RBB Bancorp Reports Third-Quarter 2026 Earnings and Higher Net Interest Income

RBB Bancorp (NASDAQ: RBB ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary RBB Bancorp reduced wholesale deposits significantly, now representing less than 2% of total deposits, and grew savings and money market balances by 86% over two years. The company achieved a $2.5 million increase in net income primarily due to higher net interest income and a $2.7 million pre-tax gain from the sale of a Brooklyn office building, which added $0.12 to diluted earnings per share. Net interest margin expanded to 3.16% with increased loan yields, while the average cost of deposits declined slightly despite federal funds rate hikes.

Noninterest income rose to $5.1 million due to the building sale, although core noninterest income excluding the gain declined. RBB Bancorp's tangible book value per share increased by 6% year-over-year, with an ongoing share repurchase program reducing outstanding shares by 1% in the quarter. Loan growth was driven primarily by single-family residential mortgages, with a noticeable decline in payoffs and paydowns. The company's nonperforming assets and loan losses are improving, with nonperforming loans declining and strong allowance coverage.

The new San Francisco Bay Area Loan Production Office is contributing positively to commercial loan growth. RBB Bancorp anticipates moderated loan payoffs and plans to manage the loan-to-deposit ratio around 100%, with an expectation of higher loan sales in the fourth quarter. Full Transcript Johnny Lee (President, Chief Executive Officer (CEO), and Director) $63 million allowed us to reduce wholesale deposits by $59 million, and wholesale funding now represents less than 2% of total deposits. Over the past two years, we have grown savings and money market balances by 86% and reduced our cost of interest-bearing deposits by more than 100 basis points.

Our capital position remains a source of strength. During the quarter we completed the partial redemption of our subordinated debt and continued to repurchase shares under our buyback program. Over the past two years, tangible book value per share has increased 11% while shares outstanding have declined by 5%. Overall, we believe the third quarter reflected the progress we have made in improving RBB's earning power, and we are well positioned as we head into the end of 2026.

With that, I'll hand it over to Lynn to talk about results in more detail. Lynn M. Hopkins (Chief Financial Officer) Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I discuss the company's third quarter 2026 financial performance.

The $2.5 million increase in net income in the third quarter compared to the second quarter was primarily driven by higher net interest income, the $2.7 million pre-tax gain on the sale of our Brooklyn office building, and a lower effective tax rate. The building gain added approximately $0.12 to diluted earnings per share. Apart from the gain, our core earnings continued to strengthen, supported by loan growth and a wider net interest margin. Including the gain, pre-tax, pre-provision income increased 23% from the second quarter and 25% from the third quarter of 2025.

I'd like to take a moment to provide some additional detail on the building sale. During the quarter we had an opportunity to sell a building we owned in Brooklyn that housed our New York Loan Operations Center. We occupied two of the building's five floors, so the property was larger than what we needed for our operations. The sale generated net proceeds of approximately $7.4 million that we have been able to redeploy.

We are leasing back the space we currently occupy through the end of the year, after which we will transition our loan operations team to a new location. This was an opportunistic transaction for the benefit of our future operations. Net interest income was $31.8 million for the third quarter, an increase of 6% from the second quarter and 8% from the third quarter of 2025. Higher average loan balances and higher interest recoveries on nonaccrual loans accounted for $1.5 million of the $1.7 million linked-quarter increase.

The remainder came from a special dividend of $320,000 and one more day in the quarter. Our net interest margin expanded 10 basis points to 3.16% for the third quarter and increased 18 basis points from the third quarter of 2025. The yield on average loans increased 10 basis points to 6.23% and our average cost of funds declined 3 basis points to 2.97%, which reflected the July 1 redemption of $40 million of our subordinated debt. We estimate the FHLB special dividend contributed approximately 3 basis points to the margin this quarter and nonaccrual interest recoveries contributed approximately 7 basis points.

Our average cost of deposits declined 2 basis points to 2.79% for the quarter, with the federal funds rate increasing 25 basis points during the third quarter. Our period-end weighted average rate on total deposits increased a few basis points to 2.82%. We continue to manage deposit pricing carefully, while new loan production at an average yield of 6.30% during the third quarter continues to support overall earning asset yields. Noninterest income was $5.1 million for the third quarter, an increase of $2.1 million from the second quarter, due mostly to the gain on the sale of the Brooklyn building.

Excluding that gain, noninterest income declined $600,000 due mostly to lower gains on sale of loans, as we retained more of our loan production on the balance sheet this quarter. Noninterest expense was $19.5 million for the third quarter, an increase of $526,000 from the second quarter due mainly to higher compensation and occupancy costs. These increases reflect a full quarter of operations for our new San Francisco Bay Area LPO and the impact of the Brooklyn building sale. Our efficiency ratio improved to 53%, which is 434 basis points better than the same quarter last year.

Looking ahead, we expect our quarterly noninterest expense run rate to be around $19 million. Our effective tax rate was approximately 25% for the third quarter, reflecting the benefit of federal production tax credits purchased during the quarter, and we now estimate our effective tax rate will be 27% for the full year. Turning quickly to the balance sheet, loan growth during the quarter was led by single-family residential mortgages, which increased $78 million, along with an $8 million increase in construction and land development loans. Third quarter originations totaled $154 million, and payoffs and paydowns declined 24% from the second quarter.

We ended the quarter with a loan-to-deposit ratio of approximately 100%. Total deposits were $3.4 billion at September 30 and were stable compared to the prior quarter. Non-maturity interest-bearing deposits increased $47 million and retail time deposits increased $52 million, while our noninterest-bearing deposits declined $35 million, partially reflecting the movement of balances into interest-bearing accounts during the quarter. On average, noninterest-bearing deposits increased from the second quarter to approximately 17% of average total deposits for the third quarter.

Nonperforming assets totaled $38.7 million, or 91 basis points of total assets, at September 30. Nonperforming loans declined $4.9 million, mostly through payoffs and paydowns, to 55 basis points of total loans, and REO was unchanged at $19.8 million. The allowance for loan losses stood at $44 million, or 1.30% of loans held for investment at quarter-end, and our allowance coverage of nonperforming loans increased to 234%. We recorded a $500,000 provision for credit losses in the quarter due mainly to loan growth, partially offset by improved credit quality trends.

Net charge-offs were $122,000, or 1 basis point of average loans on an annualized basis. Our tangible book value per share increased to $27.44 at September 30, an increase of 6% from a year ago, even as we continue to return capital to shareholders through share repurchases and dividends. We repurchased $4.5 million of common stock in the quarter, reducing shares outstanding by approximately 1%. Our capital ratios remain strong, with a tangible common equity to tangible assets ratio of 11.05% and a CET1 ratio of 17.9%.

This concludes my prepared remarks. Operator, we are now ready to take questions. OPERATOR Thank you. The floor is now open for questions.

If you wish to join the queue to ask a question at this time, please press star one. If you are listening on a speakerphone today, please pick up your handset while asking your question to provide optimal sound quality, and if you pressed star one earlier during the call today, please press star one again to ensure our equipment has captured your signal. Please hold one moment while we poll for questions. Your first question will be from Liam Cohill at HUD Group.

Please go ahead. Liam. Liam Cohill (Analyst at HUD Group) Hi, thank you for taking my question. Has the recent rate hike impacted borrower demand, and do you expect further hikes to impact originations moving forward?

Johnny Lee (President, Chief Executive Officer (CEO), and Director) Hi Liam, this is Johnny. Certainly a little bit of a headwind, but overall I think many of our borrowers right now, in the commercial side particularly, recognize the higher rate environment. At least we're not faced with the challenges that we had encountered during the first half and maybe the first part of Q3, where we were challenged with trying to compete with the below-6% sort of rates. The five-year fixed, we see less of that, so it allows us the ability to not have to defend or go as aggressively as we may have to, to compete for deals.

So that's helpful. But at the same time, certainly with the high-rate environment, some borrowers are just kind of stepping back, taking a closer look at the landscape, and sometimes they want to renegotiate certain terms and conditions. Liam Cohill (Analyst at HUD Group) Thank you. I guess moving to the other side of the origination question, I noticed payoffs declined substantially this quarter.

Do you anticipate payoffs to remain near current levels, especially given how low they are? Johnny Lee (President, Chief Executive Officer (CEO), and Director) Yeah, and Lynn maybe can chime in as well. We do expect payoffs to slow, to get tempered, kind of trending downward. Given, again, the high-rate environment, I think certain borrowers that typically may want more aggressive rates are not pushing those below-6% rates out there as much.

So we do anticipate paydowns and payoffs to get tempered during the next couple of quarters or so. Lynn M. Hopkins (Chief Financial Officer) I would just add to Johnny's comment regarding tempering is appropriate. I think the other thing that we observed in the first half of this year was some strategic payoffs as we continued to improve credit quality, and those have also tempered as well.

Liam Cohill (Analyst at HUD Group) That makes sense. Thank you. Last one for me. With the loan-to-deposit ratio kind of in that 100% realm right now, where are you comfortable keeping that ratio moving forward?

Lynn M. Hopkins (Chief Financial Officer) Sure. We have been managing the loan-to-deposit ratio around the 100% mark, maybe call it high 90s. I think with our capital levels we continue to remain comfortable at 100%, and I think that's managed to a large extent with our production levels that we just kind of talked about and also some loan sales.

We had a little bit less in loan sales in the third quarter, which I think pushed up on our loan-to-deposit ratio a little bit. I think we expect loan sales in the fourth quarter to maybe be higher than what we saw in the third quarter. Liam Cohill (Analyst at HUD Group) Great. Well, thank you for taking my questions.

I'll step back. OPERATOR Thank you. Johnny Lee (President, Chief Executive Officer (CEO), and Director) Thanks, Liam. OPERATOR The next question is from Matthew Clark at Piper Sandler.

Please go ahead. Matthew Clark (Analyst at Piper Sandler) Hey, good morning everyone. Lynn M. Hopkins (Chief Financial Officer) Hi Matthew.

Matthew Clark (Analyst at Piper Sandler) Just on that point—hi Lynn. On that point on loan sales, expecting to step back up—roughly half a million is the right way maybe to think about it from a run-rate perspective? Just trying to make sure we're in the ballpark. Lynn M.

Hopkins (Chief Financial Officer) So, a couple things. I think everyone knows that our loan sales are combined between our SBA loan sales—which you can sell a little and get a lot because the premiums are there in the marketplace, so we would expect to participate there—and then on the mortgage loan sales, I think that we have to sell quite a bit. The premiums continue to be very thin. I think that the way we look at it, there's probably an opportunity to return to the levels that we saw in the first part of this year, maybe first quarter, but not necessarily the second quarter, which is a little bit outsized.

So, you know, we are a taker in the market there. We believe our mortgage product continues to be priced competitively, so it should give us an opportunity to sell some of our loans. Matthew Clark (Analyst at Piper Sandler) Got it. Okay, great.

And then on the new originations—$154 million at 6.3%—can you give us a sense of the types of loans that are in there? Just thinking through, kind of the growth in loans this quarter was largely SFR, so just want to get a sense for—and it sounded like you felt like there was some good momentum going into 4Q—just your thoughts on loan growth in general? Johnny Lee (President, Chief Executive Officer (CEO), and Director) Yeah, that's Johnny. Hi, Matthew.

So, yeah, Q3, I would say approximately two-thirds of the growth was contributed by SFRs. But we also see growth in C&I and C&D loans—construction loans. One positive thing we see on the C&I and C&D loans is, by number of accounts, we have a much larger number of new borrowers or new loans that, hopefully as they utilize these C&I and C&D credits, can contribute to our net loans in the near future. Matthew Clark (Analyst at Piper Sandler) Okay.

And then just on the margin and kind of digging into it a little bit, I know you've got what, 52% of your loans are variable rate, but those include ARMs. And so trying to get at what portion of your loan portfolio resets with the Fed. And then how should we think about your interest-bearing deposit beta, assuming we get another rate hike here in December? Lynn M.

Hopkins (Chief Financial Officer) Sure. So thanks for starting with the loan portfolio. So about 52% is variable. We do kind of look at what reprices over the next two years.

I would share that about two thirds of that population is eligible to reprice in the first year. So they don't all immediately reprice. There's various repricing dates, but based on the structure of our loans, they do have the opportunity over the next year. This does help contribute to, while we tend to be liability sensitive in the near term, it does shift us to something that looks a little bit more asset sensitive as rates rise and our loans continue to reprice into a higher rate environment.

So turning to the liability side, when we think about our interest-bearing deposits and the betas there, I think over the last year our betas have been maybe around 50%, but given the expectation of rate increases and kind of looking at the brokered CD market, I think things have priced in the rate increases. So I expect the near term to be a little bit higher than that and then will moderate over time. So, you know, there's a lot of pressure on the cost of liquidity right now is my general comment. So I think over time it will moderate, Matthew, but in the near term I think it's going to provide a little bit of pressure.

Matthew Clark (Analyst at Piper Sandler) Okay, so thinking about that 3.06 kind of adjusted margin ex the interest recoveries and the special FHLB divvy, a little pressure on that kind of normalized margin. Maybe hanging around 3 or you think you might start dipping below 3? Lynn M. Hopkins (Chief Financial Officer) I don't have a crystal ball.

I think there's a lot of things that are going to support our net interest margin. So in addition to the fact that we have about—so out of the 52%, I would say two thirds reprices over the one year—we're also participating in new loan originations in the current environment. I think Sylvie comments on, you know, the pipeline looks strong. I think to Johnny's point we have C&I and construction loans that will be originating in the current rate environment.

So there are things that continue to push up on the loan yield and the earning asset yield in the absence of interest recoveries or a special FHLB dividend. And then on the funding side, yes, I think that things will be more expensive but it does take time for that to come through. I think there's an opportunity for our net interest margin to be above 3% but it does take participating in the current interest rate environment on the earning asset side. Matthew Clark (Analyst at Piper Sandler) Yep, got it.

Thank you. OPERATOR Next question comes from Kelly Mota at KBW. Please go ahead. Kelly Mota (Analyst at KBW) Hi, thank you so much for the question.

I apologize if I missed it here. Lynn, can you just quantify the amount of the interest recovery that impacted NIM in the quarter? Lynn M. Hopkins (Chief Financial Officer) Kelly, it was around $700,000.

We were able to recapture some interest on the payoff of a nonperforming loan. Kelly Mota (Analyst at KBW) Got it. That's helpful.