RBB Bancorp Earnings Call Signals Credit-Led Revival

Rbb Bancorp ((RBB)) has held its Q4 earnings call. Read on for the main highlights of the call.

RBB Bancorp Earnings Call Highlights Strong Recovery Amid Funding Challenges

The latest earnings call from RBB Bancorp painted a broadly upbeat picture, underscored by sharply higher earnings, healthier credit quality, and solid loan growth. Management emphasized that improved asset quality, better funding costs, and active capital returns are now driving performance, even as the bank continues to navigate deposit competition, near‑term margin pressures, and the looming repricing of subordinated debt. Overall, the tone was constructive, with leadership framing current headwinds as manageable and outweighed by operational gains.

Net Income Rebounds with Doubling of EPS

RBB Bancorp delivered Q4 net income of $10.2 million, translating to diluted EPS of $0.59. Earnings were essentially flat versus the prior quarter but more than doubled from the same period a year ago, signaling a strong recovery in profitability. The sizeable year‑over‑year improvement reflects a combination of better asset quality, rising net interest income, and disciplined expense control, suggesting that the bank has moved past the worst of its credit and margin pressures.

Loan Growth and Originations Fuel Balance Sheet Expansion

Loans grew 8.6% for the full year, supported by robust origination activity. In Q4 alone, loan originations reached $145 million, and full‑year originations were 32% higher than in 2024. This momentum gives management confidence in achieving another year of high single‑digit loan growth in 2026. The bank is leaning into its lending franchise while remaining selective on pricing, aiming to protect yields even if that means walking away from some aggressively priced deals.

Net Interest Income and Margin Continue Their Climb

Net interest income rose 13% for the year to $112 million, marking the sixth consecutive quarter of NII growth. Q4 net interest margin came in at 2.99%, a modest 1 basis point increase from Q3. Management described margin expansion as muted, reflecting a still‑competitive deposit environment and some pressure on asset yields, but the consistent upward trend in NII highlights underlying earnings strength and sets the stage for potential further improvement as funding costs normalize.

Asset Quality Marks a Clear Turnaround

Credit quality showed marked improvement across multiple metrics. Nonperforming loans fell 45% year over year, while nonperforming assets declined 34%. Criticized and classified assets decreased 43% for the full year and 25% just since the end of Q3. Management stated that credit has “turned the corner,” pointing to the cleanup of problem credits as a key driver of the earnings rebound and a source of lower expected credit costs going forward.

Pre-Tax, Pre-Provision Income Outpaces Asset Growth

Q4 pretax, pre‑provision income reached $2.3 million, up 21% from a year earlier. That growth rate is roughly four times the pace of asset growth over the same period, indicating that the bank is expanding its earnings base more efficiently than its balance sheet. This metric is important for investors because it strips out credit provisioning and focuses on core operating performance, which is clearly on an upswing.

Deposit and Funding Mix Improves as FHLB Reliance Falls

Deposits rose 6.6% year over year in Q4, with particular strength in interest‑bearing non‑maturing deposits that support loan growth and reduce reliance on wholesale funding. This allowed RBB to cut back its use of FHLB advances, a positive development for funding flexibility and cost. Average demand deposits remained stable at 16% of total deposits, providing a stable, low‑cost funding base even as the overall rate environment evolves.

Capital Returns and Book Value Growth Support Shareholder Value

Tangible book value per share increased 7.8% during 2025 to $26.42, reflecting both retained earnings and improving balance sheet metrics. The bank returned more than $25 million to shareholders through dividends and share repurchases, buying back roughly 4% of its outstanding shares. Despite these capital returns, regulatory capital ratios remain well above “well‑capitalized” levels, giving RBB room to continue balancing growth, risk management, and shareholder distributions.

Lower Funding Costs and Tax Rate Provide a Tailwind

Funding costs trended lower through the year, with average funding costs declining 38 basis points. In Q4 alone, average funding costs fell another 8 basis points. On top of that, the effective tax rate dropped meaningfully in the quarter, down 330 basis points versus Q3, with guidance for a 27–28% effective tax rate in 2026. Together, cheaper funding and a lower tax burden provide a meaningful tailwind to net earnings, helping offset margin pressures elsewhere.

Deposit Competition Still Pressures Pricing

Despite the progress on funding costs, management highlighted ongoing competitive pressure for deposits. While the average rate on interest‑bearing deposits was 55 basis points lower year over year in Q4, these reductions have not fully matched the broader rate cuts in the market. Deposit beta—how quickly deposit rates move relative to benchmark rates—was about 30% on a linked‑quarter basis and higher on a rolling basis, and management expects this beta to rise. This tug‑of‑war between retaining deposits and controlling costs remains a key profitability risk.

CD Maturities Create Repricing Risk and Opportunity

Q4 saw a mixed deposit picture: brokered deposits fell by $42 million while retail deposits increased by $26 million. However, nearly all of the bank’s certificate of deposit book—99.5% of $1.7 billion—will mature within 12 months, with about 40% maturing in Q1 alone. This creates significant repricing risk and near‑term uncertainty around funding costs and balances, but also an opportunity to lower rates where possible and improve overall funding mix if market conditions cooperate.

Margin Expansion Likely to Stay Muted in the Near Term

While net interest income is rising, margin improvement remains modest. In Q4, asset yields declined by 7 basis points, including a 4 basis point decrease in loan yield, even as funding costs moved lower. The bank remains liability‑sensitive, with a loan‑to‑deposit ratio near 99%, meaning changes in funding costs and deposit behavior can quickly impact margins. Management signaled that NIM expansion is likely to be gradual rather than dramatic in the near term.

Residual Nonperforming Asset Work Concentrated in Few Relationships

Despite the improvement in overall asset quality, management acknowledged that some nonperforming loans still require attention. About 90% of remaining NPLs are tied to only four borrower relationships, with one partially completed construction project representing about half the remaining NPL balance. That project is expected to take the longest to resolve, but the concentrated nature of the problem credits suggests that further clean‑up could deliver additional credit gains once resolved.

Subordinated Debt Repricing Adds Capital Strategy Complexity

RBB faces a key capital structure decision with $120 million of subordinated debt eligible to be redeemed or repriced effective April 1. If allowed to reprice, the coupon would be just under 7%, which management views as costly. The bank intends to “rightsize” its capital stack, which could temporarily constrain capital deployment options such as buybacks or aggressive growth while the structure is optimized. Investors should watch for how the bank balances cost of capital with flexibility for future shareholder returns.

Noninterest Income and Expenses Remain Volatile

Noninterest income slipped by $486,000 in Q4 from Q3, partly because the prior quarter benefited from a $0.5 million equity gain that did not recur. Noninterest expenses rose by $282,000, largely due to year‑end accruals, while legal and professional fees were elevated in 2025 but are expected to moderate in 2026. Management guided to quarterly noninterest expenses of roughly $18–19 million, with Q1 running about $0.75 million higher due to taxes and salary adjustments. This framework suggests a more stable cost base after a period of elevated and somewhat noisy expense items.

Loan Pricing Discipline in the Face of Competitive Pressure

Management pointed to intensifying competition in commercial real estate lending, with some peers offering five‑year fixed‑rate loans in the 5.5% to 5.75% range. RBB has sometimes chosen to pass on these deals to maintain higher loan yields, typically above 6% on many proposals. This stance supports NIM and overall returns but may limit volume in the most aggressively priced segments. The bank’s selective approach underscores a focus on profitability and risk‑adjusted returns rather than pure growth.

Operational and Reporting Anomalies Highlight Need for Clarity

The call included minor inconsistencies in reported origination totals—specifically, a conflicting $73 million figure mentioned alongside the correct $145 million Q4 originations—pointing to some internal reporting or communication issues. While not material to the financial story, such anomalies can create confusion for analysts and investors and underscore the importance of clear, consistent disclosures as the bank seeks to rebuild and strengthen market confidence.

Guidance Signals Steady Growth with Gradual Margin Improvement

Looking ahead to 2026, management expects another year of high‑single‑digit loan growth, supported by a strong pipeline and the elevated origination levels seen in 2025. They see room for net interest margin expansion from the Q4 level of 2.99% and a loan yield of 6.7%, driven by further deposit cost improvements as a large CD book reprices from rates in the high‑3% range. The bank anticipates incremental deposit cost relief in Q1, an effective tax rate of 27–28%, and quarterly noninterest expenses around $18–19 million, with Q1 slightly higher. Credit costs are expected to decline as nonperforming and criticized assets continue to resolve, while management plans to optimize the $120 million of subordinated debt as it reprices, potentially paving the way to resume share buybacks once the capital structure is reset.

In summary, RBB Bancorp’s earnings call presented a story of clear progress: earnings have rebounded, asset quality has improved materially, and the bank is deploying capital while maintaining solid regulatory cushions. Challenges remain around deposit competition, CD repricing, and subordinated debt costs, which are likely to keep margin expansion modest in the near term. Even so, management’s guidance points to sustainable loan growth, improving funding dynamics, and lower credit costs, making the stock one to watch for investors seeking a regional bank in the midst of a disciplined, credit‑led recovery.