rbb20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-38149

RBB BANCORP

(Exact name of registrant as specified in its charter)

California

27-2776416

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification No.)

1055 Wilshire Blvd., Suite 1200,
Los Angeles, California	90017

(Address of principal executive offices)

(Zip Code)

(213) 627-9888

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, No Par Value		RBB		NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock of the registrant: 18,965,776 outstanding as of December 20, 2022.

Table of Contents

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION (UNAUDITED)		3
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	9
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36
	CRITICAL ACCOUNTING POLICIES	38
	OVERVIEW	39
	ANALYSIS OF THE RESULTS OF OPERATIONS	40
	ANALYSIS OF FINANCIAL CONDITION	49
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	66
ITEM 4.	CONTROLS AND PROCEDURES	67
PART II - OTHER INFORMATION		68
ITEM 1.	LEGAL PROCEEDINGS	68
ITEM 1A.	RISK FACTORS	68
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	68
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	68
ITEM 4.	MINE SAFETY DISCLOSURES	68
ITEM 5.	OTHER INFORMATION	68
ITEM 6.	EXHIBITS	69
SIGNATURES		70

Table of Contents

PART I - FINANCIAL INFORMATION (UNAUDITED)

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021 (AUDITED)

(In thousands, except share amounts)

	*September 30,*			*December 31,*
	*2022*			*2021*
Assets
Cash and due from banks	$	134,179		$	501,372
Federal funds sold and other cash equivalents		40,000			193,000
Cash and cash equivalents		174,179			694,372
Interest-earning deposits in other financial institutions		600			600
Securities:
Available for sale		266,270			368,260
Held to maturity (fair value of $5,335 and $6,577 at September 30, 2022 and December 31, 2021, respectively)		5,735			6,252
Mortgage loans held for sale		1,185			5,957
Loans held for investment:
Real estate		2,932,107			2,560,465
Commercial and other		290,088			375,684
Total loans		3,222,195			2,936,149
Unaccreted discount on acquired loans		(1,276	)		(1,727	)
Deferred loan fees, net		(6	)		(3,072	)
Total loans, net of deferred loan fees and unaccreted discounts on acquired loans		3,220,913			2,931,350
Allowance for loan losses		(36,047	)		(32,912	)
Net loans		3,184,866			2,898,438

Premises and equipment		26,850			27,199
Federal Home Loan Bank (FHLB) stock		15,000			15,000
Equity Securities		20,951			19,992
Other real estate owned (OREO)		293			293
Cash surrender value of life insurance (BOLI)		56,975			55,988
Goodwill		71,498			69,243
Servicing assets		10,054			11,517
Core deposit intangibles		3,971			4,075
Right-of-use assets- operating leases		24,768			22,454
Accrued interest and other assets		42,034			28,554
Total assets	$	3,905,229		$	4,228,194

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021 (AUDITED) (CONTINUED)

(In thousands, except share amounts)

	*September 30,*			*December 31,*
	*2022*			*2021*
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand	$	916,301		$	1,291,484
Savings, NOW and money market accounts		882,126			927,609
Time deposits $250,000 and under		608,489			587,940
Time deposits over $250,000		552,754			578,499
Total deposits		2,959,670			3,385,532

Reserve for unfunded commitments		1,042			1,203
FHLB advances		240,000			150,000
Long-term debt, net of debt issuance costs		173,441			173,007
Subordinated debentures		14,665			14,502
Lease liabilities - operating leases		25,701			23,282
Accrued interest and other liabilities		18,911			13,985
Total liabilities		3,433,430			3,761,511

Commitments and contingencies - Note 13		—			—

Shareholders' equity:
Preferred Stock - 100,000,000 shares authorized, no par value; none outstanding		—			—
Common Stock - 100,000,000 shares authorized, no par value; 19,011,672 shares issued and outstanding at September 30, 2022 and 19,455,544 shares issues and outstanding at December 31, 2021		277,581			282,335
Additional paid-in capital		3,193			4,603
Retained earnings		213,474			181,329
Non-controlling interest		72			72
Accumulated other comprehensive loss, net		(22,521	)		(1,656	)
Total shareholders’ equity		471,799			466,683
Total liabilities and shareholders’ equity	$	3,905,229		$	4,228,194

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME – (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In thousands, except per share amounts)

	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
	*2022*			*2021*			*2022*			*2021*
Interest and dividend income:
Interest and fees on loans	$	43,588		$	35,601		$	121,631		$	104,786
Interest on interest-earning deposits		373			219			655			392
Interest on investment securities		1,784			889			4,210			2,310
Dividend income on FHLB stock		224			225			673			642
Interest on federal funds sold and other		445			174			1,149			489
Total interest income		46,414			37,108			128,318			108,619
Interest expense:
Interest on savings deposits, now and money market accounts		1,529			697			3,091			2,103
Interest on time deposits		2,460			2,048			5,540			7,422
Interest on subordinated debentures and long-term debt		2,427			2,342			7,154			6,656
Interest on other borrowed funds		1,020			445			1,974			1,320
Total interest expense		7,436			5,532			17,759			17,501
Net interest income		38,978			31,576			110,559			91,118
Provision for loan losses		1,766			1,196			3,048			3,324
Net interest income after provision for loan losses		37,212			30,380			107,511			87,794
Noninterest income:
Service charges, fees and other		1,277			3,153			3,899			5,953
Gain on sale of loans		265			1,790			1,783			8,203
Loan servicing fees, net of amortization		724			62			1,628			426
Recoveries on loans acquired in business combinations		5			68			108			78
Unrealized loss on equity investments		—			(5	)		—			(60	)
Unrealized (loss) gain on derivatives		(68	)		125			(262	)		254
Increase in cash surrender value of life insurance		332			331			986			735
Gain on sale of fixed assets		—			—			757			—
		2,535			5,524			8,899			15,589
Noninterest expense:
Salaries and employee benefits		9,561			8,772			28,558			26,756
Occupancy and equipment expenses		2,349			2,189			6,728			6,566
Data processing		1,306			965			3,857			3,636
Legal and professional		1,077			746			4,337			2,087
Office expenses		382			311			1,033			838
Marketing and business promotion		364			324			1,172			739
Insurance and regulatory assessments		441			384			1,360			1,086
Core deposit premium		277			281			833			869
OREO expenses		4			4			17			13
Merger expenses		—			40			60			99
Other expenses		936			404			2,412			2,203
		16,697			14,420			50,367			44,892
Income before income taxes		23,050			21,484			66,043			58,491
Income tax expense		6,398			6,120			19,297			17,291
Net income	$	16,652		$	15,364		$	46,746		$	41,200

Net income per share
Basic	$	0.88		$	0.79		$	2.44		$	2.11
Diluted		0.87			0.77			2.41			2.07

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In thousands)

	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
	*2022*			*2021*			*2022*			*2021*
Net income	$	16,652		$	15,364		$	46,746		$	41,200

Other comprehensive loss:
Unrealized losses on securities available for sale:		(9,773	)		(1,001	)		(30,140	)		(2,369	)

Related income tax effect:		2,999			296			9,275			702

Total other comprehensive loss		(6,774	)		(705	)		(20,865	)		(1,667	)

Total comprehensive income	$	9,878		$	14,659		$	25,881		$	39,533

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In thousands, except share amounts)

	*Common Stock*														*Accumulated*
	*Shares*			*Amount*			*Additional Paid-in Capital*			*Retained Earnings*			*Non- Controlling Interest*		*Other Comprehensive Income (Loss)*			*Total*
Balance at June 30, 2022		18,881,829		$	275,096		$	4,193		$	200,093		$	72	$	(15,747	)	$	463,707
Net income		—			—			—			16,652			—		—			16,652
Stock-based compensation		—			—			274			—			—		—			274
Restricted stock unit vested		6,450			175			(175	)		—			—		—			—
Cash dividend (common stock, $0.14/share)		—			—			—			(2,663	)		—		—			(2,663	)
Stock options exercised, net of expense recognized		217,932			3,680			(1,099	)		—			—		—			2,581
Repurchase of common stock		(94,539	)		(1,370	)		—			(608	)		—		—			(1,978	)
Other comprehensive loss, net of taxes		—			—			—			—			—		(6,774	)		(6,774	)
Balance at September 30, 2022		19,011,672		$	277,581		$	3,193		$	213,474		$	72	$	(22,521	)	$	471,799

Balance at June 30, 2021		19,349,802		$	280,253		$	5,275		$	156,558		$	72	$	167		$	442,325
Net income		—			—			—			15,364			—		—			15,364
Stock-based compensation		—			—			268			—			—		—			268
Restricted stock vested		—			425			(425	)		—			—		—			—
Cash dividend (common stock, $0.13/share)		—			—			—			(2,517	)		—		—			(2,517	)
Stock options exercised, net of expense recognized		211,478			3,140			(731	)		—			—		—			2,409
Repurchase of common stock		(44,887	)		(648	)		—			(472	)		—		—			(1,120	)
Other comprehensive loss, net of taxes		—			—			—			—			—		(705	)		(705	)
Balance at September 30, 2021		19,516,393		$	283,170		$	4,387		$	168,933		$	72	$	(538	)	$	456,024

	*Common Stock*														*Accumulated*
	*Shares*			*Amount*			*Additional Paid-in Capital*			*Retained Earnings*			*Non- Controlling Interest*		*Other Comprehensive Income (Loss)*			*Total*
Balance at December 31, 2021		19,455,544		$	282,335		$	4,603		$	181,329		$	72	$	(1,656	)	$	466,683
Net income		—			—			—			46,746			—		—			46,746
Stock-based compensation		—			—			680			—			—		—			680
Restricted stock cancelled		(40,000	)		—			—			—			—		—			—
Restricted stock vested		—			355			(355	)		—			—		—			—
Restricted stock unit vested		7,450			202			(202	)		—			—		—			—
Cash dividend (common stock, $0.42/share)		—			—			—			(8,074	)		—		—			(8,074	)
Stock options exercised, net of expense recognized		442,308			6,969			(1,533	)		—			—		—			5,436
Repurchase of common stock		(853,630	)		(12,280	)		—			(6,527	)		—		—			(18,807	)
Other comprehensive loss, net of taxes		—			—			—			—			—		(20,865	)		(20,865	)
Balance at September 30, 2022		19,011,672		$	277,581		$	3,193		$	213,474		$	72	$	(22,521	)	$	471,799

Balance at December 31, 2020		19,565,921		$	284,261		$	4,932		$	138,094		$	72	$	1,129		$	428,488
Net income		—			—			—			41,200			—		—			41,200
Stock-based compensation		—			—			870			—			—		—			870
Restricted stock granted		60,000			—			—			—			—		—			—
Restricted stock vested		—			425			(425	)		—			—		—			—
Cash dividend (common stock, $0.39/share)		—			—			—			(7,403	)		—		—			(7,403	)
Stock options exercised, net of expense recognized		287,744			4,205			(990	)		—			—		—			3,215
Repurchase of common stock		(397,272	)		(5,721	)		—			(2,958	)		—		—			(8,679	)
Other comprehensive loss, net of taxes		—			—			—			—			—		(1,667	)		(1,667	)
Balance at September 30, 2021		19,516,393		$	283,170		$	4,387		$	168,933		$	72	$	(538	)	$	456,024

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In thousands)

	*Nine Months Ended*
	*September 30,*
	*2022*			*2021*
Operating activities
Net income	$	46,746		$	41,200
Adjustments to reconcile net income to net cash from Operating activities:
Depreciation and amortization of premises and equipment		1,869			1,456
Net accretion of securities, loans, deposits, and other		(391	)		(342	)
Unrealized loss on equity securities		—			60
Amortization of investment in affordable housing tax credits		778			778
Amortization of intangible assets		3,023			5,000
Reversal of valuation allowance on mortgage servicing rights		—			(416	)
Amortization of right-of-use asset		3,858			3,933
Change in operating lease liabilities		(3,754	)		(3,786	)
Provision for loan losses		3,048			3,324
Stock-based compensation		680			870
Gain on sale of loans		(1,783	)		(8,203	)
Gain on sale of fixed assets		(757	)		—
Increase in cash surrender value of life insurance		(986	)		(735	)
Loans originated and purchased for sale, net		(37,612	)		(134,320	)
Proceeds from loans sold		56,480			260,795
Other items		89			147
Net cash provided by operating activities		71,288			169,761
Investing activities
Securities available for sale:
Purchases		(340,226	)		(480,269	)
Maturities, prepayments and calls		412,480			343,529
Securities held to maturity:
Maturities, prepayments and calls		500			900
Purchase of other equity securities, net		(1,208	)		(166	)
Redemption of Federal Home Loan Bank stock		—			641
Net increase of investment in qualified affordable housing projects		(133	)		(494	)
Net increase in loans		(294,693	)		(218,451	)
Purchase of bank owned life insurance		—			(19,800	)
Net cash received in connection with a branch purchase		71,352			—
Proceeds from sale of fixed assets		757			—
Purchases of premises and equipment		(1,473	)		(1,475	)
Net cash used in investing activities		(152,644	)		(375,585	)
Financing activities
Net (decrease) increase in demand deposits and savings accounts		(502,364	)		407,999
Net decrease in time deposits		(5,028	)		(75,146	)
Advances on short-term FHLB advances		470,000			—
Repays of short-term FHLB Advances		(380,000	)		—
Cash dividends paid		(8,074	)		(7,403	)
Redemption of subordinated debentures		—			(50,000	)
Issuance of subordinated debentures, net of issuance costs		—			118,111
Common stock repurchased, net of repurchased costs		(18,807	)		(8,679	)
Exercise of stock options		5,436			3,215
Net cash (used in) provided by financing activities