RBB Bancorp

Good day, everyone. Welcome to the RBB Bancorp Q1 2026 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rebecca Rico. The floor is yours.

Thank you, Kelly. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the first quarter of With me today are 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 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 filings. Now, I'd like to turn the call over to RBB Bancorp President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebecca. Good day, everyone, and thank you for joining us today. The first quarter was a strong start to the year with continued earnings growth, expanding and further improving in our credit metrics. We generated net income of $11.3 million, or 66 cents per share, which was an 11% increase from the fourth quarter and our highest quarterly earnings level in two years. Return on assets increased to 1.09%, and we continue to grow tangible book value per share. Net interest margin increased another 16 basis points to 3.15%, which marked our fifth consecutive quarter of margin expansion. The increase was driven by both lower funding costs and higher asset yields. Our cost of deposits declined 10 basis points, and our spot rate on deposits ended the quarter at 2.79%, which gives us some additional opportunity for improvement in the second quarter. Loan growth was more modest in the first quarter, with loans increasing by approximately $11 million or 1% annual loss. We originated $131 million of new loans at an average yield of 6.4%, but that growth was offset by elevated payoffs and paydowns as some borrowers refinanced or sold assets. As we mentioned before, we remain disciplined on pricing and structure and have focused on profitable growth. Our pipelines remain healthy and we continue to believe we are positioned to deliver stronger loan growth over the balance of the year. Deposits declined slightly during the quarter due to a reduction in wholesale deposits, but this was more than offset from our quality standpoint by another quarter of growth in retail relationships. We also continue to make progress on credit. Non-performing assets declined 9% from the prior quarter and are down 24% from a year ago. Overall, we believe the first quarter reflected continued progress in returning RBV to its historical levels of performance. We continue to focus on disciplined growth, maintaining strong credit quality, and increasing long-term shareholder value. With that, I'll hand 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 discussed the company's first quarter of 2026 financial performance. As Johnny mentioned, net income for the first quarter was 11.3 million or 66 cents per diluted share, which compares to 10.2 million or 59 cents per diluted share in the fourth quarter. Despite two fewer days in the quarter, net interest income increased $1 million to 30.5 million, and included a $1.4 million decrease in interest expense, partially offset by a $390,000 decrease in interest income. The decrease in interest expense is due mainly to the shorter quarter and lower rates on retail deposits as we continue to benefit from the repricing of our deposit portfolio into the current rate environment following the Federal Reserve rate cuts made towards the end of 2025. Retail deposits increased by 50 million and included a shift from time deposits into a high yield savings product. The decrease in interest income was due to the shorter quarter and lower cash and securities yields offset by higher loan yields and the receipt of a $430,000 FHLB special dividend. Our net interest margin increased to 315 in the first quarter from 299 in the fourth quarter. The increase included an eight basis point increase in the yield on earning assets and an eight basis point decline in the overall cost of funds. The FHLB dividend added four basis points to our NIM in the fourth quarter, sorry, four basis points to our NIM in the first quarter. Turning to credit quality, non-performing loans remained basically unchanged substandard loans decreased 2.7 million, and special mention loans increased 5.5 million. All special mention loans are on accrual status. We had effectively no net charge-offs in the quarter, and we recorded a small reversal of provisions for credit losses supported by paydowns on non-performing loans, overall stable credit quality, and positive economic indicators in the underlying forecast. We believe that we are adequately reserved and with credit quality generally improving over the past year, we expect future provisions to reflect that. Non-interest income increased 1.4 million to 4.3 million. The increase was driven primarily by an $890,000 higher net gain on REO. $484,000 in a recovery on a fully charged off acquired loan. and 360,000 of interest income on tax refunds related to purchased federal tax credits. Non-interest expense increased by 293,000 to 19.3 million due mainly to higher payroll taxes and employee benefit costs at the beginning of the year. Even with the increase, our efficiency ratio improved to 55% from 59% in the fourth quarter. We expect non-interest expense for the next few quarters to be in the $18 to $19 million range. Turning to the balance sheet, total assets were $4.2 billion at quarter end. Loans held for investment increased $11 million since year end, and deposits declined $10.5 million. Importantly, the mix of deposits continued to improve as we reduced wholesale funding and grew lower costing retail deposits. Book value per share increased to $31.10, and tangible book value per share increased 2% to $26.84. This concludes my prepared remarks. Kelly, we are now ready to take questions.

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold for just a moment while we pose for questions. Your first question is coming from Brendan Nozel with HubD Group. Please pose your question. Your line is live.

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

Bye, Brendan.

Nice to see continued work out on the asset quality front and improvement there. So, I guess I just want to, you know, start my questions on that front.

Got disconnected or?

Yes, it did. Brendan? Hold on one moment. Brendan, your line is live.

Can you folks hear me now? Yes. Okay. Sorry about that. Maybe just starting off on asset quality, you know, nice to see continued workout and improvement in ratios this quarter. Can you offer a little bit of color on some of the larger non-performing assets you still have kind of in the workout process? And then to the extent that you're able to continue to work those out, you know, what do you view as a normalized kind of reserve to loan ratio as you work through the noise?

How about I start with the end of your question and we'll go backwards. First, we'll acknowledge we're elevated on our NPLs and we would expect those to normalize down at a much smaller percent of our total loans. I think you are familiar that 90% of our NPLs are represented by the same three relationships so that remains stable or understood. And I think as far as a normalized coverage ratio, given the composition of our overall loan portfolio, we could see it coming down somewhat relative to the levels it is now. But we do go through a robust process and I think we have to take into consideration everything that's going on in the market. So I think it has an opportunity to move lower. As you recall, last year it was much higher with those specific reserves that ultimately we did some charge-offs and now we resolve loans. So I think that's where we would say going forward. With respect to specific comments on the NPLs, I think I can... Turn that over to you, Johnny or Jeffrey.

This is virtually non-change during the quarter. However, then there's a reduction of the number of the long. So there's two exit, one in. And then the one that those exit are those successful workout. and then they pay off. One is just only a technical issue, they become non-recruitable. But virtually, this is a pretty quiet quarter.

I'll just add, we have represented that our largest one is working its way through a bankruptcy process, and we will continue to work on that. So, we do see an opportunity for MPLs to be resolved during 2026, but it is a process.

Yeah. I'll just add, you know, actually, they're still paying down, right? Okay.

Okay. That's a super helpful color on that topic. Thank you. Maybe turning to capital, you know, ratios obviously remain quite strong as the quality is incrementally getting better from here with good line of sight. Any updated thoughts on kind of capital deployment from here? I think you had a tranche of stuff that was repricing and perhaps looking at the buyback at some point, but any updated color there would be great.

Sure. So we have stated that we've been focused on the sub-debt that's coming up for repricing. We recognize that its capital treatment will start to sunset. It did reprice April 1st. We do view, I think, the sub-debt as a capital instrument as sort of something that we're going to address this year. I think that there's also opportunity for us to look at a stock buyback. But I do think the sub-debt is our first priority. I think that based on the current interest rate environment and how we're looking at the balance sheet, there may be a good reason to look to retire a good portion of it. So we're working through, I think, that process, as everyone knows. does require regulatory approval.

Okay. Fantastic. I'm going to try and sneak one more here on the margin. Can I guess you just comment on whether that four basis points of margin from the FHLB special dividend is one time in nature, and then to the extent that we don't get any more Fed cuts for the foreseeable future, just talk about your expectations for the margin path from here.

Excellent question. So there's definitely a few dynamics in our net interest margin. I think you're right, the FHLB special dividend is one time in nature. We would welcome a special dividend every quarter, but don't view that as recurring. I think with the sub-debt, our retirement dates are the first date of each So in the near term, we will be absorbing the sub-debt at a little bit higher price in the second quarter at least. And then I think the other thing I would point out is half of our portfolio is a mortgage portfolio. And as everyone knows, those are priced on a $3,360 basis. So we do get a bit of a benefit in the shorter quarters, and then it will normalize in the rest of the year. So on one hand, we'll have more days, which is usually higher net interest income, but from a margin perspective, it may push down a little bit on it. Having said all of that, I think we still have an opportunity to expand our margin from a more normalized basis, which is probably closer to or just above 3%. with balance sheet growth in the current environment and some modest repricing of our deposits. I think that's where we're headed in the near term.

Okay. Fantastic, Lynn. Thank you for taking the questions.

Your next question is coming from Kelly Madoff with KBW. Kelly, please pose your question. Your line is live.

Hi. Thanks for the question. Maybe on loan growth, the growth for the quarter was a bit more muted than we had expected. I think the pipelines coming into the quarter were quite strong. Can you provide any color as to kind of where that variance, what drove that and how pipelines are looking as we look ahead here? Thanks.

Hi, Kelly. This is Johnny. Thanks for the question. Well, you know, Q1 is always sort of a seasonal quarter, and also with the geopolitical risks and everything, there's obviously still a lot of uncertainty out there. But it was, in some ways, you know, we try to balance. Obviously, as always, we always look at quality first, and then look to see if, you know, based on the competition on the pricing side, whether it makes sense or not, was to aggressively compete on certain types of deals. And we, you know, we weren't prepared to sort of compete in sort of some market rates in the five and a half to five, you know, for the MFRs, five and three quarter, or even lower for some CRE zones. So we feel like a commander in the battlefield trying to hold their line. So we stayed pretty disciplined during the first quarter in keeping our rates. uh above six um you know unless as always if there are certain um sort of enhancements to the yield with ancillary businesses such as you know deposits or you know other potential fee income that might come with a relationship otherwise we're trying to stay pretty disciplined as far as keeping a rate high so in that sense we we did you know let sort of let go uh if you will of a few uh deals during the Q, and then also there's been a little bit higher pay downs, pay offs during the quarter as well. So certainly that impacted the net growth. But to your question about the pipeline, pipeline is still very healthy, and I think you'll see for Q2, based on this bill that we have right now, we should be able to get training toward what we have achieved in the past year, I think we're in good training. So I'm very positive about the pipeline overall. But again, we definitely still look for quality first and making sure any pricing that we're going to compete on makes sense for the bank.

Got it. That's helpful. And then on the deposit costs, those came down quite nicely. I think you mentioned your prepared remarks. You had shifted some customers to different categories to help manage that. As we look ahead, barring rate cuts, is there still any room to bring down deposit costs within categories outside time? And then within time, can you remind us the roll-on versus roll-off rates?

Sure. So... So I think there's still some opportunity with the latest changes in interest rates, the belly of the curve kind of moving up. I think there's probably less opportunity. I think we have historically had a very strong 12-month CD ladder. And as those CDs mature, 98% mature over a 12-month period of time, those are typically repriced into a lower environment. For the amounts that are coming off, they are probably pretty similar to these higher interest rates in the competition that we're seeing. We are seeing things as high as 4% now. being offered by other banks. So I think that the opportunity is maybe smaller, but having said that, our spot rate at the end of the quarter is lower than what the average was over the quarter. So I do think there's still a little bit of opportunity. As far as the runoff rates, We did mention that a portion of our CDs moved to a higher yielding, what we call a savings product. And when we sit back and look at both our CDs and this particular product, about a third of it is able to reprice in the first quarter. And again, it probably reprices similarly or maybe a little bit lower than than what we saw in the fourth quarter. So we still have a fair amount repricing into the current quarter, but maybe it's a few basis points.

Got it. That's helpful. Last question, if I can just sneak it in, is just in regards to, I think Trump, it's been reported that he may look to do an executive order requiring banks to collect citizenship data on their customers. I'm wondering if you guys have looked at this and have, you know, any preliminary thoughts of how that could impact the way you look to do business or anything of that nature. Thanks.

Kelly, may I clarify, are you speaking to, like, the SBA type of executive order? I think this is a broader...

It's hypothetical, but I think Besant talked about Trump's potentially working on an executive order to collect citizenship, requiring banks to collect citizenship data on their customers.

Yeah. No, the only thing that we were kind of sort of mopping a little bit more closely with respect to the USSB administration's recent sort of procedural guidelines, if you will, which restrict applicants to only be U.S. citizens, if you will. So that's the only thing that we're kind of watching more closely.

Got it. You guys do have an SBA business? Does that have any bearing on kind of your expectation for that on a go-forward basis?

No, in fact, when we first, no, not at all. We don't have any, there's no impact based upon our system.

Got it. Thank you so much.

Your next question is coming from Matthew Clark with Piper Sandler. Please pose your question. Your line is live.

Thanks. Good morning, everyone. Just wanted to drill into the loan growth outlook a little more. I think coming into the year, the expectation was for high single digits. A little bit more of a challenge here after the first quarter. Do you expect to kind of work toward high single digits as we move through the year? Do you still think we can bounce back here and get close to something in that high single digit range?

I'm going to turn it over to John here in a second, but let me make a couple comments. So we had loan production of about $145 million in the fourth quarter. We came into the first quarter with about $130 million, approximately the same yield, kind of holding the line as we observed interest rates kind of stop moving down, even some talk of potentially moving We recognize our funding base. I think that while we didn't observe much of an impact with the government shutdown, call it in our SBA business, I would say our originations in that area were maybe a little bit lighter in the first quarter. So there's opportunity there. Our second and third quarters have historically been our highest producing quarters. So much so that they... you know, achieve, I think, that higher number. So we're stringing together, I think, positive quarters. There's business to be done. And with interest rates as high as they are, it'll, you know, depend whether people come off the sidelines and go ahead and move forward. And so, you know, when I think about the range, you know, high single digits, I mean, I would put it, you know, mid to high single digits. You know, we're only building off of, you know, a $3 billion and change portfolio. We're in big areas. We should be able to participate. But to the extent that we're operating inside this interest rate environment, that might be tempered with maintaining NIM. So, you know, I think piecing together everything we're seeing, you know, an attractive pipeline, historically fourth and first quarter can be a little bit lower. we would still remain optimistic, but let's maybe anchor it in the mid to high single digits. I can turn more comments over to Johnny, but that's, I think, what we're looking at.

No, I echo Lynn's comments. Nothing to add here. Again, our pipeline is healthy. We just want to be very disciplined in you know, and what kind of loans we fund quality-wise and also making sure we're generating, you know, appropriate returns for the bank with these new relationships that we're bringing.

Great. The other one I had was to get a little more color on the CD repricing and the savings promotional product. Just want to get the specific amount of CDEs that are coming due here in 2Q and the related rate. And then it sounds like the renewal rate is similar, maybe a little bit lower, but just want to get those specific numbers, including the promotional savings rate product.

Sure. So I think what we are looking at is about 60% of our deposits fit into the CDs and sort of flex savings products and a third of them reprice in the first quarter and you know our observation in the marketplace is I think the more rate-sensitive money is now costing between 385 and 4%. We've been successful a little bit lower than that, and that's what it's actually coming off at. So we're working with our relationships and our customers, but our ladder at the same time last year when we were putting on 12-month money, that was around at the 375 level, right? So that's what's coming due. And interestingly, you know, it's now 385 to 4% despite short-term or Fed funds rates being lower. So yes, we still have about, you know, 60% of our funding base in CDs and savings, about a third reprices in the first quarter, And, you know, we've been kind of in the 370 to 375 range. I think that we are competing heavily, and we've done a really great job. But we're observing rates at 385 and 4% when you, you know, look around at offer rates.

Okay, perfect. Thank you.

Once again, if you do have any remaining questions or comments, please press star one at this time. Your next question is coming from Jackson Loren with Stevens. Please pose your question. Your line is live.

Hey, good morning. This is Jackson on for Andrew Terrell. Hi, Jack. Thanks, Jackson. Maybe coming back to margin, I appreciate the color on kind of the short-term wide path, but if we look a little bit longer term, You've run at a 4% NIM in the past. Do you guys see a path to get back to that? Yeah.

Hello? Hi. Can you just start your question again? I think the line cut and I didn't catch all of it.

Yeah. Yeah, of course. So just more longer term on the margin. You guys have run at a, call it 4% NIM in the past. I was just wondering if you guys see a path to kind of get back to that level. And if so, what do you think is kind of required to get back there?

So I think what you may be referring to is a point in time in RBB's history where there was a very high percent of non-interest-bearing deposits. And in order to move to, I think, that mid-3% net interest margin, it requires a high percent of non-interest bearing deposits. And we remain focused on building the commercial or CNI part of our business, which tends to have the more attractive deposits and funding base associated with it. I think before we start talking about a NIM with a 4% handle, we'll need to squarely get into three, three and a quarter. And I think we believe we have the opportunity to do that, but it does require staying focused on our CNI business, growing that, bringing in more non-interest bearing or less rate sensitive customers, and then continuing to work with our relationships that we have so that we can move down on our wholesale funding, which we did in the first quarter.

Got it. That's helpful. Thank you. And then just last one for me on fees. I was wondering if you guys could just talk about gain on sale margin trends and kind of how we should be thinking about loan sales versus loan retention going forward.

I can start so for loan sales I think they fall into two buckets one is our mortgage banking business you know that tends to be a higher volume lower premiums we like to test the secondary markets to make sure that we do have an off-ramp relative to our loan production but generally we hold the majority of it look at our prepayments and then we're balancing our mortgage portion of our portfolio against our overall total portfolio. We've kept that at about 50%. We would like to continue to grow our commercial side, which includes multifamily CRE, CNI, and SBA. And then on the SBA loan sales, those are smaller dollar volume, but higher premiums. We would expect to be at similar, if not higher levels than what we were able to achieve in 2025. 2025 was a little bit lower than 2024. A little bit of disruption from the government shutdown, just a little bit of noise. We still see that as good opportunity. We had hired a couple people last year. I think there's still opportunity in the fee income area to have that move higher in other quarters compared to the first quarter.

That is all I had. Thank you guys for taking the questions. Thanks, Jackson. Thank you.

Thank you. There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Johnny Lee for any closing remarks.

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, everyone. Thank you.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.