Key Highlights

  • RBB shares were trading up 4.42% at $26.58, against a prior close of $25.45.
  • Third quarter EPS of $0.74 topped a consensus of $0.57.
  • Net interest Margin expanded 10 basis points to 3.16%.
  • Nonperforming Assets fell 11.3% to $38.7 million.
  • The efficiency ratio improved to 53.0% from 57.5%.

A Third Quarter Beat Lifts a Small-Cap Bank

RBB Bancorp (NASDAQ:RBB) shares were trading up 4.42% at $26.58 on Tuesday, against a prior close of $25.45, after the bank reported third quarter results that beat estimates. Net Income was $12.6 million, or $0.74 per diluted share, compared with $0.59 in the second quarter and a consensus of $0.57. Revenue of $36.4 million compared with a $34.4 million estimate.

Based in Los Angeles, the bank operates through Royal Business Bank and focuses on Asian-American communities, small businesses and real estate investors. Total assets were $4.3 billion, and Book Value per share rose to $31.75.

Margin, Efficiency and Credit All Improve

Net interest income rose to $31.8 million from $30.1 million, helped by the partial Redemption of $40 million of subordinated notes on July 1 and higher recoveries on nonaccrual loans. The margin expanded 10 basis points to 3.16%, as asset yields rose to 5.90% and the cost of funds eased to 2.97%.

The efficiency ratio improved to 53.0% from 57.5%, return on average assets rose to 1.17% from 0.97%, and nonperforming assets fell by $4.9 million. The provision was only $500 thousand, and net charge-offs stayed at 0.01% of loans.

One-Time Items and Tight Funding Flatter the Quarter

Not all of the improvement is structural. The quarter included nonaccrual interest recoveries, a $320 thousand Special Dividend from the Federal Home Loan Bank and a $2.7 million gain on the sale of a Brooklyn office building.

Loans held for Investment rose $89.8 million, or 10.8% annualized, while deposits were nearly flat, which pushed the loan-to-deposit ratio to 100.1%. Unrealized securities losses widened to $30.6 million, and the effective tax rate is projected near 26.9% for the year.

RBB has a market Capitalization of $449.55 million, a forward price-to-earnings ratio of 10.95 and a trailing ratio of 10.33, with trailing EPS of $2.36 and a dividend Yield of 2.40%. The shares trade about 6% below the 52-week high of $28.24 and well above the low of $18.20.

Deposit Growth Must Catch Up With Loans to Keep the Momentum

RBB showed progress on margin, efficiency and asset quality, and the $0.16 dividend is supported by earnings. A building sale gain, recoveries and a special dividend flattered the quarter, so Earnings could ease next quarter. Investors may watch whether core margin gains persist, whether retail deposit growth keeps pace with lending, and how credit trends develop.