RBB Bancorp Q4 FY2025 earnings call

Key Points

• Johnny Lee noted the fourth quarter was a strong finish with solid loan growth, improving performance ratios, and normalizing credit. Fourth quarter net income was $10.2 million, stable from Q3 but double y-o-y. Loans grew 8.6% y-o-y, with $145 million in Q4 originations, 32% higher than 2024. Pipeline remains healthy, optimistic for high single-digit growth in 2026.
• Lynn Hopkins discussed net interest income increased slightly, sixth consecutive quarterly increase. Net interest income for the year increased 13% to $112 million. Noninterest income declined in Q4 but all categories except other income increased y-o-y. Noninterest expenses increased slightly due to year-end accruals. Effective tax rate reduced in Q4, expected 27%-28% in 2026. Deposit franchise details, tangible book value per share increased 7.8% in 2025.

Fourth quarter net income totaled $10.2 million or $0.59 per share, stable from the third quarter but more than double the earnings of the same quarter a year ago. ROA and NIM were stable from the third quarter while increasing sharply from a year ago. Loans grew at a solid 8.6% for the year, with $145 million in fourth quarter originations, 32% higher than in 2024. Fourth quarter total deposits increased 6.6% compared to the same quarter a year ago, with strong growth in interest-bearing nonmaturing deposits. The fourth quarter rate on average interest-bearing deposits declined by 55 basis points from the fourth quarter of 2024. The loan portfolio includes a $1.7 billion residential mortgage portfolio representing 50% of total loans, with well-secured non-QM mortgages in New York and California.

Forward-Looking Statements

• Optimistic for high single-digit loan growth in 2026.
• 2026 effective tax rate expected to be between 27% and 28%.
• Plan to rightsize sub debt and be more active in share buybacks once sub debt is rightsized.

Risks

• Intense competition for deposits, which has impacted deposit cost reductions despite Fed rate cuts.
• Need to continue resolving remaining nonperforming assets.

Q: Just want to start on the deposit beta this quarter, 30% in terms of interest-bearing. It sounds like competition is still pretty intense. How should we think about that beta going forward? Should you think you can hold that 30%? Or do you feel like you need might that come down throughout the year?

A: Matthew. Thank you. So the 30% for the linked quarters, I would say we're sort of just getting started. So kind of year-over-year, we were able to achieve, I think, closer to that 70% and I think given that we still have a very large portion of our funding base and deposits that will mature over the next year. We think the deposit beta will continue to increase.

Q: Maybe just starting on the margin. Definitely, I hear your comments earlier on the pace of deposit competition. But I guess when I look at the margin, the pace of improvement was a bit muted this quarter versus recent quarters. Can you maybe just talk about how you view the path of the margin as we move through '26?

A: Sure. So let me add just a little bit more color to why we think there is an opportunity, I think, for deposit costs to continue to come down. So again, 99.5% of our $1.7 billion in CDs will mature within the next 12 months. And 40% of those are actually in the first quarter. I think the average price of those is in the high 3s, and I think funding has come down to probably at the high end around the 30% mark. So I think a portion is going to have an opportunity to reprice into the current interest rate environment and we haven't fully seen that. And then I think for -- and then we've also shifted a portion of our funding from traditional CDs into non-maturity interest-bearing products. They have kind of some similar yields, but I think will give us more flexibility as rates continue to come down based on forecast. So I don't know if that's helpful, Brendan or if you're looking for something more specific.

Q: Maybe on loan growth, it slowed down a bit from the past 2 quarters to low single digits. Wondering if you could speak more to the pipeline where you're seeing opportunity? And if the decline was more of a function of payoffs or lower demand or just maybe some deposit constraints given your loan-to-deposit ratio and the competitive dynamics that you cited earlier in the call.

A: Kelly, this is Johnny. I think quite a combination of all the things that you have mentioned. But I mean, overall, again, obviously, we have some loan sales and we had some strategic exits on a couple of classified credits. And for loan sort of momentum, actually, we certainly want to do more, but compared to previous year, overall, I think we're doing pretty well as far as keeping that momentum going. The pipeline is still relatively healthy right now, both for the commercial and the residential mortgage side. So I think even though Q4 seems a bit light, but I think overall on average, are new funded loans for commercial is about $65 million per quarter and mortgage is about $90 million per quarter. And looking at the pipeline right now, certainly, we feel very optimistic that we can continue to keep that pace.

Q: Then, I guess my first question for you would be, do you see this year as an opportunity to lower the loan to deposit ratio considering the potential to reduce interest expense through the course of the year as well as grow interest income?

A: Great questions. So I would say a couple of things. One, we lowered our reliance on wholesale funding. And I think it's relatively low and very manageable. So obviously, to lower the loan-to-deposit ratio, deposit growth would have to outpace our loan growth. And I think we're looking at some attractive loan growth in 2026. Our retail deposit growth did keep pace with our loan growth in 2025. So we would expect the same. I think pushing down significantly would maybe take some opportunistic loan sales that we would then put that benefit into the equity. But I would say, generally, I think there's some opportunity to maybe get into the mid-90s. But I don't know if it would get much lower than that, Tim.