RBB Bancorp (RBB) Q3 2026 earnings review
RBB Bancorp's margin widens, but its deposits stop getting cheaper
RBB Bancorp earned more as it repaid costly debt and problem loans shrank, but a building sale flatters the result. The Los Angeles lender serving Asian-American communities lifted profit per share 25% from a year ago. Its net interest margin, the gap between loan income and funding costs, widened to 3.16%. Chief executive Johnny Lee credited strong loan production for the first loan growth since March. By our math a building sale and a lower tax rate supplied about a fifth of the profit.
| Profit per share | $0.74 $0.59 a year ago |
|---|---|
| Net interest margin | 3.16% 3.06% last quarter |
| Loans | $3.40 billion +10.8% annualized from June |
| Full-year tax rate outlook | Lowered to 26.9% 28.0% in July |
⚖️ Verdict: 🟢 Bullish
The story got better because loans are growing again and the margin resumed widening. The bad news: the growth came almost entirely from home mortgages, and deposit costs stopped falling just as the Federal Reserve raised rates.
The question now is whether the margin can keep widening when deposits no longer get cheaper. Either new loans and the debt repaid in July carry it higher, or repricing deposits and the Fed's rise eat the gain. January's fourth-quarter deposit cost will tell.
🐂 Bull Case
Cheaper Debt and Recovered Interest Widened the Margin
The net interest margin is the gap between what RBB Bancorp earns on loans and what it pays for money. After the second-quarter results, finance chief Lynn Hopkins told analysts to expect a margin near the first quarter's 3.15% and above the second quarter's 3.06%.
The margin reached 3.16%, just above the top of that range. The main reason is that the Los Angeles lender repaid part of its subordinated notes on July 1, which cut its borrowing costs.
- Subordinated notes repaid: $40 million, leaving $80 million at 7.02%
- Interest on long-term debt: $1.4 million, down $684,000 from the second quarter
- Cost of all borrowings: 5.04%, from 5.53%
Not all of the gain will last. The company said the higher asset yield came mostly from "higher nonaccrual interest recoveries on loans" and a $320,000 special dividend from the Federal Home Loan Bank. By our math the dividend alone added 0.03 points, so the underlying margin was about 3.13%, still inside Hopkins's range.
What to watch: the fourth-quarter margin, due in January, the first full period after the Federal Reserve's quarter-point rate rise. A reading at or above 3.13% would show cheaper debt and new loans at 6.30% outweigh dearer deposits.
Reserves Now Cover Nonperforming Loans Twice Over
Two years ago RBB Bancorp's main problem was bad construction and property loans. Chief executive Johnny Lee said credit quality continued to improve and the bank was "well positioned to continue these positive trends to finish the year".
Borrowers repaid $5.3 million of nonperforming loans in the quarter, and only $522,000 of new ones joined the list. Write-offs were almost nil for a second quarter, so the $500,000 set aside for losses reflects loan growth, not new problems.
- Nonperforming loans: 0.55% of loans, from 1.38% a year ago
- Reserve as a share of nonperforming loans: 234%, from 184% in June
- Net charge-offs: 0.01% of average loans, annualized
This matters because credit costs held profit down last year: the provision for the first nine months was $9.8 million then, against $300,000 now. With reserves at twice the bad-loan balance, the bank can absorb a new problem loan without a charge to profit. One caution: special mention loans, a watch list one step above substandard, rose $4.1 million as the bank added $7.0 million.
What to watch: the fourth-quarter special mention balance. A second increase would mean new problem loans form faster than borrowers repay the old ones.
RBB Paid Off Costly Notes and Kept Buying Back Shares
RBB Bancorp holds far more capital than regulators require. Last year it paused buybacks until it had decided what to do with $120 million of costly subordinated notes.
On July 1 the bank repaid $40 million of those notes at face value. It also spent $4.5 million on buybacks, cutting the share count by about 159,000 by our math, and declared the usual dividend for November.
Capital ratios slipped because subordinated notes count as regulatory capital: total capital fell to 22.05% of risk-weighted assets from 23.44%. Common equity tier 1, the core measure, held at 17.87%, leaving room to redeem the remaining notes and keep buying stock.
What to watch: whether the remaining $80 million of notes, at 7.02%, go before year-end. A second redemption would widen the margin again.
🐻 Bear Case
Loan Growth Came From Mortgages, Not From Businesses
Chief executive Johnny Lee said "Strong loan production drove double-digit annualized loan growth in the quarter". The loan book did grow $89.8 million, but the production figures tell a different story.
New lending did not rise. Growth came because borrowers repaid less, the bank stopped selling mortgages, and it bought loans from other lenders.
- Originations: $154.0 million, from $187.8 million a year ago
- Loans sold: $2.7 million, from $50.2 million last quarter; loans bought: $21.9 million
- Single-family mortgages: up $80.7 million, now 51.8% of loans
- Commercial and industrial loans: down $165,000
This matters because the lender opened a Northern California loan production office this year to build commercial lending, and that office has now cost a full quarter of salaries and rent with nothing to show in the business-loan line.
Mortgages also earn less: home loans yielded 5.5% against 7.3% for business loans in the last breakdown it published. Commercial real estate is still 37.7% of loans, and construction lending produced the last wave of bad loans.
What to watch: the split of fourth-quarter originations between mortgages and commercial loans, and whether loan sales resume. A quarter in which business loans grow faster than mortgages would show the Bay Area team is producing, not just costing.
Deposits Stopped Getting Cheaper as the Fed Raised Rates
For five quarters RBB Bancorp's recovery ran on cheaper deposits as maturing certificates renewed at lower rates. That tailwind has stopped: the company said quarter-end deposit rates rose partly because the Federal Reserve raised its benchmark rate by a quarter point.
- Cost of interest-bearing deposits: 3.35%, from 3.34% last quarter
- Rate on all deposits at quarter end: 2.82%, from 2.75% in June
- Loans as a share of deposits: 100.1%, from 97.6%
There is good news in the mix: retail deposits grew $63.3 million, so the bank cut wholesale deposits, money bought through brokers, to 1.8% of the total. But the new money came as time deposits and savings, while free checking balances fell $34.7 million.
This matters because loans now exceed deposits, so the lender borrowed $20 million more from the Federal Home Loan Bank. Hopkins said last quarter that about $1.5 billion of certificates mature within a year, mostly below rates rivals now offer, so that money reprices higher as the Fed moves up.
What to watch: the cost of interest-bearing deposits in the fourth quarter, the first full period after the rate rise. A second straight increase would mean dearer deposits are eating the gain from the notes redemption.
The $20 Million Construction Property Is Still Unsold
The largest problem asset is no longer a loan. In the spring RBB Bancorp foreclosed on a partly built construction project and holds it as other real estate owned, property the bank owns after foreclosure, at $19.8 million. Hopkins said last quarter she was looking for a resolution in the second half.
Nothing moved in the third quarter: the September balance matched June's, and the property is now 51% of nonperforming assets by our math. Repossessed property sits outside the loan loss reserve, so a sale below carrying value hits profit directly; a $2 million shortfall would cost about $0.09 a share by our math.
What to watch: the fourth-quarter balance of other real estate owned and any gain or loss on a sale. A sale near carrying value would halve problem assets.
👓 Other Themes
Brooklyn Office Sale Added $2.7 Million
RBB Bancorp sold the Brooklyn office building that housed its loan operations center and booked a $2.7 million gain. It has leased the building back for four months and will move the team to new leased space in Brooklyn in 2027, so rent rises while the gain does not repeat. The sale flattered the efficiency ratio, costs as a share of revenue; without it, by our math, the ratio was 57.8%, little changed from June.
💲 Other KPIs
Up 0.8% from June and 6.0% from a year ago, the slowest annual gain in four quarters. Tangible book value is equity minus goodwill, per share. Growth slowed because higher market rates pushed unrealized losses on the bond portfolio to $30.6 million, cutting equity by $6.8 million after tax and offsetting about half of the quarter's profit.
Up 2.8% from the second quarter and 4.6% from a year ago. Hopkins has pointed to an $18 million to $19 million quarterly range since last autumn, and costs have now run above it for three straight quarters. Salaries and occupancy drove the rise: the Northern California office ran for a full quarter and the bank now pays rent in Brooklyn.
Return on average assets, profit earned on each dollar of assets, rose to 1.17% from 0.97% last quarter, the highest in the two years we track. The building gain and the lower tax rate explain the whole step: without them, by our math, the return would have been about 0.93%, slightly below the second quarter.
🔮 Guidance
Lowered. The company now expects to pay 26.9% of pre-tax profit in tax this year, down from the 28.0% it planned in July, because it bought more federal tax credits. By our math the plan implies a fourth-quarter rate near 27%, well above this quarter's. A lower rate also eases the comparison with last year's 24.2%.
Unchanged. The board declared $0.16 a share, payable November 12, the same payment the lender has made since at least 2024. The dividend took 21% of this quarter's profit, and with buybacks the bank returned $7.2 million, about 57% of net income. Management said in July it would consider a higher dividend; the release does not mention one.
❓ Key Questions
What is the construction property worth, and who will buy it?
The $19.8 million repossessed project is half of all problem assets and sits outside the loan loss reserve. The as-is appraisal, the cost to finish it and the buyer pool decide whether the promised second-half sale brings a loss.
How much margin came from recovered interest on bad loans?
The company said recoveries on formerly nonaccrual loans were the main reason asset yields rose, but gave no figure. Without it, readers cannot tell how much of the 3.16% margin repeats.
Will the remaining $80 million of notes be redeemed?
The notes cost 7.02% and the core capital ratio is 17.87%. A second redemption would add to the margin; the release says nothing about timing or the capital level that would trigger it.
Is a 50/50 mortgage and commercial mix still the target?
Mortgages reached 51.8% of loans after the bank stopped selling them. If the mix policy still holds, mortgage sales must resume and growth slows unless commercial lending picks up.
What rates do certificates maturing in early 2027 carry?
About $1.5 billion of certificates mature within a year. After the Fed's increase, the gap between their current rates and renewal offers sets the direction of deposit costs next year.