RBB Bancorp Reports Third Quarter Earnings for 2021

Conference Call and Webcast Scheduled for Tuesday, October 26, 2021 at 11:00 a.m. Pacific Time/2:00 p.m. Eastern Time Third Quarter 2021 Highlights

• Reported record net income of $15.4 million, or $0.77 diluted earnings per share, increased $2.0 million, or 14.8%, from the prior quarter and increased $6.8 million, or 80.3%, from the third quarter of 2020
• Loan growth of $137.1 million, or 20.0% annualized, from the end of the prior quarter
• Declared quarterly cash dividend of $0.13 per common share
• Entered into an agreement in July, received regulatory approval in September to buy the Honolulu, Hawaii branch office of Bank of the Orient, which is expected to close by mid-January 2022

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 ended September 30, 2021.

The Company reported record net income of $15.4 million, or $0.77 diluted earnings per share, for the three months ended September 30, 2021, compared to net income of $13.4 million, or $0.67 diluted earnings per share, and $8.5 million, or $0.43 diluted earnings per share, for the three months ended June 30, 2021 and September 30, 2020, respectively. Third quarter results included the impact of a $1.8 million CDFI grant that increased diluted earnings per share by approximately $0.07.

"Our differentiated business model continued to outperform in the third quarter as we reported record diluted earnings per share of $0.77 and 20% annualized loan growth,” said Alan Thian, President and CEO of RBB Bancorp. “In addition to our financial performance and growth, continued pricing discipline and focus on our cost of deposits has kept our net interest margin stable in the first 9 months of 2021 versus the same period in 2020. We are also pleased that our efforts to support the communities in which we operate were recognized by the US Treasury which awarded Royal Business Bank with a $1.8 million CDFI grant to facilitate a rapid response to the economic impacts of the COVID-19 pandemic in distressed and underserved communities.”

"I am very pleased with Royal Business Bank’s record financial performance in the third quarter," said Dr. James Kao, Chairman of RBB Bancorp. “And I am very proud that RBB’s success in community development has been recognized with a CDFI grant and with the appointment of Alan to the Community Development Advisory Board.”

Key Performance Ratios

Net income of $15.4 million for the third quarter of 2021 produced an annualized return on average assets ("ROA") of 1.54%, an annualized return on average tangible common shareholders' equity ("ROTCE") of 16.17%, and an annualized return on average shareholders' equity ("ROE") of 13.52%. This compares to an annualized return on average assets of 1.39%, an annualized return on average tangible common shareholders' equity of 14.57%, and an annualized return on average shareholders' equity of 12.13% for the second quarter of 2021. Third quarter results included the impact of a $1.8 million CDFI grant that increased ROA by 0.03%, ROTCE by 0.35%, and ROE by 0.29%. The efficiency ratio for the third quarter of 2021 was 38.87%, compared to 42.89% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $31.6 million for the third quarter of 2021, compared to $30.1 million for the second quarter of 2021. The $1.5 million increase was primarily attributable to higher interest income due to a $92.7 million increase in average earning assets, partially offset by an $11.3 million increase in average interest-bearing liabilities. Accretion of purchase discounts from prior acquisitions contributed $289,000 to net interest income in the third quarter of 2021, compared to $183,000 in the second quarter of 2021.

Compared to the third quarter of 2020, net interest income, before provision for loan losses, increased $4.3 million from $27.3 million. The increase was primarily attributable to a $691.5 million increase in average earning assets, partially offset by a $262.0 million increase in average interest-bearing liabilities. The increases in average earning assets and total deposits were primarily due to increased loan and deposit originations.

Net interest margin was 3.38% for the third quarter of 2021, an increase of 5 basis points from 3.33% in the second quarter of 2021. The increase was primarily attributable to a $89.9 million increase in average non-interest bearing deposits, combined with an 8 basis point decrease in the cost of average interest-bearing liabilities, which was partially offset by a 2 basis point decrease in the yield on average earning assets. Loan discount accretion contributed 3 basis points to the net interest margin in the third quarter of 2021, compared to 2 basis points in the second quarter of 2021.

Noninterest Income

Noninterest income was $5.5 million for the third quarter of 2021, an increase of $1.4 million from $4.2 million in the second quarter of 2021. The increase was primarily driven by a $1.8 million grant under the US Treasury’s Rapid Response Program, partially offset by a $782,000 decrease in gain on sale of loans during the quarter. The Company sold $35.7 million fewer loans in the third quarter than in the prior quarter primarily due to selling fewer FNMA loans.

The Company sold $36.6 million in FNMA qualified mortgage loans for a net gain of $1.3 million and sold no non-qualified mortgage loans during the third quarter of 2021. This compared to $58.9 million in FNMA qualified mortgage loans sold for a net gain of $1.4 million and $13.4 million in non-qualified mortgage loans to private investors for a gain of $389,000 during the second quarter of 2021. The Company sold $5.9 million in SBA loans during the third quarter of 2021 for a net gain of $553,000, compared to $5.9 million SBA loans sold for a net gain of $747,000 during the second quarter of 2021.

Compared to the third quarter of 2020, noninterest income increased by $2.8 million from $2.7 million. The increase was primarily attributable to an increase of $1.8 million grant under the US Treasury’s Rapid Response Program and an increase of $1.0 million in gain on loan sales.

Noninterest Expense

Noninterest expense for the third quarter of 2021 was $14.4 million, compared to $14.7 million for the second quarter of 2021. The $260,000 decrease was primarily attributable to a reversal of impairment write-down on mortgage servicing assets of $416,000 and a $266,000 decrease in data processing expense, partially offset by a $210,000 increase in legal and professional expenses and a $93,000 increase in marketing and business promotion expense.

Noninterest expense increased from $14.0 million in the third quarter of 2020. The $444,000 increase was primarily due to a $1.2 million increase in salaries and employee benefits and a $193,000 increase in marketing and business promotion expenses. These were partially offset by a $475,000 decrease in mortgage servicing assets impairment write-down, a $235,000 decrease in data processing expenses and a $171,000 decrease in occupancy and equipment expenses.

Income Taxes

The effective tax rate was 28.5% for the third quarter of 2021, 29.3% for the second quarter of 2021, and 29.8% for the third quarter of 2020. The Company recognized a tax benefit from stock option exercises of $534,000, $68,000 and zero for the third quarter of 2021, the second quarter of 2021, and the third quarter of 2020, respectively.

CDFI Rapid Response Program

In mid-June, 2021 the Bank was awarded a $1.8 million grant under the US Treasury’s Rapid Response Program to facilitate a rapid response to the economic impacts of the COVID-19 pandemic in distressed and underserved communities. The award was received in August 2021 after finalization of the contract between the Bank and the US Treasury which included various performance goals and measures that specify the use of the funds to provide affordable housing. The funds were disbursed for two loans that help provide affordable housing to underserved communities.

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $2.84 billion as of September 30, 2021, an increase of $131.1 million from June 30, 2021, and an increase of $85.2 million from September 30, 2020. The increase from the prior quarter was primarily due to an increase in commercial real estate and construction & land development loans. Single-family residential mortgages decreased by $9.5 million net of payoffs, paydowns and loan sales. Commercial real estate loans increased by $103.2 million, construction and land development loans increased by $34.8 million, SBA loans decreased by $9.8 million (which included a $6.2 million decrease in PPP loans), commercial and industrial loans decreased by $693,000 and other loans increased by $13.2 million.

During the third quarter of 2021, single-family residential mortgage production was $112.0 million, payoffs and paydowns were $79.0 million, and single-family residential mortgage loan sales were $36.6 million. During the second quarter of 2021, single-family residential mortgage production was $107.9 million, payoffs and paydowns were $121.0 million, and loan sales were $72.3 million.

Mortgage loans held for sale were $15.2 million as of September 30, 2021, an increase of $5.9 million from $9.2 million at June 30, 2021 and a decrease of $8.7 million from $23.9 million as of September 30, 2020. The Company originated approximately $12.2 million in FNMA mortgage loans for sale for the third quarter of 2021, compared with $29.2 million during the prior quarter.

In the third quarter of 2021, SBA loan production was $22.7 million and total SBA loan sales were $5.9 million.

Deposits and Borrowings

Deposits were $3.0 billion at September 30, 2021, a decrease of $102.1 million from June 30, 2021, and an increase of $356.1 million from September 30, 2020, including brokered deposits. The decrease in total deposits from the prior quarter was primarily attributable to a decrease in noninterest-bearing demand deposits and time deposits. During the third quarter of 2021, noninterest-bearing deposits decreased by $115.3 million, interest-bearing non-maturity deposits increased by $72.9 million, and time deposits decreased by $59.8 million. As of September 30, 2021, time deposits included $2.4 million in brokered CDs, as compared to $17.4 million as of June 30, 2021 and $17.4 million as of September 30, 2020.

Asset Quality

Nonperforming assets totaled $14.5 million, or 0.38% of total assets at September 30, 2021, compared to $19.5 million, or 0.50%, of total assets at June 30, 2021. 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.

In the third quarter of 2021, there were $317,000 in net charge-offs, compared to net charge-offs of $71,000 in the second quarter.

The Company recorded a provision for credit losses of $1.2 million for the third quarter of 2021, an increase from $628,000 in the prior quarter, primarily attributable to loan growth.

The allowance for loan losses totaled $32.2 million, or 1.13% of loans held for investment at September 30, 2021, compared with $31.4 million, or 1.16%, of total loans at June 30, 2021.

As of September 30, 2021, borrowers representing 167 loans totaling $23.0 million, or 0.80% of the Company’s total loan portfolio, have funded under the SBA’s Paycheck Protection Program due to the COVID-19 pandemic. Presently none of our SBA customers are on a payment deferral plan due to the COVID-19 pandemic. The Company does not have any shared national credits or loans, backed by airlines or cruise lines, on deferral as of September 30, 2021.

As of October 15, 2021, the Company had one COVID-19 loan deferral in the amount of $241,000.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California. As of September 30, 2021, the company had total assets of $3.8 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, and in the Chicago neighborhoods of Chinatown and Bridgeport, Illinois. 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, two 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 and two branches in Chicago, Illinois. 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 tomorrow, October 26, 2021, to discuss the Company’s third quarter 2021 financial results.

To listen to the conference call, please dial 1-877-876-9174 or 1-785-424-1669, passcode RBBQ321. A replay of the call will be made available at 1-888-269-5324 or 1-402-220-7325 (no passcode required) approximately one hour after the conclusion of the call and will remain available through November 2, 2021.

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 loan losses and charge-offs; expectations regarding the impact of the COVID-19 pandemic; the costs or effects of acquisitions or dispositions we may make, including our recent acquisition of PGB Holdings, Inc. and its wholly-owned subsidiary, Pacific Global Bank, and our recently completed acquisition of First American International Corp., 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 for the year ended December 31, 2020, 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.