RBB Bancorp, a community-based financial holding company headquartered in Los Angeles, California, has demonstrated its ability to navigate the evolving banking landscape with a steadfast focus on serving its Asian-American communities. With total assets of $3.9 billion as of June 30, 2024, the company has continued to solidify its position as a premier financial institution in its key markets.
Financials
Financial Performance
For the fiscal year ended December 31, 2023, RBB Bancorp reported annual net income of $42.5 million and annual revenue of $236.1 million. The company's annual operating cash flow stood at $47.6 million, while its annual free cash flow reached $47.0 million. These robust financial metrics underscore the company's ability to generate consistent profitability and maintain a strong liquidity position, even amidst the challenges faced by the banking industry.
In the second quarter of 2024, the company reported net income of $7.2 million, or $0.39 per diluted share, a decline from the previous quarter's $8.0 million, or $0.43 per diluted share. The decrease was primarily attributable to a 2 basis point decline in net interest margin, which was impacted by the migration of $22.5 million in loans to non-accrual status. Despite this, the company remains cautiously optimistic about the potential for margin expansion in the third and fourth quarters of 2024, driven by its focus on deposit-funded loan growth.
Loan Portfolio and Asset Quality
RBB Bancorp's loan portfolio is well-diversified, with a mix of commercial real estate (39.1%), single-family residential mortgages (48.2%), and other loan types. During the second quarter of 2024, the company's loan portfolio grew by $20.4 million, primarily driven by increases in commercial real estate, commercial and industrial, and construction and land development loans.
The company's asset quality metrics, however, saw some deterioration in the second quarter, with non-performing assets increasing to $54.6 million, or 1.41% of total assets, compared to $37.0 million, or 0.95% of total assets, at the end of the first quarter. This increase was largely due to three loans totaling $22.0 million that migrated to non-accrual status. Despite this uptick, the company remains confident in its ability to resolve these non-performing loans without material loss, citing updated appraisals and proactive measures, such as the expected settlement of two non-accrual single-family residential loans through trustee sales in the third quarter.
Deposit Franchise and Funding Mix
RBB Bancorp's deposit franchise remains a key strength, with total deposits of $3.0 billion as of June 30, 2024. The company has successfully reduced its reliance on wholesale funding, with such deposits now accounting for only 4% of total deposits, down from 16% a year ago and 7% at the end of the first quarter. This strategic shift has allowed the company to maintain a stable cost of funds, which remained unchanged at 3.59% in the second quarter.
Notably, the company's non-interest-bearing deposits have remained relatively flat, representing 18.0% of total deposits as of June 30, 2024. This stable core deposit base, coupled with the reduction in wholesale funding, has strengthened the company's liquidity position and positioned it to better navigate the current interest rate environment.
Capital Strength and Shareholder Returns
RBB Bancorp's capital ratios remain well above regulatory well-capitalized levels, with a tangible common equity to tangible assets ratio of 11.53% as of June 30, 2024. This solid capital position has enabled the company to continue returning capital to shareholders, as evidenced by the $3.0 million in dividends paid and the repurchase of 448,190 shares at a weighted average price of $18.01 during the second quarter.
The company's tangible book value per share increased to $24.06 as of June 30, 2024, up from $23.68 at the end of the first quarter, reflecting the accretive impact of the share repurchases and the company's profitability. RBB Bancorp's commitment to enhancing shareholder value is further demonstrated by the Board of Directors' declaration of a quarterly cash dividend of $0.16 per common share, payable on August 12, 2024.
Business Overview
Geographical Footprint and Business Diversification
RBB Bancorp's banking subsidiary, Royal Business Bank, operates a network of 21 branches across California, Nevada, New York, New Jersey, Illinois, and Hawaii, serving predominantly Asian-American communities. This geographic diversification allows the company to capitalize on growth opportunities in various markets, while also mitigating concentration risks.
The bank's product offerings span commercial and investor real estate loans, business loans and lines of credit, SBA 7A and 504 loans, single-family residential mortgages, trade finance, and a full range of deposit services, including specialized offerings such as remote deposit, e-banking, and mobile banking. This diversified business model enables the company to generate a balanced revenue stream and cater to the evolving needs of its client base.
Outlook
Navigating Challenges and Seizing Opportunities
RBB Bancorp's performance in the second quarter of 2024 reflects the company's ability to navigate the challenges faced by the banking industry, including the impact of rising interest rates, increased competition for deposits, and the management of non-performing assets. Despite these headwinds, the company remains focused on prudent growth, optimizing its funding mix, and enhancing shareholder value.
Looking ahead, the company's cautiously optimistic outlook for the second half of 2024 is underpinned by its expanding loan pipeline, which it expects will support further net loan growth. Additionally, the company's proactive measures to reduce its reliance on wholesale funding and maintain a stable cost of funds position it well to potentially benefit from a widening net interest margin in the coming quarters.
Conclusion
RBB Bancorp's commitment to serving its Asian-American communities, coupled with its diversified business model and strong capital position, underscores its resilience and adaptability in the face of an evolving banking landscape. As the company continues to execute on its strategic initiatives, investors can look forward to RBB Bancorp's continued progress in delivering sustainable growth and shareholder value.