RBB Bancorp

Assets

At June 30, 2024, total assets were $3.9 billion, a decrease of $157.8 million, from total assets of $4.0 billion at December 31, 2023, primarily due to a $178.6 million decrease in cash and cash equivalents, partially offset by a $15.9 million increase in loans HFI, and a $6.6 million increase in AFS investment securities. The decrease in cash and cash equivalents was primarily due to a decrease of $284.9 million in wholesale deposits, partially offset by an increase in retail deposits.

Investment Securities

We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio include:

Our investment portfolio is comprised primarily of U.S. government agency securities, corporate note securities, mortgage-backed securities backed by government-sponsored entities and taxable and tax-exempt municipal securities.

Our investment policy is reviewed annually by our board of directors. Overall investment goals are established by our board of directors, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and members of our Asset Liability Committee (“ALCO”) of our board of directors. Our board of directors has delegated the responsibility of monitoring our investment activities to our ALCO. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our CEO and CFO. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We monitor our securities portfolio to ensure it has adequate credit support and consider the lowest credit rating for identification of potential credit impairment.

The following table sets forth the book value of each category of securities and the percentage each category represents of total of securities as of the dates indicated. The book value for debt securities classified as AFS are reflected at fair market value and the book value for securities classified as HTM are reflected at amortized cost.

The tables below set forth investment debt securities AFS and HTM as of the dates indicated.

The weighted-average life on the total investment portfolio at June 30, 2024 was 4.9 years. This compares to a weighted-average life of 5.1 years at December 31, 2023. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

The table below shows our investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of June 30, 2024. The fair value of the securities portfolio is shown by expected maturity. 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 table below shows our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2024 and December 31, 2023. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 4 —* *Investment Securities" of our audited consolidated financial statements included in our 2023 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

There was no ACL on the HTM securities portfolio as of June 30, 2024 and December 31, 2023. We monitor our securities portfolio to ensure all of our investments have adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of June 30, 2024, we believe there was no impairment. In addition, we did not have the current intent to sell securities with a fair value below amortized cost at June 30, 2024, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. As of June 30, 2024, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and market conditions.

Loans

The loan portfolio is the largest category of our interest-earning assets. Total loans HFI increased $15.9 million, or 0.5%, to $3.05 billion at June 30, 2024 as compared to $3.03 billion at December 31, 2023. The increase was primarily due to an increase in CRE loans of $22.4 million, and C&D loans of $21.0 million, partially offset by decreases in SFR mortgages of $20.0 million, C&I loans of $3.4 million, SBA loans of $1.8 million and other loans of $2.3 million. SFR mortgage loans represent approximately 48% of our total loans as of June 30, 2024 and 49% at December 31, 2023.

The following table presents the balance and associated percentage of our loan portfolio, by loan type, as of the dates indicated:

The following table presents the geographic locations of loans in our loan portfolio, by loan type, as of the date indicated:

The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represented 81.2% of our loan portfolio. Loans secured by collateral in other states represented approximately 18.8% of our portfolio and the majority of these loans are secured by CRE with a weighted average loan-to-value (“LTV”) of 53.4% at June 30, 2024.

Construction and land development loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months.

C&D loans increased $21.0 million, or 11.6%, to $202.5 million at June 30, 2024 as compared to $181.5 million at December 31, 2023, as originations exceeded loan repayments.

The following table shows the categories of our C&D portfolio as of the dates indicated:

*Commercial real estate loans.*CRE loans include owner-occupied and non-owner occupied CRE, multi-family residential and SFR mortgage loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. The multi-family residential loan portfolio was $586.0 million as of June 30, 2024 and $573.4 million as of December 31, 2023. The SFR mortgage loan portfolio originated for a business purpose totaled $43.4 million as of June 30, 2024 and $48.7 million as of December 31, 2023.

CRE loans increased $22.4 million, or 1.9%, to $1.19 billion at June 30, 2024, compared to $1.17 billion at December 31, 2023.

The following table presents the LTV ratios at origination for CRE loans by property type as of the date indicated:

The following table presents the LTV ratios at origination for CRE loans by state as of the date indicated:

*Commercial and industrial loans.*We provide a mix of variable and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing. C&I loans include lines of credit with a maturity of one year or less, commercial and industrial term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, purchased receivables with a maturity of two months or less and international trade discounts with a maturity of three months or less. Substantially all of our C&I loans are collateralized by business assets or by real estate.

C&I loans decreased $3.4 million, or 2.6%, to $126.6 million as of June 30, 2024 compared to $130.1 million at December 31, 2023 primarily due to decreases in mortgage warehouse lines and a decrease in usages of the credit lines due to increases in market rates of interest. The interest rate on these loans are generally Wall Street Journal Prime rate based.

*SBA loans.*We are designated a Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and includes personal guarantees.

SBA loans decreased $1.8 million, or 3.4%, to $50.3 million at June 30, 2024 compared to $52.1 million at December 31, 2023. We originated SBA loans of $14.7 million during the first six months of 2024. Offsetting these loan originations were loan sales of $7.7 million and net loan payoffs and paydowns of $8.8 million during the first six months of 2024.

SFR Loans. As of June 30, 2024, we had $1.5 billion of SFR mortgage loans, representing 48.2% of our loans HFI portfolio. SFR mortgage loans decreased $20.0 million, or 1.3%, during the first half of 2024 due to higher payoffs and paydowns relative to originations. As of June 30, 2024, the weighted-average LTV of the portfolio was 60.0%, the weighted average FICO score was 763, and the average duration was 2.8 years. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian-American market. The SFR loans HFI are generally originated through our retail branch network to our customers. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgage loans and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment.

There were $3.1 million loans HFS as of June 30, 2024 compared to $1.9 million loans HFS as of December 31, 2023. The loans sold to other banks are sold with no representations or warranties and have a replacement feature for the first 90-days if the loan pays off early. For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days. As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

Loan Quality

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile and credit and geographic concentration for our loan portfolio. Our comprehensive methodology to monitor these credit quality standards includes a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.

Analysis of the Allowance for Loan Losses

The following table presents the ALL, its corresponding percentage of the loan type balance, and the percentage of loan balance to total loans HFI as of the dates indicated:

Allowance for Credit Losses

We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL for loans 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 for loans is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a discounted cash flow approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.

Our discounted cash flow loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. We use both internal and external qualitative factors within the CECL model 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, delinquent, and nonaccrual loans; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions. 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. Our CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. We are 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.

Individual loans considered to be uncollectible are charged off against the ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be probable. Recoveries on loans previously charged off are added to the ACL. Net charge-offs to average loans HFI were 0.07% for the three months ended June 30, 2024 and 0.10% for the twelve months ended December 31, 2023.

The ACL was $42.4 million at June 30, 2024 compared to $42.5 million at December 31, 2023. The $178,000 decrease in the first half of 2024 was primarily due to net charge-offs of $735,000, offset by a $557,000 in provision for credit losses. The provision for credit losses took into consideration factors including changes in the loan portfolio mix, ongoing uncertainty in the economy related to inflation and the outlook for market interest rates, and credit quality metrics, including a $23.0 million increase in nonperforming loans at June 30, 2024 compared to December 31, 2023.

The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the periods indicated:

***Problem Loans.***Loans are considered delinquent when principal or interest payments are past due 30 days or more; delinquent loans may remain on accrual status between 30 days and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. 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. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans modified at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from modified loan disclosures in years subsequent to the modification if the loans are in compliance with their modified terms.

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 (carrying value) by a charge to the allowance for credit losses, if necessary, or a gain recognized through noninterest income, as appropriate. Once classified as an OREO, it is subsequently carried at the lower of our carrying value of the property or its fair value. 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 are included in other operating income and expenses. Gains on transfer of loans to OREO, and gains or losses on their disposition are included in gain on OREO.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest (of which there were none during the periods presented), and modified loans. The balances of nonperforming loans reflect the net investment in these assets.

Nonperforming assets totaled $54.6 million, or 1.41% of total assets, at June 30, 2024, compared to $31.6 million, or 0.79% of total assets, at December 31, 2023. The $23.0 million increase in nonperforming loans was mostly due to three loans that migrated to nonaccrual including a $10.0 million C&D loan, a $7.3 million CRE loan and a $4.7 million C&I loan. The other nonperforming loan activity for the first six months of 2024 included new nonaccrual loans of $8.2 million, payoffs or paydowns of $5.9 million, loans that migrated to accruing status of $1.0 million, and nonaccrual loan charge-offs of $239,000.

Our 30-89 day delinquent loans, excluding nonperforming loans, decreased $5.5 million to $11.3 million as of June 30, 2024 compared to $16.8 million as of December 31, 2023. The decrease in past due loans was due to $6.7 million in loans that migrated to nonaccrual, $4.9 million in loans that migrated back to past due for less than 30 days, $1.2 million in loan payoffs or paydowns and $74,000 in past due loan charge-offs, offset by $7.3 million in new delinquent loans.

We did not recognize any interest income on nonaccrual loans during the three and six months ended June 30, 2024 and 2023, while the loans were in nonaccrual status.

We utilize an asset risk classification system in compliance with guidelines established by the FDIC as part of our efforts to improve asset quality. In connection with examinations of insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. An asset classified as loss is not considered collectable and is of such little value that continuance as an asset is not warranted.

We use a risk grading system to categorize and determine the credit risk of our loans. Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered to be impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired. These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management.

The following table presents the risk categories for total loans by class of loans as of the dates indicated:

Special mention loans totaled $19.5 million, or 0.64% of total loans, at June 30, 2024, compared to $32.8 million, or 1.08% of total loans, at December 31, 2023. The $13.3 million decrease was due to upgrades to pass loans of $6.5 million, downgrades to substandard loans of $5.2 million, and loan paydowns of $2.8 million, partially offset by additional special mention loans of $1.2 million.

Substandard loans totaled $63.1 million, or 2.07% of total loans, at June 30, 2024, compared to $61.1 million, or 2.02% of total loans, at December 31, 2023. The $2.0 million increase was due to downgrades from special mention loans of $5.2 million and downgrades from pass of $14.9 million, partially offset by loan paydowns of $17.1 million, upgrades of $557,000, and substandard loan charge-offs of $529,000.

***Goodwill and Other Intangible Assets.***Goodwill was $71.5 million at both June 30, 2024 and December 31, 2023. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. Other intangible assets, which consist of core deposit intangibles, were $2.4 million and $2.8 million at June 30, 2024 and December 31, 2023. These core deposit intangible assets are amortized on an accelerated basis over their estimated useful lives, generally over a period of 8 to 10 years.

***Liabilities.***Total liabilities decreased by $157.9 million to $3.4 billion at June 30, 2024 from $3.5 billion at December 31, 2023, primarily due to a $151.2 million decrease in deposits. This decrease was due to a decrease in interest-bearing deposits of $154.5 million, offset by an increase in noninterest-bearing deposits of $3.4 million. The decrease in interest-bearing deposits included a decrease in time deposits of $169.5 million, offset by an increase in non-maturity deposits of $15.0 million. The decrease in time deposits since 2023 year end included a $284.9 million decrease in wholesale deposits.

Deposits.

The following table presents the composition of our deposit portfolio by account type as of the dates indicated:

The following table sets forth the maturity of time deposits as of June 30, 2024:

The following table summarizes our average deposit balances and weighted average rates for the periods presented:

The following table sets forth the estimated deposits exceeding the FDIC insurance limit:

Of the $818.7 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $628.3 million at June 30, 2024. The following table sets forth the maturity distribution of uninsured time deposits in amounts of more than $250,000 as of the date indicated.

We acquire deposits through wholesale channels including brokered deposits, collateralized deposits from the State of California, and internet listing services as needed to supplement liquidity. The total amount of such deposits at June 30, 2024 was $120.7 million and $405.6 million at December 31, 2023. Brokered time deposits were $54.1 million at June 30, 2024 and $254.9 million at December 31, 2023.

In addition, we offer deposit products through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit. Time deposits held through the CDARS program were $140.3 million at June 30, 2024 and $135.7 million at December 31, 2023 and ICS deposits totaled $134.5 million at June 30, 2024 and $109.2 million at December 31, 2023. The increase in the participation in these programs is due to our focus on enhancing liquidity in recent periods.

***FHLB Borrowings.***In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. We had no FHLB overnight advances at June 30, 2024 and December 31, 2023. We had $150.0 million in FHLB advances at June 30, 2024 and December 31, 2023, which had an original term of five years and a maturity date in the first quarter of 2025. The average fixed interest rate on FHLB advances is 1.18%. The following table sets forth information on our total FHLB advances at and for the periods presented:

***Long-term Debt.***Long-term debt consists of subordinated notes. As of June 30, 2024, the amount of subordinated notes outstanding was $119.3 million as compared to $119.1 million at December 31, 2023.

In March 2021, we issued $120.0 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031 (the “2031 Subordinated Notes”). The interest rate is fixed through April 1, 2026 and floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter. We can redeem the 2031 Subordinated Notes beginning April 1, 2026. The 2031 Subordinated Notes are considered Tier 2 capital at the Company.

***Subordinated Debentures.***Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.0 million as of June 30, 2024 and $14.9 million as of December 31, 2023. Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we are not 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 period not to exceed five consecutive years. These subordinated debentures consist of the following and are described in detail after the table below:

At June 30, 2024, we were in compliance with all covenants under our long-term debt agreements.

The Company maintains the TFC Statutory Trust ("TFC Trust"), which has issued a total of $5.2 million securities ($5.0 million in capital securities and $155,000 in common securities). The TFC Trust subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 7.25% as of June 30, 2024, and three-month LIBOR plus 1.65%, which was 7.30% at December 31, 2023.

The Company maintains the First American International Statutory Trust I ("FAIC Trust"), which has issued a total of $7.2 million securities ($7.0 million in capital securities and $217,000 in common securities). The FAIC Trust subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, which was 7.85% as of June 30, 2024, and three-month LIBOR plus 2.25%, which was 7.90% at December 31, 2023.

The Company maintains the Pacific Global Bank 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 $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000. The PGBH subordinated debentures have a variable rate of interest equal to three*-*month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10%, which was 7.70% as of June 30, 2024, and three-month LIBOR plus 2.10%, which was 7.75% at December 31, 2023.

Capital Resources and Liquidity Management

***Capital Resources.***Shareholders’ equity is influenced primarily by earnings, dividends, sales, repurchases of common stock and changes in accumulated other comprehensive income, net of taxes, from AFS investment securities.

Shareholders’ equity increased $31,000, or 0.01%, to $511.3 million as of June 30, 2024 since December 31, 2023. The increase in shareholders' equity for the first half of fiscal 2024 was due to net earnings of $15.3 million and $1.8 million from stock option and other equity award activity, partially offset by dividends paid of $6.0 million, common stock share repurchases of $9.6 million, and higher net after tax unrealized losses on AFS securities of $1.4 million. As a result, book value per share increased to $28.12 from $27.47 and tangible book value per share increased to $24.06 from $23.48. For additional information, see "Non-GAAP Financial Measures."

***Liquidity Management.***Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements as well as expected and unexpected cash needs. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window and the issuance of preferred or common securities. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in our consolidated financial statements.

Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. Our wholesale funding ratio was 3.6% at June 30, 2024 compared to 11.7% at December 31, 2023.

We have sufficient capital and do not anticipate any need for additional liquidity as of June 30, 2024. As of June 30, 2024, we had $92.0 million of federal funds lines, of which $80.0 million is unsecured and $12.0 million is collateralized by investment securities with fair market value of $20.4 million, with no amounts advanced against the lines. At December 31, 2023, we had $92.0 million of unsecured fed funds line, with no advances drawn. In addition, lines of credit from the Federal Reserve Discount Window were $45.9 million at June 30, 2024 and $42.3 million at December 31, 2023. Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $64.0 million as of June 30, 2024 and $62.8 million as of December 31, 2023. We did not have any borrowings outstanding with the Federal Reserve at June 30, 2024 and December 31, 2023, and our borrowing capacity is limited only by eligible collateral.

At June 30, 2024 and December 31, 2023, we had $150.0 million in FHLB term advances outstanding which mature in the first quarter of 2025. Based on the values of loans pledged as collateral, we had $789.7 million of remaining secured borrowing capacity with the FHLB as of June 30, 2024 and $888.3 million at December 31, 2023.

RBB is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. RBB’s main source of funding is dividends declared and paid to RBB by the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to RBB. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations. At June 30, 2024, RBB had $30.9 million in cash, of which $29.8 million was on deposit at the Bank.

Regulatory Capital Requirements

We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

The table below summarizes the minimum capital requirements applicable to RBB and the Bank pursuant to Basel III regulations. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions. For example, banks and bank holding companies experiencing internal growth or making acquisitions generally will be expected to maintain strong capital positions substantially above the minimum supervisory levels. Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. The table below summarizes the capital requirements applicable to RBB and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the capital ratios of RBB and the Bank as of June 30, 2024 and December 31, 2023. RBB and the Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the table below:

Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at June 30, 2024:

Off-Balance Sheet Arrangements

We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

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 risk in excess of the amount recognized in the ACL in the consolidated balance sheets. Such off-balance sheet commitments totaled $175.6 million as of June 30, 2024 and $190.7 million as of December 31, 2023.

Our exposure to loan 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 we do for loans reflected in our financial statements.

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. We evaluate each client’s creditworthiness 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.

In addition, we invest in various affordable housing partnerships and Small Business Investment Company ("SBIC") funds. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $3.0 million as of June 30, 2024 and $3.3 million as of December 31, 2023.

Non-GAAP Financial Measures

Some of the financial measures included herein are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include the “tangible common equity to tangible assets ratio,” “tangible book value per share,” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in our analysis of our performance.

***Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share.***The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets (excluding mortgage servicing rights); and (iii) tangible book value per share as tangible common equity divided by period end shares of common stock outstanding.

Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share:

***Return on Average Tangible Common Equity.***Management measures return on average tangible common equity (“ROATCE”) to assess our capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles ROATCE to its most comparable GAAP measure: