest-bearing deposits totaled $526.1 million, or 16% of total average deposits, for the first quarter of 2026 compared to $520.2 million, or 17% of total average deposits, for the first quarter of 2025.

Provision for Credit Losses

The provision for credit losses was a $200,000 reversal for the first quarter of 2026 compared to a $600,000 provision for the fourth quarter of 2025. The first quarter of 2026 reversal of provision for credit losses was supported by paydowns on loans with specific reserves, the impact of stabilized credit quality trends, and positive underlying economic forecast indicators, which offset the need for provisions related to new loan originations. Net charge-offs on an annualized basis represented 0.00% of average loans for the first quarter of 2026 compared to 0.20% for the fourth quarter of 2025.

The provision for credit losses was a $200,000 reversal for the first quarter of 2026 compared to a $6.8 million provision for the first quarter of 2025. The provision for credit losses for the first quarter of 2025 was the result of an increase in specific reserves of $2.8 million, net charge-offs of $2.6 million and an increase in general reserves of $1.3 million due mainly to net loan growth. Net charge-offs on an annualized basis represented 0.35% for the first quarter of 2025.

Noninterest Income

The following table presents the major components of our noninterest income for the periods presented:

Noninterest income for the first quarter of 2026 was $4.3 million, an increase of $1.4 million from $2.8 million for the fourth quarter of 2025. The increase in noninterest income was mainly due to higher net gain on OREO of $890,000, recoveries of fully charged-off acquired loans of $484,000, and interest income on the tax refunds related to purchased federal tax credits of $360,000, offset partially by lower gain on sale of loans of $133,000. The sale of $4.9 million of mortgage loans and $4.0 million of Small Business Administration (“SBA”) loans resulted in gains of $324,000 for the first quarter of 2026 compared to the sale of mortgage loans of $22.0 million and SBA loans of $2.9 million for gains of $457,000 for the fourth quarter of 2025.

Noninterest income increased $2.0 million to $4.3 million for the first quarter of 2026 from $2.3 million for the same quarter in the prior year. The increase in noninterest income primarily relates to the gain on OREO, recoveries of fully charged-off acquired loans, and interest income on the tax refunds discussed above. In addition, gain on sale of loans for the first quarter of 2026 increased $243,000 to $324,000 from $81,000 for the same quarter in the prior year. The first quarter of 2025 included losses on sales of nonperforming loans.

The following table presents information on loans sold and the related net gain (loss) on the sale of such loans for the periods indicated:

The following table presents information on loan servicing income for the periods indicated:

As of March 31, 2026, we were servicing SFR mortgage loans for other financial institutions, the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), and SBA loans. The following table presents loans serviced for others as of the dates indicated:

Noninterest Expense

The following table presents major components of our noninterest expense for the periods presented:

Noninterest expense for the first quarter of 2026 was $19.3 million, an increase of $293,000 from $19.0 million for the fourth quarter of 2025. The increase in noninterest expense was due mainly to higher salaries and employee benefits of $528,000 attributed to higher payroll taxes, benefits, and pay increases, which are typically reflected in the first quarter of the year. The efficiency ratio was 55.41% for the first quarter of 2026, compared to 58.69% for the fourth quarter of 2025. The decrease in the efficiency ratio is attributed mostly to higher net revenues. The operating expense ratio (noninterest expense, annualized, divided by average assets) for the first quarter of 2026 was 1.86% compared to 1.80% for the fourth quarter of 2025. This increase was due to higher operating costs while average assets remained relatively unchanged.

Noninterest expense for the first quarter of 2026 was $19.3 million, an increase of $736,000 compared to $18.5 million for the first quarter of 2025. The increase was mainly due to an increase of $618,000 in salaries and employee benefits due to the impact of merit increases and higher incentives related to sustained production levels. The efficiency ratio was 55.41% for the first quarter of 2026 and 65.09% for the first quarter of 2025. The decrease in the efficiency ratio is attributed mostly to higher net revenues. The operating expense ratio for the first quarter of 2025 was 1.90% and the decrease to 1.86% for the first quarter of 2026 was due to average asset growth outpacing the relative growth in operating costs.

Income Tax Expense

We recorded an income tax provision of $4.4 million, $2.6 million, and $900,000, reflecting an effective tax rate of 28.0%, 20.2%, and 28.2%, for the three months ended March 31, 2026, December 31, 2025, and March 31, 2025. The effective tax rate for the first quarter of 2026 is lower than the federal and state statutory tax rates due primarily to state tax planning strategies. The lower effective tax rate in the fourth quarter of 2025 compared to the first quarter of 2026 resulted from benefits from purchased Federal tax credits and other state tax benefits in 2025.