Good day, everyone. And welcome to the RBB Bancorp First Quarter 2025 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rebeca Rico. Ma’am, the floor is yours.

Thank you, Matthew. Good day, everyone. And thank you for joining us to discuss RBB Bancorp’s results for the first quarter of 2025. With me today are Johnny Lee; David Morris; Lynn Hopkins; and Jeffrey Yeh. David, Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we’ll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company’s SEC filing. Now I’d like to turn over the call to RBB Bancorp’s Chief Executive Officer, David Morris. David?

Thank you, Rebeca. Good day, everyone, and thank you for joining us today. First quarter net income declined to $2.3 million or $0.13 per share, as we took decisive strategic action to address our non-performing assets. We reduced our non-performing assets by 20% and our net exposure to non-performing loans by 32% to $51 million. To accomplish this, we sold $18 million of loans, recognized provisions of $6.7 million and received paydowns of $1.8 million. We believe the provisions we have taken over the last few quarters have addressed the vast majority of potential losses in our non-performing loans. As we said last quarter, we are focusing on resolving our non-performing loans as quickly as possible while minimizing the impact on earnings and capital, and we think our actions in the first quarter helped accomplish this. We continue to work through our remaining non-performing assets and expect to report additional progress in the coming quarters. We did downgrade a $5.3 million New York CRE loan to non-performing in the first quarter after the largest tenant moved out. While unfortunate, we feel relatively confident that it will be resolved without any loss of principal as the borrower is actively working to fill the vacancy and has also listed the property for sale. A recently completed appraisal on the property indicates an LTV of about 85%. Now I’ll hand it over to Johnny to talk about happier subjects like loan growth and margin expansion. Johnny?

Thank you, David. As David mentioned, in addition to making good progress resolving our troubled loans, we had strong loan growth in the first quarter, another quarter of NIM expansion. Loan held loan investment grew by $90 million or 12% on an annualized basis, driven by the continued execution of our growth initiatives. Growth in commercial, SBA and SFR balances more than offset a decline in C&D loans. We’ve seen especially strong results from our in-house mortgage origination business, which despite the rare environment, originated $112 million in mortgages in the first quarter. These contribute nicely to our total first quarter loan originations of $201 million, a blended yield of 6.77%, which will continue to support our asset yields and margins going forward. Our pipelines remain full, so we expect to continue to see loan growth, though likely at a more moderate pace than we experienced in the first quarter. Net interest margin increased 12 basis points to 2.88%, due primarily to a 29-basis-point decline in the cost of our interest-bearing deposits, which drove a 17-basis-point decline in our overall cost of funds. We expect some incremental decreases in funding costs from here, but likely at a slower pace than we’ve seen since they peaked in the third quarter last year. It’s worth highlighting that since that time, we’ve reduced the cost of deposits by 50 basis points and the total cost of funds by 42 basis points. With that, I’ll hand it over to Lynn to talk about the results in more detail. Lynn?

Thank you, Johnny. Please refer to the investor presentation as I discuss the company’s financial performance for the first quarter of 2025. Slide 3 summarizes our results, showing a net income of $2.3 million, or $0.13 per diluted share. Our first quarter results were affected by a $6.7 million pre-tax provision for credit losses as we addressed non-performing assets. Net interest income before the provision rose for the third consecutive quarter to $26.2 million. We are hopeful that lower future provisions and the reallocation of capital from non-performing assets will lead to increased net interest income after provisions in upcoming quarters. As Johnny noted, we experienced another quarter of net interest margin expansion, our third straight quarter, primarily due to a reduction in deposit costs. Our spot rate on deposits on March 31st was 3.06%, which is 7 basis points below the average of 3.13% for the first quarter. We expect costs to continue decreasing, though at a more moderated pace in future quarters. Funding costs also reflected the maturity of $150 million of low-cost FHLB term advances, replaced by $110 million of FHLB advances at an average rate of $3.88. Non-interest income fell by 4.34% to $2.3 million in the first quarter due to reduced gains on loan sales, partially offset by increased fees and servicing income. Non-interest expenses in the first quarter rose by $873,000 to $18.5 million due to seasonal rises in compensation and benefits, higher data processing fees, and increased legal and professional expenses. We expect compensation and benefits expenses to stabilize next quarter, and for legal and professional expenses to decrease from here. Regarding credit, the provision for credit losses was $6.7 million, compared to $6 million in the previous quarter. This provision was due to a $2.8 million increase in specific reserves, $2.6 million in net charge-offs, and a $1.3 million rise in general reserves primarily due to loan growth, with the specific reserves largely related to two lending relationships. Net charge-offs included $1.2 million from an $8.8 million loan moved to OREO and sold, and $1.4 million from a bulk sale of $10.8 million of underperforming SFR mortgages, of which $6.5 million were on non-accrual at year-end. Slides 5 and 6 provide more information on our loan portfolio and yields, which were stable at 6.03% from the fourth quarter. Our $1.5 billion residential mortgage portfolio remains stable, consisting of well-secured non-QM mortgages primarily in New York and California, with an average LTV of 55%. Slides 9 through 12 contain details on asset quality, some of which David has already discussed. NPLs decreased by $20.7 million, or 25%, to $60.4 million, representing 1.92% of loans held for investment at the quarter's end. With the increase in specific reserves to $9.7 million, our net exposure to NPLs decreased 32% to $50.6 million. Substandard loans fell by $24 million to $76.4 million at the end of the first quarter, mainly due to loan sales and transfers to OREO, as well as payoffs and paydowns. These reductions were partially offset by downgrades of two loans totaling $6.2 million, with $16 million of the total substandard loans at March 31st on accrual status. The ratio of our allowance for loan losses to total loans held for investment increased by 9 basis points to 1.65%, including specific reserves, while the coverage ratio for our allowance for loan losses to non-performing loans rose to 86%, up from 68%. Excluding specific reserves and individually reviewed loans, the allowance for loan losses to loans held for investment ratio increased by 1 basis point to 1.36% at the end of the first quarter. Slide 3 through 13 provides details about our deposit franchise. Total deposits rose at an 8% annualized rate from the fourth quarter to $3.14 billion, with growth in money market accounts and CDs offsetting the decline in non-interest-bearing accounts. Our tangible book value per share has increased to $24.63. Our capital ratios are strong, with all ratios above regulatory well-capitalized levels. I’ll now hand it back over to David and Johnny for their concluding remarks.

Thank you, Lynn. As this is my last earnings call here at RBB, I want to take a moment to express my gratitude to all of our employees, customers, the Board and our shareholders. We have had our share of challenges over the last few years, but have not lost sight of our goal to be the bank of choice for Asian Americans nationwide. I’ve enjoyed the friendships I’ve built since joining RBB over 15 years ago and I look forward to continuing to be of service on our Board of Directors. Johnny?

Thank you, David. And thank you for your years of leadership and contributions to Royal Business Bank. We are particularly grateful for all the work you have done over the last year to work through our non-performing assets, and we look forward to your continued input and guidance as a member of the Board of Directors. With that, we are happy to take your questions. Operator, please open up the call.

Your first question is coming from Brendan Nosal from Hovde Group. Your line is live.

Good afternoon, everybody. Hope you’re doing well.

Yes.

Thank you.

Maybe just starting off here on capital, we’d just love to get your thoughts, your updated thoughts that is on potential for share purchases at some point this year. It feels like you’re getting a better line of sight towards asset quality resolution and made progress this quarter. Capital ratios are strong and obviously the pricing for a buyback would remain pretty attractive?

Thank you and thanks for starting with that. I think we all can recognize that with our current share price and our capital ratios, a buyback is one of the best uses of our excess capital, so we are working hard to put a buyback in place and hope to have more to report to everyone soon.

Okay. Thanks for that, Lynn. Maybe moving over to a couple of dynamics within the margin. Maybe just first, when during the quarter exactly did that FHLB roll from the lower cost to the higher cost one, just to get a sense of how much that is embedded in this quarter’s margin?

Probably could answer that a couple of different ways. It’s fully priced into our March net interest margin, and I would say our March net interest margin is a little bit below the whole quarter’s average. Obviously, the FHLB advances at $150 million are just a fraction of our total funding base, even though they needed to come up into the mid-to-high 3s.

Okay. All right. That’s helpful. Last one from me before I step back here. Just wanted to hit on the interplay of the margin and non-accruals for a minute. Can you just give us a sense of how much margin drag you’re currently experiencing from the non-accrual base at the moment? Thanks.

I don’t know that I translated it completely into basis points, but there is certainly a drag on our net interest margin. Last year, when we were reversing our interest income, when we were placing them on non-accrual, those were expensive. I think when we look at $20 million able to come back onto accrual status at 6%, it’s about $1.2 million in the year. So that’s probably how I would look at it and we have $60 million more to go, so.

Yes. Yeah. All right. Fantastic. Thanks for taking the questions.

Yes. Thank you.

Thank you. Your next question is coming from Matthew Clark from Piper Sandler. Your line is live.

Good morning, everyone. Did you experience any significant recoveries in interest this quarter from resolving some of the problem loans? I'm trying to understand if there were any notable reversals during the quarter.

Fair question. The short answer is no. We tried to, I think, articulate that in the earnings release. For this quarter, the resolution of the non-performing assets did not result in the recapture of any interest income with the loans being sold and then also a couple of them moving to OREO.

Okay. And what’s your appetite for doing more of these problem loan sales at this stage?

Okay. We believe we want to keep all of our options open. However, we believe that we’re well-reserved for future write-offs, if any.

Yeah. So…

Okay.

…I think they were, let me add, I think we were opportunistic in the sales that occurred in the first quarter. Obviously, we took some charge-offs associated with them. One was a unique property. We would have had operating costs. We took the opportunity to get that closed by quarter end. I think having the opportunity to approach a bulk sale where a majority of them had been on non-accrual at year-end and then we were able to fold in some other less desirable SFRs, and again, get it done by quarter end helped move it forward. I think for what’s left, we believe that we’re adequately reserved for what we would need to do to take action. And we are open to sales, working with the borrowers to return them to accrual status if that was a possibility, but do look to add them back to being performing assets or redeploying the money into earning assets.

Okay. Regarding the tariff war, have you taken any steps to assess or quantify your exposure related to imports and exports, as well as any potential indirect impacts?

Yeah. Hi, Matthew. This is Johnny. Yes. We have reached out to our top 10 customers just to do a health check, if you will. So far, yeah, we don’t observe any potential financial impact at this time. Obviously, there’s still uncertainty there with the changing sort of terms associated with the tariffs and how it’s going to be applied and everything. But so far, yeah, we do not observe any potential financial impact. And also, just want to keep in mind that our overall P&I, trade finance mix of the loan to our total portfolio is currently about 4% only. So, again, that’s roughly an insignificant mix of our overall loan portfolios.

Okay. Okay. And the last one for me, just on the gain on sale, this quarter a little light. Maybe speak to the weakness there and your outlook, if you could.

I can start? You want me to start?

Yeah. Just start, Lynn, go ahead.

Sure. So, I’ll start. Loan sales were a little bit lower in the first quarter. We did take the opportunity to keep some of it on the balance sheet. I believe that there’s a little bit of a pipeline building on SBA that has larger gains and I think our outlook is that it would return to more normalized levels that we at least saw in the fourth quarter.

Yeah. And…

Okay. Thank you.

Yeah. Sorry. You want to add?

Oh! No. No. I just want to add on the SBA side. We did have a new hire right at the beginning of January. So, yeah. So, it’s coming online. So, we do expect higher volume SBA loans being funded in Q2.

Great. Thanks again.

Thank you. Your next question is coming from Andrew Terrell from Stephens. Your line is live.

Hey. Good afternoon or good morning.

Hi.

Hey. I wanted to ask about the expectations for loan growth. It seems that while they are generally positive, they may be at a slower pace compared to a strong first quarter. I also want to discuss deposits and get a sense of how you plan to fund the anticipated loan growth, particularly in relation to the 100% loan-to-deposit ratio. Additionally, could you provide insights on the trends for non-interest-bearing deposits? It seems like there was a decline toward the end of the period. What factors contributed to the rotation in non-interest-bearing deposits this quarter?

Sure. I’ll start. You can add. So, good question, Andrew. Thank you. With respect to the non-interest-bearing deposits, I think some of it was seasonal business activities we observed. And then we did observe some migration into higher yielding money market and CD products. So, I think we did observe some of that in the first quarter. We did have a successful CD campaign in the first quarter that we were able to reduce our reliance on wholesale funding a little bit when you consider FHLB advances and our brokered funds. I think that we foresee success in being able to fund our loan growth organically. And, again, our reliance on wholesale funding, I think, is modest. We have some room there to the extent that loan growth remains at a similar level. And then we still remain focused on C&I production, how we can bring in some additional non-interest-bearing deposits, but that will take a lot longer time period.

Got it. Thank you. Thank you, Lynn. I appreciate it. And then also, do you have the weighted average? It looks like the FHLB that you added in the quarter had varying maturities. Do you have the weighted average term or the range of terms there?

Sure. So, $130 million of them are puttable advances with the longest final terms at seven years. However, the put options at the FHLB side range from, I’m thinking, June until September this year. So pretty short on the FHLB’s call option side of things with final maturities at three years, four years and seven years.

I got it. Okay. I appreciate it. I just want to say, David, it’s been a pleasure speaking with you on these quarterly calls for a while now. So, congratulations.

Okay. Thanks. Thanks.

Thank you. Your next question is coming from Kelly Motta from KBW. Your line is live.

Hi. Thank you so much for the question. I just, again, want to echo the sentiments of David. It’s been a pleasure working with you and congrats on a well-deserved retirement, and congrats again, Johnny, on the upcoming role.

Thank you.

I guess with the credit, I apologize if you’ve addressed this at this point, but in terms of the workout, I know you talked a bit about your approach to the sales. I’m just wondering, in terms of the timeframe of this workout, I think originally you were hopeful that would be completed by midyear. It feels like that might get pushed out a bit. Do you have any sense, in terms of the timeframe and your ability to work out these credits, understanding that there are a lot of parties, insurance involved, et cetera?

Thank you for the question. It's challenging for us to predict exactly when the non-performing loans will be removed from our balance sheet and return to our normal levels. However, we believe that by the second half of 2025, that could be our target. Non-performing loans will likely continue to fluctuate throughout 2025. We are making steady progress on all fronts and expect to see more loans removed in the second quarter.

Got it. That’s really helpful. I appreciate the color on the trade finance and the C&I component. I know it’s relatively small, but digging in a little further, I believe a lot of those factories in China have shifted production during the last Trump administration. Do you have any ballpark as to your exposure to China versus some other countries, given you’re a Chinese-American bank and might get lumped into that narrative with that niche there? Just trying to understand what the actual exposure might be.

That's a good question. Right now, all we know is that there’s a 10% baseline that affects all countries. Personally, I categorize it into two groups: U.S.-China and U.S. with the rest of the world. Currently, in U.S.-China, I believe China's exposure is up to 45%, while the rest of the world is at 10%. Additionally, depending on the trade balance between the U.S. and those countries, different tariffs may be applied. Right now, everything is on hold, so it's uncertain how this will develop. Different industries and types of businesses will be affected in varying ways, so we still need to see how it unfolds.

Kelly, in addition to Johnny’s comments, our loan portfolio, the 4% we mentioned, about $120 million in trade finance, the portion that’s China-specific versus other countries or markets where they might have taken action. I don’t think we have that exactly broken down within that category. But again, I think anecdotally with the reach out…

...we’re not identifying anything...

Got it. Last question from me. It sounds like, again, there’s a lot of optimism about the loan growth pipeline. Obviously, not as strong as what was a really strong first quarter, but wondering if you could provide some insight as to the composition of that pipeline, either if there are any particular markets that are particularly strong that you’re seeing or which categories the pipeline is weighted to?

Sure. I can answer that. So, our pipeline remains strong. It’s pretty much still a primary contributor by our other CRE loans and single-family residences. However, our C&I are starting to pick up at that time, but because of the new hires that we have recently since the beginning of this year, we do expect that to incrementally contribute to that pipeline. But at this time, the pipeline is predominantly made up of CRE, MFRs, and SFRs primarily, even though SBA is a relatively small mix of the loan, but I think we’re gaining very good momentum on SBA loans as well.

Thank you so much. I’ll step back.

Thank you. Your next question is coming from Tim Coffey from Janney. Your line is live.

Great. Thank you and thanks for the opportunity to ask a question or two here. Lynn, apologies if this is already discussed, but I have a question about non-interest expenses going forward. I heard the comments you made in the prepared remarks. Is it reasonable to think that expenses could look a little bit like they did in the second half of last year versus the first half of last year?

Yes. I think that’s reasonable. I think we are still looking at our OpEx ratio to be around the 1.80% of average assets. So we do think they were a bit elevated in the first quarter, kind of as I talked about in our prepared remarks, and especially with salary and benefits moderating down, and I think there’s opportunity in OPS to also trend down.

How much of an additive to expenses are the new hires and the lending side going to be, if at all?

It’s a little hard to say in the sense that you have people coming in that are new and in charge of certain things, but then we’re also rationalizing the expense in other places, so I don’t think it’s a direct add. I would just stick with the idea that we would estimate our operating expense run rate to be in kind of $17.5 million to $18 million, maybe with some puts and takes.

Okay. All right. Those are my questions. Thank you.

Thanks, Tim.

Thank you. That concludes our Q&A session. I’ll now hand the conference back to our host for closing remarks. Please go ahead.

Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day.

Thank you. Everyone, this concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.