What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-04-07 compared with 2022-03-11 · 1046 added, 992 removed, 1755 unchanged (54% of the section changed)

Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( Crowe LLP Los Angeles, California PCAOB ID 173 )

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( Eide Bailly LLP Laguna Hills, California PCAOB ID 286 ) 73

7 unchanged sentences

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of

Los Angeles, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of RBB Bancorp (the "Company") as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’

equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 7, 2023 expressed an adverse opinion.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company changed its method for accounting for credit losses effective January 1, 2022, due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No.

326, Financial Instruments - Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method provided in Accounting Standards Update No.

2016-13 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

See critical audit matter below.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses on Loans

As described in Notes 2 and 5 to the consolidated financial statements, the Company adopted ASU 2016-13 “Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”, effective January 1, 2022, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.

Due to the adoption of Current Expected Credit Losses (CECL), the Company recorded a $2.1 million transition adjustment for the allowance for credit losses (ACL) through retained earnings on January 1, 2022.

As of December 31, 2022, the Company had gross loan portfolio of $3.34 billion and a related allowance for credit losses on loans of $41.08 million.

The Company’s discounted cash flow methodology incorporates a probability of default, loss given default and exposure at default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.

The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon.

Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

The Company’s CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period.

The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

Within the CECL model, the Company uses both internal and external qualitative factors including lending policies, procedures, and strategies;

changes in nature and volume of the portfolio;

credit and lending personnel experience;

changes in volume and trends in classified loans, delinquencies, and nonaccrual;

concentration risk;

collateral values;

regulatory and business environment;

loan review results;

and economic conditions.

We identified auditing the Company’s implementation of Current Expected Credit Losses to be a critical audit matter, particularly as it pertains to auditing the impact of the adoption to the qualitative factors and the assumptions used to develop quantitative factors, as the matter involved significant audit effort and especially subjective auditor judgment.

The primary procedures performed to address the critical audit matter included:

Evaluating and testing management’s methodology and conceptual soundness of the DCF model, including the use of valuation specialists to assist with evaluating the model used in forecasting future economic conditions and testing of inputs into the model;

Evaluating the reasonableness of management’s judgments over the application of reasonable and supportable forecasts, determination of the forecast period and reversion periods,

Testing the completeness and accuracy of internally derived data and evaluating the relevance and reliability of internal and external data used to inform management’s judgments related to the forecast and reversion periods;

Evaluating the subjective assumptions within the quantitative discounted cash flow calculation;

Evaluating the reasonableness of management’s judgments over selection of qualitative adjustments,

Testing the completeness and accuracy of internally derived data, and evaluating the relevance and reliability of external data used to inform management’s judgments related to the qualitative adjustments;

Evaluating the procedures and results of the Company’s third-party model validation, as well as management’s responses to results.

Completeness of Related Party Transactions

As described in Note 15 to the consolidated financial statements, the Company has loans, outstanding loan commitments and deposit relationships with principal officers, directors and their affiliates.

The principal consideration for our determination that auditing the completeness of related party transactions is a critical audit matter is the nature and extent of audit procedures related to a) the identification of related parties and affiliates and b) the completeness and accuracy of disclosures of transactions with related parties and affiliates, due to the material weakness in internal controls over related party transactions.

The primary procedures performed to address the critical audit matter included:

Obtaining an understanding of the terms and the business purpose of transactions with related parties and affiliates;

Evaluating the completeness and accuracy of the identification of related parties and affiliates by management;

Testing the completeness and accuracy of disclosed transactions with related parties and affiliates;

Evaluating the reasonableness of management's judgements on whether affiliates meet the definition of immediate family under accounting principles generally accepted in the United States of America.

/s/ Crowe LLP

We have served as the Company's auditor since 2022.

Los Angeles, California

April 7, 2023

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of

Los Angeles, California

Opinion on Internal Control over Financial Reporting

We have audited RBB Bancorp’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 

In our opinion, because of the effects of the material weaknesses discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework:

(2013) issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. 

The following material weakness has been identified and included in management's report. 

Material weakness in controls over the review, analysis, and approval of related party transactions and relied on the completeness and accuracy of director and officer questionnaires.

Material weakness in controls over segregation of duties with respect to the review, posting and approval of journal entries and accounts payable transactions and maintaining effective IT access controls around the related system.  

Material weakness in controls over the review of various assumptions and judgements within the CECL.

This includes subjective assumptions within the quantitative discounted cash flow calculation and subjective judgments related to qualitative factors and maintaining effective IT access controls around the related system.  

Material weakness in the Company’s control environment.

Specifically, the Company failed to demonstrate a commitment to attract, develop, and retain competent individuals in the area of internal control over financial reporting.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of RBB Bancorp (the "Company") as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’

equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the "financial statements") and our report dated April 7, 2023 expressed an unqualified opinion. 

We considered the material weaknesses identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2022 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. 

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. 

Our audit also included performing such other procedures as we considered necessary in the circumstances. 

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

/s/ Crowe LLP

Los Angeles, California

April 7, 2023

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of

1 unchanged sentence

Los Angeles, California

Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of RBB Bancorp and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’

equity, and cash flows for each of the years in the three year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in 2013 Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of RBB Bancorp and Subsidiaries as of December 31, 2021 and 2020, and the results of their operations and its cash flows for each of the three year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of RBB Bancorp and Subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’

equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of RBB Bancorp and Subsidiaries as of December 31, 2021, and the results of their operations and cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

2 unchanged sentences

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the entity’s internal control over financial reporting based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

We have served as the Company’s auditor since 2019.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor since 2019.

Vavrinek, Trine, Day & Co., LLP, who joined Eide Bailly LLP in 2019, had served as the Company’s auditor since 2008.

Laguna Hills, California

March 11, 2022

April 7, 2023

RBB BANCORP AND SUBSIDIARIES

1 unchanged sentence

AS OF DECEMBER 31,

(In thousands, except for share amounts)

(In thousands, except for share data)

Cash and due from banks

3 unchanged sentences

193,000  

57,000  

Cash and cash equivalents

7 unchanged sentences

Mortgage loans held for sale

49,963  

Loans held for investment:

9 unchanged sentences

Deferred loan fees, net

( 3,072 )  

Total loans, net of deferred loan fees and unaccreted discounts on acquired loans

1 unchanged sentence

2,931,350  

Allowance for loan losses

Allowance for credit losses

( 41,076 )  

1 unchanged sentence

2,898,438  

Premises and equipment

Premises and equipment, net

27,009  

4 unchanged sentences

Net deferred tax assets

16,977  

Income tax receivable

Other real estate owned (OREO)

Cash surrender value of life insurance (BOLI)

Cash surrender value of bank owned life insurance (BOLI)

57,310  

4 unchanged sentences

11,517  

13,965  

Core deposit intangibles

1 unchanged sentence

25,447  

22,454  

Accrued interest and other assets

7 unchanged sentences

AS OF DECEMBER 31,

(In thousands, except for share amounts)

(In thousands, except for share data)

Liabilities and Shareholders’

18 unchanged sentences

150,000  

Long-term debt, net of debt issuance costs

Long-term debt (net of unamortized debt issuance costs of $ 1,415 and $ 1,993 at December 31, 2022 and December 31, 2021, respectively)

173,585  

5 unchanged sentences

26,523  

23,282  

Accrued interest and other liabilities

17 unchanged sentences

Non-controlling interest

Accumulated other comprehensive (loss) income, net

Accumulated other comprehensive loss, net

( 21,665 )  

8 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31,

(In thousands, except share amounts)

FOR THE YEAR ENDED DECEMBER 31,

(In thousands, except share and per share data)

Interest and dividend income:

Interest and fees on loans

$ 141,569  

$ 133,894  

$ 135,159  

Interest on interest-earning deposits

3 unchanged sentences

Total interest income

147,063  

139,120  

141,725  

Interest expense:

1 unchanged sentence

Interest on time deposits

21,665  

29,347  

Interest on subordinated debentures and long-term debt

1 unchanged sentence

Total interest expense

22,720  

34,365  

44,861  

Net interest income

124,343  

104,755  

96,864  

Provision for loan losses

11,823  

Net interest income after provision for loan losses

120,384  

92,932  

94,474  

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income:

3 unchanged sentences

Recoveries on loans acquired in business combinations

Unrealized (loss) gain on equity investments

( 360 )  

Gain on derivatives

Unrealized loss on equity investments

(Loss)/gain on derivatives

Increase in cash surrender value of life insurance

Gain on sale of securities

Loss on sale of OREO

Gain on sale of fixed assets

18,745  

14,040  

18,320  

Noninterest expense:

Salaries and employee benefits

33,568  

33,312  

32,909  

Occupancy and equipment expenses

5 unchanged sentences

Core deposit premium

OREO expenses

Merger expenses

Other expenses

58,192  

59,513  

57,473  

Income before income taxes

80,937  

47,459  

55,321  

Income tax expense

24,031  

14,531  

16,112  

$ 56,906  

$ 32,928  

$ 39,209  

Net income per share

$ 2.92  

$ 1.66  

$ 1.96  

Cash dividends declared per common share

Weighted-average common shares outstanding

19,423,549  

19,763,422  

20,017,306  

19,834,306  

19,921,859  

20,393,424  

The accompanying notes are an integral part of these consolidated financial statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, (In thousands)

$ 56,906  

$ 32,928  

$ 39,209  

Other comprehensive income (loss):

FOR THE YEAR ENDED DECEMBER 31,

(In thousands)

Other comprehensive (loss)/income:

Unrealized (losses)/gains on securities available for sale:

Change in unrealized (losses)/gains

( 3,957 )  

Reclassification of gains recognized in net income

( 210 )  

( 3,957 )  

Related income tax effect:

Change in unrealized (gains) losses

( 436 )  

Change in unrealized losses/(gains)

Reclassification of gains recognized in net income

( 374 )  

Total other comprehensive income (loss)

( 2,785 )  

Total other comprehensive (loss)/income

Total comprehensive income

$ 54,121  

$ 33,818  

$ 40,786  

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 

(In thousands, except share amounts)

(In thousands, except share data)

Additional Paid-in Capital

2 unchanged sentences

Other Comprehensive Income (Loss)

Balance at December 31, 2018

20,000,022  

Balance at January 1, 2020

20,030,866  

5 unchanged sentences

32,928  

Stock-based compensation

Stock-based compensation, net

Restricted stock vested

( 425 )  

Cash dividend

Cash dividends on common stock ($ 0.33 per share)

( 6,567 )  

Stock options exercised, net of expense recognized

Stock options exercised

56,498  

13 unchanged sentences

56,906  

Stock-based compensation

56,906  

Stock-based compensation, net

Restricted stock granted

60,000  

Restricted stock vested

( 425 )  

Cash dividend

Cash dividends on common stock ($ 0.51 per share)

( 9,947 )  

Stock options exercised, net of expense recognized

Stock options exercised

302,745  

4 unchanged sentences

( 3,724 )  

Other comprehensive income, net of taxes

Other comprehensive loss, net of taxes

( 2,785 )  

Balance at December 31, 2021

5 unchanged sentences

$ 466,683  

Cumulative effect of change in accounting principle related to ASC 326 (1)

( 2,204 )  

64,327  

Stock-based compensation

Restricted stock granted

64,327  

Stock-based compensation, net

Restricted stock cancelled

( 40,000 )  

Restricted stock vested

( 355 )  

Cash dividend

Restricted stock unit vested

( 202 )  

Stock options exercised, net of expense recognized

Cash dividends on common stock ($ 0.56 per share)

( 10,736 )  

Stock options exercised

445,308  

( 1,533 )  

Repurchase of common stock

11 unchanged sentences

$ 484,563  

(1) Represents the impact of the adoption of Accounting Standards Update ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326) on January 1, 2022.

The accompanying notes are an integral part of these consolidated financial statements

4 unchanged sentences

Operating activities

$ 56,906  

$ 32,928  

$ 39,209  

Adjustments to reconcile net income to net cash from Operating activities:

1 unchanged sentence

Net accretion of securities, loans, deposits, and other

( 191 )  

( 3,328 )  

Unrealized loss (gain) on equity securities

Unrealized loss on equity securities

Amortization of investment in affordable housing tax credits

Amortization of intangible assets

(Reversal of) Impairment loss on mortgage servicing rights

( 417 )  

Change in valuation allowance on mortgage servicing rights

Amortization of right-of-use asset

Change in operating lease liabilities

( 5,058 )  

Provision for loan losses

11,823  

Stock-based compensation

Deferred tax (benefit) expense

( 1,093 )  

( 2,998 )  

Provision for credit losses

Stock-based compensation, net

Deferred tax benefit

Gain on sale of securities

( 210 )  

Gain on sale of loans

( 9,991 )  

( 5,997 )  

Loss on sale of OREO

Gain on sale of fixed assets

Increase in cash surrender value of life insurance

( 1,067 )  

( 767 )  

Loans originated and purchased for sale, net

( 161,972 )  

( 115,146 )  

Proceeds from loans sold

305,337  

203,799  

521,594  

( 256 )  

( 5,493 )  

Net cash provided by operating activities

202,175  

124,514  

476,468  

Investing activities

Securities available for sale:

( 603,836 )  

( 548,846 )  

Maturities, prepayments and calls

442,056  

454,597  

141,537  

11,661  

Securities held to maturity:

2 unchanged sentences

Purchase of Federal Home Loan Bank stock and other equity securities, net

( 5,839 )  

( 3,135 )  

Net increase of investment in qualified affordable housing projects

( 763 )  

( 2,594 )  

Net increase in loans

( 315,551 )  

( 361,252 )  

Proceeds from sales of OREO

Purchase of bank owned life insurance

( 19,800 )  

Net cash received in connection with acquisition

1 unchanged sentence

Purchases of premises and equipment

( 1,989 )  

( 4,206 )  

Net cash used in investing activities

( 504,181 )  

( 446,006 )  

Financing activities

Net increase (decrease) in demand deposits and savings accounts

870,803  

163,674  

Net (decrease) decrease in time deposits

( 120,178 )  

34,415  

126,627  

Net decrease in short-term FHLB advances

Advances on long-term FHLB advances

150,000  

Net (decrease)/increase in demand deposits and savings accounts

Net increase/(decrease) in time deposits

Advances from Federal Home Loan Bank

Repayment of Federal Home Loan Bank borrowings

Cash dividends paid

( 9,947 )  

( 6,567 )  

Redemption of subordinated debentures

( 50,000 )  

Issuance of subordinated debentures, net of issuance costs

118,111  

Common stock repurchased, net of repurchased costs

( 10,540 )  

( 7,851 )  

Exercise of stock options

Net cash provided by (used in) financing activities

801,724  

334,383  

Net increase in cash and cash equivalents

499,718  

12,891  

34,078  

Net cash (used in)/provided by financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

194,654  

181,763  

147,685  

Cash and cash equivalents at end of period

$ 694,372  

$ 194,654  

$ 181,763  

Supplemental disclosure of cash flow information

1 unchanged sentence

Interest paid

$ 22,507  

$ 36,186  

$ 45,702  

25,786  

13,475  

14,470  

Non-cash investing and financing activities:

1 unchanged sentence

Loans transfer to held for sale, net

89,368  

24,425  

107,859  

Loan to facilitate OREO

1 unchanged sentence

Net change in unrealized holding (loss) gain on securities available for sale

( 3,957 )  

Recognition of operating lease right-of-use assets

( 27,699 )  

Recognition of operating lease liabilities

27,699  

Assets acquired, net of cash received

182,895  

Liabilities assumed

200,209  

Cash considerations

32,885  

10,680  

Cash (receipts)/considerations

The accompanying notes are an integral part of these consolidated financial statements

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021, 2020 AND 2019

NOTE 1 - BUSINESS DESCRIPTION

RBB Bancorp is a financial holding company registered under the Bank Holding Company Act of 1956, as amended.

RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank ("Bank") and RBB Asset Management Company ("RAM"), collectively referred to herein as "the Company".

At December 31, 2021 , the Company had total assets of $ 4.2  billion, gross consolidated loans (held for investment and held for sale) of $ 2.9  billion, total deposits of $ 3.4 billion and total stockholders' equity of $ 466.7  million.

RBB Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank (“Bank”) and RBB Asset Management Company ("RAM"), collectively referred to herein as “the Company.” At December 31, 2022, the Company had total assets of $ 3.9  billion, gross consolidated loans (held for investment and held for sale) of $ 3.3  billion, total deposits of $ 3.0  billion and total shareholders' equity of $ 484.6  million.

On July 31, 2017, the Company completed its initial public offering of 3,750,000 shares at a price to the public of $ 23.00 per share.

The Company’s stock trades on the Nasdaq Global Select Market under the symbol “RBB.”

The Bank provides business-banking services to the Chinese-American communities in Los Angeles County, Orange County, Ventura County and in the Las Vegas, New York City metropolitan area, Chicago and Edison (New Jersey).

The Bank provides business-banking services to the Asian-American communities in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas, Nevada and New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii).

Specific services include remote deposit, E-banking, mobile banking, commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts. The Bank closed its acquisition of the Honolulu, Hawaii branch (the “Hawaii Branch”) from Bank of the Orient (“BOTO”) on January 14, 2022.

The Company operates full-service banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, and Westlake Village, California;

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and Honolulu, Hawaii.

The Company's primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals.

The Company's primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals. On May 2, 2022, we opened our Bensonhurst branch on 86th Street in Brooklyn, New York.

The Company generates its revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities.

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The Company’s principle expenses include interest expense on deposits and subordinated debentures, and operating expenses, such as salaries and employee benefits, occupancy and equipment, data processing, and income tax expense.

As part of the FAIC acquisition, the Company acquired FAIB Capital Corp.

(FAICC) that was formed on January 29, 2014.

As part of the acquisition of First American International Corp (“FAIC”), the Company acquired FAIB Capital Corp.

(“FAICC”), which was formed on January 29, 2014.

FAICC is a real estate investment trust subsidiary of the Bank.

The Company has completed six bank acquisitions from July 8, 2011 through January 10, 2020, including the acquisition of Pacific Global Bank Holdings, Inc.

(“PGBH”) and its wholly-owned subsidiary, Pacific Global Bank (“PGB”), in which the PGBH acquisition closed on January 10, 2020.

PGB operated three branches in the Chicago neighborhoods of Chinatown and Bridgeport.

The Company has completed six whole bank acquisitions and one branch acquisition from July 2011 through January 2022.

All of the Company’s acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective acquisition dates.

In addition, on December 28, 2021, the Company announced that it had entered into a definitive agreement to acquire Gateway Bank F.S.B.

(“Gateway”), a commercial bank based in Oakland, California, in a cash transaction valued at approximately $ 22.9 million, subject to certain terms and conditions, including customary holdbacks if certain contingencies are not met, and other possible adjustments as contained in the agreement.

As of December 31, 2022, Gateway had total assets of $ 181.4  million, total gross loans of $ 121.9  million, total deposits of $ 162.5  million and total tangible equity of $ 17.2  million.

The expiration of the agreement has been extended to September 30, 2023 and the acquisition is subject to several conditions, including the receipt of all requisite regulatory approvals.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Principles of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of RBB Bancorp and its wholly-owned subsidiaries Royal Business Bank ("Bank") and RBB Asset Management Company ("RAM"), collectively referred to herein as "the Company".

The accompanying consolidated financial statements include the accounts of RBB Bancorp and its wholly-owned subsidiaries Royal Business Bank and RBB Asset Management Company, collectively referred to herein as "the Company".

All significant intercompany transactions have been eliminated.

RBB Bancorp was formed in January 2011 as a bank holding company, and in 2018 changed to a financial holding company.

RBB Bancorp was formed in January 2011 as a bank holding company.

RAM was formed in 2012 to hold and manage problem assets acquired in business combinations.

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The proceeds of these trust preferred securities were invested in certain securities issued by us, with similar terms to the relevant series of securities issued by the Trusts, which we refer to as subordinated debentures.

RBB Bancorp has no significant business activity other than its investments in Royal Business Bank and RAM.

RBB Bancorp has no significant business activity other than its investments in the Bank and RAM.

Parent only condensed financial information on RBB Bancorp is provided in Note 23.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

It is reasonably possible our estimate of the allowance for loan losses and the fair value of mortgage servicing rights could change as actual results could differ from those estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

It is reasonably possible that these estimates could change as actual results could differ from those estimates.

Cash and Cash Equivalents

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Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank.

There were no reserves required to be held as of December 31, 2021 and 2020 .

There were no reserves required to be held as of December 31, 2022 

The Company maintains amounts in due from bank accounts, which may exceed federally insured limits.

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Interest income includes amortization of purchase premiums or discounts.

Premiums and discounts on securities are amortized on the level-yield method. 

Premiums are amoritized to the earlier of maturity or call date.

Premiums and discounts on securities are amortized on the level-yield method. Premiums are amortized to the earlier of maturity or call date.

Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates debt securities for other-than-temporary impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows;

Prior to January 1, 2022, management evaluated debt securities for other-than-temporary impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considered the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

Management also assessed whether it intended to sell, or it was more likely than not that it would be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell was met, the entire difference between amortized cost and fair value was recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment was split into two components as follows;

OTTI related to credit loss, which must be recognized in the income statement and;

OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

OTTI related to other factors, which was recognized in other comprehensive income.

The credit loss was defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Effective January 1, 2022, upon the adoption of ASU 2016 - 13, the Company accounts for credit losses on available for sale securities in accordance with ASC 326 - 30.

Debt securities are measured at fair value and subject to impairment testing.

When a debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, ( 1 ) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any) of the decline in fair value, and ( 2 ) recognize in other comprehensive income (loss) any non-credit related components of the fair value change.

If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. 

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal).

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $ 759,000  at December 31, 2022 and is excluded from the estimate of credit losses.

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type.

Accrued interest receivable on held-to-maturity debt securities totaled $ 51,000  at December 31, 2022 and is excluded from the estimate of credit losses.

Loans Held For Sale  

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Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to all principal and interest.

Allowance for Credit Losses - Loans

Effective January 1, 2022, upon the adoption of ASU 2016 - 13, the Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.

The allowance for credit losses (“ACL”) is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet.

Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.

The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics.

The Company has elected to utilize a discounted cash flow (“DCF”) approach for all segments except consumer loans and loans to non-depository financial institutions, for these a remaining life approach was elected. 

The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.

The use of reasonable and supportable forecasts require significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The Company’s CECL methodology utilizes a four -quarter reasonable and supportable forecast period, and a four -quarter reversion period.

Management relies on multiple forecasts, blending them into a single loss estimate. The Company is using the Federal Open Market Committee to obtain forecasts for unemployment rate, while reverting to a long-run average of each considered economic factor.

The Company uses both internal and external qualitative factors within the CECL model:

lending policies, procedures, and strategies;

changes in nature and volume of the portfolio;

credit & lending personnel experience;

changes in volume and trends in classified loans, delinquencies, and nonaccrual;

concentration risk;

collateral values;

regulatory and business environment;

loan review results;

and economic conditions.

The Company determined weighting of the qualitative factors based on management’s ability to directly control or influence the level of risk exposure.

The Company records a liability for lifetime expected losses on off-balance-sheet credit exposure that do not fit the definition of unconditionally cancelable in accordance with ASC 326.

 The Company uses the loss rate and exposure of default framework to estimate a reserve for unfunded commitments. Loss rates for the expected funded balances are determined based on the associated pooled loan analysis loss rate and the exposure at default is based on an estimated utilization given default.

The Company assesses expected credit losses for individual instruments that have different risk characteristics than those that are evaluated on a collective (pooled) basis, in accordance with ASC 326.

 An individual analysis will provide a specific reserve for instruments involved with fair market value of collateral or present value of future cash flow.

In such a manner, the Bank performs individual analysis on loans that are 90 or more days past due, on non-accrual status or a trouble debt restructuring (“TDR”).

Upon adoption of ASU 2022 - 02, the Company evaluates all receivable modifications under ASC 310 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan.

The Company no longer consider renewals, modifications, or extensions resulting from reasonably expected TDRs when calculating the allowance for credit losses under ASC 326.

The post-modification effective interest rate is used to calculate the allowance for credit losses when discounted cash flow (“DCF”) method is applied.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses.

Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off.

Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible.

This methodology for determining charge-offs is consistently applied to each segment.

The Company determines a separate allowance for each portfolio segment.

The allowance consists of specific and general reserves.

Specific reserves relate to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Factors considered in determining impairment include payment status, collateral value and the probability of collecting all amounts when due.

Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be discounted at the loan's effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan.

The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of the collateral.

The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest income on nonaccrual loans.

Loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired with measurement of impairment as described above.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

General reserves cover non-impaired loans and are based on historical loss rates of peer institutions for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment's historical loss experience.

Qualitative factors include consideration of the following:

changes in lending policies and procedures;

changes in economic conditions, changes in the nature and volume of the portfolio;

changes in the experience, ability and depth of lending management and other relevant staff;

changes in the volume and severity of past due, nonaccrual and other adversely graded loans;

changes in the loan review system;

changes in the value of the underlying collateral for collateral-dependent loans;

concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements.

Portfolio segments identified by the Company include real estate, commercial and other loans.

Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios, and financial performance.

Certain Acquired Loans

As part of business acquisitions, the Company acquires certain loans that have shown evidence of credit deterioration since origination.

These acquired loans are recorded at the allocated fair value, such that there is no carryover of the seller's allowance for loan losses.

Such acquired loans are accounted for individually.

The Company estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan's contractual principal and interest over expected cash flows is not recorded (non-accretable difference).

Over the life of the loan, expected cash flows continue to be estimated.

If the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance for loan losses.

If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Prior to the Company's adoption of ASC 326 on January 1, 2022, the Company maintained an allowance for loan losses ("ALLL") in accordance with ASC 450, Contingencies and ASC 310, Receivables .

The ALLL was a valuation allowance for probable incurred credit losses.

Loan losses were charged against the allowance when management believed the uncollectibility of a loan balance was confirmed.

Subsequent recoveries, if any, were credited to the allowance.

Management estimated the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

Allocations of the allowance may have been made for specific loans, but the entire allowance was available for any loan that, in management's judgment, should be charged-off.

Amounts were charged-off when available information confirmed that specific loans or portions thereof, were uncollectible.

This methodology for determining charge-offs was consistently applied to each segment.

Servicing Rights

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Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Gains on sales of mortgage, SBA and CRE loans totaled $ 10.0  million, $ 6.0  million, and $ 9.9  million in 2021,  

2020  and 2019 , respectively.

Gains on sale of mortgage loans totaled $ 7.9  million, $ 5.2  million, and $ 8.2  million, and gains on sale of SBA loans totaled $ 2.1 million, $ 754,000 , and $ 1.5  million in 2021, 2020, and 2019, respectively.

Gains on sale of CRE totaled none  in 2021 and  

2020 and $ 152,000  in 2019 .

Gains on sale of mortgage loans totaled $ 1.2  million, $ 7.9  million, and $ 5.2  million, and gains on sale of SBA loans totaled $ 696,000 , $ 2.1 million, and $ 754,000  in 2022, 2021, and 2020, respectively. 

Premises and Equipment

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Operating Lease ROU Assets and Lease Liabilities

Operating lease ROU assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s consolidated balance sheet.

Operating lease Right-of-Use ("ROU") assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s consolidated balance sheet.

The Company uses its incremental borrowing rate, factoring in the lease term, to determine the lease liability, which is measured at the present value of future lease payments.

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Other Real Estate Owned

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for loan losses, if necessary.

Other real estate owned is carried at the lower of the Company's carrying value of the property or its fair value, less estimated carrying costs and costs of disposition.

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Goodwill resulting from whole bank acquisitions is not amortized, but tested for impairment at least annually.

The Company has selected December 31 as the date to perform the annual impairment test.

The Company has selected October 

1 as the date to perform the annual impairment test.

Goodwill amounted to $ 71.5  million and $ 69.2  million as of December 31, 2022 

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No impairment was recognized on goodwill during 2022  and 2021.

Goodwill in the amount of $ 2.3 million was recognized in conjunction with the acquisition of the Hawaii Branch from BOTO.

Other intangible assets consist of core deposit intangible ("CDI") assets arising from whole bank acquisitions.

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CDI was recognized in the 2013 acquisition of Los Angeles National Bank, in the 2016 acquisition of TFC Holding Company, in the 2018 acquisition of FAIC and in the 2020 acquisition of PGBH.

In January 2022, $ 729,000 of CDI was recognized in conjunction with the Hawaii Branch purchase from BOTO.

The unamortized balance as of December 31, 2022 

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and 2021  was $ 6.7  million and $ 5.7  million, respectively.

CDI amortization expense was $ 1.1  million, $ 1.4  million, and $ 1.5 million in 2021, 2020  and 2019, respectively.

CDI amortization expense was $ 1.1  million, $ 1.1  million, and $ 1.4  million in 2022, 2021  and 2020, respectively.

Estimated CDI amortization expense for the next 5 years is as follows:

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FHLB Stock and Other Equity Securities

The Company is a member of the FHLB system.

The Company is a member of the Federal Home Loan Bank (“FHLB”) system.

Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.

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Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit as described in Note 13.

In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers.

These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit as described in Note 13.

Such financial instruments are recorded in the financial statements when they are funded.

Interest Rate Lock Commitments (IRLCs) are agreements under which the Company agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding.

As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancelling or expiration. 

Loan commitments generally range between 30 and 90 days;

however, the borrower is not obligated to obtain the loan. 

The Company is subject to fallout risk related to IRLCs , which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. 

The Company uses best efforts commitments to substantially eliminate these risks. 

Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

Interest Rate Lock Commitments (“IRLCs”) are agreements under which the Company agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding.

Under the agreement, the Company commits to lend funds to a potential borrower (subject to the Company’s approval of the loan) on a fixed or adjustable rate basis, regardless of whether interest rates change in the market, or on a floating rate basis. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancelling or expiration. Loan commitments generally range between 30 and 90 days;

The Company uses best efforts commitments to substantially eliminate these risks. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

The FASB Accounting Standards Codification (“FASB ASC”) provides that IRLCs on mortgage loans that will be held for resale are derivatives and must be accounted for at fair value on the balance sheet (if material).

FASB ASC Topic 820 –

Fair Value Measurements and Disclosures specifies how these derivatives are to be valued. 

Commitments to originate mortgage loans to be held for investment and other types of loans are generally not derivatives.

Fair Value Measurements and Disclosures specifies how these derivatives are to be valued. Commitments to originate mortgage loans to be held for investment and other types of loans are generally not derivatives.

Consequently, the Company has elected to account for these obligations at fair value.

Forward Mortgage Loan Sale Contracts (FMLSC)  

were utilized to avoid interest rate risk at the time an interest rate lock commitment is made to the buyer. 

The Company is subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. 

Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate the interest rate and price risk to the Company. 

Forward Mortgage Loan Sale Contracts (“FMLSC”)  

were utilized to avoid interest rate risk at the time an interest rate lock commitment is made to the buyer. The Company is subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate the interest rate and price risk to the Company.

The buyer can enter into mortgage loan sales commitments on a “mandatory”

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Mandatory commitments provide that the loan must be delivered or the commitment be “paired off”.

In general, best efforts commitments provide that the loan be delivered if and when it closes.  Mandatory delivery commitments, also known as forward loan sales commitments, are considered to be derivatives under FASB ASC Topic 815 (Derivatives and Hedging) because they meet all of the following criteria:

In general, best efforts commitments provide that the loan be delivered if and when it closes.

Forward commitments, also known as forward loan sales commitments, are considered to be derivatives under FASB ASC Topic 815 (Derivatives and Hedging) because they meet all of the following criteria:

They have a specified underlying (the contractually specified price for the loans)

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They require or permit net settlement as the institution via a pair-off transaction or the payment of a pair-off fee.

Earnings Per Share ("EPS")

Earnings Per Share ( “

Basic and diluted EPS are calculated using the 

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Recent Accounting Pronouncements

When RBB conducted its IPO in 2017, we qualified as an emerging growth company (“EGC”).

We will remain an EGC until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.0 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our IPO, (iii) the date on which we have, during the previous three -year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which we are deemed to be a “large accelerated filer”

under the Securities Exchange Act of 1934, as amended.

We will no longer qualify as an EGC on December 31, 2022.

EGCs are entitled to reduced regulatory and reporting requirements under the Securities Act and the Exchange Act.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU" or “Update”) 2014 - 09, Revenue from Contracts with Customers (Topic 606 ) .

This Update requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance:

( 1 ) identify the contract(s) with a customer;

( 2 ) identify the performance obligations in the contract;

( 3 ) determine the transaction price;

( 4 ) allocate the transaction price to the performance obligations in the contract;

and ( 5 ) recognize revenue when, or as, the entity satisfies a performance obligation.

These amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

Our revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014 - 09, and non-interest income.

Accordingly, the majority of the Company’s revenues will not be affected.

In addition, the standard does not materially impact the timing or measurement of the Company’s revenue recognition as it is consistent with the Company’s existing accounting for contracts within the scope of the standard.

As an emerging growth company, the Company adopted ASU 2014 - 09 as of January 1, 2019, utilizing the modified prospective approach.

 Refer to Note 20 - Revenue from Contracts with Customers .

In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842 ) .

The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months.

This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance.

The amendments in this Update are effective for annual periods beginning after December 15, 2020 and for interim periods beginning after December 15, 2021, for an EGC as the effective date was deferred by the FASB.

The Company early adopted this ASU on January 1, 2021 and recorded the right-of-use asset and lease liability of $ 26.8 million.

In June 2016, the FASB issued ASU 2016 - 13, Measurement of Credit Losses on Financial Instrument (Topic 326 ), including subsequent amending ASUs.

This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The change for lessees to recognize ROU assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months.

This change will result in lessees recognizing ROU assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance.

The amendments are effective for annual periods beginning after December 15, 2020 and for interim periods beginning after December 15, 2021.

The Company early adopted this ASU on January 1, 2021 and recorded the ROU asset and lease liability of $ 26.8 million.

In June 2016, the FASB issued ASU 2016 - 13, Measurement of Credit Losses on Financial Instrument (Topic 326 ), including subsequent amendments to this ASU.

This ASU changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The standard will replace today's "incurred loss" approach with an "expected loss" model.

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This includes, but is not limited to, loans, leases, held to maturity securities, loan commitments, and financial guarantees.

For available for sale (“AFS”) debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

For available for sale (“AFS”) debt securities with unrealized losses losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

ASU 2016 - 13 also expands the disclosure requirements regarding an entity's assumptions, models, and methods for estimating the allowance for loan and lease losses.

In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

ASU 2016 - 13 was originally proposed to be effective for interim and annual reporting periods for an emerging growth company beginning after December 15, 2020.

Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

The Company has begun its evaluation of the impact of the implementation of ASU 2016 - 13.

The implementation of the provisions of ASU 2016 - 13 will most likely impact the Company’s consolidated financial statements as to the level of reserves that will be required for credit losses.

The Company will continue to assess the potential impact that this Update will have on the Company’s consolidated financial statements.

The Company will adopt CECL (ASU 2016 - 13 ) on December 31, 2022.

In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The Company retroactively adopted CECL to January 1, 2022 as the Company's EGC status expired as of December 

A one -time cumulative adjustment of $ 2.1  million was made to the Company's allowance for credit losses which was recorded through retained earnings upon adoption of ASU 2016 - 13 as of January 1, 2022.

The following table sets forth the cumulative effect of the changes to the Company's consolidated balance sheet at January 1, 2022, for the adoption of ASU 

(dollars in thousands)

December 31, 2021

January 1, 2022

Allowance for credit losses on loans

$ 32,912  

$ 2,135  

$ 35,047  

Deferred tax assets

Allowance for unfunded commitments

$ 1,203  

$ 1,045  

$ 2,248  

Stockholders' equity:

Retained earnings, net of tax

$ 181,329  

$ ( 2,204 )  

$ 179,125  

In February 2019, the U.S.

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As a result, entities will have the option to gradually phase in the full effect of CECL on regulatory capital over a five -year transition period.

Effective January 1, 2022, the Company adopted ASU 2016 - 13,  reflected the full effect of CECL at December 31, 2022, and did not elect the three -year or five -year CECL phase-in options on regulatory capital.

In January 2017, the FASB issued ASU 2017 - 04, Intangibles—Goodwill and Other (Topic 350 ) .

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however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.”

The Company will adopt this ASU on December 31, 2022.

Adoption of ASU 2017 - 04 is not expected to have a significant impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018 - 07, Compensation—Stock Compensation (Topic 718 ):

Improvements to Nonemployee Share-Based Payment Accounting .

The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees.

An entity should apply the requirements of Topic 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).

The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide ( 1 ) financing to the issuer or ( 2 ) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

For emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

This Update has the potential to only impact share-based payments to the Company’s non-employees.

 The Company adopted this ASU on January 1, 2020 and this ASU did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018 - 13, Fair Value Measurement (Topic 820 ):

Disclosure Framework –

Changes to the Disclosure Requirements for F air Value Measurement .

The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits.

These disclosure requirements were removed from the topic:

( 1 ) The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, ( 2 ) the policy for timing of transfers between levels, and ( 3 ) the valuation processes for Level 3 fair value measurements.

These disclosure requirements were modified:

( 1 ) For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly, and ( 2 ) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

The following disclosure requirements were added:

( 1 ) The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, ( 2 ) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

In addition, the amendments eliminate “at a minimum”

from the phrase “an entity shall disclose at a minimum to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements”.

The amendments in this Update are effective for emerging growth companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted upon issuance of this Update.

An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date.

As an EGC, RBB adopted this Update on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018 - 15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350 - 40 ):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

This Update provides additional guidance to ASU 2015 - 05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350 - 40 ):

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”

(CCA), on the accounting for implementation, setup, and other upfront costs (collectively referred to as implementation costs) apply to entities that are a customer in a hosting arrangement.

This Update applies to entities that are a customer in a hosting arrangement, which is a service contract.

Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed.

This Update also require the customer to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.

This Update is effective for an EGC for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021.

Early adoption of the amendments in this Update is permitted, including adoption in any interim period, for all entities.

The amendments in this Update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

This Update could be material should RBB incur implementation costs for a CCA that is a service contract.

In November 2019, the FASB issued ASU 2019 - 08, Compensation—Stock Compensation (Topic 718 ) and Revenue from Contracts with Customers (Topic 606 ), Codification Improvements—Share-Based Consideration Payable to a Customer .

This ASU will affect companies that issue share-based payments (e.g., options or warrants) to their customers.

In June 2018, the FASB issued ASU 2018 - 07 that expanded the scope of Topic 718, Compensation—Stock Compensation, to include share-based payments to non-employees in exchange for goods and services.

That ASU substantially aligned the accounting for share-based payments to non-employees and employees.

However, it required share-based payments to nonemployee customers to be accounted for under Topic 606, Revenue from Contracts with Customers, as a reduction of revenue, similar to other sales incentives (such as coupons and rebates).

While that ASU provided guidance on the income statement classification of payments to customers (as a reduction of revenue), that ASU did not specify when to measure such awards or how to classify awards on the balance sheet (for example as a liability or as equity).

To address diversity in these areas, the new guidance requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718.

As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment.

ASU 2019 - 08 is effective for entities that have not yet adopted the amendments in ASU 2018 - 07, the amendments in ASU 2019 - 08 are effective for an EGC in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

The Company adopted the ASU as of December 31, 2019 and this ASU did not have a material impact on the Company’s financial statements as the Company has not issued share-based payments to non-employees, except for non-employee members of the board of directors.

In November 2019, the FASB issued ASU 2019 - 10, Financial Instruments—Credit Losses (Topic 326 ), Derivatives and Hedging (Topic 815 ), and Leases (Topic 842 ), Effective Dates .

In July 2017, British banking regulators announced plans to eliminate the LIBOR rate by the end of 2021.

The purpose of the ASU is to facilitate the effects of reference rate reform on financial reporting.

It provides temporary, optional expedients and exceptions related to applying U.S.

GAAP to contract modifications, hedging relationships, fair value hedges, and other transactions affected by reference rate reform.

The ASU applies only to contracts or hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

Regulators have established an Alternative Reference Rate Committee to assist with this change.

The Company has loans, long-term debt and subordinated debt that have interest rates that reference LIBOR.

Of the Company’s $ 2.9  billion in total gross loans as of December 31, 2021, approximately 8 % have a LIBOR based reference rate.

The Company has several LIBOR based debt issues, refer to Notes 9 and 10 of the consolidated financial statements.

At this point in time, SOFR is the alternative reference rate we plan to adopt as the replacing index rate for USD LIBOR. 

The Company will continue to assess the potential impact that this ASU will have on the Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020 - 01, “Investments—Equity Securities (Topic 321 ), Investments—Equity Method and Joint Ventures (Topic 323 ), and Derivatives and Hedging (Topic 815 ).” This ASU is for equity securities accounted for by the equity method.

The amendment clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The Company has equity securities on our balance sheet but are not material to be considered for the equity method.

For an EGC, this ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The Company adopted this ASU on December 31, 2022.

Adoption of ASU 2017 - 04 did 

not  have a significant impact on the Company’s consolidated financial statements.

In February 2020, the FASB issued ASU 2020 - 02, “Financial Instruments—Credit Losses (Topic 326 ) and Leases (Topic 842 )—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

3 unchanged sentences

It contains guidance on what the SEC would expect the Company to perform and document when measuring and recording its allowance for credit losses for financial assets recorded at amortized cost.

As an EGC, the Company will implement CECL on December 31, 2022.

In March 2020, the FASB issued ASU 2020 - 03, “Codification Improvements to Financial Instruments”.

The ASU clarifies the accounting and disclosure guidance in various codification topics for financial instruments.

In particular, the amendments ( 1 ) clarify certain disclosure requirements, including fair value option disclosures, ( 2 ) add cross-references in U.S.

GAAP to clarify certain guidance, ( 3 ) make clear the applicability of the portfolio exception in ASC 820, Fair Value Measurement, to nonfinancial items, ( 4 ) clarify the determination of the contractual life of a net investment in leases in estimating expected credit losses under ASC 326, Financial Instruments –

Credit Losses, and ( 5 ) explain the interaction between the guidance in ASC 860 - 20, Transfers and Servicing:

Sales of Financial Assets, and ASC 326.

For RBB as an EGC, issues 1, 2, 4 and 5 were adopted January 1, 2020.

The amendment related to Issue 3 is a conforming amendment that affects the guidance in the amendments in ASU 2019 - 04.

We  determined the financial impact on the Company’s consolidated financial statements was not material.

The Company implemented CECL on January 

In March 2020, the FASB issued ASU 2020 - 04, "Reference Rate Reform (Topic 848 ), Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as Secured Overnight Financing Rate (“SOFR”).

2 unchanged sentences

Companies can apply the ASU immediately.

However, the guidance will only be available for a limited time (generally through December 31, 2022).

However, the guidance will only be available for a limited time.

For contract modifications, companies can account for the modification as a continuation of the existing contract without additional analysis.

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The optional relief generally does not apply to contract modifications made, sales and transfers of HTM debt securities, and hedging relationships entered into or evaluated after December 31, 2022.

The guidance was effective upon issuance and generally can be applied through December 31, 2022.  

The LIBOR termination deadline (except for the 1 -week and 2 -month indexes) is June 30, 2023. 

No  LIBOR indexed loans are being originated. 

The Company's current plan is to convert LIBOR to SOFR for all loans indexed under LIBOR by June 30, 2023.  

No  LIBOR indexed loans are being originated. The Company's current plan is to convert LIBOR to SOFR for all loans indexed under LIBOR by June 30, 2023. 

Of the Company’s $ 3.3  billion in total gross loans as of December 31, 2022, approximately 5 % have a LIBOR based reference rate.

The Company has several issuances of LIBOR based long-term debt and subordinated debentures.

Refer to Notes 9 and 10 of the Company’s consolidated financial statements included in this Form 10 -K.

We are currently evaluating this guidance to determine the financial impact on the Company’s consolidated financial statements.

In June 2020, the FASB issued ASU 2020 - 05, “Revenue from Contracts with Customers (Topic 606 ) and Leases (Topic 842 ):

Effective Dates for Certain Entities”.

This ASU allows for the deferral of the effective dates of ASC 606 and ASC 842 (including amendments issued after the issuance of the original Update) to provide immediate, near-term relief for certain entities for whom these Updates are either currently effective or imminently effective.

The Company has already implemented Topic 606 and Topic 842 on January 1, 2021.

The FASB issued ASU 2021 - 08, "Accounting for Contract Assets and Contract Liabilities" in October 2021, to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue recognition guidance as if the acquirer had originated the contract.

That is, such acquired contracts will not be measured at fair value. 

The ASU is potentially material to RBB, depending on the materiality of an acquired contract asset or liability.  The Update is effective for public companies in fiscal years starting after December 15, 2022.

Early adoption is permitted. 

This ASU will be effective for RBB on January 1, 2023.  

The FASB issued ASU2021 - 10 "Disclosures by Business Entities about Government Assistance" in November 2021.  

The amendments in this Update require the annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. 

This Update is applicable to RBB and will be adopted January 1, 2022.

Refer to Notes 9 and 10 of the Company’s consolidated financial statements included in this Form 10 -K. After the LIBOR replacement date June 30, 2023, the Company will adopt SOFR with relevant spread adjustment as the alternative reference rate to replace LIBOR with respect to the Company’s subordinated debentures.

In October 2021, the FASB issued ASU 2021 - 08, "Accounting for Contract Assets and Contract Liabilities", to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue recognition guidance as if the acquirer had originated the contract.

That is, such acquired contracts will not be measured at fair value. The ASU is potentially material to the Company, depending on the materiality of an acquired contract asset or liability. The Update is effective for public companies in fiscal years starting after December 15, 2022.

Early adoption is permitted. This ASU will be effective for the Company on January 1, 2023. 

Adoption of ASU 2021 - 08 is not expected to have a material impact on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU 2022 - 02, “Financial Instruments-Credit Losses (Topic 326 )”.

The standard addresses the following:

1 ) eliminates the accounting guidance for TDRs, and will require an entity to determine whether a modification results in a new loan or a continuation of an existing loan, 2 ) expands disclosures related to modifications, and 3 ) will require disclosure of current period gross write-offs of financing receivables within the vintage disclosures table.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method.

Early adoption of the amendments in this ASU is permitted.

An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

The Company adopted ASU 2021 - 08 on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2022, the FASB issued ASU 

2022 - 03 ,  Fair Value Measurement (Topic 

820 )—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This pronouncement clarifies that a contractual restriction on the sale of an equity security is 

not  considered part of the unit of account of the equity security and, therefore, is  

not  considered in measuring fair value.

2022 - 03  also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions.

2022 - 03  will be effective for the Company on 

January 1, 2024 .

 Adoption of ASU 

2022 - 03  is 

not  expected to have a material impact on the Company’s consolidated financial statements.

In December 2022, the FASB issued 2022 - 06, “Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848”, to defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Topic 848, which was established by the previously issued ASU 2020 - 04, Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, provides relief to entities during the reference rate’s temporary transition period by providing optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued.

Since ASU 2020 - 04 was issued, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of US LIBOR to June 30, 2023, which is beyond the current sunset date of Topic 848.

The new ASU defers the sunset date accordingly to continue to provide the intended relief.

The Company adopted ASU 2022 - 06 during 2022 with no material impact to the Company’s consolidated financial statements.

NOTE 3 –

Completion of Acquisition of Certain Assets and Liabilities of the Honolulu, Hawaii Branch Office of Bank of the Orient

On January 14, 2022, the Company completed the acquisition of the Honolulu, Hawaii branch office the Bank of the Orient on January 14, 2022.

Royal Business Bank acquired all the premises and equipment at the Branch, all deposits totaling approximately $ 81.7  million, selected performing loans totaling approximately $ 7.4  million, an estimated premium of approximately $ 3.0 million, for a total consideration of approximately $ 71.0  million.

The transaction acquired all necessary regulatory approvals.

Agreement to Acquire Gateway Bank, F.S.B.

On December 28, 2021, RBB Bancorp announced that it entered into a definitive agreement to acquire Gateway Bank, F.S.B.

("Gateway Bank") in a cash transaction valued at approximately $ 22.9 million, subject to certain terms and conditions, including customary holdbacks if certain contingencies are not met, and other possible adjustments as contained in the definitive agreement.

Gateway Bank, a commercial bank based in Oakland, California, had total assets of $ 172.4 million, total gross loans of $ 123.1 million, total deposits of $ 147.5 million, and total tangible equity of $ 15.5 million as of September 30, 2021.

Principally serving the Asian-American communities in the San Francisco Bay Area, Gateway Bank has one branch located in Oakland’s Chinatown neighborhood, offering consumer and business banking and loan products and services.

All regulatory applications have been filed, and we are waiting for the regulatory agencies to make a decision.

PGB Holdings, Inc.

On January 10, 2020, the Company acquired all the assets and assumed all the liabilities of PGBH and its wholly owned bank subsidiary, in exchange for cash of $ 32.9 million.

PGBH operated three branches in the Chicago, Illinois metropolitan area.

The Company acquired PGBH to strategically establish a presence in the Chicago area.

Goodwill in the amount of $ 10.7 million was recognized in this acquisition.

Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.

Goodwill is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of PGBH as of January 10, 2020 and the fair value adjustments and amounts recorded by the Company through 

2020  under the acquisition method of accounting:

On January 14, 2022, the Company completed the acquisition of the Hawaii Branch from BOTO.

The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of January 14, 2022. 

The total fair value of assets acquired approximated $ 8.5  million, which included $ 312,000 in cash and cash equivalents, $ 7.4  million in selected performing loans, $ 729,000  in core deposit intangible assets and $ 64,000 in other assets.

The total fair value of liabilities assumed was $ 81.8  million, which included $ 81.7  million in deposits, $ 27,000 in certificate of deposit premium, and $ 90,000 in other liabilities. The Bank received $ 71.0 million in cash in connection with the acquisition which represented consideration for the deposits assumed by the Bank, partially offset by the purchase price of the assets acquired and the premium paid.

The Company acquired Hawaii Branch from BOTO to strategically establish a presence in the Hawaiian Islands area.

Goodwill in the amount of $ 2.3  million and core deposit intangible of $ 729,000 was recognized in connection with this acquisition.

Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.

Goodwill is not  deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed from the Hawaii Branch as of January 14, 2022 

and the fair value adjustments and amounts recorded by the Company under the acquisition method of accounting:

(dollars in thousands)

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Cash and cash equivalents

$ 17,033  

Fed funds sold

Interest-bearing deposits in other financial Institutions

14,186  

172,443  

173,109  

Allowance for loan losses

( 2,265 )  

Bank premises and equipment

Core deposit premium

Investment in trust

Core deposit intangible

( 360 )  

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$ 8,495  

$ 222,414  

Liabilities assumed

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Escrow Payable

Subordinated debentures

( 763 )  

Deferred income taxes

Other liabilities

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( 345 )  

Excess of assets acquired over liabilities assumed

81,790  

22,205  

Excess of assets acquired over liabilities assumed

( 74,047 )  

$ 8,088  

Cash received

71,040  

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The Company accounted for this transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition.

The loan portfolio of PGBH was recorded at fair value at the date of acquisition with the assistance of a third -party valuation.

A valuation of PGBH’s loan portfolio was performed as of the acquisition date to assess the fair value of the loan portfolio.

The loan portfolio was segmented into two groups;

loans with credit deterioration, of which there were none, and loans without credit deterioration, and then split further by loan type.

The fair value was calculated on an individual loan basis using a discounted cash flow analysis.

The loan portfolio of the Hawaii branch was recorded at fair value at the date of acquisition with the assistance of a third -party valuation.

A valuation of the loan portfolio was performed as of the acquisition date to assess the fair value of the loan portfolio.

The loan portfolio was segmented into two groups;

loans with credit deterioration and loans without credit deterioration, and then split further by loan type.

There were no loans acquired with credit deterioration. The fair value was calculated on an individual loan basis using a discounted cash flow analysis.

The discount rate utilized was based on a weighted average cost of capital, considering the cost of equity and cost of debt.

Also factored into the fair value estimates were loss rates, recovery period and prepayment rates based on industry standards.

The Company also determined the fair value of the core deposit intangible, securities and deposits with the assistance of third -party valuations.

The Company also determined the fair value of the core deposit intangible, premises and equipment and deposits with the assistance of third -party valuations.

The core deposit intangible on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates, service charge income, overhead expense and costs of alternative funding.

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The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset.

In determining the fair value of certificates of deposit, a discounted cash flow analysis was used, which involved present valuing the contractual payments over the remaining life of the certificates of deposit at market-based interest rates.

For loans acquired from PGBH, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows (dollars in thousands):

(dollars in thousands)

PGBH Acquired Loans

Contractual amounts due

$ 195,227  

Cash flows not expected to be collected

Expected cash flows

190,051  

Interest component of expected cash flows

16,942  

Fair value of acquired loans

$ 173,109  

The operating results of the Company for the year ended December 31, 2020 

include the operating results of PGBH since its acquisition date.

The following table presents the net interest and other income, net income and earnings per share as if the acquisition of PGBH was effective as of January 1, 2020.

There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:

Twelve months ended

(dollars in thousands)

December 31, 2021

December 31, 2020

Net interest and other income

$ 143,088  

$ 119,029  

56,906  

31,762  

Basic earnings per share

Diluted earnings per share

Third-party acquisition related expenses are recognized as incurred and continue until the acquired system is converted and operational functions become fully integrated.

The Company incurred third -party acquisition related expenses in the consolidated statements of income for the periods indicated in the Statements of Income in the expense item “Merger and conversion expenses”.

Agreement to Acquire Gateway Bank, F.S.B.

On December 28, 2021, RBB Bancorp announced that it entered into a definitive agreement to acquire Gateway Bank in a cash transaction valued at approximately $ 22.9 million, subject to certain terms and conditions, including customary holdbacks if certain contingencies are not met, and other possible adjustments as contained in the definitive agreement.

Gateway Bank, a commercial bank based in Oakland, California, had total assets of $ 181.4  million, total gross loans of $ 121.9  million, total deposits of $ 162.5  million, and total tangible equity of $ 17.2  million as of December 31, 2022.

The expiration of the agreement has been extended to September 30, 2023 and the acquisition is subject to regulatory approvals.

NOTE 4 - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of available for sale (“AFS”) securities and held to maturity (“HTM”) securities at December 31, 2021 and 2020 , and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

The following table summarizes the amortized cost and fair value of available for sale (“AFS”) securities and held to maturity (“HTM”) securities at December 31, 2022 

and 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

(dollars in thousands)

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SBA agency securities

Mortgage-backed securities- Government sponsored agencies

( 223 )  

Mortgage-backed securities:

44,809  

( 6,752 )  

38,057  

Mortgage-backed securities:

( 16 )  

Collateralized mortgage obligations:

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69,903  

Collateralized mortgage obligations:

44,591  

( 2,901 )  

41,690  

Commercial paper

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$ 256,830  

$ 368,260  

Held to maturity

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$ ( 3 )  

$ 1,007  

Municipal securities

1 unchanged sentence

$ 5,729  

$ ( 173 )  

$ 5,563  

(dollars in thousands)

7 unchanged sentences

$ ( 83 )  

$ 5,610  

SBA agency securities

Mortgage-backed securities- Government sponsored agencies

Mortgage-backed securities:

45,557  

( 536 )  

45,052  

Mortgage-backed securities:

Collateralized mortgage obligations:

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60,216  

Collateralized mortgage obligations:

59,579  

( 399 )  

59,295  

Commercial paper

5 unchanged sentences

( 254 )  

42,205  

Municipal securities

3 unchanged sentences

$ 370,613  

$ ( 3,094 )  

$ 368,260  

Held to maturity

5 unchanged sentences

$ 6,577  

There was no sale of investment securities during the twelve months ended December 31, 2021.

Proceeds of $ 11.7 million and $ 6.1  million were received from the sale of investment securities during the twelve months ended December 31, 

2020  and 2019, respectively.

There were no gain nor loss recorded for sales of investement securities during year ended December 31, 2021.

During years ended December 31, 2020 and 2019, there were gains realized on sales of investment securities of $ 210,000  and $ 7,000 , respectively.

One security with a fair value of $ 117,000  and $ 320,000 was pledged to secure a local agency deposit at December 31, 2021 and 2020, respectively.

The amortized cost and fair value of the investment securities portfolio as of December 31, 2021 are shown by expected maturity below.

There was no sale of investment securities during the twelve months ended December 31, 2022 and 2021.

Proceeds of $ 11.7  million were received from the sale of investment securities during the year ended December 31, 

 There were no gains or losses recorded for sales of investment securities during the years ended December 31, 

2022 and 2021.

During the year ended December 31, 2020, there were gains realized on sales of investment securities of $ 210,000 .

One security with a fair value of $ 76,000  and $ 117,000 was pledged to secure a local agency deposit at December 31, 2022 

and 2021, respectively.

Accrued interest receivable for investment debt securities at December 31, 2022 and 2021 totaled $ 810,000 and $ 665,000 , respectively

The amortized cost and fair value of the investment securities portfolio as of December 31, 2022 

are shown by expected maturity below.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

3 unchanged sentences

More than Ten Years

Amortized  

(dollars in thousands)

6 unchanged sentences

SBA securities

Mortgage-backed securities- Government sponsored agencies

Mortgage-backed securities:

13,013  

4 unchanged sentences

38,057  

Mortgage-backed securities:

Collateralized mortgage obligations:

5 unchanged sentences

69,903  

Collateralized mortgage obligations:

16,382  

14,644  

28,209  

27,046  

44,591  

41,690  

Commercial paper

8 unchanged sentences

20,662  

Municipal securities

41,176  

37,012  

Municipal securities

12,669  

14 unchanged sentences

$ 1,007  

$ 1,506  

$ 1,583  

Municipal securities

6 unchanged sentences

$ 5,563  

$ 6,252  

$ 6,577  

(dollars in thousands)

6 unchanged sentences

SBA securities

Mortgage-backed securities- Government sponsored agencies

Mortgage-backed securities:

30,278  

30,025  

15,279  

15,027  

45,557  

45,052  

Mortgage-backed securities:

Collateralized mortgage obligations:

3 unchanged sentences

60,216  

Collateralized mortgage obligations:

25,366  

25,219  

34,213  

34,076  

59,579  

59,295  

Commercial paper

8 unchanged sentences

42,205  

Municipal securities

12,701  

12,514  

Municipal securities

12,701  

12,514  

Total available for sale

22 unchanged sentences

$ 3,176  

The following table summarizes investment securities with unrealized losses at December 31, 2021 and December 31, 2020 , aggregated by major security type and length of time in a continuous unrealized loss position:

$ 6,252  

$ 6,577  

The securities that were in an unrealized loss position at December 31, 2022, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors.

For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 2 Summary of Significant Accounting Policies - Allowance for Credit Losses on Available-for-Sale Securities and Held-to-Maturity Securities. At December 31, 2022, allowance for credit losses on held-to-maturity were immaterial and less than five hundred dollars.

The Company concluded the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads.

The issuers have not, to the Company's knowledge, established any cause for default on these securities.

The Company expects to recover the amortized cost basis of its securities and has no present intent to sell and will not be required to sell securities that have declined below their cost before their anticipated recovery.

Accordingly, no allowance for credit losses was recorded as of December 31, 2022, against these securities, and there was no provision for credit losses recognized for the year ended December 31, 2022.

The following tables show the related fair value and the gross unrealized losses of the Company's investment securities, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2022, and December 31, 2021:

Less than Twelve Months

2 unchanged sentences

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

December 31, 2022

4 unchanged sentences

$ 4,495  

Mortgage-backed securities- Government sponsored agencies

SBA securities

( 223 )  

Mortgage-backed securities:

( 362 )  

1 unchanged sentence

( 6,390 )  

38,057  

Mortgage-backed securities:

( 16 )  

Collateralized mortgage obligations:

4 unchanged sentences

66,865  

Collateralized mortgage obligations:

18,741  

Commercial paper

( 790 )  

2 unchanged sentences

41,690  

Commercial paper

39,624  

( 16 )  

39,624  

Corporate debt securities

3 unchanged sentences

( 2,322 )  

33,307  

Municipal securities

( 3,815 )  

Total available for sale

$ 121,563  

2 unchanged sentences

$ ( 26,145 )  

Total available for sale

$ 240,174  

Municipal taxable securities

$ ( 3 )  

Municipal securities

( 170 )  

Total held to maturity

$ 5,054  

5 unchanged sentences

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

December 31, 2021

Mortgage-backed securities- Government sponsored agencies

Government agency securities

$ 4,860  

1 unchanged sentence

$ 4,860  

Mortgage-backed securities:

44,009  

( 536 )  

44,009  

Mortgage-backed securities:

Collateralized mortgage obligations:

2 unchanged sentences

59,540  

Collateralized mortgage obligations:

20,311  

Commercial paper

( 321 )  

2 unchanged sentences

38,093  

Commercial paper

129,926  

( 36 )  

129,926  

Corporate debt securities

13,208  

( 254 )  

13,208  

Municipal securities

11,447  

( 160 )  

( 27 )  

12,514  

Total available for sale

3 unchanged sentences

$ ( 109 )  

Unrealized losses have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates.

The fair value is expected to recover as the bonds approach maturity.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.  If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

$ 312,124  

NOTE 5 - LOANS

1 unchanged sentence

Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company's market area and, as a result, the Company's loan and collateral portfolios are, to some degree, concentrated in those industries.

A summary of the changes in the allowance for loan losses as of December 31 follows:

The types of loans in the Company's consolidated balance sheets as of December 31, 2022, and December 31, 2021 were as follows:

(dollars in thousands)

Allowance for loan losses:

Beginning balance

Commercial and industrial

$ 201,223  

1 unchanged sentence

61,411  

Additions to the allowance charged to expense

76,136  

Recoveries on loans charged-off

Less loans charged-off

Construction and land development

276,876  

303,144  

Ending balance

Commercial real estate (2)

1,312,132  

1,247,999  

Single-family residential mortgages

1,464,108  

The following table presents the recorded investment in loans and impairment method as of December 31, 2021, 2020 and 2019 and the activity in the allowance for loan losses for the years then ended, by portfolio segment:

1,004,576  

20,699  

30,786  

Total loans (1)

$ 3,336,449  

$ 2,931,350  

Allowance for credit losses

( 41,076 )  

Total loans, net

$ 3,295,373  

$ 2,898,438  

( 1 ) net of discounts and deferred fees and costs

( 2 ) includes non-farm & non-residential real estate loans, multifamily resident and 1 - 4 family single family residential loan for a business purpose 

Allowance for Credit Losses

Effective January 1, 2022, the Company adopted ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.

The Company uses qualitative factors within the CECL model:

lending policies, procedures, and strategies;

changes in nature and volume of the portfolio;

credit & lending personnel experience;

changes in volume and trends in classified loans, delinquencies, and nonaccrual;

concentration risk;

collateral values;

regulatory and business environment;

loan review results;

and economic conditions. The Company determined weighting of the qualitative factors based on management’s ability to directly control or influence the level of risk exposure.

The factors related to economic conditions, collateral values, and regulatory and business environment were assigned higher allocation, and the remaining factors were internal and manageable, and therefore received lower allocation. As a result, the Company recorded an increase of $ 2.1  million to allowance for credit losses and an increase of $ 1.0 million to allowance for unfunded commitments.

The Company applied the modified retrospective transition approach, and recorded a decrease of $ 2.2  million, net of tax, to the beginning balance of retained earnings as of January 1, 2022 for the cumulative effect adjustment.

A summary of the changes in the allowance for credit losses for the years indicated follows:

(dollars in thousands)

December 31, 2021

Allowance for loan losses:

Beginning of year

Allowance for credit losses:

Beginning balance

$ 32,912  

1 unchanged sentence

$ 18,816  

ASU 2016-13 transition adjustment

Adjusted beginning balance

$ 35,047  

1 unchanged sentence

$ 18,816  

Additions to the allowance charged to expense

11,823  

Less loans charged-off

( 256 )  

( 627 )  

Recoveries on loans charged-off

Ending balance

$ 41,076  

1 unchanged sentence

$ 29,337  

Total allowance for loan losses

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2022:

(dollars in thousands)

December 31, 2022

Allowance for credit losses:

Beginning of year

$ 28,592  

1 unchanged sentence

$ 32,912  

Loans evaluated for impairment:

ASU 2016-13 Transition Adjustment

( 604 )  

Adjusted beginning balance

$ 30,204  

4 unchanged sentences

( 730 )  

Total loans, net of deferred loan fees and unaccreted discount on acquired loans

( 19 )  

( 237 )  

Ending allowance balance

$ 37,935  

$ 2,425  

$ 41,076  

The following tables present the recorded investment in loans and impairment method as of December 31, 

2021  and 2020  and the activity in the allowance for loan losses by portfolio segment for the years then ended:

December 31, 2021

8 unchanged sentences

( 59 )  

Ending allowance balance

$ 28,592  

14 unchanged sentences

30,786  

2,910,625  

Total loans, net of deferred loan fees and unaccreted discount on acquired loans

13 unchanged sentences

( 45 )  

Ending allowance balance

$ 24,677  

1 unchanged sentence

$ 29,337  

24,677  

28,812  

Total allowance for loan losses

13 unchanged sentences

$ 4,089  

$ 2,706,766  

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors.

9 unchanged sentences

They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Impaired - A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Additionally, all loans classified as troubled debt restructurings are considered impaired.

The risk category of loans by class of loans was as follows as of December 31, 2021 and 2020 :

Doubtful 

- Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table summarizes the Company's loan held for investment as of December 31, 2022 by loan portfolio segments, risk ratings and vintage year.

The vintage year is the year of origination, renewal or major modification:

(Dollars in thousands)

Term Loan by Vintage

December 31, 2022

Revolving Converted to Term During the Period

Construction and land development

2 unchanged sentences

$ 99,016  

$ 276,735  

Special mention

$ 125,216  

$ 52,262  

$ 99,016  

$ 276,876  

YTD period charge-offs

YTD period recoveries

Commercial real estate

2 unchanged sentences

$ 195,051  

$ 110,442  

$ 73,013  

$ 117,068  

$ 1,267,936  

Special mention

23,426  

34,916  

$ 479,591  

$ 293,058  

$ 212,983  

$ 112,771  

$ 73,235  

$ 140,494  

$ 1,312,132  

YTD period charge-offs

YTD period recoveries

Single-family residential mortgages

1 unchanged sentence

$ 255,529  

$ 137,964  

$ 96,355  

$ 134,415  

$ 182,893  

$ 2,992  

$ 1,448,041  

Special mention

12,142  

$ 637,893  

$ 255,529  

$ 141,918  

$ 96,355  

$ 145,971  

$ 183,345  

$ 3,097  

$ 1,464,108  

YTD period charge-offs

YTD period recoveries

Commercial and industrial

7 unchanged sentences

$ 162,881  

Special mention

17,805  

1 unchanged sentence

$ 8,038  

$ 13,500  

$ 6,048  

$ 3,486  

$ 2,654  

$ 26,971  

$ 140,440  

$ 201,223  

YTD period charge-offs

$ ( 5 )  

YTD period recoveries

$ ( 5 )  

$ 14,922  

$ 10,664  

$ 6,496  

$ 4,688  

$ 2,579  

$ 16,793  

$ 56,142  

Special mention

$ 14,922  

$ 10,664  

$ 6,496  

$ 4,779  

$ 3,596  

$ 20,954  

$ 61,411  

YTD period charge-offs

$ ( 14 )  

YTD period recoveries

$ 4,224  

$ 14,684  

$ 1,505  

$ 20,536  

Special mention

$ 4,329  

$ 14,732  

$ 1,515  

$ 20,699  

YTD period charge-offs

$ ( 237 )  

YTD period recoveries

$ ( 210 )  

Total by risk rating:

$ 1,269,597  

$ 633,710  

$ 444,480  

$ 215,246  

$ 211,030  

$ 325,621  

$ 132,501  

$ 3,232,271  

Special mention

17,805  

42,212  

14,216  

28,519  

61,966  

$ 1,269,989  

$ 639,745  

$ 467,976  

$ 217,682  

$ 225,463  

$ 371,945  

$ 143,563  

$ 3,336,449  

Net recoveries (charge-offs)

$ ( 210 )  

$ ( 5 )  

Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

In connection with the adoption of ASU 2016 - 13, the Company no longer provides information on impaired loans.

The following table presents loan portfolio by risk rating as of December 31, 2021:

(dollars in thousands)

3 unchanged sentences

$ 3,662  

$ 303,144  

Commercial real estate

15 unchanged sentences

$ 70,522  

The following table presents the aging of the recorded investment in past-due loans as of December 31, 2021 and 2020 by class of loans.

Past due loans presented in table below also includes non-accrual loans. 

$ 20,725  

$ 2,931,350  

The following tables present the aging of the recorded investment in past-due loans as of December 31, 2022 

and 2021  by class of loans.

Past due loans presented in tables below also includes non-accrual loans. 

(dollars in thousands)

8 unchanged sentences

1,312,132  

13,189  

Single-family residential mortgages

18 unchanged sentences

Single-family residential mortgages held for sale

$ 5,957  

________________

1 unchanged sentence

(dollars in thousands)

30 - 59  

60 - 89  

December 31, 2021

9 unchanged sentences

989,104  

1,004,576  

Commercial and industrial

10 unchanged sentences

$ 2,898,246  

$ 2,931,350  

$ 18,987  

Single-family residential mortgages held for sale

7 unchanged sentences

December 31, 2021.

Information relating to individually impaired loans presented by class of loans was as follows as of December 31, 2021, 2020 and 2019 :

The following table presents the loans on nonaccrual status as of December 31, 2022:

(dollars in thousands)

December 31, 2022

With no related allowance recorded

for Credit Loss

Construction and land development

Commercial and industrial

Commercial real estate

Single-family residential mortgage loans

Commercial - SBA

13,189  

With related allowance recorded

Single-family residential mortgages

Commercial and industrial

Commercial-SBA

$ 10,277  

$ 22,323  

$ 26,980  

In connection with the adoption of ASU 2016 - 13, the Company no longer provides information on impaired loans.

Information relating to individually impaired loans presented by class of loans was as follows as of December 31, 2021 

(dollars in thousands)

4 unchanged sentences

Commercial real estate

Residential mortgage loans

Single-family residential mortgage loans

Commercial - SBA

11,589  

With related allowance recorded

4 unchanged sentences

$ 26,980  

(dollars in thousands)  

December 31, 2020

1 unchanged sentence

Construction and land development

 Commercial and industrial  

Commercial real estate

Residential mortgage loans

Single-family residential mortgage loans

Commercial - SBA

10,791  

 Other  

With related allowance recorded

Commercial real estate

Commercial and industrial

Commercial-SBA

2 unchanged sentences

$ 23,196  

No interest income was recognized on a cash basis as of December 31, 2021 and 2020 .

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2021 and December 31, 2020 while the loans were in nonaccrual status.

We recognized interest income on loans modified under troubled debt restructurings ("TDR's") of $ 159,000  and $ 170,000 during the years ended December 31, 2021 and 2020 , respectively.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID- 19 that would otherwise be characterized as troubled debt restructurings ("TDRs") and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 

or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019.

In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID- 19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID- 19 -related loan modifications as TDRs.

The Company is applying this guidance to qualifying loan modifications.

The Company identified nine  loans as TDRs at December 31, 2021 and six  loans at December 31, 2020 , respectively, with aggregate balances of $ 3.4  million and $ 3.1 million, respectively.

Non-accrual TDRs were $ 1.7  million at December 31, 2021 , and $ 1.1 million at December 31, 2020 .

There were $ 3,000  specific reserves allocated to the loans as of December 31, 2021 and $ 435,000  at  

No interest income was recognized on a cash basis as of December 31, 2022 

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2022 

and December 31, 2021 

while the loans were in nonaccrual status.

We recognized interest income on modified loans of $ 143,000  and $ 159,000 during the years ended December 31, 2022 

and 2021, respectively.

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, or interest rate reduction.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

The Company had four modified loans at December 31, 2022 

and nine modified loans at December 31, 2021, respectively, with aggregate balances of $ 1.6  million and $ 3.4  million, respectively.

Non-accrual modified loans were $ 363,000  at December 31, 2022, and $ 1.7  million at December 31, 2021.

There were no  specific reserves allocated to the modified loans as of December 31, 2022 but $ 3,000  at 

December 31, 2021.

There are no commitments to lend additional amounts at December 31, 2021 and 2020 to customers with outstanding loans that are classified as TDRs.

There were no  non-accrual loans that were modified as TDRs during the past twelve months that had payment defaults during the periods.

During the year ended December 31, 2021 , the terms of certain loans were modified as TDR's. The modification of the terms generally included loans where a moratorium on loan payments was granted.

Such moratoriums ranged from six months to nine months on the loans restructured in 2021 and 2020 .

The following table presents loans by class modified as TDR's that occurred during the years ended December 31, 2021 , 2020  and 2019:

There are no commitments to lend additional amounts at December 31, 2022 

and 2021  to customers with outstanding modified loans.

There were no  non-accrual loans that were modified during the past twelve months that had payment defaults during the periods.

The modification of the terms generally included loans where a moratorium on loan payments was granted.

Such moratoriums ranged from six months to nine months on the loans restructured in 2021.

There were no loans that were both experiencing financial difficulty and modified during the year ended December 31, 2022.

The following table presents modified loans by class that occurred during the years ended December 31, 2022, 2021  and 2020:

(dollars in thousands)

7 unchanged sentences

$ 1,719  

There were five  and three  non-accrual loans defaults of TDR’s in 2021 and 2020 , respectively, where the loan was modified within the prior twelve months.

In the past the Company has purchased loans as part of its whole bank acquisitions, for which there was at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. 

There were none  and five  non-accrual loans defaults in 2022 and 2021, respectively, where the loan was modified within the prior twelve months.

NOTE 6 - LOAN SERVICING

Mortgage and SBA loans serviced for others are not reported as assets.

The principal balances as of December 31, 2021 and 2020 are as follows:

The principal balances as of December 31, 2022 

and 2021  are as follows:

(dollars in thousands)

6 unchanged sentences

Commercial real estate loans

Construction loans

Estimates of the loan servicing asset fair value are derived through a discounted cash flow analysis.

2 unchanged sentences

The analysis accounts for recent transactions, and supply and demand within the market.

Servicing fees net of servicing asset amortization totaled $ 684,000 , $ 2.1  million and $ 3.4 million for the twelve months ended December 31, 2021, 

2020  and 2019, respectively. 

Custodial balances maintained in connection with the foregoing loan servicing (including in non-interest bearing deposits) totaled $ 14.3  million and $ 16.6  million as of December 31, 2021 

Servicing fees net of servicing asset amortization totaled $ 2.2 million, $ 684,000  and $ 2.1  million for the twelve months ended December 31, 2022, 

2021  and 2020, respectively. Custodial balances maintained in connection with the foregoing loan servicing (including in non-interest bearing deposits) totaled $ 7.0  million and $ 14.3  million as of December 31, 2022 

and 2021, respectively.

37 unchanged sentences

$ 3,436  

The fair value of servicing assets for mortgage loans was $ 15.4  million and $ 10.7  million as of December 31, 2021 and 2020 , respectively.

Fair value at December 31, 2021 was determined using a discount rate of 10.86 %, average prepayment speed of 14.04 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.10 %.

Fair value at December 31, 2020 was determined using a discount rate of 11.04 %, average prepayment speed of 15.50 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.10 %.

The fair value of servicing assets for SBA loans was $ 4.1  million and $ 5.0  million as of December 31, 2021 and 2020 , respectively.

Fair value at December 31, 2021 was determined using a discount rate of 8.5 %, average prepayment speed of 15.87 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.61 %.

Fair value at December 31, 2020 was determined using a discount rate of 8.5 % and average prepayment speed of 13.8 %, depending on the stratification of the specific right and a weighted-average default rate of 0.84 %.

The fair value of servicing assets for mortgage loans was $ 18.3  million and $ 15.4  million as of December 31, 2022 

and 2021, respectively.

Fair value at December 31, 2022 

was determined using a discount rate of 11.10 %, average prepayment speed of 7.73 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.10 %.

Fair value at December 31, 2021 

was determined using a discount rate of 10.86 %, average prepayment speed of 14.04 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.10 %.

The fair value of servicing assets for SBA loans was $ 3.5  million and $ 4.1  million as of December 31, 2022 

and 2021, respectively.

Fair value at December 31, 2022 

was determined using a discount rate of 8.5 %, average prepayment speed of 16.79 %, depending on the stratification of the specific right, and a weighted-average default rate of 0.37 %.

Fair value at December 31, 2021 

was determined using a discount rate of 8.5 % and average prepayment speed of 15.87 %, depending on the stratification of the specific right and a weighted-average default rate of 0.61 %.

NOTE 7 - PREMISES AND EQUIPMENT

1 unchanged sentence

(dollars in thousands)

$ 8,974  

$ 9,066  

Building and improvements

15,523  

15,265  

Furniture, fixtures, and equipment

Leasehold improvements

39,611  

38,361  

Less accumulated depreciation and amortization

( 13,387 )  

Construction in progress

$ 27,009  

$ 27,199  

Depreciation and leasehold amortization expense was $ 2.0  million, $ 1.9  million, and $ 2.0  million for 2022, 2021, and 2020, respectively.

The Company leases several of its operating facilities under various noncancellable operating leases expiring at various dates through 2036.

The Company is also responsible for common area maintenance, taxes and insurance at various branch locations.

Future minimum rent payments on the Company's leases were as follows as of December 31, 2021 :

(dollars in thousands)

As of December 31, 2021:

The minimum rent payments shown above are given for the existing lease obligations and are not a forecast of future rental expense.

Total rental expense, recognized on a straight-line basis, was $ 5.3  million, $ 5.7  million, and $ 6.1  million for 2021, 2020, and 2019, respectively.

In July 

2020, the Company signed a lease, commencing on August 1, 2020, on Canal Street in New York City for our NY Bowery branch relocation, and the Canal Street branch opened by December 

 In January 2020, the Company signed a lease to for a new branch in Edison, New Jersey, which the Company occupied in November 2020.

In March 2019, the Company signed a new lease to move its Diamond Bar, California branch to a new location, which opened in January 2021.

The future payments for all of the new leases are included in the schedule above.

The Company recorded $ 479,000 and $ 395,000 in sub-lease income in  

2021  and 2020, respectively.

$757,000  gain on sale of fixed assets was recorded from the sale of a real estate asset during 2022, which was used to house staff while traveling.

NOTE 8 - DEPOSITS

At December 31, 2021 the scheduled maturities of time deposits are as follows:

At December 31, 2022 

the scheduled maturities of time deposits are as follows:

(dollars in thousands)

5 unchanged sentences

$ 1,563,603  

Brokered time deposits were $ 2.4  million at December 31, 2021 and $ 17.4  million at December 31, 2020 .

Brokered time deposits were $ 255.0  million at December 31, 2022 

and $ 2.4  million at December 31, 2021.

NOTE 9 - LONG-TERM DEBT

In March 2016, the Company issued $ 50 million of 6.5 % fixed to floating rate subordinated debentures, due March 31, 2026.

In March 2016, the Company issued $ 50 million of 6.5 % fixed-to-floating rate subordinated notes, due March 31, 2026.

The interest rate is fixed through March 31, 2021 and floats at 3 month LIBOR plus 516 basis points thereafter.

The Company redeemed these subordinated debentures on March 31, 2021.

The redemption price for the subordinated debentures was equal to 100% of principal amount of the note redeemed, plus any accrued and unpaid interest up to, but excluding, redemption date of March 31, 2021.

In November 2018, the Company issued $ 55 million of 6.18 % fixed to floating rate subordinated debentures, due December 1, 2028.

The Company redeemed these subordinated notes on March 31, 2021.

The redemption price for the subordinated notes was equal to 100% of principal amount of the notes redeemed, plus any accrued and unpaid interest.

In November 2018, the Company issued $ 55 million of 6.18 % fixed to floating rate subordinated notes, due December 1, 2028.

The interest rate is fixed through December 1, 2023 and floats at 3 month LIBOR plus 315 basis points thereafter.

The Company can redeem these subordinated debentures beginning December 1, 2023.

The sub-debt is considered Tier 2  capital at the Company.

The Company allocated $ 25 million to the Bank as Tier- one capital.

The Company can redeem these subordinated notes beginning December 1, 2023.

The subordinated notes are considered Tier 2  capital at the Company.

The Company allocated $ 25 million to the Bank as Tier- 1  capital.

In March 

2021, the Company issued $ 120  million of 4.00 % fixed to floating rate subordinated debentures, due April 

2021, the Company issued $ 120  million of 4.00 % fixed-to-floating rate subordinated notes, due April 

The interest rate is fixed through April 

1, 2026  and floats at three  month SOFR plus 329  basis points thereafter.

The Company can redeem these subordinated debentures beginning April 

The subordinated debentures are considered Tier 2 capital at the Company.

At December 31, 2021 and 2020 , respectively, long-term debt was as follows:

December 31,  

The Company can redeem these subordinated notes beginning April 

The subordinated notes are considered Tier 2 capital at the Company.

At December 31, 2022 

and 2021, respectively, long-term debt was as follows:

(dollars in thousands)

Unamortized debt issuance costs

6.18% subordinated notes, due December 1, 2028

$ 55,000  

Unamortized debt issuance costs

4.00% subordinated notes, due April 1, 2031

120,000  

The following table presents interest and amortization expense the Company incurred for the year ended December 31, 2021 and 2020 :

120,000  

$ 175,000  

$ 1,415  

$ 175,000  

$ 1,993  

The following table presents interest and amortization expense the Company incurred for the years ended December 31, 2022 

For the Year Ended December 31,

3 unchanged sentences

$ 7,878  

The British banking regulators have announced plans to eliminate the LIBOR rate before this long-term debt and subordinated debentures mature.

For these subordinated debentures, there are provisions for amendments to establish a new interest rate benchmark.  At this point in time, SOFR 

is the alternative reference rate we plan to adopt as the replacing index rate for USD LIBOR.

The United Kingdom's Financial Conduct Authority and Intercontinental Exchange Benchmark Administration announced to cease publishing 1 -week and 2 -month LIBOR rate at the end of 2021 and will cease publishing all other LIBOR tenors at June 30, 2023.

After the LIBOR replacement date June 30, 2023, the Company will adopt SOFR with relevant spread adjustment as the alternative reference rate to replace LIBOR with respect to the Company’s subordinated notes and subordinated debentures.

NOTE 10 - SUBORDINATED DEBENTURES

The Company, through the acquisition of TFC Bancorp in 2016, acquired TFC Statutory Trust (the “Trust”).

The Trust contained a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $ 1,000 per security.

TFC Bancorp issued $ 5 million of subordinated debentures to the Trust in exchange for ownership of all of the common security of the Trust and the proceeds of the preferred securities sold by the trust.

The Company is not considered the primary beneficiary of this trust (variable interest entity), therefore the Trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability at market value as of the close of the acquisition which was $ 3.3 million.

The Company, through the acquisition of TomatoBank and its holding company, TFC Holding Company (“TFC”), the Company acquired the TFC Statutory Trust (the “

TFC Trust”).

TFC Trust contained a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $ 1,000 per security.

TFC issued $ 5 million of subordinated debentures to TFC Trust in exchange for ownership of all of the common security of TFC Trust and the proceeds of the preferred securities sold by TFC trust.

The Company is not considered the primary beneficiary of TFC trust (variable interest entity), therefore TFC Trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability at market value as of the close of the acquisition which was $ 3.3 million.

There was a $ 1.9 million valuation reserve recorded to arrive at market value, which is treated as a yield adjustment and is amortized over the life of the security.

The Company also purchased an investment in the common stock of the trust for $ 155,000 , which is included in other assets.

The Company may redeem the subordinated debentures, subject to prior approval by the Board of Governors of the Federal Reserve System on or after March 15, 2012, at 100 % of the principal amount, plus accrued and unpaid interest.

The Company may redeem the subordinated debentures, subject to prior approval by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on or after March 15, 2012, at 100 % of the principal amount, plus accrued and unpaid interest.

The subordinated debentures mature on March 15, 2037.

2 unchanged sentences

The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

The subordinated debentures have a variable rate of interest equal to the three month LIBOR plus 1.65 %, which was 1.85 % as of December 31, 2021 and 1.87 % at December 31, 2020 .

In October 2018, the Company, through the acquisition of First American International Corp., acquired First American International Statutory Trust I (“FAIC Trust”), a Delaware statutory trust formed in December 2004.

The Trust issued 7,000 units of thirty -year fixed to floating rate capital securities with an aggregate liquidation amount of $ 7 million to an independent investor, and FAIC issued $ 7 million of subordinated debentures to the FAIC Trust and all of its common securities, amounting to $ 217,000 , which is included in other assets.

The subordinated debentures have a variable rate of interest equal to the three month LIBOR plus 1.65 %, which was 6.42 % as of December 31, 2022 

and 1.85 % at December 31, 2021.

In October 2018, the Company, through the acquisition of FAIC, acquired First American International Statutory Trust I (“FAIC Trust”), a Delaware statutory trust formed in December 2004.

FAIC Trust issued 7,000 units of thirty -year fixed to floating rate capital securities with an aggregate liquidation amount of $ 7 million to an independent investor, and FAIC issued $ 7 million of subordinated debentures to FAIC Trust and all of its common securities, amounting to $ 217,000 , which is included in other assets.

There was a $ 1.2 million valuation reserve recorded to arrive at market value which is treated as a yield adjustment and is amortized over the life of the security.

The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.

The subordinated debenture have a variable rate of interest equal to the three -month LIBOR plus 2.25 % through final maturity on December 15, 2034.

The subordinated debentures have a variable rate of interest equal to the three -month LIBOR plus 2.25 % through final maturity on December 15, 2034.

The rate at December 31, 2022, was 7.02 % and 2.45 % at December 31, 2021.

5 unchanged sentences

The subordinated debentures have a variable rate of interest equal to the three -month LIBOR plus 2.10 % through final maturity on December 15, 2034.

The rate at December 31, 2021 was 2.30 % and 2.32 % at December 31, 2020 .

The Company paid interest expenses of $ 377,000  in 2021 , $ 468,000 in 2020 and $ 540,000 in 2019 .

The amount of aggregate amortization expense recognized in 2021 was $ 218,000 , $ 218,000 in 2020 , and $ 167,000 in 2019 .

The rate at December 31, 2022 

was 6.87 % and 2.30 % at December 31, 2021.

The Company paid interest expense of $ 650,000  in 2022, $ 377,000 in 2021  and $ 468,000 in 2020.

The amount of aggregate amortization expense recognized was $ 218,000 in 2022, 2021  and, 2020.

For regulatory reporting purposes, the Federal Reserve Board has indicated that the capital securities qualify as Tier I capital of the Company subject to previously specified limitations, until further notice.

If regulators make a determination that the capital securities can no longer be considered in regulatory capital, the securities become callable and the Company may redeem them.

In July 2017, British banking regulators announced plans to eliminate the LIBOR rate by the end of 2021, before these subordinated notes and debentures mature.

For these subordinated notes and debentures, there are provisions for amendments to establish a new interest rate benchmark.

The United Kingdom's Financial Conduct Authority and Intercontinental Exchange Benchmark Administration announced to cease publishing 1 -week and 2 -month LIBOR rate at the end of 2021 and will cease publishing all other LIBOR tenors at June 30, 2023.

NOTE 11 - BORROWING ARRANGEMENTS

2 unchanged sentences

Federal Funds Arrangements with Commercial Bank s.

As of December 31, 2021 the Company may borrow on an unsecured basis, up to $ 20.0 million, $ 10.0 million, $ 12.0 million and $ 50.0 million overnight from Zions Bank, Wells Fargo Bank, First Horizon Bank, and Pacific Coast Bankers' Bank, respectively.

As of December 31, 2022 

the Company may borrow on an unsecured basis, up to $ 20.0 million, $ 10.0 million, $ 12.0 million and $ 50.0 million overnight from Zions Bank, Wells Fargo Bank, First Horizon Bank, and Pacific Coast Bankers' Bank, respectively.

Letter of Credit Arrangements.

As of December 31, 2021 the Company had an unsecured commercial letter of credit line with Wells Fargo Bank for $ 2.0 million.

As of December 31, 2022 

the Company had an unsecured commercial letter of credit line with Wells Fargo Bank for $ 2.0 million.

FRB Secured Line of Credit.

The secured borrowing capacity with the FRB of $ 22.3 million at December 31, 2021 is collateralized by loans pledged with a carrying value of $ 33.2  million.

FHLB Secured Line of Credit.

The secured borrowing capacity with the FHLB of $ 833.6  million at December 31, 2021 is collateralized by loans pledged with a carrying value of $ 1.1  billion.

FHLB Advances.

December 31, 2021 , the Company had $ 150.0 million at a weighted average rate of 1.18 % in long-term ( five year) advances with the FHLB. 

These advances were collateralized by $ 1.1 billion in residential and commercial loans.

There were no overnight or long-term advances at December 31, 2021.

The Company paid interest expenses of $ 1.8  million, $ 1.5  million and $ 2.9  million on such FHLB advances for the twelve months ended December 31, 2021, 2020 and 2019 .

There were no amounts outstanding under any of the other borrowing arrangements above as of December 31, 2021 except FHLB advances maturing in 2025.

The secured borrowing capacity with the FRB of $ 12.0  million at December 31, 2022 

is collateralized by loans pledged with a carrying value of $ 16.8  million.

FHLB Secured Line of Credit and Advances.

The secured borrowing capacity with the FHLB of $ 1.1  billion at December 31, 2022 

is pledged by residential and commercial loans with a carrying value of $ 1.6  billion.

December 31, 2022, the Company had overnight advances of $ 70.0 million and long-term ( five year original term) advances of $ 150.0  million at a weighted average rate of 2.28 % with the FHLB. The Company paid interest expenses of $ 2.9  million, $ 1.8  million and $ 1.5  million on such FHLB advances for the twelve months ended December 31, 2022, 2021  and 2020.

There were no amounts outstanding under any of the other borrowing arrangements above as of December 31, 2022 

except FHLB advances maturing in 2025.

NOTE 12 - INCOME TAXES

7 unchanged sentences

10,952  

Total Current

29,267  

2 unchanged sentences

( 1,756 )  

Deferred tax adjustment for change in tax rate

Amortization of investment in affordable housing tax credits

( 1,148 )  

( 493 )  

Total Deferred

( 2,249 )  

A comparison of the federal statutory income tax rates to the Company's effective income tax rates as of December 

( 1,093 )  

Total income tax expense

$ 27,018  

$ 24,031  

$ 14,531  

A comparison of the federal statutory income tax rates to the Company's effective income tax rates as of the years ended December 

(dollars in thousands)

4 unchanged sentences

$ 9,966  

State franchise tax, net of federal benefit

State tax, net of federal benefit

Tax-exempt income

3 unchanged sentences

( 192 )  

Tax impact from change in tax rate

( 59 )  

Stock-based compensation

1 unchanged sentence

( 404 )  

Other items, net

- 0.5 %  

Actual tax expense

Other items, net

Total income tax expense

$ 27,018  

4 unchanged sentences

Deferred taxes are a result of differences between income tax accounting and generally accepted accounting principles with respect to income and expense recognition.

The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying balance sheets as of December 31:

The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying balance sheets as of the years ended December 31:

(dollars in thousands)

2 unchanged sentences

Allowance for loan losses

12,479  

Stock-based compensation

10 unchanged sentences

( 2,808 )  

Unrealized gain on AFS securities

Acquisition accounting fair value adjustments

9 unchanged sentences

$ 4,855  

At December 31, 2021 , the Company has usable net operating loss carryforwards from acquisitions of approximately $ 26,000 for federal, $ 409,000 for California, $ 3.9  million for New York State, $ 3.1  million for New York City and $ 0 for Illinois income tax purposes. Net operating loss carry forwards, to the extent not used will begin to expire in 2028.

At December 31, 2022, 

the Company has usable net operating loss carryforwards from acquisitions of approximately $ 24,000  for federal, $ 6,000  for California, $ 1.5  million for New York State and $ 725,000  for New York City income tax purposes. Net operating loss carry forwards, to the extent not used will begin to expire in 2028.

 The net operating loss carryforwards were generated through acquisitions, and as a result, are substantially limited by Section 382 of the Internal Revenue Code.

Benefits not expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carryforward amounts noted above.

Based on management's assessment, the Company concluded that no valuation allowance is necessary for the Company's deferred tax assets as of December 31, 2022. 

On March 27, 2020, the CARES Act was enacted in response to the COVID- 19 pandemic.

The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and extends several provisions of the CARES Act.

As of December 31, 2021, the Company has determined that neither this Act nor changes to income tax laws or regulations in other jurisdictions have a significant impact on our effective tax rate.

As of December 31, 2021, the Company has determined that neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions have a significant impact on our effective tax rate.

The Company’s net operating losses were not generated during the 2018 - 2020 period.

The Company is subject to federal income tax and state tax laws of California, New York and Illinois. 

Income tax returns for the years ended after December 31, 2017 

are open to audit by the federal, New York and Illinois authorities and for the years ended after December 31, 2016 

are open to audit by California state authorities. 

The Company expanded operations to the state of New Jersey starting December 1, 2020. 

The 2020 tax returns are open to audit by New Jersey state authorities at December 31, 2021.

There were no recorded interest or penalties related to uncertain tax positions as part of income tax for the years ended December 31, 2021, 2020 and 2019 , respectively.

The Company has determined that as of December 31, 2021 all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the consolidated financial statements.

NOTE 13 - COMMITMENTS

The Company is subject to federal income tax and state tax laws of California, New York, New Jersey, Hawaii and Illinois. Income tax returns for the years ended after December 31, 2017 

are open to audit by the federal, New York and Illinois authorities and for the years ended after December 31, 2016 

are open to audit by California state authorities. The 2020 and 2021 tax returns are open to audit by New Jersey state authorities at December 31, 2022. 

The Company is currently under tax examination by the state of New York for 2018, 2019 and 2020 New York state returns.

The Company expanded operations to the State of Hawaii starting January 14, 2022. 

No  income tax returns are open to audit by Hawaii state authorities at 

December 31, 2022.

There were no recorded interest or penalties related to uncertain tax positions as part of income tax for the years ended December 31, 2022, 2021  and 2020, respectively.

The Company has determined that as of December 31, 2022 

all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the consolidated financial statements.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers.

3 unchanged sentences

The Company uses the same credit policies in making commitments as it does for loans reflected in the financial statements.

As of December 31, 2021 and 2020 , the Company had the following financial commitments whose contractual amount represents credit risk:

As of December 31, 2022 

and 2021, the Company had the following financial commitments whose contractual amount represents credit risk:

(dollars in thousands)

3 unchanged sentences

$ 1,474  

$ 200,814  

Unused lines of credit

13 unchanged sentences

The amount of collateral obtained if deemed necessary by the Company is based on management's credit evaluation of the customer.

In the opinion of management, the disposition of such pending litigation will not have a material effect on the Company's financial statements.

The Company records a liability for lifetime expected losses on off-balance-sheet credit exposure that do not fit the definition of unconditionally cancelable in accordance with ASC 326.

The off-balance sheet commitment allowance were $ 1.2 million and $ 1.2 million as of December 31, 2022 and December 31, 2021, respectively.

The provision (benefit) for off-balance sheet commitment expenses were $ 1.1 million and ($ 180,000 ) in 2022 and 2021, respectively.

The Company is involved in various matters of litigation which have arisen in the ordinary course of business and accruals for estimates of potential losses have been provided when necessary and appropriate under generally accepted accounting principles. In the opinion of management, the disposition of such pending litigation will not have a material effect on the Company's financial statements.

NOTE 14 - LEASES

1 unchanged sentence

2016 - 02, Leases (Topic 842 ) and elected the package of practical expedients that permits the Company to not reassess its prior conclusions about lease identification, lease classification and initial direct costs.

The Company also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing Right-of-Use (“ROU”) assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all of the Company's leases.

The Company also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing ROU assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all of the Company's leases.

The Company determines if a contract arrangement is a lease at inception and primarily enters into operating lease contracts for its branch locations, office space, and certain equipment.

18 unchanged sentences

The minimum rent payments shown above are given for the existing lease obligation and are not a forecast of future rental expense.

Total rental expense, recognized on a straight-line basis, was $ 5.3  million and $ 5.7  million for the twelve months ended December 31, 2021 and 2020, respectively. The Company received rental income of $ 479,000  and $ 395,000  for the twelve months ended December 31, 2021 and 2020, respectively.

Total rental expense, recognized on a straight-line basis, was $ 5.4  million, $ 5.3  million, and $ 5.7 million for the twelve months ended December 31, 2022, 

2021, and 2020, respectively. The Company received rental income of $ 548,000 , $ 479,000 , and $ 395,000 for the twelve months ended December 31, 2022, 2021, and 2020, respectively.

In July 

2020, the Company signed a lease, commencing on August 1, 2020, on Canal Street in New York City for our New York Bowery branch relocation, and the Canal Street branch opened by December 

 In January 2020, the Company signed a lease to for a new branch in Edison, New Jersey, which the Company occupied in November 2020.

In March 2019, the Company signed a new lease to move its Diamond Bar, California branch to a new location, which opened in January 2021.

In January 2022, the Company acquired a new lease through its acquisition of the Hawaii Branch from BOTO.

The future payments for all of the new leases are included in the schedule above.

The Company recorded $ 548,000 , $ 479,000 , and $ 395,000 in sub-lease income in 

2022, 2021, and 2020, respectively.

The following table presents the operating lease related assets and liabilities recorded on the Consolidated Balance Sheet, and the weighted-average remaining lease terms and discount rates as of 

December 31, 2022 

and January 

and December 

(dollars in thousands)

19 unchanged sentences

( 1,572 )  

( 3,094 )  

Ending balance

1 unchanged sentence

$ 8,441  

Outstanding loan commitments to executive officers, directors and their related interests with whom they are associated were $ 0  and $ 2 million as of December 31, 2021 and 2020 .

Outstanding loan commitments to executive officers, directors and their related interests with whom they are associated were $ 1.6  million and none  as of December 31, 2022 

and 2021, respectively.

Deposits from principal officers, directors, and their affiliates at December 31, 

2021 and 2020 were $ 57.6  million and $ 50.0  million.

Several directors and their affiliates own $ 8.1 million of RBB subordinated debentures as of December 31, 2021.

2022  and 2021  were $ 88.1  million and $ 57.6  million. 

Several directors and their affiliates own $ 8.1  million of RBB subordinated debentures as of December 31, 2022 and as of December 31, 2021.

NOTE 16  

- STOCK OPTION PLAN

Under the terms of the Company's 2017 Omnibus Stock Incentive Plan, officers and key employees may be granted both nonqualified and incentive stock options and directors and organizers, who are not also an officer or employee, may only be granted nonqualified stock options.

The Plan provides for options to purchase up to 30  percent of the outstanding common stock at a price not less than 100 percent of the fair market value of the stock on the date of the grant.

Stock options expire no later than ten years from the date of the grant and generally vest over three years.

At December 31, 2021 , 981,853  shares were available under the 2017 Omnibus Stock Incentive Plan for future grants.

RBB Bancorp  

Stock Option Plan

Under the RBB Bancorp 

2010  Stock Option Plan (the 

“2010  Plan”), the Company was permitted to grant awards to eligible persons in the form of qualified and non-qualified stock options.

The Company reserved up to 

30 % of the issued and outstanding shares of common stock as of the date the Company adopted the 

2010  Plan or 

3,494,478  shares, for issuance under the 

2010  Plan.

Following receipt of shareholder approval of the 

2017  Omnibus Stock Incentive Plan (the “OSIP”) in 

2017 ,  

no  additional grants were made under the 

2010  Plan.

2010  Plan has been terminated and options that were granted under the 

2010  Plan have become subject to the OSIP.

Awards that were granted under the 

2010  Plan will remain exercisable pursuant to the terms and conditions set forth in individual award agreements, but such awards will be assumed and administered under the OSIP.

2010  Plan award agreements allow for acceleration of exercise privileges of grants upon occurrence of a change in control of the Company.

If a participant’s job is terminated for cause, then all unvested awards expire at the date of termination.

Amended and Restated RBB Bancorp  

Omnibus Stock Incentive Plan

The Amended and Restated RBB Bancorp 

2017  Omnibus Stock Incentive Plan (the "Amended OSIP") was approved by the Company’s board of directors in 

January 2019 

and approved by the Company’s shareholders in 

 The Amended OSIP was designed to ensure continued availability of equity awards that will assist the Company in attracting and retaining competent managerial personnel and rewarding key employees, directors and other service providers for high levels of performance.

Pursuant to the Amended OSIP, the Company’s board of directors are allowed to grant awards to eligible persons in the form of qualified and non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights and other incentive awards.

The Company has reserved up to 

30 % of issued and outstanding shares of common stock as of the date the Company adopted the Amended OSIP, or 3,848,341  shares.

December 31, 2022, there were 1,043,617  shares of common stock available for issuance under the Amended OSIP.

This represents 5.5 % of the issued and outstanding shares of the Company’s common stock as of December 31, 2022. 

Awards vest, become exercisable and contain such other terms and conditions as determined by the board of directors and set forth in individual agreements with the employees receiving the awards.

The Amended OSIP enables the board of directors to set specific performance criteria that must be met before an award vests.

The Amended OSIP allows for acceleration of vesting and exercise privileges of grants if a participant’s termination of employment is due to a change in control, death or total disability.

If a participant’s job is terminated for cause, then all awards expire at the date of termination.

The Company recognized total stock-based compensation expense of $ 848,000 , $ 1.1 million, and $ 686,000 in 

2021, 2020 and 2019 .

2022, 2021  and 2020.

The recorded compensation expense for stock option was $ 300,000 , $ 485,000 , and $ 260,000 and the Company recognized income tax benefit of $ 587,000 , $ 873,000 , and $ 26,000 for the twelve months ended December 

31, 2022, 2021, and 2020, respectively.

Unrecognized stock-based compensation expense related to options was $ 635,000 , $ 476,000 , and $ 332,000  as of December 31, 2021, 2020, and 2019, respectively. Unrecognized stock-based compensation expense will be recognized over a weighted-average period of 1.4 years as of 

Unrecognized stock-based compensation expense related to options was $ 400,000 , $ 635,000 , and $ 476,000  as of December 31, 2022, 2021, and 2020, respectively. Unrecognized stock-based compensation expense will be recognized over a weighted-average period of 1.3  years as of 

December 31, 2022.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions presented below for 

2021, 2020 and 2019 .

2022, 2021  and 2020.

December 2022

Expected volatility

28.9 %  

29.5 %  

31.6 %  

30.8 %  

31.8 %  

Expected term (years)

Expected dividends

2.55 %  

2.52 %  

1.98 %  

1.86 %  

2.48 %  

Risk free rate

4.00 %  

2.71 %  

0.48 %  

0.26 %  

0.29 %  

Grant date fair value

$ 6.16  

$ 5.28  

$ 5.69  

$ 4.14  

$ 2.97  

$ 4.61  

The expected volatility was based on the historical volatility of the Company stock trading history.

4 unchanged sentences

Treasury bonds over the expected term of the options.

A summary of the status of the Company's stock option plan as of December 31, 2021 and changes during the year then ended is presented below:

(dollars in thousands, except for share amounts)

A summary of the status of the Company's stock option plan as of December 31, 2022 

and changes during the year ended is presented below:

(dollars in thousands, except for shares and per share data)

Term in years

Outstanding at beginning of year

943,918  

$ 14.66  

40,000  

( 445,308 )  

Forfeited/cancelled

( 84,000 )  

Outstanding at end of period

454,610  

$ 16.97  

$ 1,779  

Options exercisable

The Company granted restricted stock for 60,000  shares at a closing price of $ 17.74  in 2021.

There were no restricted stock awards in 2020 and 2019.

327,605  

$ 16.23  

$ 1,512  

2022 ,  there were 40,000  unvested stock options granted with a weighted-average grant date stock price of $ 21.24  and 54,495  stock options vested with a weighted average grant date stock price of $ 18.11 .

During 2022, there were a total of 96,000  stock options forfeited or exercised with weighted average grant date stock price of $ 17.73 , and among those options 66,001  shares were unvested upon forfeiture. 

The total fair value of the shares vested was $ 1.1  million, $ 1.2 million, and $ 300,000 in 2022, 2021, and 2020, respectively.

The number of unvested stock options were 127,005 , 237,500 , and 147,500  with a weighted average grant date fair value of $ 4.69 , $ 4.28 , and $ 4.43  as of December 31, 2022, 2021  and 2020, respectively.

Cash received from the exercise of 445,308  share options was $ 5.5  million for the period ended December 31, 2022. 

Cash received from the exercise of 302,744  share options was $ 3.5 million for the period ended December 31, 2021.

Cash received from the exercise of 56,498  share options was $ 712,000  for the period ended December 31, 2020.

The intrinsic value of options exercised was $ 4.0  million, $ 3.8 million, and $ 278,000  in 2022,  

2021, and 2020.

The Company did 

not  grant restricted stock in 

 The Company granted restricted stock for 

60,000  shares at a closing price of $ 17.74  in 

 These restricted stock awards are scheduled to vest over a 

three  year period from the January 21, 2021 

As of December 31, 2021, there were 

60,000  remaining unvested restricted stock awards. 

three  year period from the 

January 21, 2021 

grant date. Unvested restricted stock of 

40,000  shares were forfeited and related unrecognized stock-based compensation expense was reversed on 

April 8, 2022 ,  due to a former employee's resignation.

December 31, 2022, there were 

no  outstanding restricted stock awards. 

The recorded compensation expense for restricted stock was $ 95,000 , $ 602,000 , and $ 425,000  for the twelve  months ended December 

31, 2022, 2021, and 2020, respectively.

Unrecognized stock-based compensation expense related to restricted stock was $ 729,000 , $ 266,000 , $ 691,000 as of December 31, 2021, 2020, and 2019, respectively.

As of December 31, 2021, unrecognized stock-based compensation expense related to restricted stock are expected to be recognized over the next 2.1 years.  

Unrecognized stock-based compensation expense related to restricted stock was zero, $ 729,000 , $ 266,000 as of December 31, 2022, 2021, and 2020, respectively. 

The following table presents restricted stock activity during the twelve  months ended December 31, 2022. 

(dollars in thousands, except for share amounts)

Outstanding at beginning of year

60,000  

$ 17.74  

Forfeited/cancelled

( 40,000 )  

Outstanding at end of period

The total fair value of the shares vested was $ 1.2 million, $ 300,000 , and $ 460,000 in 2021, 2020, and 2019, respectively.

The number of unvested stock options were 237,500 , 147,500 , and 76,500  with a weighted average grant date fair value of $ 4.28 , $ 4.43 , and $ 6.32  as of December 31, 2021, 2020 and 2019.

Cash received from the exercise of 302,744  share options was $ 3.5 million for the period ended December 31, 2021. 

Cash received from the exercise of 56,498 share options was $ 712,000 for the period ended December 31, 2020.

Cash received from the exercise of 200,629  share options was $ 2.8 million for the period ended December 31, 2019.

The intrinsic value of options exercised was $ 3.8 million, $ 278,000 , and $ 1.2 million in 2021,  

2020, and 2019.

The Company granted 

39,497  restricted stock units at a closing price of $ 27.16  on 

January 19, 

2022 ,  to its directors and executive officers.

These restricted stock units are scheduled to vest over a 

one  year period for shares granted to directors and a 

three  year period for shares granted to executive officers from the grant date.

December 31, 2022, there were 

14,786  remaining unvested restricted stock units.

The recorded compensation expense for restricted stock units was $ 453,000  and zero  for the years ended 

December 31, 2022 

2021, respectively.

Unrecognized stock-based compensation expense related to restricted stock units was $ 182,000  and 

zero  as of 

December 31, 2022 

2021, respectively.

December 31, 2022, unrecognized stock-based compensation expense related to restricted stock units is expected to be recognized over the next 

1.5  years.

Unvested restricted stock units of 

17,261  shares were forfeited and related unrecognized stock-based compensation expense was reversed during 

The following table presents restricted stock unit activity during the 

twelve months ended 

December 31, 2022. 

Weighted-Average

Outstanding at beginning of year

39,497  

( 7,450 )  

Forfeited/cancelled

( 17,261 )  

Outstanding at end of period

14,786  

$ 27.16  

NOTE 17  - REGULATORY MATTERS

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institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital.

Management believes, at December 31, 2021  and December 31, 2020 , that the Bank satisfied all capital adequacy requirements to which it is subject.

As of December 31, 2021 and 2020 , the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category).

Management believes, at December 31, 2022 

and December 31, 2021, that the Bank satisfied all capital adequacy requirements to which it is subject.

In February 2019, the U.S.

federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a three year period the day- one adverse regulatory capital effects of ASU 2016 - 13.

Additionally, in March 2020, the U.S.

federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S.

economy as a result of the novel coronavirus disease 2019 ("COVID- 19" ) pandemic.

As a result, entities will have the option to gradually phase in the full effect of CECL on regulatory capital over a five -year transition period.

Effective January 1, 2022, the Company adopted ASU 2016 - 13, reflected the full effect of CECL at December 31, 2022, and did not elect the three -year or five -year CECL phase-in options on regulatory capital.

As of December 31, 2022 

and 2021, the most recent notification from the Federal Deposit Insurance Corporation ("FDIC") categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category).

To be categorized as well-capitalized, the Bank must maintain minimum ratios as set forth in the table below.

43 unchanged sentences

269,134  

( 1 ) These ratios are exclusive of the capital conservation buffer.

The following table sets forth RBB Bancorp's consolidated and the Bank's actual capital amounts and ratios and related regulatory requirements for the Bank as of December 31, 2021:

42 unchanged sentences

265,668  

( 1 ) These ratios are exclusive of the capital conservation buffer.

The California Financial Code generally acts to prohibit banks from making a cash distribution to its shareholders in excess of the lesser of the bank's undivided profits or the bank's net income for its last three fiscal years less the amount of any distribution made by the bank's shareholders during the same period.

The California general corporation law generally acts to prohibit companies from paying dividends on common stock unless its retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend.

The California general corporation law generally acts to prohibit companies from paying dividends on common stock unless retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend.

If a company fails this test, then it may still pay dividends if after giving effect to the dividend the company's assets are at least 125 % of its liabilities.

Additionally, the Federal Reserve Bank has issued guidance which requires that they be consulted before payment of a dividend if a bank holding company does not have earnings over the prior four quarters of at least equal to the dividend to be paid, plus other holding company obligations.

Additionally, the Federal Reserve has issued guidance which requires that they be consulted before payment of a dividend if a bank holding company does not have earnings over the prior four quarters of at least equal to the dividend to be paid, plus other holding company obligations.

NOTE 18  - FAIR VALUE MEASUREMENTS

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Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect an expectation of the amount to be ultimately collected and selling costs (Level 3 ).

When a Notice of Default is recorded, an appraisal report is ordered. 

Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or industry wide-statistics for residential appraisals. 

Commercial appraisals are sent to an independent third party to review. 

The Company also compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal values on any remaining other real estate owned to arrive at fair value. 

If the existing appraisal is older than twelve months a new appraisal report is ordered.

Appraisals for other real estate owned are performed by state licensed appraisers (for commercial properties) or state certified appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. When a Notice of Default is recorded, an appraisal report is ordered. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or industry wide-statistics for residential appraisals. Commercial appraisals are sent to an independent third party to review. The Company also compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal values on any remaining other real estate owned to arrive at fair value. If the existing appraisal is older than twelve months, a new appraisal report is ordered.

No significant adjustments to appraised values have been made as a result of this comparison process as of December 31, 2022.

Collateral-dependent impaired loans :  Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

Off-Balance-Sheet Financial Instruments:

The fair value of commitments to extend credit, standby letters of credit, interest rate lock commitments, forward mortgage loan sales contracts and financial guarantees written were estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties.

The fair value of guarantees and letters of credit was based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date.

Off-balance-sheet financial instruments were valued based on the assumptions that a market participant would use, a Level 3 measurement.

Interest Rate Lock Contracts and Forward Mortgage Loan Sale Contracts:

 The fair values of interest rate lock contracts and forward mortgage loan sale contracts are determined by loan lock-in rate, loan funded rate, market interest rate, fees to be collected from the borrower, fees and costs associated with the origination of the loan, expiration timing, sale price, and the value of the retained servicing. The company classified these derivatives as level 

3  due to management’s estimate of market rate, cost and expiration timing on these contracts.

Collateral-dependent individually evaluated loans : Collateral-dependent individually evaluated loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable.

There were no loans of this type as of December 31, 2022 and December 31, 2021.

Fair value was estimated in accordance with ASC Topic 825.

3 unchanged sentences

Changes in assumptions could significantly affect the estimates.

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at December 31, 2021 and 2020 :

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at December 31, 2022 

(dollars in thousands)

21 unchanged sentences

Municipal securities

Interest Rate Lock Contracts

Forward Mortgage Loan Sale Contracts

24 unchanged sentences

Municipal securities

12,514  

Interest Rate Lock Contracts

4 unchanged sentences

Other real estate owned

Quantitative information about the Company's recurring Level 3 fair value measurements as of December 31, 2021 and 2020 is as follows:

At December 31, 2020, fair value for IRLCs and FMLSCs totaled $ 259,000 . 

All IRLCs and FMLSCs at December 31, 2020, were funded and sold to Fannie Mae in the first six months of 2021 except one FMLSC with fair value less than a thousand dollars. 

Changes in fair value were $ 6,000 in 2021.

Fair value for IRLCs and FMLSCs totaled $ 265,000 at December 31, 2021.

The fair value measurement of IRLCs and FMLSCs were primarily based on the buy price from borrowers ranging from 96 to 100 , the sale price to Fannie Mae ranging from 

99 to 104 , and the significant unobservable inputs using margin cost rate from 

1.50 % to 

Quantitative information about the Company's non-recurring Level 3 fair value measurements as of December 31, 2021 and 2020 is as follows:

OREO consists of one single-family residence with a fair value of $ 293,000 as of December 31, 2021 and December 31, 2020. 

Quantitative information about the Company's OREO non-recurring Level 3 fair value measurements as of December 31, 2022 

and 2021  is as follows:

OREO consists of two single-family residences with a fair value of $ 577,000 as of December 31, 2022 

and one single-family residence with a fair value of $ 293,000 as of December 31, 2021. 

OREO was evaluated by third party appraisals with unobservable input of management adjustment in the range of 5 %- 6 % to reflect current conditions and selling costs.

No write-downs to OREO were recorded in 2021 or 2020 .

Quantitative information about the Company's recurring Level 3 fair value measurements as of December 31, 2021 and 2020 is as follows:

Interest Rate Lock Commitments ("IRLCs"): 

Agreements under which the Company agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding.

As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancelling or expiration. 

Loan commitments generally range between 30 and 90 days;

however, the borrower is not obligated to obtain the loan. 

The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. 

The Company uses best efforts commitments to substantially eliminate these risks. 

Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

No write-downs to OREO were recorded in 2022  or 2021.

Interest Rate Lock Commitments: Agreements under which the Company agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding.

however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. The Company uses best efforts commitments to substantially eliminate these risks. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

The FASB ASC provides that IRLCs on mortgage loans that will be held for resale are derivatives and must be accounted for at fair value on the balance sheet (if material).

FASB ASC Topic 820 –

Fair Value Measurements and Disclosures specifies how these derivatives are to be valued. 

Commitments to originate mortgage loans to be held for investment and other types of loans are generally not derivatives.

Consequently, the Company has elected to account for these obligations at fair value.

Forward Mortgage Loan Sale Contracts ("FMLSCs"):  The Company is subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. 

Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate the interest rate and price risk to the Company. 

To avoid interest rate risk, the Company will enter into FMLSCs at the time they make an interest rate lock commitment to the buyer.

Forward Mortgage Loan Sale Contracts: The Company is subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate the interest rate and price risk to the Company. To avoid interest rate risk, the Company will enter into FMLSCs at the time they make an interest rate lock commitment to the buyer.

They can enter into mortgage loan sales commitments on a “mandatory”

2 unchanged sentences

In general, best efforts commitments provide that the loan be delivered if and when it closes.

Mandatory delivery commitments, also known as forward loan sales commitments, are considered to be derivatives under FASB ASC Topic 815 (Derivatives and Hedging) because they meet all of the following criteria:

They have a specified underlying (the contractually specified price for the loans)

They have a notional amount (the committed loan principal amount)

They require little or no initial net investment

They require or permit net settlement as the institution via a pair-off transaction or the payment of a pair-off fee.

The fair value measurement of IRLCs and FMLSCs were primarily based on the buy price from borrowers ranging from 97  to 100 , the sale price to Fannie Mae ranging from 100  to 105 , and the significant unobservable inputs using margin cost rate of 1.50 %.

NOTE 19  - FAIR VALUE OF FINANCIAL INSTRUMENTS

35 unchanged sentences

The fair values for all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

In accordance with the prospective adoption of ASU 2016 - 01, the fair value of loans as of December 31, 2021 

was measured using an exit price notion. 

In accordance with the prospective adoption of ASU 2016 - 01, the fair value of loans as of December 31, 2022, and 2021 was measured using an exit price notion. 

Mortgage Loans Held for Sale -- 

1 unchanged sentence

Equity Securities -- 

The fair values of the Company’s equity securities are estimated using discounted cash flow analyses resulting in a Level 2  classification.

The fair values of the Company’s equity securities are measured based on unobservable inputs at the reporting date, a Level 3 measurement.

Equity securities are comprised of affordable housing investment funds and other restricted stocks.

Deposits -- 

3 unchanged sentences

FHLB Advances -- 

The carrying amounts of short-term debt with maturities of less than ninety days, such as FHLB Advances, approximate their fair values. The fair values of the Company’s long-term FHLB Advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The fair values of the Company’s FHLB Advances are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Long-Term Debt -- 

The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

The fair values of the Company’s long-term borrowings are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Subordinated Debentures -- 

The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2  classification.

The fair values of the Company’s subordinated debentures are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Servicing Rights -- 

Mortgage and SBA servicing rights are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 

2  measurement

Off-Balance Sheet Financial Instruments -- 

2 unchanged sentences

The fair value of these financial instruments is not material.

The fair value hierarchy level and estimated fair value of significant financial instruments at December 31, 2021 and 2020 are summarized as follows:

The fair value hierarchy level and estimated fair value of significant financial instruments at December 31, 2022 

and 2021  are summarized as follows:

December 31, 2022

3 unchanged sentences

Cash and due from banks

$ 501,372  

$ 137,654  

Federal funds sold and other cash equivalents

193,000  

57,000  

Interest-earning deposits in other financial institutions

Investment securities - AFS

368,260  

210,867  

Investment securities - HTM

Mortgage loans held for sale

49,963  

50,716  

2,898,438  

2,908,742  

2,677,429  

2,687,751  

Equity securities

19,992  

14,894  

Servicing assets

11,517  

19,442  

13,965  

15,617  

Notional  

Accrued interest receivable

Derivative assets:

Interest Rate Lock Contracts

$ 8,099  

$ 27,665  

Forward Mortgage Loan Sale Contracts

14,296  

55,089  

Carrying  

Financial Liabilities:

$ 3,385,532  

$ 3,388,008  

$ 2,635,128  

$ 2,632,933  

FHLB advances

150,000  

143,237  

150,000  

149,964  

Long-term debt

173,007  

175,773  

104,391  

137,930  

Subordinated debentures

14,502  

13,991  

14,283  

14,654  

Accrued interest payable

NOTE 20  - EARNINGS PER SHARE ("EPS")

The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS:

(dollars in thousands except per share amounts)

(dollars in thousands except shares and per share data)

Income  

19 unchanged sentences

( 31,995 )  

197,501  

Used in basic EPS

10 unchanged sentences

158,437  

Restricted Stock Unit

21,653  

Used in dilutive EPS

10 unchanged sentences

Diluted earnings per common share

Stock options for zero , 

301,500 and 76,500 shares of common stock were not considered in computing diluted earnings per common share for December 31, 2021, 2020  and 2019, respectively because they were anti-dilutive.

Stock options for zero , zero  and 301,500 shares of common stock were not considered in computing diluted earnings per common share for December 31, 2022, 2021  and 2020, respectively, because they were anti-dilutive.

NOTE 21  –

REVENUE FROM CONTRACTS WITH CUSTOMERS

On January 1, 2019, the Company adopted ASU 2014 - 09, Revenue from Contracts with Customers - Topic 606 and all subsequent ASUs that modified ASC 606.

The Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2019.

The new standard did not materially impact the timing or measurement of the Company’s revenue recognition as it is consistent with the Company’s existing accounting for contracts within the scope of the new standard.

There was no cumulative effect adjustment to retained earnings as a result of adopting this new standard.

The following is a summary of revenue from contracts with customers that are in-scope and not in-scope under Topic 606:

8 unchanged sentences

Other income (3)

(Loss) on sale of OREO and fixed assets

Gain on sale of OREO and fixed assets

Total in-scope non-interest income

1 unchanged sentence

11,678  

14,507  

Total non-interest income

28 unchanged sentences

The Company began investing in qualified affordable housing projects in 2016.

At December 31, 2021 and December 31, 2020 , the balance of the investment for qualified affordable housing projects was $ 6.6  million and $ 7.6 million, respectively.

At December 31, 2022 

and December 31, 2021, the balance of the investment for qualified affordable housing projects was $ 7.6  million and $ 6.6 million, respectively.

This balance is reflected in the accrued interest and other assets line on the consolidated balance sheets.

Total unfunded commitments related to the investments in qualified affordable housing projects totaled $ 826,000  and $ 1.6  million at December 31, 2021 and December 31, 2020 .

Total unfunded commitments related to the investments in qualified affordable housing projects totaled $ 2.6 million and $ 826,000  at December 31, 2022 

and December 31, 2021.

The Company expects to fulfill these commitments between 2023  and 2038.

During the years ending December 31, 2021, 2020 and 2019 , the Company recognized amortization expense of $ 1.0 million, $ 979,000 , and $ 900,000 , respectively, which was included within income tax expense on the consolidated statements of income.

During the years ended December 31, 2021, 2020 and 2019 , the Company recognized tax credits from its investment in affordable housing tax credits of $ 1.0 million, $ 891,000  and $ 1.1 million, respectively.

The Company had no impairment losses during the years ended December 31, 2021, 2020 and 2019 .

During the years ended 

December 31, 2022, 2021  and 2020, the Company recognized amortization expense of $ 1.1  million, $ 1.0 million, and $ 979,000 , respectively, which was included within income tax expense on the consolidated statements of income.

During the years ended December 31, 2022, 2021  and 2020, the Company recognized tax credits from its investment in affordable housing tax credits of $ 991,000 , $ 1.0 million and $ 891,000 , respectively.

The Company had no impairment losses during the years ended December 31, 2022, 2021  and 2020.

NOTE 23  

- PARENT ONLY CONDENSED FINANCIAL INFORMATION

The parent company only condensed statements of financial condition as of December 31, 2021 and 2020 , and the related condensed statements of income and condensed statements of cash flows for the years ended December 31, 2021, 2020 and 2019 are presented below:

Condensed Statements of Financial Condition

The parent company only condensed balance sheet as of December 31, 2022 

and 2021, and the related condensed statements of income and condensed statements of cash flows for the years ended December 31, 2022, 2021  and 2020  are presented below:

Condensed Balance Sheet

(Dollars in Thousands)

Cash and cash equivalents

$ 77,578  

$ 7,089  

Investment in Bank

570,610  

532,972  

Investment in RAM

$ 655,804  

$ 548,776  

LIABILITIES AND SHAREHOLDERS' EQUITY

Long term debt

173,007  

104,391  

Subordinated debentures

14,502  

14,283  

Other liabilities

Total liabilities

189,121  

120,288  

Shareholders' equity:

282,335  

284,261  

Additional paid-in capital

Retained earnings

181,329  

138,094  

Non-controlling interest

Accumulated other comprehensive income

( 1,656 )  

Accumulated other comprehensive loss

Total shareholders' equity

466,683  

428,488  

Total liabilities and shareholders' equity

$ 655,804  

$ 548,776  

Condensed Statements of Income

1 unchanged sentence

Dividend from subsidiaries

$ 25,000  

$ 29,000  

Interest income

Interest expense

Noninterest expense

Income (loss) before equity in undistributed income of subsidiaries

14,549  

20,031  

(Loss)/income before equity in undistributed income of subsidiaries

Equity in undistributed income of:

39,109  

14,053  

45,324  

( 3,936 )  

Income before income taxes

53,717  

30,148  

36,401  

Income tax benefit

56,906  

32,928  

39,209  

Other comprehensive income (loss)

( 2,785 )  

Other comprehensive (loss)/income

Total comprehensive income

$ 54,121  

$ 33,818  

$ 40,786  

Condensed Statements of Cash Flows

1 unchanged sentence

Cash flows from operating activities:

$ 56,906  

$ 32,928  

$ 39,209  

Net amortization of other

Provision for deferred income taxes

( 337 )  

Undistributed income of subsidiaries

( 39,168 )  

( 10,116 )  

Change in other assets and liabilities

( 742 )  

19,770  

23,071  

Net cash (used in)/provided by operating activities

Cash flows from investment activities:

1 unchanged sentence

Purchase of other equity securities, net

( 380 )  

Investment in subsidiaries

( 38,895 )  

( 380 )  

( 32,261 )  

Net cash used in investing activities

Cash flows from financing activities:

Issuance of subordinated debentures, net of issuance costs

118,111  

Redemptions of subordinated debentures

( 50,000 )  

Dividends paid

( 9,947 )  

( 6,567 )  

Common stock repurchased, net of repurchased costs

( 10,540 )  

( 7,851 )  

Stock options exercised

51,099  

( 13,706 )  

Increase (decrease) in cash and cash equivalents

70,489  

( 22,896 )  

Net cash (used in)/provided by financing activities

(Decrease)/increase in cash and cash equivalents

Cash and cash equivalents beginning of year

29,985  

45,540  

Cash and cash equivalents end of year

$ 77,578  

$ 7,089  

$ 29,985  

NOTE 24  –

SUBSEQUENT EVENTS

On January 19, 2022, the board of directors of RBB Bancorp approved an amendment and restatement of the RBB 2017 Omnibus Stock Incentive Plan.

On January 19, 2023, RBB announced a cash dividend of $ 0.16  per share for the fourth quarter of 2022.

The dividend is payable on February 10, 2023  

to common shareholders of record as of January 31, 2022 .

On January 21, 2022, RBB Bancorp announced that it had completed the acquisition of the Bank of the Orient Hawaii branch on January 14, 2022. 

On February 22, 2022, RBB Bancorp announced that President and Chief Executive Officer Alan Thian will take a leave of absence, effective immediately, pending an internal investigation being conducted by a special committee of the RBB Board of Directors.

The RBB Board of Directors has appointed David Morris, Executive Vice President and Chief Financial Officer, as Interim President and Chief Executive Officer.

Morris will continue in his role as CFO. 

NOTE 25  –

QUARTERLY INCOME STATEMENTS (Unaudited)

The following table presents the unaudited quarterly condensed income statements for the years 2021 and 2020 .

(dollars in thousands)

Interest income

$ 38,444  

$ 37,108  

$ 35,971  

$ 35,540  

$ 35,864  

$ 35,125  

$ 34,103  

$ 34,028  

Interest expense

10,435  

Net interest income

33,225  

31,576  

30,057  

29,485  

28,877  

27,251  

25,034  

23,593  

Provision for credit losses

Net interest income after provision for credit losses

32,590  

30,380  

29,429  

27,985  

25,869  

23,390  

22,025  

21,648  

Noninterest income:

Noninterest expense:

13,300  

14,420  

14,680  

15,792  

14,453  

13,978  

14,819  

16,263  

Income before income taxes

22,446  

21,484  

18,920  

18,087  

15,906  

12,139  

10,000  

Income tax expense

$ 15,706  

$ 15,364  

$ 13,380  

$ 12,456  

$ 11,147  

$ 8,520  

$ 6,513  

$ 6,748  

Net income per share

$ 0.81  

$ 0.79  

$ 0.69  

$ 0.64  

$ 0.57  

$ 0.43  

$ 0.33  

$ 0.34  

to common shareholders of record as of January 30, 2023 . 

NOTE 25  –

2 unchanged sentences

On April 

22, 2021, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000  shares of our common stock. 

As of December 31, 2021, the Company may repurchase up to 335,650  shares under the repurchase program.  As of December 31, 2021 the Company had repurchased 1,164,350  shares of stock at an average per share price of $ 18.53 .

22, 2021, March 16, 2022, and June 14, 2022, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000  shares, 500,000 shares, and 500,000 shares, respectively, of our common stock. In 2021, the Company repurchased 473,122  shares of common stock for a total of $ 10.5  million, at an average cost of $ 22.28 .

In 2022, the Company repurchased 902,526  shares of common stock for a total of $ 19.8  million, at an average cost of $ 21.96 .

As of December 31, 2022, the Company may repurchase up to 433,124  shares under the repurchase program. 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data