RBB Bancorp

Greetings and welcome to the RBB Bank Corp fourth quarter 2025 earnings conference call. At this time all participants are on a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. And please note, this conference is being recorded. I will now turn the conference over to your host, Rebecca Rico, financial analyst. Ma'am, the floor is yours.

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter of 2025. With me today, our president and CEO, Johnny Lee, Chief Financial Officer Lynn Hopkins, Chief Credit Officer Jeffrey Yeh, and Chief Operations Officer Gary Fan. Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation. They're 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 filings. Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebecca. Good day, everyone, and thank you for joining us today. The fourth quarter was a strong finish to 2025 with solid loan growth, improving performance ratios, and normalizing credit. The entire RBV team continues to work hard to return the bank to its historic performance, and I'm very proud of what the team has accomplished. We still have work to do with respect to resolving remaining non-performing assets, but we're confident that we've turned the corner on credit and that performance will continue to improve in future quarters. Fourth quarter net income totaled $10.2 million, or 59 cents per share, which was stable from the third quarter, but more than doubled our earnings for the same quarter a year ago. ROA and NIN show similar trends and were stable from the third quarter, while increasing sharply from a year ago. 40-year loan grew at a solid 8.6%, which we believe demonstrate the progress we have made returning RBB to a historical rate of growth. We had another quarter of strong originations at $145 million, In 40 years, loan originations were 32% higher than they were in 2024. Our pipeline remains healthy and in line with this. Same time last year, so we are optimistic we will see another year of high single-digit growth in 2026. We continue to maintain pricing and structuring discipline with fourth quarter originations yielding 31 basis points above our current loan portfolio yield. Despite the rate cuts of Sun 5 basis points in 2025, we were able to drive our fourth quarter yield on loans up four basis points to 6.07% compared to the same quarter a year ago. Deposits were another bright spot of Sun 25 and show the progress we made by focusing on community outreach to attract retail deposits and expanding relationships with our business clients. Fourth quarter total deposits increased 8.6% compared to the fourth quarter a year ago, with strong growth in interest-bearing non-maturity deposits supporting long growth and a reduction in FHLB advances. Average demand deposits remain stable in 2025 and currently comprise 16% of total deposits. The fourth quarter rate on average interest-bearing deposits declined by a 55 basis point from the fourth quarter of 2024. or 73% of the rate cuts we saw last year. While we were successful reducing funding costs last year, competition for deposits has been increasing and recent rate cuts have not delivered the same pace of reductions in our deposit costs. We made significant progress addressing our non-performing assets during 2025. Non-performing loans decreased 45% and non-performing assets decreased 34% since the end of last year and included ongoing improvement during the fourth quarter. Criticized and classified assets also improved during 2025, decreasing by 43% for the full year and 25% since the end of the third quarter. With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I share my comments on the fourth quarter and annual 2025 financial performance. As Johnny mentioned, and you can see on slide three, net income for the fourth quarter was 10.2 million, or 59 cents per diluted share, which is stable from the third quarter. Fourth quarter pre-tax, pre-provision income was 2.3 million, or 21% higher than a year ago, which is four times the growth rate in assets over the same time period. Net interest income increased slightly, the sixth consecutive quarterly increase, adding one basis point to the net interest margin, which was 299 in the fourth quarter. Asset yields declined by seven basis points, driven primarily by the four basis point decrease in loan yield, due to the market decreases in the prime rate in the last four months of the year. At the same time, average funding costs declined eight basis points, driven mostly by a seven basis point decrease in the cost of deposits, which included a 12 basis point reduction in the average cost of interest-bearing deposits. For the year, net interest income increased by 13% to 112 million due to loan growth, relatively stable asset yields, and a 38 basis point decline in funding costs. Our spot rate on deposits was 290 at the end of the year, which was six basis points lower than the average cost of deposits in the fourth quarter. To this end, we expect to see some incremental improvement in deposit costs in the first quarter, but as Donnie mentioned, competition remains intense, so it is difficult to quantify what the impact will be. Fourth quarter non-interest income declined by $486,000 from the third quarter, which had included a half a million dollar gain related to one equity investment. During the fourth quarter, in addition to SBA loans, we sold 22 million of mortgages, which drove an increase in gain on sale, and we remain optimistic that our SFR production levels will continue to support ongoing loan sale activity. Compared to the fourth quarter of 2024, all categories of non-interest income increased, except for other income. Fourth quarter non-interest expenses increased by $282,000, mostly due to year-end accruals, but were in line with expectations. Our operating expense ratio was stable from the third quarter at 1.80% of average total assets. First quarter expenses are expected to increase due to seasonal taxes and salary adjustments and then stabilize for the next few quarters in the 18 to 19 million dollar range as professional service fees are expected to moderate in 2026 compared to 2025. We also reduced the quarterly effective tax rate by 330 basis points in the fourth quarter when compared to the third quarter of 2025. This was mostly due to a reduction in the multi-state blended tax rate and benefits from ongoing state tax planning. The overall 2025 effective tax rate benefited from purchased federal tax credits and state apportionment tax planning. The effective tax rate in 2026 is expected to be between 27 and 28%. Slides six and seven have additional color on our loan portfolio and yields. As Johnny mentioned, originations have been strong at 145 million in the fourth quarter, and 713 million for all of 2025, which was 32% higher than the originations we saw in 2024. Slide seven has details about our $1.7 billion residential mortgage portfolio, which represents 50% of our total loan portfolio, and consists of well-secured non-QM mortgages, primarily in New York and California, with an average LTV of 54%. Slides 10 through 12 have details on asset quality, which continues to improve. As Johnny mentioned, we did a lot to work We did a lot of work to stabilize and resolve our NPAs in 2025. We believe we are appropriately reserved on our MPL and REO assets as we work towards their resolution. The provision for credit losses totaled $600,000 in the fourth quarter, due mainly to charge-offs and loan growth, partially offset by the impact of positive changes in economic forecasts and credit quality metrics. We expect future annual credit costs to be much lower now that credit has stabilized. Slide 13 has details about our deposit franchise. The decrease in total deposits during the fourth quarter of 2025 was due to a $42 million decrease in brokered deposits, offset by a $26 million increase in retail deposits, which has supported our loan growth. Tangible book value per share increased 7.8% during 2025 to end the year at 2642, while at the same time returning over 25 million in capital to our shareholders through dividends and the repurchase of approximately 4% of our outstanding shares. Our capital levels remain strong with all capital ratios above regulatory and well-capitalized levels. With that, we are happy to take your questions. Operator, if you would please open up the call.

Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is coming from Matthew Clark with Piper Sandler. Your line is live.

Hey, good morning. Thanks for the questions. Just want to start on the deposit beta this quarter, 30% in terms of interest bearing. It sounds like competition's still pretty intense. How should we think about that beta going forward? Do you think you can hold that 30% or do you feel like you need, you know, might that come down throughout the year?

Hi, Matthew. Thank you. So the 30% for the linked quarters, I would say we're sort of just getting started. So kind of year over year we were able to achieve I think closer to that 70%. And I think given that we still have a very large portion of our funding base in deposits that will mature over the next year, I think the deposit beta will continue to increase.

Okay, great. And then just any update on your plans for the sub debt?

Yeah. So you're right, we have $120 million of sub-debt that's eligible to be redeemed and will reprice effective April 1st of this year. So I think that we're looking at the opportunities to right-size it for our balance sheet and for our capital stack. So I think If it was set just to reprice on its own, we're just under 7%. I think the market's more attractive, so we'll be looking at something maybe more holistic in addition to, like I said, right-sizing it for our balance sheet. So I think that's where we're at right now.

Okay, great. And then just last one for me on capital. You still have a lot of excess capital. How should we think about the buyback this year?

Yeah, you know, I feel like once we right-size the sub-debt, I think there'll be an opportunity for us to be more active on a buyback program. So I think one step at a time. I think the end of the 2025 had us continuing to be a little bit more inward-facing as we resolved credit, wrapped up 2025, So I would expect both the sub-debt and then returning to being more active on the buyback.

Okay, great. Thanks again.

Yeah.

Thank you. Our next question is coming from Brendan Nozzle with Havda Group. Your line is live.

Hey, folks. Hope you're doing well. Thanks for taking the questions.

Hi, Brendan. Hi, Brendan.

Maybe just starting on the margin, definitely hear your comments earlier on the pace of deposit competition. But I guess when I look at the margin, the pace of improvement is a bit muted this quarter versus recent quarters. Can you maybe just talk about how you view the path for the margin as we move through 26?

Sure. Let me add just a little bit more color to why we think there's an opportunity, I think, for deposit costs to continue to come down. So again, 99.5% of our $1.7 billion in CDs will mature within the next 12 months, and 40% of those are actually in the first quarter. I think the average price of those is in the high threes And I think funding has come down to probably at the high end around the 370 mark. So I think a portion is gonna have an opportunity to reprice into the current interest rate environment. And we haven't fully seen that. And then I think for, and then we've also shifted a portion of our funding from traditional CDs into non-maturity interest-bearing products. They have kind of some similar yields, but I think will give us more flexibility as rates continue to come down based on forecasts. So I don't know if that's helpful, Brendan, or if you're looking for something more specific.

Yeah, no, that's helpful. I mean, Is it fair to say, based on that outlook for downward funding cost repricing, that there's room for the margin to continue to expand?

Yeah. We are still, I would say, slightly liability sensitive, maybe a little bit more neutral than we've been in the past. You're absolutely right that from a NIM perspective, what we saw in the fourth quarter is our earning asset yield came down significantly. little bit as liquidity repriced into the current environment and then our loan yield came down just slightly. I think there's still opportunity to hold our earning asset yield and our loan yield based on shape of the yield curve, the repricing characteristics of our loan portfolio, but there's definitely downward pressure on it. It's not that without being very careful, especially since our loan-to-deposit ratio sits around 99%. So I think we're looking at having some attractive deposit data. We're looking at NIM expansion. One of our biggest opportunities for NIM expansion is our non-performing assets and continuing to resolve them. You know, they held relatively flat, kind of quarter over quarter, but we've made progress in, I think, ultimate resolution. So that would also have a positive impact on our net interest margin, being able to return over $50 million to an earning asset status.

Okay, great, Lynn. That's helpful. One more for me just on credit. First of all, congrats on the workouts this quarter and the improvement in virtually all metrics. As we look forward, I get that there's a ton of moving pieces here, but can you just kind of talk in broad strokes on where you hope to see credit metrics by the time we sit here in 12 months and look back on 2026?

That's quite a fire. I would just say, obviously, since you know, a few courses ago, we always stated that we were staying very laser focused on resolving, you know, much of our classified, criticized credits and hopefully, you know, this quarter's results, you know, demonstrates to our ability to continue to kind of, you know, moving positively to get most of the results. So let's also keep on track on what we're doing right now. I would hope that certainly 12 months out, you'll see much continuous improvement in our credit picture.

Yeah, I think in addition to what Johnny stated, so our MPLs are well understood. 90% of them are represented by four relationships. Of those four relationships, Three of them are continuing to make payments based on agreement, which is good because it continues to lower the balance towards what could be ultimate resolution. So we're really only focused on a few. I think that gives us a really good opportunity to get them worked out during 2026. We're optimistic that that will happen in the first half of this year. But one of them is the partially completed construction project, which represents about half of that balance. And that one will probably take the longest. So as we sit here a year from now with credit stabilized, we look to have sold our REOs and to have these resolved, obviously, There may be, you know, regular activity, but expect that these larger ones will have been moved out.

Okay. That's a really helpful color and commentary. All right. Thanks for taking the questions.

Yeah. Thanks, Brendan.

Thank you.

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

Hey, good morning. Thanks for the question. Maybe on loan growth, it's slowed down a bit from the past two quarters to low single digits. Wondering if you could speak more as to the pipelines where you're seeing opportunity and if the decline was more of a function of payoffs or lower demand or just maybe some deposit constraints given your loan-to-deposit ratio and the competitive dynamics that you cited earlier in the call. Thank you.

Hi, Kelly. That's Johnny. I think probably a combination of all those that you mentioned. But, I mean, overall, you know, again, obviously we have some loan sales and we have some strategic exits on, you know, a couple of classified credits. And for a long sort of momentum, actually, we certainly want to do more, but compared to previous year, overall, I think we're doing pretty well as far as keeping that momentum going. The pipeline is still relatively healthy right now, both for the commercial and the residential market side. So I think even though Q4 seems a bit light, but I think overall on average, our new funded loans for commercial is about $65 million per quarter and mortgage is about 90 per quarter. And looking at the pipeline right now, certainly we feel very optimistic that we can continue to keep that pace.

Got it. Oh, sorry, Lynn.

Didn't mean to cut you off.

Go ahead.

No, you're fine. I think as we sit here today, we are in as good of, if not better, position at the same time last year when we were able to achieve over 8% annualized growth. I would kind of comment the fourth quarter loan growth was a little bit muted, but we did have a higher volume of loan sales, as Johnny mentioned. And we were working to resolve some substandard credits. So we were happy on those exits. And I think with the interest rate environment, payoffs and paydowns can tend to come up a bit. But they were actually a little bit lower than third quarter. So we think that our ongoing production will fall through to net loan growth as we go forward. But I think those things just kind of had a little bit downward pressure, but I think all the metrics are healthy that sit behind it.

Got it. Maybe last question for me on expenses. You've reported about $19 million in the quarter. Just looking into 26, I'm wondering if this is a good run rate to build off of and any kind of puts and takes. Like I know legal and professional has been maybe more elevated than past years, probably related to the workout, but should be presumably declining. And then any kind of thoughts for additional things we should be baking in as we look ahead to this year. Sorry, I keep saying next year, this year, 2020.

Yeah, I know. I'm doing the same thing. You know, I think that the run rate in the fourth quarter is a pretty good indication of our overhead or quarterly overhead to achieve the production levels we were able to achieve in 2026. So I think what we saw is, you know, compensation's a bit higher to reflect the growth inside of the company. We also have management transition this year that we wouldn't necessarily expect to reoccur and we can reallocate those dollars into higher costs of doing business. You're exactly right. Legal and professional, we think there's an opportunity for those costs to come down as credit is stabilized. You know, while there's a step up when I look from 2024 to 2025, I don't know that it requires that same step up in order to achieve, you know, mid to high single digit loan growth. I think there's also other opportunities to grow top line if for some reason expenses go higher. So, yeah. But I think just when you look at just that part of it, we're looking in that $18 million to $19 million range. I think you can tell, so first quarter, based on kind of pay raises and taxes, kind of has an extra kind of three-quarters of a million, I think, is kind of what pops through in the first quarter, and then it normalizes after that.

Got it. That's great. Thank you so much for the help.

Thank you.

Thank you. Our next question is coming from Tim Coffey with Jani. Your line is live.

Thanks. Morning, everybody. Hey, Tim. Lynn, I guess my first question for you would be, do you see this year as an opportunity to lower the loan to deposit ratio considering the potential to reduce interest expense through the course of the year as well as grow interest income?

Great question. So I would say a couple of things. One, we lowered our reliance on wholesale funding. And I think it's relatively low and very manageable. So obviously, to lower the loan to deposit ratio, deposit growth would have to outpace our loan growth. And I think we're looking at some attractive loan growth in 2026. Our retail deposit growth did keep pace with our loan growth in 2025, so we would expect the same. I think pushing down significantly would maybe take some opportunistic loan sales that we would then put that benefit into the equity. I would say generally, I think there's some opportunity to maybe get into the mid-90s, but I don't know if it would get much lower than that, Tim.

Okay. Yeah, I wasn't contemplating that you'd sell well to get there. I thought that you'd be able to grow retail deposits faster. And then, Johnny, we talked a little bit about the pipeline for this year, which is long growth, and it's good to see another year just like the past one. What is the competition like for commercial real estate loans right now in your footprint?

Actually still, competition is always there. But again, we want to be very strategic about the kind of relationships that we bring in. Certainly the rate has a little bit more challenge as far as we're trying to maintain the yield that we had prior to the first half of the year last year. But overall, I think we've been able to hold our ground pretty well because, again, we're a very relationship-driven bank. And so we look at each one's prospect or concept that we are considering lending to. We look at the overall potential of the relationship, not just what we might be able to generate from a yield standpoint, but any other additional businesses that might come along with it, such as deposits, of course. So with that, I think from a relationship standpoint, we still are able to be fairly competitive. But again, the reality is certainly we always face competition on the rate side.

Yeah, are you seeing competitors undercutting the spreads on these loans relative to where the yield curve is?

Well, I think we are from the yield standpoint. We've actually given up quite a bit of businesses for sort of competitors against some of our peers who are offering these five-year fixed rates below 70%. you know, five and three quarter percent on average, or five and a half to five and three quarter percent, but so far, I think we're holding pretty well above that six or higher right now, you know, with the yield that we're, much of the pricing that we've been proposing.

Okay. Understood. Those are my questions. Thank you very much.

All right.

Thank you.

Thanks, Tim.

thank you as we have no further questions on the lines at this time i would like to hand the call back over to mr lee for any closing remarks okay thank you 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 everybody thank you ladies and gentlemen this does conclude today's conference you may disconnect your lines at this time and we thank you for your participation