RBB Bancorp

NOTE1 - BUSINESS DESCRIPTION

RBB Bancorp 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”), collectively referred to herein as “the Company.” RBB Bancorp was formed in* January 2011as a bank holding company and RAM was formed in2012* 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, 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* December 31, 2024,*the Company had total assets of $4.0 billion, gross consolidated loans of $3.1 billion, total deposits of $3.1 billion and total shareholders' equity of $507.9 million.

The Bank provides business-banking and consumer products and services predominantly to the Asian-centric 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, mobile banking and treasury management services. The Bank acquired the Honolulu, Hawaii branch (the “Hawaii Branch”) from Bank of the Orient (“BOTO”) on* January 14, 2022.*

We operate as a minority depository institution (“MDI”), which is defined by the Federal Deposit Insurance Corporation (“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 MDI is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs. We intend to maintain our MDI designation, as it is expected that at least51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance.

In addition, we have been designated a community development financial institution (“CDFI”). CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury (“Treasury”), which provide funds to CDFIs through a variety of programs. We have established a CDFI advisory board to assist the Bank in finding organizations to support low-to-moderate income individuals.

We operate 24 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 predominately 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 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-K and conform to practices within the banking industry and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for financial reporting.

Principles of Consolidation and Nature of Operations

The accompanying consolidated financial statements include the accounts of RBB Bancorp and its wholly-owned subsidiaries, the Bank and RAM. All significant intercompany transactions have been eliminated.

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RBB Bancorp hasno significant business activity other than its investments in the Bank and in RAM. However, through our whole bank acquisition activity, we have acquiredthree statutory business trusts: TFC Statutory Trust, FAIC Statutory Trust I and PGB Capital Trust I. These trusts issued trust preferred securities representing undivided preferred beneficial interests in the assets of these trusts. The proceeds of these trust preferred securities were invested in certain securities issued by the entities we have acquired, with similar terms to the relevant series of securities issued by these trusts, which we refer to as subordinated debentures, and are included in Tier2 capital.

The parent company only condensed financial information on RBB Bancorp is provided in Note23.

In connection with the2018 acquisition of First American International Corp (“FAIC”), we acquired FAIB Capital Corp. (“FAICC”), a real estate investment trust formed on* August**28,* 2013 as a New York State corporation, which operates as a wholly-owned subsidiary of the Bank.

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-earning deposits in other financial institutions with original maturities of less than90 days. Net cash flows are reported for customer loan and deposit transactions and interest-earning deposits in other financial institutions.

Cash and Due from Banks

Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank. There wereno reserves required to be held as of* December 31, 2024and2023.* We maintain amounts in due from bank accounts, which* mayexceed federally insured limits. We havenot* experienced any losses in such accounts.

Interest-Earning Time Deposits in Other Financial Institutions

Interest-earning time deposits in other financial institutionsnot included in cash and cash equivalents are carried at cost and generally mature inone year or less.

Investment Securities

Investment securities are classified as held to maturity (“HTM”) and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Investment securitiesnot classified as HTM are classified as available for sale (“AFS”). AFS securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are amortized on the level-yield method to the earlier of the maturity date or call date of the underlying securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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Allowance for Credit Losses - HTM securities

Management measures expected credit losses on HTM debt securities on a collective basis by major security type and accrued interest receivable on HTM debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses on HTM securities considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Allowance for Credit Losses - AFS securities

For AFS debt securities in an unrealized loss position, wefirst assess whether we intend to sell, or it is more likely thannot that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, then the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that donot meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, then the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, then a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that hasnot been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

Changes in the allowance for credit losses on AFS securities are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses.

Loans Held For Sale** **

Mortgage loans originated or acquired and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is determined by reducing the amount allocated to the servicing right, when applicable. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loans sold.

We* may*transfer loans from held for investment to held for sale. Upon transfer, the carrying value of the loan is adjusted to the lower of cost or estimated fair value. Any write-downs in the carrying amount of the loan at the date of transfer are recorded as charge-offs to allowance for loan losses. The unamortized balance of deferred fees and costs associated with loans held for sale is deferred until the time of sale and are included in the determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale. Gains or losses on the sale of these loans are recorded as noninterest income in the consolidated statements of earnings.

Loans held for sale at* December 31, 2024consisted primarily of nonperforming commercial real estate loans under contract for sale. Loans held for sale at December 31, 2023consisted primarily offirst* trust deed mortgages on single-family residential properties located in California and New York.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs and net of any unamortized deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Premiums and discounts on loans purchased are grouped by type and certain common risk characteristics and amortized or accreted as an adjustment of yield over the weighted-average remaining contractual lives of each group of loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method.

Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due90 days or when, in the opinion of management, there is reasonable doubt as to collectability based on the contractual terms of the loan. When loans are placed on nonaccrual status, all interest previously accrued butnot collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan's principal balance is deemed collectible. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to all principal and interest.

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Allowance for Credit Losses (“ACL”)- Loans

Effective* January 1, 2022,upon the adoption of ASU2016*-13, Financial Instruments—Credit Losses (ASC326), we account for credit losses on loans in accordance with ASC326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the loan portfolio as of the date of the consolidated balance sheets. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a DCF approach for all segments except for consumer loans and loans to non-depository financial institutions, which use a remaining life approach.

Our DCF methodology incorporates a probability of default, loss given default and exposure at default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. We use both internal and external qualitative factors within the current expected credit losses (“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 loans, delinquencies, and nonaccrual; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions. We determine the weighting of the qualitative factors based on management’s ability to directly control or influence the level of risk exposure. Management further 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 afour-quarter reasonable and supportable forecast period, and afour-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

We record a liability for expected credit losses on off-balance-sheet credit exposure that donot fit the definition of unconditionally cancelable in accordance with ASC326. The Company uses the loss rate and exposure at 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.

We assess expected credit losses for individual instruments that have different risk characteristics than those that are evaluated on a collective (pooled) basis, in accordance with ASC326. An individual analysis will provide a specific reserve for instruments involved with fair market value of collateral or present value of future cash flow. In such a manner, the Bank performs individual analysis on loans that are90 or more days past due, on non-accrual status or modified loans. Credit losses arenot estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.

We adopted ASU2022-02, Financial Instruments—Credit Losses (Topic326), effective* January 1, 2023.Upon adoption, we evaluate all receivable modifications under ASC310* to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. The Companyno longer considers renewals, modifications, or extensions resulting from reasonably expected troubled debt restructurings (“TDRs”) when calculating the allowance for credit losses under ASC326. The post-modification effective interest rate is used to calculate the allowance for credit losses when the DCF method is applied.

Servicing Rights

Servicing rights are established as an intangible asset when mortgage loans and SBA loans are sold with servicing retained and they are initially recorded at fair value with the income statement effect recorded in the gain on sale 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.

Quarterly impairment (if any) is based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a charge to income to establish 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* maybe recorded as an increase to income. The estimated fair value of the servicing rights is obtained through independentthird* party valuations based on an analysis of future cash flows, incorporating key assumptions including discount rates, prepayment speeds and interest rates.

Servicing fee income, which is reported on the income statement as loan servicing fees, net of amortization*,*is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of the mortgage and SBA servicing rights is offset against loan servicing fee income and reported as a net amount in the consolidated income statement.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from us, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and we donot maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

We sold $47.7 million, $34.1 million and $46.1 million in mortgage loans during2024, 2023, and2022. In addition, we sold $13.8 million, $4.2 million and $12.7 million in the guaranteed portion of SBA loans during2024, 2023, and2022. Gains on sale of mortgage loans totaled $818,000, $112,000, and $1.2 million, and gains on sale of SBA loans totaled $768,000, $262,000, and $696,000 in2024, 2023, and2022.

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Premises and Equipment

Land is carried at cost. Premises, leasehold improvements and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which isthirty years for premises and ranges from three toten years for leasehold improvements and equipment. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter. Expenditures for improvements or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.

Operating Lease ROU Assets and Lease Liabilities

Operating lease Right-of-Use (“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheet. The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease terms include periods covered by options to extend or terminate the lease if we are reasonably certain to exercise such options. We use our incremental borrowing rate to determine the present value of our lease liabilities, and we donot recognize ROU assets or lease liabilities for short-term leases.

We determine if a contract arrangement is a lease at inception and we primarily enter into operating lease contracts for our branch locations, office space, and certain equipment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We didnot possess any leases that have variable lease payments or residual value guarantees as of* December 31, 2024.*

Other Real Estate Owned

Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for credit losses, if necessary. Other real estate owned is carried at the lower of our carrying value of the property or its fair value, less estimated carrying costs and costs of disposition. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance. Operating expenses and related income of such properties and gains and losses on their disposition are included in other operating income and expenses.

Goodwill and Other Intangible Assets

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank and branch acquisitions isnot amortized, but tested for impairment at least annually. ASC Topic350 provides entities with the option to perform a qualitative assessment to determine whether it is more likely thannot (i.e., a likelihood of more than50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill (the "Step0" analysis).

Bank Owned Life Insurance

We have purchased life insurance policies on a select group of employees and directors. Bank Owned Life Insurance (“BOLI”) is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in the other noninterest income and arenot subject to income tax for as long as they are held for the life of the covered employees and directors.

FHLB Stock and Other Equity Securities

We are a member of the Federal Home Loan Bank (“FHLB”) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and* may*invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

We also own several Community Reinvestment Act (“CRA”) equity investments, other bank stock, and other equity investments without readily determinable fair values included in “Accrued interest and other assets” on the consolidated balance sheets. We measure these equity securities at cost less impairment, plus or minus observable price changes in orderly transactions. Equity securities totaled $22.9 million and $23.4 million as of* December 31, 2024and December 31, 2023.There wereno impairment charges in2024* or2023.

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Stock-Based Compensation

We currently recognize stock-based compensation based on the grant date fair value of equity awards, including stock options, restricted stock units and restricted stock, which have been granted to employees. The expense related to equity-based awards granted to directors or other qualified non-employee awardees is recognized as other noninterest expense.

Stock option compensation expense is calculated based on the fair value of the award at the grant date for those options expected to vest and is recognized as an expense over the vesting period of the grant using the straight-line method. We use the Black-Scholes option-pricing model to estimate the value of granted stock options. This model takes into account the option exercise price, the expected life, the current price of the underlying stock, the expected volatility of our stock, expected dividends on the stock and a risk-free interest rate. We estimate the expected volatility based on our historical stock prices for the period corresponding to the expected life of the stock options. Restricted stock and restricted stock units are valued based on the closing price of our stock on the date of the grant. Stock-based compensation expense is recognized over the period which an employee is required to provide services in exchange for the award, generally defined as the vesting period. When the options are exercised, our policy is to issue new shares of stock. Our accounting policy is to recognize forfeitures as they occur.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. The value of deferred tax assets and liabilities are based on many factors including: estimates of the timing of reversals of temporary differences, the application of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ from the estimates and interpretations used in determining the current and deferred income tax liabilities.

Under ASC740, a valuation allowance is required to be recognized if it is “more likely thannot” that all or a portion of our deferred tax assets willnot be realized. Our policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for our deferred tax assets if there isnot sufficient positive evidence available to demonstrate utilization of our deferred tax assets. An initial setup or an increase to deferred tax asset valuation allowance would be charged to income tax expense that would negatively impact our earnings.

Purchased Federal Transferable Tax Credits

Purchased federal transferable tax credits represent qualifying federal income tax credits acquired from an unrelatedthird party to offset amounts that otherwise would be due and payable to the IRS. A purchased federal transferrable tax credit is recognized as a payable to thethird party seller in the year the underlying qualifying project, which is generating the tax credits, is placed in service and at the same time an income tax receivable from the IRS is established. Such federal tax credits are purchased at a discount which is recognized as a reduction in the federal income tax expense by the purchaser. See Note12 for more information and disclosures relating to purchased federal transferable tax credits.

Retirement Plans

We established a401(k) plan in2010. We contributed $826,000, $707,000, and $594,000 in2024, 2023 and2022.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, net of taxes.

Financial Instruments

In the ordinary course of business, we enter into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded.

See Note13 for more information and disclosures relating to our financial instruments.

Derivatives

Interest Rate Lock Commitments* (“IRLCs”) are agreements under which we agree to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Under the agreement, we commit to lend funds to a potential borrower (subject to our approval of the loan) on a fixed or adjustable rate basis, regardless of whether interest rates change in the market, or on a floating rate basis. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancelling or expiration. Loan commitments generally range between30* and90 days; however, the borrower isnot obligated to obtain the loan. We are subject to fallout risk related to IRLCs, which is realized if approved borrowers choosenot to close on the loans within the terms of the IRLCs. We use best efforts commitments to substantially eliminate these risks. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

ASC815, Derivatives and Hedging, provides that IRLCs on mortgage loans that will be held for resale are derivatives and must be accounted for at fair value on the balance sheet. ASC820, Fair Value Measurements and Disclosures, specifies how these derivatives are to be valued. Commitments to originate mortgage loans to be held for investment and other types of loans are generallynot derivatives. We have elected to account for these obligations at fair value.

Forward Mortgage Loan Sale Contracts* (“FMLSC”) are utilized to avoid interest rate risk at the time an interest rate lock commitment is made to the buyer. We are subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate our interest rate and price risk. To avoid interest rate risk, we will enter into FMLSCs at the time they make an interest rate lock commitment to the buyer. The buyer can enter into mortgage loan sales commitments on a “mandatory” or “best efforts” basis. Mandatory commitments provide that the loan must be delivered or the commitment be “paired off.” In general, best efforts commitments provide that the loan be delivered if and when it closes. Forward commitments, also known as forward loan sales commitments, are considered derivatives under ASC Topic815,* Derivatives and Hedging, because they meet all of the following criteria:

See Note18 for more information and disclosures relating to our derivatives.

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Earnings Per Share (“EPS”)

Basic and diluted EPS are calculated using thetwo-class method since we have issued share-based payment awards considered participating securities because they entitle holders the rights to dividends during the vesting term. Thetwo-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution, utilizing the treasury method for restricted awards and stock options, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

See Note19 for more information and disclosures relating to our EPS.

Fair Value Measurement

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There arethree levels of inputs that* may*be used to measure fair values:

Level1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level2: Significant other observable inputs other than Level1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot active; or other inputs that are observable or can be corroborated by observable market data.

Level3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

See Note18 for more information and disclosures relating to our fair value measurements.

Operating Segments

Management has determined that since generally all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management doesnot allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment.

See Note21 for more information and disclosures relating to our operating segment.

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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, is* not 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 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. We adopted ASU2023-02 on* January 1, 2024and the adoption didnot* have a material impact on our consolidated financial statements.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280) - Improvements to Reportable Segments. The amendments in this Update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. Amendments in this Update include: a requirement that a public entity provide all annual disclosures about a reportable segment’s profit or loss in its interim period disclosures, disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), disclosure of amounts for other segment items by reportable segment and a description of its composition, clarification that if the CODM uses more thanone measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity* mayreportone* or more of those additional measures of segment profit or loss, a requirement that a public entity disclose the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss, and a requirement that a public entity that has a single reportable segment provide all the disclosures required by this Update as well as all existing disclosures required in Topic280. The amendments in this Update are effective for us beginning with our annual financial statement disclosures for the year ended* December 31, 2024,and for all interim and annual periods thereafter. We adopted ASU2023*-07 on* December 31, 2024and the adoption didnot* have a material impact on our consolidated financial statements. See Note21 for more information and disclosures relating to our segment information.

Recently Issued;Not 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. Adoption of ASU2023-06 isnot expected to have a material impact on the Company's consolidated financial statements.

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. However, retrospective application in all prior periods presented is permitted. Adoption of ASU2023-09 isnot expected to have a material impact on the Company's consolidated financial statements.

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NOTE3 - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of available for sale (“AFS”) securities and held to maturity (“HTM”) securities at* December 31, 2024and2023,* and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss:

There wereno sales of investment securities during the years ended* December 31, 2024,*2023, and2022.

At* December 31, 2024,we pledged investment securities with a fair value of $23.4 million for certificates of deposit from the state of California. One security with a fair value of $48,000 and $61,000 was pledged to secure a local agency deposit at December 31, 2024and2023.*

Accrued interest receivable for investment securities at* December 31, 2024and2023* totaled $1.6 million and $962,000.

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The amortized cost and fair value of the investment securities portfolio as of* December 31, 2024and2023* are shown by expected maturity below. 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 securities that were in an unrealized loss position at* December 31, 2024,and 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. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note2* Summary of Significant Accounting Policies - Allowance for Credit Losses on Available for Sale Securities and Held to Maturity Securities. At* December 31, 2024and2023,* there wasno 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. All SBA agency securities, mortgage-backed securities, and collateralized mortgage obligations are issued by government or government sponsored entities and have the support of the U.S. federal government. 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. As of* December 31, 2024,all of our HTM securities were rated “AA-” or above. Accordingly,no ACL was recorded as of December 31, 2024and December 31, 2023,against HTM or AFS securities, and there wasno provision for credit losses recognized for the year ended December 31, 2024and2023.*

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The following tables show the related fair value and the gross unrealized losses of the Company's investment securities, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of* December 31, 2024,and December 31, 2023:*

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NOTE4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES - LOANS

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 loans held for investment (“HFI”) portfolio as of* December 31, 2024,and December 31, 2023:*

A summary of the changes in the ACL for the years indicated follows:

The following tables present the balance and activity in the ALL by portfolio segment for the years ended* December 31, 2024,*2023, and2022:

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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 C&D, CRE and C&I 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 HFI as of* December 31, 2024and2023* by loan class. Past due loans presented in tables below also include nonaccrual loans.

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The following table present the loans HFI on nonaccrual status and the balance of such loans withno ALL, by loan class, as of the dates indicated:

The following tables present the amortized cost basis of individually evaluated collateral-dependent loans, by loan segment and class and type of collateral which secures such loans as of the dates indicated:

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

On* January 1, 2023,we adopted ASU2022*-02, "Financial Instruments - Credit Losses (Topic326): Troubled Debt Restructurings and Vintage Disclosures." Under this guidance, in cases where a borrower is experiencing financial difficulties, we* maymake certain concessionary modifications to the contractual terms. These concessions may*include principal forgiveness, an interest rate reduction, term extension, payment delay, or other actions intended to minimize potential losses.

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.

Loans modified to borrowers experiencing financial difficulty totaled $54.4 million at* December 31, 2024andzero at December 31, 2023.During2024,* three C&D loans andtwo CRE loans were modified with balances totaling $47.6 million and $6.8 million at* December 31, 2024.There wereno* loans modified to borrowers experiencing financial difficulty during the year ended* December 31, 2023.*

The modifications made during2024 included $35.8 million of term extensions for C&D loans impacted by construction delays and an increase in market interest rates since origination, including a $26.4 million loan for a partially complete mixed-use commercial project for which we have established a specific reserve of $4.5 million. We had $5.6 million in unfunded commitments related to these borrowers.

We closely monitor the performance of loans modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table presents the type of concession, by class of loans, during the last12 months:

NOTE5 - LOAN SERVICING

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

Loan servicing fees, net of amortization, totaled $2.3 million, $2.6 million and $2.2 million for the years ended* December 31, 2024,2023 and2022. Custodial balances maintained in connection with the foregoing loan servicing (included in noninterest-bearing deposits) totaled $8.3 million and $6.4 million as of December 31, 2024and2023.*

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When mortgage and SBA loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sale 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.

The following table presents the activity in servicing assets for the years ended* December 31, 2024,*2023, and2022:

Estimates of the loan servicing asset fair value are derived through a DCF analysis. Portfolio characteristics include loan delinquency rates, age of loans, note rate and geography. The assumptions embedded in the valuation are obtained from a range of metrics utilized by active buyers in the market place. The analysis accounts for recent transactions, and supply and demand within the market.

The fair value of servicing assets for mortgage loans was $11.4 million and $12.1 million as of* December 31, 2024and2023.* Fair value at* December 31, 2024was determined using a discount rate of 11.16%, average prepayment speed of 7.52%, depending on the stratification of the specific right, and a weighted-average default rate of 0.10%. 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 $2.3 million and $2.8 million as of* December 31, 2024and2023.* Fair value at* December 31, 2024was determined using a discount rate of 8.5%, average prepayment speed of 19.46%, depending on the stratification of the specific right, and a weighted-average default rate of 1.04%. Fair value at December 31, 2023*was determined using a discount rate of 8.5% and average prepayment speed of 17.68%, depending on the stratification of the specific right, and a weighted-average default rate of 0.73%.

NOTE6 - PREMISES AND EQUIPMENT

A summary of premises and equipment as of* December 31, 2024and2023* follows:

Depreciation and leasehold amortization expense was $1.9 million, $2.0 million, and $2.0 million for2024, 2023, and2022.

There wereno sales of fixed assets during2024. A $32,000 gain on sale of fixed assets was recorded from the sale of an automobile during2023. A $757,000 gain on sale of fixed assets was recorded from the sale of a real estate asset during2022, which was used to house staff while traveling.

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NOTE7 - GOODWILL AND INTANGIBLES

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank and branch acquisitions isnot amortized, but tested for impairment at least annually. We have selected* October**1* as the date to perform the annual impairment test. Goodwill amounted to $71.5 million as of* December 31, 2024and2023,* and is the only intangible asset with an indefinite life on the balance sheet.No impairment was recognized on goodwill during2024 and2023.

In2023, after evaluating the prolonged decrease in our stock price, management performed a quantitative goodwill impairment analysis as of* September**30,* 2023. Management engaged athird-party valuation specialist to assist with the quantitative analysis. The evaluation usedtwo methods to estimate our value: the market approach and the income approach. The market approach used pricing information available on publicly traded companies that are similar to the company to determine the value of the company. Estimates used in the market approach included selecting a representative peer group of institutions, determining the price to tangible book value based on the results of the peer group institutions, and estimating a control premium based on the whole-bank acquisition prices for representative transactions. The income approach was based on the discounted free cash flows of the company using projections of future results, and considering future economic forecasts and management’s plans. Estimates used in the income approach included management’s projections of our income in future periods and an appropriate rate of return that would be required by a market participant. Based on this quantitative analysis performed at* September 30, 2023,our fair value exceeded our carrying amount with a passing amount of 9.6%. Also, at December 31, 2023,due to changes in our projections of income in future periods during thefourth* quarter of2023 resulting from the economic environment, management performed certain calculations and sensitivity analyses related to the quantitative goodwill impairment analysis performed at* September 30, 2023and the current information and concluded that goodwill was alsonot impaired at December 31, 2023.In thefourth* quarter of2024, we performed a qualitative analysis and concluded that it is more likely thannot that our fair value exceeds our carrying value and goodwill wasnot impaired at* December 31, 2024.*

Other intangible assets consist of core deposit intangible (“CDI”) assets arising from acquisitions. CDI assets are amortized on an accelerated method over their estimated useful life of 8 to 10 years. CDI was recognized in the2013 acquisition of Los Angeles National Bank, in the2016 acquisition of TFC Holding Company, in the2018 acquisition of FAIC and in the2020 acquisition of PGB Holdings, Inc. (“PGBH”). In* January 2022,*$729,000 of CDI was recognized in conjunction with the Hawaii Branch purchase from BOTO.

The following table presents changes in the carrying amount of CDI for the periods indicated:

Estimated CDI amortization expense for the next5 years is as follows:

NOTE8 - DEPOSITS

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

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. Wholesale time deposits totaled $147.5 million at* December 31, 2024and $405.6 million at December 31, 2023.Brokered time deposits were $93.2 million at December 31, 2024and $254.9 million at December 31, 2023.Collateralized deposits from the State of California totaled $20.0 million at December 31, 2024and $80.0 million at December 31, 2023.Time deposits acquired through internet listing services totaled $34.2 million at December 31, 2024and $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 $130.6 million at* December 31, 2024and $135.7 million at December 31, 2023.ICS deposits totaled $146.1 million at December 31, 2024and $109.2 million at December 31, 2023.*

**NOTE9 ****-**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,the Company 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. The Company can redeem the2031 Subordinated Notes beginning* April1,* 2026. The2031 Subordinated Notes are considered Tier2 capital at the Company.

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

The following table presents interest and amortization expense on the subordinated notes for the year indicated:

We were in compliance with all covenants under the long-term debt as of* December 31, 2024.*

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**NOTE10 -**SUBORDINATED DEBENTURES

Subordinated debentures consist of subordinated debentures issued in connection withthree separate trust preferred securities and totaled $15.2 million and $14.9 million as of* December 31, 2024and2023.* 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. The table below presents subordinated debentures at* December 31, 2024:*

In2016, we acquired TFC Statutory Trust (the “TFC Trust”) through the acquisition of TomatoBank and its holding company, TFC Holding Company (“TFC”). 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 $1.1 million at* December 31, 2024and $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 6.27% as of December 31, 2024,and 7.30% at December 31, 2023.*

In* October 2018,we acquired First American International Statutory Trust I (“FAIC Trust I”) through the acquisition of FAIC. FAIC Trust I issued 7,000 units of 30-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 I (variable interest entity), therefore FAIC Trust I 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 I 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 $765,000 at* December 31, 2024and $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 6.87% as of December 31, 2024,and 7.90% at December 31, 2023.*

In* January 2020,we acquired PGB Capital Trust I (“PGBH Trust I”) through the acquisition of PGBH. PGBH Trust I 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 I (variable interest entity), therefore PGBH Trust I 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 I 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 it fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $507,000 at* December 31, 2024and $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 6.72% as of December 31, 2024,and 7.75% at December 31, 2023.*

We recorded interest expense of $1.3 million in2024, $1.3 million in2023 and $650,000 in2022 on the subordinated debentures. The aggregate amount of amortization expense was $218,000 in each of the years ended* December 31, 2024,*2023 and2022.

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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.

At* December 31, 2024,the Company duly and punctually paid all payments, maintained100%* ownership of the common securities, and didnot incur any additional indebtedness as agreed. The Company was in compliance with all covenants under all subordinated debentures at* December 31, 2024.*

NOTE11 - 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 FHLB, the Federal Reserve Bank of San Francisco (“FRB”) and other financial institutions as indicated below.

FHLB Secured Line of Credit and Advances.At December 31, 2024,the Bank had a secured borrowing capacity with the FHLB of $1.1 billion collateralized by pledged residential and commercial loans with a carrying value of $1.4 billion. At December 31, 2024,we hadno overnight advances and $200.0 million of term advances, of which $150 million had an original term offive years, a maturity date in thefirst quarter of2025, and an average fixed rate of 1.18%. A putable advance of $50 million was executed on* September 30, 2024with afour year final maturity with aone*-time option for the FHLB to call the debt after aone-year lock out period and prepayment symmetry at a rate of 3.42%. We recognized interest on FHLB advances of $2.2 million, $2.9 million, and $2.9 million for the years ended* December 31, 2024,*2023 and2022.

*FRB Secured Line of Credit.At December 31, 2024,*the Bank had a secured borrowing capacity with the FRB of $47.2 million collateralized by pledged loans with a carrying value of $62.5 million.

Federal Funds Arrangements with Commercial Banks. At* December 31, 2024,the Company may*borrow on an unsecured basis, up to $97.0 million from other financial institutions.

There wereno amounts outstanding under any of the other borrowing arrangements above as of* December 31, 2024,*except the FHLB term advances totaling $200.0 million.

NOTE12 - 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.

The table below presents the components of income tax expense for the years indicated:

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The following table presents a comparison of the federal statutory income tax rates to the Company's effective income tax rates for the years indicated:

Deferred taxes are a result of differences between income tax accounting and GAAP with respect to income and expense recognition. The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying balance sheets as of* December 31:*

At* December 31, 2024,we have usable net operating loss carryforwards from acquisitions of $18,466 for federal and $5,570 for California income tax purposes. Net operating loss carry forwards, to the extentnot* used, will begin to expire in2028. The net operating loss carryforwards were generated through acquisitions, and as a result, are substantially limited by Section382 of the Internal Revenue Code. Benefitsnot expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carryforward amounts noted above. Based on management's assessment, we concluded thatno valuation allowance was necessary for the deferred tax assets as of* December 31, 2024.*

We file income tax returns in federal and various state jurisdictions. We are subject to examinations in federal jurisdiction for the years ended after* December 31, 2020.The statutes of limitations for state income tax returns remain open for tax years in accordance with each state's statutes. The audit of our New York State tax returns for the tax period from January 1, 2018to December 31, 2020was completed in August 2023and we paid additional tax and interest of $70,000 without penalties to settle the tax audit findings with New York State. We recorded a $1.1 million liability related to uncertain tax positions at December 31, 2024.We recognizedno material interest or penalties as part of income taxes for the years ended December 31, 2024,*2023, and2022.

Purchased Federal Transferable Tax Credits

On* September 13, 2024,we entered into a Purchase and Sale Agreement (PSA) for the purchase of approximately $23.2 million in federal transferable tax credits to be generated byfour* projects. Two of the projects were placed in service in2024 and generated approximately $12.9 million of federal transferable tax credits. The approximate purchase price of $12.0 million will be paid by us to the seller, an independentthird party, upon the achievement of certain benchmarks outlined in the PSA. We utilized the purchased tax credits of $12.9 million to offset amounts that otherwise would be due and payable to the IRS for2024 and potentially prior tax years. The accounting treatment is an increase in income tax receivable from the IRS, a liability to the seller, and a reduction to income tax expense in the period the qualifying project is placed in service.

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NOTE13 - 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 varying degrees 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 we do for loans reflected in the financial statements.

At* December 31, 2024and2023,* 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 at 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 $729,000 and $640,000 as of* December 31, 2024and December 31, 2023.We recorded a provision for unfunded loan commitments of $89,000 for the year ended December 31, 2024,and a reversal of provision for unfunded loan commitments of $516,000 for the year ended December 31, 2023.*

In addition, we invest in various affordable housing partnerships and Small Business Investment Company funds. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $5.7 million as of* December 31, 2024and $3.3 million as of December 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 GAAP. In the opinion of management, the disposition of such pending litigation willnot have a material effect on the Company's consolidated financial statements.

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NOTE14 - 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 at* December 31, 2024:*

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 $5.8 million, $5.7 million, and $5.4 million for the years ended* December 31, 2024,2023, and2022. The Company received rental income of $612,000, $570,000, and $548,000 for the years ended December 31, 2024,*2023, and2022.

The following table presents the operating lease related assets and liabilities recorded on the consolidated balance sheets, and the weighted-average remaining lease terms and discount rates as of the dates indicated*:*

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NOTE15 - RELATED PARTY TRANSACTIONS

There wereno loans or outstanding loan commitments to any principal officers or directors, or any of their affiliates at* December 31, 2024and2023.*

Deposits from principal officers, directors, and their affiliates at* December 31,*2024 and2023 were $32.5 million and $25.7 million.

Certain directors and their affiliates own $6.0 million of RBB subordinated debentures as of* December 31, 2024and2023.*

NOTE*16*** **- STOCK BASED COMPENSATION

RBB Bancorp 2010 Stock Option 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* May2017,* 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.

Amended and Restated RBB Bancorp 2017 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 have 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* December 31, 2024,there were 1,004,658 shares of common stock available for issuance under the Amended OSIP. This represents 5.7% of the issued and outstanding shares of the Company’s common stock as of December 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.

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We recognized total stock-based compensation expense of $1.1 million, $750,000, and $848,000 in2024, 2023, and2022. The total unrecognized stock-based expense totaled $1.9 million, $517,000, and $581,000 as of* December 31, 2024,*2023, and2022.

Stock Options

Compensation expense for stock options was $62,000, $246,000, and*$300,000* for the years ended* December**31,* 2024, 2023, and2022. Unrecognized stock-based compensation expense related to options was $117,000, $179,000, and $400,000 as of* December 31, 2024,2023, and2022. Unrecognized compensation expense related to stock options, as of December 31, 2024,*is expected to be recognized over the next 2.3 years.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions presented below for2023 and2022. No stock options have been granted after* March 31, 2023.*

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

The table below presents a summary of our stock option awards and activity as of and for the year ended* December 31, 2024:*

The total fair value of the shares vested was $581,000, $1.1 million, and $1.1 million in2024, 2023, and2022. Unvested stock options totaled 21,333,65,671, and 127,005 with a weighted average grant date fair value of $6.02, $4.99, and $4.69 as of* December 31, 2024,*2023 and2022. The decrease of unvested stock options during2024 was due to 28,337 stock options vested with a weighted average grant date stock price of $18.18, and 16,001 stock options exercised with a weighted average grant date stock price of $19.03.

Cash received from the exercise of 112,250 share options was $1.8 million for the year ended* December 31, 2024.Cash received from the exercise of 19,403 share options was $295,000 for the year ended December 31, 2023.Cash received from the exercise of 445,308 share options was $5.5 million for the year ended December 31, 2022.The intrinsic value of options exercised was $429,000, $90,000, and $4.0 million in2024,* 2023, and2022.

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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 138,668 RSUs during the year ended* December 31, 2024,with a weighted average price of $18.37. The RSUs granted during the year ended December 31, 2024included 31,270 PRSUs with an estimated fair value as of the March 20, 2024grant date of $19.13 and are subject to pre-established performance metrics with 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 original lives ranging from 1 to 4 years and PRSUs have an original life of 3 years. As of December 31, 2024,*there were 140,475 unvested RSUs outstanding.

The recorded compensation expense for RSUs was $994,000, $504,000, and $453,000 for the years ended* December 31, 2024,2023, and2022. Unrecognized stock-based compensation expense related to RSUs was $1.8 million and $338,000 as of December 31, 2024and2023.* As of* December 31, 2024,*unrecognized stock-based compensation expense related to RSUs is expected to be recognized over the next 2.3 years.

The following table presents restricted stock unit activity during thetwelve** months ended December 31, 2024.

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NOTE17 - 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.

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements. The capital conservation buffer is exclusively comprised of common equity Tier1 capital, and it applies to each of thethree risk-based capital ratios butnot to the leverage ratio. At* December 31, 2024,*the Company and the Bank were in compliance with the capital conservation buffer requirements. 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, we have elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. Management believes, at* December 31, 2024and December 31, 2023,*we satisfied all capital adequacy requirements to which we were subject.

As of* December 31, 2024and2023,* the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action (there areno conditions or events since that notification that management believes have changed the Bank’s category).

To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.

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

(1) These ratios are exclusive of the 2.5% capital conservation buffer.

(1) These ratios are exclusive of the 2.5% 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 bank 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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NOTE18 - FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with accounting guidance, 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. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). 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 the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques* may*include use of matrix pricing, 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

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 selling costs.

The fair value of collateral-dependent individually evaluated loans is based onthird party appraisals of the property, less management’s estimate of selling costs. Third party appraisals generally use a sales comparison or income capitalization approach to derive the appraised value based on market transactions involving similar or comparable properties. Adjustments are routinely made by thethird party appraisers to adjust for differences between the comparable sales and income data used in the appraisal. Adjustments* mayalso result from the consideration of relevant economic and demographic factors which may*affect property values. Positive adjustments in the appraisal represent increases to the sales comparisons and negative adjustments represent decreases.

Other Real Estate Owned (“OREO”):

OREO is initially recorded at fair value less estimated selling costs at the date of transfer. This amount becomes the property's new basis. Fair values are generally based onthird party appraisals of the property and discounted by management to reflect estimated selling costs (Level3).

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The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value as of the dates indicated:

The individually evaluated loan balances shown in the table above as measured on a non-recurring basis represent those defaulted loans for which expected credit loss was recognized during the years ended* December 31, 2024and2023.* The credit loss includes any charge-offs and specific reserves recognized during each period.

During the year ended* December 31, 2024,there were partial charge-offs of $1.6 million and specific reserves of $6.8 million for collateral-dependent individually evaluated loans with an aggregate fair value of $42.2 million as of December 31, 2024.The fair value is based onthird* party appraisals, including adjustments to comparable market data as summarized in the table below.

During the year ended* December 31, 2023,there were partial charge-offs of $521,000 on collateral-dependent individually evaluated loans with an aggregate fair value of $11.4 million as of December 31, 2023.The fair value is based onthird* party appraisals, including adjustments to comparable market data as summarized in the table below.

There wasno OREO as of* December 31, 2024or December 31, 2023.During2024,* we foreclosed on and soldthree properties, and recognized a total gain on OREO of $1.0 million.

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates donot reflect any premium or discount that could result from offering for sale atone time the entire holdings of a particular financial instrument. Becauseno market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that arenot considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and havenot been considered in many of the estimates.

Becauseno market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of our financial instruments; however, there are inherent limitations in any estimation technique.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management maximizes the use of observable inputs and attempts to minimize the use of unobservable inputs when determining fair value measurements. Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates donot reflect any premium or discount that could result from offering our entire holdings of a particular financial instrument for sale atone time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and havenot been considered in any of these estimates.

The following methods and assumptions were used to estimate the fair value of significant financial instrumentsnot previously presented:

Cash and Due From Banks -- The carrying amounts of cash and short-term instruments approximate fair values, a Level1 measurement.

Time Deposits in Other Banks -- Fair values for time deposits with other banks are estimated using DCF analyses, using interest rates currently being offered with similar terms, a Level1 measurement.

Investment securities available for sale and held to maturity -- Fair values are measured by using quoted market prices for similar securities or dealer quotes, a Level2 measurement.

Loans Held for Sale -- Fair value is based on quotes or bids fromthird party investors, recent sale prices, orthird party appraisals, a Level2 measurement.

Loans -- For variable rate loans that reprice frequently and withno significant change in credit risk, fair values are based on carrying amounts. The fair values for all other loans are estimated using DCF analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of loans as of* December 31, 2024,and2023* was measured using an exit price notion, a Level3 measurement.

Individually evaluated loans --Defaulted loans are reviewed individually for expected credit loss, if any, and are recorded at fair value on a non-recurring basis. These defaulted loans are excluded from the loan pools used within the collective evaluation of estimated credit losses. When a defaulted loan is collateral dependent, we measure expected credit loss based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is based onthird party appraisals, adjusted for estimated selling costs; a Level2 measurement. When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level3 measurement.

Equity Securities -- The fair values of equity securities are measured based on unobservable inputs at the reporting date, a Level3 measurement. Equity securities are comprised primarily of affordable housing investment funds, CRA investments, other bank stocks and investments in limited partnerships with less than3% ownership.

Investment in FHLB Stock-- Investments in FHLB stock are recorded at cost and measured for impairment quarterly. Ownership of FHLB stock is restricted to member banks and doesnot have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB stock is equal to the carrying amount and is categorized as a Level2 measurement.

Servicing Rights -- Mortgage and SBA servicing rights are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level3 measurement.

Accrued Interest Receivable --Accrued interest receivable includes accrued interest on investment securities (Level2), accrued interest on loans (Level3), accrued interest on due from banks (Level1), and accrued interest on equity securities (Level3).

Off-Balance Sheet Financial Instruments -- The fair value of commitments to extend credit and standby letters of credit, interest rate lock commitments and forward mortgage loan sales contracts is estimated using the fees currently charged to enter into similar agreements. Unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability result in a Level3 measurement.

Deposits -- The fair values disclosed for demand deposits, including interest and noninterest demand accounts, savings, and certain types of money market accounts are, by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits, a Level2 measurement. Early withdrawal of fixed-rate certificates of deposit isnot expected to be significant.

FHLB Advances -- The fair values of the Company’s FHLB Advances are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level3 measurement.

Long-Term Debt -- The fair values of the Company’s long-term borrowings are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level3 measurement.

Subordinated Debentures -- The fair values of the Company’s subordinated debentures are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level3 measurement.

Accrued Interest Payable --Accrued interest payable includes accrued interest on deposits (Level2), accrued interest on FHLB advances (Level3), accrued interest on long-term debt (Level3), and accrued interest on subordinated debentures (Level3).

Fair value is estimated in accordance with ASC Topic825**. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates donot reflect any premium or discount that could result from offering for sale atone time our entire holdings of a particular financial instrument. Becauseno market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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The fair value hierarchy level and estimated fair value of significant financial instruments at* December 31, 2024and2023* are summarized as follows:

(1) Included in “Accrued interest and other assets” on the consolidated balance sheets.

NOTE19 - 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”):

Options to purchase 18,000,332,500, andzero shares of common stock were excluded from the calculation of diluted earnings per share for* December 31, 2024,2023, and2022, because their effect would have been anti-dilutive. There were zero,6,012, andzero antidilutive unvested RSUs outstanding for December 31, 2024,*2023, and2022.

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NOTE20 – REVENUE FROM CONTRACTS WITH CUSTOMERS

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

Fees and Services Charges on Deposit Accounts

Fees and service charges on deposit accounts include charges for analysis, overdraft, cashier's check fees, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services, and can be terminated at will by either party; this includes fees from money service businesses (MSBs). Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met. Periodic service charges are generally collected monthly directly from the customer’s deposit account, and at the end of a statement cycle, while transaction based service charges are typically collected at the time of or soon after the service is performed.

Wealth Management Fees

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. 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 commission fees we earn are variable and are generally received monthly. We recognize revenue for the services performed based on actual transaction details received from the broker dealer that we engage.

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Gain (loss) on Sales of Other Real Estate Owned* and Fixed Assets*

We record a gain or loss from the sale of OREO and fixed assets, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement. When we finance the sale of OREO to a buyer, we assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, we adjust the transaction price and related gain or loss on sale if a significant financing component is present.

NOTE21 – SEGMENT INFORMATION

Our reportable segments are determined by the Chief Executive Officer and Chief Financial Officer, who are the designated chief operating decision makers ("CODM"), based upon information provided by our products and services offered, primarily banking operations. The segments are also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are aggregated if operating performance, products/services, and customers are similar. The CODM will evaluate the financial performance of our business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing our segment and in the determination of allocating resources. The CODM uses consolidated net income, total assets, total loans, and total deposits to benchmark us against our competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, provisions for credit losses and payroll provide the significant expenses in the banking operation. All operations are domestic.

Accounting policies for segments are the same as those described in Note2 — Summary of Significant Accounting Policies. Segment performance is evaluated using consolidated net income, total assets, total loans, and total deposits. Information reported internally for performance assessment by the CODM follows:

NOTE*22*** – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS**

At* December 31, 2024and December 31, 2023,investments in qualified affordable housing projects totaled $10.1 million and $6.4 million. This balance is reflected inaccrued interest and other assets on the consolidated balance sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $4.8 million at December 31, 2024and $2.3 million at December 31, 2023.*The Company expects to fulfill these commitments between 2025 and 2041.

During the years ended* December 31, 2024,2023 and2022, werecognized tax credits from these investments totaling $1.2 million, $1.0 million and $991,000. We hadno impairment losses during the years ended December 31, 2024,2023 and2022. The amortization of these investments was also included within income tax expense as an offset to such tax credits. During the years ended December 31, 2024,*2023 and2022, we recognized amortization expense of $1.3 million, $1.1 million, and $1.1 million.

NOTE*23*** - PARENT ONLY CONDENSED FINANCIAL INFORMATION**

The parent company only condensed balance sheet as of* December 31, 2024and2023,* and the related condensed statements of income and condensed statements of cash flows for the years ended* December 31, 2024,*2023 and2022 are presented below:

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Condensed Statements of Income

Condensed Statements of Cash Flows

NOTE*24*** – REPURCHASE OF COMMON STOCK**

On* February**29,* 2024, the Board of Directors authorized a stock repurchase plan providing for the repurchase of up to 1,000,000 shares of our common stock through* March 31, 2026,which was completed by December 31, 2024.We repurchased 1,036,750 shares of common stock for a total of $20.7 million at a weighted average share price of $19.77 during2024.*

On* April**22,* 2021, * March 16, 2022and June 14, 2022,*the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000 shares of our common stock for each authorization date.

In2023, we repurchased 396,374 shares of common stock for a total of $6.8 million at a weighted average share price of $17.02. In2022, we repurchased 902,526 shares of common stock for a total of $19.8 million at a weighted average share price of $21.96.

NOTE25 – SUBSEQUENT EVENTS

On* January 16, 2025,the Company announced the Board of Directors had declared a common stock cash dividend of $0.16 per share, payable on February 12, 2025 to common shareholders of record as of January 31, 2025.*

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