Executive Summary / Key Takeaways

• Dual Focus on Growth and Asset Quality: RBB Bancorp is executing a strategic dual mandate of driving prudent loan growth within its Asian-centric community banking niche while aggressively resolving legacy non-performing assets, targeting a return to a normalized baseline by the end of 2025.
• Expanding Net Interest Margin: The company has demonstrated consistent net interest margin (NIM) expansion, reaching 2.98% in Q3 2025, driven by declining funding costs and increasing asset yields, with further incremental improvements anticipated.
• Robust Loan and Deposit Growth: RBB Bancorp achieved strong annualized loan growth of 12% in Q1 and Q2 2025, moderating to 5.8% in Q3 2025, supported by a healthy pipeline and strategic deposit campaigns that have increased total deposits to $3.40 billion.
• Strong Capital Position and Shareholder Returns: With all capital ratios above regulatory well-capitalized levels and a tangible book value per share of $25.89 as of September 30, 2025, the company views share repurchases as an attractive use of capital, having completed one program and authorized another $18 million plan.
• Niche Market Advantage and Digital Enablement: RBB's Minority Depository Institution (MDI) designation and deep ties to Asian-American communities provide a distinct competitive advantage, enhanced by digital banking services that support its relationship-driven model.

A Specialized Approach in a Dynamic Banking Landscape

RBB Bancorp, founded in 2008 and headquartered in Los Angeles, California, has carved out a distinct identity as a relationship-driven business bank. Operating as a bank holding company for Royal Business Bank and RBB Asset Management Company (RAM), RBB's core mission is to serve the financial needs of Asian-centric communities across a growing footprint that spans 24 full-service branches in California, Nevada, New York, Illinois, New Jersey, and Hawaii. This strategic focus is underscored by its designation as a Minority Depository Institution (MDI), a status that has historically provided beneficial support from federal regulatory agencies and fostered deep community ties.

The company's business model is built on providing a comprehensive suite of banking products and services, including commercial and investor real estate (CRE) loans, business loans and lines of credit, Small Business Administration (SBA) 7A and 504 loans, mortgage loans (including single-family residential (SFR) mortgages), trade finance, and a full range of depository accounts. To support its community-focused model and enhance operational efficiency, RBB offers modern digital services such as remote deposit, E-banking, mobile banking, and treasury management. While these digital offerings are increasingly standard across the industry, they are critical enablers for RBB to deliver personalized service efficiently to its diverse customer base. The company also leverages an in-house mortgage origination business, which has proven to be a strong contributor to loan growth.

In the broader banking industry, RBB operates within a competitive landscape characterized by both large national players and specialized regional banks. Direct competitors include East West Bancorp (EWBC), Cathay General Bancorp (CATY), and Wells Fargo (WFC). RBB's niche market focus and cultural/linguistic expertise provide a significant competitive edge, fostering stronger customer loyalty and personalized service in shared markets. For instance, RBB's deep community relationships can lead to superior customer retention and potentially better margins through reduced customer acquisition costs. However, RBB's smaller scale presents vulnerabilities compared to larger rivals like Wells Fargo, which boasts extensive technological capabilities and broader product offerings. Wells Fargo's scale-driven efficiency in digital services and market reach can be challenging for RBB to match in high-volume segments. Similarly, East West Bancorp's broader geographic footprint and Cathay General Bancorp's specialized real estate expertise offer different competitive pressures.

Indirect competitors, such as fintech companies like PayPal (PYPL) and Square (SQ), and online banks like Ally Financial (ALLY), also pose a threat by offering alternative digital payment platforms and high-yield savings accounts. These players emphasize seamless user experiences and accessible lending, pressuring RBB and its direct competitors to continually invest in digital transformation. RBB's existing digital services are a strategic response to these trends, aiming to maintain relevance and efficiency for its customer base. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, RBB's strong performance in its targeted segments suggests effective positioning.

Strategic Evolution and Financial Performance

RBB Bancorp's journey has been marked by strategic acquisitions to expand its reach within Asian-centric communities, including Tomato Bank in 2016, First American International Corp. in 2018, and PGB Holdings, Inc. in 2020. This growth trajectory, however, also brought challenges, particularly with legacy asset quality issues, many originating prior to 2022. A significant milestone was the resolution and termination of a Consent Order in August 2024, which has allowed management to renew its focus on growth and value creation. The recent leadership transition, with Johnny Lee assuming the role of President and CEO, further signals a new chapter for focused execution.

The company's financial performance in recent quarters reflects this strategic pivot. Net income for the third quarter of 2025 stood at $10.148 million, or $0.59 per diluted share, an increase from $9.333 million, or $0.52 per diluted share, in the second quarter of 2025. The second quarter's results included a $5.20 million pre-tax Employee Retention Credit (ERC) refund, partially offset by $1.20 million in related advisory costs. Adjusted for these non-recurring items, Q2 2025 net income would have been $6.5 million, or $0.36 per diluted share. This compares to a net income of $2.3 million ($0.13 diluted EPS) in Q1 2025, which was significantly impacted by a $6.7 million pre-tax provision for non-performing assets, and $4.4 million ($0.25 diluted EPS) in Q4 2024, also affected by credit-related issues.

Net interest income (NII) has shown consistent growth, rising for four consecutive quarters to $29.277 million in Q3 2025, up from $27.334 million in Q2 2025 and $24.545 million in Q3 2024. This expansion is a direct result of an improving net interest margin (NIM), which reached 2.98% in Q3 2025, up from 2.92% in Q2 2025 and 2.68% in Q3 2024. The NIM expansion is primarily driven by declining funding costs, with the average all-in cost of deposits decreasing to 3.63% in Q3 2025 from 3.05% in Q2 2025 (with a spot rate of 2.95% at June 30, 2025). The company's liability-sensitive balance sheet positions it well to benefit from anticipated rate cuts.

Loan growth has been robust, with loans held for investment (HFI) increasing by $92 million (12% annualized) in Q2 2025 and $90 million (12% annualized) in Q1 2025. This moderated to a 5.8% annualized rate in Q3 2025, bringing total HFI loans to $3.30 billion. This growth is supported by a healthy pipeline and strong originations, including $183 million in Q2 2025 at a blended yield of 6.76%. Deposit growth has also been solid, with total deposits reaching $3.40 billion as of September 30, 2025, an increase of $282.70 million from December 31, 2024. This was largely driven by a $295.20 million increase in interest-bearing deposits, partially offset by a $12.50 million decrease in noninterest-bearing deposits. Wholesale deposits, while utilized, remain a modest 4.8% of total deposits, significantly lower than previous periods.

Asset Quality and Risk Management

A central focus for RBB Bancorp has been the resolution of its non-performing assets (NPAs). Nonperforming assets decreased by $6.70 million to $54.30 million (1.29% of total assets) at September 30, 2025, from $61 million (1.49% of total assets) at June 30, 2025. This reduction was achieved through $7 million in gross charge-offs, $5 million in upgrades to performing status, and $1.20 million in payoffs/paydowns, partially offset by $3.60 million in SBA-related OREO additions and $2.80 million of loans migrating to nonaccrual status in Q3 2025. The Allowance for Loan Losses (ALL) as a percentage of nonperforming loans HFI increased to 98.70% at September 30, 2025, from 89.79% at June 30, 2025, indicating strong coverage.

The company has implemented a more conservative credit control process, leading to increased classification of loans as special mention, even if they are current on payments. This proactive approach aims to identify and manage potential weaknesses early. For example, a $5.80 million substandard CRE loan, originated in 2020, migrated to nonaccrual in 2023, and had a collateral short sale in Q1 2025, resulting in an $816,000 reduction in its balance. Management has also conducted stress tests, concluding that the company would remain well-capitalized under both moderate and major stress scenarios, with the Allowance for Credit Losses (ACL) increasing by 23.78% and 68.18% respectively under these conditions.

RBB's risk management extends to interest rate risk, where its NII at Risk profile is liability sensitive. The Economic Value of Equity (EVE) is projected to decrease in both up-rate and down-300 basis point rate scenarios. The investment securities portfolio, with a weighted-average life of 5 years, has unrealized losses primarily attributed to yield curve movement. However, all securities in an unrealized loss position are investment grade, and the company intends to hold them to recovery or maturity. The loan portfolio's concentration in real estate (87.90% in California and New York) is a monitored risk, but the company's underwriting policies and practices, including a risk classification system, aim to prudently manage these concentrations.

Outlook and Strategic Initiatives

Management's outlook for RBB Bancorp is one of continued, albeit moderate, growth and diligent asset quality resolution. Loan growth is expected to continue at a low to mid-single-digit pace for 2025, potentially accelerating in the latter half of the year as new commercial lenders contribute to the pipeline. The net interest margin is anticipated to see incremental increases over the next few quarters, driven by further declines in funding costs as approximately one-third of the company's CDs mature and reprice at lower rates (currently around 4.15%-4.20% average maturity rate). The annual effective tax rate for fiscal 2025 is estimated to be in the range of 26% to 27%.

Noninterest expenses are projected to normalize to an annualized run rate of approximately $18 million in future quarters, following some elevated costs in Q2 2025 related to ERC advisory fees and executive management transitions. Legal and professional expenses, while expected to trend down, may remain somewhat elevated due to ongoing credit workout efforts. The resolution of non-performing assets is now targeted for completion by the second half or end of 2025, an adjustment from an earlier "mid-2025" expectation due to the addition of a large construction and development (C&D) loan to non-accrual status in Q4 2024. Management remains committed to this resolution, with a dedicated team actively working on the nine non-performing loans exceeding $1 million, expecting approximately 70% to be resolved by mid-2026.

Strategically, RBB Bancorp continues to prioritize organic deposit growth through promotional programs and deepening existing relationships to manage its loan-to-deposit ratio. The company also remains open to loan sales in the second half of the year to manage balance sheet pressure. Furthermore, RBB's long-term M&A strategy remains unchanged, actively seeking opportunities with other Asian American banks to strengthen its branch network and expand into new markets like the San Francisco Bay Area. The Board's authorization of an $18 million stock repurchase plan in May 2025, following the completion of a previous program, signals confidence in the company's valuation and future prospects.

Conclusion

RBB Bancorp is in a pivotal phase, transitioning from a period of regulatory and asset quality challenges to a renewed focus on profitable growth within its specialized market. The company's deep roots in Asian-centric communities, reinforced by its MDI designation and a commitment to personalized service, provide a durable competitive advantage. This is complemented by a strategic embrace of digital banking services that enhance efficiency and customer engagement.

Recent financial performance demonstrates positive momentum, with consistent NIM expansion and robust loan and deposit growth. While the resolution of legacy non-performing assets remains a key operational priority, management's proactive approach and clear targets for resolution by the end of 2025 are encouraging. The company's strong capital position and commitment to shareholder returns through buybacks underscore a confident outlook. For investors, RBB Bancorp represents an opportunity to participate in a community-focused bank that is actively addressing its challenges, leveraging its niche market strength, and poised for continued financial improvement, driven by disciplined growth and operational efficiency.