Conference Call and Webcast Scheduled for Tuesday, January 24, 2023 at 11:00 a.m. Pacific Time/2:00 p.m. Eastern Time  

Fourth Quarter 2022 Highlights 

• Record net income of $17.6 million, or $0.92 diluted earnings per share, increased $929,000, or 5.6%, from the prior quarter and increased $1.9 million, or 11.9%, from the fourth quarter of 2021
  
  
  
  
• Loans grew by $114.4 million, or 14.1% annualized, from the end of the prior quarter
  
  
  
  
• Declared $0.16 per share quarterly dividend

RBB Bancorp (NASDAQ:RBB) and its subsidiaries, Royal Business Bank (“the Bank”) and RBB Asset Management Company (“RAM”), collectively referred to herein as “the Company,” announced financial results for the quarter and year ended December 31, 2022.

The Company reported net income of $17.6 million, or $0.92 diluted earnings per share, for the quarter ended December 31, 2022, compared to net income of $16.7 million, or $0.87 diluted earnings per share, and $15.7 million, or $0.79 diluted earnings per share, for the quarter ended September 30, 2022 and December 31, 2021, respectively.

“Loan growth, increasing loan yields and declining expenses drove record fourth quarter and 2022 results,” said David Morris, President, CEO and CFO of RBB Bancorp. “The organizational re-alignment we began in the first quarter of last year is well underway with new hires and clearly defined responsibilities contributing to results. I’m also pleased to announce that we have concluded all internal investigations and have taken previously disclosed steps to address shortcomings and prevent future lapses.

While we made tremendous progress in 2022, we’re not immune from market forces and the impact of the rate environment. We saw significant pressure on deposit costs in the fourth quarters which we anticipate will continue over the next few quarters.”

“Despite the challenges Royal Business Bank faced in 2022, the strength of the franchise and focus of the management team delivered a record year of results and loan growth,” said Dr. James Kao, Chairman of RBB Bancorp. “As shareholders, the RBB Board of Directors appreciates management’s efforts over the past twelve months and looks forward to continuing to build on the momentum they have achieved.”

Key Performance Ratios

Net income of $17.6 million for the fourth quarter of 2022 produced an annualized return on average assets ("ROA") of 1.80% and an annualized return on average shareholders' equity ("ROE") of 14.59% compared to an annualized ROA of 1.72% and an annualized ROE of 13.93% for the third quarter of 2022. The efficiency ratio, which is defined in Selected Financial Highlights section, for the fourth quarter of 2022 was 31.67%, compared to 40.22% for the third quarter of 2022.

Net Interest Income and Net Interest Margin

Net interest income, before provision for credit losses, was $39.0 million for the fourth quarter of 2022, compared to $39.0 million for the third quarter of 2022. Net interest income remained flat as revenues from a $162.7 million increase in higher-yielding average commercial real estate and mortgage loans was offset by costs of a $250.0 million increase in average time deposits.

Compared to the fourth quarter of 2021, net interest income, before provision for credit losses, increased $5.8 million from $33.2 million. The $5.8 million increase was primarily attributable to a $414.1 million increase in average commercial real estate and mortgage loans partially offset by a $161.0 million increase in average time deposits and due to increasing rates.

Net interest margin was 4.26% for the fourth quarter of 2022, a decrease of 5 basis points from 4.31% in the third quarter of 2022 primarily due to a 111 basis point increase in the average cost on interest-bearing deposits from 0.82% in the third quarter of 2022 to 1.93% in the fourth quarter of 2022. Cost of interest-bearing deposits increased due increasing market rates and peer bank deposit competition.

Noninterest Income

Noninterest income was $2.4 million for the fourth quarter of 2022, a decrease of $183,000 from $2.5 million in the third quarter of 2022. The decrease was primarily driven by a $153,000 decrease in gain on sale of loans and a $143,000 decrease in loan servicing fees due to loan payoffs in the third quarter of 2022, offset by an $85,000 increase in recoveries on purchased loans during the quarter.

During the fourth quarter loan sale volume and margins on loan sales decreased. The Company sold $2.8 million in FNMA qualified mortgage loans for a net gain of $69,000 during the fourth quarter of 2022 compared to $3.8 million in FNMA qualified mortgage loans sold for a net gain of $135,000 during the third quarter of 2022. The Company sold $834,000 in SBA loans during the fourth quarter of 2022 for a net gain of $43,000, compared to $2.5 million SBA loans sold for a net gain of $130,000 during the third quarter of 2022.

Compared to the fourth quarter of 2021, noninterest income decreased by $804,000 from $3.2 million. The decrease was primarily attributable to a $1.7 million decrease in gain on sale of loans due to rate hikes that caused both sellable loan volume and premium decreases, offset by a $323,000 increase in loan servicing fees due to loan payoffs slowing down in 2022, a $300,000 decrease in unrealized loss on equity investments, and a $265,000 increase in gain on derivatives.

Noninterest Expense

Noninterest expense for the fourth quarter of 2022 was $13.1 million, compared to $16.7 million for the third quarter of 2022. The $3.6 million decrease was primarily attributable to a $2.6 million decrease in salaries and employee benefits expenses due to bonus reversals related to executive compensation and lower commission expenses for decreased loan originations in the fourth quarter of 2022, a $902,000 decrease in the provision for off balance sheet commitments due to the conversion to CECL, and a $103,000 decrease in data processing expenses.

Noninterest expense decreased from $13.3 million in the fourth quarter of 2021. The $207,000 decrease was primarily due to a $641,000 decrease in legal and professional expenses due to the completion of the previously disclosed Board special investigation, offset by a $365,000 increase in data processing expenses.

Income Taxes

The effective tax rate was 30.5% for the fourth quarter of 2022, 27.8% for the third quarter of 2022, and 30.0% for the fourth quarter of 2021. The Company recognized a tax benefit from stock option exercises of $9,000, $276,000 and $215,000 for the fourth quarter of 2022, the third quarter of 2022, and the fourth quarter of 2021, respectively. The Company amended its 2020 tax returns and 2018 California state tax return and recorded a total of $300,000 tax expense reduction in the third quarter of 2022.

Loan and Securities Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $3.3 billion as of December 31, 2022, an increase of $115.5 million from September 30, 2022, and an increase of $405.1 million from December 31, 2021. The increase from September 30, 2022 was primarily due to a $107.8 million increase in single-family residential mortgage loans and a $91.3 million increase in commercial real estate loans, offset by a $76.6 million decrease in construction and land development loans and a $3.6 million decrease in commercial and industrial loans. The increase from December 31, 2021 was primarily due to a $459.5 million increase in single-family residential mortgages and a $64.1 million increase in commercial real estate loans, offset by a $67.5 million decrease in commercial and industrial loans and a $26.3 million decrease in construction and land development loans.

During the fourth quarter of 2022, single-family residential mortgage production was $130.8 million while net payoffs and paydowns were $21.4 million. During the third quarter of 2022, single-family residential mortgage production was $191.8 million while payoffs and paydowns were $36.2 million.

There were no mortgage loans held for sale as of December 31, 2022 compared to $1.2 million as of September 30, 2022 and $6.0 million as of December 31, 2021. The Company originated approximately $889,000 in FNMA mortgage loans for sale for the fourth quarter of 2022, compared with $1.8 million during the third quarter of 2022.

In the fourth quarter of 2022, SBA loan production was $10.2 million and total SBA loan sales were $834,000 compared to SBA loan production of $7.7 million and total SBA loan sales of $2.5 million in the third quarter of 2022.

As of December 31, 2022, the Bank’s total available-for-sale securities maturing in over 12 months were $234.8 million. As of December 31, 2022 the Bank recorded gross unrealized losses of $31.2 million compared to gross unrealized losses of $2.3 million as of December 31, 2021.

Deposits

Deposits were $3.0 billion at December 31, 2022, which was an increase of $18.0 million compared to September 30, 2022. During the fourth quarter of 2022, noninterest-bearing deposits decreased by $117.6 million due to the continued reduction of a single deposit relationship, interest-bearing non-maturity deposits decreased by $266.8 million, and time deposits increased by $402.4 million. As of December 31, 2022, there were $255.0 million in brokered CDs, as compared to $105.5 million brokered CDs as of September 30, 2022 and $2.4 million brokered CDs as of December 31, 2021. Compared to December 31, 2021, total deposits decreased by $407.8 million primarily due to a $492.7 million decrease in noninterest-bearing demand deposits, and a $312.3 million decrease in interest-bearing non-maturity deposits, offset by a $397.2 million increase in time deposits.

Asset Quality

Nonperforming assets totaled $12.1 million, or 0.31% of total assets at December 31, 2022, compared to $11.8 million, or 0.30% of total assets at September 30, 2022. The increase in nonperforming assets was due to the foreclosure of a property in the amount of $284,000 that was transferred to Other Real Estate Owned (OREO) in the fourth quarter of 2022. Nonperforming assets consist of other real estate owned, loans modified under troubled debt restructurings (“TDR”), non-accrual loans, and loans past due 90 days or more and still accruing interest.

Our 30-89 day delinquent loans, excluding non-accrual loans decreased $24.7 million to $15.2 million as of December 31, 2022 compared to $39.9 million as of September 30, 2022. 30-89 days past due loans at December 31, 2022 decreased primarily due to the completion of extensions on a construction loan of $11.3 million on a project that is substantially complete and a commercial real estate loan of $8.8 million. Both loans were delinquent for 52 days at September 30, 2022, and extended and back to current in October 2022.

In the fourth quarter of 2022, there were $85,000 in net charge-offs, compared to net recoveries of $127,000 in the third quarter of 2022 and net recoveries of $46,000 in the fourth quarter of 2021.

The Company's emerging growth company (“EGC”) status expired on December 31, 2022. The Company adopted ASU 2016-13 “Accounting for Credit Losses” (“CECL”) retrospectively to January 1, 2022. Due to the adoption of CECL, the Company recorded a $2.1 million transition adjustment for the credit for loan losses and a provision for unfunded commitments of $1.0 million through retained earnings on January 1, 2022. Subsequent to CECL adoption, the Company recorded a provision for credit losses of $3.0 million in the fourth quarter of 2022 compared to $1.8 million in third quarter of 2022. The Company also recorded a reversal of provision for off-balance sheet commitments of $930,000 in the fourth quarter of 2022 compared to a reversal of $28,000 in the third quarter of 2022.

The allowance for credit losses totaled $41.0 million, or 1.23% of loans held for investment at December 31, 2022, compared with $36.0 million, or 1.12%, of total loans at September 30, 2022.

Stock Repurchase

During the fourth quarter of 2022, the Company repurchased 48,896 common shares at a weighted average price of $20.77.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California. As of December 31, 2022, the company had total assets of $3.9 billion. Its wholly-owned subsidiary, the Bank is a full service commercial bank, which provides business banking services to the Chinese-American communities in Los Angeles County, Orange County, and Ventura County in California, in Las Vegas, Nevada, in Brooklyn, Queens, and Manhattan in New York, in Edison, New Jersey, in the Chicago neighborhoods of Chinatown and Bridgeport, Illinois, and on Oahu, Hawaii. Bank services include remote deposit, E-banking, mobile banking, commercial and investor real estate loans, business loans and lines of credit, commercial and industrial loans, SBA 7A and 504 loans, 1-4 single family residential loans, automobile lending, trade finance, a full range of depository account products and wealth management services. The Bank has nine branches in Los Angeles County, two branches in Ventura County, one branch in Orange County, California, one branch in Las Vegas, Nevada, three branches and one loan operation center in Brooklyn, three branches in Queens, one branch in Manhattan in New York, one branch in Edison, New Jersey, two branches in Chicago, Illinois, and one branch in Honolulu, Hawaii. The Company's administrative and lending center is located at 1055 Wilshire Blvd., Los Angeles, California 90017, and its finance and operations center is located at 7025 Orangethorpe Ave., Buena Park, California 90621. The Company's website address is www.royalbusinessbankusa.com.

Conference Call

Management will hold a conference call at 11:00 a.m. Pacific time/2:00 p.m. Eastern time on Tuesday, January 24, 2023, to discuss the Company’s fourth quarter and year-end 2022 financial results.

To listen to the conference call, please dial 1-888-506-0062 or 1-973-528-0011, the Participant ID code is 200944, conference ID RBBQ422. A replay of the call will be made available at 1-877-481-4010 or 1-919-882-2331, the passcode is 47492, approximately one hour after the conclusion of the call and will remain available through February 7, 2023.

The conference call will also be simultaneously webcast over the Internet; please visit our Royal Business Bank website at www.royalbusinessbankusa.com and click on the “Investors” tab to access the call from the site. This webcast will be recorded and available for replay on our website approximately two hours after the conclusion of the conference call.

Disclosure

This press release contains certain non-GAAP financial disclosures for tangible common equity and tangible assets and adjusted earnings. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. Please refer to the tables at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.

Safe Harbor

Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements relating to the Company’s current business plans and expectations and our future financial position and operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities; our ability to attract deposits and other sources of funding or liquidity; supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate; a prolonged slowdown or decline in real estate construction, sales or leasing activities; changes in the financial performance and/or condition of our borrowers, depositors or key vendors or counterparties; changes in our levels of delinquent loans, nonperforming assets, allowance for credit losses and charge-offs; expectations regarding the impact of the COVID-19 pandemic; the costs or effects of acquisitions or dispositions we may make, whether we are able to obtain any required governmental or shareholder approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions; the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, employment, executive compensation, insurance, vendor management and information security) with which we and our subsidiaries must comply or believe we should comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk; inflation, interest rate, securities market and monetary fluctuations; changes in government interest rates or monetary policies; changes in the amount and availability of deposit insurance; cyber-security threats, including loss of system functionality or theft or loss of Company or customer data or money; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, drought, or the effects of pandemic diseases; the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by our customers and potential customers; the Company’s relationships with and reliance upon vendors with respect to the operation of certain of the Company’s key internal and external systems and applications; changes in commercial or consumer spending, borrowing and savings preferences or behaviors; technological changes and the expanding use of technology in banking (including the adoption of mobile banking and funds transfer applications); the ability to retain and increase market share, retain and grow customers and control expenses; changes in the competitive and regulatory environment among financial and bank holding companies, banks and other financial service providers; volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions; fluctuations in the price of the Company’s common stock or other securities; and the resulting impact on the Company’s ability to raise capital or make acquisitions, the effect of changes in accounting policies and practices, as may be adopted from time-to-time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”, commonly referenced as the Current Expected Credit Loss (“CECL”) model, which will change how we estimate credit losses and may increase the required level of our allowance for credit losses after adoption; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, consumer or employee class action litigation), regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews; our ongoing relations with our various federal and state regulators, including the SEC, FDIC, FRB and California DFPI (formerly DBO); our success at managing the risks involved in the foregoing items and all other factors set forth in the Company’s public reports, including its Annual Report as filed under Form 10-K/A and Form 10-K for the year ended December 31, 2021, and particularly the discussion of risk factors within that document. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.