RBB Bancorp NASDAQ: RBB reported third-quarter net income of $12.6 million, or $0.74 per share, up 25% from the prior quarter, as higher net interest income, loan growth and an office-building sale supported results.
President and Chief Executive Officer Johnny Lee said the company’s return on average assets improved to 1.17%. The quarter included a gain from the sale of RBB’s Brooklyn office building, though Lee said underlying performance was also aided by improved net interest income, loan growth and credit trends.
Compared with the third quarter of 2024, earnings per share increased 90%, return on average assets improved 63%, and return on average tangible common equity increased 69%, according to Lee. For the first nine months of 2026, diluted earnings per share rose 60% from the same period a year earlier.
Brooklyn Sale, Net Interest Income Lift Earnings
Chief Financial Officer Lynn Hopkins said the linked-quarter increase in net income was driven principally by higher net interest income, a $2.7 million pre-tax gain on the Brooklyn building sale and a lower effective tax rate. The building transaction added about $0.12 to diluted earnings per share.
RBB sold the Brooklyn property, which housed its New York loan operations center, after determining that the five-floor building was larger than needed. The company occupied two floors and generated approximately $7.4 million in net proceeds from the sale. RBB will lease its current space through year-end before moving the loan operations team to a new location.
Net interest income totaled $31.8 million, increasing 6% from the second quarter and 8% from a year earlier. Higher average loan balances and interest recoveries on non-accrual loans contributed $1.5 million of the $1.7 million linked-quarter increase. A $320,000 special dividend and an additional day in the quarter accounted for the remainder.
Net interest margin rose 10 basis points from the prior quarter to 3.16% and increased 18 basis points from the prior-year quarter. The yield on average loans increased 10 basis points to 6.23%, while average funding costs fell 3 basis points to 2.97%, reflecting the July 1 redemption of $40 million of subordinated debt.
Hopkins said the special dividend contributed about 3 basis points to margin, while non-accrual interest recoveries contributed about 7 basis points. The company’s average cost of deposits declined 2 basis points to 2.79%, although its period-end weighted average rate on total deposits increased slightly to 2.82% after the federal funds rate rose 25 basis points during the quarter.
Management said deposit pricing remains competitive. Hopkins noted that six-month certificates of deposit were priced just above 4% in the market, while one-year brokered deposits were above 4.5%. She said funding costs are expected to rise in the near term, though repricing loans and new loan production could support earning-asset yields.
Loan Growth Returns as Payoffs Slow
Loans held for investment increased $90 million during the quarter, representing 11% annualized growth. Third-quarter originations totaled $154 million, while payoffs and paydowns declined 24% from the second quarter.
Growth was led by single-family residential mortgages, which increased $78 million, along with an $8 million increase in construction and land development loans. Lee told analysts that about two-thirds of quarterly loan growth came from single-family residential lending, while commercial and industrial and construction lending also increased.
The company ended the quarter with a loan-to-deposit ratio of about 100%. Hopkins said management remains comfortable operating around that level or in the high-90% range, with loan sales serving as one tool for managing the ratio. RBB expects loan sales in the fourth quarter to be higher than in the third quarter.
Lee said borrower demand faces some pressure from higher interest rates, but commercial borrowers have become more accustomed to the environment. He said competition from loans priced below 6% on a five-year fixed-rate basis had eased. Management also expects payoffs and paydowns to remain tempered over the next several quarters.
RBB’s new San Francisco Bay Area loan production office completed its first full quarter of operations. Lee said the bank was encouraged by the client response and expects the office to contribute commercial lending, including commercial and industrial, commercial real estate and construction loans. He described the team’s early contribution as positive.
Credit Metrics Improve, Capital Remains Strong
Non-performing assets declined 11% during the quarter to $38.7 million, or 91 basis points of total assets. Non-performing loans fell $4.9 million, primarily through payoffs and paydowns, to 55 basis points of total loans. Real estate owned was unchanged at $19.8 million.
The company recorded a $500,000 provision for credit losses, mainly due to loan growth and partly offset by improved credit quality trends. Net charge-offs were $122,000, or 1 basis point of average loans on an annualized basis. The allowance for loan losses was $44 million, or 1.30% of loans held for investment, with allowance coverage of non-performing loans at 234%.
Management said its sole REO property is a roughly 60%-completed construction project near a major sports venue in Los Angeles. The property is listed for sale above its carrying value, and Hopkins said RBB expects an opportunity to exit the investment in the first half of next year.
Total deposits stood at $3.4 billion at Sept. 30, largely unchanged from the prior quarter. Retail deposit growth of $63 million enabled RBB to reduce wholesale deposits by $59 million, leaving wholesale funding at less than 2% of total deposits, Lee said.
RBB repurchased $4.5 million of common stock during the quarter, reducing shares outstanding by approximately 1%, and completed a partial subordinated-debt redemption. Tangible book value per share rose to $27.44, up 6% from a year earlier. The company reported a tangible common equity-to-tangible assets ratio of 11.05% and a CET1 ratio of 17.9%.
Looking ahead, Hopkins said RBB expects quarterly non-interest expense of roughly $19 million, plus or minus $100,000 to $200,000. She said the company expects some expense moderation, including potential improvements in data-processing costs, while compensation and other costs may reflect continued growth.
About RBB Bancorp (NASDAQ:RBB)
RBB Bancorp is a bank holding company headquartered in Los Angeles, California. Its principal subsidiary, Royal Business Bank, provides commercial banking and financial services to businesses, professionals and individuals, with a focus on serving small and mid-sized companies and the communities in which they operate.
Royal Business Bank offers business and consumer deposit accounts, certificates of deposit, cash-management services, online banking and other treasury-management solutions.
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