RBB Bancorp

RBB BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–** (UNAUDITED)**

NOTE1 - BUSINESS DESCRIPTION

RBB Bancorp (“RBB”) is a bank holding company registered under the Bank Holding Company Act of1956, 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”). RAM was formed to hold and manage problem assets acquired in business combinations. When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank and RAM, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis.

At* March 31, 2024,*we had total assets of $3.9 billion, total loans of $3.0 billion, total deposits of $3.0 billion and total shareholders' equity of $514.0 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB”.

The Bank provides business-banking products and services predominantly to the Asian-American communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii). The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”)7A and504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, and mobile banking.

We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution where51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A minority depository institution is eligible to receive from the FDIC and other federal regulatory agencies training, technical assistance and review, and assistance regarding the implementation of proposed new deposit taking and lending programs, as well as with respect to the adoption of applicable policies and procedures governing such programs. We intend to maintain our minority depository institution designation, as it is expected that at least51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The minority depository institution designation has been historically beneficial to us, as the FDIC has reviewed and assisted with the implementation of our deposit and lending programs, and we continue to use the program for technical assistance.

We operate 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. Our primary source of revenue is providing loans to customers, who are predominantly small and middle-market businesses and individuals.

We generate our revenue primarily from interest received on loans and, to a lesser extent, from interest received on investment securities. We also derive 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. Our principal expenses include interest expense on deposits and borrowings, and operating expenses, such as salaries and employee benefits, occupancy and equipment, data processing, and income tax expense.

We completedsix whole bank acquisitions andone branch acquisition from* July 2011through January 2022.*All of our 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.

NOTE2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited 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 Form10-Q 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 interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for thethree months ended* March 31, 2024arenot* necessarily indicative of the results for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended* December 31, 2023,included in our Annual Report on Form10*-K for the fiscal year ended* December 31, 2023 (our“2023* Annual Report”).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with 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. The allowance for credit losses, realization of deferred tax assets, the valuation of goodwill and other intangible assets, other derivatives, and the fair value measurement of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements were compiled in accordance with the accounting policies set forth in*"Note2 – Basis of Presentation and Summary of Significant Accounting Policies"* in our consolidated financial statements as of and for the year ended* December 31, 2023,included in our2023* Annual Report. The Financial Accounting Standards Board ("FASB") issues Accounting Standards Updates ("ASU" or “Update”) and Accounting Standards Codifications (“ASC”), which are the primary source of GAAP.

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Recent Accounting Pronouncements

Recently adopted

In* June 2022,the FASB issued ASU2022*-03, Fair Value Measurement (Topic820)—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 isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. ASU2022-03 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. We adopted ASU2022-03 on* January 1, 2024and the adoption didnot* have a material impact on our consolidated financial statements.

In* March 2023,the FASB issued ASU2023*-02, Investments - Equity Method and Joint Ventures (Topic323). This Update permits reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met. It requires that a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. The reporting entity needs to disclose the nature of its tax equity investments and the effect of its tax equity investments on its financial position and results of operations. ASU2023-02 is effective for us in fiscal years beginning after* December 15, 2023,including interim periods within those fiscal years. We adopted ASU2023*-02 on* January 1, 2024and the adoption didnot* have a material impact on our consolidated financial statements.

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Recently issuednot* yet effective*

In* October 2023,the FASB issued ASU2023*-06, Disclosure Improvements. This pronouncement amends the FASB Accounting Standards Codification to reflect updates and simplifications to certain disclosure requirements referred to the FASB by the SEC in2018, including disclosures for the statement of cash flows, earnings per share, commitments, debt and equity instruments, and certain industry information, among other things. Each amendment is effective when the related disclosure is effectively removed from Regulations S-X or S-K; early adoption is prohibited. All amendments should be applied prospectively. If the SEC hasnot removed the applicable requirement from Regulation S-X or Regulation S-K by* June 30, 2027,the pending amendments will be removed and willnot* become effective for any entity.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740) - Improvements to Income Tax Disclosures. This Update enhances the transparency and decision usefulness of income tax disclosures. The amendments in this Update require the following:1) consistent categories and greater disaggregation of information in the rate reconciliation, and2) income taxes paid disaggregated by jurisdiction. The amendments in the ASU are effective for annual periods beginning after* December 15, 2024.Early adoption is permitted for annual financial statements that havenot* yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted. Adoption of ASU2023-09 isnot expected to have a material impact on our consolidated financial statements.

NOTE3 - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of investment securities available for sale (“AFS”) and held to maturity (“HTM”) and the corresponding amounts of gross unrealized gains and losses as of the dates indicated:

We pledged investment securities with a fair value of $33.1 million and $95.3 million for certificates of deposit from the State of California, secured Federal funds arrangements, and other local agency deposits at* March 31, 2024and December 31, 2023.*

There wereno sales of investment securities during thethree months ended* March 31, 2024,** December 31, 2023,and March 31, 2023.*

Accrued interest receivable for investment securities at* March**31,* 2024 and* December 31, 2023*totaled $1.1 million and $962,000.

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The table below summarizes amortized cost and fair value of the investment securities portfolio, by expected maturity, as of the dates indicated. Mortgage-backed securities are classified in accordance with their estimated average life. Expected maturities* may*differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show the fair value and gross unrealized losses of our investment securities, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position, as of the dates indicated:

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The securities that were in an unrealized loss position at* March 31, 2024and December 31, 2023,were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. At March 31, 2024and December 31, 2023,there wasno* allowance for credit losses (“ACL”) on the HTM securities portfolio.

We concluded that the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers havenot, to our knowledge, established any cause for default on these securities. We expect to recover the amortized cost basis of our securities and haveno present intent to sell and willnot be required to sell securities that have declined below their cost before their anticipated recovery. Accordingly,no ACL was recorded as of* March 31, 2024and December 31, 2023,against AFS securities, and there wasno provision for credit losses recognized for thethree* months ended* March 31, 2024and2023.*

Equity Securities - We have several Community Reinvestment Act (“CRA”) equity investments. We recordedno gain nor loss for thethree months ended* March 31, 2024and March 31, 2023.Other equity securities (included in “Accrued interest and other assets” in the consolidated balance sheets) were $22.3 million as of March 31, 2024and December 31, 2023.*

NOTE4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Our loan portfolio consists primarily of loans to borrowers within the Southern California metropolitan area, the New York City metropolitan area, Chicago (Illinois), Las Vegas (Nevada), Edison (New Jersey) and Honolulu (Hawaii). Although we seek 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 our market area and, as a result, our loan and collateral portfolios are, to some degree, concentrated in those industries.

The following table presents the balances in our loan held for investment ("HFI") portfolio as of the dates indicated:

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We use both internal and external qualitative factors within the Current Expected Credit Losses (“CECL”) model: lending policies, procedures, and strategies; economic conditions; changes in nature and volume of the portfolio; credit staffing and administration experience; problem loan trends; loan review results; collateral values; concentrations; and regulatory and business environment. During thefirst quarter of2024, we recorded a decrease of $215,000 to the allowance for loan losses (“ALL”) and an increase of $31,000 to the reserve for unfunded commitments (“RUC”) compared to an increase of $2.0 million to the ALL and a decrease of $138,000 to the RUC during thefirst quarter of2023.

The following table presents a summary of the changes in the ACL for the periods indicated:

The following tables present the balance and activity related to the ALL for loans HFI by loan portfolio segment for the periods presented.

We categorize 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. We analyze 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. We use the following definitions for risk ratings:

Pass - Loans classified as pass include loansnot 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 arenot corrected.

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.

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The following tables summarize our loans HFI by loan portfolio segment, risk rating and vintage year as of the dates indicated. The vintage year is the year of origination, renewal or major modification.

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The following tables present the aging of the recorded investment in past due loans, by loan portfolio segment, as of the dates indicated.

We haveno loans that are90 days or more past due and still accruing at* March 31, 2024and December 31, 2023.*

The following table presents the loans on nonaccrual status and the volume of such loans withno ALL, by loan portfolio segment, as of the dates indicated:

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The following tables present the class of collateral, by loan portfolio segment, for individually evaluated, collateral dependent loans as of the dates indicated:

No interest income was recognized on a cash basis during thethree months ended* March31,* 2024, and2023. We didnot recognize any interest income on nonaccrual loans during thethree months ended* March31,* 2024, and* March**31,* 2023, while the loans were in nonaccrual status.

Occasionally, we modify loans to borrowers in financial distress by providing principal forgiveness, term extension, or interest rate reduction. We* mayprovide multiple types of concessions onone* loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for loan losses.

There wereno loans that were both experiencing financial difficulty and modified during thethree months ended* March**31,* 2024 and2023.

There wereno commitments to lend additional amounts at* March 31, 2024and December 31, 2023to customers with outstanding modified loans. There wereno nonaccrual loans that were modified during the pasttwelve* months that had payment defaults during the periods.

NOTE5 - LOAN SERVICING

The loans being serviced for others arenot reported as assets in our consolidated balance sheet. The table below presents the principal balances of the loans serviced for others, by loan portfolio segment, as of the dates indicated:

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 net against loan servicing fee income. Loan servicing fees, net of amortization, totaled $589,000, $616,000, and $731,000 for thethree months ended* March 31, 2024,** December 31, 2023,and March 31, 2023.*

When 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 we later determine that all or a portion of the impairmentno longer exists for a particular grouping, a reduction of the allowance* may*be recorded as an increase to income.

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The table below presents the activity in the servicing assets for the periods indicated:

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

The estimated fair value of servicing assets for mortgage loans was $12.1 million and $12.1 million as of* March 31, 2024and December 31, 2023.Fair value at March**31,* 2024 was determined using a discount rate of 11.22%, average prepayment speed of 7.85%, depending on the stratification of the specific right, and a weighted-average default rate of 0.09%. Fair value at* December 31, 2023*was determined using a discount rate of 11.23%, average prepayment speed of 7.91%, 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 $2.7 million and $2.8 million as of* March**31,* 2024 and* December 31, 2023.Fair value at March 31, 2024was determined using a discount rate of 8.5%, average prepayment speed of 18.31%, depending on the stratification of the specific right, and a weighted-average default rate of 0.79%. Fair value at December 31, 2023*was determined using a discount rate of 8.5%, average prepayment speed of 17.68%, depending on the stratification of the specific right, and a weighted-average default rate of 0.73%.

NOTE6 - GOODWILL AND INTANGIBLES

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling 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 and branch acquisitions is tested for impairment at least annually during thefourth quarter of each year, and more frequently, if events or circumstances indicate the value of goodwill* maybe impaired. We completed our most recent evaluation of goodwill as of December 31, 2023and determined thatno* goodwill impairment existed. Goodwill amounted to $71.5 million at both* March 31, 2024and December 31, 2023,and is the only intangible asset with an indefinite life on our balance sheet. There wereno* triggering events during thefirst quarter of2024 that caused management to evaluate goodwill for a quantitative impairment analysis as of* March 31, 2024**.* We didnot record any adjustments to goodwill during thethree months ended* March31,* 2024 and* March31,* 2023.

Other intangible assets consist of core deposit intangible ("CDI") assets arising from whole bank and branch acquisitions. CDI assets are amortized on an accelerated method over their estimated useful life of 8 to 10 years. The unamortized balance at* March 31, 2024and December**31,* 2023 was $2.6 million and $2.8 million. CDI amortization expense was $201,000 and $237,000 for thethree months ended* March 31, 2024and2023.*

Estimated CDI amortization expense for future years is as follows:

NOTE7 - DEPOSITS

At* March 31, 2024,*the scheduled maturities of time deposits are as follows:

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Time deposits include deposits acquired through both retail and wholesale channels. Wholesale channels include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services. Such wholesale deposits totaled $197.6 million at* March 31, 2024and $405.6 million at December 31, 2023.Brokered time deposits were $153.0 million at March31,* 2024 and $254.9 million at* December 31, 2023.Collateralized deposits from the State of California totaled $10.0 million at March31,* 2024 and $80.0 million at* December 31, 2023.Time deposits acquired through internet listing services totaled $34.6 million at March**31,* 2024 and $61.4 million at* December 31, 2023.*

In addition, we offer retail deposit products where customers are able to achieve FDIC insurance for balances on deposit in excess of the*$250,000* FDIC limit through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs. Time deposits held through the CDARS program were $149.5 million at* March**31,* 2024 and $135.7 million at* December 31, 2023.ICS deposits totaled $122.2 million at March 31, 2024and $109.2 million at December 31, 2023.*

NOTE8 - LONG-TERM DEBT

In* November 2018,we issued $55.0 million of 6.18% fixed-to-floating rate subordinated notes, with a December 1, 2028maturity date (the“2028* Subordinated Notes”). The interest rate was fixed through* December 1, 2023and was scheduled to float atthree*-month CME Term SOFR plus applicable tenor spread adjustment of26 basis points plus 315 basis points thereafter. On* December 1, 2023,we redeemed the2028* Subordinated Notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest.

In* March2021,* we issued $120.0 million of 4.00% fixed-to-floating rate subordinated notes, with an* April1,* 2031 maturity date (the*“2031* Subordinated Notes”). The interest rate is fixed through* April1,* 2026 and is scheduled to float atthree-month SOFR plus 329 basis points thereafter. We can redeem the2031 Subordinated Notes beginning* April1,* 2026. The2031 Subordinated Notes are considered Tier2 capital at the Company.

We were in compliance with all covenants under the long-term debt as of* March* 31, 2024. We paid interest expense of $1.2 million and $2.1 million forthree months ended* March 31, 2024and2023* on the subordinated notes. The aggregate amount of amortization expense was $95,000 and $145,000 forthree months ended* March 31, 2024and2023.*

The table below presents the long-term debt and unamortized debt issuance costs as of the dates indicated:

NOTE9 - SUBORDINATED DEBENTURES

Subordinated debentures consist of subordinated debentures issued in connection withthree separate trust preferred securities and totaled $15.0 million and $14.9 million as of* March 31, 2024and December 31, 2023.Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we arenot* permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt. In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a periodnot to exceedfive consecutive years. The subordinated debentures* maybe included in Tier1* capital (with certain limitations applicable) under current regulatory guidelines and interpretations. We* mayredeem the subordinated debentures, subject to prior approval by the Board of Governors of the Federal Reserve System at100%* of the principal amount, plus accrued and unpaid interest. These subordinated debentures consist of the following and are described in detail after the table below:

(a) Represents applicable tenor spread adjustment when the original LIBOR index was discontinued on* June 30, 2023.*

In2016, we, through the acquisition of Tomato Bank and its holding company, TFC Holding Company (“TFC”), acquired TFC Statutory Trust (the “TFC Trust”). TFC Trust issued 5,000 fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million to an independent investor, and all of its common securities, with an aggregate liquidation amount of $155,000. TFC issued $5 million of subordinated debentures to TFC Trust in exchange for ownership of all of the common securities of TFC Trust and the proceeds of the preferred securities sold by TFC Trust. We arenot considered the primary beneficiary of TFC trust (variable interest entity), therefore TFC Trust isnot consolidated in our financial statements, but rather the subordinated debentures are shown as a liability. We also purchased an investment in the common stock of TFC Trust for $155,000, which is included in other assets. At the close of this acquisition, a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $1.2 million at* March31,* 2024 and $1.2 million at* December 31, 2023.The subordinated debentures have a variable rate of interest equal tothree*-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 7.24% as of* March31,* 2024 and 7.30% at* December 31, 2023.*

In* October 2018,we, through the acquisition of First American International Corp. (“FAIC”), acquired First American International Statutory Trust I (“FAIC Trust”). FAIC Trust issued 7,000 units ofthirty-year fixed-to-floating rate capital securities with an aggregate liquidation amount of$7.0* million to an independent investor, and all of its common securities, with an aggregate liquidation amount of $217,000. We arenot considered the primary beneficiary of FAIC Trust (variable interest entity), therefore FAIC Trust isnot consolidated in our financial statements, but rather the subordinated debentures are shown as a liability. We purchased an investment in the common stock of FAIC Trust for $217,000, which is included in other assets. At the close of this acquisition, a $1.2 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $822,000 at* March31,* 2024 and $842,000 at* December 31, 2023.The subordinated debentures have a variable rate of interest equal tothree*-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, which was 7.84% as of* March31,* 2024 and 7.90% at* December 31, 2023.*

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In* January 2020,we, through the acquisition of PGB Holdings, Inc., acquired Pacific Global Bank Trust I (“PGBH Trust”). PGBH Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5 million to an independent investor, and all of its common securities, with an aggregate liquidation amount of $155,000. We arenot* considered the primary beneficiary of PGBH Trust (variable interest entity), therefore PGBH Trust isnot consolidated in our financial statements, but rather the subordinated debentures are shown as a liability. We purchased an investment in the common stock of PGBH Trust for $155,000, which is included in other assets. At the close of this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $546,000 at* March31,* 2024 and $559,000 at* December 31, 2023.The subordinated debentures have a variable rate of interest equal tothree*-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10%, which was 7.69% as of* March31,* 2024 and 7.75% at* December 31, 2023.*

We paid interest expense of $329,000 and $290,000 forthree months ended* March 31, 2024and2023* on the subordinated debentures. The aggregate amount of amortization expense was $55,000 for each of thethree months ended* March 31, 2024and2023.*

For regulatory reporting purposes, the Federal Reserve has indicated that the capital or trust preferred securities qualify as Tier1 capital of the Company subject to previously specified limitations (including that the asset size of the issuer didnot exceed*$15* billion), until further notice. If regulators make a determination that the capital securities canno longer be considered in regulatory capital, the securities become callable and we* may*redeem them.

NOTE10 - BORROWING ARRANGEMENTS

We have established secured and unsecured lines of credit. We* 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.

FHLB Secured Line of Credit and Advances. At* March 31, 2024,we had a secured borrowing capacity with the FHLB of $1.0 billion collateralized by pledged residential and commercial loans with a carrying value of $1.4 billion. At March 31, 2024,we hadno overnight advances and $150.0 million of advances with an original term offive years at a weighted average rate of 1.18% which mature in thefirst* quarter of2025. We paid interest expense on FHLB advances of $439,000 and $1.4 million for thethree months ended* March 31, 2024and2023.*

FRB Secured Line of Credit. At* March 31, 2024,*we had secured borrowing capacity with the FRB of $43.9 million collateralized by pledged loans with a carrying value of $62.4 million.

Federal Funds Arrangements with Commercial Banks. At* March 31, 2024,*we had borrowing capacity of $92.0 million from other financial institutions, of which $80.0 million was on an unsecured basis and $12.0 million was collateralized by investment securities with fair market value of $21.1 million.

There wereno amounts outstanding under any of the other borrowing arrangements above as of* March 31, 2024,except the FHLB advances maturing in thefirst* quarter of2025.

NOTE11 - 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.

We recorded an income tax provision of $3.2 million and $4.6 million, reflecting an effective tax rate of 28.8% and 29.4% for thethree months ended* March 31, 2024and2023.* We recognized a tax expense/(benefit) from stock option exercises of $8,000 and ($5,000) for thethree months ended* March 31, 2024and2023.*

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NOTE12 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we enter into financial commitments to meet the financing needs of our 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 risknot recognized in our financial statements.

Our exposure to loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as it does for loans reflected in the financial statements.

At* March 31, 2024and December 31, 2023,*we had the following financial commitments whose contractual amount represents credit risk:

Commitments to extend credit are agreements to lend to a customer as long as there isno violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts donot necessarily represent future cash requirements. We evaluate each client's creditworthiness on a case-by-case basis.

We record a liability for lifetime expected losses on off-balance-sheet credit exposure that doesnot fit the definition of unconditionally cancelable in accordance with ASC326. We use 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 reserve for off-balance sheet commitments was $671,000 and $640,000 as of* March**31,* 2024 and* December 31, 2023.We recorded a provision for unfunded loan commitments of $31,000 for thethree* months ended* March 31,2024, and a reversal of the provision for unfunded loan commitments of $138,000 for thethree months ended March 31,*2023.

We are 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 willnot have a material effect on the Company's financial statements.

NOTE13 - LEASES

We lease several of our operating facilities under various non-cancellable operating leases expiring at various dates through2037. We are also responsible for common area maintenance, taxes, and insurance at the various branch locations.

Future minimum rent payments on our leases were as follows as of the date indicated:

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The minimum rent payments shown above are given for the existing lease obligation and arenot a forecast of future rental expense. Total rental expense, recognized on a straight-line basis, was $1.4 million for each of thethree months ended* March 31, 2024and2023.* The Company received rental income of $146,000 and $140,000 in thefirst quarter of2024 and2023.

The following table presents the right-of-use ("ROU") assets and lease liabilities recorded on our consolidated balance sheet, the weighted-average remaining lease terms and discount rates, as of the dates indicated*:*

NOTE14 - RELATED PARTY TRANSACTIONS

There wereno loans or outstanding loan commitments to any principal officers or directors, or any of their affiliates at* March 31, 2024and December 31, 2023.*

Deposits from principal officers, directors, and their affiliates at* March**31,* 2024 and* December 31, 2023*were $32.9 million and $25.7 million.

Certain directors and their affiliates own $6.0 million of RBB's subordinated debentures as of* March 31, 2024and December 31, 2023.*

NOTE15 - STOCK-BASED COMPENSATION

RBB Bancorp2010 Stock Option Plan and2017 Omnibus Stock Incentive Plan

Under the RBB Bancorp2010 Stock Option Plan (the*“2010* Plan”), we were permitted to grant awards to eligible persons in the form of qualified and non-qualified stock options. We reserved up to 30% of the issued and outstanding shares of common stock as of the date we adopted the2010 Plan, or 3,494,478 shares, for issuance under the2010 Plan. Following receipt of shareholder approval of the2017 Omnibus Stock Incentive Plan (the “OSIP”) in* May**2017,* no additional grants were made under the2010 Plan. The2010 Plan has been terminated and options that were granted under the2010 Plan have become subject to the OSIP. Awards that were granted under the2010 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. The2010 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.

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Amended and Restated RBB Bancorp2017 Omnibus Stock Incentive Plan

The Amended and Restated RBB Bancorp2017 Omnibus Stock Incentive Plan (the "Amended OSIP") was approved by our board of directors in* January 2019and approved by our shareholders in May 2022.The Amended OSIP was designed to ensure continued availability of equity awards that will assist us 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, our 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. We reserved up to 30% of issued and outstanding shares of common stock as of the date we adopted the Amended OSIP, or 3,848,341 shares. As of March 31, 2024,there were 1,038,570 shares of common stock available for issuance under the Amended OSIP. This represents 5.6% of the issued and outstanding shares of our common stock as of March 31, 2024.*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.

Stock Options

Compensation expense for stock options was $21,000, $56,000, and $64,000 for thethree months ended* March 31, 2024,** December 31, 2023,and March 31, 2023.Unrecognized stock-based compensation expense related to options was $158,000 and $500,000 as of March 31, 2024and2023.* Unrecognized compensation expense related to stock options, as of* March 31 2024,*is expected to be recognized over the next 3.0 years.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The table below summarizes the assumptions and grant date fair value for stock options granted in* March 2023.There wereno* stock options granted after* March 31, 2023.*

The expected volatility is based on the historical volatility of our stock trading history. The expected term is based on historical data and represents the estimated average period of time that the options remain outstanding. The risk-free rate of return reflects the grant date interest rate offered forzero coupon U.S. Treasury bonds over the expected term of the options.

The table below presents a summary of our stock options awards and activity as of and for thethree months ended* March 31, 2024.*

The total fair value of the shares vested was $630,000 and $636,000 during thethree months ended* March 31,2024, and2023. Unvested stock options totaled 30,666 and 111,005 with a weighted average grant date fair value of $5.97 and $5.09, respectively, as of March**31,* 2024 and2023. The decrease of unvested stock options during thethree months ended* March 31, 2024*was due to 35,005 stock options vested with a weighted average grant date stock price of $17.74.

Cash received from the exercise of 41,000 stock options was $541,000 for thethree months ended* March 31, 2024and cash received from the exercise of 9,153 stock options was $159,000 for thethree* months ended* March 31, 2023.The intrinsic value of options exercised was $179,000 and $26,000 for thethree* months ended* March 31, 2024and2023.*

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Restricted Stock Units

We award time-based restricted stock units (“TRSUs”) and performance-based restricted stock units (“PRSUs”), which we also refer to collectively as restricted stock units (“RSUs”). We granted 95,756 RSUs during thethree months ended* March 31, 2024,with a weighted average price of $17.70. The RSUs granted during thefirst* quarter included 31,270 PRSUs with an estimated fair value as of the* March 20, 2024,grant date of$19.13 and are subject to pre-established performance metrics and market conditions that will be measured in the future and subject to oversight and approval by the Board of Director’s Compensation Committee. The TRSUs have lives ranging from 1 to 3 years and PRSUs have lives of 3 years. See further discussion below describing the PRSUs. As of March 31, 2024,*there were 127,025 unvested RSUs outstanding.

The recorded compensation expense for RSUs was $118,000, $84,000, and $251,000 for thethree months ended* March 31, 2024,** December 31, 2023,and March 31, 2023.Unrecognized stock-based compensation expense related to RSUs was $2.1 million and $591,000 as of March 31, 2024and2023.* As of* March 31, 2024,*unrecognized stock-based compensation expense related to RSUs is expected to be recognized over the next 2.6 years.

The following table presents restricted stock units activity during thethree months ended* March 31, 2024.*

(1) Includes 31,270 PRSUs, of which half include a future performance criteria with a market condition with an estimated fair value of$20.50 and half include future performance financial metrics with a fair value of $17.75, the Company’s closing price on the date of grant.

NOTE16 - 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 our 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 Tier1* (“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 Tier1 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 thethree capital adequacy risk-weighted asset ratios (CET1, Tier1, and Total). The implementation of the capital conservation buffer began on* January 1, 2016at 0.625% and was phased in over afour*-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, Tier1 andCET1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier1 capital (as defined) to average assets (as defined). As permitted by the regulators for financial institutions that arenot 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* March 31, 2024and December 31, 2023,*RBB and the Bank satisfied all capital adequacy requirements to which they were subject.

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The following tables set forth Bancorp’s consolidated and the Bank’s capital amounts and ratios and related regulatory requirements as of the dates indicated:

(1) These ratios are exclusive of the capital conservation buffer.

(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 lastthree 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 financial holding company doesnot have earnings over the priorfour quarters of at least equal to the dividend to be paid, plus other holding company obligations.

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NOTE17 - FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with ASC820-10, we group financial assets and financial liabilities measured at fair value inthree levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Thethree levels of the fair value hierarchy are described as follows:

Fair Value Hierarchy

Level1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level2 - Inputs other than quoted prices included in Level1 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 arenot 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.

Level3 - Valuation is generated from model-based techniques whereone or more significant inputs arenot observable, either directly or indirectly, in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques* may*include use of matrix pricing, DCF models, and similar techniques.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Securities:

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level1) 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 (Level2).

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. We classified these derivatives as level3 due to management’s estimate of market rate, cost and expiration timing on these contracts.

Assets and Liabilities Measured on a Non-Recurring Basis

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 estimated costs to sell, an impairment loss is recognized. Fair values are generally based onthird 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 (Level3).

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 us. 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 independentthird party to review. We also compare 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 thantwelve 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* March**31,* 2024.

Collateral-dependent individually evaluated loans: Collateral-dependent individually evaluated loans are carried at fair value when it is probable that we 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.

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:

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During thethree months ended* March 31, 2024,there were write-downs of $116,000 on individually evaluated collateral-dependent loans with an aggregate fair value of $10.0 million as of March**31,* 2024. During thethree months ended* December 31, 2023,there write-downs of $521,000 on individually evaluated collateral-dependent loans with an aggregate fair value of $11.4 million as of December 31, 2023.The fair value of individually evaluated collateral-dependent loans were based onthird* party appraisals with a management adjustment of 10% to reflect selling costs.

OREO consisted oftwo single-family residences with a fair value of $1.1 million as of* March 31, 2024andno OREO as of December 31, 2023.During thefirst* quarter of2024, the Company foreclosed onthree properties related to the same borrower and soldone of the properties for a gain of $164,000 and the othertwo properties were recorded at their estimated fair values with a $560,000 gain recognized on the transfer to OREO. The fair value of OREO was based onthird party appraisals with management adjustment in the range of 5%-10% to reflect current conditions and selling costs.

The following table presents the gains recognized on assets measured at fair value on a non-recurring basis for the periods indicated:

No write-downs to OREO were recorded for thethree months ended* March 31, 2024or for the year ended December 31, 2023.*

The fair value measurement of IRLCs and FMLSCs were primarily based on the buy price from borrowers ranging from 99 to 101, the sale price to Fannie Mae ranging from 100 to 103, and the significant unobservable inputs using a margin cost rate of 0.88%.

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The fair value hierarchy level and estimated fair value of significant financial instruments as of the dates indicated are summarized as follows:

NOTE18 - EARNINGS PER SHARE

The following is a reconciliation of net income and shares outstanding to the net income and number of shares used to compute earnings per share (“EPS”) for the periods indicated:

Stock options for 222,500 shares and 99,000 shares of common stock and restricted stock units for 3,005 shares and 7,767 shares of common stock werenot considered in computing diluted earnings per common share for* March 31, 2024and2023,* because they were anti-dilutive.

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NOTE19 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The following is a summary of revenue from contracts with customers that are in-scope andnot in-scope under ASC Topic606 for the periods indicated:

The major revenue streams by fee type that are within the scope of ASC606 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, cash checking, 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. Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met.

Wealth Management Fees

We employ 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 fees we earn are variable and are generally received monthly. We recognize revenue for the services performed at quarter-end based on actual transaction details received from the broker dealer we engage.

In our 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.

Gain/(loss) on Sales of Other Real Estate Owned

We record a gain or loss from the sale of OREO, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement.

NOTE20 - QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

At* March 31, 2024and December 31, 2023,investments in qualified affordable housing projects totaled $6.1 million and $6.4 million. These balances are reflected in the accrued interest and other assets line on the consolidated balance sheets. Total unfunded commitments related to the investments in qualified housing projects totaled $2.3 million at March 31, 2024and December 31, 2023.*We expect to fulfill these commitments between 2024 and 2038.

During thethree months ended* March 31, 2024,** December 31, 2023,and March 31, 2023,we recognized tax credits from our investment in affordable housing tax projects of $285,000, $255,000, and $255,000, respectively. In addition, the Company recognized amortization expense related to these investments of $301,000, $282,000, and $282,000, respectively, which was included within income tax expense on the consolidated statements of income. We hadno impairment losses during each of thethree* months ended* March 31, 2024,** December 31, 2023,and March 31, 2023.*

NOTE21 - REPURCHASE OF COMMON STOCK

On* February**29,* 2024, the Board of Directors authorized the repurchase of up to 1,000,000 shares of common stock, of which 956,465 shares were available as of* March 31, 2024.We repurchased 80,285 shares at a weighted average share price of $18.39 during thefirst* quarter of2024.

NOTE22 - SUBSEQUENT EVENTS

On* April 18, 2024, we announced the Board of Directors had declared a common stock cash dividend of $0.16 per share, payable on May 13, 2024 to common shareholders of record as of May *1, 2024.

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