RBB Bancorp 10-K

Item 8. Financial Statements and Supplementary Data.     CONTENTS   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( Crowe LLP Los Angeles, California PCAOB ID 173 ) 71 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( Eide Bailly LLP Laguna Hills, California PCAOB ID 286 ) 73     CONSOLIDATED FINANCIAL STATEMENTS       Consolidated Balance Sheets 74 Consolidated Statements of Income 76 Consolidated Statements of Comprehensive Income 77 Consolidated Statement of Changes in Shareholders' Equity 78 Consolidated Statements of Cash Flows 79 Notes to Consolidated Financial Statements 80   70   Report of Independent Registered Public Accounting Firm   Shareholders and the Board of Directors of RBB Bancorp 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; and   ● 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; and   ● 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   71   Report of Independent Registered Public Accounting Firm   Shareholders and the Board of Directors of RBB Bancorp 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   72   Report of Independent Registered Public Accounting Firm   Board of Directors and Shareholders of RBB Bancorp and Subsidiaries Los Angeles, California   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 As discussed in Note 2 and Note 14 to the financial statements, the Company has adopted the provisions of FASB Accounting Standards Codification Topic 842, Leases, as of January 1, 2021 using the modified retrospective approach with an adjustment at the beginning of the adoption period. Our opinion is not modified with respect to this matter.   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. 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 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 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 April 7, 2023     73       RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (In thousands, except for share data)       2022     2021   Assets                 Cash and due from banks   $ 83,548     $ 501,372   Federal funds sold and other cash equivalents     —       193,000   Cash and cash equivalents     83,548       694,372   Interest-earning deposits in other financial institutions     600       600   Securities:                 Available for sale     256,830       368,260   Held to maturity (fair value of $ 5,563 and $ 6,577 at December 31, 2022 and December 31, 2021, respectively)     5,729       6,252   Mortgage loans held for sale     —       5,957   Loans held for investment:                 Real estate     3,053,864       2,560,465   Commercial and other     283,106       375,684   Total loans     3,336,970       2,936,149   Unaccreted discount on acquired loans     ( 1,238 )     ( 1,727 ) Deferred loan fees, net     717       ( 3,072 ) Total loans, net of deferred loan fees and unaccreted discounts on acquired loans     3,336,449       2,931,350   Allowance for credit losses     ( 41,076 )     ( 32,912 ) Net loans     3,295,373       2,898,438                     Premises and equipment, net     27,009       27,199   Federal Home Loan Bank (FHLB) stock     15,000       15,000   Net deferred tax assets     16,977       4,855   Income tax receivable     —       477   Cash surrender value of bank owned life insurance (BOLI)     57,310       55,988   Goodwill     71,498       69,243   Servicing assets     9,521       11,517   Core deposit intangibles     3,718       4,075   Right-of-use assets- operating leases     25,447       22,454   Accrued interest and other assets     50,498       43,507   Total assets   $ 3,919,058     $ 4,228,194     The accompanying notes are an integral part of these consolidated financial statements.   74     RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (In thousands, except for share data)       2022     2021   Liabilities and Shareholders’ Equity                 Deposits:                 Noninterest-bearing demand   $ 798,741     $ 1,291,484   Savings, NOW and money market accounts     615,339       927,609   Time deposits $250,000 and under     837,369       587,940   Time deposits over $250,000     726,234       578,499   Total deposits     2,977,683       3,385,532                     Reserve for unfunded commitments     1,157       1,203   FHLB advances     220,000       150,000   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       173,007   Subordinated debentures     14,720       14,502   Lease liabilities - operating leases     26,523       23,282   Accrued interest and other liabilities     20,827       13,985   Total liabilities     3,434,495       3,761,511                     Commitments and contingencies - Note 13                                       Shareholders' equity:                 Preferred Stock - 100,000,000 shares authorized, no par value; none outstanding     —       —   Common Stock - 100,000,000 shares authorized, no par value; 18,965,776 shares issued and outstanding at December 31, 2022 and 19,455,544 shares issues and outstanding at December 31, 2021     276,912       282,335   Additional paid-in capital     3,361       4,603   Retained earnings     225,883       181,329   Non-controlling interest     72       72   Accumulated other comprehensive loss, net     ( 21,665 )     ( 1,656 ) Total shareholders’ equity     484,563       466,683   Total liabilities and shareholders’ equity   $ 3,919,058     $ 4,228,194     The accompanying notes are an integral part of these consolidated financial statements.   75       RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, (In thousands, except share and per share data)       2022     2021     2020   Interest and dividend income:                         Interest and fees on loans   $ 171,099     $ 141,569     $ 133,894   Interest on interest-earning deposits     1,353       552       641   Interest on investment securities     6,084       3,379       2,968   Dividend income on FHLB stock     938       869       572   Interest on federal funds sold and other     1,496       694       1,045   Total interest income     180,970       147,063       139,120   Interest expense:                         Interest on savings deposits, now and money market accounts     5,561       2,786       3,540   Interest on time deposits     13,338       9,170       21,665   Interest on subordinated debentures and long-term debt     9,645       8,999       7,677   Interest on other borrowed funds     2,872       1,765       1,483   Total interest expense     31,416       22,720       34,365   Net interest income     149,554       124,343       104,755   Provision for credit losses     4,935       3,959       11,823   Net interest income after provision for credit losses     144,619       120,384       92,932   Noninterest income:                         Service charges, fees and other     5,118       7,276       4,671   Gain on sale of loans     1,895       9,991       5,997   Loan servicing fees, net of amortization     2,209       684       2,052   Recoveries on loans acquired in business combinations     198       82       84   Unrealized loss on equity investments     —       ( 360 )     —   (Loss)/gain on derivatives     ( 247 )     5       259   Increase in cash surrender value of life insurance     1,322       1,067       767   Gain on sale of securities     —       —       210   Gain on sale of fixed assets     757       —       —         11,252       18,745       14,040   Noninterest expense:                         Salaries and employee benefits     35,488       33,568       33,312   Occupancy and equipment expenses     9,092       8,691       9,691   Data processing     5,060       4,474       4,236   Legal and professional     5,383       3,773       2,743   Office expenses     1,438       1,197       1,226   Marketing and business promotion     1,578       1,157       751   Insurance and regulatory assessments     1,850       1,561       984   Core deposit premium     1,086       1,121       1,395   Merger expenses     61       137       746   Other expenses     3,490       2,513       4,429         64,526       58,192       59,513   Income before income taxes     91,345       80,937       47,459   Income tax expense     27,018       24,031       14,531   Net income   $ 64,327     $ 56,906     $ 32,928                             Net income per share                         Basic   $ 3.37     $ 2.92     $ 1.66   Diluted     3.33       2.86       1.65                             Weighted-average common shares outstanding                         Basic     19,099,509       19,423,549       19,763,422   Diluted     19,332,639       19,834,306       19,921,859     The accompanying notes are an integral part of these consolidated financial statements   76       RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, (In thousands)                                                           2022     2021     2020   Net income   $ 64,327     $ 56,906     $ 32,928                             Other comprehensive (loss)/income:                         Unrealized (losses)/gains on securities available for sale:                         Change in unrealized (losses)/gains     ( 28,905 )     ( 3,957 )     1,474   Reclassification of gains recognized in net income     —       —       ( 210 )       ( 28,905 )     ( 3,957 )     1,264   Related income tax effect:                         Change in unrealized losses/(gains)     8,896       1,172       ( 436 ) Reclassification of gains recognized in net income     —       —       62         8,896       1,172       ( 374 )                           Total other comprehensive (loss)/income     ( 20,009 )     ( 2,785 )     890                             Total comprehensive income   $ 44,318     $ 54,121     $ 33,818     The accompanying notes are an integral part of these consolidated financial statements.   77       RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020  (In thousands, except share data)       Common Stock                             Accumulated               Shares     Amount     Additional Paid-in Capital     Retained Earnings     Non- Controlling Interest     Other Comprehensive Income (Loss)     Total   Balance at January 1, 2020     20,030,866     $ 290,395     $ 4,938     $ 112,046     $ 72     $ 239     $ 407,690   Net income     —       —       —       32,928       —       —       32,928   Stock-based compensation, net     —       —       686       —       —       —       686   Restricted stock vested     —       425       ( 425 )     —       —       —       —   Cash dividends on common stock ($ 0.33 per share)     —       —       —       ( 6,567 )     —       —       ( 6,567 ) Stock options exercised     56,498       979       ( 267 )     —       —       —       712   Repurchase of common stock     ( 521,443 )     ( 7,538 )     —       ( 313 )     —       —       ( 7,851 ) Other comprehensive income, net of taxes     —       —       —       —       —       890       890   Balance at December 31, 2020     19,565,921     $ 284,261     $ 4,932     $ 138,094     $ 72     $ 1,129     $ 428,488   Net income     —       —       —       56,906       —       —       56,906   Stock-based compensation, net     —       —       1,086       —       —       —       1,086   Restricted stock granted     60,000       —       —       —       —       —       —   Restricted stock vested     —       425       ( 425 )     —       —       —       —   Cash dividends on common stock ($ 0.51 per share)     —       —       —       ( 9,947 )     —       —       ( 9,947 ) Stock options exercised     302,745       4,465       ( 990 )     —       —       —       3,475   Repurchase of common stock     ( 473,122 )     ( 6,816 )     —       ( 3,724 )     —       —       ( 10,540 ) Other comprehensive loss, net of taxes     —       —       —       —       —       ( 2,785 )     ( 2,785 ) Balance at December 31, 2021     19,455,544     $ 282,335     $ 4,603     $ 181,329     $ 72     $ ( 1,656 )   $ 466,683   Cumulative effect of change in accounting principle related to ASC 326 (1)     —       —       —       ( 2,204 )     —       —       ( 2,204 ) Net income     —       —       —       64,327       —       —       64,327   Stock-based compensation, net     —       —       848       —       —       —       848   Restricted stock cancelled     ( 40,000 )     —       —       —       —       —       —   Restricted stock vested     —       355       ( 355 )     —       —       —       —   Restricted stock unit vested     7,450       202       ( 202 )     —       —       —       —   Cash dividends on common stock ($ 0.56 per share)     —       —       —       ( 10,736 )     —       —       ( 10,736 ) Stock options exercised     445,308       7,009       ( 1,533 )     —       —       —       5,476   Repurchase of common stock     ( 902,526 )     ( 12,989 )     —       ( 6,833 )     —       —       ( 19,822 ) Other comprehensive loss, net of taxes     —       —       —       —       —       ( 20,009 )     ( 20,009 ) Balance at December 31, 2022     18,965,776     $ 276,912     $ 3,361     $ 225,883     $ 72     $ ( 21,665 )   $ 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   78       RBB BANCORP AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 (In thousands)       2022     2021     2020   Operating activities                         Net income   $ 64,327     $ 56,906     $ 32,928   Adjustments to reconcile net income to net cash from Operating activities:                         Depreciation and amortization of premises and equipment     2,022       1,943       2,009   Net accretion of securities, loans, deposits, and other     ( 432 )     ( 191 )     ( 3,328 ) Unrealized loss on equity securities     —       360       —   Amortization of investment in affordable housing tax credits     1,053       1,037       979   Amortization of intangible assets     3,853       6,347       5,812   Change in valuation allowance on mortgage servicing rights     —       ( 417 )     417   Amortization of right-of-use asset     5,145       5,245       —   Change in operating lease liabilities     ( 4,897 )     ( 5,058 )     —   Provision for credit losses     4,935       3,959       11,823   Stock-based compensation, net     848       1,086       686   Deferred tax benefit     ( 2,249 )     ( 1,093 )     ( 2,998 ) Gain on sale of securities     —       —       ( 210 ) Gain on sale of loans     ( 1,895 )     ( 9,991 )     ( 5,997 ) Gain on sale of fixed assets     ( 757 )     —       —   Increase in cash surrender value of life insurance     ( 1,322 )     ( 1,067 )     ( 767 ) Loans originated and purchased for sale, net     ( 39,152 )     ( 161,972 )     ( 115,146 ) Proceeds from loans sold     60,170       305,337       203,799   Other items     2,163       ( 256 )     ( 5,493 ) Net cash provided by operating activities     93,812       202,175       124,514   Investing activities                         Securities available for sale:                         Purchases     ( 402,656 )     ( 603,836 )     ( 548,846 ) Maturities, prepayments and calls     485,796       442,056       454,597   Sales     —       —       11,661   Securities held to maturity:                         Maturities, prepayments and calls     500       900       1,135   Redemption of Federal Home Loan Bank stock     —       641       —   Purchase of Federal Home Loan Bank stock and other equity securities, net     ( 2,608 )     ( 5,839 )     ( 3,135 ) Net increase of investment in qualified affordable housing projects     ( 227 )     ( 763 )     ( 2,594 ) Net increase in loans     ( 411,316 )     ( 315,551 )     ( 361,252 ) Purchase of bank owned life insurance     —       ( 19,800 )     —   Net cash received in connection with acquisition     71,352       —       6,634   Proceeds from sale of fixed assets     1,053       —       —   Purchases of premises and equipment     ( 2,065 )     ( 1,989 )     ( 4,206 ) Net cash used in investing activities     ( 260,171 )     ( 504,181 )     ( 446,006 ) Financing activities                         Net (decrease)/increase in demand deposits and savings accounts     ( 886,712 )     870,803       163,674   Net increase/(decrease) in time deposits     397,329       ( 120,178 )     34,415   Advances from Federal Home Loan Bank     570,000       —       150,000   Repayment of Federal Home Loan Bank borrowings     ( 500,000 )     —       —   Cash dividends paid     ( 10,736 )     ( 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     ( 19,822 )     ( 10,540 )     ( 7,851 ) Exercise of stock options     5,476       3,475       712   Net cash (used in)/provided by financing activities     ( 444,465 )     801,724       334,383   Net (decrease)/increase in cash and cash equivalents     ( 610,824 )     499,718       12,891   Cash and cash equivalents at beginning of period     694,372       194,654       181,763   Cash and cash equivalents at end of period   $ 83,548     $ 694,372     $ 194,654   Supplemental disclosure of cash flow information                         Cash paid during the period:                         Interest paid   $ 29,734     $ 22,507     $ 36,186   Taxes paid     24,019       25,786       13,475   Non-cash investing and financing activities:                         Transfer from loans to other real estate owned     142       —       —   Loans transfer to held for sale, net     13,166       89,368       24,425   Loan to facilitate OREO     —       —       1,008   Additions to servicing assets     771       2,361       1,715   Net change in unrealized holding (loss) gain on securities available for sale     ( 28,905 )     ( 3,957 )     1,264   Recognition of operating lease right-of-use assets     ( 8,138 )     ( 27,699 )     —   Recognition of operating lease liabilities     8,138       27,699       —   Acquisition:                         Assets acquired, net of cash received     8,183       —       182,895   Liabilities assumed     81,790       —       200,209   Cash (receipts)/considerations     ( 71,040 )     —       32,885   Goodwill     2,255       —       10,680     The accompanying notes are an integral part of these consolidated financial statements   79       RBB BANCORP AND SUBSIDIARIES   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           NOTE 1 - BUSINESS DESCRIPTION   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 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; Las Vegas, Nevada; Manhattan, Brooklyn, Flushing and Elmhurst, New York; the Chinatown and Bridgeport neighborhoods of Chicago, Illinois; Edison, New Jersey; 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. 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. The Company also derives income from noninterest sources, such as fees received in connection with various lending and deposit services, loan servicing, gain on sales of loans and wealth management services. 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 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 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   Basis of Presentation   The accompanying consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10 -K and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for financial reporting.   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 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. RAM was formed in 2012 to hold and manage problem assets acquired in business combinations.   80     In connection with the 2018 acquisition of FAIC, the Company acquired a real estate investment trust (“REIT”) as a subsidiary of the Bank and is a New York State corporation. In addition to the REIT, the Company acquired four inactive subsidiaries: FAIC Insurance Services (a New York corporation formed in 2006 ), P4G8, LLC, FAIB Reacquisitions I, LLC and FAIB REO Acquisition II, LLC. FAIC Insurance Services was dissolved in January 2020; the other three were dissolved in 2019.   We acquired three  statutory business trusts: TFC Statutory Trust in 2016,  FAIC Statutory Trust in 2018 and PGB Capital Trust I in 2020. These trusts issued trust preferred securities representing undivided preferred beneficial interests in the assets of the Trusts. 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 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 (“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   Cash and cash equivalents include cash and due from banks, term federal funds sold and interest-bearing deposits in other financial institutions with original maturities of less than 90 days. Net cash flows are reported for customer loan and deposit transactions and interest-bearing deposits in other financial institutions.   Cash and Due from Banks   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, 2022  and 2021. The Company maintains amounts in due from bank accounts, which may exceed federally insured limits. The Company has not experienced any losses in such accounts.   Interest-Earning Deposits in Other Financial Institutions     Interest-bearing deposits in other financial institutions not included in cash and cash equivalents are carried at cost and generally mature in one year or less.   Investment Securities   Investment securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities not classified as held to maturity are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.   Interest income includes amortization of purchase premiums or discounts. 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.   81     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 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     Mortgage loans originated or acquired and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Loans held for sale consist primarily of first trust deed mortgages on single-family residential properties located in California and New York.   Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is determined by reducing the amount allocated to the servicing right, when applicable. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loans sold.   Loans   Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.   Premiums and discounts on loans purchased are grouped by type and certain common risk characteristics and amortized or accreted as an adjustment of yield over the weighted-average remaining contractual lives of each group of loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method.   Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due 90 days or when, in the opinion of management, there is reasonable doubt as to collectability based on contractual terms of the loan. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan's principal balance is deemed collectible. 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 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.   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   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.     82     Servicing Rights   When mortgage and SBA loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.   Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income.   Servicing fee income, which is reported on the income statement as loan servicing fees, net of amortization , is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is netted against loan servicing fee income.   Transfers of Financial Assets     Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. 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 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.    83     Premises and Equipment   Land is carried at cost. Premises, leasehold improvements and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which is thirty years for premises and ranges from three to ten years for leasehold improvements and equipment. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.   Operating Lease ROU Assets and Lease Liabilities   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. The ROU asset, at adoption of this ASU, was recorded at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. The lease terms include periods covered by options to extend or terminate the lease depending on whether the Company is reasonably certain to exercise such options.   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 credit 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. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance. Operating expenses and related income of such properties and gains and losses on their disposition are included in other operating income and expenses.   Goodwill and Other Intangible Assets   Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank acquisitions is not amortized, but tested for impairment at least annually. 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  and 2021, respectively, and is the only intangible asset with an indefinite life on the balance sheet. 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. CDI assets are amortized on an accelerated method over their estimated useful life of 8 to 10 years. 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  and 2021  was $ 3.7  million and $ 4.1  million, respectively. Accumulated amortization as of December 31, 2022  and 2021  was $ 6.7  million and $ 5.7  million, 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:   (dollars in thousands)         Year ending December 31:         2023   $ 923   2024     784   2025     672   2026     501   2027     417   Thereafter     421   Total   $ 3,718     Bank Owned Life Insurance   The Company has purchased life insurance policies on a select group of employees and directors. Bank owned life insurance (“BOLI”) is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Increases of the cash value of these policies, as well as insurance proceeds received, are recorded in the other noninterest income and are not subject to income tax for as long as they are held for the life of the covered employee and director.   84     FHLB Stock and Other Equity Securities   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. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.   The Company also owns equity investment in banker’s bank stock. The Company adopted ASU 2016 - 01 on January 1, 2019, and elected the measurement alternative for measuring equity securities without readily determinable fair values at cost less impairment, plus or minus observable price changes in orderly transactions.   As of December 31, 2022  the Company had several CRA equity investments without readily determinable fair values in the amount of $ 22.2  million, and $ 20.0  million at December 31, 2021.   Stock-Based Compensation   Stock option compensation expense is calculated based on the fair value of the award at the grant date for those options expected to vest and is recognized as an expense over the vesting period of the grant using the straight-line method. The Company uses the Black-Scholes option pricing model to estimate the value of granted options. This model takes into account the option exercise price, the expected life, the current price of the underlying stock, the expected volatility of the Company’s stock, expected dividends on the stock and a risk-free interest rate. The Company estimates the expected volatility based on the Company’s historical stock prices for the period corresponding to the expected life of the stock options. Restricted stock units are valued at the closing price of the Company’s stock on the date of the grant. Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards. This cost is recognized over the period which an employee is required to provide services in exchange for the award, generally defined as the vesting period. When the options are exercised, the Company’s policy is to issue new shares of stock. The Company’s accounting policy is to recognize forfeitures as they occur.   Income Taxes   The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Tax effects from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.   Retirement Plans     The Company established a 401 (k) plan in 2010. The Company contributed $ 594,000 , $ 532,000 , and $ 424,000 in 2022, 2021  and 2020, respectively.   Comprehensive Income   Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale.   Financial Instruments   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.   Derivatives   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; 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 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. 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. The buyer can enter into mortgage loan sales commitments on a “mandatory” or “best efforts” basis. 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. 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)   ● 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.       85     Earnings Per Share ( “ EPS ” )   Basic and diluted EPS are calculated using the  two -class method since the Company has issued share-based payment awards considered participating securities because they entitle holders the rights to dividends during the vesting term. The two -class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.   Fair Value Measurement   Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair values:   Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.   Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.   Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.   See Note 18  and Note 19  for more information and disclosures relating to the Company's fair value measurements.   Operating Segments   Management has determined that since generally all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment.     86   Recent Accounting Pronouncements   In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842 ) . 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. The new model, referred to as the current expected credit loss ("CECL") model, will apply to: ( 1 ) financial assets subject to credit losses and measured at amortized cost, and ( 2 ) certain off-balance sheet credit exposures. 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 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, 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  31, 2022. 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  2016 - 13:               Adjustments                       due to               Balance at     Adoption of     Balance at   (dollars in thousands)   December 31, 2021     ASC 326     January 1, 2022   Assets:                         Allowance for credit losses on loans   $ 32,912     $ 2,135     $ 35,047   Deferred tax assets     4,855       977       5,832   Liabilities:                         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. 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.   In January 2017, the FASB issued ASU 2017 - 04, Intangibles—Goodwill and Other (Topic 350 ) . This Update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. As a result, under this Update, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” 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.   87       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. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016 - 02, Leases (Topic 842 ) (SEC Update)”. This is an amendment to add the SEC Staff guidance on CECL) to the FASB codification. 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. The Company implemented CECL on January  1, 2022.   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”). This pronouncement is applicable to all companies with contracts or hedging relationships that reference an interest rate that is expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. 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. For held-to-maturity (“HTM”) debt securities, one -time sale and/or transfer to available-for-sale or trading may be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. Regarding the effective date and transition: ( 1 ) companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 ( e.g. January 1, 2020 for calendar year-end companies) or any date thereafter, ( 2 ) the ASU applies prospectively to contract modifications and hedging relationships, and ( 3 ) the one -time election to sell and/or transfer debt securities classified as HTM may be made at any time after March 12, 2020. 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.  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. 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. ASU  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. ASU  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 – ACQUISITIONS   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 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:         BOTO     Fair Value     Fair   (dollars in thousands)   Book Value     Adjustments     Value   Assets acquired                         Cash and cash equivalents   $ 312     $ —     $ 312   Loans, gross     7,352       38       7,390   Bank premises and equipment     12       —       12   Core deposit intangible     —       729       729   Other assets     412       ( 360 )     52   Total assets acquired   $ 8,088     $ 407     $ 8,495                             Liabilities assumed                         Deposits   $ 81,673     $ 27     $ 81,700   Escrow Payable     2       —       2   Other liabilities     460       ( 372 )     88   Total liabilities assumed     82,135       ( 345 )     81,790   Excess of assets acquired over liabilities assumed     ( 74,047 )     752       ( 73,295 )     $ 8,088     $ 407           Cash received                     71,040   Goodwill recognized                   $ 2,255       88     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 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, 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. Since the fair value of intangible assets are calculated as if they were stand-alone assets, the presumption is that a hypothetical buyer of the intangible asset would be able to take advantage of potential tax benefits resulting from the asset purchase. The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset.   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. 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.   The expiration of the agreement has been extended to September 30, 2023 and the acquisition is subject to regulatory approvals.       89       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, 2022  and 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:               Gross     Gross           (dollars in thousands)   Amortized     Unrealized     Unrealized     Fair   December 31, 2022   Cost     Gains     Losses     Value   Available for sale                                 Government agency securities   $ 5,012     $ —     $ ( 517 )   $ 4,495   SBA agency securities     2,634       —       ( 223 )     2,411   Mortgage-backed securities: residential     44,809       —       ( 6,752 )     38,057   Mortgage-backed securities: commercial     4,887       —       ( 16 )     4,871   Collateralized mortgage obligations: residential     82,759       —       ( 12,856 )     69,903   Collateralized mortgage obligations: commercial     44,591       —       ( 2,901 )     41,690   Commercial paper     49,551       2       ( 16 )     49,537   Corporate debt securities     41,176       1       ( 4,165 )     37,012   Municipal securities     12,669       —       ( 3,815 )     8,854   Total   $ 288,088     $ 3     $ ( 31,261 )   $ 256,830                                     Held to maturity                                 Municipal taxable securities   $ 1,003     $ 7     $ ( 3 )   $ 1,007   Municipal securities     4,726       —       ( 170 )     4,556   Total   $ 5,729     $ 7     $ ( 173 )   $ 5,563                 Gross     Gross           (dollars in thousands)   Amortized     Unrealized     Unrealized     Fair   December 31, 2021   Cost     Gains     Losses     Value   Available for sale                                 Government agency securities   $ 5,689     $ 4     $ ( 83 )   $ 5,610   SBA agency securities     3,351       118       —       3,469   Mortgage-backed securities: residential     45,557       31       ( 536 )     45,052   Mortgage-backed securities: commercial     9,977       —       ( 4 )     9,973   Collateralized mortgage obligations: residential     61,798       13       ( 1,595 )     60,216   Collateralized mortgage obligations: commercial     59,579       115       ( 399 )     59,295   Commercial paper     129,962       —       ( 36 )     129,926   Corporate debt securities     41,999       460       ( 254 )     42,205   Municipal securities     12,701       —       ( 187 )     12,514   Total   $ 370,613     $ 741     $ ( 3,094 )   $ 368,260                                     Held to maturity                                 Municipal taxable securities   $ 1,506     $ 77     $ —     $ 1,583   Municipal securities     4,746       248       —       4,994   Total   $ 6,252     $ 325     $ —     $ 6,577     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,  2020.  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   90     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.       Less than One Year     More than One Year to Five Years     More than Five Years to Ten Years     More than Ten Years     Total       Amortized   Amortized       Amortized       Amortized       Amortized     (dollars in thousands)   Cost     Fair Value     Cost     Fair Value     Cost     Fair Value     Cost     Fair Value     Cost     Fair Value   December 31, 2022                                                                                 Government agency securities   $ —     $ —     $ 5,012     $ 4,495     $ —     $ —     $ —     $ —     $ 5,012     $ 4,495   SBA securities     —       —       2,634       2,411       —       —       —       —       2,634       2,411   Mortgage-backed securities: residential     —       —       13,013       11,598       29,114       24,361       2,682       2,098       44,809       38,057   Mortgage-backed securities: commercial     —       —       4,887       4,871       —       —       —       —       4,887       4,871   Collateralized mortgage obligations: residential     —       —       20,687       19,646       62,072       50,257       —       —       82,759       69,903   Collateralized mortgage obligations: commercial     —       —       16,382       14,644       28,209       27,046       —       —       44,591       41,690   Commercial paper     49,551       49,537       —       —       —       —       —       —       49,551       49,537   Corporate debt securities     3,705       3,706       11,355       10,806       23,454       20,662       2,662       1,838       41,176       37,012   Municipal securities     —       —       —       —       —       —       12,669       8,854       12,669       8,854   Total available for sale   $ 53,256     $ 53,243     $ 73,970     $ 68,471     $ 142,849     $ 122,326     $ 18,013     $ 12,790     $ 288,088     $ 256,830                                                                                     Municipal taxable securities   $ 501     $ 498     $ 502     $ 509     $ —     $ —     $ —     $ —     $ 1,003     $ 1,007   Municipal securities     —       —       —       —       1,739       1,692       2,987       2,864       4,726       4,556   Total held to maturity   $ 501     $ 498     $ 502     $ 509     $ 1,739     $ 1,692     $ 2,987     $ 2,864     $ 5,729     $ 5,563   (dollars in thousands)                                                                                 December 31, 2021                                                                                 Government agency securities   $ —     $ —     $ 5,689     $ 5,610     $ —     $ —     $ —     $ —     $ 5,689     $ 5,610   SBA securities     —       —       1,551       1,582       1,800       1,887       —       —       3,351       3,469   Mortgage-backed securities: residential     —       —       30,278       30,025       15,279       15,027       —       —       45,557       45,052   Mortgage-backed securities: commercial     5,001       4,998       4,976       4,975       —       —       —       —       9,977       9,973   Collateralized mortgage obligations: residential     117       117       52,655       51,277       9,026       8,822       —       —       61,798       60,216   Collateralized mortgage obligations: commercial     —       —       25,366       25,219       34,213       34,076       —       —       59,579       59,295   Commercial paper     129,962       129,926       —       —       —       —       —       —       129,962       129,926   Corporate debt securities     7,999       8,007       8,389       8,633       22,927       22,931       2,684       2,634       41,999       42,205   Municipal securities     —       —       —       —       —       —       12,701       12,514       12,701       12,514   Total available for sale   $ 143,079     $ 143,048     $ 128,904     $ 127,321     $ 83,245     $ 82,743     $ 15,385     $ 15,148     $ 370,613     $ 368,260                                                                                     Municipal taxable securities   $ 500     $ 502     $ 1,006     $ 1,081     $ —     $ —     $ —     $ —     $ 1,506     $ 1,583   Municipal securities     —       —       —       —       1,743       1,818       3,003       3,176       4,746       4,994   Total held to maturity   $ 500     $ 502     $ 1,006     $ 1,081     $ 1,743     $ 1,818     $ 3,003     $ 3,176     $ 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     Twelve Months or More     Total   (dollars in thousands)   Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses   December 31, 2022                                                 Government agency securities   $ 354     $ ( 24 )   $ 4,141     $ ( 493 )   $ 4,495     $ ( 517 ) SBA securities     2,411       ( 223 )     —       —       2,411       ( 223 ) Mortgage-backed securities: residential     5,535       ( 362 )     32,522       ( 6,390 )     38,057       ( 6,752 ) Mortgage-backed securities: commercial     4,871       ( 16 )     —       —       4,871       ( 16 ) Collateralized mortgage obligations: residential     27,050       ( 1,842 )     39,815       ( 11,014 )     66,865       ( 12,856 ) Collateralized mortgage obligations: commercial     18,741       ( 790 )     22,949       ( 2,111 )     41,690       ( 2,901 ) Commercial paper     39,624       ( 16 )     —       —       39,624       ( 16 ) Corporate debt securities     22,977       ( 1,843 )     10,330       ( 2,322 )     33,307       ( 4,165 ) Municipal securities     —       —       8,854       ( 3,815 )     8,854       ( 3,815 ) Total available for sale   $ 121,563     $ ( 5,116 )   $ 118,611     $ ( 26,145 )   $ 240,174     $ ( 31,261 )                                                   Municipal taxable securities   $ 498     $ ( 3 )   $ —     $ —     $ 498     $ ( 3 ) Municipal securities     4,556       ( 170 )     —       —       4,556       ( 170 ) Total held to maturity   $ 5,054     $ ( 173 )   $ —     $ —     $ 5,054     $ ( 173 )         Less than Twelve Months     Twelve Months or More     Total                                                     (dollars in thousands)   Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses   December 31, 2021                                                 Government agency securities   $ 4,860     $ ( 83 )   $ —     $ —     $ 4,860     $ ( 83 ) Mortgage-backed securities: residential     44,009       ( 536 )     —       —       44,009       ( 536 ) Mortgage-backed securities: commercial     —       —       9,974       ( 4 )     9,974       ( 4 ) Collateralized mortgage obligations: residential     59,540       ( 1,595 )     —       —       59,540       ( 1,595 ) Collateralized mortgage obligations: commercial     20,311       ( 321 )     17,782       ( 78 )     38,093       ( 399 ) Commercial paper     129,926       ( 36 )     —       —       129,926       ( 36 ) Corporate debt securities     13,208       ( 254 )     —       —       13,208       ( 254 ) Municipal securities     11,447       ( 160 )     1,067       ( 27 )     12,514       ( 187 ) Total available for sale   $ 283,301     $ ( 2,985 )   $ 28,823     $ ( 109 )   $ 312,124     $ ( 3,094 )   91           NOTE 5 - LOANS   The Company's loan portfolio consists primarily of loans to borrowers within the Los Angeles, California metropolitan area, the New York City metropolitan area, Chicago, Illinois metropolitan area and Las Vegas, Nevada. 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.   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) 2022   2021   Loans: (1)             Commercial and industrial $ 201,223   $ 268,709   SBA   61,411     76,136   Construction and land development   276,876     303,144   Commercial real estate (2)   1,312,132     1,247,999   Single-family residential mortgages   1,464,108     1,004,576   Other loans   20,699     30,786   Total loans (1) $ 3,336,449   $ 2,931,350   Allowance for credit losses   ( 41,076 )   ( 32,912 ) 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)   2022     2021     2020   Allowance for credit losses:                         Beginning balance   $ 32,912     $ 29,337     $ 18,816   ASU 2016-13 transition adjustment     2,135       —       —   Adjusted beginning balance   $ 35,047     $ 29,337     $ 18,816   Additions to the allowance charged to expense     6,027       3,959       11,823   Less loans charged-off     ( 256 )     ( 627 )     ( 1,303 ) Recoveries on loans charged-off     258       243       1   Ending balance   $ 41,076     $ 32,912     $ 29,337     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   Real Estate     Commercial     Other     Unallocated     Total   Allowance for credit losses:                                         Beginning of year   $ 28,592     $ 3,793     $ 527     $ —     $ 32,912   ASU 2016-13 Transition Adjustment     1,612       ( 604 )     1,127       —       2,135   Adjusted beginning balance   $ 30,204     $ 3,189     $ 1,654     $ —     $ 35,047   Provisions     7,731       ( 974 )     ( 730 )     —       6,027   Charge-offs     —       ( 19 )     ( 237 )     —       ( 256 ) Recoveries     —       229       29       —       258   Ending allowance balance   $ 37,935     $ 2,425     $ 716     $ —     $ 41,076     92     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   Real Estate     Commercial     Other     Unallocated     Total   Allowance for loan losses:                                         Beginning of year   $ 24,677     $ 4,617     $ 43     $ —     $ 29,337   Provisions     3,982       ( 480 )     457       —       3,959   Charge-offs     ( 67 )     ( 501 )     ( 59 )     —       ( 627 ) Recoveries     —       157       86       —       243   Ending allowance balance   $ 28,592     $ 3,793     $ 527     $ —     $ 32,912   Reserves:                                         Specific   $ —     $ 30     $ —     $ —     $ 30   General     28,592       3,763       527       —       32,882   Total allowance for loan losses   $ 28,592     $ 3,793     $ 527     $ —     $ 32,912                                             Loans evaluated for impairment:                                         Individually   $ 10,340     $ 10,385     $ —     $ —     $ 20,725   Collectively     2,545,379       334,460       30,786       —       2,910,625   Total loans, net of deferred loan fees and unaccreted discount on acquired loans   $ 2,555,719     $ 344,845     $ 30,786     $ —     $ 2,931,350       December 31, 2020   Real Estate     Commercial     Other     Unallocated     Total   Allowance for loan losses:                                         Beginning of year   $ 15,118     $ 3,588     $ 9     $ 101     $ 18,816   Provisions     9,559       2,286       79       ( 101 )     11,823   Charge-offs     —       ( 1,258 )     ( 45 )     —       ( 1,303 ) Recoveries     —       1       —       —       1   Ending allowance balance   $ 24,677     $ 4,617     $ 43     $ —     $ 29,337   Reserves:                                         Specific   $ —     $ 525     $ —     $ —     $ 525   General     24,677       4,092       43       —       28,812   Total allowance for loan losses   $ 24,677     $ 4,617     $ 43     $ —     $ 29,337   Loans evaluated for impairment:                                         Individually   $ 10,514     $ 9,025     $ 15     $ —     $ 19,554   Collectively     2,304,203       378,935       4,074       —       2,687,212   Total loans, net of deferred loan fees and unaccreted discount on acquired loans   $ 2,314,717     $ 387,960     $ 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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:   Pass - Loans classified as pass include loans not meeting the risk ratings defined below.   Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.   Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.   93     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   2022     2021     2020     2019     2018     Prior     Revolving     Revolving Converted to Term During the Period     Total   Real estate:                                                                         Construction and land development                                                                         Pass   $ 125,216     $ 52,262     $ 99,016     $ 201     $ —     $ 40     $ —     $ —     $ 276,735   Special mention     —       —       —       —       —       —       —       —       —   Substandard     —       —       —       —       —       141       —       —       141   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 125,216     $ 52,262     $ 99,016     $ 201     $ —     $ 181     $ —     $ —     $ 276,876   YTD period charge-offs   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   YTD period recoveries     —       —       —       —       —       —       —       —       —   Net   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   Commercial real estate                                                                         Pass   $ 479,304     $ 293,058     $ 195,051     $ 110,442     $ 73,013     $ 117,068     $ —     $ —     $ 1,267,936   Special mention     —       —       9,280       —       —       —       —       —       9,280   Substandard     287       —       8,652       2,329       222       23,426       —       —       34,916   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 479,591     $ 293,058     $ 212,983     $ 112,771     $ 73,235     $ 140,494     $ —     $ —     $ 1,312,132   YTD period charge-offs   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   YTD period recoveries     —       —       —       —       —       —       —       —       —   Net   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   Single-family residential mortgages                                                                         Pass   $ 637,893     $ 255,529     $ 137,964     $ 96,355     $ 134,415     $ 182,893     $ 2,992     $ —     $ 1,448,041   Special mention     —       —       —       —       3,925       —       —       —       3,925   Substandard     —       —       3,954       —       7,631       452       105       —       12,142   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 637,893     $ 255,529     $ 141,918     $ 96,355     $ 145,971     $ 183,345     $ 3,097     $ —     $ 1,464,108   YTD period charge-offs   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   YTD period recoveries     —       —       —       —       —       —       —       —       —   Net   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —   Commercial:                                                                         Commercial and industrial                                                                         Pass   $ 8,038     $ 7,513     $ 4,448     $ 3,470     $ 1,016     $ 8,827     $ 129,483     $ 86     $ 162,881   Special mention     —       5,987       —       —       1,638       17,805       3,577       —       29,007   Substandard     —       —       1,600       16       —       339       7,380       —       9,335   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 8,038     $ 13,500     $ 6,048     $ 3,486     $ 2,654     $ 26,971     $ 140,440     $ 86     $ 201,223   YTD period charge-offs   $ —     $ —     $ —     $ ( 5 )   $ —     $ —     $ —     $ —     $ ( 5 ) YTD period recoveries     —       —       —       —       —       2       —       —       2   Net   $ —     $ —     $ —     $ ( 5 )   $ —     $ 2     $ —     $ —     $ ( 3 ) SBA                                                                         Pass   $ 14,922     $ 10,664     $ 6,496     $ 4,688     $ 2,579     $ 16,793     $ —     $ —     $ 56,142   Special mention     —       —       —       —       —       —       —       —       —   Substandard     —       —       —       91       1,017       4,161       —       —       5,269   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 14,922     $ 10,664     $ 6,496     $ 4,779     $ 3,596     $ 20,954     $ —     $ —     $ 61,411   YTD period charge-offs   $ —     $ —     $ —     $ —     $ —     $ ( 14 )   $ —     $ —     $ ( 14 ) YTD period recoveries     —       —       —       —       —       227       —       —       227   Net   $ —     $ —     $ —     $ —     $ —     $ 213     $ —     $ —     $ 213   Other:                                                                         Pass   $ 4,224     $ 14,684     $ 1,505     $ 90     $ 7     $ —     $ 26     $ —     $ 20,536   Special mention     —       —       —       —       —       —       —       —       —   Substandard     105       48       10       —       —       —       —       —       163   Doubtful     —       —       —       —       —       —       —       —       —   Total   $ 4,329     $ 14,732     $ 1,515     $ 90     $ 7     $ —     $ 26     $ —     $ 20,699   YTD period charge-offs   $ —     $ ( 237 )   $ —     $ —     $ —     $ —     $ —     $ —     $ ( 237 ) YTD period recoveries     —       27       2       —       —       —       —       —       29   Net   $ —     $ ( 210 )   $ 2     $ —     $ —     $ —     $ —     $ —     $ ( 208 ) Total by risk rating:                                                                         Pass   $ 1,269,597     $ 633,710     $ 444,480     $ 215,246     $ 211,030     $ 325,621     $ 132,501     $ 86     $ 3,232,271   Special mention     —       5,987       9,280       —       5,563       17,805       3,577       —       42,212   Substandard     392       48       14,216       2,436       8,870       28,519       7,485       —       61,966   Doubtful     —       —       —       —       —       —       —       —       —   Total loans   $ 1,269,989     $ 639,745     $ 467,976     $ 217,682     $ 225,463     $ 371,945     $ 143,563     $ 86     $ 3,336,449   Net recoveries (charge-offs)   $ —     $ ( 210 )   $ 2     $ ( 5 )   $ —     $ 215     $ —     $ —     $ 2     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)           Special                           December 31, 2021   Pass     Mention     Substandard     Impaired     Total   Real estate:                                         Construction and land development   $ 299,333     $ 3,662     $ —     $ 149     $ 303,144   Commercial real estate     1,184,889       2,006       55,104       6,000       1,247,999   Single-family residential mortgages     1,000,385       —       —       4,191       1,004,576   Commercial:                                         Commercial and industrial     255,439       —       9,148       4,122       268,709   SBA     62,300       1,303       6,270       6,263       76,136   Other:     30,786       —       —       —       30,786       $ 2,833,132     $ 6,971     $ 70,522     $ 20,725     $ 2,931,350     94     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)   30 - 59     60 - 89     90 Days     Total     Loans Not             Non-Accrual   December 31, 2022   Days     Days     Or More     Past Due     Past Due     Total Loans     Loans (1)   Real estate:                                                         Construction and land development   $ —     $ —     $ 141     $ 141     $ 276,735     $ 276,876     $ 141   Commercial real estate     558       240       1,191       1,989       1,310,143       1,312,132       13,189   Single-family residential mortgages     12,764       2,555       4,100       19,419       1,444,689       1,464,108       5,936   Commercial:                                                         Commercial and industrial     —       545       7       552       200,671       201,223       713   SBA     150       1,017       1,228       2,395       59,016       61,411       2,245   Other:     154       76       99       329       20,370       20,699       99       $ 13,626     $ 4,433     $ 6,766     $ 24,825     $ 3,311,624     $ 3,336,449     $ 22,323   Real estate:                                                         Single-family residential mortgages held for sale   $ —     $ —     $ —     $ —     $ —     $ —     $ —   ________________   ( 1 ) Included in total loans   (dollars in thousands)     30-59       60-89     90 Days     Total     Loans Not             Non-Accrual   December 31, 2021   Days     Days     Or More     Past Due     Past Due     Total Loans     Loans (1)   Real estate:                                                         Construction and land development   $ —     $ —     $ 149     $ 149     $ 302,995     $ 303,144     $ 149   Commercial real estate     1,914       3,002       667       5,583       1,242,416       1,247,999       4,672   Single-family residential mortgages     10,554       2,238       2,680       15,472       989,104       1,004,576       4,191   Commercial:                                                         Commercial and industrial     1,575       —       3,689       5,264       263,445       268,709       3,712   SBA     —       1,733       4,839       6,572       69,564       76,136       6,263   Other:     57       7       —       64       30,722       30,786       —       $ 14,100     $ 6,980     $ 12,024     $ 33,104     $ 2,898,246     $ 2,931,350     $ 18,987   Real estate:                                                         Single-family residential mortgages held for sale   $ —     $ —     $ —     $ —     $ 5,957     $ 5,957     $ —       ( 1 ) Included in total loans   The Company has  no  loans that are  90  days or more past due and still accruing at December  31,   2022  and  December 31, 2021.   The following table presents the loans on nonaccrual status as of December 31, 2022:   95           Nonaccrual               With No           (dollars in thousands)   Allowance           December 31, 2022   for Credit Loss     Nonaccrual   Real estate:                 Construction and land development   $ 141     $ 141   Commercial real estate     1,191       13,189   Single-family residential mortgages     5,936       5,936   Commercial:                 Commercial and industrial     713       713   SBA     2,245       2,245   Other:     51       99   Total   $ 10,277     $ 22,323       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  and 2020:       Unpaid                                   (dollars in thousands)   Principal     Recorded     Average     Interest     Related   December 31, 2021   Balance     Investment     Balance     Income     Allowance   With no related allowance recorded                                         Construction and land development   $ 173     $ 149     $ 292     $ —     $ —   Commercial and industrial     4,096       4,096       4,390       27       —   Commercial real estate     6,059       6,000       6,163       132       —   Single-family residential mortgage loans     4,365       4,191       4,486       —       —   Commercial - SBA     6,274       6,245       11,589       —       —   With related allowance recorded                                         Commercial and industrial     27       26       34       —       27   Commercial-SBA     18       18       26       —       3   Total   $ 21,012     $ 20,725     $ 26,980     $ 159     $ 30         Unpaid                                   (dollars in thousands)   Principal     Recorded     Average     Interest     Related   December 31, 2020   Balance     Investment     Balance     Income     Allowance   With no related allowance recorded                                         Construction and land development   $ 173     $ 173     $ 173     $ —     $ —          Commercial and industrial     1,710       1,662       1,819       31       —   Commercial real estate     2,633       2,627       2,724       136       —   Single-family residential mortgage loans     7,839       7,714       7,934       —       —   Commercial - SBA     6,828       6,829       9,928       —       —          Other     15       15       15       —       —   With related allowance recorded                                         Commercial and industrial     520       501       563       —       520   Commercial-SBA     33       33       40       3       5   Total   $ 19,751     $ 19,554     $ 23,196     $ 170     $ 525     No interest income was recognized on a cash basis as of December 31, 2022  and 2021. 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, 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.   96     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:       December 31,       2022     2021     2020               Pre-     Post-             Pre-     Post-             Pre-     Post-               Modification     Modification             Modification     Modification             Modification     Modification   (dollars in thousands)   Number of     Recorded     Recorded     Number of     Recorded     Recorded     Number of     Recorded     Recorded       Loans     Investment     Investment     Loans     Investment     Investment     Loans     Investment     Investment   SBA     —     $ —     $ —       1     $ 1,090     $ 1,090       —     $ —     $ —   Commercial real estate     —       —       —       2       284       284       3       1,719       1,719   Construction and land development     —       —       —       1       165       165       —       —       —   SFR     —       —       —       1       156       156       —       —       —   Total     —     $ —     $ —       5     $ 1,695     $ 1,695       3     $ 1,719     $ 1,719     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, 2022  and 2021  are as follows:         December 31,     December 31,   (dollars in thousands)   2022     2021   Loans serviced for others:                 Mortgage loans   $ 1,127,668     $ 1,308,672   SBA loans     119,893       138,173   Commercial real estate loans     3,991       4,070   Construction loans     3,677       —     Estimates of the loan servicing asset fair value are derived through a discounted cash flow analysis. Portfolio characteristics include loan delinquency rates, age of loans, note rate and geography. The assumptions embedded in the valuation are obtained from a range of metrics utilized by active buyers in the market place. The analysis accounts for recent transactions, and supply and demand within the market.   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.   97     When mortgage and SBA loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.   Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. During the twelve months ended December 31, 2021, the Company reversed an impairment write-down of $ 417,000 on mortgage servicing rights.   Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is netted against loan servicing fee income.       2022     2021     2020       Mortgage     SBA     Mortgage     SBA     Mortgage     SBA   (dollars in thousands)   Loans     Loans     Loans     Loans     Loans     Loans   Servicing assets:                                                 Beginning of period   $ 8,748     $ 2,769     $ 10,529     $ 3,436     $ 12,997     $ 4,086   Additions     532       239       1,920       441       1,422       293   Disposals     ( 794 )     ( 478 )     ( 2,129 )     ( 646 )     ( 1,513 )     ( 401 ) Amortized to expense     ( 1,132 )     ( 363 )     ( 1,989 )     ( 462 )     ( 1,960 )     ( 542 ) Impairment     —       —       417       —       ( 417 )     —   End of period   $ 7,354     $ 2,167     $ 8,748     $ 2,769     $ 10,529     $ 3,436     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   A summary of premises and equipment as of December 31 follows:   (dollars in thousands)   2022     2021   Land   $ 8,974     $ 9,066   Building and improvements     15,523       15,265   Furniture, fixtures, and equipment     8,339       7,575   Leasehold improvements     6,775       6,455         39,611       38,361   Less accumulated depreciation and amortization     ( 13,387 )     ( 11,629 ) Construction in progress     785       467       $ 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.   A  $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.   98       NOTE 8 - DEPOSITS   At December 31, 2022  the scheduled maturities of time deposits are as follows:   (dollars in thousands)   December 31, 2022   One year   $ 1,540,582   Two to three years     21,780   Over three years     1,241   Total   $ 1,563,603     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 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 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 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 notes, due April  1, 2031. 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 notes beginning April  1, 2026. The subordinated notes are considered Tier 2 capital at the Company.   At December 31, 2022  and 2021, respectively, long-term debt was as follows:       2022     2021   (dollars in thousands)   Principal     Unamortized debt issuance costs     Principal     Unamortized debt issuance costs   6.18% subordinated notes, due December 1, 2028   $ 55,000     $ 180     $ 55,000     $ 376   4.00% subordinated notes, due April 1, 2031     120,000       1,235       120,000       1,617   Total   $ 175,000     $ 1,415     $ 175,000     $ 1,993     99     The following table presents interest and amortization expense the Company incurred for the years ended December 31, 2022  and 2021:       For the Year Ended December 31,   (dollars in thousands)   2022     2021   Interest Expense:                 Interest   $ 8,199     $ 7,878   Amortization     578       525     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 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 (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. 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 Company has been paying interest on a quarterly basis. 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 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 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.   In January 2020, the Company, through the acquisition of PGBH, acquired PGB Capital Trust I (“PGBH Trust”), a Delaware statutory trust formed in December 2004. PGBH Trust issued 5,000 units of fixed to floating rate capital securities with an aggregate liquidation amount of $ 5,000,000 and 155 common securities with an aggregate liquidation amount of $ 155,000 . PGBH issued $ 5.2 million of subordinated debentures to PGBH Trust in exchange for ownership of all the common securities of PGBH Trust. There was a $ 763,000 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 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, 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.   100     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.   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 11 - BORROWING ARRANGEMENTS   The Company has established secured and unsecured lines of credit. The Company may borrow funds from time to time on a term or overnight basis from the Federal Home Loan Bank of San Francisco ("FHLB"), the Federal Reserve Bank of San Francisco ("FRB") and other financial institutions as indicated below.   Federal Funds Arrangements with Commercial Bank s. 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, 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 $ 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. At  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   The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.   Income tax expense consists of the following:   (dollars in thousands)   2022     2021     2020   Current:                         Federal   $ 18,315     $ 16,037     $ 10,927   State     10,952       9,087       6,602   Total Current     29,267       25,124       17,529                             Deferred:                         Federal     ( 1,756 )     ( 1,148 )     ( 1,577 ) State     ( 493 )     55       ( 1,421 ) Total Deferred     ( 2,249 )     ( 1,093 )     ( 2,998 ) Total income tax expense   $ 27,018     $ 24,031     $ 14,531     101     A comparison of the federal statutory income tax rates to the Company's effective income tax rates as of the years ended December  31 follows:       2022     2021     2020   (dollars in thousands)   Amount     Rate     Amount     Rate     Amount     Rate   Statutory federal tax   $ 19,182     21.0 %   $ 16,997       21.0 %   $ 9,966       21.0 % State tax, net of federal benefit     8,278     9.1 %     7,182       8.9 %     4,024       8.5 % Tax-exempt income     ( 355 )   - 0.4 %     ( 285 )     - 0.4 %     ( 192 )     - 0.4 % Stock-based compensation     ( 396 )   - 0.4 %     ( 404 )     - 0.5 %     123       0.3 % Other items, net     309     0.3 %     541       0.7 %     610       1.2 % Total income tax expense   $ 27,018       29.6 %   $ 24,031       29.7 %   $ 14,531       30.6 %     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 the years ended December 31:   (dollars in thousands)   2022     2021   Deferred tax assets:                 Pre-opening expenses   $ 29     $ 64   Allowance for loan losses     12,479       9,735   Stock-based compensation     546       781   Off balance sheet reserve     355       367   Operating loss carryforwards     154       606   Unrealized loss on AFS securities     9,614       718   Lease liability     8,149       7,106   Mark to market on held for sale mortgage loans     —       74   State tax     2,426       1,967   Other     888       797         34,640       22,215   Deferred tax liabilities:                 Depreciation     ( 1,598 )     ( 1,441 ) Deferred loan costs     ( 2,808 )     ( 2,598 ) Acquisition accounting fair value adjustments     ( 3,052 )     ( 3,348 ) Mortgage servicing rights     ( 2,259 )     ( 2,667 ) Right of use asset     ( 7,818 )     ( 6,853 ) Other     ( 128 )     ( 453 )       ( 17,663 )     ( 17,360 ) Net deferred tax assets   $ 16,977     $ 4,855     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 extended several provisions of the CARES Act. 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, 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.   102       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. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company's financial statements.   The Company's exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the financial statements.   As of December 31, 2022  and 2021, the Company had the following financial commitments whose contractual amount represents credit risk:       2022     2021       Fixed     Variable     Fixed     Variable   (dollars in thousands)   Rate     Rate     Rate     Rate   Commitments to make loans   $ 1,141     $ 128,680     $ 1,474     $ 200,814   Unused lines of credit     13,730       197,314       22,777       229,154   Commercial and similar letters of credit     1,154       867       1,214       —   Standby letters of credit     1,577       1,061       2,042       2,686   Total   $ 17,602     $ 327,922     $ 27,507     $ 432,654     Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management's credit evaluation of the customer.   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 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.   103         NOTE 14 - LEASES   On January 1, 2021, the Company adopted ASU  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 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. As part of its property lease agreements, the Company may seek to include options to extend or terminate at lease when it is reasonably certain that the Company will exercise those options. The Company's measurement of the ROU assets and operating lease liabilities does not include payments associated with the option to extend or terminate the lease. The ROU lease asset also includes any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company did  not possess any leases that have variable lease payments or residual value guarantees as of December 31, 2022.   The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate to determine the present value of its lease liabilities.   The Company leases several of its operating facilities under various non-cancellable operating leases expiring at various dates through 2037. The Company is also responsible for common area maintenance, taxes, and insurance at the various branch locations.   Future minimum rent payments on the Company’s leases were as follows at December 31, 2022:   (dollars in thousands)         As of December 31, 2022:         2023   $ 4,469   2024     3,808   2025     3,642   2026     3,736   2027     3,620   Thereafter     9,410   Total   $ 28,685   Less amount of payment representing interest     ( 2,162 ) Total present value of lease payments   $ 26,523       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 $ 5.4  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  24, 2021.  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 December  31, 2021 :       December 31,     December 31,   (dollars in thousands)   2022     2021   Operating Leases                 ROU assets   $ 25,447     $ 22,454   Lease liabilities     26,523       23,282                     Weighted-average remaining lease term (in years)     7.91       6.84   Weighted-average discount rate     2.19 %     1.01 %     NOTE 15  - RELATED PARTY TRANSACTIONS   Loans to principal officers, directors, and their affiliates were as follows:       December 31,     December 31,   (dollars in thousands)   2022     2021   Beginning balance   $ 8,441     $ 1,243   New loans and advances     —       10,292   Repayments     ( 1,572 )   $ ( 3,094 ) Ending balance   $ 6,869     $ 8,441     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,  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   RBB Bancorp   2010   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  May  2017 ,   no  additional grants were made under the  2010  Plan. The  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. The  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   2017   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  May 2022 .  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. As of  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.     104     The Company recognized total stock-based compensation expense of $ 848,000 , $ 1.1 million, and $ 686,000 in  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 $ 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  2022, 2021  and 2020.       December 2022     May 2022     July 2021     January 2021     July 2020     January 2020   Expected volatility     28.9 %     29.5 %     31.6 %     30.8 %     31.8 %     28.5 % Expected term (years)   8.0 years     6.0 years     6.0 years     6.0 years     6.0 years     6.0 years   Expected dividends     2.55 %     2.52 %     1.98 %     1.86 %     2.48 %     1.99 % Risk free rate     4.00 %     2.71 %     0.48 %     0.26 %     0.29 %     1.31 % 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. The expected term represents the estimated average period of time that the options remain outstanding. The expected term represents the estimated average period of time that the options remain outstanding. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding. The risk free rate of return reflects the grant date interest rate offered for zero coupon U.S. 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, 2022  and changes during the year ended is presented below:                       Weighted-                       Weighted-     Average                       Average     Remaining     Aggregate               Exercise     Contractual     Intrinsic   (dollars in thousands, except for shares and per share data)   Shares     Price     Term in years     Value   Outstanding at beginning of year     943,918     $ 14.66                   Granted     40,000       21.24                   Exercised     ( 445,308 )     12.30                   Forfeited/cancelled     ( 84,000 )     17.77                   Outstanding at end of period     454,610     $ 16.97       4.82     $ 1,779                                     Options exercisable     327,605     $ 16.23       3.39     $ 1,512     During  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  2022 .  The Company granted restricted stock for  60,000  shares at a closing price of $ 17.74  in  2021 .  These restricted stock awards are scheduled to vest over a  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. As of  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 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.                                  Weighted-               Average               Grant Date       Shares     Fair Value   Outstanding at beginning of year     60,000     $ 17.74   Vested     (20,000)       17.74   Forfeited/cancelled     ( 40,000 )     17.74   Outstanding at end of period     —     $ —     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. As of  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  and  2021, respectively. Unrecognized stock-based compensation expense related to restricted stock units was $ 182,000  and  zero  as of  December 31, 2022  and  2021, respectively. As of  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  2022.   The following table presents restricted stock unit activity during the  twelve months ended  December 31, 2022.                  Weighted-Average               Grant Date       Shares     Fair Value   Outstanding at beginning of year     —     $ —   Granted     39,497       27.16   Vested     ( 7,450 )     27.16   Forfeited/cancelled     ( 17,261 )     27.16   Outstanding at end of period     14,786     $ 27.16       105       NOTE 17  - REGULATORY MATTERS   Holding companies (with assets over $ 3 billion at the beginning of the year) and banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.   In July,  2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks. The new rules became effective on January 1, 2015, with certain of the requirements phased-in over a multi-year schedule. Under the rules, minimum requirements increased for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 ( "CET1" ) capital to risk-weighted assets ratio with minimums for capital adequacy and prompt corrective action purposes of 4.5 % and 6.5 %, respectively. The minimum Tier 1 capital to risk-weighted assets ratio was raised from 4.0 % to 6.0 % under the capital adequacy framework and from 6.0 % to 8.0 % to be well-capitalized under the prompt corrective action framework. In addition, the rules introduced the concept of a "conservation buffer" of 2.5 % applicable to the three capital adequacy risk-weighted asset ratios ( CET1, Tier 1, and Total). The implementation of the capital conservation buffer began on January 1, 2016 at 0.625 % and was phased in over a four -year period (increasing by that amount on each subsequent January 1, until it reached 2.5 % on January 1, 2019). If the capital adequacy minimum ratios plus the phased-in conservation buffer amount exceed actual risk-weighted capital ratios, then dividends, share buybacks, and discretionary bonuses to executives could be limited in amount.   Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” 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, 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.   106     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, 2022:                       Amount of Capital Required                                       To Be Well-Capitalized                       Minimum Required for     Under Prompt Corrective       Actual     Capital Adequacy Purposes     Provisions   (dollars in thousands)   Amount     Ratio     Amount     Ratio (1)     Amount     Ratio   As of December 31, 2022:                                                 Tier 1 Leverage Ratio                                                 Consolidated   $ 446,776       11.67 %   $ 153,116       4.0 %   $ 191,395       5.0 % Bank     569,071       14.89 %     152,900       4.0 %     191,124       5.0 % Common Equity Tier 1 Risk-Based Capital Ratio                                                 Consolidated   $ 432,056       16.03 %   $ 121,291       4.5 %   $ 175,199       6.5 % Bank     569,071       21.14 %     121,110       4.5 %     174,937       6.5 % Tier 1 Risk-Based Capital Ratio                                                 Consolidated   $ 446,776       16.58 %   $ 161,722       6.0 %   $ 215,629       8.0 % Bank     569,071       21.14 %     161,481       6.0 %     215,307       8.0 % Total Risk-Based Capital Ratio                                                 Consolidated   $ 654,159       24.27 %   $ 215,629       8.0 %   $ 269,537       10.0 % Bank     602,819       22.40 %     215,307       8.0 %     269,134       10.0 %   ( 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:                       Amount of Capital Required                                       To Be Well-Capitalized                       Minimum Required for     Under Prompt Corrective       Actual     Capital Adequacy Purposes     Provisions   (dollars in thousands)   Amount     Ratio     Amount     Ratio (1)     Amount     Ratio   As of December 31, 2021:                                                 Tier 1 Leverage Ratio                                                 Consolidated   $ 410,134       10.21 %   $ 160,642       4.0 %   $ 200,803       5.0 % Bank     499,325       12.45 %     160,418       4.0 %     200,523       5.0 % Common Equity Tier 1 Risk Based Capital Ratio                                                 Consolidated   $ 395,632       14.86 %   $ 119,841       4.5 %   $ 173,104       6.5 % Bank     499,325       18.80 %     119,550       4.5 %     172,684       6.5 % Tier 1 Risk-Based Capital Ratio                                                 Consolidated   $ 410,134       15.40 %   $ 159,788       6.0 %   $ 213,051       8.0 % Bank     499,325       18.80 %     159,401       6.0 %     212,534       8.0 % Total Risk-Based Capital Ratio                                                 Consolidated   $ 616,440       23.15 %   $ 213,051       8.0 %   $ 266,314       10.0 % Bank     532,544       20.05 %     212,534       8.0 %     265,668       10.0 %   ( 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 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 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.   107       NOTE 18  - FAIR VALUE MEASUREMENTS   The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:   Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 ) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 ).   Other Real Estate Owned : Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. 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 ).   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.   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. Fair value estimates were made at specific points in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates were subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.   108     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  and 2021:   (dollars in thousands)   Fair Value Measurements Using:           December 31, 2022   Level 1     Level 2     Level 3     Total   Assets measured at fair value:                                 On a recurring basis:                                 Securities available for sale                                 Government agency securities   $ —     $ 4,495     $ —     $ 4,495   SBA agency securities     —       2,411       —       2,411   Mortgage-backed securities     —       42,928       —       42,928   Collateralized mortgage obligations     —       111,593       —       111,593   Commercial paper     —       49,537       —       49,537   Corporate debt securities     —       37,012       —       37,012   Municipal securities     —       8,854       —       8,854   Forward Mortgage Loan Sale Contracts     —       —       18       18       $ —     $ 256,830     $ 18     $ 256,848   On a non-recurring basis:                                 Other real estate owned   $ —     $ —     $ 577     $ 577                                       December 31, 2021   Level 1     Level 2     Level 3     Total   Assets measured at fair value:                                 On a recurring basis:                                 Securities available for sale                                 Government agency securities   $ —     $ 5,610     $ —     $ 5,610   SBA agency securities     —       3,469       —       3,469   Mortgage-backed securities     —       55,025       —       55,025   Collateralized mortgage obligations     —       119,511       —       119,511   Commercial paper     —       129,926       —       129,926   Corporate debt securities     —       42,205       —       42,205   Municipal securities     —       12,514       —       12,514   Interest Rate Lock Contracts     —       —       141       141   Forward Mortgage Loan Sale Contracts     —       —       124       124       $ —     $ 368,260     $ 265     $ 368,525   On a non-recurring basis:                                 Other real estate owned   $ —     $ —     $ 293     $ 293     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 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. 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; 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: 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” or “best efforts” basis. 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.   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 %.     109       NOTE 19  - FAIR VALUE OF FINANCIAL INSTRUMENTS   The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.   Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates.   In accordance with accounting guidance, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:   Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.   Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.) or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.   Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, discounted cash flow models, and similar techniques.   Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique.   A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management maximizes the use of observable inputs and attempts to minimize the use of unobservable inputs when determining fair value measurements. Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.   The following methods and assumptions were used to estimate the fair value of significant financial instruments not previously presented:   Cash and Due From Banks --  The carrying amounts of cash and short-term instruments approximate fair values.   Time Deposits in Other Banks --  Fair values for time deposits with other banks are estimated using discounted cash flow analyses, using interest rates currently being offered with similar terms.   Loans --  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. 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, 2022, and 2021 was measured using an exit price notion.    Mortgage Loans Held for Sale --  The Company records mortgage loans held for sale at fair value based on the net premium received on recent sales of mortgage loans for identical pools of loans.   Equity Securities --  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 --  The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are, by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant   FHLB Advances --  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 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.   110     Subordinated Debentures --  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 3  measurement   Off-Balance Sheet Financial Instruments --  The fair value of commitments to extend credit and standby letters of credit, interest rate lock commitments and forward mortgage loan sales contracts is estimated using the fees currently charged to enter into similar agreements. Unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability. 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, 2022  and 2021  are summarized as follows:                                             December 31, 2022     December 31, 2021     Fair Value   Carrying     Fair     Carrying     Fair   (dollars in thousands) Hierarchy   Value     Value     Value     Value   Financial Assets:                                   Cash and due from banks Level 1   $ 83,548     $ 83,548     $ 501,372     $ 501,372   Federal funds sold and other cash equivalents Level 1     —       —       193,000       193,000   Interest-earning deposits in other financial institutions Level 1     600       600       600       600   Investment securities - AFS Level 2     256,830       256,830       368,260       368,260   Investment securities - HTM Level 2     5,729       5,563       6,252       6,577   Mortgage loans held for sale Level 1     —       —       5,957       6,055   Loans, net Level 3     3,295,373       3,251,464       2,898,438       2,908,742   Equity securities Level 3     22,238       22,238       19,992       19,992   Servicing assets Level 3     9,521       21,712       11,517       19,442   Accrued interest receivable Level 1/2/3     14,536       14,536       11,278       11,278                                               Notional       Fair       Notional       Fair   Derivative assets:       Value       Value       Value       Value   Interest Rate Lock Contracts Level 3   $ —     $ —     $ 8,099     $ 141   Forward Mortgage Loan Sale Contracts Level 3     1,179       18       14,296       124                                               Carrying       Fair       Carrying       Fair   Financial Liabilities:       Value       Value       Value       Value   Deposits Level 2   $ 2,977,683     $ 2,960,529     $ 3,385,532     $ 3,388,008   FHLB advances Level 3     220,000       210,470       150,000       143,237   Long-term debt Level 3     173,585       132,709       173,007       175,773   Subordinated debentures Level 3     14,720       14,195       14,502       13,991   Accrued interest payable Level 2/3     3,711       3,711       1,863       1,863       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:       2022     2021     2020   (dollars in thousands except shares and per share data)     Income       Shares       Income       Shares       Income       Shares   Net income as reported   $ 64,327             $ 56,906             $ 32,928           Less: Earnings allocated to participating securities     ( 34 )             ( 192 )             ( 37 )         Shares outstanding             18,965,776               19,455,544               19,565,921   Impact of weighting shares             133,733               ( 31,995 )             197,501   Used in basic EPS     64,293       19,099,509       56,715       19,423,549       32,891       19,763,422   Dilutive effect of outstanding                                                 Stock options             211,477               410,757               158,437   Restricted Stock Unit             21,653               —               —   Used in dilutive EPS   $ 64,293       19,332,639     $ 56,715       19,834,306     $ 32,891       19,921,859                                                     Basic earnings per common share   $ 3.37             $ 2.92             $ 1.66           Diluted earnings per common share     3.33               2.86               1.65             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.   111         NOTE 21  – REVENUE FROM CONTRACTS WITH CUSTOMERS   The following is a summary of revenue from contracts with customers that are in-scope and not in-scope under Topic 606:       For the Year Ended December 31,   (dollars in thousands)   2022     2021     2020   Non-interest income, in scope (1)                         Fees and service charges on deposit accounts   $ 2,051     $ 2,367     $ 1,636   Other fees (2)     677       2,543       832   Other income (3)     2,094       2,157       2,013   Gain on sale of OREO and fixed assets     757       —       —   Total in-scope non-interest income     5,579       7,067       4,481   Non-interest income, not in scope (4)     5,673       11,678       9,559   Total non-interest income   $ 11,252     $ 18,745     $ 14,040     ( 1 ) There were no adjustments to the Company's financial statements recorded as a result of the adoption of ASC 606. ( 2 ) Other fees consists of wealth management fees, miscellaneous loan fees and postage/courier fees. ( 3 ) Other income consists of safe deposit box rental income, wire transfer fees, security brokerage fees, annuity sales, insurance activity, and OREO income. ( 4 ) The amounts primarily represent revenue from contracts with customers that are out of scope of ASC 606: Net loan servicing income, letter of credit commissions, import/export commissions, recoveries on purchased loans, BOLI income, and gains (losses) on sales of mortgage loans, loans and investment securities.   The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below:   Fees and Services Charges on Deposit Accounts   Fees and service charges on deposit accounts include charges for analysis, overdraft, cashier's check fees, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services, and can be terminated at will by either party; this includes fees from money service businesses (MSBs). Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met. Periodic service charges are generally collected monthly directly from the customer’s deposit account, and at the end of a statement cycle, while transaction based service charges are typically collected at the time of or soon after the service is performed. The adoption of ASU 2014 - 09 had no impact to the recognition of fees and service charges on deposit accounts.   Wealth Management Fees   The Company employs financial consultants to provide investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The commission fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter-end based on actual transaction details received from the broker dealer the Company engages.   In the Company’s wealth management division, revenue is primarily generated from ( 1 ) securities brokerage accounts, ( 2 ) investment advisor accounts, ( 3 ) full service brokerage implementation fees, and ( 4 ) life insurance and annuity products.   112     Gain (loss) on Sales of Other Real Estate Owned and Fixed Assets   The Company records a gain or loss from the sale of OREO and fixed assets, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement. When the Company finances the sale of OREO to a buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain or loss on sale if a significant financing component is present.       NOTE 22  – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS   The Company began investing in qualified affordable housing projects in 2016. 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 $ 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 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 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)   2022     2021   ASSETS                 Cash and cash equivalents   $ 43,718     $ 77,578   Investment in Bank     621,580       570,610   Investment in RAM     3,049       2,992   Other assets     6,161       4,624   Total assets   $ 674,508     $ 655,804                     LIABILITIES AND SHAREHOLDERS' EQUITY                 Long term debt     173,585       173,007   Subordinated debentures     14,720       14,502   Other liabilities     1,640       1,612   Total liabilities     189,945       189,121   Shareholders' equity:                 Common stock     276,912       282,335   Additional paid-in capital     3,361       4,603   Retained earnings     225,883       181,329   Non-controlling interest     72       72   Accumulated other comprehensive loss     ( 21,665 )     ( 1,656 ) Total shareholders' equity     484,563       466,683   Total liabilities and shareholders' equity   $ 674,508     $ 655,804     113     Condensed Statements of Income   (Dollars in Thousands)   2022     2021     2020   Dividend from subsidiaries   $ —     $ 25,000     $ 29,000   Interest income     52       —       —   Interest expense     9,645       8,999       7,677   Noninterest expense     2,056       1,452       1,292   (Loss)/income before equity in undistributed income of subsidiaries     ( 11,649 )     14,549       20,031   Equity in undistributed income of:                         Bank     72,340       39,109       14,053   RAM     57       59       ( 3,936 ) Income before income taxes     60,748       53,717       30,148   Income tax benefit     3,579       3,189       2,780   Net income     64,327       56,906       32,928   Other comprehensive (loss)/income     ( 20,009 )     ( 2,785 )     890   Total comprehensive income   $ 44,318     $ 54,121     $ 33,818     Condensed Statements of Cash Flows     (Dollars in Thousands)   2022     2021     2020   Cash flows from operating activities:                         Net income   $ 64,327     $ 56,906     $ 32,928   Net amortization of other     796       724       560   Provision for deferred income taxes     ( 57 )     ( 337 )     441   Undistributed income of subsidiaries     ( 72,397 )     ( 39,168 )     ( 10,116 ) Change in other assets and liabilities     216       1,645       ( 742 ) Net cash (used in)/provided by operating activities     ( 7,115 )     19,770       23,071   Cash flows from investment activities:                         Net cash acquired in connection with acquisition     —       —       6,634   Purchase of other equity securities, net     ( 1,663 )     ( 380 )     —   Investment in subsidiaries     —       —       ( 38,895 ) Net cash used in investing activities     ( 1,663 )     ( 380 )     ( 32,261 ) Cash flows from financing activities:                         Issuance of subordinated debentures, net of issuance costs     —       118,111       —   Redemptions of subordinated debentures     —       ( 50,000 )     —   Dividends paid     ( 10,736 )     ( 9,947 )     ( 6,567 ) Common stock repurchased, net of repurchased costs     ( 19,822 )     ( 10,540 )     ( 7,851 ) Stock options exercised     5,476       3,475       712   Net cash (used in)/provided by financing activities     ( 25,082 )     51,099       ( 13,706 )                           (Decrease)/increase in cash and cash equivalents     ( 33,860 )     70,489       ( 22,896 ) Cash and cash equivalents beginning of year     77,578       7,089       29,985   Cash and cash equivalents end of year   $ 43,718     $ 77,578     $ 7,089       NOTE 24  – SUBSEQUENT EVENTS   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 30, 2023 .        114         NOTE 25  – REPURCHASE OF COMMON STOCK   On June 24, 2019, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 1.0 million shares of our common stock. On April  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.    115     Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.   None.