RBB Bancorp Stock

Good afternoon, and welcome to the RBB Bancorp Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

It is now my pleasure to turn the floor over to your host, Rebeca Rico. The floor is yours.

Thank you, Selvie. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the third quarter of 2026.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; and Chief Credit Officer, Jeffrey Yeh. Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open the call to your questions.

I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings.

Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebeca. Good day, everyone, and thank you for joining us today. We're pleased to report a strong third quarter. Net income increased 25% from the prior quarter to $12.6 million or $0.74 per share, and our return on average assets improved to 1.17%. Our results included a gain on sale of our office building in Brooklyn, but the underlying drivers of our performance were higher net interest income, solid loan growth and continued improvement in credit quality. These results also show how far RBB has come over the past 2 years.

Compared to third quarter of 2024, earnings per share has increased 90%. Our return on average assets has improved 63% and our return on average tangible common equity has improved 69%. For the 9 months of the year, diluted earnings per share is up 60% from the same period last year.

Loan growth returned in the third quarter as we expected. Loans held for investment increased $90 million or 11% annualized, driven by steady origination volume and lower payoffs and loan sales. We also completed our first full quarter of operations at our new LPO in the San Francisco Bay Area, and we are encouraged by the early response from clients in that market. Our pipelines remain strong across the franchise, and we expect to continue these positive trends to finish the year. Credit quality continued to improve. Nonperforming assets declined 11% during the quarter. And over the past 2 years, NPAs are down 36%, while criticized and classified loans are down 48%. We continue to work toward the resolution of our only OREO property, which migrated from nonperforming loan last quarter.

On the funding side, retail deposit growth of $63 million allowed us to reduce wholesale deposits by $59 million and wholesale funding now represent less than 2% of total deposits. Over the past 2 years, we have grown savings, NOW and money market balances by 86% and reduced our cost of interest-bearing deposits by more than 100 basis points.

Our capital position remains a source of strength. During the quarter, we completed the partial redemption of our subordinate debt and continue to repurchase shares under our buyback program. Over the past 2 years, tangible book value per share has increased 11%, while shares outstanding have declined by 5%. Overall, we believe the third quarter reflected the progress we have made in improving RBB's earnings power, and we are well positioned as we head into the end of 2026.

With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I discuss the company's third quarter of 2026 financial performance. The $2.5 million increase in net income in the third quarter compared to the second quarter was primarily driven by higher net interest income, the $2.7 million pretax gain on the sale of our Brooklyn office building, and a lower effective tax rate. The building gain added approximately $0.12 to diluted earnings per share. Apart from the gain, our core earnings continued to strengthen, supported by loan growth and a wider net interest margin. Including the gain, pretax pre-provision income increased 23% from the second quarter and 25% from the third quarter of 2025.

I'd like to take a moment to provide some additional detail on the building sale. During the quarter, we had an opportunity to sell a building we owned in Brooklyn that housed our New York loan operations center. We occupied 2 of the building's 5 floors, so the property was larger than what we needed for our operations. The sale generated net proceeds of approximately $7.4 million that we have been able to redeploy. We are leasing back the space we currently occupy through the end of the year, after which we will transition our loan operations team to a new location. This was an opportunistic transaction for the benefit of our future operations.

Net interest income was $31.8 million for the third quarter, an increase of 6% from the second quarter and 8% from the third quarter of 2025. Higher average loan balances and higher interest recoveries on nonaccrual loans accounted for $1.5 million of the $1.7 million linked quarter increase. The remainder came from a special dividend of $320,000 and 1 more day in the quarter.

Our net interest margin expanded 10 basis points to 3.16% for the third quarter and increased 18 basis points from the third quarter of 2025. The yield on average loans increased 10 basis points to 6.23%, and our average cost of funds declined 3 basis points to 2.97%, which reflected the July 1 redemption of $40 million of our subordinated debt.

We estimate the FHLB special dividend contributed approximately 3 basis points to the margin this quarter, and nonaccrual interest recoveries contributed approximately 7 basis points. Our average cost of deposits declined 2 basis points to 2.79% for the quarter. With the federal funds rate increasing 25 basis points during the third quarter, our period-end weighted average rate on total deposits increased a few basis points to 2.82%. We continue to manage deposit pricing carefully, while new loan production at an average yield of 6.30% during the third quarter continues to support overall earning asset yields.

Noninterest income was $5.1 million for the third quarter, an increase of $2.1 million from the second quarter due mostly to the gain on the sale of the Brooklyn building. Excluding that gain, noninterest income declined $600,000 due mostly to lower gains on sale of loans as we retained more of our loan production on the balance sheet this quarter. Noninterest expense was $19.5 million for the third quarter, an increase of $526,000 from the second quarter due mainly to higher compensation and occupancy costs. These increases reflect a full quarter of our operations for our new San Francisco Bay Area LPO and the impact of the Brooklyn building sale.

Our efficiency ratio improved to 53%, which is 434 basis points better than the same quarter last year. Looking ahead, we expect our quarterly noninterest expense rate to be around $19 million.

Our effective tax rate was approximately 25% for the third quarter, reflecting the benefit of federal production tax credits purchased during the quarter, and we now estimate our effective tax rate will be 27% for the full year.

Turning quickly to the balance sheet. Loan growth during the quarter was led by single-family residential mortgages, which increased to $78 million, along with an $8 million increase in construction and land development loans. Third quarter originations totaled $154 million, and payoffs and paydowns declined 24% from the second quarter. We ended the quarter with a loan-to-deposit ratio of approximately 100%.

Total deposits were $3.4 billion at September 30 and were stable compared to the prior quarter. Non-maturity interest-bearing deposits increased $47 million and retail time deposits increased $52 million, while our noninterest-bearing deposits declined $35 million, partially reflecting the movement of balances into interest-bearing accounts during the quarter. On average, noninterest-bearing deposits increased from the second quarter to approximately 17% of average total deposits for the third quarter.

Nonperforming assets totaled $38.7 million or 91 basis points of total assets at September 30. Nonperforming loans declined $4.9 million, mostly through payoffs and paydowns, to 55 basis points of total loans and OREO was unchanged at $19.8 million. The allowance for loan losses stood at $44 million or 1.30% of loans held for investment at quarter end, and our allowance coverage of nonperforming loans increased to 234%. We recorded a $500,000 provision for credit losses in the quarter due mainly to loan growth, partially offset by improved credit quality trends. Net charge-offs were $122,000 or 1 basis point of average loans on an annualized basis.

Our tangible book value per share increased to $27.44 at September 30, an increase of 6% from a year ago, even as we continue to return capital to shareholders through share repurchases and dividends. We repurchased $4.5 million of common stock in the quarter, reducing shares outstanding by approximately 1%. Our capital ratios remain strong with tangible common equity to tangible assets ratio of 11.05% and a CET1 ratio of 17.9%.

This concludes my prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] And your first question will be from Liam Coohill at Hovde Group.

The recent rate hike impacted borrower demand? And do you expect further hikes to impact originations moving forward?

This is Johnny. Yes, certainly, a little bit headwind. But overall, I think many of our borrowers right now on the commercial side, particularly recognizes the higher rate environment. At least we're not faced with the sort of, I'll say, lesser. So the challenges that we had encountered during first half and maybe first part of Q3 where we were challenged with trying to compete with the below 6 sort of rates at a 5-year fixed. We see lesser of that. So it allows us the ability to not have to defend or go as aggressively as we may have to compete for deals. So that's helpful. But at the same time, certainly, with the high rate environment, some borrowers are just, kind of, stepping back, taking a closer look at the landscape and sometimes they want to renegotiate certain terms and conditions.

I guess, on the other side of the origination question, I noticed the payoffs declined substantially this quarter. Do you anticipate payoffs to remain near current levels, especially given how low they are?

Yes. And Lynn, maybe can chime in as well. So yes, we do expect payoffs to slow, to get tempered, kind of, trending downward given, again, the higher rate environment. I think some borrowers that typically may want too aggressive, more aggressive rates are not those below 6 anymore out there as much. So we do see -- we do anticipate paydowns payoff to get tempered during the next couple of quarters or so.

I would just add to Johnny's comment regarding tempering is appropriate. I think the other thing that we observed in the first half of this year was some strategic payoffs as we've continued to improve credit quality and those have also tempered as well.

That makes sense. And last one for me. With the loan-to-deposit ratio, kind of, in that 100% realm right now, are you comfortable keeping that ratio moving forward?

Sure. So we have been managing the loan-to-deposit ratio around the 100% mark, maybe call it, high 90s. I think we, with our capital levels, continue to remain comfortable at 100%. And I think that's managed to a large extent with our production levels that we just kind of talked about and also some loan sales. We had a little bit less in loan sales in the third quarter, which I think pushed up on our loan-to-deposit ratio a little bit. I think we expect loan sales in the fourth quarter to maybe be higher than what we saw in the third quarter.

The next question is from Matthew Clark at Piper Sandler.

Just on that point on gain on sale, expecting to step back up, roughly $0.5 million is the right way, maybe, to think about it from a run rate perspective? Just trying to make sure we're in the ballpark.

So a couple of things. I think everyone knows that our loan sales are combined between our SBA loan sales, which you can sell a little and get a lot because the premiums are there in the marketplace. So we would expect to participate there. And then on the mortgage loan sales, I think that we have to sell quite a bit. Premiums continue to be very thin. I think that the way we look at it, there's probably an opportunity to return to the levels that were -- we saw in the first part of this year, first quarter, but not necessarily the second quarter, which is a little bit outsized. So we are a taker in the market there. We believe our mortgage product continues to be priced competitively. So it should give us an opportunity to sell some of our loans.

Got it. Okay. Great. And then on the new originations, $154 million, 6.3%. Can you give us a sense of the types of loans that are in there, just thinking through kind of the growth in loans this quarter was largely SFR, so I just want to get a sense for? And it sounded like you felt like there was some good momentum going into 4Q. Just your thoughts on loan growth, in general.

Yes. This is Johnny. So, yes, Q3, I would say approximately 2/3 of the growth was contributed by SFRs. But we also see growth in C&I and C&D loans or construction loans. One positive thing we see on the C&I and C&D loans, by number of accounts, if you will. We have a much larger number of new borrowers or new loans that hopefully -- as they utilize these C&I, C&D credits, that hopefully that can contribute to our net loan growth in the near future.

Okay. And then just on the margin and kind of digging into it a little bit. I know you've got, what, 52% of your loans are variable rate, but those include ARMs. And so trying to get at what portion of your loan portfolio resets with the Fed? And then how should we think about your interest-bearing deposit beta, assuming we get another rate hike here in December?

Sure. So thanks for starting with the loan portfolio. So about 52% is variable. We do kind of look at what reprices over the next 2 years. I would share that about 2/3 of that population is eligible to reprice in the first year. So they don't all immediately reprice. There's various repricing dates. But based on the structure of our loans, they do have the opportunity over the next year. This does help contribute to -- while we tend to be highly sensitive in the near term, it does shift us to something that looks a little bit more asset sensitive as rates rise and our loans continue to reprice into a higher rate environment.

So turning to the liability side, when we think about our interest-bearing deposits and the betas there. I think over the last year, our betas have been, maybe, around 50%. But given the expectation of rate increases and kind of looking at the brokered CD market, I think things have priced in the rate increases. So I expect the near term to be a little bit higher than that, and then we will moderate over time. So there's a lot of pressure on the cost of liquidity right now is my general comment.

So I think over time, it will moderate, Matthew. But in the near term, I think it's going to provide a little bit of pressure.

Okay. So thinking about that 3.06%, kind of, adjusted margin ex the interest recoveries in the special FHLB divvy, a little pressure on that kind of normalized margin maybe hanging around 3% or you think you might start dipping below 3%?

I don't have a crystal ball. I think there's a lot of things that are going to support our net interest margin. So in addition to the fact that we have about -- so out of the 52%, I would say 2/3 reprices over the 1 year. We're also participating in new loan originations in the current environment. I think there'll be comments on the pipeline looks strong. I think to Johnny's point, we have C&I and construction loans that will be originating in the current rate environment. So there are things that continue to push up on the loan yield and the earning asset yield in the absence of interest recoveries or a special FHLB dividend.

And then on the funding side, yes, I think that things will be more expensive, but it does take time for that to come through. I think there's an opportunity for our net interest margin to be above 3%, but it does take participating in the current interest rate environment on the earning asset side.

Next question comes from Kelly Motta at KBW.

I apologize if I missed it here. Lynn, can you just quantify the amount of the interest recovery that impacted NIM in the quarter?

Kelly, it was around $700,000. So we were able to recapture some interest on the payoff of a nonperforming loan.

Got it. That's helpful. And then, as we think about -- you guys have continued to make progress on the credit recovery story. In higher for longer, as you, kind of, look at what's left to be done, how are you guys thinking through whether at the margin, if you're seeing any incremental headwinds on the credit side from borrowers and the potential to flow there?

Kelly, if I'm understanding your question, I think at this point, RBB's nonperforming assets at this point are very well understood that they're, kind of, down to 3 primary assets. And we're looking carefully at what we would classify as criticized and classified and criticized loans. Is that -- am I understanding your question correctly?

Yes. I mean, I guess you still have what's left to work out there, I guess, the potential -- if you're seeing any, kind of, like potential incremental headwinds from, I guess, the rest of the portfolio?

Right. So I think that's how we would look at our criticized and classified loans, and those have continued to decrease, and we monitor them carefully in the current environment. I would say, generally, no. There's always some credit that you have to be managing that risk, but that's an area that we think is under control, dare I say.

Got it. That's helpful. And then I guess a lot of the growth here was driven by single-family residential during the quarter. Obviously, you guys have a differentiated product that is, as you say, very competitively priced. But, kind of, as you look ahead, what's the overall pipeline for growth? And is there any change in mix given, kind of, the rate environment we're in?

Kelly, this is Johnny. So I would say, obviously, with our Northern California LPO now the teams are sort of completely in place. We see a great deal of momentum there, and much of the growth that from there, it's going to be very much all commercial loans, be it C&I, CRE, even including construction. So we do see that contribution making very -- making a very positive contribution for us. So that hopefully will help us sort of change the mix a little bit, I guess, overall. So especially single-family resi loans, typically Q4 regard -- even without the rate hikes, if you will, typically, Q4 is seasonality-wise is typically slower on the SFRs. But we do have a very strong pipeline on the commercial side right now that I think we will hopefully be able to change our mix a little bit.

Next question comes from Andrew Terrell at Stephens.

Lynn, maybe just wanted to start just checking in on, kind of, the expectation around the expense run rate. And then you guys -- you've managed expenses very well throughout this year. Just what type of expense growth you're targeting? And if you could talk about any specific drivers like where you're most focused from an investment perspective right now?

Andrew, I was tracking the first half of your question. Was the second half related to noninterest expense as well? Can you just repeat that?

Yes. Sorry. Just expectation, kind of, near term on the expense run rate. And then just bigger picture, you guys have managed to low single-digit expense growth this year so far. Is that still, kind of, the right ballpark? And can you talk about what areas of investment you're most focused in right now?

Great. Okay. Thank you. Sorry, I didn't hear the end of that the first time. So with the expectation of our expense run rate based on where we've been making investments and able to grow, as we mentioned, this is our first full quarter with the loan production office in Northern California. So those are included in our run rate at this point in time. I think there's an expectation that our OREO costs can moderate a little bit. We were catching up as we brought that onto the balance sheet this quarter.

We also had some costs associated with bringing in the production tax credits, and that translated to more income to the bottom line that showed up maybe in some of our professional fees. We also think that some of our compensation costs will be reflective of our growth, but we had a couple of things in there this quarter that might show that going down a little bit in the fourth quarter. Obviously, January is always a big month between raises, insurance premiums resetting and taxes. So there's definitely some things that we expect to go down.

The last one I would comment on is our data processing. We've spoken a bit about those costs. There's an expectation that we'll have an opportunity to improve our run rate in that particular category. And that should show up potentially in the fourth quarter, but more likely first quarter in 2027. The building sale, we have a little bit of additional cost in that particular line item as we are leasing space instead of owning it. The offset to that was higher interest income as we will deploy the proceeds there.

So there's a lot of different things that add up to our expectations of being around $19 million, call it, plus or minus $100,000, $200,000. So sorry, it's not a short answer, but there's a lot going on. And to your point, we work very hard to manage our overhead.

Yes. No, I really do appreciate all the added color there. If I could go back to just one question around the margin. If I look at your time deposit costs as of the third quarter, 3.60-ish or so, Lynn, it sounds like pretty intense competition if you're looking against, kind of, the brokered market or I would just imagine in some of your local markets as well. Like can you help frame just where new deposits are at today or where you feel like pricing, specifically on the time deposit side needs to be in order to maintain or grow balances?

Sure. So to your point, CD balances or CD rates, what we're observing in the market, 12-month money is very popular. 6-month money is priced probably just over 4%, 6-month, 1-year money, given the expectation of rate hikes is up over -- in the brokered market, up over 4.50%. So competing for those dollars relative to our balance sheet, we're definitely well over 4% in that area. But as I mentioned earlier, a big part of our loan portfolio in addition to loan production is able to also participate in repricing. So it is moving up significantly in the deposit pricing category.

Yes. Got it. Okay. And then just last one for me. It was good to see...

Let me make one additional comment, which I think speaks to loan production. We focus on short-term rates, which does impact, call it, funding, right? The liabilities tend to reprice more immediately and can create a bit of a headwind. But the way it's getting addressed is through the repricing of our loan portfolio. But the long end of the curve isn't moving up quite as aggressively. So the curve seems to potentially be flattening out, not perfect, but that does support additional production to then move generally into this environment. So that's, I think, what will be a natural hedge against some of the deposit pricing. But funding costs will go up. That is unavoidable in the near term.

Yes. Got it. And if I could just ask one last one. I mean it was good to see the sub debt redemption this quarter as a use of capital. You've still got a pretty incredible capital position. The asset quality has improved significantly over the past couple of years. Your margins are better, ROA is better, but your stock is still trading a little bit below tangible book value. I guess when you put all that together, I know you're limited by liquidity a bit, but would you ever consider a tender offer? Are there other means to rightsize or leverage the capital base a bit? Just would love to hear your thoughts there.

Sure. No, thanks for the question. To your point, we do have a lot of capital. There is potential for leveraging that. I'm not sure that I think we needed to put a few things in place, which is getting our credit to be, I think, better understood, to your point, sustainable earnings. I think the participation in our stock buyback program has been consistent. And we are looking, I think, at the sub debt as well as maybe an opportunity to rightsize that relative to our balance sheet. But I don't know if I would say a tender offer on our stock at this point in time. Appreciate that we're trading below tangible book. So it is an attractive investment.

Next question comes from David Hart at Grant Private Wealth Management.

I'm pleased to see what a solid quarter it was. I like the way that things continue to improve. I did have a couple of questions that have been answered already, but I have a couple of more on the asset quality on the balance sheet. First one is the large OREO item. Can you describe that further? What sort of mixed-use project it is? How far along is it towards completion? What are your expectations for the timing and exit from that?

David, it's Lynn. I think we have shared that this OREO is -- or it was a 60% or so completed construction project in the Los Angeles area by one of the major sports venues. It's now moving through its nonperforming asset life as an OREO. It is now listed for sale above the carrying value that we have on our books. And given the size of the project, we're expecting that we'll have an opportunity to exit it in the first half of next year.

Well, that would be a positive. Moving on more into the asset quality. You noticing any common threads among substandard and other criticized loans? For example, are they running into problems due to fuel prices or other things? Just asking if there's any common themes or threads in that.

Good question, and we look at that as well. And at this point, we haven't identified any common threads for the assets that we are looking at or managing.

Last question, somewhat of a decline, not major, but notable decline in the securities held. It seems to be a little bit puzzling given the way that the bond yields have risen in the recent quarter. Do you expect to start adding back to the securities to take advantage of the higher bond yields? Or is there a plan on that at all?

So yes, I did notice we are down just a little bit quarter-over-quarter. So we do actively manage the portfolio. I appreciate that there's higher yields. I think that we made a concerted effort and put the duration on inside of our loan portfolio. We always keep a bit of commercial paper, which gives us flexibility, I think, in the securities portfolio. But your comment regarding higher yields in the market and taking an opportunity to add something in the securities portfolio is a good one.

Last question. Any comments? Are you pleased or disappointed? Any other comments on the new San Francisco Bay Area loan production office? How is that one going?

No. David, this is Johnny. No. So far, so good. Everything is tracking very positively. We're very pleased with the team. Yes, they're making great contributions right off the gate.

At this time, we have no other questions registered. I will turn the call back to Johnny Lee.

Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everyone. Thank you.

Thank you, sir. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you again for your participation.

Greetings. Good day, ladies and gentlemen, and welcome to the RBB Bancorp's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded.

I will now turn the conference over to your host, Rebeca Rico, Investor Relations. Ma'am, you may begin.

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the second quarter of 2026.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan. Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions.

I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings.

Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebeca. Good day, everyone, and thank you for joining us today. We are pleased to report another solid quarter of earnings and continued progress across the key metrics we have been focused on. We generated net income of $10.1 million or $0.59 per share, which represents a 13% increase from the same quarter in 2025 as we improved credit quality, loans and deposits and took capital actions.

While net income decreased $1.2 million compared to prior quarter, this decrease relates mostly to REO sales during the first half of 2026 as we resolve our nonperforming assets. And we did make further progress on further quality during the quarter with nonperforming assets declining 11% to 1.02% of total assets. Loan originations accelerated in the second quarter with $150 million of new loans at an average yield of 6.3%. Our lending pipelines remain healthy across the franchise, and we expect continued progress on loan growth in the second half of the year.

On that note, I want to highlight an exciting development in our franchise expansion into Northern California. We recently announced the opening of a loan production office in Burlingame and hiring of a commercial banking team in the San Francisco Bay Area that will be led by John Curtis. John brings over 37 years of financial services experience, including serving as President and CEO of the Bank of Orient and has a strong track record of building high-performing lending organization.

The San Francisco Bay Area is home to one of the largest Asian-American communities in the United States, and we believe this team and the loan production office will help us expand our commercial banking business in a market that is a natural fit for RBB. Deposits grew $50.8 million in the quarter, and our deposit mix continued to improve with noninterest-bearing deposits increasing to 17.5% of total deposits and continued reductions in our reliance on wholesale funding.

Our steady growth in core funding combined with our strong regulatory capital help position us to redeem $40 million of subordinated debt on July 1, which will reduce interest expense in future quarters. Overall, we believe the second quarter demonstrated continued progress in improving RBB's fundamental earnings power and that we are on track for a strong second half of 2026.

With that, I'll hand it over to Lynn to talk about results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I discuss the company's second quarter of 2026 financial performance.

Net income for the second quarter was $10.1 million or $0.59 per diluted share. This compares to $11.3 million or $0.66 per diluted share in the first quarter and $9.3 million or $0.52 per diluted share in the second quarter of 2025. The decline in net income from the first quarter was due primarily to $1.1 million in lower gains from REO sales as we continue to resolve our nonperforming assets.

The year-over-year improvement of approximately 13% in earnings per share reflects the impact of share repurchases and the sustained progress we have made in growing net interest income and reducing credit costs over the past year. Net interest income was $30.1 million for the second quarter compared to $30.5 million in the first quarter. The decrease was primarily due to lower FHLB dividend income and higher subordinated debt service, offset in part by a lower cost of deposits. We received a special FHLB dividend of $430,000 in the first quarter versus no special dividend in the current quarter.

Our $120 million in subordinated debt repriced from its fixed 4% rate to a floating rate of 6.98% effective April 1, which added approximately $830,000 of incremental interest expense in the second quarter. At the same time, deposits have repriced lower and the cost of average interest-bearing deposits declined 5 basis points to 3.34%. Our net interest margin was 3.06% for the second quarter, down 9 basis points from 3.15% in the first quarter. The primary drivers were the sub debt repricing in the second quarter and the FHLB special dividend we received in the first quarter.

On a year-over-year basis, our net interest margin improved 14 basis points, reflecting the cumulative benefit of our deposit repricing efforts and improved earning asset yields. On July 1, we completed the partial redemption of $40 million of our subordinated notes at 100% of par plus accrued interest for a total payment of approximately $40.7 million. The redemption, combined with the new $1 million share repurchase program announced in June reflects our strong capital position and commitment to optimizing our capital structure.

As a side note, our cash balances at June 30 were elevated compared to prior quarter end levels as we had accumulated cash in advance of the sub debt redemption. Noninterest income was 30 -- noninterest income was $3.0 million for the second quarter compared to $4.3 million in the first quarter. The $1.3 million decrease was due mainly to the lower gains on sale of REO. In addition, the first quarter included a $484,000 recovery on a previously charged-off acquired loan and $360,000 of interest income on tax refunds related to purchased federal tax credits. There were no similar items in the second quarter. These decreases in noninterest income were offset in part by higher gains on sale of loans of $640,000.

Noninterest expense was $19 million for the second quarter, a modest decrease from $19.3 million in the first quarter. We expect our expense base will continue to track within the $18 million to $19 million range we have mentioned in the past. The efficiency ratio was 57.5% for the second quarter compared to 54 55.4% in the first quarter, with the increase driven primarily by lower noninterest income.

Second quarter new loan originations increased 21% from the first quarter. Loans held for investment of $3.3 billion at June 30 were stable quarter-over-quarter. Our loan-to-deposit ratio ended the quarter at 98% as strong deposit growth supported loan originations. Total deposits grew $51 million to $3.4 billion with retail deposits increasing $94 million and wholesale deposits declining $44 million. Noninterest-bearing deposits increased to $592 million, representing 17.5% of total deposits, up from 15.8% at the end of the first quarter.

We recorded 0 provision for credit losses in the second quarter compared to a $200,000 reversal in the first quarter and a $2.4 million provision in the same quarter last year. Net charge-offs totaled just $83,000 in the second quarter or essentially 0% of loans on an annualized basis. Nonperforming loans declined $20.8 million or 47% from the prior quarter to $23.8 million. The primary driver was the transfer of a $19.4 million credit to REO. This credit is our largest nonperforming asset, and we continue to move it through the resolution process.

Special mention and substandard loans declined 16% to $82 million from $97 million at March 31. Criticized and classified assets have improved meaningfully over the past year, and we believe the portfolio continues to trend in the right direction. Our allowance for credit losses remained essentially flat at $43.7 million. And as a result of the decline in nonperforming loans, the allowance coverage of nonperforming loans improved significantly to 184% at June 30.

The allowance represents 1.32% of loans held for investment, which we believe is appropriate given the improving credit trends. Book value per share increased to $31.15 and tangible book value per share increased to $27.23 or approximately 1.5% higher when compared to March 31. Our capital ratios remained strong with a CET1 ratio of approximately 18% and a TCE to tangible assets ratio of approximately 11%.

We were pleased to announce that our Board authorized the repurchase of up to 1 million shares of our common stock, representing 6% of shares outstanding. Our Board's decision was due to the company's strong capital position and reflects the work we've done, resolving nonperforming assets and returning the bank to higher profitability.

This concludes my prepared remarks. Operator, we are now ready to take questions. Thank you.

[Operator Instructions] Our first question is coming from Brendan Nosal with Hovde Group.

Maybe starting off here on the net interest margin. I guess, sequential pressure this quarter as expected given the sub debt move from fixed to floating. Looking ahead to kind of the third quarter and I guess, the tail end of this year, can you just walk through margin dynamics and where you think margin will land in the third quarter, just given the partial repayment of the debt issuance?

So I think the net interest margin still has an opportunity to improve based on opportunities for loan growth. Also retiring a portion of the sub debt should also buy us back a portion of our margin. And we continue to monitor our deposit costs very closely. The average cost of deposits for the quarter were higher than the spot rate at the end of the quarter.

So I think costs will continue to be relatively the same or slightly improved. And I think that there's an expectation that the loan production that we talk about in our materials will come through as net loan growth in the second half of the year. So I think we've talked about in the past that we've been liability sensitive. Rates are probably higher for longer.

So I think it will have a little bit of a neutral impact on our funding sources and then the earning asset side probably has a chance to come up. So I think just around where we were able to achieve in the first quarter and above where we are in the second quarter.

All right. That's really helpful, Lynn. Maybe on a related note, can you just talk about the competitive backdrop for core funding and how it's evolved over the past couple of months across your footprint?

So I'll start with a couple of comments and then from a competitive landscape, if I leave anything out, we can -- others can chime in. So I think we all recognize that the market has sort of moved up. I think we started the quarter with deposit rates being kind of at the high end around the 3.75% mark, kind of ended the quarter with kind of wholesale funding being closer to 4%, maybe even 4.15%. And we've seen that reflected in our competitors' pricing as well when you go out and look at different specials.

I think that we've been successful inside our marketplace with our customers sort of in that -- at the higher end between the 3.75% to 4% and then also in bringing in some nonmaturity and we did grow noninterest-bearing deposits as well. So it remains very competitive. I think it's moved up towards the end of the quarter compared to the beginning of the quarter. And our biggest opportunity continues to be how we grow noninterest-bearing deposits. From a -- any other competitive?

No, the market is still obviously still very competitive as far as the deposit is concerned. But I think what we launched a couple of months ago in Q2 with the Flex savings, that's been helping us to retain much of the customer at lower cost.

Okay. Perfect. I'm going to sneak one more in there. Just on the new LTO and new lending team in Northern California. Like how should those of us on the outside benchmark like kind of breakeven times and kind of the portfolio size that you think can be kind of achieved in the medium term from the group that you've added there?

Well, Brendan, what I would say is, obviously, this team brings a lot of relationship that -- we're obviously expecting to bring a lot of relationships to RVP in Northern California region having the team having combined over 80 years of experience out there with a very strong network of relationship within the communities. So with this team on board, I would expect, hopefully, during the second half of the year to contribute to our commercial loan growth, particularly. And hopefully, that will move us to the mid- to higher single-digit sort of marks, if you will. So that's what I would be expecting.

I do think -- yes, the addition of the loan production office and the team, we definitely had, I think, strong originations and production. It's just been more than or equally offset by, call it, loan sale activity, but payoffs and paydowns, which has included, I'm going to say, strategic decisions to allow certain credits to refinance the way. I think there was, at one point, an idea that rates might come down. Now we see higher for longer. So we definitely let some loan activity go to others.

So when we think about loan growth in the second half of the year relative to, I'm going to say, a flattish growth in the first half of the year, production might be mildly higher than what we saw, but we're expecting refinancing and payoffs to be lower. So maybe we are at that mid-single-digit range on an annualized basis, it might be a little bit higher than that. But we expect it to contribute. I don't know that we're prepared to say specifically that LPOs portfolio size.

That's helpful color.

Their pipeline is very healthy.

Their pipeline is healthy and all of our other pipelines have remained strong, which is why I think the origination levels have come through at the levels they have.

Our next question is coming from Kelly Motta with KBW.

Congrats on getting the capital plan out there back in June. Just wondering, I think you have about 6% of your shares authorized as part of that repurchase program. You guys obviously have a ton of capital and have been making progress on the credit front, wondering kind of the appetite and pace we should be expecting now that this is out.

Thanks Kelly. As far as the appetite, I mean, I think we've demonstrated and we still believe investing in ourselves is a good use of our capital. So our appetite is healthy. We have traded a little bit below tangible book, and we're kind of right around that level now with the second quarter results out there. So I think that we'll pay attention to opportunities relative to our stock price.

Okay. Great. And then you noted that the move to REO, that's, I think, one of your larger or largest problem assets out there. Can you help us -- presumably, there'll be some sort of work out on that. Any updated thoughts on the cadence? Obviously, progress has been made, but I'm sure you want to get that off your books probably ASAP.

Yes. ASAP is a good way to think about it. So as the loan moved from a nonperforming loan to REO, we did view the REO is value is appropriate. It is supported by a recent as is appraisal. But we also recognize that this is a large partially completed construction project, and it will require the right buyer. And we also appreciate that time is also a factor. So I think all of those items together, we would be looking for a resolution in the second half of this year, but appreciate it is still complicated.

Okay. Got it. I guess lastly for me, clearly, you have the new team coming on a new location in Northern California. Wondering as you kind of like look ahead and think about where you stand now, any other additional areas that you're looking to build out in terms of the footprint in order to support growth and vis-a-vis how we should be thinking about that in the expense base?

Well, I think more immediate, obviously, since we just hired this team, the focus is on making this team successful and given the very healthy pipeline they have, we're not looking beyond that at this time, Kelly, really. We just want to making sure we can be well established in Northern California region with this commercial team. And yes, so nothing in the horizon other than paying -- just putting some attention and making sure this team getting the support that they need.

Got it. And Lynn, do you have any color or commentary on the expense run rate has been like pretty consistent in the past couple of quarters now? Any kind of gives and takes here?

Sure. I think the run rate has been consistent, and I think that for now, it should remain at a fairly consistent level. I think there's some opportunities down the road as we make some technology decisions and credit continues to work itself out. But I think in the near term, we're probably right about this level.

Our next question is coming from Matthew Clark with Piper Sandler.

On the -- can you just update us on the CDs coming due over the next couple of quarters here and the roll-on, roll-off rates?

Sure. So for CDs, we introduced the Flex Savings. So the percent of CDs as a part of our balance sheet is a little bit lower. As we ended the quarter, we had about $1.5 billion in CDs that would mature within the next 12 months, and they have an average price of about $360 and about just shy of 40% are able to mature or reprice in the third quarter. The ones that are coming due in the near term are around a [ 370% ] cost.

H

So they have an opportunity to reprice into the current environment to the extent that we replace them with retail funding. The higher -- rather the lower costing CDs are maturing in the fourth quarter and into next year. So that's when we may see a little bit impact to the cost of funds. At the same time, at the same time, that's when we would probably see the impact to the earning assets coming in at a higher yield as well.

So that's our -- that's the CDs and the cadence. And then as far as the Flex Savings, that product has some attractive qualities to it, and we've been very successful at pricing that kind of in the high 3s and not necessarily moving into the wholesale funding rate level.

Got it. Okay. And then on the retail deposit growth this quarter really strong. Can you give us a sense for how much of that might -- you would attribute to being seasonality and also, how much of that was from new versus existing customers?

Sure. Thanks for that question. We did have some really attractive noninterest-bearing deposit growth in the quarter. I think a large portion of it has some seasonality to it. I think some balances were included at June 30, and some of those dollars were used directly after quarter end. I think a portion of the growth is staying in noninterest-bearing and then a portion of it is moving over to non-maturity interest-bearing product.

So noninterest-bearing deposits will likely moderate. I think the period-end balance was just a little bit on the high side. But we have customers that have large balances in there doing business. So we'd expect kind of in and out and the average to migrate up. So I think that we're going to be higher, just probably not the full $65 million that came through kind of quarter end to quarter end.

Okay. And on gain on sale, you sold more loans than I think most of us probably expected. Is that maybe a pull forward? How should we think about the volume of loan sales going forward and whether or not that gain on sale revenue might reset here in the back half?

Sure. I'm going to answer it in two parts, and Johnny might add some information as well. So on SBA, I think that we have a regular cadence there. There's a good pipeline in production. There's a strong secondary market. The premiums are attractive. So I think that the volume in the first and second quarter is an indication and maybe some consistency.

I think on the mortgage portfolio, obviously, the volumes are higher and the premiums are lower. So that is a little bit more -- we're happy to keep the mortgages on the books. They have some attractive yields, but we've also tried to manage the balance sheet to keep mortgage in our commercial portfolio kind of a 50-50 split. So to the extent that we have really strong production, it gives us an opportunity to package up more of them and sell them. So probably less of a pull-through than maybe more just an opportunity. But it was probably on the larger side relative to what maybe a quarter loan sale would look like -- quarterly loan sales would look like.

Okay. And then just back to the expense guide. You reiterated the $18 million to $19 million, but it sounded like you're guiding more toward the higher end of that range. Is that fair? Or I guess what I'm trying to get at is what would get you closer to $18 million, where is the source of relief here? Or should we not expect any?

Sure. I think I'll start with a fair comment. And I think the opportunities in the future relate to our technology related to our core system and other investments that has an opportunity to maybe lower our run rate while at the same time investing in technology. And the other opportunity lies in our professional service fees as we continue to resolve credit. So those are our two opportunities in the future. At the same time, we're adding folks to try to increase production, quality of production. But for now, I think we're probably at the higher end of the range.

Got it. Okay. And then last one for me. Just on the share buyback this quarter. Can you give us the weighted average price that you bought shares back?

I apologize. I do not have that with me.

If not the number of shares you bought back, we can back into it.

Sure. So it's around -- it's just around the $4 million. So we -- I apologize, I think I left that note on my desk. So I'll have to follow up here in a moment with your question. Just -- I would just share that the majority of the shares that were repurchased in the second quarter related to the authorization that was outstanding from last year. And that leaves the majority of the program that we just announced that remains outstanding as of June 30. And I will pull those other pieces of information while we're on the call.

Our next question is coming from Jackson Laurent from Stephens.

This is Jackson on for Andrew Terrell. Most of my questions have already been asked, but just one for me on origination yields. I know you guys have talked pretty consistently about staying disciplined on pricing. And it was good to see yields stay pretty flat quarter-over-quarter. Just wondering if you could give us some updated color on how competition has been shaping up for credit in your markets? And if any of the dynamics have changed since we last spoke in April.

I think generally, it hasn't changed that much, Jackson. I think it's still fairly intensive on the commercial side. 5-year fixed loans, for example, for around 5.25% to 5.5% on average is what we're competing against. I think we are last couple of quarters or at least past quarters, we've been trying to stay consistently disciplined as far as our commercial pricing is concerned. We look at each deal from a more relationship standpoint, if it's just a single transaction without any potential ancillary depository opportunities or fee income opportunities, we certainly want to stay above that 6% mark rather than competing at the sort of submarket rates.

Our next question is coming from Tim Coffey with Brean Capital. .

Just in the kind of conversations we've been having today about the competitiveness of the deposit pricing as well as kind of your loan outlook. As we think about the loan-to-deposit ratio, are we kind of bumping up against that kind of level that you feel most comfortable at?

Thanks, Tim. So we have run the balance sheet in the high 90% loan-to-deposit ratio range. And we are comfortable. As far as bumping up against it, I think there's been some talk of how as long as there's appropriate risk management, you can be above 100% now. But I think -- and given our balance sheet, lower reliance on wholesale funding, some of the growth opportunities, I think that there is still an opportunity to operate in the kind of high 90% loan-to-deposit ratio range. So I'm not sure if it's going to change materially, but we're comfortable here.

Okay. Yes, I asked because the last time we did see interest rates move higher, the loan-to-deposit ratio did move above 100%. So I'm trying to get an idea of whether or not if we do see rates go higher, there's more opportunity to book higher yields on earning assets or loans that, that was something that you'd consider going above 100% or if that was just a hard ceiling?

Yes. No, good question. I don't know that it's a hard ceiling, but we also want to be mindful of the marketplace and sort of the perception there. So we did deleverage at one point to bring us down, but there may be opportunity there, as you're pointing out. And then just to circle back on the repurchase question. It looks like we had repurchased about 181,000 shares. The average price was, I think, around $24.65, $24.75.

Speaking on the capital returns, any thoughts on increasing the quarterly cash dividend?

Yes. I think we're looking at it. I think we needed to prioritize getting these capital actions in place. But as we look forward, it is something we would consider.

Okay. And then, Lynn, can you remind me about the tax rate again? Is it permanently going to be kind of at this level it's been at the last couple of quarters?

We are looking at opportunities that are out there. But until there is something more definitive, our effective tax rate is around the 28% level.

We have a question from Kelly Motta with KBW.

I apologize. Matt Clark took my question on the movement on NIBD. I'm good.

As we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Johnny Lee for any closing remarks.

Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everyone.

Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.

All right. Good morning, everyone. I'm Christina Kao, Chair of the Board of RBB Bancorp. I'd like to welcome you and express thanks on behalf of the Board of Directors for your attendance today. Will the meeting please come to order.

Before moving to our formal agenda, I'd like to introduce our Board members and nominees who are present here by phone or presently here. Bob Franko, to the right, myself, Dr. James Kao, Johnny Lee, Joyce Wong, David Morris over here, Geraldine, Scott Polakoff by phone and Frank Wong over in the corner.

Mr. David Morris, you can be acting as Secretary of the meeting. Ms. Diana Hanson, over there has been appointed as an Inspector of Election. [ Crowe ] is present at the meeting?

En route.

En route, okay, to be here shortly. And then Lynn Hopkins, CFO of the company. She'll be available during the Q&A period at the end of this meeting to answer any questions concerning the company's financial statements. At this time, I'd like to introduce Mr. Johnny Lee, President and CEO, who'll conduct all the rest of the matters of the business.

Thank you, Christina. When you check in at the time of your arrival, you should have been handed an agenda that also contains rule of conduct and procedures, which you intend to follow. At this time, Mr. David Morris, Secretary of the Company will present proof of the due calling of the meeting. David?

Thank you, Johnny. I present the following: A copy of the printed notice of Annual Meeting of Shareholders stating the time, place and purpose of this meeting and a copy of the proxy statement furnished in connection with the solicitation of proxies for the use at this meeting as shown on my iPad.

A complete list of shareholders of the company of record as of March 24, 2026, each of whom is entitled to notice of and to vote at this meeting. This list, which will be available for inspection throughout the course of this meeting, shows that as of March 24, 2026, there were 17,074,159 common shares of the company issued and outstanding shares.

An affidavit of distribution from Broadridge Financial Solutions showing that it caused to be mailed or and on about April 10, 2026, to each shareholder of record a copy of the notice of Annual Meeting of Shareholders, the proxy statement and the proxy. In addition, shareholders were notified that they can access the notice, proxy statement and annual report on Form 10-K online and a shareholder can receive a free paper or e-mail copy of the materials by making a request. However, such requests would need to have been made prior to May 7, 2026, with respect to this meeting.

Now I would like to hand the meeting back over to Johnny.

Thank you, David. Please file a copy of the notice of annual meeting, together with the affidavit distribution in the minute book as part of the minutes of this meeting. The minute book is here and will be kept open for inspection of shareholders throughout the course of the meeting.

The Board of Directors of the company has appointed Diana Hanson as the Inspector of Election for this meeting. The Board has also appointed Johnny Lee and Christina Kao as management's proxy holder for this meeting. The Inspector of Election has duly taken her oath of office. I direct that the oath be filed with the minutes of this meeting.

At this time, to be certain a quorum is present, I ask the Inspector of Election to now take a poll of the shareholders shares representing the meeting in person or by proxy to report the results. Diana?

Is anyone voting at the meeting?

Seeing none. There are present in person or by proxy at this meeting of shareholders that have subscribed for an aggregate of 11,882,478 common shares or 69.59% of the issued and outstanding common shares of the company.

By virtue of the fact that shareholders owning a majority of issued and outstanding shares of the company entitled to vote at this meeting are present and -- or by proxy, a quorum is present for all purposes. The meeting is now declared legally convened and ready to transact business.

After the meeting has been adjourned, we will present our report as to condition and operation of the company. We ask that you hold all your questions until we have completed this report and you will then be provided with ample opportunities to ask questions.

Proposal 1 is election of directors. The first matter of business will be the election of 9 directors to the Board of Directors of the company to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified. On behalf of the Board of Directors, I hereby nominate the following individuals: Robert Bob Franko, Christina Kao, Dr. James Kao, Johnny Lee, Joyce Wong Lee, David Morris, Geraldine Pannu, Scott Polakoff and Mr. Frank Wong.

Is there a second for the proposal? Thank you.

Is there any shareholders present who wishes to revoke his or her proxy? Are there shareholders present who did not submit proxies and wish to vote by written ballot?

[Voting]

The 9 nominees receiving the highest number of votes will be elected. I hereby declared poll closed.

It appears that the Inspector of Election has finished counting the votes in connection with the election of directors. Will the Inspector of Election, please report the results of the election.

All director nominees have been elected.

The report of the Inspector of Election shows that the shareholders of the company have voted for the election of Robert Bob Franko, Christina Kao, Dr. James Kao, Johnny Lee, Joyce Wong Lee, David Morris, Geraldine Pannu, Scott Polakoff, Frank Wong. They are hereby declared elected to serve as directors of the company until the next Annual Meeting of Shareholders and until their successors are elected and have qualified. The report of the Inspector of Election is approved.

Our Proposal #2 is advisory vote on named executive officers compensation. The second matter of business will be to approve on an advisory and nonbinding basis the compensation paid to the company's named executive officers as described in Proposal 2 of the proxy statement dated April 10, 2026.

On behalf of the Board of Directors, I hereby move the Proposal 2, contained in proxy statement dated April 10, 2026, be approved. Is there a second to the motion? Thank you.

The proposal must receive at least a majority of the shares present in person or represented by proxy and voting at this meeting and that such shares also constitute a majority of the required quorum are required to approve on a nonbinding advisory basis, the 2025 compensation of our named executive officers as described in our April 10, 2026, proxy statement.

Is there any shareholder present who wishes to revoke his or her proxy? Are there shareholders present who did not submit proxies and wish to vote by written ballot?

[Voting]

I hereby declare the voting closed. Will the Inspector of Election, please report the results of the voting.

The advisory vote on named executive officers' compensation proposal has been approved by the affirmative vote of a majority of the shares present in person or represented by proxy and voting at this meeting and such shares constitute a majority of the required quorum for the meeting.

The report of the Inspector of Election shows that the stockholders of the company approved on a nonbinding advisory basis the company's 2025 compensation and -- of our named executive officers. The report of the Inspector of Election is approved.

Proposal #3 is ratification and appointment of independent directors -- auditors, I'm sorry. The third matter of business will be to ratify the appointment of Crowe LLP as the company's independent auditors for the fiscal year ending December 31, 2026, as described in Proposal 3 of the proxy statement dated April 10, 2026. On behalf of the Board of Directors, I hereby move Proposal 3 contained in the proxy statement dated April 10, 2026 be approved. Is there a second to the motion? Thank you.

The proposal must receive at least a majority of the shares present in person or represented by proxy and voting at this meeting and that such shares also constitute a majority of required quorum are required to ratify the appointment of Crowe LLP as our independent auditors for the fiscal year ending December 31, 2026, as described in our April 10, 2026, proxy statement.

Is there any shareholders present who wishes to revoke his or her proxy? Are there any shareholders present, who did not submit proxies and wish to vote by written ballot?

[Voting]

I hereby declare the voting closed. Will the Inspector of Election, please report the results of the voting.

Proposal #3 has been approved by a majority of the shares present in person or represented by proxy and voting at this meeting and that such shares also constitute a majority of the required quorum.

The report of the Inspector of Election shows that the stockholders of the company have ratified the appointment of Crowe LLP as our independent auditors for the fiscal year ending December 31, 2026, as described in our April 10, 2026, proxy statement. The report of the Inspector of Election is approved.

Thank you for attending today's meeting. The meeting is adjourned. At this time, we will share some highlights on our financial performance. After we have finished this report, there will be a question-and-answer session. If you have any questions, please stand up, introduce yourself prior to asking the question or if you are calling in, we will allow audio at this time, and please state your name clearly, your status as a shareholder or proxy holder and present your question in comment. Lynn?

Thank you, Johnny. Hello, everybody today. I want to start with a couple of introductions. Myself on behalf of the management team, joining us at the shareholder meeting today. Mr. Vincent Liu, Chief of Staff; [indiscernible] Wang; Executive Vice President and Branch Administration, Director of Prestige Banking, Ashley Chang; Executive Vice President and Branch Administrator, Mina Rizkalla, Chief Risk Officer; Jeffrey Yeh is over here, our Chief Credit Officer; you met Diana Hanson, our Chief Accounting Officer; and Mr. Gary Fan, who is our Chief Operations Officer.

So it is my privilege, I think, to get up here and share a couple of highlights from 2025, 2026 and to take any questions, whether it's here or online. So put together 3 slides, and I wanted to share some highlights.

So for 2025, we generated $31.9 million in net income. It's a 20% increase over 2024. That was driven mostly by our loan growth that we experienced during 2025, which was 8.6% in loan growth. We had equally strong deposit growth during that same period of time.

Our earnings per share was $1.83 in 2025, which is a 25% increase over 2024. During 2025, we were able to reduce our nonperforming assets by 34%. We maintained robust capital ratios, and they are well -- exceed our well-capitalized -- regulatory well-capitalized levels. Didn't necessarily put a slide together for it, but we maintained good expense discipline, and we were able to grow top line revenue at a pace above our expense growth.

We can move to Slide 2, please. During 2025, we returned $25.3 million to our shareholders in the form of dividends and accretive share repurchases that also contributed to the higher EPS numbers. Our net interest margin increased by 25 basis points to 2.95%, and we continue to increase that to 3.15% in the first quarter of this year. So the balance sheet is well positioned. I'd also point out our net interest margin increased for the sixth consecutive quarter most recently.

If you can move to Slide 3, please. So we've included a trend and really a picture is worth a thousand words. While this shows 2024, where we addressed some credit issues and then we needed to address them in the early part of 2025, what this shows is net income increased every quarter during 2025 and then into the first quarter of 2026. Average quarterly earnings per share and pretax earnings were both significantly higher in 2025 compared to the prior period.

A few other items that we highlighted in our proxy. We completed our planned management transition in May last year with Mr. David Morris' retirement and Mr. Johnny Lee taking the position of Chief Executive Officer. Mr. Morris continues to serve on our Board of Directors and definitely appreciate that we get the benefit from your familiarity with our bank.

I think I would conclude with we believe that we're well positioned to continue to deliver improved financial performance as we move from 2025 into 2026. And we definitely remain dedicated to serving our communities and appreciate the support of our employees, customers and shareholders. So thank you. We can take questions. Thank you.

Double checking if there's no questions. No. Okay. If not, thank you all again for attending this year's shareholder meeting. Thank you.

Good day, everyone. Welcome to the RBB Bancorp Q1 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Rebecca Rico. The floor is yours.

Thank you, Kelly. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the first quarter of 2026.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan. Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions.

I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings.

Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebecca. Good day, everyone, and thank you for joining us today. The first quarter was a strong start to the year with continued earnings growth, expanding margin and further improvement in our credit metrics. We generated net income of $11.3 million or $0.66 per share, which was an 11% increase from the fourth quarter and our highest quarterly earnings level in 2 years. Return on assets increased to 1.09%, and we continue to grow tangible book value per share.

Net interest margin increased another 60 basis points to 3.15%, which marked our fifth consecutive quarter of margin expansion. The increase was driven by both lower funding costs and higher asset yields. Our cost of deposits declined 10 basis points and our spot rate on deposits ended the quarter at 2.79%, which gives us some additional opportunity for improvement in the second quarter.

Loan growth was more modest in the first quarter with loans increasing by approximately $11 million or 1% annualized. We originated $131 million of new loans at an average yield of 6.4%, but that growth was offset by elevated payoffs and paydowns as some borrowers refinance or sold assets.

As we mentioned before, we remain disciplined on pricing and structure and have focused on profitable growth. Our pipelines remain healthy, and we continue to believe we are positioned to deliver stronger loan growth over the balance of the year.

Deposits declined slightly during the quarter due to a reduction in wholesale deposits, but this was more than offset from a quality standpoint by another quarter of growth in retail relationships.

We also continue to make progress on credit. Nonperforming assets declined 9% from prior quarter and are down 24% from a year ago. Overall, we believe the first quarter reflected continued progress in returning RBB to its historical levels of performance. We continue to focus on disciplined growth, maintaining strong credit quality and increasing long-term shareholder value.

With that, I'll hand over to Lynn to talk about the results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I discuss the company's first quarter of 2026 financial performance. As Johnny mentioned, net income for the first quarter was $11.3 million or $0.66 per diluted share, which compares to $10.2 million or $0.59 per diluted share in the fourth quarter.

Despite 2 fewer days in the quarter, net interest income increased $1 million to $30.5 million and included a $1.4 million decrease in interest expense, partially offset by a $390,000 decrease in interest income. The decrease in interest expense was due mainly to the shorter quarter and lower rates on retail deposits as we continue to benefit from the repricing of our deposit portfolio into the current rate environment following the Federal Reserve rate cuts made towards the end of 2025.

Retail deposits increased by $50 million and included a shift from time deposits into a high-yield savings product. The decrease in interest income was due to the shorter quarter and lower cash and securities yields, offset by higher loan yields and the receipt of a $430,000 FHLB special dividend.

Our net interest margin increased to 3.15% in the first quarter from 2.99% in the fourth quarter. The increase included an 8 basis point increase in the yield on earning assets and an 8 basis point decline in the overall cost of funds. The FHLB dividend added 4 basis points to our NIM in the fourth quarter -- sorry, 4 basis points to our NIM in the first quarter.

Turning to credit quality. Nonperforming loans remained basically unchanged. Substandard loans decreased $2.7 million and special mention loans increased $5.5 million. All special mention loans are on accrual status. We had effectively no net charge-offs in the quarter, and we recorded a small reversal of provisions for credit losses, supported by paydowns on nonperforming loans, overall stable credit quality and positive economic indicators in the underlying forecast. We believe that we are adequately reserved and with credit quality generally improving over the past year, we expect future provisions to reflect that.

Noninterest income increased $1.4 million to $4.3 million. The increase was driven primarily by an $890,000 higher net gain on OREO, $484,000 in a recovery on a fully charged-off acquired loan and $360,000 of interest income on tax refunds related to purchased federal tax credits. Noninterest expense increased by $293,000 to $19.3 million due mainly to higher payroll taxes and employee benefit costs at the beginning of the year. Even with the increase, our efficiency ratio improved to 55% from 59% in the fourth quarter. We expect noninterest expense for the next few quarters to be in the $18 million to [ mid ] $19 million range. Turning to the balance sheet.

Total assets were $4.2 billion at quarter end. Loans held for investment increased $11 million since year-end and deposits declined $10.5 million. Importantly, the mix of deposits continued to improve as we reduced wholesale funding and grew lower costing retail deposits.

Book value per share increased to [ $31.10 ] and tangible book value per share increased 2% to [ $26.84 ]. This concludes my prepared remarks. Kelly, we are now ready to take questions.

[Operator Instructions] Your first question is coming from Brendan Nosal with Hovde Group.

Nice to see continued workout on the asset quality front and improvement there. So I guess I just want to start my questions on that front.

I think we got disconnected [indiscernible].

Brendan?

[Technical Difficulty]

Can you focus on me now?

Yes.

Okay. So sorry about that. Maybe just starting off on asset quality. Nice to see continued work out an improvement in ratios this quarter. Can you offer a little bit of color on some of the larger nonperforming assets you still have kind of in the workout process and then to the extent that you're able to continue to work those out, what do you view as a normalized kind of reserve to loan ratio as you work through the noise?

Okay. Well, how about I start with the end of your question and we'll go backwards. We -- well, first, we'll acknowledge we're elevated on our NPLs and we would expect those to normalize down at a much smaller percent of our total loans. I think you are familiar that 90% of our NPLs are represented by the same three relationships, so that remains stable or understood.

And I think as far as a normalized coverage ratio given the composition of our overall loan portfolio. we could see it coming down somewhat relative to the levels it is now. But we do go through a robust process, and I think we have to take into consideration everything that's going on in the market.

So I think it has an opportunity to move lower. As you recall, last year, it was much higher with those specific reserves that ultimately we did some charge-offs and now we resolved loans. So I think that's where we would say going forward.

With respect to specific comments on the NPLs, I think I can turn that over to you, Johnny or Jeffrey.

Yes, NPL actually this is virtually unchanged during the quarter. However, there is a reduction of the numbers so long. So there's [ to exit one in ]. And then the one that those assets are those are successful workout and then they pay off.

One in [indiscernible] technical issue, they become core. So -- but virtually and is -- this is a pretty quiet quarter.

I'll just add, we have represented that our largest one is working its way through a bankruptcy process, and we will continue to work on that. So we do see an opportunity for NPLs to be resolved during 2026, but it is a process.

Just [indiscernible] actually, they're still paying still down, right?

Okay. Okay. That's super helpful color on that topic. Maybe turning to capital ratios obviously remain quite strong. Asset quality is incrementally getting better from here with good line of sight. Any updated thoughts on kind of capital deployment from here? I think you had a tranche of sub debt that was repricing and perhaps looking at the buyback at some point, but any updated color there would be great.

Sure. So we have stated that we've been focused on the sub debt that's coming up for repricing. We recognize that its capital treatment, we'll start to sunset. It does reprice April 1. We do view, I think the sub debt from as a capital instrument is sort of something that we're going to address this year. I think that there's also opportunity for us to look at a stock buyback. But I do think the sub debt is our first priority. I think that based on the current interest rate environment and how we're looking at the balance sheet, there may be a good reason to look to retire a good portion of it. So we're working through, I think, that process, as everyone knows, does require regulatory approval.

Okay. Fantastic. I'm going to try and sneak one more here on the margin. Can I guess, just comment on whether that 4 basis points of margin from the FHLB special dividend is onetime in nature. And then to the extent that we don't get any more Fed cuts for the foreseeable future. Just talk about your expectations for the margin path from here.

Excellent question. So there's definitely a few dynamics in our net interest margin. I think you're right, the FHLB special dividend is onetime in nature. We would welcome a special dividend every quarter, but I don't view that as recurring.

I think with the subject, our retirement dates are the first date of each quarter. So in the near term, we will be absorbing the sub debt at a little bit higher price in the second quarter at least. And then I think the other thing I would point out is half of our portfolio is a mortgage portfolio. And as everyone knows, those are priced on a [ $33.60 ] basis.

So we do get a bit of a benefit in the which is probably closer to or just above 3% with balance sheet growth in the current environment and some modest repricing of our deposits. So I think that's where we're headed in the near term.

Your next question is coming from Kelly Motta with KBW.

Question. Maybe on loan growth in growth for the quarter was a bit more muted than we had expected. I think the pipelines coming into the quarter were quite strong. Can you provide any color as to kind of where that variance? What drove that and how pipelines are looking as we look ahead here? .

This is Johnny. Thanks for the question. Well, Q1 is always serve a seasonal quarter and also with the geopolitical risk everything, obviously, there's still a lot of serving up there. But -- it was -- in some ways, we're trying to balance, obviously, as always, we look at quality first and then look to see if based on the competition on the pricing side, whether it makes sense or not was to aggressively compete on certain types of deals. And we weren't prepared to sort of compete in sort of submarket rates in the 5.5% for the [ MFR ] final 3/4, we have been lower for some [ CRE ] loans. So we feel like a command feel is a baiting to trying to hold the line.

So we stand pretty disciplined during the first quarter in keeping our rates above [ 6% ]. Unless, as always, if there are certain sort of enhancements to the yield with ancillary businesses such as deposits or other potential fee income that might come with a relationship. Otherwise, we're trying to stay pretty disciplined as far as keeping the rate hike. So in that sense, we did sort of let go, if you will, of a few deals during the Q. And then also, there's been a little bit higher pay downs, payoffs during the quarter as well. So certainly that impacted the net growth.

But to your question about the pipeline, pipeline is still very healthy. And I think you'll see the in Q2 based on the sales that we have right now, we should be able to get training toward what we have achieved in the past year in 6 quarters. I think we're in a good training there. So I'm very positive about the pipeline overall. But again, we definitely set for quality first and making sure any pricing that we're going to compete on makes sense with...

Got it. That's helpful. And then on the deposit costs, those came down quite nicely. I think you mentioned in your prepared remarks, you had shifted some customers to different categories to help manage that. As we look ahead, borrowing rate cuts, is there still any room to bring down deposit costs within categories outside time? And then within time, can you remind us the roll-on versus roll-off rates?

Sure. So I think there is still some opportunity with the latest changes in interest rates, the belly of the curve kind of moving up. I think there's probably less opportunity. I think we have historically had a very strong 12-month CD ladder. And as those CDs mature, mature over a 12-month period of time. Those have typically repriced into a lower environment.

For the amounts that are coming off, they are probably pretty similar to these higher interest rates and the competition that we're seeing. We are seeing things as high as 4% now being offered by other banks.

So I think that the opportunity is maybe smaller. But having said that, our spot rate at the end of the quarter is lower than what the average was over the quarter. So I do think there's still a little bit of opportunity. I would -- as far as the runoff rate, we did mention that, of course [ similarly ] or maybe a little bit lower than what we saw in the fourth quarter. we still have a fair amount of repricing in the current quarter, but maybe it's a few basis points.

Got it. That's helpful. Last question, if I can just sneak it in is just in regards to, I think, Trump, it's been reported that he may look to do an executive order requiring banks to collect citizens chip data on their customers. I'm wondering if you guys have looked at this and have any preliminary thoughts of how that could impact the way you look to do business or anything of that nature?

Kelly, are you speaking to like the [ SBA ] topic order? .

I think this is a broader...

It's not -- it's hypothetical, but I think [indiscernible] talked about Trump's potentially working on an executive order to collect citizenship -- requiring banks to collect citizenship data on their customers.

Yes. No, the only thing that we were kind of sort of margin a little bit more close with respect to the U.S. [ SP ] administration's recent sort of procedural guideline, if you will, which restrict applicants to only -- to the U.S. citizens, if you will. So that's the only thing that we were kind of watching more closely.

Got it. You guys do have an [ SBA ] business? Like has that does that have any bearing on kind of your expectation for that on a go-forward basis?

No, no. In fact, when you first no, not yet, we not off. We don't have any -- there's no impact based upon our system.

Your next question is coming from Matthew Clark with Piper Sandler.

Just wanted to drill into the loan growth outlook a little more. I think coming into the year, the expectation was for high single digits, a little bit more of a challenge here after the first quarter. Are we -- do you expect to kind of work toward high single digits as we move through the year? Or do you still think we can bounce back here and get close to something in that high single-digit range?

I'm going to turn it over to Johnny in a second, but let me make a couple of comments. So we had loan production of about $145 million in the fourth quarter. We came into the first quarter of about $130 million, approximately the same yield kind of holding the line as we observed interest rates. Kind of stop moving down even some talk of potentially moving up, we recognize our funding base.

I think that while we didn't observe much of an impact with the government shut down, call it, in our [ SBA ] business, I would say our originations in that area were maybe a little bit lighter in the first quarter. So there's opportunity there.

Our second and third quarters have historically been our highest producing quarters, so much so that they achieve, I think that higher number. So we're stringing together I think, positive quarters. There's business to be done. And with interest rates as high as they are, it will depend whether people come off with sidelines and go ahead and move forward. And so when I think about the range, high single digits, I mean, I would put it mid- to high-single digits. So we were only building off of a $3 billion and change portfolio in big areas, we should be able to participate. But to the extent that we're operating inside this interest and rate environment that might be tempered with maintaining NIM.

So I think piecing together everything we're seeing an attractive pipeline. Historically, fourth and first quarter can be a little bit lower we would still remain optimistic, but let's maybe anchor it in the mid- to high single digits. So I can turn more comments over to Johnny, but that I think what we're looking at.

No, I echo on Lynn's comments noted to digits. And again, our pipeline is healthy. We just want to be very disciplined in and what kind of loans we find quality wise and also making sure we're generating proper returns for the bank with these new relationships that we're bringing.

Great, the one I had was to get a little more color on the CD repricing and the savings promotional product. Just want to get to specific amount of CDs that are coming due here in 2Q and the related rate. And then it sounds like the renewal rate is similar, maybe a little bit lower, but I just want to get the specific numbers, including the promotional savings rate product.

Sure. So I think what we are looking at is about 60% of our deposits sit into the CDs and sort of Flex savings products and 1/3 of them repriced in the first quarter.

And our observation in the marketplace is I think the more rate-sensitive money is now costing between 3.85% and 4%. We've been successful, a little bit lower than that, and that's what it's actually coming off that.

So we're working with our relationships and our customers, but our latter at the same time last year, when we were putting on 12 months money, that was around at the [ 3.75% ] level, right? So that's what's coming due. And interestingly, it's all 3.5% to 4% despite short-term or Fed fund rates being lower.

So Yes, we still have about 60% of our funding base in CDs and savings about 1/3 reprices in the first quarter. And we've been kind of in the 3.70% to 3.75% range. I think that we are competing heavily and we've done a really great job. But we are observing rates at 3.85% and 4% when you look around at operates.

[Operator Instructions] Your next question is coming from Jackson Laurent with Stephens.

This is Jackson on for Andrew Terrell. Maybe coming back to margin. I appreciate the color on kind of the short-term side path. But if we look a little bit longer term, you've run out a 4% NIM in the past. Do you guys see a path to get back to that?

Can you just start your question again. I think the line cut, and I didn't catch all of it.

Yes, of course. So just more longer term on the margin. You guys have run at a, call it, 4% NIM in the past. I was just wondering if you guys see a path to kind of get back to that level? And if so, what do you think is kind of required to get back there? .

So I think what you may be referring to is a point in time in RBB's history where there was a very high percent of noninterest-bearing deposits. And in order to move to, I think, that mid-3% net interest margin, it requires a high percent of noninterest-bearing deposits. And we remain focused on building the commercial or C&I part of our business, which tends to have the more attractive deposits and funding base associated with it. I think before we start talking about a NIM with a 4% handle, we'll need to squarely get into [ 3%, 3.25% ]. And I think we believe we have the opportunity to do that. But it does require staying focused on our C&I business growing that, bringing in more noninterest-bearing or less rate-sensitive customers and then continuing to work with our relationships that we have so that we can move down on our wholesale funding, which we did in the first quarter.

Got it. That's helpful. And then just last one for me on fees. I was wondering if you guys could just talk about gain on sale margin trends and kind of how we should be thinking about loan sales versus loan retention going forward?

I can start. So for loan sales, I think they fall into two buckets. One is our mortgage banking business. That tends to be a higher volume, lower premiums. We like to test the secondary markets to make sure that we do have an off-ramp relative to our loan production. But generally, we hold the majority of it, look at our prepayments and then we're balancing our mortgage portion of our portfolio against our overall total portfolio. We've kept out at about 50%. We would like to continue to grow our commercial side, which includes multifamily CRE, C&I and SBA.

And then on the SBA loan sales, those are smaller dollar volume but higher premiums. And we would expect to be -- it's similar, if not higher levels than what we were able to achieve in 2025.

2025 was a little bit lower than 2024, a little bit of disruption from the government shutdown is a little bit of noise. So we still see that as a good opportunity. We've hired a couple of people last year. So I think there's still opportunity in the fee income area to have that move higher in other quarters compared to the first quarter.

Thank you. There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Johnny Lee for any closing remarks.

Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everyone. Thank you.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Greetings, and welcome to the RBB Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. And please note, this conference is being recorded. I will now turn the conference over to your host, Rebeca Rico, financial analyst. Ma'am, the floor is yours.

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter of 2025.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan.

Johnny and Lynn will briefly summarize our results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings. Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, Rebeca. Good day, everyone, and thank you for joining us today. The fourth quarter was a strong finish to 2025 with solid loan growth, improving performance ratios and normalizing credit. The entire RBB team continues to work hard to return the bank to its historic performance, and I'm very proud of what the team has accomplished. We still have work to do, particularly with respect to resolving remaining nonperforming assets but we're confident that we turned the corner on credit, and that performance will continue to improve in future quarters.

Fourth quarter net income totaled $10.2 million or $0.59 per share which was stable from the third quarter but more than double our earnings for the same quarter a year ago. ROA and NIM showed similar trends and were stable from the third quarter while increasing sharply from a year ago. For the year, loans grew at a solid 8.6%, which we believe demonstrate the progress we have made, returning RBB to its historical rate of growth. We had another quarter of strong originations to $145 million. And for the year, loan originations were 32% higher than they were in 2024.

Our pipeline remains healthy and in line with this same time last year, so we are optimistic we will see another year of high single-digit growth in 2026. We continue to maintain pricing and structuring discipline with fourth quarter originations yielding 31 basis points above our current loan portfolio yield. Despite the Fed rate cuts of 75 basis points in 2025, we were able to drive our fourth quarter yield on loans up 4 basis points to 6.7% compared to the same quarter a year ago.

Deposits were not the bright spot of 2025 and we show the progress we made by focusing on community outreach to attract retail deposits and expanding relationships with our business clients. Fourth quarter total deposits increased 6.6% compared to the fourth quarter a year ago, with strong growth in interest-bearing nonmaturing deposits supporting loan growth and a reduction in FHLB advances.

Average demand deposits remained stable in 2025 and currently comprise 16% of total deposits. The fourth quarter rate on average interest-bearing deposits declined by 55 basis points from the fourth quarter of 2024 or 73% of the rate cuts we saw last year. While we were successful reducing funding costs last year, competition for deposits has been increasing and recent rate cuts have not delivered the same pace of reductions in our deposit costs.

We made significant progress addressing our nonperforming assets during 2025. Nonperforming loans decreased 45% and nonperforming assets decreased 34% since the end of last year and included ongoing improvement during the fourth quarter. Criticized and classified assets also improved during 2025, decreasing by 43% for the full year and 25% since end of the third quarter. With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided, as I share my comments on the fourth quarter and annual 2025 financial performance.

As Johnny mentioned, and you can see on Slide 3, net income for the fourth quarter was $10.2 million or $0.59 per diluted share, which is stable from the third quarter. Fourth quarter pretax pre-provision income was $2.3 million or 21% higher than a year ago, which is 4x the growth rate in assets over the same time period.

Net interest income increased slightly, the sixth consecutive quarterly increase, adding 1 basis point to the net interest margin, which was $2.99 in the fourth quarter. Asset yields declined by 7 basis points, driven primarily by the 4 basis point decrease in loan yield due to the market decreases in the prime rate in the last 4 months of the year.

At the same time, average funding costs declined 8 basis points, driven mostly by a 7 basis point decrease in the cost of deposits, which included a 12 basis point reduction in the average cost of interest-bearing deposits. For the year, net interest income increased by 13% to $112 million due to loan growth, relatively stable asset yields and a 38 basis point decline in funding costs.

Our spot rate on deposits was 290 at the end of the year, which was 6 basis points lower than the average cost of deposits in the fourth quarter. To this end, we expect to see some incremental improvement in deposit costs in the first quarter. But as Johnny mentioned, competition remains intense, so it is difficult to quantify what the impact will be.

Fourth quarter noninterest income declined by $486,000 from the third quarter, which had included a $0.5 million gain related to 1 equity investment. During the fourth quarter, in addition to SBA loans, we sold $22 million of mortgages, which drove an increase in gain on sale and we remain optimistic that our SFR production levels will continue to support ongoing loan sale activity.

Compared to the fourth quarter of 2024, all categories of noninterest income increased, except for other income. Fourth quarter noninterest expenses increased by $282,000 mostly due to year-end accruals, but were in line with expectations.

Our operating expense ratio was stable from the third quarter at 1.80% of average total assets. First quarter expenses are expected to increase due to seasonal taxes and salary adjustments and then stabilize for the next few quarters in the $18 million to $19 million range as professional service fees are expected to moderate in 2026 compared to 2025.

We also reduced the quarterly effective tax rate by 330 basis points in the fourth quarter when compared to the third quarter of 2025. This was mostly due to a reduction in the multistate blended tax rate and benefits from ongoing state tax planning. The overall 2025 effective tax rate benefited from purchased federal tax credits and state apportionment tax planning. The effective tax rate in 2026 is expected to be between 27% and 28%.

Slides 6 and 7 have additional color on our loan portfolio and yields. As Johnny mentioned, originations have been strong at $145 million in the fourth quarter and $73 million for all of 2025, which was 32% higher than the originations we saw in 2024.

Slide 7 has details about our $1.7 billion residential mortgage portfolio, which represents 50% of our total loan portfolio and consists of well secured non-QM mortgages primarily in New York and California with an average LTV of 54%.

Slides 10 through 12 have details on asset quality, which continues to improve. As Johnny mentioned, we did a lot to work -- we did a lot of work to stabilize and revolve our NPAs in 2025. We believe we are appropriately reserved on our NPL and REO assets as we work towards their resolution.

The provision for credit losses totaled $600,000 in the fourth quarter due mainly to charge-offs and loan growth, partially offset by the impact of positive changes in economic forecast and credit quality metrics. We expect future annual credit costs to be much lower now that credit has stabilized.

Slide 13 has details about our deposit franchise. The decrease in total deposits during the fourth quarter of 2025 was due to a $42 million decrease in brokered deposits, offset by a $26 million increase in retail deposits which has supported our loan growth. Tangible book value per share increased 7.8% during 2025 to end the year at $26.42 while at the same time, returning over $25 million in capital to our shareholders through dividends and the repurchase of approximately 4% of our outstanding shares. Our capital levels remained strong with all capital ratios above regulatory and well-capitalized levels.

With that, we are happy to take your questions. Operator, if you would please open up the call.

[Operator Instructions] Our first question is coming from Matthew Clark with Piper Sandler.

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?

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.

Okay. Great. And then just any update on your plans for the sub debt leases in --

Yes. So you're right. We have $120 million of sub debt that's eligible to be redeemed and will reprice effective April 1 of this year. So I think that we're looking at the opportunities to rightsize it for our balance sheet and for our capital stack. So I think -- if it was set just to reprice on its own, we're just under 7%. I think the market is more attractive. So we'll be looking at something maybe more holistic in addition to, like I said, rightsizing it for our balance sheet. So I think that's where we're at right now.

Okay. Great. And then just last one for me on capital. You still have a lot of excess capital, how should we think about the buyback this year?

Yes. I feel like once we rightsize the sub debt, I think there'll be an opportunity for us to be more active on a buyback program. I think one step at a time. I think the end of the 2025 had a continuing to be a little bit more inward facing as we resolved credits wrapped up 2025. So I would expect both the sub debt and then returning to being more active on the buyback.

Our next question is coming from Brendan Nosal with Hovde Group.

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?

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.

Yes. No, that's helpful. I mean, is it fair to say, based on that outlook for downward funding cost repricing that there's room for the margin to continue to expand?

Yes. We are still, I would say, slightly liability sensitive, maybe a little bit more neutral than we've been in the past. You're absolutely right that from a NIM perspective, what we saw in the fourth quarter as our earning asset yields came down a little bit as liquidity repriced into the current environment and then our loan yield came down just slightly.

I think there's still opportunity to hold our earning asset yield and our loan yields based on the shape of the yield curve, the repricing characteristics of our loan portfolio. But there's definitely downward pressure on it. It's not that without being very careful, especially since our loan-to-deposit ratio sits around 99%.

So I think we're looking at having some attractive deposit beta. We're looking at NIM expansion. One of our biggest opportunities for NIM expansion is our nonperforming assets and continuing to resolve them. They held relatively flat kind of quarter-over-quarter, but we've made progress in, I think, ultimate resolution. So that would also have a positive impact on our net interest margin being able to return over $50 million to an earning asset status.

Okay. Okay. Great, Lynn. That's helpful. One more for me just on credit. First of all, congrats on the workout this quarter and the improvement in virtually all metrics. As we look forward, I get that there's a ton of moving pieces here, but can you just kind of talk in broad strokes on where you hope to see credit metrics by the time we sit here in 12 months and look back on 2026?

I'll talk. That's quite, I would just say in a few quarters, we always stated that we're staying very laser focused on resolving much of our classified, criticized credits and hopefully, this quarter's results demonstrates our ability to continue to kind of moving positively to get most of the results. So let's also keep on track on what we're doing right now. I would hope that certainly 12 months now, you'll see much continuously see improvements in our credit picture.

Yes. I think in addition to what Johnny stated, so our NPLs are well understood. 90% of them are represented by 4 relationships. Of those 4 relationships, 3 of them are continuing to make payments based on agreements, which is good because it continues to lower the balance towards what could be ultimate resolution. So we're really only focused on a few. I think that gives us a really good opportunity to get them worked out during 2026.

We're optimistic that, that will happen in the first half of this year. But one of them is the partially completed construction project, which represents about half of that balance and that one will probably take the longest. So as we sit here a year from now with credit stabilized, we look to have sold our OREOs and to have these resolved. Obviously, there may be regular activity, but expect that these larger ones will be moved out.

Our next question is coming from Kelly Motta with KBW.

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.

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.

I think as we sit here today, we are in as good as, if not better position at the same time last year when we were able to achieve over 8% annualized growth. I would kind of comments, the fourth quarter loan growth was a little bit muted, but we did have a higher volume of loan sales, as Johnny mentioned. And we were working to resolve some substandard credits. So we were happy on those exits.

And I think with the interest rate environment, payoffs and paydowns can tend to come up a bit, but they are actually a little bit lower than third quarter. So we think that our ongoing production will fall through to net loan growth as we go forward. But I think those things just kind of had a little bit downward pressure, but I think every -- all the metrics are healthy to sit behind it.

Got it. Maybe last question for me on expenses. You've rewarded about $19 million in the quarter. Just looking into '26. I'm wondering if this is a good run rate to build off of? And any kind of puts and takes. Like I know legal and professional has been maybe more elevated than past years, probably related to the workout but should be presumably declining. And then any kind of thoughts for additional things we should be baking in as we look ahead to next -- this year, sorry, I keep saying next year -- this year, 2026.

I know. I'm doing the same thing. I think that the run rate in the fourth quarter is a pretty good indication of our overhead or quarterly overhead to achieve the production levels we were able to achieve in 2026. So I think what we saw is compensation is a bit higher to reflect the growth inside of the company. We also have management transition this year that we wouldn't necessarily expect to reoccur, and we can reallocate those dollars into higher cost of doing business.

You're exactly right, legal and professional. We think there is an opportunity for those costs to come down as credit is stabilized. So while there is a step-up when I look from 2024 to 2025, I don't know that it requires that same step-up in order to achieve mid- to high single-digit loan growth. I think there's also other opportunities to grow top line, if for some reason, expenses go higher.

So -- but I think just when you look at just that part of it, we're looking in that $18 million to $19 million range. I think you can tell. So first quarter based on kind of pay raises and taxes kind of has an extra kind of $0.75 million, I think, is kind of what pops through in the first quarter and then it normalizes after that.

Our next question is coming from Tim Coffey with Janney.

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?

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.

Okay. Yes, I wasn't contemplating that you sell loans to get there. I thought that you'd be able to grow retail deposits faster. And then, Johnny, as we talked a little bit about the pipeline for this year in terms of loan growth, and we are going to see another a year just like the past one. How -- what is the competition like for commercial real estate loans right now in your footprint?

Actually, still -- competition is always there. But again, we want to be very strategic about the kind of relationships that we bring in. Certainly, the rate has a little bit more challenged as far as we're trying to maintain the yield that we had in, let's say, prior first half of the year last year.

But the -- but overall, I think we've been able to, I think, hold our ground pretty well, because, again, we're a very relationship-driven bank. And so we look at each one of these prospects of contract that we are considering lending to. We look at the overall potential of the relationship, not just what we might be able to generate from a yield standpoint, but any other additional ancillary businesses that might come along with it such as deposits, of course. So with that, I think from a relationship standpoint, we still are able to be fairly competitive. But again, the reality is, certainly, we always face competition on the rate side.

Yes. Okay. Yes. Are you seeing competitors undercutting the spreads on these loans relative to where the yield curve is?

Well, I think we are from a yield standpoint, we've actually given a given up quite a bit of businesses for sort of competitor against some of our peers who are offering these 5-year fixed rates below 5.75% on average or 5.5% to 5.75% by the way, so far, I think we're holding pretty well above the 6% or higher right now with a yield that were much of the pricing that we've been proposing.

As we have no further questions on the line at this time, I would like to hand the call back over to Mr. Lee for any closing remarks.

Okay. Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everybody.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the RBB Bancorp Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to the company representative, [ Rebecca Rico ]. Ma'am, the floor is yours.

Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the third quarter of 2025.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan. Johnny and Lynn will briefly summarize our results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions.

I would ask that everyone please refer to a disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings.

Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Thank you, [ Rebecca ]. Good day, everyone, and thank you for joining us today.

Third quarter net income totaled $10.1 million or $0.59 per share, which is a 9% increase from last quarter and a 45% increase from a year ago. The increase in net income was driven by core earnings growth and lower credit costs, which we believe are both positive signs for our outlook.

Loan growth supported increased asset yields and net interest income and loan loss provisions decreased as credit continued to stabilize, and we made good progress addressing many of our nonperforming loans and performing criticized loans.

Net interest margin increased by 6 basis points to 2.98% compared to the prior quarter and has increased by 30 basis points over the last 4 quarters. Loans held for investment grew by $68 million or 8% on an annualized basis with a large part of that growth coming from our in-house mortgage origination business, which continues to perform well.

Third quarter loan originations totaled $188 million at a blended yield of 6.70% or 67 basis points above the prior quarter's blended loan portfolio yield. So even with the recent rate cut in continued competition, we've been able to increase loan yields and maintain strong growth, which we feel demonstrates the progress we're making on originations.

We also continue to make progress addressing our nonperforming loans as quickly as possible while minimizing the impact on earnings and capital. Criticized and classified assets decreased due mostly to the upgrade of a $44 million construction loan following the completion of the project.

And with that, I'll hand it over to Lynn to talk about results in more detail. Lynn?

Thank you, Johnny. Please feel free to refer to the investor presentation that we have provided, as I share my comments on the company's third quarter of 2025 financial performance.

Slide 3 of our investor presentation has a summary of our recent and third quarter results. As Johnny mentioned, net income for the third quarter was $10.1 million or $0.59 per diluted share. Compared to our second quarter results, net income increased 9%, our earnings per share increased 12% due to the higher earnings and stock repurchase activity.

The increase in net earnings was driven by ongoing loan growth, lower credit costs and controlled operating expenses, which more than offset the employee retention credit we recognized in the second quarter. Net interest income increased for the fifth consecutive quarter and is up $1.9 million for the linked quarters to $29.3 million, driven by higher interest income of $3.2 million.

Our net interest margin continued to expand also for the fifth consecutive quarter, reaching $2.98 as we increased the overall loan yield and achieved a 2 basis point decline in funding costs. Our spot rate on deposits on September 30 was $2.97, which was 6 basis points below the third quarter's average of $3.03. So we may get some incremental improvement in the fourth quarter, but competition for liquidity remains stiff, and we are unlikely to see big reductions in funding costs without additional rate cuts.

Third quarter noninterest income showed a $5.2 million decrease, which is attributed entirely to the employee retention credit, or ERC, proceeds recognized last quarter. Third quarter noninterest expenses decreased by $1.8 million to $18.7 million, due mainly to the ERC-related expenses of $1.2 million and other executive management transition costs recognized in the second quarter, both of which were not repeated in the current quarter.

Our operating expense ratio was 1.8%, and our efficiency ratio was just over 57% for the third quarter. Nonetheless, expenses were slightly higher than expected due to costs related to strong loan originations and ongoing investment in our business.

As we look out, quarterly noninterest expense is expected to be in the $18 million to $19 million range, and at the same time, we are focused on managing our operating costs to be below 2% of average assets.

Slide 5 and 6 have additional color on our loan portfolio and yields. The loan portfolio yield expanded by 9 basis points to 6.12% due primarily to the strong origination yields, Johnny mentioned, combined with the repricing and renewal of loans in the current rate environment.

Slide 7 has details about our $1.7 billion residential portfolio, which increased modestly and consists of well-secured non-QM mortgages, primarily in New York and California, with an average LTV of 55%.

Slides 9 through 11 have details on asset quality, and I'll make a few specific points. Nonperforming loans decreased $11.3 million or 20% to $44.5 million and are all risk rated substandard. This decrease was due mostly to a $6.9 million charge-off and $5 million in upgraded loans.

Substandard loans decreased $14.1 million and totaled $76.9 million at the end of the third quarter. The decrease included the same charge-offs and upgrades noted for NPLs. In addition, we had payoffs and paydowns of $16.6 million, offset by downgrades totaling $15.4 million including one $8.4 million CRE loan.

41% of total substandard loans at quarter end remain on accrual status. Special mention loans decreased 46% to $49 million due to a $44 million loan for a completed construction project that was upgraded. Past due loans also decreased $11.5 million to end the quarter at $6.5 million.

In light of the improved asset quality trends and net loan growth for the quarter, the provision for credit losses totaled $625,000. The overall allowance for credit losses decreased $6.1 million during the third quarter due to net charge-offs of $6.9 million, offset by the provision expense.

The net charge-offs were related almost entirely to 1 lending relationship due to the borrower declaring bankruptcy during this quarter, and this charge-off included $6.6 million in reserves we had established in previous periods. The allowance for loan losses to total loans held for investment ratio stood at 1.36% at September 30, which we think appropriately addresses the risk in our loan portfolio.

Slide 13 has details about our deposit franchise. Total deposits increased by $178 million from the end of the second quarter to $3.4 billion, with growth in all deposit categories. This growth included $84 million in wholesale time deposits, a portion of which was used to repay $50 million in FHLB advances.

Our tangible book value per share increased to $25.89 which was a 12% annualized increase. We repurchased 660,000 shares or 4% of shares outstanding in the third quarter. Our capital levels remain strong with all capital ratios above regulatory and well-capitalized levels.

And with that, we are happy to take your questions. Operator, if you could please open up the call.

[Operator Instructions] Our first question is coming from Brendan Nosal with Hovde Group.

Maybe starting off here on asset quality. Congratulations on getting across the board, improvement in all of your metrics this quarter, really nice to see everything moving together in the same direction. I know that there's probably more work to do. So I guess if credit resolution is a baseball game, what inning do you folks think you're in? And then what levels of problem assets do you view as mission accomplished just given that there's always some churn in the asset base?

Well, that's -- Brendan, I appreciate the question, first of all. I think it's very relevant point given the World Series coming up. Well, as you sort of suggested, we certainly still have a lot of work to do. I mean, certainly, I think for Q3, with all the hard work and sort of disciplined focus that everyone put in, we certainly have made good progress.

But to your earlier comment, we certainly have more work to do, and we'll continue to stay laser focus and very vigilant in making sure that we continue to address the remaining sort of credit issues that we may have. I would say we're keeping track to what we've been focused on doing, just continue to hopefully get to that.

[indiscernible] ninth inning and finish at the World Series.

So I had a couple more minutes to contemplate your clever question. Let me add a couple of things that I think we might go to your point as well. When are we going to view mission accomplished? So about 93% of our nonaccrual loans are represented by a handful of relationships. I think we're very focused on getting those resolved. It's taking longer than anticipated. So I think moving those all the way through is going to be one thing that would be considered mission accomplished.

We would be looking for -- NPAs are always going to be part of a bank's balance sheet, but for them to not be maybe individually as significant as some of the ones we've had to handle. Our NPAs this quarter have some REO in it. So mission accomplished, we'll be getting those sold and off of our books, which we think are carrying an appropriate value.

And I hate to even guess what inning it is because I think I will definitely get that one wrong. So I think those are kind of the big things that we're looking at for right now.

I appreciate you offering a couple of timestamps along the way of what we should be looking for. Maybe turning the page to capital for one before I step back. You folks were obviously very aggressive on share repurchase for this quarter. Can you just remind us how much is left in the current authorization and then thoughts on kind of re-upping that if and when you complete the current program?

Sure. So we have about $4 million left on the current program when we kind of look at second quarter and third quarter activity. I would say that our stock price was attractive, and we would like to see it trading at a higher price, so we want to take advantage of that during the quarter.

I think as we look forward, we are looking at our subjects that has the opportunity to reprice, maybe be refinanced next year. So I think there's a couple of things at play, but we would always be considering opportunities for a buyback, but I don't have information on anything new at the moment. I think we'll be working on our current program.

Our next question is coming from Matthew Clark with Piper Sandler.

Just on the spot rate, you gave us at $2.97. It suggests your deposit beta may have slowed here a little bit more recently with the recent cut, but obviously, there's some lag with your CD portfolio and the repricing that likely unfolds there. But the deposit beta, I think cycle to date has been over 70%. I'm trying to get a sense for assuming we get a few more rate cuts, what type of deposit beta you might be targeting, whether or not that might slow some or do you think you still can hold that 70% level.

So I would say it's probably slowed a little bit because competition for liquidity is quite fierce. The rate cut came pretty late in the quarter. So I don't know that it's fully reflected in a September 30 spot rates. And I think it's just indicating a little bit of movement. Our cost of funds, to your point, moved down 2 basis points for the linked quarters.

We have highlighted and mentioned that the majority of our time deposits do mature within the next 12 months. We have about 14% maturing in the fourth quarter. I would offer up that those are coming off at a rate that is very similar to what is being offered in the marketplace now, high 3s.

So with interest rates potentially moving down, maybe there'll be some opportunity there, and I would expect we would be able to capitalize on that. And then we did a nice job with increase in our money market savings and some noninterest-bearing. So I think that will help also with our overall funding costs. But I do think competition is impacting our ability to maybe push all the way down when rates come down.

Okay. And then if you have it, the average NIM in the month of September?

You know what, it's pretty close to the average, Matthew, that we had for the quarter. I think while we are -- while we remain liability sensitive because of the repricing profile of our CDs and that part of our balance sheet, I think one of the key drivers of our net interest margin is our earning assets and the loan growth in our portfolio. So we're bringing on the funding because we've had nice loan growth and so I think that that's the other thing that is showing up in the deposit beta.

Okay. And then just last one for me. On the loan growth this quarter, a decent amount of it came from single family. But I also know that -- or I believe that you want to kind of mix shift of the portfolio towards C&I longer term. Just any commentary around that potential mix shift and what you're seeing in the pipeline on the loan side. I mean, growth is still high single digit here this latest quarter. I'm not sure how the pipeline now looks coming out of the quarter?

Sure. Matt, this is Johnny. So yes, pipeline is still relatively healthy, I think, for us. So -- but just keep in mind, Q4 typically is -- due to seasonality impact, it might be moderated a bit. But the majority of the what's in the pipeline right now, certainly are still predominantly the residential mortgage CRE-related type of prospects or deals that we have.

But at the same time, we are basically bringing more prospects, if you will, in the pipeline that's under discussions within the C&I, including the SBA side of the pipeline is still maintaining pretty healthy. Unfortunately, as you know, with the government shutdown, it does impact the funding of SBA loans that we currently have on hand. So we have to see how that plays out and how long that might take as far as the government shutdown is concerned.

But C&I, it is a relationship-driven business, and those typically will require a little bit more time. But the good thing is that we do have a number of good, I think, quality prospects that we're talking to right now, but for as far as the contribution to the overall growth, obviously, it was still -- I would think it's still predominantly SFR, CRE type of products that will be driving still that growth.

Our next question is coming from Andrew Terrell with Stephens.

This is Jackson Laurent on for Andrew Terrell. Just quickly to start off. I'm not sure if I missed this in the release or presentation, but was there any interest recovery during the third quarter?

For the third quarter, I would say that we did not have in net interest income much kind of anomalies either interest reversal or interest recapture. So there wasn't much activity there. Fortunately, credit was stabilizing. And so you don't have that noise in the third quarter financial information.

Got it. That's helpful. And then just last one quickly for me. On the $50 million of the FHLBs that matured and were replaced by broker during the quarter, can you just remind us like what rate those were maturing at and then what rates you were -- you guys were replacing those with? And then also when those occurred during the quarter?

So the FHLB advances matured on the last day of the quarter, and we had put them on a year earlier. So they were at a rate of 3.40-ish and the wholesale brokered markets short term is probably up closer to 4%.

Got it. That's helpful. The rest of my questions have been answered. Congrats on the good quarter.

Great. Thanks, Jackson.

[Operator Instructions] Our next question is coming from Kelly Motta with KBW.

Maybe circling back to the margin, just a commentary about perhaps lagging deposit betas. You've done a tremendous job expanding the margin now in the past, I don't know, like 5 quarters. Wondering, if we get another rate cut, would you anticipate that you're still able to offset the impacts of -- on the earning asset side with declines in deposits in order to improve your margin? Or could there be a modest net drag if we get an additional cut here this quarter?

Sure, Kelly. I would say there's probably a few things that we have opportunities that I'm going to say, outpace, I think, the impacts of a rate cut and sort of the competition for liquidity. So I would say that as we look at it, we do view ourselves as liability sensitive, although it is modest. So we're probably looking at just a handful of basis points, I think we would look for the margin to expand.

But really, I think the opportunity has been in the origination and production platform that has been -- we've been working on. So with the loan growth and the yields that we've been bringing the new production on with that is pulling up on the earning asset yield more than what we've been able to achieve on managing the funding costs.

So I think with the rate cuts, while that might push down on earning asset yields, we would expect it also to push down on our funding costs. I don't know if you want to add anything, Johnny?

Maybe I'll just add just a couple of comments. Kelly, if you recall past quarters, we made -- basically suggested we always -- obviously, on the credit, the origination side, we're always trying to hold our line on our -- on the yield; obviously, credit quality first; and then secondly, we try to price our loans appropriately based upon the opportunity that we see with the relationships that we bring in.

But I think so far, obviously, we try to stay as disciplined as possible maintaining good origination with good yield. So we continue to try to make an effort to do that. But obviously, yes, there is competition out there, and we would continue to look at each deal individually to determine what would make sense as far as the overall pricing of a relationship, if you will.

Great. Do you happen to have, I apologize if I missed it, what the average rate was on new originations last quarter?

Yes, the originations, it was 6.70%.

Right. Awesome. Maybe last for me would be just on the capital. You've touched on your kind of thoughts on the buyback. Historically, RBB has been an acquirer of some smaller banks. Obviously, the multiple makes it challenging, but you do have a ton of capital. Just wondering if you have any updated thoughts on how you're thinking about other avenues of capital return here?

Fair question. I think we've been a little bit focused on how to demonstrate progress on credit, how to demonstrate progress on growing loans, organically controlling costs and work on getting our currency to catch up to our tangible book value at least. And I think then we would look for opportunities to -- I think we've talked about deepen relationships in the markets that we're already in.

I mentioned that we have some opportunity with our sub-debt refinancing next year. And I think the buyback continues to be on the table. I think the other things are just investing in our business, growing the commercial platform. I think there is some technology that we're looking at. So I think it's all there, but it takes time, and there's not one thing right now that I would put in front of another.

Ladies and gentlemen, as we have no further questions on the line at this time, I would like to turn the call back over to management for any closing remarks.

Okay. Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everyone.

Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.