RBB Bancorp Q3 FY2025 earnings call

• Net income increase driven by core earnings growth and lower credit costs. - Net interest income and margin continued to expand for fifth consecutive quarter. - Loans held for investment grew, with in-house mortgage origination business performing well. - Noninterest income down due to prior quarter's employee retention credit. - Noninterest expenses decreased, but slightly higher than expected due to loan origination and business investment costs. - Asset quality improved with NPLs, special mention loans, and past due loans decreasing. - Deposits grew across all categories, and tangible book value per share increased.

Third quarter net income totaled $10.1 million or $0.59 per share, a 9% increase from last quarter and 45% increase from a year ago. Net interest income increased for the fifth consecutive quarter to $29.3 million, with net interest margin reaching 2.98% (up 6 basis points from prior quarter). Loans held for investment grew by $68 million or 8% annualized, with loan originations totaling $188 million at a blended yield of 6.70%. Noninterest income decreased $5.2 million due to the absence of employee retention credit proceeds from the prior quarter. Noninterest expenses decreased $1.8 million to $18.7 million. Nonperforming loans decreased $11.3 million to $44.5 million, special mention loans decreased 46% to $49 million, and past due loans decreased $11.5 million to $6.5 million. Total deposits increased by $178 million from the end of the second quarter to $3.4 billion.

• Quarterly noninterest expense expected to be in $18 million to $19 million range, focused on keeping operating costs below 2% of average assets. - Remaining about $4 million left on current stock repurchase program, with interest in potential buyback continuation. - Focus on resolving credit issues like nonaccrual loans and REO, and potentially re-upping buyback authorization when appropriate.

• Intense competition for liquidity impacting funding costs. - Government shutdown potentially affecting funding of SBA loans. - Interest rate fluctuations posing risks to net interest margin and funding costs.

Q: Brendan Nosal asked about asset quality progress and capital repurchase.

A: Johnny Lee and Lynn Hopkins discussed ongoing credit resolution work, with NPAs still having key relationships to resolve, and about $4 million left on current stock repurchase program with interest in potential continuation.

Q: Matthew Clark inquired about deposit spot rate, deposit beta, and loan portfolio mix.

A: Lynn Hopkins noted deposit spot rate at $2.97 with deposit beta impacted by competition, loan growth driving earning assets, and pipeline still healthy with predominantly residential mortgage and CRE prospects but SBA loans affected by government shutdown.

Q: Jackson Laurent asked about interest recovery and FHLB advances.

A: Lynn Hopkins said no significant interest recovery in third quarter, FHLB advances matured at ~3.40% and were replaced with brokered funds at ~4%.

Q: Kelly Motta questioned margin impact of rate cuts and capital return avenues.

A: Lynn Hopkins and Johnny Lee discussed margin expectations with opportunities to outpace rate cut impacts, and focus on demonstrating credit progress and growing loans before considering other capital return avenues like acquisitions or increased buybacks.