RBB Bancorp Reports Record Fourth Quarter and Full Year Earnings for 2021

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 December 31, 2021.

The Company reported record net income of $15.7 million, or $0.79 diluted earnings per share, for the three months ended December 31, 2021, compared to net income of $15.4 million, or $0.77 diluted earnings per share, and $11.1 million, or $0.56 diluted earnings per share, for the three months ended September 30, 2021 and December 31, 2020, respectively.

“Royal Business Bank’s excellent fourth quarter results contributed to a record year of growth and performance in 2021,” said Alan Thian, President and CEO of RBB Bancorp. “Our strategy of expansion has proven to be an effective driver of shareholder value by enhancing earnings, accelerating loan growth, and improving our deposit franchise. Our recent expansion into the vibrant Hawaiian market and our announced acquisition of Gateway Bank in the San Francisco Bay area will provide us with additional opportunities to bring our relationship-banking model to new markets.”

"2021 was a tremendous year for the Bank," said Dr. James Kao, Chairman of RBB Bancorp. “Not only did the Bank achieve record results and growth, but it was also recognized multiple times for the work it does to serve the financial needs of the communities in which it operates. Two members of the RBB team, Alan Thian and Simon Pang, were appointed to national commissions to advise on community development and the Bank was the awarded a CDFI grant from the US Treasury to support distressed and underserved communities.”

Key Performance Ratios

Net income of $15.7 million for the fourth quarter of 2021 produced an annualized return on average assets ("ROA") of 1.52%, an annualized return on average tangible common shareholders' equity ("ROTCE") of 15.98%, and an annualized return on average shareholders' equity ("ROE") of 13.45%. This compares to an annualized return on average assets of 1.54%, an annualized return on average tangible common shareholders' equity of 16.17%, and an annualized return on average shareholders' equity of 13.52% for the third quarter of 2021. The efficiency ratio for the fourth quarter of 2021 was 36.56%, compared to 38.87% for the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses, was $33.2 million for the fourth quarter of 2021, compared to $31.6 million for the third quarter of 2021. The $1.6 million increase was primarily attributable to higher interest income due to a $135.9 million increase in average earning assets and a $51.1 million decrease in average interest-bearing liabilities. Accretion of purchase discounts from prior acquisitions contributed $192,000 to net interest income in the fourth quarter of 2021, compared to $289,000 in the third quarter of 2021.

Compared to the fourth quarter of 2020, net interest income, before provision for loan losses, increased $4.3 million from $28.9 million. The increase was primarily attributable to a $713.3 million increase in average earning assets, partially offset by a $137.3 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 3.43% for the fourth quarter of 2021, an increase of 5 basis points from 3.38% in the third quarter of 2021. Loan discount accretion contributed 2 basis points to the net interest margin in the fourth quarter of 2021, compared to 3 basis points in the third quarter of 2021.

Noninterest Income

Noninterest income was $3.2 million for the fourth quarter of 2021, a decrease of $2.4 million from $5.5 million in the third quarter of 2021. The decrease was primarily driven by a one-time $1.8 million CDFI grant received during the third quarter and a $455,000 decrease in gain on derivatives, partially offset by a $196,000 increase in loan servicing fees during the quarter.

The Company sold $37.7 million in FNMA qualified mortgage loans for a net gain of $1.4 million and sold no non-qualified mortgage loans during the fourth quarter of 2021. This compared to $36.6 million in FNMA qualified mortgage loans sold for a net gain of $1.2 million and no non-qualified mortgage loans during the third quarter of 2021. The Company sold $5.5 million in SBA loans during the fourth quarter of 2021 for a net gain of $436,000, compared to $5.9 million SBA loans sold for a net gain of $553,000 during the third quarter of 2021.

Compared to the fourth quarter of 2020, noninterest income decreased by $1.3 million from $4.5 million. The decrease was primarily attributable to a decrease of $657,000 in gain on sale of loans and a decrease of $378,000 in unrealized gain (loss) on equity investment.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 was $13.3 million, compared to $14.4 million for the third quarter of 2021. The $1.1 million decrease was primarily attributable to a $2.0 million decrease in salaries and benefit expenses, partially offset by $940,000 increase in legal and professional expense. The fourth quarter increase in legal and professional expenses were due, in part, to expenses related to the acquisition of the branch in Honolulu, Hawaii and the announced acquisition of Gateway Bank.

Noninterest expense decreased from $14.5 million in the fourth quarter of 2020. The $1.2 million decrease was primarily due to a $1.3 million decrease in salaries and benefits expenses, $275,000 decrease in occupancy and equipment expenses and a $174,000 decrease in data processing expenses, partially offset by an $892,000 increase in legal and professional expenses.

Income Taxes

The effective tax rate was 30.0% for the fourth quarter of 2021, 28.5% for the third quarter of 2021, and 29.9% for the fourth quarter of 2020. The Company recognized a tax expense (benefit) from stock option exercises of ($215,000), ($534,000) and zero for the fourth quarter of 2021, the third quarter of 2021, and the fourth quarter of 2020, respectively.

Loan Portfolio

Loans held for investment, net of deferred fees and discounts, totaled $2.93 billion as of December 31, 2021, an increase of $91.0 million from September 30, 2021, and an increase of $224.6 million from December 31, 2020. The increase from the prior quarter was primarily due to a $42.4 million increase in commercial real estate loans, $31.4 million increase in construction & land development loans and a $29.8 million increase in single-family residential mortgages. The increase from December 31, 2020 was primarily due to a $244.4 million increase in commercial real estate loans, $116.4 million increase in construction & land development loans, partially offset by a $119.8 million decrease in single-family residential mortgages.

During the fourth quarter of 2021, single-family residential mortgage production was $137.7 million while payoffs and paydowns were $79.5 million. During the third quarter of 2021, single-family residential mortgage production was $112.0 million while payoffs and paydowns were $79.0 million.

Mortgage loans held for sale were $6.0 million as of December 31, 2021, a decrease of $9.2 million from $15.2 million at September 30, 2021 and a decrease of $44.0 million from $50.0 million as of December 31, 2020. The Company originated approximately $18.2 million in FNMA mortgage loans for sale for the fourth quarter of 2021, compared with $12.2 million during the prior quarter.

In the fourth quarter of 2021, SBA loan production was $4.6 million and total SBA loan sales were $5.5 million.

Deposits

Deposits were $3.4 billion at December 31, 2021, and compared to September 30, 2021, there was an increase of $417.7 million from September 30, 2021, and an increase of $750.4 million from December 31, 2020, including brokered deposits. During the fourth quarter of 2021, noninterest-bearing deposits increased by $466.7 million, interest-bearing non-maturity deposits decreased by $3.9 million, and time deposits decreased by $45.1 million. Noninterest-bearing deposits increased due to expanding relationships with a number of our commercial clients. As of December 31, 2021, time deposits included $2.4 million in brokered CDs, as compared to $2.4 million as of September 30, 2021 and $17.4 million as of December 31, 2020. Compared to December 31, 2020, total deposits increased by $750.4 million, which included a $674.3 million increase in noninterest bearing deposits and a $76.1 million increase in interest-bearing deposits.

Asset Quality

Nonperforming assets totaled $21.0 million, or 0.50% of total assets at December 31, 2021, compared to $14.5 million, or 0.38% of total assets at September 30, 2021. The $6.5 million increase in non-performing assets was due to the addition of three commercial real estate loans in the amount of $3.5 million, one SFR loan for $156,000 and three commercial and industrial loans for $3.7 million, less paydowns and payoffs on other non-performing loans. 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 fourth quarter of 2021, there were $46,000 in net recoveries, compared to net charge-offs of $317,000 in the third quarter.

The Company recorded a provision for credit losses of $635,000 for the fourth quarter of 2021, a decrease from $1.2 million in the prior quarter, primarily attributable to a reduction of the COVID-19 special reserve in the allowance for loan losses.

The allowance for loan losses totaled $32.9 million, or 1.12% of loans held for investment at December 31, 2021, compared with $32.2 million, or 1.13%, of total loans at September 30, 2021.

As of December 31, 2021, borrowers representing 69 loans totaling $11.8 million, or 0.40% 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.

As of January 15, 2022, the Company had no COVID-19 loans deferred.

During the fourth quarter of 2021, the Company repurchased 75,849 common shares at a weighted average price of $24.53.

Agreement to Acquire Gateway Bank, F.S.B.

On December 28, 2021, RBB Bancorp announced that it entered into a definitive agreement to acquire Gateway Bank, F.S.B. ("Gateway Bank") in a cash transaction valued at approximately $22.9 million, subject to certain terms and conditions, including customary holdbacks if certain contingencies are not met, and other possible adjustments as contained in the definitive agreement.

Gateway Bank, a commercial bank based in Oakland, California, had total assets of $172.4 million, total gross loans of $123.1 million, total deposits of $147.5 million, and total tangible equity of $15.5 million as of September 30, 2021. Principally serving the Asian-American communities in the San Francisco Bay Area, Gateway Bank has one branch located in Oakland’s Chinatown neighborhood, offering consumer and business banking and loan products and services.

The Company expects the transaction to be accretive to earnings per share in 2022 in the mid-single digit range. The Company also expects to incur tangible book value per share dilution of approximately 1.8% upon closing of the transaction, with a tangible book value dilution payback period of approximately 1.8 years. The earnings per share accretion estimates are based on estimated cost savings of approximately 60% of Gateway Bank's non-interest expense, with the cost savings phased in during 2022. The earnings per share accretion estimates do not include any assumption of revenue synergies. The transaction is expected to close in second quarter of 2022 and is subject to the Company obtaining all the regulatory approvals as well as other customary closing conditions.

Corporate Overview

RBB Bancorp is a community-based financial holding company headquartered in Los Angeles, California. As of December 31, 2021, the company had total assets of $4.2 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 in 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, 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, 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 tomorrow, January 25, 2022, to discuss the Company’s fourth quarter 2021 financial results.

To listen to the conference call, please dial 1-866-518-6930 or 1-203-518-9797, conference ID RBBQ421. A replay of the call will be made available at 1-800-938-1602 or 1-404-220-1548 (no passcode required) approximately one hour after the conclusion of the call and will remain available through February 2, 2022.

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.