RBB Bancorp — 2023 Form 10-K Summary
Business context and reporting period. RBB Bancorp is the holding company for Royal Business Bank, a California-chartered bank serving Asian-American communities through 24 branches across California, Nevada, Hawaii, Illinois, New York and New Jersey. This filing reports the fiscal year ended December 31, 2023; financial results below are full-year figures, not fourth-quarter-only results.
Financial performance and condition
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Interest income | $221.1 million | $181.0 million | Up 22.2% |
| Interest expense | $101.9 million | $31.4 million | Up 224.2% |
| Net interest income | $119.3 million | $149.6 million | Down 20.2% on a tax-equivalent basis |
| Net interest margin | 3.16% | 4.02% | Down 86 basis points |
| Net income | $42.5 million | $64.3 million | Down 34.0% |
| Diluted earnings per share | $2.24 | $3.33 | Down 32.7% |
| Return on average assets | 1.06% | 1.62% | Down 56 basis points |
| Efficiency ratio | 52.64% | 40.13% | Higher ratio indicates weaker efficiency |
- Profit drivers: Higher loan and securities yields increased interest income, but deposit and funding costs rose substantially. Noninterest expense increased 9.6% to $70.7 million, including higher legal and professional costs and regulatory assessments. Noninterest income increased 33.5% to $15.0 million, including a one-time $5.0 million CDFI grant award recognized in other income.
- Assets and loans: Year-end assets were $4.03 billion, up 2.7%. Gross loans held for investment were $3.03 billion, down 9.1%; net loans were $2.99 billion, down 9.3%. Single-family residential loans were $1.49 billion, or 49.1% of the portfolio, while CRE was $1.17 billion, or 38.5%.
- Credit quality: Nonperforming loans were $31.6 million, or 1.04% of held-for-investment loans, versus $23.2 million, or 0.71%, a year earlier. Nonaccrual SFR loans increased to $18.1 million from $5.9 million. Net charge-offs were $3.1 million versus $2,000 in 2022. The loan allowance was $41.9 million, or 1.38% of loans.
- Deposits and liquidity: Deposits grew 6.6% to $3.17 billion, but noninterest-bearing deposits fell $259.1 million and their share declined to 17.0% from 26.8%. Time deposits rose $438.8 million; the year-end weighted-average spot deposit rate was 3.51%. Estimated uninsured deposits were $1.37 billion. Cash and due from banks rose to $431.4 million from $83.5 million. The company reported $1.0 billion in additional FHLB borrowing capacity and $92 million of unused unsecured federal funds lines.
- Cash flow: Operating activities provided $51.3 million; investing activities provided $243.3 million, principally reflecting net loan reductions; and financing activities provided $53.2 million. Cash and cash equivalents increased $347.8 million to $431.4 million.
- Debt and capital: Borrowings, including FHLB advances and debt, totaled $284.1 million at year-end. RBB redeemed $55.0 million of subordinated notes in December. Consolidated regulatory capital ratios included 11.99% Tier 1 leverage, 19.07% CET1 and 25.92% total risk-based capital; the Bank was classified as well-capitalized. Shareholders’ equity was $511.3 million. Book value per share was $27.47 and tangible book value per share was $23.48.
Material changes versus 2022
- Net income fell 34.0%, driven primarily by the $30.3 million decline in net interest income and higher noninterest expense.
- Deposit funding became more rate-sensitive: customers shifted balances from noninterest-bearing accounts toward interest-bearing deposits and time deposits, increasing funding costs.
- Loans contracted, especially CRE, construction and land development, and C&I; SFR loans increased modestly and became a larger share of the portfolio.
- Nonperforming loans and charge-offs increased, with the rise in nonaccrual SFR loans a notable contributor.
- Cash increased substantially as the company maintained extra liquidity amid deposit volatility and slower lending. The available-for-sale securities portfolio’s pretax unrealized loss narrowed to $28.1 million from $31.3 million.
Outlook, commentary, risks and unusual items
- No numerical earnings or revenue guidance is provided. Management says it intends to pursue organic growth and consider acquisitions after resolving matters under the Consent Order. The planned Gateway Bank acquisition was terminated by mutual agreement in September 2023 without a termination penalty.
- Consent Order: Effective October 25, 2023, the Bank agreed to an FDIC/California DFPI Consent Order concerning weaknesses in its AML/CFT program. Requirements include enhancing staffing, policies, controls, customer due diligence, training and independent testing. Failure to comply could lead to added costs, penalties or further regulatory action.
- Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end. The auditor issued an adverse opinion on internal controls, identifying weaknesses in the control environment and controls for infrequent transactions, including recognition of the CDFI grant. The financial statement audit opinion was unqualified. Management reported remediation efforts, but the new controls had not operated long enough to establish remediation; it expected to complete remediation in the first half of 2024.
- Other notable items: The $5.0 million CDFI Equitable Recovery Program grant was recognized in 2023 and used to originate two loans. The company reported increased legal and professional expense related to cooperation with SEC information requests, which it said had concluded, and outside advisory work. Goodwill of $71.5 million was not impaired, although the September 2023 valuation analysis had a 9.6% excess of estimated fair value over carrying amount.
- Key risks: Interest-rate and margin pressure; deposit concentration and uninsured balances; geographic and real-estate lending concentrations; rising nonperforming loans; and compliance, control, liquidity, cybersecurity and economic risks. The company said CRE loans were 183% of Bank risk-based capital, below the cited supervisory concentration threshold, but also disclosed substantial real-estate collateral exposure and concentration in California and New York.
- Capital returns: RBB paid $0.64 per share in dividends during 2023 and repurchased $6.8 million of shares. After year-end, it declared a $0.16-per-share dividend and authorized a new repurchase plan for up to 1 million shares through March 31, 2026. Future dividends remain subject to board discretion, regulation and capital conditions.
Most important facts for investors to verify
- Progress, milestones and any additional costs or restrictions under the AML/CFT Consent Order.
- Whether the material weaknesses are fully remediated and internal controls receive a favorable auditor assessment in subsequent filings.
- Deposit retention, uninsured deposit trends, time-deposit repricing and the effect on funding costs and net interest margin.
- Further movement in nonaccrual SFR and CRE loans, delinquencies, charge-offs, allowance adequacy and collateral values.
- Whether the $5.0 million CDFI grant benefit is nonrecurring and how earnings perform excluding it.
- Liquidity and securities sensitivity, including the unrealized AFS loss and the company’s ability to avoid realizing losses if funding pressure returns.