LIBOR transition

Dear Valued Customers,

As the LIBOR fully cessation date, June 30, 2023, is approaching and as more supervisory guidance are available, the management team of RBB Bancorp (“Bancorp”) and Royal Business Bank (“the Bank”) would like to provide you with an update on the LIBOR transition.

Soon after the Financial Conduct Authority¹ had announced the cessation of LIBOR benchmarks in March 2021, the Intercontinental Exchange (“ICE”) Benchmark Administration² ceased publishing 1-week and 2-month LIBOR rate at the end of 2021 and will cease publishing all other LIBOR tenors at June 30, 2023.

On July 26, 2021, the Alternative Reference Rates Committee (“ARRC”)³, an agency to lead a successful LIBOR transition, formally recommended CME Group’s4 forward-looking Secured Overnight financing Rate (“SOFR”) term rates (“SOFR Term Rates”) as a replacement for LIBOR. Unlike LIBOR, a survey rate without active underlying markets, SOFR is calculated as a volume-weighted median of transaction-level tri-party repurchase agreement data, General Collateral Finance repurchase agreement transaction data, and data on bilateral U.S. Treasury repurchase agreements cleared through Fixed Income Clearing Corporation.

To comply with regulatory guidance, the Bank had ceased entering into new loan contracts that used LIBOR as a reference rate beginning January 1, 2021. The Bank had approximately $238 million LIBOR-based loans mature or renewed into other non-LIBOR reference rate loans from the fourth quarter of 2020 through June 30, 2022. Also in March 2021, the Bancorp issued $120.0 million of 4.00% fixed to floating rate subordinated debentures, due April 1, 2031. The interest rate is fixed through April 1, 2026, and floats at three month SOFR plus 329 basis points thereafter. There has been no significant impact on the Bank’s financial conditions or earnings from the LIBOR transition so far. The Bank also believes there will be no material impact when LIBOR fully ceases on June 30, 2023.
As of June 30, 2022, the Bank has $187.8 million, or 6.2%, of loans that have a LIBOR based reference rate. The Bancorp has $55.0 million long-term debt and $17.5 million subordinated debentures that have a LIBOR based reference rate. The Bank’s existing LIBOR loans are primarily with one year tenor. The long-term debt is callable on December 1, 2023. All long-term debt and subordinated debentures are with 3-month tenor.

At this point in time, Bancorp has adopted SOFR as the alternative reference rate to replace LIBOR with respect to Bancorp’s long-term debt and subordinated debentures. The Bank develops new SOFR-based loan products that are equivalent to prior LIBOR-based loan products. For existing LIBOR based loans, the Bank is in process of selecting the SOFR based reference rate to replace LIBOR. As of August 31, 2022, the Bank has few SOFR-based loans. The management team of the Bank has monitored the SOFR-based loan processing since it’s beginning, and currently its SOFR-based loans are being processed efficiently.

Royal Business Bank maximizes the benefit of its customers and minimize the potential impacts to the lowest level from LIBOR cessation. The management team has confidence to go through a smooth LIBOR transition with customers together. Please contact your account officers in the Bank or call 714-676-0284 if you have any questions during the LIBOR transition.
¹Financial Conduct Authority (“FCA”) is a financial regulatory body in the United Kingdom who regulates financial firms providing services to consumers and maintains the integrity of the financial markets in United Kingdom.
²ICE Benchmark Administration (“IBA”) is the entity that took over administration of the LIBOR in 2014 after a scandal in which bank traders were found to have rigged the LIBOR to benefit their own trading position.
³The Alternative Reference Rates Committee (“ARRC”) is a group of private-market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from U.S dollar LIBOR to a more robust reference rate.
4CME Group is the world’s leading derivatives marketplace, made up of four exchanges, CME, CBOT, NYMEX and COMEX0.