RBB Bancorp Q3 2026 Profit Rises 25% as Margin Expands

RBB Bancorp reported a 25% increase in third-quarter net income as net interest income and margin improved, credit metrics strengthened and a building sale provided a one-time boost. Net income reached $12.6 million, or $0.74 per diluted share, compared with $10.1 million, or $0.59 per share, in both the prior quarter and the year-earlier period.

The sale of an office building generated a $2.7 million pre-tax gain, adding $2.0 million to net income, $0.12 to diluted earnings per share and 18 basis points to annualized return on average assets. That contribution was a significant component of the quarterly earnings increase.

Margin and lending improve

Net interest income rose 6% sequentially and 8% year over year to $31.8 million. Net interest margin expanded to 3.16% from 3.06% in the second quarter and 2.98% a year earlier.

Interest and fees on loans increased to $52.2 million, while total interest expense rose more modestly to $27.5 million. The held-for-investment loan portfolio produced an average yield of 6.23%, including a nine-basis-point contribution from nonaccrual interest recoveries. New loans originated during the quarter carried an average yield of 6.30%.

Non-GAAP pre-tax pre-provision income was $17.3 million, up 23% from the second quarter and 25% from a year earlier. The measure included the building-sale gain. The reported efficiency ratio improved to 53.02% from 57.46% sequentially, but would have been 57.1% without the gain.

Noninterest expense increased by $526,000 from the second quarter to $19.5 million, partly reflecting a new loan production office in Northern California. Salaries and employee benefits, the largest expense category, rose to $11.5 million.

Annualized return on average assets increased to 1.17% from 0.97% in both comparison periods. Non-GAAP return on average tangible common equity was 10.79%, compared with 8.85% in the second quarter and 9.16% a year earlier. The company also said its effective tax rate was lower because of purchased federal tax credits.

Residential mortgages drive loan growth

Gross loans held for investment increased by $89.8 million from June 30 to $3.40 billion, representing 11% growth on an annualized basis and 3% growth from a year earlier. The increase was driven mainly by an $80.7 million expansion in single-family residential mortgages and an $8.3 million increase in construction and land development loans. Third-quarter originations totaled $154.0 million.

Single-family residential mortgages accounted for 52% of total loans, while commercial real estate represented 38%. Construction and land development loans made up 5%, with commercial and industrial and Small Business Administration loans comprising most of the remainder.

The $1.76 billion residential mortgage portfolio had a weighted-average loan-to-value ratio of 54%, with more than 96% of loans below 70% LTV. The $1.28 billion commercial real estate portfolio included $633.9 million of multifamily loans and $615.6 million of owner-occupied and non-owner-occupied commercial properties.

Deposits were little changed sequentially at $3.40 billion and increased 1% year over year. A $63.3 million rise in retail deposits was largely offset by a $58.7 million reduction in wholesale deposits. The period-end weighted-average deposit rate rose to 2.82% from 2.75% at the end of June.

With loan growth outpacing deposit growth, the loan-to-deposit ratio increased to 100.1% from 97.6%. RBB reported $2.0 billion of cash, investments and secured borrowing capacity at quarter-end. Federal Home Loan Bank advances rose to $180 million from $160 million, while long-term and subordinated debt declined by about $40 million after a partial redemption.

Nonperforming assets decline

Asset-quality indicators improved during the quarter. Nonperforming loans fell 21% sequentially and 59% year over year to $18.8 million, or 0.55% of total loans. Nonperforming assets declined 11% from June and 29% from a year earlier to $38.7 million, or 0.91% of total assets.

The presentation noted that two relationships accounted for $15.6 million, or 83%, of nonperforming loans. Other real estate owned remained at $19.8 million and consisted of one partially completed mixed-use property in Los Angeles.

Substandard loans decreased by $4.2 million during the quarter, while special-mention loans increased by $4.1 million. Both categories remained below year-earlier levels.

RBB recorded a $500,000 provision for credit losses, compared with no provision in the second quarter. Net charge-offs were $122,000, equivalent to an annualized 0.01% of average loans. The allowance for loan losses was $44.0 million, or 1.30% of held-for-investment loans, and covered nonperforming loans by 234%.

Capital remains above regulatory thresholds

The common equity Tier 1 ratio was 17.87%, down 13 basis points sequentially but up 59 basis points year over year. The non-GAAP tangible common equity ratio increased to 11.05%, and tangible book value per share rose 6% from a year earlier to $27.44.

RBB said it returned $20.0 million to shareholders through dividends and share repurchases during the 12 months ended September 30. Its quarterly common-stock dividend was $0.16 per share. The company did not provide numerical forward guidance in the presentation.

Risks identified by RBB include changes in interest rates and deposit costs, liquidity and credit conditions, real estate values, regulatory requirements and economic weakness. Its loan concentration in residential mortgages and commercial real estate, along with the concentration of most nonperforming loans in two relationships, also remains relevant to future credit performance.