RBB Reverses Margin Squeeze After Subordinated-Note Redemption
Net interest margin rose 10 bps to 3.16% and net interest income reached $31.8 million as cost of funds fell 3 bps after a $40 million partial redemption.
RBB Bancorp (RBB), a Los Angeles-based community financial holding company, reversed a second-quarter squeeze in its net interest margin as higher net interest income helped lift the bottom line. The company attributed the higher earning-asset yield mostly to increased nonaccrual interest recoveries and a special Federal Home Loan Bank dividend, and lower borrowing costs mostly to a partial redemption of subordinated notes.
Net interest margin expanded 10 bps to 3.16% in the third quarter of 2026, after compressing 9 bps to 3.06% in the second quarter. The third-quarter lift included a 9 bps rise in the yield on average total interest-earning assets and a 3 bps drop in the overall cost of funds.
Net interest income rose $1.7 million to $31.8 million, reversing a $417,000 sequential decline in the second quarter. The company said the increase was due to a $2.1 million rise in interest income, including a $320,000 FHLB special dividend that was absent in the second quarter, partially offset by a $473,000 increase in interest expense. Loan interest income rose $1.5 million as average loans increased and nonaccrual interest recoveries contributed.
The yield on average total interest-earning assets increased 9 bps to 5.90% from 5.81%, after a 5 bps decline in the second quarter. Average total cost of funds decreased 3 bps to 2.97% from 3.00%, after a 4 bps increase in the second quarter, due mostly to lower borrowing costs following the July 1 partial redemption of $40 million of subordinated notes. Average noninterest-bearing deposits rose to about 17% of average total deposits from 16%. The period-end weighted average rate on total deposits increased to 2.82% from 2.75%, which the company attributed in part to a recent 25 bps increase in the Federal funds rate.
Net income was $12.6 million, or $0.74 a share, versus $10.1 million, or $0.59, in the second quarter. Return on average assets increased to 1.17% from 0.97%.
Loans held for investment increased $89.8 million, or 10.8% annualized, to $3.4 billion, with $154.0 million of originations at an average yield of 6.30%. The loan-to-deposit ratio rose to 100.1% from 97.6%. Total deposits increased only $4.6 million, or 0.5% annualized, to $3.4 billion, as a $63.3 million rise in retail deposits was offset by a $58.7 million decrease in wholesale deposits. Noninterest-bearing deposits fell $34.7 million to $556.8 million, or 16.4% of total deposits.
Nonperforming assets declined $4.9 million, or 11.3%, to $38.7 million, or 0.91% of total assets, continuing a second consecutive quarterly decline after a 10.8% drop in the second quarter. Nonperforming loans fell $4.9 million to $18.8 million, or 0.55% of total loans, on $5.3 million of payoffs and paydowns versus $522,000 of additions. Other real estate owned was unchanged at $19.8 million. Substandard loans totaled $57.3 million, or 1.69% of total loans. Special mention loans rose to $24.3 million, or 0.72% of total loans.
The provision for credit losses was $500,000 versus no provision in the second quarter, which the company said reflected net loan growth. Net charge-offs remained 0.01% of average loans annualized in both quarters. The allowance for loan losses as a percentage of nonperforming loans rose to 234% from 184%.
Noninterest income increased $2.1 million to $5.1 million, mainly a $2.7 million gain on the sale of a Brooklyn office building, partially offset by an $875,000 decline in gain on sale of loans. Noninterest expense rose $526,000 to $19.5 million on higher salaries and occupancy tied to a full quarter of the Northern California loan production office and Brooklyn operations-center rent. The efficiency ratio improved to 53.0% from 57.5%.
The board declared a quarterly cash dividend of $0.16 a share. President and Chief Executive Officer Johnny Lee said strong loan production drove double-digit annualized loan growth and that, with healthy pipelines and business activity in the company’s markets, it believes it is well positioned to continue those trends to finish the year.
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