RBB Bancorp 10-K

Item 9A. Controls and Procedures.   Evaluation of Disclosure Controls and Procedures.   The Company’s management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective due to material weaknesses in the Company’s internal control over financial reporting described below.   Management ’ s Report on Internal Control over Financial Reporting   The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with GAAP.   The 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 Company's transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; 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 consolidated 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.   As of December 31, 2022, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company assessed the effectiveness of its internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management identified material weaknesses related to the Company’s internal control over financial reporting and, as such, concluded that the Company's internal control over financial reporting was ineffective as of December 31, 2022. 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 and corrected on a timely basis. The following material weaknesses were identified in the Company’s internal control over financial reporting:       ● The Company failed to design and maintain effective controls with respect to the review, analysis and approval of related party transactions and relied on the completeness and accuracy of director and officer questionnaires. The material weakness resulted in an adjustment to the Company’s related party transaction disclosures as of September 30, 2022 and December 31, 2022.     ● The Company failed to design and maintain effective controls over segregation of duties with respect to the review, posting and approval of journal entries and accounts payable transactions and maintain effective IT access controls around the related system. The material weakness did not result in a misstatement.     ● The Company failed to design and maintain effective controls with respect to the review of various assumptions and judgements within the CECL model including subjective assumptions within the quantitative discounted cash flow calculation and subjective judgements related to qualitative factors and maintain effective IT access controls around the related system. The material weakness did not result in a misstatement.     ● The Company’s control environment failed to demonstrate a commitment to attract, develop, and retain competent individuals in the area of internal control over financial reporting.  The material weakness did not result in a misstatement.   The Company has concluded that the existence of these material weaknesses did not result in a material misstatement of the Company’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021, as initially filed on March 11, 2022.   Crowe LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements included in this Annual Report, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting, a copy of which appears in Item 8.   Remediation Efforts   Subsequent to the period covered by the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, with respect to the material weakness set forth in the first and second bullet points above, and subsequent to the period covered by this Annual Report with respect to the material weaknesses identified in the third and fourth bullet points above, management has been actively engaged in developing remediation plans to address the material weaknesses noted above.   In order to remediate the material weakness related to related party transactions, the Company has enhanced training for those individuals responsible for reporting related party transactions. Further, the Company has and will continue to enhance controls to evaluate the completeness of reported relationships and to flag related party transactions in the Company’s books and records.   In order to remediate the material weakness related to the review, posting and approval of journal entries and accounts payable transactions, the Company has and will continue to enhance controls over the completeness of journal entry and accounts payable reviews to ensure all transactions are independently reviewed by an individual of sufficient authority. Further, the Company will enhance controls over provisioning and periodic monitoring of user access to the related system.   In order to remediate the material weakness related to the CECL model, the Company will enhance its review controls over subjective assumptions within the quantitative factors and the subjective judgments related to qualitative factors. Further, the Company will enhance controls over provisioning and periodic monitoring of user access to the related system.   In order to remediate the material weakness related to the Company’s control environment, the Company will supplement its staff by attracting, maintaining, and developing a sufficient complement of personnel with an appropriate level of knowledge, experience and training in internal control over financial reporting.   We believe the actions described above will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting. However, the new and enhanced controls have not been designed and/or operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.   Changes in Internal Control over Financial Reporting   There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act other than described above, that occurred during the fourth fiscal quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.   Item 9B. Other Information.   None.   Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.   Not applicable. 116     PART III   Item 10. Directors, Executive Officers and Corporate Governance.   The information required by this Item with respect to our directors, executive officers and certain corporate governance practices is contained in our Proxy Statement for our 2023 Annual Meeting of Shareholders (the “Proxy Statement”) to be filed with the SEC within 120 days after the end of the Company’s fiscal year ended December 31, 2022. Such information is incorporated herein by reference.   Item 11. Executive Compensation.   The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after the end of the Company’s fiscal year.   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   The information required by this Item regarding security ownership of certain beneficial owners and management is incorporated by reference to our Proxy Statement to be filed with the SEC within 120 days after the end of the Company’s fiscal year.    Securities Authorized for Issuance under Equity Compensation Plan Information     The following table provides information as of December 31, 2022 with respect to options outstanding and available under our Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan, which is our only equity compensation plan other than an employee benefit plan meeting the qualification requirements of Section 401(a) of the Internal Revenue Code:     Plan Category   Number of Securities to be Issued Upon Exercise of Outstanding Options     Weighted- Average Exercise Price of Outstanding Options     Number of Securities Remaining Available for Future Issuance   Equity compensation plans approved by security holders     454,610     $ 16.97       1,043,617   Equity compensation plans not approved by security holders     —       —       —   Total     454,610     $ 16.97       1,043,617     Item 13. Certain Relationships and Related Transactions, and Director Independence.   The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after the end of the Company’s fiscal year.   Item 14. Principal Accountant Fees and Services.   The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after the end of the Company’s fiscal year.   117     PART IV   Item 15. Exhibits, Financial Statement Schedules.     (a) Documents filed as part of this report.     (1) The following financial statements are incorporated by reference from Item 8 hereof:   Report of Independent Registered Public Accounting Firm.   Report of Independent Registered Public Accounting Firm.   Consolidated Balance Sheets as of December 31, 2022 and 2021.   Consolidated Statements of Income for the Years Ended December 31, 2022, 2021 and 2020.   Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020.   Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020.   Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020.   Notes to Consolidated Financial Statements.     (2) All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because they are not applicable or the required information is included in the consolidated financial statements or related notes thereto.     (b) The following exhibits are filed with or incorporated by reference in this Annual Report, and this list includes the Exhibit Index.   118     EXHIBIT INDEX   Exhibit Number   Description         3.1   Articles of Incorporation of RBB Bancorp (incorporated herein by reference to Exhibit 3.1 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed with the SEC on June 28,2017)         3.2   Bylaws of RBB Bancorp (incorporated herein by reference to Exhibit 3.2 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed with the SEC on June 28, 2017)         3.3   Amendment to Bylaws of RBB Bancorp (incorporated herein by reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q filed with the SEC on November 13, 2018)         4.1       Specimen Common Stock Certificate of RBB Bancorp (incorporated herein by reference to Exhibit 4.1 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed with the SEC on June 28, 2017   Instruments defining the rights of holders of the long-term debt securities of the Company and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.       4.2   Description of Registrant’s Securities  ( incorporated herein by reference to Exhibit 4.1 to our Form 10-K filed with the SEC on December 31, 2019 )       10.1   Employment Agreement dated April 12, 2017 between RBB Bancorp, Royal Business Bank and Alan Thian (incorporated herein by reference to Exhibit 10.1 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed on June 28, 2017)*       10.2   Employment Agreement dated April 12, 2017 between RBB Bancorp, Royal Business Bank and David Morris   (incorporated herein by reference to Exhibit 10.2 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed on June 28, 2017)*       10.3   Employment Agreement dated April 12, 2017 between RBB Bancorp, Royal Business Bank and Simon Pang (incorporated herein by reference to Exhibit 10.3 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed on June 28, 2017)*         10.4   Employment Agreement, dated April 12, 2017 between RBB Bancorp, Royal Business Bank and Vincent (I-Ming) Liu (incorporated herein by reference to Exhibit 10.4 to our Form 10-K/A filed with the SEC on April 4, 2022)*       10.5   Employment Agreement, dated April 12, 2017 between RBB Bancorp, Royal Business Bank and Jeffrey Yeh (incorporated herein by reference to Exhibit 10.5 to our Form 10-K/A filed with the SEC on April 4, 2022)*       10.6   First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. I-Ming (Vincent) Liu (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2021)*       10.7   First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. David R. Morris (incorporated herein by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2021)*       10.8   First Amendment of Employment Agreement dated October 22, 2021, between RBB Bancorp, Royal Business Bank and Mr. Simon Pang (incorporated herein by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2021)*       10.9   First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. Jeffrey Yeh (incorporated herein by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2021)*       10.10   RBB Bancorp 2017 Amended and Restated Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on January 21, 2022)*       10.11   Form of Stock Option Award Terms under the RBB Bancorp 2017 Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 10.7 to our Registration Statement on Form S-1 (Registration No. 333-219018) filed on June 28, 2017)*       10.12   Form of Stock Appreciation Rights Award under the RBB Bancorp 2017 Omnibus Stock Incentive Plan   (incorporated herein by reference to Exhibit 10.8 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*       10.13   Form of Deferred Stock Award Agreement under the RBB Bancorp 2017 Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 10.9 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*         10.14   Form of Restricted Stock Award Agreement under the RBB Bancorp 2017 Omnibus Stock Incentive Plan   (incorporated herein by reference to Exhibit 10.10 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*     119     10.15     Form of Performance Award Agreement under the RBB Bancorp 2017 Omnibus Stock Incentive Plan   (incorporated herein by reference to Exhibit 10.11 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*           10.16     Form of Indemnification Agreements entered into with all of the directors and executive officers of RBB Bancorp   (incorporated herein by reference to Exhibit 10.12 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*           10.17     Form of Indemnification Agreement entered into with all of the former directors and executive officers of TFC Holding Company   (incorporated herein by reference to Exhibit 10.13 to our Form S-1 Registration Statement (Registration No. 333-219018) filed on June 28, 2017)*           10.18     Form of Restricted Stock Unit Award Agreement for Employees under the RBB Bancorp 2017 Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 10.20 to our Form 10-K/A filed with the SEC on April 4, 2022)*         10.19     Form of Restricted Stock Unit Award Agreement for Directors under the RBB Bancorp 2017 Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 10.21 to our Form 10-K/A filed with the SEC on April 4, 2022)*         21.1     Subsidiaries of RBB Bancorp (Reference is made to “Item 1. Business” for the required information.)         23.1     Consent of Crowe LLP         23.2     Consent of Eide Bailly LLP         31.1     Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         31.2     Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         32.1     Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         32.2     Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         101.INS     Inline XBRL Instance Document 101.SCH     Inline XBRL Taxonomy Extension Schema Document 101.CAL     Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF     Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB     Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE     Inline XBRL Taxonomy Extension Presentation Linkbase Document 104     The cover page of RBB Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (contained in Exhibit 101)   * Indicates a management contract or compensatory plan.   Item 16. Form 10-K Summary None.   120       SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on April 7, 2023.     RBB BANCORP       By:   /s/ David R. Morris Name:   David R. Morris Title:   President and Chief Executive Officer     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.   Signature   Title   Date           /s/ David R. Morris   Director, President, and Chief Executive Officer (principal executive officer)   April 7, 2023 David R. Morris                   /s/ Alex Ko   Executive Vice President; Chief Financial Officer (principal financial and accounting officer)   April 7, 2023 Alex Ko                   /s/ James W. Kao   Director, Chairman   April 7, 2023 James W. Kao                   /s/ Wendell Chen   Director   April 7, 2023 Wendell Chen                   /s/ Christina Kao   Director   April 7, 2023 Christina Kao                   /s/ Chie-Min (Christopher) Koo   Director   April 7, 2023 Chie-Min (Christopher) Koo                   /s/ Joyce Wong Lee   Director   April 7, 2023 Joyce Wong Lee                   /s/ Christopher Lin   Director   April 7, 2023 Christopher Lin                   /s/ Paul Lin   Director   April 7, 2023 Paul Lin                   /s/ Feng (Richard) Lin   Director   April 7, 2023 Feng (Richard) Lin                   /s/ Geraldine Pannu   Director   April 7, 2023 Geraldine Pannu           121