RBB Bancorp earnings

Management highlights

• First quarter was a strong start with continued earnings growth. • Net interest margin increased due to lower funding costs and higher asset yields. • Loan growth modest due to elevated payoffs and paydowns, but pipelines remain healthy. • Deposits declined slightly but retail relationships grew. • Credit quality improved with non-performing assets decreasing. • Non-interest income increased, non-interest expense increased but efficiency ratio improved.

Guidance

• Believe positioned to deliver stronger loan growth over balance of the year. • Expect non-interest expense for next few quarters to be in the $18 to $19 million range. • Pipeline remains healthy and positive about Q2 loan growth based on current bill.

Segment performance

Net income was $11.3 million, or 66 cents per share, an 11% increase from the fourth quarter. Return on assets increased to 1.09%. Net interest margin increased another 16 basis points to 3.15%, fifth consecutive quarter of margin expansion. Loans increased by approximately $11 million or 1%. Deposits declined slightly during the quarter. Non-performing assets declined 9% from prior quarter and 24% from a year ago. Non-interest income increased $1.4 million to $4.3 million. Non-interest expense increased by $293,000 to $19.3 million, but efficiency ratio improved to 55%.

Risks & headwinds

• NPLs are in a process of resolution and may take time. • Sub-debt repricing requires regulatory approval. • Interest rate environment changes could impact net interest margin.

Analyst Q&A

• Q: Good to see asset quality improvement, can you offer color on larger non-performing assets and normalized reserve to loan ratio?

  A: 90% of NPLs are same three relationships, NPLs expected to normalize down. Largest one working through bankruptcy process. Normalized coverage ratio could come down.

• Q: Any updated thoughts on capital deployment?

  A: Focused on sub-debt repricing which repriced April 1st, also opportunity for stock buyback but sub-debt priority.

• Q: Is FHLB special dividend one time? Expectations for margin path?

  A: FHLB special dividend one time. Half mortgage portfolio priced on $3,360 basis, near term margin may have some dynamics but still opportunity to expand above 3%.

• Q: Loan growth was muted, what drove variance and pipeline outlook?

  A: Disciplined on pricing, stayed above 6% unless with ancillary income, some deals let go, higher paydowns. Pipeline healthy, positive about Q2 loan growth.

• Q: Any room to bring down deposit costs?

  A: Still some opportunity, 98% of 12-month CDs mature over 12 months, runoff rates observed.

• Q: Thoughts on Trump's potential executive order requiring banks to collect citizenship data?

  A: Only watching USSB administration's procedural guidelines restricting applicants to U.S. citizens, no impact on system.

• Q: Loan growth outlook, expect high single digits?

  A: Pipeline healthy, historically second and third quarters highest producing, remain optimistic for mid to high single digits.

• Q: Path to get back to 4% NIM?

  A: Need high percent of non-interest-bearing deposits, focus on CNI business to bring in more less rate sensitive customers.

• Q: Gain on sale margin trends and loan sales vs retention?

  A: Mortgage banking tests secondary markets, holds majority, commercial side to grow, SBA loan sales expected to be similar or higher than 2025 levels.