UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2023~~

March 31, 2024 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-38149

RBB BANCORP

(Exact name of registrant as specified in its charter)

California

27-2776416

(State or other jurisdiction of

~~Incorporation~~incorporation or organization)

(I.R.S. Employer

Identification No.)

1055 Wilshire Blvd., Suite 1200,
Los Angeles, California	90017

(Address of principal executive offices)

(Zip Code)

(213) 627-9888

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, No Par Value		RBB		NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock of the registrant: ~~18,995,303~~18,440,274 outstanding as of ~~October 31, 2023.~~May 3, 2024.

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2023~~MARCH 31, 2024 AND DECEMBER 31, ~~2022~~2023

(In thousands, except share amounts)

	(Unaudited)						(Unaudited)
	*September 30,*			*December 31,*			March 31,			December 31,
	*2023*			*2022*			2024			2023
Assets
Cash and due from banks	$	330,791		$	83,548		$	269,243		$	431,373
Interest-earning deposits in other financial institutions		600			600			600			600
Securities:
Available for sale		354,378			256,830			335,194			318,961
Held to maturity (fair value of $4,750 and $5,563 at September 30, 2023 and December 31, 2022, respectively)		5,214			5,729
Held to maturity (fair value of $5,047 and $5,097 at March 31, 2024 and December 31, 2023)								5,204			5,209
Mortgage loans held for sale		62			—			3,903			1,911
Loans held for investment:
Real estate		2,929,017			3,053,864
Commercial and other		191,552			283,106
Total loans		3,120,569			3,336,970
Loans held for investment								3,026,887			3,031,319
Unaccreted discount on acquired loans		(998	)		(1,238	)		(921	)		(970	)
Deferred loan costs, net		1,381			717			1,395			1,512
Total loans, net of deferred loan costs and unaccreted discounts on acquired loans		3,120,952			3,336,449
Allowance for credit losses		(42,430	)		(41,076	)
Net loans		3,078,522			3,295,373
Total loans held for investment, net of deferred loan costs and unaccreted discounts on acquired loans								3,027,361			3,031,861
Allowance for loan losses								(41,688	)		(41,903	)
Total loans held for investment, net								2,985,673			2,989,958

Premises and equipment, net		26,134			27,009			25,363			25,684
Federal Home Loan Bank (FHLB) stock		15,000			15,000			15,000			15,000
Net deferred tax assets		18,323			16,977			16,554			15,765
Cash surrender value of bank owned life insurance (BOLI)		58,346			57,310			59,101			58,719
Goodwill		71,498			71,498			71,498			71,498
Servicing assets		8,439			9,521			7,794			8,110
Core deposit intangibles		3,010			3,718			2,594			2,795
Right-of-use assets- operating leases		29,949			25,447			31,231			29,803
Accrued interest and other assets		69,088			50,498			49,054			50,639
Total assets	$	4,069,354		$	3,919,058		$	3,878,006		$	4,026,025
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand							$	539,517		$	539,621
Savings, NOW and money market accounts								642,840			632,729
Time deposits $250,000 and under								1,083,898			1,190,821
Time deposits over $250,000								762,074			811,589
Total deposits								3,028,329			3,174,760

Reserve for unfunded commitments								671			640
FHLB advances								150,000			150,000
Long-term debt, net of issuance costs								119,243			119,147
Subordinated debentures, net								14,993			14,938
Lease liabilities - operating leases								32,690			31,191
Accrued interest and other liabilities								18,094			24,089
Total liabilities								3,364,020			3,514,765

Commitments and contingencies - Note 12

Shareholders' equity:
Preferred Stock - 100,000,000 shares authorized, no par value; none outstanding								—			—
Common Stock - 100,000,000 shares authorized, no par value; 18,578,132 shares issued and outstanding at March 31, 2024 and 18,609,179 shares issued and outstanding at December 31, 2023								271,645			271,925
Additional paid-in capital								3,348			3,623
Retained earnings								259,903			255,152
Non-controlling interest								72			72
Accumulated other comprehensive loss, net								(20,982	)		(19,512	)
Total shareholders’ equity								513,986			511,260
Total liabilities and shareholders’ equity							$	3,878,006		$	4,026,025

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

~~RBB BANCORP AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS~~

~~SEPTEMBER 30, 2023~~ ~~AND DECEMBER 31, 2022~~

~~(In thousands, except share amounts)~~

(Unaudited)

September 30,

December 31,

2023

2022

Liabilities and Shareholders’ Equity

Deposits:

Noninterest-bearing demand
$ 572,393 $ 798,741
Savings, NOW and money market accounts
608,020 615,339
Time deposits $250,000 and under
1,237,831 837,369
Time deposits over $250,000
735,828 726,234
Total deposits
3,154,072 2,977,683

Reserve for unfunded commitments
654 1,157
FHLB advances
150,000 220,000
Long-term debt (net of unamortized debt issuance costs of $981 and $1,415 at September 30, 2023 and December 31, 2022, respectively)
174,019 173,585
Subordinated debentures
14,884 14,720
Lease liabilities - operating leases
31,265 26,523
Accrued interest and other liabilities
41,949 20,827
Total liabilities
3,566,843 3,434,495

Commitments and contingencies - Note 13

Shareholders' equity:

Preferred Stock - 100,000,000 shares authorized, no par value; none outstanding
— —
Common Stock - 100,000,000 shares authorized, no par value; 18,995,303 shares issued and outstanding at September 30, 2023 and 18,965,776 shares issues and outstanding at December 31, 2022
277,462 276,912
Additional paid-in capital
3,579 3,361
Retained earnings
247,159 225,883
Non-controlling interest
72 72
Accumulated other comprehensive loss, net
(25,761 ) (21,665 )
Total shareholders’ equity
502,511 484,563
Total liabilities and shareholders’ equity
$ 4,069,354 $ 3,919,058

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

~~Table of Contents~~

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME – (UNAUDITED)

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2024, DECEMBER 31, 2023, AND ~~2022~~MARCH 31, 2023

(In thousands, except per share amounts)


	*Three Months Ended*
	*March 31, 2024*		*December 31, 2023*			*March 31, 2023*
Interest and dividend income:
Interest and fees on loans	$	45,547	$	45,895		$	49,942
Interest on interest-earning deposits		5,040		4,650			791
Interest on investment securities		3,611		3,706			2,536
Dividend income on FHLB stock		331		312			265
Interest on federal funds sold and other		266		269			217
Total interest and dividend income		54,795		54,832			53,751
Interest expense:
Interest on savings deposits, NOW and money market accounts		4,478		4,026			2,296
Interest on time deposits		23,322		22,413			13,406
Interest on long-term debt and subordinated debentures		1,679		2,284			2,539
Interest on other borrowed funds		439		440			1,409
Total interest expense		29,918		29,163			19,650
Net interest income before provision/(reversal) for credit losses		24,877		25,669			34,101
Provision/(reversal) for credit losses		—		(431	)		2,014
Net interest income after provision/(reversal) for credit losses		24,877		26,100			32,087
Noninterest income:
Service charges and fees		992		972			1,023
Gain on sale of loans		312		116			29
Loan servicing fees, net of amortization		589		616			731
Increase in cash surrender value of life insurance		382		374			335
Gain/(loss) on other real estate owned		724		(57	)		—
Other income		373		5,373			244
Total noninterest income		3,372		7,394			2,362
Noninterest expense:
Salaries and employee benefits		9,927		8,860			9,864
Occupancy and equipment expenses		2,443		2,387			2,398
Data processing		1,420		1,357			1,299
Legal and professional		880		1,291			3,013
Office expenses		356		349			375
Marketing and business promotion		172		241			300
Insurance and regulatory assessments		982		1,122			504
Core deposit premium		201		215			237
Other expenses		588		571			921
Total noninterest expense		16,969		16,393			18,911
Net income before income taxes		11,280		17,101			15,538
Income tax expense		3,244		5,028			4,568
Net income	$	8,036	$	12,073		$	10,970

Net income per share
Basic	$	0.43	$	0.64		$	0.58
Diluted		0.43		0.64			0.58

Weighted-average common shares outstanding
Basic		18,601,277		18,887,501			18,985,846
Diluted		18,666,683		18,900,351			19,049,685

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2023

2022

2023

2022

Interest and dividend income:

Interest and fees on loans
$ 47,617 $ 43,588 $ 148,369 $ 121,631
Interest on interest-earning deposits
3,193 373 6,096 655
Interest on investment securities
4,211 1,784 10,321 4,210
Dividend income on FHLB stock
290 224 814 673
Interest on federal funds sold and other
252 445 716 1,149
Total interest income
55,563 46,414 166,316 128,318
Interest expense:

Interest on savings deposits, now and money market accounts
3,106 1,529 8,180 3,091
Interest on time deposits
21,849 2,460 54,424 5,540
Interest on subordinated debentures and long-term debt
2,579 2,427 7,668 7,154
Interest on other borrowed funds
440 1,020 2,428 1,974
Total interest expense
27,974 7,436 72,700 17,759
Net interest income
27,589 38,978 93,616 110,559
Provision for credit losses
1,399 1,766 3,793 3,048
Net interest income after provision for credit losses
26,190 37,212 89,823 107,511
Noninterest income:

Service charges, fees and other
1,357 1,214 4,150 3,745
Gain on sale of loans
212 265 258 1,783
Loan servicing fees, net of amortization
623 724 1,959 1,628
Increase in cash surrender value of life insurance
356 332 1,036 986
Gain on sale of OREO
190 — 190 —
Gain on sale of fixed assets
32 — 32 757
2,770 2,535 7,625 8,899
Noninterest expense:

Salaries and employee benefits
9,744 9,561 28,935 28,558
Occupancy and equipment expenses
2,414 2,349 7,242 6,728
Data processing
1,315 1,306 3,969 3,857
Legal and professional
1,022 1,077 6,907 4,337
Office expenses
437 382 1,163 1,033
Marketing and business promotion
340 364 892 1,172
Insurance and regulatory assessments
730 441 2,043 1,360
Core deposit premium
236 277 708 833
Other expenses
638 940 2,445 2,489
16,876 16,697 54,304 50,367
Income before income taxes
12,084 23,050 43,144 66,043
Income tax expense
3,611 6,398 12,752 19,297
Net income
$ 8,473 $ 16,652 $ 30,392 $ 46,746

Net income per share

Basic
$ 0.45 $ 0.88 $ 1.60 $ 2.44
Diluted
0.45 0.87 1.60 2.41

Weighted-average common shares outstanding

Basic
18,995,303 18,988,443 18,991,579 19,142,732
Diluted
18,997,304 19,130,447 19,013,838 19,415,558

Table of Contents

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2024, DECEMBER 31, 2023, AND MARCH 31, 2023

(In thousands)

	Three Months Ended
	March 31, 2024			December 31, 2023			March 31, 2023
Net income	$	8,036		$	12,073		$	10,970

Other comprehensive (loss)/income:
Unrealized (loss)/gain on securities available for sale		(2,085	)		8,987			2,577
Related income tax effect		615			(2,738	)		(790	)
Total other comprehensive (loss)/income		(1,470	)		6,249			1,787

Total comprehensive income	$	6,566		$	18,322		$	12,757

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

RBB BANCORP AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~ – ~~(UNAUDITED)~~

~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022~~

~~(In thousands)~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2023

2022

2023

2022

Net income
$ 8,473 $ 16,652 $ 30,392 $ 46,746

Other comprehensive loss:

Unrealized loss on securities available for sale:
(4,824 ) (9,773 ) (5,838 ) (30,140 )

Related income tax effect:
1,468 2,999 1,742 9,275

Total other comprehensive loss
(3,356 ) (6,774 ) (4,096 ) (20,865 )

Total comprehensive income
$ 5,117 $ 9,878 $ 26,296 $ 25,881

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

~~Table of Contents~~

~~RBB BANCORP AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – (UNAUDITED)

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2024 AND 2023 ~~AND 2022~~

(In thousands, except share amounts)

Common Stock

Accumulated

Shares

Amount

Additional Paid-in Capital

Retained Earnings

Non- Controlling Interest

Other Comprehensive Loss, net

Total

Balance at June 30, 2023
18,995,303 $ 277,462 $ 3,436 $ 241,725 $ 72 $ (22,405 ) $ 500,290
Net income
— — — 8,473 — — 8,473
Stock-based compensation
— — 143 — — — 143
Cash dividends on common stock ($0.16 per share)
— — — (3,039 ) — — (3,039 )
Other comprehensive loss, net of taxes
— — — — — (3,356 ) (3,356 )
Balance at September 30, 2023
18,995,303 $ 277,462 $ 3,579 $ 247,159 $ 72 $ (25,761 ) $ 502,511

Balance at June 30, 2022
18,881,829 $ 275,096 $ 4,193 $ 197,889 $ 72 $ (15,747 ) $ 461,503
Net income
— — — 16,652 — — 16,652
Stock-based compensation
— — 274 — — — 274
Restricted stock unit vested
6,450 175 (175 ) — — — —
Cash dividends on common stock ($0.14 per share)
— — — (2,663 ) — — (2,663 )
Stock options exercised
217,932 3,680 (1,099 ) — — — 2,581
Repurchase of common stock
(94,539 ) (1,370 ) — (608 ) — — (1,978 )
Other comprehensive loss, net of taxes
— — — — — (6,774 ) (6,774 )
Balance at September 30, 2022
19,011,672 $ 277,581 $ 3,193 $ 211,270 $ 72 $ (22,521 ) $ 469,595

	*Common Stock*														*Accumulated*
	*Shares*			*Amount*			*Additional Paid-in Capital*			*Retained Earnings*			*Non- Controlling Interest*		*Other Comprehensive (Loss)/income, net*			*Total*
Balance at January 1, 2024		18,609,179		$	271,925		$	3,623		$	255,152		$	72	$	(19,512	)	$	511,260
Net income		—			—			—			8,036			—		—			8,036
Stock-based compensation, net		—			—			140			—			—		—			140
Restricted stock units vested		8,238			145			(209	)		—			—		—			(64	)
Cash dividends on common stock ($0.16 per share)		—			—			—			(2,976	)		—		—			(2,976	)
Stock options exercised		41,000			747			(206	)		—			—		—			541
Repurchase of common stock		(80,285	)		(1,172	)		—			(309	)		—		—			(1,481	)
Other comprehensive loss, net of taxes		—			—			—			—			—		(1,470	)		(1,470	)
Balance at March 31, 2024		18,578,132		$	271,645		$	3,348		$	259,903		$	72	$	(20,982	)	$	513,986

Balance at January 1, 2023		18,965,776		$	276,912		$	3,361		$	225,883		$	72	$	(21,665	)	$	484,563
Net income		—			—			—			10,970			—		—			10,970
Stock-based compensation, net		—			—			316			—			—		—			316
Restricted stock units vested		17,974			361			(361	)		—			—		—			—
Cash dividends on common stock ($0.16 per share)		—			—			—			(3,038	)		—		—			(3,038	)
Stock options exercised		9,153			205			(46	)		—			—		—			159
Other comprehensive income, net of taxes		—			—			—			—			—		1,787			1,787
Balance at March 31, 2023		18,992,903		$	277,478		$	3,270		$	233,815		$	72	$	(19,878	)	$	494,757

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

Common Stock

Accumulated

Shares

Amount

Additional Paid-in Capital

Retained Earnings

Non- Controlling Interest

Other Comprehensive Loss, net

Total

Balance at January 1, 2023
18,965,776 $ 276,912 $ 3,361 $ 225,883 $ 72 $ (21,665 ) $ 484,563
Net income
— — — 30,392 — — 30,392
Stock-based compensation
— — 609 — — — 609
Restricted stock unit vested
20,374 391 (391 ) — — — —
Cash dividends on common stock ($0.48 per share)
— — — (9,116 ) — — (9,116 )
Stock options exercised
9,153 159 — — — — 159
Other comprehensive loss, net of taxes
— — — — — (4,096 ) (4,096 )
Balance at September 30, 2023
18,995,303 $ 277,462 $ 3,579 $ 247,159 $ 72 $ (25,761 ) $ 502,511

Balance at January 1, 2022
19,455,544 $ 282,335 $ 4,603 $ 181,329 $ 72 $ (1,656 ) $ 466,683
Cumulative effect of change in accounting principle related to ASC 326 ⁽¹⁾
— — — (2,204 ) — — (2,204 )
Net income
— — — 46,746 — — 46,746
Stock-based compensation
— — 680 — — — 680
Restricted stock cancelled
(40,000 ) — — — — — —
Restricted stock vested
— 355 (355 ) — — — —
Restricted stock unit vested
7,450 202 (202 ) — — — —
Cash dividends on common stock ($0.42 per share)
— — — (8,074 ) — — (8,074 )
Stock options exercised
442,308 6,969 (1,533 ) — — — 5,436
Repurchase of common stock
(853,630 ) (12,280 ) — (6,527 ) — — (18,807 )
Other comprehensive loss, net of taxes
— — — — — (20,865 ) (20,865 )
Balance at September 30, 2022
19,011,672 $ 277,581 $ 3,193 $ 211,270 $ 72 $ (22,521 ) $ 469,595

~~(1) Represents the impact of the adoption of Accounting Standards Update ASU 2016-13, Financial Instruments~~RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – ~~Credit Losses (Topic 326) on January 1, 2022.~~(UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(In thousands)

	*Three Months Ended*
	*March 31,*
	*2024*			*2023*
Operating activities
Net income	$	8,036		$	10,970
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of premises and equipment		479			504
Net accretion of securities, loans, deposits, and other		(1,430	)		(629	)
Amortization of investment in affordable housing tax credits		301			282
Amortization of intangible assets		597			609
Amortization of right-of-use asset		1,251			1,280
Change in operating lease liabilities		(1,180	)		(1,209	)
Provision for credit losses		—			2,014
Stock-based compensation		140			316
Deferred tax benefit		(174	)		(293	)
Gain on sale of loans		(312	)		(29	)
Gain on sale and transfer of OREO		(724	)		—
Increase in cash surrender value of life insurance		(382	)		(335	)
Loans originated and purchased for sale, net		(7,252	)		(831	)
Proceeds from loans sold		9,077			991
Other items		(3,578	)		3,178
Net cash provided by operating activities		4,849			16,818
Investing activities
Securities available for sale:
Purchases		(113,293	)		(87,070	)
Maturities, repayments and calls		96,082			53,838
Purchase of other equity securities, net		(71	)		(222	)
Net increase of investment in qualified affordable housing projects		—			(24	)
Net increase in loans		(674	)		(6,124	)
Proceeds from sales of OREO		1,573			—
Purchases of premises and equipment		(149	)		(524	)
Net cash used in investing activities		(16,532	)		(40,126	)
Financing activities
Net increase (decrease) in demand deposits and savings accounts		10,007			(124,803	)
Net (decrease) increase in time deposits		(156,474	)		298,145
Proceeds from FHLB advances		—			80,000
Repayments of FHLB Advances		—			(80,000	)
Cash dividends paid		(2,976	)		(3,038	)
Restricted stock units vesting		(64	)		—
Common stock repurchased, net of repurchased costs		(1,481	)		—
Exercise of stock options		541			159
Net cash (used in) provided by financing activities		(150,447	)		170,463
Net (decrease) increase in cash and cash equivalents		(162,130	)		147,155
Cash and cash equivalents at beginning of period		431,373			83,548
Cash and cash equivalents at end of period	$	269,243		$	230,703
Supplemental disclosure of cash flow information
Cash paid during the period:
Interest paid	$	35,300		$	18,700
Taxes paid (refund)		—			(46	)
Non-cash investing and financing activities:
Transfer from loans to other real estate owned		1,920			—
Loans transfer to held for sale, net		3,505			132
Additions to servicing assets		80			10
Net change in unrealized holding gain on securities available for sale		(2,085	)		2,577
Recognition of operating lease right-of-use assets		(2,679	)		(5,764	)
Recognition of operating lease liabilities		2,679			5,764

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

~~RBB BANCORP AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022~~

~~(In thousands)~~

Nine Months Ended

September 30,

2023

2022

Operating activities

Net income
$ 30,392 $ 46,746
Adjustments to reconcile net income to net cash from Operating activities:

Depreciation and amortization of premises and equipment
1,520 1,869
Net accretion of securities, loans, deposits, and other
(4,257 ) (391 )
Amortization of investment in affordable housing tax credits
846 778
Amortization of intangible assets
1,976 3,023
Amortization of right-of-use asset
3,765 3,858
Change in operating lease liabilities
(3,525 ) (3,754 )
Provision for credit losses
3,793 3,048
Stock-based compensation
609 680
Deferred tax benefit 395 72
Gain on sale of loans
(258 ) (1,783 )
Gain on sale of OREO
(190 ) —
Gain on sale of fixed assets
(32 ) (757 )
Increase in cash surrender value of life insurance
(1,036 ) (986 )
Loans originated and purchased for sale, net
(10,236 ) (37,612 )
Proceeds from loans sold
14,626 56,480
Other items
21,716 17
Net cash provided by operating activities
60,104 71,288
Investing activities

Securities available for sale:

Purchases
(592,177 ) (340,226 )
Maturities, repayments and calls
493,220 412,480
Securities held to maturity:

Maturities, repayments and calls
500 500
Purchase of other equity securities, net
(378 ) (1,208 )
Net increase of investment in qualified affordable housing projects
(72 ) (133 )
Net decrease (increase) in loans
188,856 (294,693 )
Proceeds from sales of OREO
483 —
Net cash received in connection with a branch purchase
— 71,352
Proceeds from sale of fixed assets
32 757
Purchases of premises and equipment
(614 ) (1,473 )
Net cash provided by (used in) investing activities
89,850 (152,644 )
Financing activities

Net decrease in demand deposits and savings accounts
(233,667 ) (502,364 )
Net increase (decrease) in time deposits
409,913 (5,028 )
Proceeds from FHLB advances
80,000 470,000
Repayments of FHLB Advances
(150,000 ) (380,000 )
Cash dividends paid
(9,116 ) (8,074 )
Common stock repurchased, net of repurchased costs
— (18,807 )
Exercise of stock options
159 5,436
Net cash provided by (used in) financing activities
97,289 (438,837 )
Net increase (decrease) in cash and cash equivalents
247,243 (520,193 )
Cash and cash equivalents at beginning of period
83,548 694,372
Cash and cash equivalents at end of period
$ 330,791 $ 174,179
Supplemental disclosure of cash flow information

Cash paid during the period:

Interest paid
$ 64,936 $ 15,500
Taxes paid
2,829 19,263
Non-cash investing and financing activities:

Loans transfer to held for sale, net
4,194 12,313
Additions to servicing assets
186 727
Net change in unrealized holding gain on securities available for sale
(5,838 ) (30,140 )
Recognition of operating lease right-of-use assets
(8,267 ) (6,172 )
Recognition of operating lease liabilities
8,267 6,172
Acquisition:

Assets acquired, net of cash received
— 8,183
Liabilities assumed
— 81,790
Cash considerations
— (71,040 )
Goodwill
— 2,255

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

~~Table of Contents~~

RBB BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

NOTE 1 - BUSINESS DESCRIPTION

RBB Bancorp (“RBB”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank ~~(“Bank”~~("Bank") and RBB Asset Management Company (“RAM”)~~, collectively referred to herein as the “Company.”~~. RAM was formed to hold and manage problem assets acquired in business combinations. When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank and RAM, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis.

At ~~September~~March 31, 2024, ~~30,~~~~2023,~~ ~~the Company~~we had total ~~consolidated~~ assets of ~~$4.1~~$3.9 billion, ~~gross consolidated~~total loans of ~~$3.1~~$3.0 billion, total ~~consolidated~~ deposits of ~~$3.2~~$3.0 billion and total ~~consolidated~~ shareholders' equity of ~~$502.5~~$514.0 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol ~~“RBB.”~~“RBB”.

The Bank provides business-banking products and services predominantly to the Asian-American communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, in Las Vegas ~~Nevada,~~(Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison ~~New Jersey, Chicago, Illinois,~~(New Jersey) and Honolulu ~~Hawaii. Specific~~(Hawaii). The products and services include ~~remote deposit, E-banking, mobile banking,~~ commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository ~~accounts.~~ accounts, including specialized services such as remote deposit, E-banking, and mobile banking.

We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A minority depository institution is eligible to receive from the FDIC and other federal regulatory agencies training, technical assistance and review, and assistance regarding the implementation of proposed new deposit taking and lending programs, as well as with respect to the adoption of applicable policies and procedures governing such programs. We intend to maintain our minority depository institution designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The ~~Company operates~~minority depository institution designation has been historically beneficial to us, as the FDIC has reviewed and assisted with the implementation of our deposit and lending programs, and we continue to use the program for technical assistance.

We operate full-service banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, and Westlake Village, California; Las Vegas, Nevada; Manhattan, Brooklyn, Flushing, and Elmhurst, New York; the Chinatown and Bridgeport neighborhoods of Chicago, Illinois; Edison, New Jersey; and Honolulu, Hawaii. ~~The Company’s~~Our primary source of revenue is providing loans to customers, who are predominantly small and middle-market businesses and individuals.

~~The Company generates its~~We generate our revenue primarily from interest received on loans and, to a lesser extent, from interest received on investment ~~securities and interest-earning deposits. The Company~~securities. We also ~~derives~~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. ~~The Company’s~~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.

~~The Company has~~We completed six whole bank acquisitions and one branch acquisition from July 2011 through January 2022. All of ~~the Company’s~~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. ~~The Company previously disclosed that, on~~ ~~December 28, 2021,~~ ~~it entered into a definitive agreement to acquire Gateway Bank F.S.B. (“Gateway”) in an all cash transaction, subject to certain terms and conditions. On~~ ~~September 28, 2023,~~ ~~the Company announced that it and Gateway have mutually agreed to terminate the definitive agreement, effective as of~~ ~~September 28, 2023.~~ Neither party has or will have any liability or pay any penalty to the other party as a result of the termination, and each party has released the other from any and all claims related to the definitive agreement or the transactions contemplated by the definitive agreement.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ~~and the~~ ~~nine~~ ~~months~~ ended ~~September~~March 31, 2024 ~~30,~~~~2023~~are not necessarily indicative of the results for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, ~~2022,~~2023, included in our Annual Report ~~filed~~ on Form 10-K for the fiscal year ended December 31, ~~2022~~ 2023 (~~and Amendment~~ ~~No.~~1 ~~to the Annual Report on Form~~ 10~~-K/A (collectively~~ our “~~2022~~2023 Annual Report”).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. It is reasonably possible that these estimates could change as actual results could differ from those estimates. The allowance for credit losses, realization of deferred tax assets, the valuation of goodwill and other intangible assets, other derivatives, and the fair value measurement of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements were compiled in accordance with the accounting policies set forth in "Note 2 – Basis of Presentation and Summary of Significant Accounting Policies" in our consolidated financial statements as of and for the year ended December 31, ~~2022,~~2023, included in our ~~2022~~2023 Annual Report. The Financial Accounting Standards Board ("FASB") issues Accounting Standards Updates ("ASU" or “Update”) and Accounting Standards Codifications (“ASC”), which are the primary source of GAAP.

Table of Contents

Recent Accounting Pronouncements

Recently adopted

In June ~~2016,~~ ~~the FASB issued ASU~~ ~~2016~~-~~13,~~ ~~Measurement of Credit Losses on Financial Instrument (Topic~~ ~~326~~~~), including subsequent amendments to this ASU. This ASU changes how entities measure credit losses for most financial assets and certain other instruments that are~~ ~~not~~ measured at fair value through net income. The standard replaced today's "incurred loss" approach with an "expected loss" model. The new model, referred to as the current expected credit loss ("CECL") model, applies to: (1~~) financial assets subject to credit losses and measured at amortized cost, and (~~2~~) certain off-balance sheet credit exposures. This includes, but is~~ ~~not~~ limited to, loans, leases, held to maturity securities, loan commitments, and financial guarantees. Available for sale (“AFS”) debt securities with unrealized losses are recognized as allowances rather than reductions in the amortized cost of the securities. ASU ~~2016~~-13 also expands the disclosure requirements regarding an entity's assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. On ~~December 31, 2022,~~ ~~the Company retroactively adopted CECL effective~~ ~~January 1, 2022~~ ~~as the Company's status as an emerging growth company expired as of~~ ~~December~~ ~~31,~~~~2022.~~ A ~~one~~~~-time cumulative adjustment of $2.1 million was made to the Company's allowance for credit losses (“ACL”) which was recorded through retained earnings upon adoption of ASU~~ ~~2016~~-13 ~~as of~~ ~~January 1, 2022.~~

~~The following table sets forth the cumulative effect of the changes to the Company's consolidated balance sheet at~~ ~~January 1, 2022,~~ ~~for the adoption of ASU~~ ~~2016~~-~~13:~~

Adjustments

due to

Balance at

Adoption of

Balance at

(dollars in thousands)

December 31, 2021

ASC 326

January 1, 2022

Assets:

Allowance for credit losses on loans
$ 32,912 $ 2,135 $ 35,047
Deferred tax assets
4,855 977 5,832
Liabilities:

Allowance for unfunded commitments
$ 1,203 $ 1,045 $ 2,248
Shareholders' equity:

Retained earnings, net of tax
$ 181,329 $ (2,204 ) $ 179,125

In ~~February 2019,~~ ~~the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a~~ ~~three~~~~-year period the day-~~~~one~~ ~~adverse regulatory capital effects of ASU~~ ~~2016~~-~~13.~~ ~~Additionally, in~~ ~~March 2020,~~ ~~the U.S. federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional~~ ~~two~~ ~~years for a total transition period of up to~~ ~~five~~ years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the novel coronavirus disease ~~2019~~ ~~("COVID-~~~~19"~~~~) pandemic. As a result, entities will have the option to gradually phase in the full effect of CECL on regulatory capital over a~~ ~~five~~~~-year transition period. Effective~~ ~~January 1, 2022,~~ ~~the Company adopted ASU~~ ~~2016~~-~~13,~~ ~~reflected the full effect of CECL at~~ ~~December 31, 2022,~~ ~~and did~~ ~~not~~ ~~elect the~~ ~~three~~~~-year or~~ ~~five~~~~-year CECL phase-in options on regulatory capital.~~

In ~~February 2020,~~ ~~the FASB issued ASU~~ ~~2020~~-~~02,~~ ~~“Financial Instruments—Credit Losses (Topic~~ ~~326~~~~) and Leases (Topic~~ ~~842~~~~)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin~~ ~~No.~~~~119~~ ~~and Update to SEC Section on Effective Date Related to Accounting Standards Update~~ ~~No.~~~~2016~~-~~02,~~ ~~Leases (Topic~~ ~~842~~) (SEC Update).” This is an amendment to add the SEC Staff guidance on CECL to the FASB codification. It contains guidance on what the SEC would expect the Company to perform and document when measuring and recording its ACL for financial assets recorded at amortized cost. The Company retroactively adopted CECL on ~~January~~ 1,~~2022.~~

In ~~October 2021~~, ~~the FASB issued ASU~~ ~~2021~~-08, "Accounting for Contract Assets and Contract Liabilities," to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue recognition guidance as if the acquirer had originated the contract. That is, such acquired contracts will ~~not~~ be measured at fair value. The ASU is potentially material to the Company, depending on the materiality of an acquired contract asset or liability. The Update is effective for public companies in fiscal years starting after ~~December 15, 2022.~~ ~~The Company adopted ASU~~ ~~2021~~-08 on ~~January 1, 2023~~ ~~and the adoption did~~ ~~not~~ ~~have a material impact on the Company's consolidated financial statements.~~

In ~~March 2022,~~ ~~the FASB issued ASU~~ ~~2022~~-~~02,~~ ~~"Financial Instruments—Credit Losses (Topic~~ ~~326~~~~)". The standard addresses the following: (~~1) eliminates the accounting guidance for troubled debt restructurings ("TDRs"), and will require an entity to determine whether a modification results in a new loan or a continuation of an existing loan, (2~~) expands disclosures related to modifications, and (~~3~~) will require disclosure of current period gross write-offs of financing receivables within the vintage disclosures table. The amendments in this ASU are effective for fiscal years beginning after~~ ~~December 15, 2022,~~ including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. Early adoption of the amendments in this ASU is permitted. An entity ~~may~~ ~~elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company adopted ASU~~ ~~2022~~-02 on ~~January 1, 2023~~ ~~and the adoption did~~ ~~not~~ ~~have a material impact on the Company’s consolidated financial statements.~~

~~Table of Contents~~

In ~~March 2020,~~ ~~the FASB issued ASU~~ ~~2020~~-~~04,~~ ~~"Reference Rate Reform (Topic~~ ~~848~~), Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as Secured Overnight Financing Rate (“SOFR”). This pronouncement is applicable to all companies with contracts or hedging relationships that reference an interest rate that is expected to be discontinued. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time. The optional relief generally does ~~not~~ ~~apply to contract modifications made, sales and transfers of HTM debt securities, and hedging relationships entered into or evaluated after~~ ~~December 31, 2022.~~ ~~The guidance was effective upon issuance and generally can be applied through~~ ~~December 31, 2022.~~ In ~~December 2022,~~ ~~the FASB issued ASU~~ ~~2022~~-~~06,~~ ~~"Reference Rate Reform (Topic~~ ~~848~~~~): Deferral of the Sunset Date of Topic~~ ~~848,”~~ ~~to defer the sunset date of Topic~~ ~~848~~ ~~from~~ ~~December 31, 2022~~ to ~~December 31, 2024,~~ ~~after which entities will~~ no ~~longer be permitted to apply the relief in Topic~~ ~~848.~~ ~~The LIBOR termination was~~ ~~June 30, 2023.~~ ~~The Company converted LIBOR to CME Term SOFR with relevant spread adjustment as the alternative reference rate for all loans indexed under LIBOR beginning on and after~~ ~~July 3, 2023.~~ No ~~LIBOR indexed loans are being originated. The Company has several issuances of LIBOR based long-term debt and subordinated debentures. Refer to Notes~~ 9 ~~and~~ 10 ~~of the Company’s consolidated financial statements included in this Quarterly Report on Form~~ 10~~-Q.~~

~~Recently issued~~ ~~not~~ ~~yet effective~~

In ~~June~~ 2022, the FASB issued ASU 2022-03, ~~"Fair~~Fair Value Measurement (Topic 820)—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." This pronouncement clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. We adopted ASU 2022-03 ~~will be effective for the Company~~ on January 1, ~~2024.~~2024 ~~Adoption of ASU~~ ~~2022~~-03 isand the adoption did not ~~expected to~~ have a material impact on ~~the Company’s~~our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, ~~"Investments~~Investments - Equity Method and Joint Ventures (Topic 323)." This Update permits reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met. It requires that a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. The reporting entity needs to disclose the nature of its tax equity investments and the effect of its tax equity investments on its financial position and results of operations. ASU 2023-02 ~~will be~~is effective for ~~the Company~~us in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted ASU 2023-02 on January 1, 2024 and the adoption did not have a material impact on our consolidated financial statements.

Recently issued not yet effective

In October 2023, the FASB issued ASU 2023-06, 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 in 2018, 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 has not removed the applicable requirement from Regulation S-X or Regulation S-K by June 30, 2027, the pending amendments will be removed and will not become effective for any entity.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - 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, and 2) 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 have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted. Adoption of ASU 2023-0209 is not expected to have a material impact on ~~the Company's~~our consolidated financial statements.

~~NOTE~~ 3– ~~ACQUISITIONS~~

~~Honolulu, Hawaii Branch Purchase~~

On ~~January 14, 2022,~~ the Bank completed the acquisition of the Honolulu, Hawaii branch office from Bank of the Orient ("BOTO Honolulu Branch"). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of ~~January 14, 2022.~~ The total fair value of assets acquired approximated $8.5 million, which included $312,000 in cash and cash equivalents, $7.4 million in selected performing loans, $729,000 in core deposit intangible assets and $64,000 in other assets. The total fair value of liabilities assumed was $81.8 million, which included $81.7 million in deposits, $27,000 in certificate of deposit premium, and $90,000 in other liabilities. The Bank received $71.0 million in cash in connection with the acquisition which represented consideration for the deposits assumed by the Bank, partially offset by the purchase price of the assets acquired and the premium paid.

~~Table of Contents~~

The Company acquired the BOTO Honolulu Branch to strategically establish a presence in the Hawaiian Islands area. Goodwill in the amount of $2.3 million and core deposit premium of $729,000 was recognized in connection with this acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are ~~not~~ ~~individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the~~ ~~two~~ ~~entities. Goodwill is~~ ~~not~~ ~~deductible for income tax purposes.~~

~~The following table represents the assets acquired and liabilities assumed in connection with the acquisition of the BOTO Honolulu Branch as of~~ ~~January 14, 2022~~ ~~and the fair value adjustments and amounts recorded by the Company under the acquisition method of accounting:~~

Fair Value

Fair

(dollars in thousands)

Book Value

Adjustments

Value

Assets acquired

Cash and cash equivalents
$ 312 $ — $ 312
Loans, gross
7,352 38 7,390
Bank premises and equipment
12 — 12
Core deposit intangible
— 729 729
Other assets
412 (360 ) 52
Total assets acquired
$ 8,088 $ 407 $ 8,495

Liabilities assumed

Deposits
$ 81,673 $ 27 $ 81,700
Escrow Payable
2 — 2
Other liabilities
460 (372 ) 88
Total liabilities assumed
$ 82,135 $ (345 ) $ 81,790
Excess of assets acquired over liabilities assumed
$ (74,047 ) $ 752 $ (73,295 )
Cash received
71,040
Goodwill recognized
$ 2,255

~~The Company accounted for this transaction under the acquisition method of accounting in accordance with ASC~~ ~~805,~~ ~~Business Combinations, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition.~~

~~The loan portfolio of the BOTO Honolulu Branch was recorded at fair value at the date of acquisition with the assistance of a~~ ~~third~~~~-party valuation. A valuation of the loan portfolio was performed as of the acquisition date to assess the fair value of the loan portfolio. The loan portfolio was segmented into~~ ~~two~~ groups; loans with credit deterioration and loans without credit deterioration, and then split further by loan type. There were no loans acquired with credit deterioration. The fair value was calculated on an individual loan basis using a discounted cash flow analysis. The discount rate utilized was based on a weighted average cost of capital, considering the cost of equity and cost of debt. Also factored into the fair value estimates were loss rates, recovery period and prepayment rates based on industry standards.

~~The Company also determined the fair value of the core deposit intangible, premises and equipment and deposits with the assistance of~~ ~~third~~~~-party valuations.~~

The core deposit intangible on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates, service charge income, overhead expense and costs of alternative funding. Since the fair value of intangible assets are calculated as if they were stand-alone assets, the presumption is that a hypothetical buyer of the intangible asset would be able to take advantage of potential tax benefits resulting from the asset purchase. The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset.

In determining the fair value of certificates of deposit, a discounted cash flow analysis was used, which involved present valuing the contractual payments over the remaining life of the certificates of deposit at market-based interest rates.

~~Third-party acquisition related expenses are recognized as incurred and continue until the acquired system is converted and operational functions become fully integrated. The Company incurred~~ ~~third~~~~-party acquisition related expenses in the consolidated statements of income for the periods indicated in the expense item “Merger expenses.”~~

~~Table of Contents~~

NOTE 43 - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of investment securities available for sale (“AFS”) ~~debt securities~~ and ~~HTM debt securities as of~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022,~~ held to maturity (“HTM”) and the corresponding amounts of gross unrealized gains and losses ~~recognized in accumulated other comprehensive income:~~as of the dates indicated:

			*Gross*		*Gross*							*Gross*		*Gross*
*(dollars in thousands)*	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		*Amortized*		*Unrealized*		*Unrealized*			*Fair*
September 30, 2023	*Cost*		*Gains*		*Losses*			*Value*
March 31, 2024										*Cost*		*Gains*		*Losses*			*Value*
Available for sale
Government agency securities	$	8,694	$	—	$	(800	)	$	7,894	$	7,586	$	—	$	(527	)	$	7,059
SBA agency securities		7,533		—		(272	)		7,261		14,524		40		(250	)		14,314
Mortgage-backed securities: residential		41,501		—		(8,064	)		33,437		39,567		—		(6,387	)		33,180
Collateralized mortgage obligations: residential		86,343		—		(15,144	)		71,199		100,808		169		(12,878	)		88,099
Collateralized mortgage obligations: commercial		70,837		1		(3,343	)		67,495		78,404		105		(2,872	)		75,637
Commercial paper		129,105		—		(32	)		129,073		77,088		—		(22	)		77,066
Corporate debt securities		34,817		—		(5,011	)		29,806		34,784		21		(4,175	)		30,630
Municipal securities		12,644		—		(4,431	)		8,213		12,627		—		(3,418	)		9,209
Total	$	391,474	$	1	$	(37,097	)	$	354,378
Total available for sale										$	365,388	$	335	$	(30,529	)	$	335,194

Held to maturity
Municipal taxable securities	$	502	$	—	$	(3	)	$	499	$	501	$	—	$	(1	)	$	500
Municipal securities		4,712		—		(461	)		4,251		4,703		—		(156	)		4,547
Total	$	5,214	$	—	$	(464	)	$	4,750
Total held to maturity										$	5,204	$	—	$	(157	)	$	5,047

			*Gross*		*Gross*							*Gross*		*Gross*
*(dollars in thousands)*	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		*Amortized*		*Unrealized*		*Unrealized*			*Fair*
December 31, 2022	*Cost*		*Gains*		*Losses*			*Value*
December 31, 2023										*Cost*		*Gains*		*Losses*			*Value*
Available for sale
Government agency securities	$	5,012	$	—	$	(517	)	$	4,495	$	8,705	$	—	$	(544	)	$	8,161
SBA agency securities		2,634		—		(223	)		2,411		13,289		144		(216	)		13,217
Mortgage-backed securities: residential		44,809		—		(6,752	)		38,057		40,507		—		(5,855	)		34,652
Mortgage-backed securities: commercial		4,887		—		(16	)		4,871
Collateralized mortgage obligations: residential		82,759		—		(12,856	)		69,903		94,071		454		(12,198	)		82,327
Collateralized mortgage obligations: commercial		44,591		—		(2,901	)		41,690		69,941		22		(2,664	)		67,299
Commercial paper		49,551		2		(16	)		49,537		73,121		—		(16	)		73,105
Corporate debt securities		41,176		1		(4,165	)		37,012		34,800		—		(4,109	)		30,691
Municipal securities		12,669		—		(3,815	)		8,854		12,636		—		(3,127	)		9,509
Total	$	288,088	$	3	$	(31,261	)	$	256,830
Total available for sale										$	347,070	$	620	$	(28,729	)	$	318,961

Held to maturity
Municipal taxable securities	$	1,003	$	7	$	(3	)	$	1,007	$	501	$	3	$	—		$	504
Municipal securities		4,726		—		(170	)		4,556		4,708		—		(115	)		4,593
Total	$	5,729	$	7	$	(173	)	$	5,563
Total held to maturity										$	5,209	$	3	$	(115	)	$	5,097

At ~~September 30, 2023,~~ weWe pledged investment securities with a fair value of ~~$93.1~~$33.1 million and $95.3 million for certificates of deposit from the ~~state~~State of ~~California. One security with a fair value of $63,000~~California, secured Federal funds arrangements, and ~~$76,000~~other local agency deposits at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~ 2023.~~respectively, was pledged to secure a local agency deposit.~~

There were no sales of investment securities during the three ~~and~~ ~~nine~~months ended ~~September~~March 31, 2024, ~~30,~~December 31, 2023, ~~2023~~and ~~2022,~~March 31, 2023. ~~respectively.~~

Accrued interest receivable for investment ~~debt~~ securities at ~~September~~March ~~30,~~31, ~~2023~~2024 and December 31, ~~2022~~2023 totaled ~~$839,000~~$1.1 million and ~~$810,000, respectively.~~$962,000.

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The table below summarizes amortized cost and fair value of the investment securities portfolio, at ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ ~~are shown~~ by expected maturity, ~~below.~~as of the dates indicated. Mortgage-backed securities are classified in accordance with their estimated average life. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	*Less than One Year*				*More than One Year to Five Years*				*More than Five Years to Ten Years*				*More than Ten Years*				*Total*
	*Amortized*				*Amortized*				*Amortized*				*Amortized*				*Amortized*
*(dollars in thousands)*	*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Less than One Year*				*More than One Year to Five Years*				*More than Five Years to Ten Years*				*More than Ten Years*				*Total*
September 30, 2023
March 31, 2024																					*Amortized Cost*		*Fair Value*		*Amortized Cost*		*Fair Value*		*Amortized Cost*		*Fair Value*		*Amortized Cost*		*Fair Value*		*Amortized Cost*		*Fair Value*
Government agency securities	$	—	$	—	$	8,694	$	7,894	$	—	$	—	$	—	$	—	$	8,694	$	7,894	$	—	$	—	$	7,586	$	7,059	$	—	$	—	$	—	$	—	$	7,586	$	7,059
SBA agency securities		—		—		2,387		2,115		5,146		5,146		—		—		7,533		7,261		—		—		2,241		2,024		12,283		12,290		—		—		14,524		14,314
Mortgage-backed securities: residential		—		—		11,546		10,028		20,114		16,164		9,841		7,245		41,501		33,437		—		—		10,505		9,428		19,435		16,327		9,627		7,425		39,567		33,180
Collateralized mortgage obligations: residential		—		—		23,737		22,217		58,783		46,416		3,823		2,566		86,343		71,199		17		16		36,137		35,226		64,654		52,857		—		—		100,808		88,099
Collateralized mortgage obligations: commercial		3,173		3,163		22,470		20,230		45,194		44,102		—		—		70,837		67,495		4,096		4,071		19,849		18,023		54,459		53,543		—		—		78,404		75,637
Commercial paper		129,105		129,073		—		—		—		—		—		—		129,105		129,073		77,088		77,066		—		—		—		—		—		—		77,088		77,066
Corporate debt securities		—		—		12,919		12,225		19,253		15,822		2,645		1,759		34,817		29,806		—		—		12,906		12,533		19,245		16,160		2,633		1,937		34,784		30,630
Municipal securities		—		—		—		—		—		—		12,644		8,213		12,644		8,213		—		—		—		—		—		—		12,627		9,209		12,627		9,209
Total available for sale	$	132,278	$	132,236	$	81,753	$	74,709	$	148,490	$	127,650	$	28,953	$	19,783	$	391,474	$	354,378	$	81,201	$	81,153	$	89,224	$	84,293	$	170,076	$	151,177	$	24,887	$	18,571	$	365,388	$	335,194

Municipal taxable securities	$	—	$	—	$	502	$	499	$	—	$	—	$	—	$	—	$	502	$	499	$	—	$	—	$	501	$	500	$	—	$	—	$	—	$	—	$	501	$	500
Municipal securities		—		—		—		—		2,338		2,085		2,374		2,166		4,712		4,251		—		—		—		—		2,951		2,847		1,752		1,700		4,703		4,547
Total held to maturity	$	—	$	—	$	502	$	499	$	2,338	$	2,085	$	2,374	$	2,166	$	5,214	$	4,750	$	—	$	—	$	501	$	500	$	2,951	$	2,847	$	1,752	$	1,700	$	5,204	$	5,047
*(dollars in thousands)*
December 31, 2022

December 31, 2023
Government agency securities	$	—	$	—	$	5,012	$	4,495	$	—	$	—	$	—	$	—	$	5,012	$	4,495	$	—	$	—	$	8,705	$	8,161	$	—	$	—	$	—	$	—	$	8,705	$	8,161
SBA agency securities		—		—		2,634		2,411		—		—		—		—		2,634		2,411		—		—		2,292		2,095		10,997		11,122		—		—		13,289		13,217
Mortgage-backed securities: residential		—		—		13,013		11,598		29,114		24,361		2,682		2,098		44,809		38,057		—		—		11,023		9,986		19,762		16,965		9,722		7,701		40,507		34,652
Mortgage-backed securities: commercial		—		—		4,887		4,871		—		—		—		—		4,887		4,871
Collateralized mortgage obligations: residential		—		—		20,687		19,646		62,072		50,257		—		—		82,759		69,903		18		17		36,876		35,758		57,177		46,552		—		—		94,071		82,327
Collateralized mortgage obligations: commercial		—		—		16,382		14,644		28,209		27,046		—		—		44,591		41,690		3,014		3,018		20,296		18,481		46,631		45,800		—		—		69,941		67,299
Commercial paper		49,551		49,537		—		—		—		—		—		—		49,551		49,537		73,121		73,105		—		—		—		—		—		—		73,121		73,105
Corporate debt securities		3,705		3,706		11,355		10,806		23,454		20,662		2,662		1,838		41,176		37,012		—		—		12,912		12,491		19,249		16,232		2,639		1,968		34,800		30,691
Municipal securities		—		—		—		—		—		—		12,669		8,854		12,669		8,854		—		—		—		—		—		—		12,636		9,509		12,636		9,509
Total available for sale	$	53,256	$	53,243	$	73,970	$	68,471	$	142,849	$	122,326	$	18,013	$	12,790	$	288,088	$	256,830	$	76,153	$	76,140	$	92,104	$	86,972	$	153,816	$	136,671	$	24,997	$	19,178	$	347,070	$	318,961

Municipal taxable securities	$	501	$	498	$	502	$	509	$	—	$	—	$	—	$	—	$	1,003	$	1,007	$	—	$	—	$	501	$	504	$	—	$	—	$	—	$	—	$	501	$	504
Municipal securities		—		—		—		—		1,739		1,692		2,987		2,864		4,726		4,556		—		—		—		—		2,952		2,873		1,756		1,720		4,708		4,593
Total held to maturity	$	501	$	498	$	502	$	509	$	1,739	$	1,692	$	2,987	$	2,864	$	5,729	$	5,563	$	—	$	—	$	501	$	504	$	2,952	$	2,873	$	1,756	$	1,720	$	5,209	$	5,097

The following tables show the ~~related~~ fair value and ~~the~~ gross unrealized losses of ~~the Company's~~our investment securities, aggregated by investment category and the length of time ~~that~~ individual securities have been in a continuous unrealized loss position, as of ~~September~~ ~~30,~~~~2023,~~ ~~and~~ ~~December 31, 2022:~~the dates indicated:

	*Less than Twelve Months*					*Twelve Months or More*					*Total*
*(dollars in thousands)*	*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Less than Twelve Months*					*Twelve Months or More*					*Total*
September 30, 2023
March 31, 2024																*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*
Government agency securities	$	4,119	$	(174	)	$	3,775	$	(626	)	$	7,894	$	(800	)	$	3,513	$	(57	)	$	3,546	$	(470	)	$	7,059	$	(527	)
SBA securities		—		—			2,115		(272	)		2,115		(272	)		6,341		(33	)		2,023		(217	)		8,364		(250	)
Mortgage-backed securities: residential		—		—			33,437		(8,064	)		33,437		(8,064	)		—		—			33,180		(6,387	)		33,180		(6,387	)
Collateralized mortgage obligations: residential		11,956		(310	)		59,243		(14,834	)		71,199		(15,144	)		13,963		(146	)		60,647		(12,732	)		74,610		(12,878	)
Collateralized mortgage obligations: commercial		23,696		(121	)		38,800		(3,222	)		62,496		(3,343	)		26,029		(267	)		34,431		(2,605	)		60,460		(2,872	)
Commercial paper		114,185		(32	)		—		—			114,185		(32	)
Commercial paper ⁽¹⁾																	39,731		(22	)		—		—			39,731		(22	)
Corporate debt securities		—		—			29,806		(5,011	)		29,806		(5,011	)		—		—			27,559		(4,175	)		27,559		(4,175	)
Municipal securities		—		—			8,213		(4,431	)		8,213		(4,431	)		—		—			9,209		(3,418	)		9,209		(3,418	)
Total available for sale	$	153,956	$	(637	)	$	175,389	$	(36,460	)	$	329,345	$	(37,097	)	$	89,577	$	(525	)	$	170,595	$	(30,004	)	$	260,172	$	(30,529	)

Municipal taxable securities	$	499	$	(3	)	$	—	$	—		$	499	$	(3	)	$	500	$	(1	)	$	—	$	—		$	500	$	(1	)
Municipal securities		1,281		(134	)		2,970		(327	)		4,251		(461	)		788		(12	)		3,759		(144	)		4,547		(156	)
Total held to maturity	$	1,780	$	(137	)	$	2,970	$	(327	)	$	4,750	$	(464	)	$	1,288	$	(13	)	$	3,759	$	(144	)	$	5,047	$	(157	)

(1)

We held $37.3 million of commercial paper where the amortized cost and fair value are equal as of March 31,2024.

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	*Less than Twelve Months*					*Twelve Months or More*					*Total*
*(dollars in thousands)*	*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Less than Twelve Months*					*Twelve Months or More*					*Total*
December 31, 2022
December 31, 2023																*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*			*Fair Value*		*Unrealized Losses*
Government agency securities	$	354	$	(24	)	$	4,141	$	(493	)	$	4,495	$	(517	)	$	4,238	$	(72	)	$	3,923	$	(472	)	$	8,161	$	(544	)
SBA securities		2,411		(223	)		—		—			2,411		(223	)		5,102		(18	)		2,094		(198	)		7,196		(216	)
Mortgage-backed securities: residential		5,535		(362	)		32,522		(6,390	)		38,057		(6,752	)		—		—			34,652		(5,855	)		34,652		(5,855	)
Mortgage-backed securities: commercial		4,871		(16	)		—		—			4,871		(16	)
Collateralized mortgage obligations: residential		27,050		(1,842	)		39,815		(11,014	)		66,865		(12,856	)		2,597		(37	)		60,275		(12,161	)		62,872		(12,198	)
Collateralized mortgage obligations: commercial		18,741		(790	)		22,949		(2,111	)		41,690		(2,901	)		18,463		(70	)		35,077		(2,594	)		53,540		(2,664	)
Commercial paper		39,624		(16	)		—		—			39,624		(16	)
Commercial paper ⁽¹⁾																	53,211		(16	)		—		—			53,211		(16	)
Corporate debt securities		22,977		(1,843	)		10,330		(2,322	)		33,307		(4,165	)		—		—			30,691		(4,109	)		30,691		(4,109	)
Municipal securities		—		—			8,854		(3,815	)		8,854		(3,815	)		—		—			9,509		(3,127	)		9,509		(3,127	)
Total available for sale	$	121,563	$	(5,116	)	$	118,611	$	(26,145	)	$	240,174	$	(31,261	)	$	83,611	$	(213	)	$	176,221	$	(28,516	)	$	259,832	$	(28,729	)

Municipal taxable securities	$	498	$	(3	)	$	—	$	—		$	498	$	(3	)
Municipal securities		4,556		(170	)		—		—			4,556		(170	)	$	1,397	$	(19	)	$	3,196	$	(96	)	$	4,593	$	(115	)
Total held to maturity	$	5,054	$	(173	)	$	—	$	—		$	5,054	$	(173	)	$	1,397	$	(19	)	$	3,196	$	(96	)	$	4,593	$	(115	)

(1)

We held $19.9 million of commercial paper where the amortized cost and fair value are equal as of December 31, 2023.

The securities that were in an unrealized loss position at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. ~~The ACL on HTM securities was immaterial at~~At ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022.~~2023, there was no allowance for credit losses (“ACL”) on the HTM securities portfolio.

~~The Company~~We concluded that the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers have not, to ~~the Company's~~our knowledge, established any cause for default on these securities. ~~The Company expects~~We expect to recover the amortized cost basis of ~~its~~our securities and ~~has~~have no present intent to sell and will not be required to sell securities that have declined below their cost before their anticipated recovery. Accordingly, no ACL was recorded as of ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, against AFS securities, and there was no provision for credit losses recognized for the ~~nine~~three months ended ~~September~~March 31, 2024 and ~~30,~~2023. ~~2023~~ ~~and the year ended~~ ~~December 31, 2022.~~

Equity Securities - ~~The Company has~~We have several Community Reinvestment Act ~~("CRA"~~(“CRA”) equity investments. ~~The Company~~We recorded no gain nor loss for the three ~~and~~ ~~nine~~months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~September~~March 31, 2023. ~~30,~~~~2022.~~ ~~CRA~~Other equity securities (included in “Accrued interest and other assets” in the consolidated balance sheets) were ~~$22.2 million and $22.2~~$22.3 million as of ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~ 2023.~~respectively.~~

NOTE 54 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

The ~~types of loans~~following table presents the balances in ~~the Company's consolidated balance sheets~~our loan held for investment ("HFI") portfolio as of ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ ~~were as follows:~~the dates indicated:

(dollars in thousands)

September 30, 2023

December 31, 2022

Loans:⁽¹⁾

Real Estate:

Construction and land development
$ 259,778 $ 276,876
Commercial real estate ⁽²⁾
1,164,210 1,312,132
Single-family residential mortgages
1,505,307 1,464,108
Commercial:

Commercial and industrial
127,655 201,223
SBA
50,420 61,411
Other:

Other loans
13,582 20,699
Total loans ⁽¹⁾
$ 3,120,952 $ 3,336,449
Allowance for credit losses
(42,430 ) (41,076 )
Total loans, net
$ 3,078,522 $ 3,295,373

*(dollars in thousands)*	*March 31, 2024*			*December 31, 2023*
Loans HFI:⁽¹⁾
Real Estate:
Construction and land development	$	198,070		$	181,469
Commercial real estate ⁽²⁾		1,178,498			1,167,857
Single-family residential mortgages		1,463,497			1,487,796
Commercial:
Commercial and industrial		121,441			130,096
SBA		54,677			52,074
Other		11,178			12,569
Total loans HFI ⁽¹⁾	$	3,027,361		$	3,031,861
Allowance for loan losses		(41,688	)		(41,903	)
Total loans HFI, net	$	2,985,673		$	2,989,958

	(1)	Net of discounts and deferred fees and costs.
	(2)	Includes non-farm and non-residential real estate loans, multifamily residential and 1-4 ~~family single family~~ residential loans for a business ~~purpose~~ purpose.

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~~Allowance for Credit Losses~~

~~The Company accounts for credit losses on loans in accordance with ASC~~ ~~326,~~ which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management toWe use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company has elected to utilize a discounted cash flow (“DCF”) approach for all segments except consumer loans and warehouse mortgage loans, for which a remaining life approach was elected.

The Company’s 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. The use of reasonable and supportable forecasts requires significant judgment, such as selecting unemployment forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The Company’s CECL methodology utilizes a ~~four~~~~-quarter reasonable and supportable forecast period, and a~~ ~~four~~-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

~~The Company uses~~ both internal and external qualitative factors within the ~~CECL~~Current Expected Credit Losses (“CECL”) model: lending policies, procedures, and strategies; economic conditions; changes in nature and volume of the portfolio; credit staffing and administration experience; problem loan trends; loan review results; collateral values; concentrations; and regulatory and business environment. During the ~~third~~first quarter of ~~2023,~~2024, we recorded a decrease of $215,000 to the ~~Company recorded~~allowance for loan losses (“ALL”) and an increase of ~~$1.5 million~~$31,000 to ~~ACL and a decrease of $144,000 to allowance~~the reserve for unfunded commitments (“RUC”) compared to an increase of ~~$1.8~~$2.0 million to ~~ACL~~the ALL and a decrease of ~~$28,000~~$138,000 to ~~allowance for unfunded commitments~~the RUC during the ~~third~~first quarter of ~~2022.~~2023.

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

	*For the Three Months Ended March 31,*
	*2024*								*2023*
*(dollars in thousands)*		*Allowance for loan losses*			*Reserve for unfunded loan commitments*		*Allowance for credit losses*			*Allowance for loan losses*			*Reserve for unfunded loan commitments*			*Allowance for credit losses*
Beginning balance	$	41,903		$	640	$	42,543		$	41,076		$	1,156		$	42,232
(Reversal)/provision for credit losses		(31	)		31		—			2,152			(138	)		2,014
Less loans charged-off		(214	)		—		(214	)		(161	)		—			(161	)
Recoveries on loans charged-off		30			—		30			4			—			4
Ending balance	$	41,688		$	671	$	42,359		$	43,071		$	1,018		$	44,089

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

	*For the Three Months Ended September 30,*
	*2023*											*2022*											*For the Three Months Ended March 31, 2024*
*(dollars in thousands)*	*Real Estate*			*Commercial*		*Other*			*Total*			*Real Estate*		*Commercial*			*Other*			*Total*			*Construction and land development*		*Commercial real estate*			*Single-family residential mortgages*			*Commercial and industrial*			*SBA*			*Other*			*Total*
Allowance for credit losses:
Allowance for loan losses:
Beginning balance	$	40,869		$	1,733	$	490		$	43,092		$	32,105	$	2,646		$	1,538		$	36,289		$	1,219	$	17,826		$	20,117		$	1,348		$	1,196		$	197		$	41,903
Provisions		963			809		(228	)		1,544			2,271		(525	)		20			1,766
Provisions/(reversal) for credit losses																								92		597			(239	)		(52	)		(461	)		32			(31	)
Charge-offs		(2,150	)		—		(67	)		(2,217	)		—		(5	)		(44	)		(49	)		—		(116	)		—			(3	)		—			(95	)		(214	)
Recoveries		—			1		10			11			—		169			7			176			—		—			—			1			—			29			30
Ending allowance balance	$	39,682		$	2,543	$	205		$	42,430		$	34,376	$	2,285		$	1,521		$	38,182		$	1,311	$	18,307		$	19,878		$	1,294		$	735		$	163		$	41,688

	For the Three Months Ended December 31, 2023
*(dollars in thousands)*	Construction and land development			Commercial real estate		Single-family residential mortgages			Commercial and industrial			SBA		Other			Total
Allowance for loan losses:
Beginning balance	$	1,767		$	17,575	$	20,340		$	1,367		$	1,176	$	205		$	42,430
(Reversal)/provisions for credit losses		(419	)		171		(223	)		(20	)		20		53			(418	)
Charge-offs		(129	)		—		—			—			—		(74	)		(203	)
Recoveries		—			80		—			1			—		13			94
Ending allowance balance	$	1,219		$	17,826	$	20,117		$	1,348		$	1,196	$	197		$	41,903

	For the Three Months Ended March 31, 2023
*(dollars in thousands)*	Construction and land development			Commercial real estate		Single-family residential mortgages			Commercial and industrial			SBA		Other			Total
Allowance for loan losses:
Beginning balance	$	2,638		$	17,657	$	17,640		$	1,804		$	621	$	716		$	41,076
(Reversal)/provisions for credit losses		(247	)		491		2,169			(303	)		50		(8	)		2,152
Charge-offs		—			—		(93	)		—			—		(68	)		(161	)
Recoveries		—			—		—			—			1		3			4
Ending allowance balance	$	2,391		$	18,148	$	19,716		$	1,501		$	672	$	643		$	43,071

For the Nine Months Ended September 30,

2023

2022

(dollars in thousands)

Real Estate

Commercial

Other

Total

Real Estate

Commercial

Other

Total

Allowance for credit losses:

Beginning balance
$ 37,935 $ 2,425 $ 716 $ 41,076 $ 28,592 $ 3,793 $ 527 $ 32,912
ASU 2016-13 Transition Adjustment
— — — — 1,612 (604 ) 1,127 2,135
Adjusted beginning balance
$ 37,935 $ 2,425 $ 716 $ 41,076 $ 30,204 $ 3,189 $ 1,654 $ 35,047
Provisions
4,389 178 (270 ) 4,297 4,172 (1,128 ) 4 3,048
Charge-offs
(2,642 ) (62 ) (288 ) (2,992 ) — (5 ) (146 ) (151 )
Recoveries
— 2 47 49 — 229 9 238
Ending allowance balance
$ 39,682 $ 2,543 $ 205 $ 42,430 $ 34,376 $ 2,285 $ 1,521 $ 38,182

~~The Company categorizes~~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. ~~The Company analyzes~~We analyze loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. ~~The Company uses~~We use the following definitions for risk ratings:

Pass - Loans classified as pass include loans not meeting the risk ratings defined below.

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the ~~institution's~~institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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 ~~table summarizes the Company's~~tables summarize our loans ~~held for investment as of~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ HFI by loan portfolio ~~segments,~~segment, risk ~~ratings~~rating and vintage ~~year.~~year as of the dates indicated. The vintage year is the year of origination, renewal or major modification. ~~Revolving loans that are converted to term loans presented in the table below are excluded from the term loans by vintage year columns.~~

																								*Term Loan by Vintage*
March 31, 2024																								*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving*		*Revolving Converted to Term During the Period*		*Total*
*(dollars in thousands)*	*Term Loan by Vintage*
September 30, 2023	*2023*		*2022*			*2021*			*2020*			*2019*		*Prior*			*Revolving*		*Revolving Converted to Term During the Period*		*Total*
Real estate:
Construction and land development
Pass	$	198,431	$	34,695		$	10,659		$	3,925		$	195	$	39		$	—	$	—	$	247,944		$	103,198	$	47,311	$	17,582	$	14,140	$	3,925	$	225	$	—	$	—	$	186,381
Special mention		—		—			11,706			—			—		—			—		—		11,706			—		—		—		11,689		—		—		—		—		11,689
Substandard		—		—			—			—			—		128			—		—		128			—		—		—		—		—		—		—		—		—
Doubtful		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	198,431	$	34,695		$	22,365		$	3,925		$	195	$	167		$	—	$	—	$	259,778		$	103,198	$	47,311	$	17,582	$	25,829	$	3,925	$	225	$	—	$	—	$	198,070
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	(12	)	$	—	$	—	$	(12	)
YTD period recoveries		—		—			—			—			—		—			—		—		—
Net	$	—	$	—		$	—		$	—		$	—	$	(12	)	$	—	$	—	$	(12	)
YTD gross write-offs																								$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	56,171	$	428,412		$	189,451		$	178,948		$	97,249	$	159,579		$	—	$	—	$	1,109,810		$	61,366	$	72,397	$	417,258	$	183,574	$	174,650	$	239,452	$	—	$	—	$	1,148,697
Special mention		—		—			—			—			7,778		4,904			—		—		12,682			—		—		—		—		—		6,851		—		—		6,851
Substandard		303		9,800			—			11,514			2,303		17,798			—		—		41,718			—		299		—		—		11,171		11,480		—		—		22,950
Doubtful		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	56,474	$	438,212		$	189,451		$	190,462		$	107,330	$	182,281		$	—	$	—	$	1,164,210		$	61,366	$	72,696	$	417,258	$	183,574	$	185,821	$	257,783	$	—	$	—	$	1,178,498
YTD period charge-offs	$	—	$	(2,078	)	$	—		$	(459	)	$	—	$	—		$	—	$	—	$	(2,537	)
YTD period recoveries		—		—			—			—			—		—			—		—		—
Net	$	—	$	(2,078	)	$	—		$	(459	)	$	—	$	—		$	—	$	—	$	(2,537	)
YTD gross write-offs																								$	—	$	—	$	—	$	—	$	116	$	—	$	—	$	—	$	116
Single-family residential mortgages
Pass	$	147,380	$	601,539		$	243,372		$	127,839		$	85,342	$	276,884		$	1,813	$	—	$	1,484,169		$	8,666	$	152,528	$	583,948	$	235,679	$	121,112	$	336,587	$	1,487	$	—	$	1,440,007
Special mention		—		—			—			—			—		3,862			—		—		3,862			—		—		—		—		—		—		—		—		—
Substandard		—		455			—			4,868			545		11,323			85		—		17,276			—		—		712		1,690		5,073		16,015		—		—		23,490
Doubtful		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	147,380	$	601,994		$	243,372		$	132,707		$	85,887	$	292,069		$	1,898	$	—	$	1,505,307		$	8,666	$	152,528	$	584,660	$	237,369	$	126,185	$	352,602	$	1,487	$	—	$	1,463,497
YTD period charge-offs	$	—	$	—		$	—		$	(93	)	$	—	$	—		$	—	$	—	$	(93	)
YTD period recoveries		—		—			—			—			—		—			—		—		—
Net	$	—	$	—		$	—		$	(93	)	$	—	$	—		$	—	$	—	$	(93	)
YTD gross write-offs																								$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Commercial and industrial																						—																			—
Pass	$	1,524	$	3,448		$	6,582		$	3,021		$	2,186	$	6,943		$	93,638	$	—	$	117,342		$	7,467	$	1,216	$	3,118	$	5,912	$	2,377	$	6,574	$	85,700	$	—	$	112,364
Special mention		—		—			—			—			—		—			2,632		—		2,632			—		—		—		—		—		—		678		—		678
Substandard		—		91			—			1,433			10		4,969			1,175		—		7,678			—		—		83		—		1,387		4,854		2,075		—		8,399
Doubtful		—		—			—			—			—		—			3		—		3			—		—		—		—		—		—		—		—		—
Total	$	1,524	$	3,539		$	6,582		$	4,454		$	2,196	$	11,912		$	97,448	$	—	$	127,655		$	7,467	$	1,216	$	3,201	$	5,912	$	3,764	$	11,428	$	88,453	$	—	$	121,441
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—
YTD period recoveries		—		—			—			—			—		2			—		—		2
Net	$	—	$	—		$	—		$	—		$	—	$	2		$	—	$	—	$	2
YTD gross write-offs																								$	—	$	—	$	3	$	—	$	—	$	—	$	—	$	—	$	3
SBA
Pass	$	2,812	$	11,066		$	10,146		$	3,079		$	4,607	$	13,934		$	—	$	—	$	45,644		$	7,071	$	3,295	$	10,979	$	9,869	$	1,998	$	17,860	$	—	$	—	$	51,072
Special mention		—		—			330			—			—		—			—		—		330			—		—		—		332		—		1,030		—		—		1,362
Substandard		—		—			—			—			85		4,361			—		—		4,446			—		—		—		—		—		2,243		—		—		2,243
Doubtful		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	2,812	$	11,066		$	10,476		$	3,079		$	4,692	$	18,295		$	—	$	—	$	50,420		$	7,071	$	3,295	$	10,979	$	10,201	$	1,998	$	21,133	$	—	$	—	$	54,677
YTD period charge-offs	$	—	$	—		$	—		$	—		$	—	$	(62	)	$	—	$	—	$	(62	)
YTD period recoveries		—		—			—			—			—		—			—		—		—
Net	$	—	$	—		$	—		$	—		$	—	$	(62	)	$	—	$	—	$	(62	)
YTD gross write-offs																								$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other:
Pass	$	204	$	3,002		$	9,326		$	839		$	39	$	—		$	17	$	—	$	13,427		$	—	$	181	$	2,401	$	7,915	$	551	$	20	$	22	$	—	$	11,090
Special mention		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Substandard		—		111			36			8			—		—			—		—		155			—		—		73		9		6		—		—		—		88
Doubtful		—		—			—			—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	204	$	3,113		$	9,362		$	847		$	39	$	—		$	17	$	—	$	13,582		$	—	$	181	$	2,474	$	7,924	$	557	$	20	$	22	$	—	$	11,178
YTD period charge-offs	$	—	$	(79	)	$	(199	)	$	(10	)	$	—	$	—		$	—	$	—	$	(288	)
YTD period recoveries		—		—			46			1			—		—			—		—		47
Net	$	—	$	(79	)	$	(153	)	$	(9	)	$	—	$	—		$	—	$	—	$	(241	)
YTD gross write-offs																								$	—	$	—	$	—	$	95	$	—	$	—	$	—	$	—	$	95
Total by risk rating:
Pass	$	406,522	$	1,082,162		$	469,536		$	317,651		$	189,618	$	457,379		$	95,468	$	—	$	3,018,336		$	187,768	$	276,928	$	1,035,286	$	457,089	$	304,613	$	600,718	$	87,209	$	—	$	2,949,611
Special mention		—		—			12,036			—			7,778		8,766			2,632		—		31,212			—		—		—		12,021		—		7,881		678		—		20,580
Substandard		303		10,457			36			17,823			2,943		38,579			1,260		—		71,401			—		299		868		1,699		17,637		34,592		2,075		—		57,170
Doubtful		—		—			—			—			—		—			3		—		3			—		—		—		—		—		—		—		—		—
Total loans	$	406,825	$	1,092,619		$	481,608		$	335,474		$	200,339	$	504,724		$	99,363	$	—	$	3,120,952		$	187,768	$	277,227	$	1,036,154	$	470,809	$	322,250	$	643,191	$	89,962	$	—	$	3,027,361
Net charge-offs	$	—	$	(2,157	)	$	(153	)	$	(561	)	$	—	$	(72	)	$	—	$	—	$	(2,943	)
Total YTD gross write-offs																								$	—	$	—	$	3	$	95	$	116	$	—	$	—	$	—	$	214

1714

Table of Contents

																							*Term Loan by Vintage*
December 31, 2023																							*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*		*Revolving*		*Revolving Converted to Term During the Period*		*Total*
*(dollars in thousands)*	*Term Loan by Vintage*
December 31, 2022	*2022*		*2021*			*2020*		*2019*			*2018*		*Prior*			*Revolving*		*Revolving Converted to Term During the Period*		*Total*
Real estate:
Construction and land development
Pass	$	125,216	$	52,262		$	99,016	$	201		$	—	$	40		$	—	$	—	$	276,735		$	127,602	$	25,880	$	12,168	$	3,919	$	192	$	32	$	—	$	—	$	169,793
Special mention		—		—			—		—			—		—			—		—		—			—		—		11,676		—		—		—		—		—		11,676
Substandard		—		—			—		—			—		141			—		—		141			—		—		—		—		—		—		—		—		—
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	125,216	$	52,262		$	99,016	$	201		$	—	$	181		$	—	$	—	$	276,876		$	127,602	$	25,880	$	23,844	$	3,919	$	192	$	32	$	—	$	—	$	181,469
YTD period charge-offs	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD period recoveries		—		—			—		—			—		—			—		—		—
Net	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD gross write-offs																							$	—	$	—	$	—	$	—	$	—	$	140	$	—	$	—	$	140
Commercial real estate
Pass	$	479,304	$	293,058		$	195,051	$	110,442		$	73,013	$	117,068		$	—	$	—	$	1,267,936		$	90,126	$	423,564	$	186,904	$	175,650	$	94,796	$	152,847	$	—	$	—	$	1,123,887
Special mention		—		—			9,280		—			—		—			—		—		9,280			—		—		—		—		7,719		4,880		—		—		12,599
Substandard		287		—			8,652		2,329			222		23,426			—		—		34,916			301		—		—		11,410		2,295		17,365		—		—		31,371
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	479,591	$	293,058		$	212,983	$	112,771		$	73,235	$	140,494		$	—	$	—	$	1,312,132		$	90,427	$	423,564	$	186,904	$	187,060	$	104,810	$	175,092	$	—	$	—	$	1,167,857
YTD period charge-offs	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD period recoveries		—		—			—		—			—		—			—		—		—
Net	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD gross write-offs																							$	—	$	2,078	$	—	$	459	$	—	$	—	$	—	$	—	$	2,537
Single-family residential mortgages
Pass	$	637,893	$	255,529		$	137,964	$	96,355		$	134,415	$	182,893		$	2,992	$	—	$	1,448,041		$	156,372	$	593,539	$	239,502	$	125,346	$	83,002	$	265,050	$	1,720	$	—	$	1,464,531
Special mention		—		—			—		—			3,925		—			—		—		3,925			—		—		619		—		—		3,855		—		—		4,474
Substandard		—		—			3,954		—			7,631		452			105		—		12,142			—		719		758		4,985		545		11,740		44		—		18,791
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	637,893	$	255,529		$	141,918	$	96,355		$	145,971	$	183,345		$	3,097	$	—	$	1,464,108		$	156,372	$	594,258	$	240,879	$	130,331	$	83,547	$	280,645	$	1,764	$	—	$	1,487,796
YTD period charge-offs	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD period recoveries		—		—			—		—			—		—			—		—		—
Net	$	—	$	—		$	—	$	—		$	—	$	—		$	—	$	—	$	—
YTD gross write-offs																							$	—	$	—	$	—	$	93	$	—	$	—	$	—	$	—	$	93
Commercial:
Commercial and industrial																					—																			—
Pass	$	8,038	$	7,513		$	4,448	$	3,470		$	1,016	$	8,827		$	129,483	$	86	$	162,881		$	1,305	$	3,283	$	6,281	$	2,901	$	2,049	$	4,700	$	99,339	$	—	$	119,858
Special mention		—		5,987			—		—			1,638		17,805			3,577		—		29,007			—		—		—		—		—		—		2,737		—		2,737
Substandard		—		—			1,600		16			—		339			7,380		—		9,335			—		87		—		1,410		7		4,952		1,045		—		7,501
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	8,038	$	13,500		$	6,048	$	3,486		$	2,654	$	26,971		$	140,440	$	86	$	201,223		$	1,305	$	3,370	$	6,281	$	4,311	$	2,056	$	9,652	$	103,121	$	—	$	130,096
YTD period charge-offs	$	—	$	—		$	—	$	(5	)	$	—	$	—		$	—	$	—	$	(5	)
YTD period recoveries		—		—			—		—			—		2			—		—		2
Net	$	—	$	—		$	—	$	(5	)	$	—	$	2		$	—	$	—	$	(3	)
YTD gross write-offs																							$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
SBA
Pass	$	14,922	$	10,664		$	6,496	$	4,688		$	2,579	$	16,793		$	—	$	—	$	56,142		$	5,642	$	11,023	$	10,037	$	2,324	$	4,588	$	13,783	$	—	$	—	$	47,397
Special mention		—		—			—		—			—		—			—		—		—			—		—		331		—		—		1,025		—		—		1,356
Substandard		—		—			—		91			1,017		4,161			—		—		5,269			—		—		—		—		85		3,236		—		—		3,321
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	14,922	$	10,664		$	6,496	$	4,779		$	3,596	$	20,954		$	—	$	—	$	61,411		$	5,642	$	11,023	$	10,368	$	2,324	$	4,673	$	18,044	$	—	$	—	$	52,074
YTD period charge-offs	$	—	$	—		$	—	$	—		$	—	$	(14	)	$	—	$	—	$	(14	)
YTD period recoveries		—		—			—		—			—		227			—		—		227
Net	$	—	$	—		$	—	$	—		$	—	$	213		$	—	$	—	$	213
YTD gross write-offs																							$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	—	$	62
Other:
Pass	$	4,224	$	14,684		$	1,505	$	90		$	7	$	—		$	26	$	—	$	20,536		$	193	$	2,727	$	8,813	$	674	$	29	$	—	$	18	$	—	$	12,454
Special mention		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Substandard		105		48			10		—			—		—			—		—		163			—		80		28		7		—		—		—		—		115
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total	$	4,329	$	14,732		$	1,515	$	90		$	7	$	—		$	26	$	—	$	20,699		$	193	$	2,807	$	8,841	$	681	$	29	$	—	$	18	$	—	$	12,569
YTD period charge-offs	$	—	$	(237	)	$	—	$	—		$	—	$	—		$	—	$	—	$	(237	)
YTD period recoveries		—		27			2		—			—		—			—		—		29
Net	$	—	$	(210	)	$	2	$	—		$	—	$	—		$	—	$	—	$	(208	)
YTD gross write-offs																							$	—	$	79	$	273	$	10	$	—	$	—	$	—	$	—	$	362
Total by risk rating:
Pass	$	1,269,597	$	633,710		$	444,480	$	215,246		$	211,030	$	325,621		$	132,501	$	86	$	3,232,271		$	381,240	$	1,060,016	$	463,705	$	310,814	$	184,656	$	436,412	$	101,077	$	—	$	2,937,920
Special mention		—		5,987			9,280		—			5,563		17,805			3,577		—		42,212			—		—		12,626		—		7,719		9,760		2,737		—		32,842
Substandard		392		48			14,216		2,436			8,870		28,519			7,485		—		61,966			301		886		786		17,812		2,932		37,293		1,089		—		61,099
Doubtful		—		—			—		—			—		—			—		—		—			—		—		—		—		—		—		—		—		—
Total loans	$	1,269,989	$	639,745		$	467,976	$	217,682		$	225,463	$	371,945		$	143,563	$	86	$	3,336,449		$	381,541	$	1,060,902	$	477,117	$	328,626	$	195,307	$	483,465	$	104,903	$	—	$	3,031,861
Net (charge-offs)/recoveries	$	—	$	(210	)	$	2	$	(5	)	$	—	$	215		$	—	$	—	$	2
Total YTD gross write-offs																							$	—	$	2,157	$	273	$	562	$	—	$	202	$	—	$	—	$	3,194

1815

Table of Contents

The following tables present the aging of the recorded investment in past due loans, at ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ by ~~class~~loan portfolio segment, as of ~~loans. Past due loans presented in tables below also include nonaccrual loans.~~the dates indicated.


March 31, 2024															*30-59 Days*		*60-89 Days*		*90 Days Or More*		Total Past Due ⁽¹⁾		*Loans Not Past Due*		Total Loans ⁽¹⁾		Nonaccrual Loans ⁽¹⁾
*(dollars in thousands)*		30-59		60-89	*90 Days*		*Total*		*Loans Not*				*Nonaccrual*
September 30, 2023	*Days*		*Days*		*Or More*		*Past Due*		*Past Due*		*Total Loans*		Loans ⁽¹⁾
Real estate:
Construction and land development	$	—	$	—	$	128	$	128	$	259,650	$	259,778	$	128	$	—	$	—	$	—	$	—	$	198,070	$	198,070	$	—
Commercial real estate		16,450		—		9,800		26,250		1,137,960		1,164,210		20,330		9,479		—		1,582		11,061		1,167,437		1,178,498		10,314
Single-family residential mortgages		3,531		3,919		10,829		18,279		1,487,028		1,505,307		16,868		3,400		929		19,986		24,315		1,439,182		1,463,497		22,806
Commercial:
Commercial and industrial		244		—		517		761		126,894		127,655		761		100		6,934		1,640		8,674		112,767		121,441		1,780
SBA		72		129		2,009		2,210		48,210		50,420		2,009		1,065		—		477		1,542		53,135		54,677		1,026
Other:		61		15		23		99		13,483		13,582		50
	$	20,358	$	4,063	$	23,306	$	47,727	$	3,073,225	$	3,120,952	$	40,146
Real estate:
Single-family residential mortgages held for sale	$	—	$	—	$	—	$	—	$	62	$	62	$	—
Other																23		18		9		50		11,128		11,178		9
Total															$	14,067	$	7,881	$	23,694	$	45,642	$	2,981,719	$	3,027,361	$	35,935

December 31, 2023
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	181,469	$	181,469	$	—
Commercial real estate		1,341		216		1,582		3,139		1,164,718		1,167,857		10,569
Single-family residential mortgages		9,050		5,795		15,134		29,979		1,457,817		1,487,796		18,103
Commercial:
Commercial and industrial		1,544		—		854		2,398		127,698		130,096		854
SBA		356		—		2,085		2,441		49,633		52,074		2,085
Other		160		20		8		188		12,381		12,569		8
Total	$	12,451	$	6,031	$	19,663	$	38,145	$	2,993,716	$	3,031,861	$	31,619

(1)

~~Included~~ Past due loans include nonaccrual loans and are therefore included in total loans.

(dollars in thousands)
30-59 60-89
90 Days

Total

Loans Not

Nonaccrual

December 31, 2022

Days

Days

Or More

Past

Past Due

Total

Loans

Real estate:

Construction and land development
$ — $ — $ 141 $ 141 $ 276,735 $ 276,876 $ 141
Commercial real estate
558 240 1,191 1,989 1,310,143 1,312,132 13,189
Single-family residential mortgages
12,764 2,555 4,100 19,419 1,444,689 1,464,108 5,936
Commercial:

Commercial and industrial
— 545 7 552 200,671 201,223 713
SBA
150 1,017 1,228 2,395 59,016 61,411 2,245
Other:
154 76 99 329 20,370 20,699 99
$ 13,626 $ 4,433 $ 6,766 $ 24,825 $ 3,311,624 $ 3,336,449 $ 22,323

(1)

~~Included in total loans.~~

~~The Company has~~We have no loans that are 90 days or more past due and still accruing at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022.~~2023.

The following table presents the loans on nonaccrual status and the volume of such loans with no ALL, by loan portfolio segment, as of ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022:~~the dates indicated:

Nonaccrual

With No

(dollars in thousands)

Allowance

September 30, 2023

for Credit Loss

Nonaccrual

Real estate:

Construction and land development
$ 128 $ 128
Commercial real estate
20,330 20,330
Single-family residential mortgages
16,868 16,868
Commercial:

Commercial and industrial
517 761
SBA
861 2,009
Other:
27 50
Total
$ 38,731 $ 40,146

					*March 31, 2024*				*December 31, 2023*
					*Nonaccrual*				*Nonaccrual*
	Nonaccrual				*with no*				*with no*
	With No				*Allowance*				*Allowance*
*(dollars in thousands)*	*Allowance*				*for Loan Loss*		*Nonaccrual*		*for Loan Loss*		*Nonaccrual*
December 31, 2022	*for Credit Loss*		*Nonaccrual*
Real estate:
Construction and land development	$	141	$	141
Commercial real estate		1,191		13,189	$	10,314	$	10,314	$	10,569	$	10,569
Single-family residential mortgages		5,936		5,936		22,806		22,806		18,103		18,103
Commercial:
Commercial and industrial		713		713		1,640		1,780		610		854
SBA		2,245		2,245		1,026		1,026		937		2,085
Other:		51		99
Other						—		9		—		8
Total	$	10,277	$	22,323	$	35,786	$	35,935	$	30,219	$	31,619

1916

Table of Contents

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

	*March 31, 2024*
(dollars in thousands)	*Commercial Real Estate*		*Residential Real Estate*		*Business Assets*		*Total*
Real Estate:
Commercial real estate	$	10,116	$	198	$	—	$	10,314
Single-family residential mortgages		—		22,806		—		22,806
Commercial:
Commercial and industrial		—		1,640		140		1,780
SBA		903		38		85		1,026
Total loans	$	11,019	$	24,682	$	225	$	35,926

	*December 31, 2023*
(dollars in thousands)	*Commercial Real Estate*		*Residential Real Estate*		*Business Assets*		*Total*
Real Estate:
Commercial real estate	$	10,353	$	216	$	—	$	10,569
Single-family residential mortgages		—		18,103		—		18,103
Commercial:
Commercial and industrial		—		610		244		854
SBA		800		1,200		85		2,085
Total loans	$	11,153	$	20,129	$	329	$	31,611

No interest income ~~on nonaccrual loans~~ was recognized on a cash basis ~~for~~during the three ormonths ended ~~nine~~March 31,2024, and 2023. We did not recognize any interest income on nonaccrual loans during the three months ended ~~September~~March ~~30,~~31,2024, and March 31, 2023, ~~and~~ ~~2022.~~while the loans were in nonaccrual status.

Occasionally, ~~the Company modifies~~we modify loans to borrowers in financial distress by providing principal forgiveness, term extension, or interest rate reduction. ~~The Company~~We may provide multiple types of concessions on one loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for ~~credit~~loan losses.

There were no loans that were both experiencing financial difficulty and modified during the three ~~and~~ ~~nine~~months ended ~~September~~March ~~30,~~31, ~~2023~~2024 and ~~the year ended~~ ~~December 31, 2022.~~ 2023.

There were no commitments to lend additional amounts at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022~~2023 to customers with outstanding modified loans. There were no nonaccrual loans that were modified during the past twelve months that had payment defaults during the periods.

NOTE 65 - LOAN SERVICING

~~Mortgage and SBA~~The loans being serviced for others are not reported as ~~assets.~~assets in our consolidated balance sheet. The table below presents the principal balances at ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ ~~were~~of the loans serviced for others, by loan portfolio segment, as ~~follows:~~of the dates indicated:

September 30,

December 31,

(dollars in thousands)

2023

2022

Loans serviced for others:

Mortgage loans
$ 1,041,352 $ 1,127,668
SBA loans
102,605 119,893
Commercial real estate loans
3,933 3,991
Construction loans
4,388 3,677

~~Under the prepayment rate assumption of 7.59% and 7.71%, mortgage par rate of 7.28% and 6.48% and the actual weighted average interest rate of servicing portfolio at 4.23% and 4.14%, at~~ ~~September 30, 2023~~ ~~and at~~ ~~December 31, 2022,~~ ~~respectively, the fair value of servicing assets for mortgage loans was $16.6 million and $18.3 million at~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022,~~ ~~respectively. The fair value of servicing assets for SBA loans was $2.9 million and $3.5 million at~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022,~~ respectively. Estimates of the loan servicing asset fair value are derived through a discounted cash flow analysis. Portfolio characteristics include loan delinquency rates, age of loans, note rate and geography. The assumptions embedded in the valuation are obtained from a range of metrics utilized by active buyers in the marketplace. The analysis accounts for recent transactions, and supply and demand within the market.

	*March 31,*		*December 31,*
*(dollars in thousands)*	*2024*		*2023*
Loans serviced for others:
Mortgage loans	$	990,930	$	1,014,017
SBA loans		100,713		100,336
Commercial real estate loans		3,798		3,813
Construction loans		5,096		4,710

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is net against loan servicing fee income. Loan servicing fees, net of ~~servicing asset~~ amortization, totaled ~~$623,000~~$589,000, $616,000, and ~~$724,000~~$731,000 for the three months ended ~~September~~March 31, 2024, ~~30,~~December 31, 2023, ~~2023~~and ~~2022,~~March 31, 2023. ~~respectively, and $2.0 million and $1.6 million for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~

When ~~mortgage and SBA~~ loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If ~~the Company~~we later ~~determines~~determine that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income.

2017

Table of Contents

~~Servicing fee income is recorded~~The table below presents the activity in the servicing assets for ~~fees earned for servicing loans. The fees are based on a contractual percentage~~the periods indicated:

	Three Months Ended
	March 31, 2024						December 31, 2023						March 31, 2023
	Mortgage			SBA			Mortgage			SBA			Mortgage			SBA
*(dollars in thousands)*	Loans			Loans			Loans			Loans			Loans			Loans
Servicing assets:
Beginning of period	$	6,509		$	1,601		$	6,715		$	1,724		$	7,354		$	2,167
Additions		43			37			37			11			9			1
Disposals		(113	)		(42	)		(74	)		(70	)		(68	)		(49	)
Amortized to expense		(178	)		(63	)		(169	)		(64	)		(177	)		(78	)
End of period	$	6,261		$	1,533		$	6,509		$	1,601		$	7,118		$	2,041

Estimates of the ~~outstanding principal. The amortization of mortgage servicing rights is netted against~~ loan servicing ~~fee income.~~asset fair value are derived through a discounted cash flow analysis. Portfolio characteristics include loan delinquency rates, age of loans, note rate and geography. The assumptions embedded in the valuation are obtained from a range of metrics utilized by active buyers in the marketplace. The analysis accounts for recent transactions, and supply and demand within the market.

Three Months Ended

September 30, 2023

September 30, 2022

Mortgage

SBA

Mortgage

SBA

(dollars in thousands)

Loans

Loans

Loans

Loans

Servicing assets:

Beginning of period
$ 6,856 $ 1,846 $ 7,966 $ 2,490
Additions
112 46 49 46
Disposals
(82 ) (103 ) (151 ) (28 )
Amortized to expense
(171 ) (65 ) (229 ) (89 )
End of period
$ 6,715 $ 1,724 $ 7,635 $ 2,419

The estimated fair value of servicing assets for mortgage loans was $12.1 million and $12.1 million as of March 31, 2024 and December 31, 2023. Fair value at March 31,2024 was determined using a discount rate of 11.22%, average prepayment speed of 7.85%, depending on the stratification of the specific right, and a weighted-average default rate of 0.09%. Fair value at December 31, 2023 was determined using a discount rate of 11.23%, average prepayment speed of 7.91%, depending on the stratification of the specific right, and a weighted-average default rate of 0.10%.

Nine Months Ended

September 30, 2023

September 30, 2022

Mortgage

SBA

Mortgage

SBA

(dollars in thousands)

Loans

Loans

Loans

Loans

Servicing assets:

Beginning of period
$ 7,354 $ 2,167 $ 8,748 $ 2,769
Additions
139 47 497 230
Disposals
(255 ) (274 ) (715 ) (299 )
Amortized to expense
(523 ) (216 ) (895 ) (281 )
End of period
$ 6,715 $ 1,724 $ 7,635 $ 2,419

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

NOTE 76 - GOODWILL AND INTANGIBLES

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank and branch acquisitions ~~are~~is tested for impairment at least ~~annually.~~annually during the fourth quarter of each year, and more frequently, if events or circumstances indicate the value of goodwill may be impaired. We completed our most recent evaluation of goodwill as of December 31, 2023 and determined that no goodwill impairment existed. Goodwill amounted to $71.5 million at both ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, and is the only intangible asset with an indefinite life on ~~the Company's~~our balance sheet.

~~The bank failures in~~There were no triggering events during the first ~~half~~quarter of ~~2023~~2024 that caused ~~a significant decline in bank stock prices, including the Company’s stock price. After evaluating the prolonged decrease in the Company's market value,~~ management ~~performed~~to evaluate goodwill for a quantitative ~~goodwill~~ impairment analysis as of ~~September 30, 2023.~~ March 31, 2024~~Management estimated~~. We did not record any adjustments to goodwill during the ~~fair value of the Company using both the guideline public company method, market approach,~~three months ended March 31,2024 and the discounted cash flow method, income approach. Based on this quantitative analysis, the fair value of the Company exceeds its carrying amount with a passing amount of 9.6%. Management has concluded that goodwill was ~~not~~ ~~impaired at~~ ~~September~~March ~~30,~~31, 2023.

Other intangible assets consist of core deposit intangible ("CDI") assets arising from whole bank and branch acquisitions. CDI assets are amortized on an accelerated method over their estimated useful life of 8 to 10 years. The unamortized balance at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022~~2023 was ~~$3.0~~$2.6 million and ~~$3.7 million, respectively.~~$2.8 million. CDI amortization expense was ~~$236,000~~$201,000 and ~~$277,000~~$237,000 for the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively, and $708,000 and $833,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~

Estimated CDI amortization expense for future years is as follows:

*(dollars in thousands)*
As of September 30, 2023:
Remainder of 2023	$	215
2024		784
As of March 31, 2024				*CDI Amortization Expense*
Remainder of 2024			$	583
2025		672		672
2026		501		501
2027		417		417
2028				297
Thereafter		421		124
Total	$	3,010	$	2,594

NOTE 87 - DEPOSITS

At ~~September~~March 31, 2024, ~~30,~~~~2023,~~the scheduled maturities of time deposits are as follows:

(dollars in thousands)
$250,000 and under Greater than $250,000 Total
One year
$ 1,229,527 $ 733,866 $ 1,963,393
Two to three years
7,537 1,662 9,199
Over three years
767 300 1,067
Total
$ 1,237,831 $ 735,828 $ 1,973,659

~~Brokered time deposits were $320.7 million and $255.0 million at~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022,~~ ~~respectively.~~

*(dollars in thousands)*		*$250,000 and under*		*Greater than $250,000*		*Total*
Time Deposits Maturities Periods:
Within one year	$	1,070,847	$	761,348	$	1,832,195
Two to three years		12,160		426		12,586
Over three years		891		300		1,191
Total	$	1,083,898	$	762,074	$	1,845,972

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

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

NOTE 98 - LONG-TERM DEBT

In November 2018, ~~the Company~~we issued ~~$55~~$55.0 million of 6.18% fixed-to-floating rate subordinated notes, ~~due~~with a December 1, 2028 (~~the~~maturity date (the “2028 Subordinated Notes”). The interest rate iswas fixed through December 1, 2023 and ~~floats~~was scheduled to float at three-month CME Term SOFR plus applicable tenor spread adjustment of 26 basis points plus 315 basis points thereafter. ~~The Company can redeem the~~ ~~2028~~ ~~Subordinated Notes beginning~~ ~~December 1, 2023.~~ ~~The~~ ~~2028~~ ~~Subordinated Notes are considered Tier~~ 2 ~~capital at the Company. The Company contributed $25 million to the Bank as Tier~~ 1 ~~capital.~~ On December 1, 2023, ~~the Company intends to redeem~~we redeemed the 2028 Subordinated Notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid ~~interest to but excluding~~ ~~December 1, 2023.~~interest.

In March 2021, ~~the Company~~we issued ~~$120~~$120.0 million of 4.00% fixed-to-floating rate subordinated notes, ~~due~~with an April 1, 2031 maturity date (the “2031 Subordinated Notes”). The interest rate is fixed through April 1, 2026 and ~~floats~~is scheduled to float at three ~~month~~-month SOFR plus 329 basis points thereafter. ~~The Company~~We can redeem the 2031 Subordinated Notes beginning April 1, 2026. The 2031 Subordinated Notes are considered Tier 2 capital at the Company.

We were in compliance with all covenants under the long-term debt as of ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December~~March 31, ~~2022,~~2024. ~~long-term debt was as follows:~~

September 30, 2023

December 31, 2022

(dollars in thousands)

Principal

Unamortized debt issuance costs

Principal

Unamortized debt issuance costs

2028 Subordinated Notes ⁽¹⁾
$ 55,000 $ 33 $ 55,000 $ 180
2031 Subordinated Notes
120,000 948 120,000 1,235
Total
$ 175,000 $ 981 $ 175,000 $ 1,415

(1~~) The Company intends to redeem the~~ ~~2028~~ ~~Subordinated Notes on~~ ~~December 1, 2023.~~

~~The following table presents~~We paid interest expense of $1.2 million and ~~amortization expense the Company incurred~~$2.1 million for ~~the~~ three ~~and~~ ~~nine~~ months ended ~~September~~March 31, 2024 ~~30,~~and 2023 on the subordinated notes. The aggregate amount of amortization expense was $95,000 and $145,000 for three months ended March 31, 2024 and ~~2022:~~2023.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(dollars in thousands)

2023

2022

2023

2022

Interest Expense:

Interest
$ 2,050 $ 2,050 $ 6,149 $ 6,149
Amortization
145 145 434 434

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

*(dollars in thousands)*	*March 31, 2024*			*December 31, 2023*
Principal	$	120,000		$	120,000
Unamortized debt issuance costs		(757	)		(853	)
Long-term debt, net of issuance costs	$	119,243		$	119,147

NOTE 109 - SUBORDINATED DEBENTURES

Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.0 million and $14.9 million as of March 31, 2024 and December 31, 2023. Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt. In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The ~~Company,~~subordinated debentures may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations. We may redeem the subordinated debentures, subject to prior approval by the Board of Governors of the Federal Reserve System at 100% of the principal amount, plus accrued and unpaid interest. These subordinated debentures consist of the following and are described in detail after the table below:


*(dollars in thousands)*	*Issue Date*	*Principal Amount*		*Unamortized Valuation Reserve*		*Recorded Value*		*Stated Rate Description*	*March 31, 2024 Effective Rate*			*Stated Maturity*
Subordinated debentures:
TFC Trust	December 22, 2006	$	5,155	$	1,166	$	3,989	Three-month CME Term SOFR plus 0.26% (a) plus 1.65%,		7.24	%	March 15, 2037
FAIC Trust	December 15, 2004		7,217		822		6,395	Three-month CME Term SOFR plus 0.26% (a) plus 2.25%		7.84	%	December 15, 2034
PGBH Trust	December 15, 2004		5,155		546		4,609	Three-month CME Term SOFR plus 0.26% (a) plus 2.10%		7.69	%	December 15, 2034
Total		$	17,527	$	2,534	$	14,993

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

In 2016, we, through the acquisition of Tomato Bank and its holding company, TFC Holding Company (“TFC”) in ~~2016,~~, acquired TFC Statutory Trust (the “TFC Trust”). TFC Trust ~~conducted a pooled private offering of~~issued 5,000 ~~trust preferred~~fixed-to-floating rate capital securities with aan aggregate liquidation amount of ~~$1,000 per security.~~$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 ~~the~~TFC Trust and the proceeds of the preferred securities sold by TFC Trust. ~~The Company is~~We are not considered the primary beneficiary of ~~the~~ TFC ~~Trust~~trust (variable interest entity), therefore ~~the~~ TFC Trust is not consolidated in ~~the Company's~~our financial statements, but rather the subordinated debentures are shown as a ~~liability at market value as~~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 ~~the~~this acquisition, ~~which was $3.3 million. There was~~ a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and is amortized over the life of the security. The ~~Company also purchased an investment in the common stock of the TFC Trust for $155,000, which is included in other assets. The Company~~ ~~may~~ ~~redeem the subordinated debentures, subject to prior approval by the Federal Reserve on or after~~unamortized valuation reserve was $1.2 million at March ~~15, 2012,~~ 31,2024 and $1.2 million at ~~100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on~~ ~~March 15, 2037.~~December 31, 2023. ~~The Company has the option to defer interest payments on the subordinated debentures from time to time for a period~~ ~~not~~ ~~to exceed~~ ~~five~~ ~~consecutive years. The Company has been paying interest on a quarterly basis. The subordinated debentures~~ ~~may~~ ~~be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.~~ The subordinated debentures have a variable rate of interest equal to three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was ~~7.32%~~7.24% as of ~~September~~March ~~30,~~31, ~~2023~~2024 and ~~three~~~~-month LIBOR plus 1.65%, which was 6.42%~~7.30% at December 31, ~~2022.~~2023.

In October 2018, ~~the Company,~~we, through the acquisition of First American International Corp. (“FAIC”), acquired First American International Statutory Trust I (“FAIC Trust”)~~, a Delaware statutory trust formed in~~ ~~December 2004.~~ ~~The~~. FAIC Trust issued 7,000 units of thirty-year fixed-to-floating rate capital securities with an aggregate liquidation amount of $7$7.0 million to an independent investor, and ~~FAIC issued $7.2 million of subordinated debentures to the FAIC Trust for~~ all of its common securities, ~~amounting to~~with an aggregate liquidation amount of $217,000. We are not considered the primary beneficiary of FAIC Trust (variable interest entity), therefore FAIC Trust is not consolidated in our financial statements, but rather the subordinated debentures are shown as a liability. We purchased an investment in the common stock of FAIC Trust for $217,000, which is included in other assets. ~~There was~~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 is amortized over the life of the security. The ~~Company has the option to defer interest payments on the subordinated debentures from time to time for a period~~unamortized valuation reserve was $822,000 at ~~not~~March 31, ~~to exceed~~ ~~five~~ ~~consecutive years.~~ 2024 and $842,000 at December 31, 2023. The subordinated debentures have a variable rate of interest equal to three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25% ~~through final maturity on~~, which was 7.84% as of ~~December 15, 2034.~~March ~~The rate at~~ ~~September~~ ~~30,~~31, ~~2023~~2024 ~~was 7.92%~~ and ~~7.02%~~7.90% at December 31, ~~2022.~~2023.

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In January 2020, ~~the Company,~~we, through the acquisition of PGB Holdings, Inc., acquired Pacific Global Bank Trust I (“PGBH Trust”)~~, a Delaware statutory trust formed in~~ ~~December 2004.~~ . PGBH Trust issued 5,000 units of ~~fixed to floating~~fixed-to-floating rate capital securities with an aggregate liquidation amount of $5 million to an independent investor, and ~~155~~all of its common securities, with an aggregate liquidation amount of $155,000. We are not considered the primary beneficiary of PGBH ~~issued $5.2 million of~~Trust (variable interest entity), therefore PGBH Trust is not consolidated in our financial statements, but rather the subordinated debentures toare shown as a liability. We purchased an investment in the common stock of PGBH Trust for $155,000, which is included in ~~exchange for ownership~~other assets. At the close of ~~all the common securities of PGBH Trust. There was~~this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and is amortized over the life of the security. The ~~Company has the option to defer interest payments on the subordinated debentures from time to time for a period~~unamortized valuation reserve was $546,000 at ~~not~~March 31, ~~to exceed~~ ~~five~~ ~~consecutive years.~~ 2024 and $559,000 at December 31, 2023. The subordinated debentures have a variable rate of interest equal to three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10% ~~through final maturity on~~, which was 7.69% as of ~~December 15, 2034.~~March ~~The rate at~~ ~~September~~ ~~30,~~31, ~~2023~~2024 ~~was 7.77%~~ and ~~6.87%~~7.75% at December 31, ~~2022.~~2023.

~~The Company~~We paid interest expense of ~~$330,000~~$329,000 and ~~$178,000~~$290,000 for three months ended ~~September~~March 31, 2024 ~~30,~~and 2023 ~~and~~ ~~2022,~~ ~~respectively, and $921,000 and $407,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively,~~ on the subordinated debentures. The aggregate amount of amortization expense was $55,000 for ~~both~~each of the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~ ~~and $164,000 for both~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022.~~2023.

For regulatory reporting purposes, the Federal Reserve has indicated that the capital or trust preferred securities qualify as Tier 1 capital of the Company subject to previously specified limitations (including that the asset size of the issuer did not exceed $15 billion), until further notice. If regulators make a determination that the capital securities can no longer be considered in regulatory capital, the securities become callable and ~~the Company~~we may redeem them.

NOTE 1110 - BORROWING ARRANGEMENTS

~~The Company has~~We have established secured and unsecured lines of credit. ~~The Company~~We may borrow funds from time to time on a term or overnight basis from the Federal Home Loan Bank of San Francisco ~~("FHLB"~~(“FHLB”), the Federal Reserve Bank of San Francisco ~~("FRB"~~(“FRB”) and other financial institutions as indicated below.

FHLB Secured Line of Credit and Advances. At March 31, 2024, we had a secured borrowing capacity with the FHLB of $1.0 billion collateralized by pledged residential and commercial loans with a carrying value of $1.4 billion. At March 31, 2024, we had no overnight advances and $150.0 million of advances with an original term of five years at a weighted average rate of 1.18% which mature in the first quarter of 2025. We paid interest expense on FHLB advances of $439,000 and $1.4 million for the three months ended March 31, 2024 and 2023.

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

Federal Funds Arrangements with Commercial Banks. At ~~September~~March 31, 2024, ~~30,~~~~2023,~~ ~~the Company~~ ~~may~~ ~~borrow on an unsecured basis, up to~~we had borrowing capacity of $92.0 million from other financial ~~institutions.~~

~~Letter~~institutions, of ~~Credit Arrangements.~~ At ~~September~~ ~~30,~~~~2023,~~ ~~the Company had~~which $80.0 million was on an unsecured ~~commercial letter~~basis and $12.0 million was collateralized by investment securities with fair market value of ~~credit line with another financial institution for $2.0~~$21.1 million.

~~FRB Secured Line of Credit.~~ ~~The secured borrowing capacity with the FRB of $41.9 million at~~ ~~September~~ ~~30,~~~~2023~~ ~~is collateralized by loans pledged with a carrying value of $63.3 million.~~

~~FHLB Secured Line of Credit and Advances.~~ ~~The secured borrowing capacity with the FHLB of $1.1 billion at~~ ~~September~~ ~~30,~~~~2023~~ ~~is pledged by residential and commercial loans with a carrying value of $1.5 billion. At~~ ~~September~~ ~~30,~~~~2023,~~ ~~the Company had no overnight advances but long-term (five~~ ~~year original term) advances of $150.0 million at a weighted average rate of 1.18% with the FHLB. The Company paid interest expenses of $440,000 and $1.0 million on such FHLB advances for the~~ ~~three~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively, and $2.4 million and $2.0 million on such FHLB advances for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~ There were no amounts outstanding under any of the other borrowing arrangements ~~other than~~above as of March 31, 2024, except the FHLB advances asmaturing in the first quarter of ~~September~~ 2025.~~30,~~~~2023~~ ~~and at~~ ~~December 31, 2022.~~ On ~~May 3, 2023,~~ ~~the FHLB issued a letter of credit of $30.0 million on behalf of the Bank for a certificate of deposit of $30.0 million from the State of California. The letter of credit expired on~~ ~~August 31, 2023.~~

NOTE 1211 - 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.

~~During the~~ ~~three~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~the Company~~We recorded an income tax provision of ~~$3.6~~$3.2 million and ~~$6.4~~$4.6 million, ~~respectively,~~ reflecting an effective tax rate of ~~29.9%~~28.8% and ~~27.8%~~29.4% for the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively. During the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~the Company recorded an income tax provision of $12.8 million and $19.3 million, respectively, reflecting an effective tax rate of 29.6% and 29.2% for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively. The Company~~We recognized a tax ~~benefit~~expense/(benefit) from stock option exercises of ~~zero~~$8,000 and ~~$276,000~~($5,000) for the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively, and $5,000 and $578,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~

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NOTE 1312 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, ~~the Company enters~~we enter into financial commitments to meet the financing needs of ~~its~~our customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in ~~the Company's~~our financial statements.

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

At ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, ~~the Company~~we had the following financial commitments whose contractual amount represents credit risk:

	*September 30,*		*December 31,*		*March 31,*		*December 31,*
*(dollars in thousands)*	*2023*		*2022*		*2024*		*2023*
Commitments to make loans	$	85,170	$	129,821	$	84,758	$	77,844
Unused lines of credit		106,670		211,044		105,041		106,315
Commercial and similar letters of credit		3,852		2,021		5,079		3,904
Standby letters of credit		2,687		2,638		2,553		2,687
Total	$	198,379	$	345,524	$	197,431	$	190,750

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. ~~The Company evaluates~~We evaluate each client's ~~credit worthiness~~creditworthiness on a case-by-case basis. ~~The amount of collateral obtained if deemed necessary by the Company is based on management's credit evaluation of the customer.~~

~~The Company records~~We record a liability for lifetime expected losses on off-balance-sheet credit exposure that dodoes not fit the definition of unconditionally cancelable in accordance with ASC 326. ~~The Company uses~~We use the loss rate and exposure of default framework to estimate a reserve for unfunded commitments. Loss rates for the expected funded balances are determined based on the associated pooled loan analysis loss rate and the exposure at default is based on an estimated utilization given default. The reserve for off-balance sheet ~~commitment allowance~~commitments was ~~$654,000~~$671,000 and ~~$1.2 million~~$640,000 as of ~~September~~March ~~30,~~31, ~~2023~~2024 and December 31, ~~2022,~~2023. ~~respectively. The benefit~~We recorded a provision for ~~off-balance sheet commitment expenses was $144,000 and $28,000~~unfunded loan commitments of $31,000 for the three months ended ~~September~~March 31, ~~30,~~~~2023~~2024, and ~~2022,~~ ~~respectively, and $503,000 and $162,000~~a reversal of the provision for unfunded loan commitments of $138,000 for the ~~nine~~three months ended ~~September~~March 31, ~~30,~~~~2023~~ ~~and~~ ~~2022.~~2023.

~~The Company is~~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.~~generally accepted accounting principles. In the opinion of management, the disposition of such pending litigation will not have a material effect on the Company's financial statements.

NOTE 1413 - LEASES

~~The Company adopted ASU~~ ~~2016~~-~~02,~~ ~~Leases (Topic~~ ~~842~~~~) and elected the package of practical expedients, which allows the Company~~ ~~not~~ ~~to reassess its prior conclusions about~~We lease identification, lease classification and initial direct costs. The Company also elected all of the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes ~~not~~ ~~recognizing Right-of-Use (“ROU”) assets or lease liabilities for existing short-term leases, and the practical expedient to~~ ~~not~~ ~~separate lease and non-lease components for all of the Company's leases.~~

The Company determines if a contract arrangement is a lease at inception and primarily enters into operating lease contracts for its branch locations, office space, and certain equipment. As part of its property lease agreements, the Company ~~may~~ seek to include options to extend or terminate at lease when it is reasonably certain that the Company will exercise those options. The Company's measurement of the ROU assets and operating lease liabilities does ~~not~~ include payments associated with the option to extend or terminate the lease. The ROU lease assets also include any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company did ~~not~~ ~~possess any leases that have variable lease payments or residual value guarantees as of~~ ~~September~~ ~~30,~~~~2023.~~

The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses FHLB advance rates to determine the present value of its lease liabilities.

~~The Company leases~~ several of ~~its~~our operating facilities under various non-cancellable operating leases expiring at various dates through 2037. ~~The Company is~~We are also responsible for common area maintenance, taxes, and insurance at the various branch locations.

Future minimum rent payments on ~~the Company’s~~our leases were as follows at ~~September~~ ~~30,~~~~2023:~~as of the date indicated:

*(dollars in thousands)*
As of September 30, 2023:
2023 remaining	$	956
2024		4,884
As of March 31, 2024
2024 remaining				$	3,734
2025		4,762			5,681
2026		4,884			5,715
2027		4,816			5,615
2028					4,694
Thereafter		14,564			10,861
Total	$	34,866
Total future minimum lease payments				$	36,300
Less amount of payment representing interest		(3,601	)		(3,610	)
Total present value of lease payments	$	31,265		$	32,690

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The minimum rent payments shown above are given for the existing lease obligation and are not a forecast of future rental expense. Total rental expense, recognized on a straight-line basis, was ~~$1.5 million and~~ $1.4 million for each of the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively, and $4.3 million and $4.0 million for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~ The Company ~~recorded~~received rental income of ~~$144,000~~$146,000 and ~~$106,000 for~~$140,000 in the ~~three~~first ~~months ended~~quarter of ~~September~~ ~~30,~~~~2023~~2024 and ~~2022,~~2023. ~~respectively, and $425,000 and $376,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~

The following table presents the ~~operating lease related~~right-of-use ("ROU") assets and lease liabilities recorded on ~~the Company's~~our consolidated balance sheet, ~~and~~ the weighted-average remaining lease terms and discount rates, as of ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~the dates indicated:

	*September 30,*			*December 31,*			*March 31,*			*December 31,*
*(dollars in thousands)*	*2023*			*2022*			*2024*			*2023*
Operating Leases
ROU assets	$	29,949		$	25,447		$	31,231		$	29,803
Lease liabilities		31,265			26,523			32,690			31,191

Weighted-average remaining lease term (in years)		7.91			7.91			7.26			7.63
Weighted-average discount rate		2.95	%		2.19	%		2.73	%		1.72	%

NOTE 1514 - RELATED PARTY TRANSACTIONS

~~Loans to principal officers, directors, and their affiliates~~There were ~~as follows:~~

For the nine months ended For the year ended

September 30,

December 31,

(dollars in thousands)

2023

2022

Beginning balance
$ 6,869 $ 8,441
Repayments
— (1,572 )
Balance re-categorized to non-related party
(6,869 ) —
Ending balance
$ — $ 6,869

~~Outstanding~~no loans or outstanding loan commitments to ~~executive~~any principal officers or directors, ~~and~~or any of their ~~related interests with whom they are associated were none and $1.6 million~~affiliates at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~ 2023.~~respectively.~~

Deposits from principal officers, directors, and their affiliates at ~~September~~March ~~30,~~31, ~~2023~~2024 and December 31, ~~2022~~2023 were ~~$22.5~~$32.9 million and ~~$88.1 million, respectively.~~$25.7 million.

Certain directors and their affiliates own $6.0 million of RBB's subordinated debentures as of ~~September~~March 31, 2024 and ~~30,~~December 31, 2023.

NOTE 1615 - STOCK-BASED COMPENSATION

RBB Bancorp 2010 Stock Option Plan and 2017 Omnibus Stock Incentive Plan

Under the RBB Bancorp 2010 Stock Option Plan (the “2010 Plan”), ~~the Company was~~we were permitted to grant awards to eligible persons in the form of qualified and non-qualified stock options. ~~The Company~~We reserved up to 30% of the issued and outstanding shares of common stock as of the date ~~the Company~~we adopted the 2010 Plan, or 3,494,478 shares, for issuance under the 2010 Plan. Following receipt of shareholder approval of the 2017 Omnibus Stock Incentive Plan (the “OSIP”) in May 2017, no additional grants were made under the 2010 Plan. The 2010 Plan has been terminated and options that were granted under the 2010 Plan have become subject to the OSIP. Awards that were granted under the 2010 Plan will remain exercisable pursuant to the terms and conditions set forth in individual award agreements, but such awards will be assumed and administered under the OSIP. The 2010 Plan award agreements allow for acceleration of exercise privileges of grants upon occurrence of a change in control of the Company. If a participant’s job is terminated for cause, then all unvested awards expire at the date of termination.

Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan

The Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan (the "Amended OSIP") was approved by ~~the Company’s~~our board of directors in January ~~2019.~~2019 Inand approved by our shareholders in May ~~2022,~~2022. ~~the Amended OSIP was approved by the Company's shareholders to allow for the granting of restricted stock units.~~ The Amended OSIP was designed to ensure continued availability of equity awards that will assist ~~the Company~~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, ~~the Company’s~~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. ~~The Company has~~We reserved up to 30% of issued and outstanding shares of common stock as of the date ~~the Company~~we adopted the Amended OSIP, or 3,848,341 shares. As of ~~September~~March 31, 2024, ~~30,~~~~2023,~~there were ~~1,018,673~~1,038,570 shares of common stock available for issuance under the Amended OSIP. This represents ~~5.4%~~5.6% of the issued and outstanding shares of ~~the Company’s~~our common stock as of ~~September~~March 31, 2024. ~~30,~~~~2023.~~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.

~~Table of Contents~~

~~The recorded compensation~~Stock Options

Compensation expense for stock options was ~~$59,000~~$21,000, $56,000, and ~~$72,000 and the Company recognized income tax benefit of zero and $276,000~~$64,000 for the three months ended ~~September~~March 31, 2024, ~~30,~~December 31, 2023, ~~2023~~and ~~2022,~~March 31, 2023. ~~respectively. The recorded compensation expense for stock options was $190,000 and $228,000 and the Company recognized income tax benefit of $5,000 and $578,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~ Unrecognized stock-based compensation expense related to options was ~~$375,000~~$158,000 and ~~$332,000~~$500,000 as of ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively.~~ Unrecognized ~~stock-based~~ compensation expense related to stock options, ~~will~~as of March 31 2024, is expected to be recognized over ~~a weighted-average period of 2.0 years as of~~ ~~September~~ ~~30,~~~~2023.~~the next 3.0 years.

The fair value of each option ~~grants~~grant was estimated on the date of grant using the Black-Scholes option pricing ~~model with~~model. The table below summarizes the ~~following weighted-average~~ assumptions ~~presented below~~and grant date fair value for stock options granted in ~~2023~~March 2023. There were no ~~and~~stock options granted after ~~2022.~~March 31, 2023.

	March 2023			December 2022			May 2022			March 2023
Expected volatility		28.4	%		28.9	%		29.5	%		28.4	%
Expected term (years)		8.0			8.0			6.0			8.0
Expected dividends		2.92	%		2.55	%		2.52	%		2.92	%
Risk free rate		4.27	%		4.00	%		2.71	%		4.27	%
Grant date fair value	$	5.49		$	6.16		$	5.28		$	5.49

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

AThe table below presents a summary of ~~the status of option~~our stock options awards ~~pursuant to the Company's stock option plans~~and activity as of ~~September~~ ~~30,~~~~2023~~and ~~changes during~~for the ~~nine~~three months ended ~~September~~ March 31, 2024.~~30,~~~~2023~~ ~~is presented below:~~

						*Weighted-*
				*Weighted-*		*Average*
				*Average*		*Remaining*		*Aggregate*
				*Exercise*		*Contractual*		*Intrinsic*
*(dollars in thousands, except for shares and per share data)*	*Shares*			*Price*		*Term in years*		*Value*
*(dollars in thousands, except for per share data)*										*Outstanding Options*			*Weighted-Average Exercise Price*		*Weighted- Average Remaining Contractual Term in years*		*Aggregate Intrinsic Value*
Outstanding at beginning of year		454,610		$	16.97						397,903		$	17.61
Granted		30,000			19.87
Exercised		(9,153	)		17.38						(41,000	)		13.21
Forfeited/cancelled		(37,304	)		11.15						(102,153	)		17.57
Outstanding at end of period		438,153		$	17.66		4.39	$	—		254,750		$	18.33		5.09	$	140

Options exercisable		336,482		$	17.06		3.11	$	—		224,084		$	17.93		4.61	$	140

AsThe total fair value of the shares vested was $630,000 and $636,000 during the ~~December~~three months ended March 31, ~~2022,~~ ~~the number of unvested~~2024, and 2023. Unvested stock options ~~was 127,005~~totaled 30,666 and 111,005 with a ~~weighted-average~~weighted average grant date fair value of ~~$4.69. During~~$5.97 and $5.09, respectively, as of ~~nine~~March 31,2024 and 2023. The decrease of unvested stock options during the three months ended ~~September~~March 31, 2024 ~~30,~~~~2023,~~ ~~there were 30,000 unvested stock options granted with a weighted-average grant date stock price of $19.87 and 50,334~~was due to 35,005 stock options vested with a weighted average grant date stock price of ~~$18.07. During the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023,~~ ~~there were a total of 5,000 stock options exercised with weighted average grant date stock price of $17.74 and~~ no ~~unvested stock options were forfeited.~~ $17.74.

~~The total fair value of the 50,334 shares and 62,495 shares vested during the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~was $643,000 and $1.3 million, respectively. The number of unvested stock options was 101,671 and 107,005 with a weighted-average grant date fair value of $5.21 and $4.37 as of~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~

~~No stock options were exercised during~~ ~~three~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and cash~~Cash received from the exercise of ~~217,932~~41,000 stock options was ~~$2.6 million~~$541,000 for the three months ended ~~September~~March 31, 2024 ~~30,~~~~2022.~~ ~~The intrinsic value of options exercised was $2.1 million for the~~ ~~three~~ ~~months ended~~ ~~September~~ ~~30,~~~~2022.~~ ~~For the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023,~~and cash received from the exercise of 9,153 stock options was $159,000 ~~and~~ for the ~~nine~~three months ended ~~September~~March 31, 2023. ~~30,~~~~2022,~~ ~~cash received from the exercise of 442,308 stock options was $5.4 million.~~ The intrinsic value of options exercised was ~~$25,000~~$179,000 and ~~$3.9 million~~$26,000 for the ~~nine~~three months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively.~~

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~~The Company granted 32,248~~Restricted Stock Units

We award time-based restricted stock units ~~at a closing price of $20.46 on~~ ~~January 18,~~ ~~2023~~ ~~to its directors~~(“TRSUs”) and ~~executive officers. These~~performance-based restricted stock units ~~are scheduled~~(“PRSUs”), which we also refer to ~~vest over a~~ ~~one-year period for shares~~collectively as restricted stock units (“RSUs”). We granted ~~to directors and a~~95,756 RSUs during the three ~~year period for shares~~months ended March 31, 2024, with a weighted average price of $17.70. The RSUs granted during the first quarter included 31,270 PRSUs with an estimated fair value as of the March 20, 2024, grant date of $19.13 and are subject to ~~executive officers~~pre-established performance metrics and market conditions that will be measured in the future and subject to oversight and approval by the Board of Director’s Compensation Committee. The TRSUs have lives ranging from 1 to 3 years and PRSUs have lives of 3 years. See further discussion below describing the ~~grant date.~~PRSUs. As of ~~September~~March 31, 2024, ~~30,~~~~2023,~~there were ~~26,660 remaining~~127,025 unvested ~~restricted stock units.~~RSUs outstanding.

The recorded compensation expense for ~~restricted stock units~~RSUs was $118,000, $84,000, and ~~$202,000~~$251,000 for the three months ended ~~September~~March 31, 2024, ~~30,~~December 31, 2023, ~~2023~~and ~~2022,~~March 31, 2023. ~~respectively, and $420,000 and $357,000 for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~respectively.~~ Unrecognized stock-based compensation expense related to ~~restricted stock units~~RSUs was ~~$422,000~~$2.1 million and ~~$320,000~~$591,000 as of ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~2022,~~2023. ~~respectively.~~ As of ~~September~~March 31, 2024, ~~30,~~~~2023,~~unrecognized stock-based compensation expense related to ~~restricted stock units~~RSUs is expected to be recognized over the next ~~1.4~~2.6 years.

The following table presents restricted stock ~~unit~~units activity during the ~~nine~~three months ended ~~September~~ ~~30,~~~~2023.~~March 31, 2024.

				*Weighted-Average*
				*Grant Date*
	*Shares*			*Fair Value Per Share*
Outstanding at beginning of year		43,160		$	18.89
Granted ⁽¹⁾		95,756			18.15
Vested		(11,891	)		22.15
Outstanding at end of period		127,025		$	18.03

Weighted-Average

Grant Date

Shares

Fair Value

Outstanding at beginning of year
14,786 $ 27.16
Granted
32,248 20.46
Vested
(20,374 ) 23.35
Forfeited/cancelled
— —
Outstanding at end of period
26,660 $ 21.97

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

NOTE 1716 - REGULATORY MATTERS

Holding companies (with assets over $3 billion at the beginning of the year) and banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on ~~the Company’s~~our financial statements.

In July 2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks. The new rules became effective on January 1, 2015, with certain of the requirements phased-in over a multi-year schedule. Under the rules, minimum requirements increased for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 (“CET1”) capital to risk-weighted assets ratio with minimums for capital adequacy and prompt corrective action purposes of 4.5% and 6.5%, respectively. The minimum Tier 1 capital to risk-weighted assets ratio was raised from 4.0% to 6.0% under the capital adequacy framework and from 6.0% to 8.0% to be well capitalized under the prompt corrective action framework. In addition, the rules introduced the concept of a “conservation buffer” of 2.5% applicable to the three capital adequacy risk-weighted asset ratios (CET1, Tier 1, and Total). The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019). If the capital adequacy minimum ratios plus the phased-in conservation buffer amount exceed actual risk-weighted capital ratios, then dividends, share buybacks, and discretionary bonuses to executives could be limited in amount.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. Management believes, ~~that~~ at ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, RBB and the Bank satisfied all capital adequacy requirements to which they were subject.

In ~~February 2019,~~ ~~the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a~~ ~~three~~~~-year period the day-~~~~one~~ ~~adverse regulatory capital effects of ASU~~ ~~2016~~-~~13.~~ ~~Additionally, in~~ ~~March 2020,~~ ~~the U.S. federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional~~ ~~two~~ ~~years for a total transition period of up to~~ ~~five~~ years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the COVID-19 ~~pandemic. As a result, entities will have the option to gradually phase in the full effect of CECL on regulatory capital over a~~ ~~five~~~~-year transition period. Effective~~ ~~January 1, 2022,~~ ~~the Company retroactively adopted ASU~~ ~~2016~~-~~13,~~ ~~reflected the full effect of CECL at~~ ~~December 31, 2022,~~ ~~and did~~ ~~not~~ ~~elect the~~ ~~three~~~~-year or~~ ~~five~~~~-year CECL phase-in options on regulatory capital.~~

~~As previously disclosed in the Company's Current Report on Form~~ 8~~-K filed with the Securities and Exchange Commission (“SEC”) on~~ ~~October 31, 2023,~~ ~~effective on~~ ~~October 25, 2023,~~ the Bank entered into a Stipulation to the Issuance of a Consent Order (the “Stipulation”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the California Department of Financial Protection and Innovation (the “DFPI”), consenting to the issuance of a consent order (the “Consent Order”) relating to the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) compliance program. In connection to the issuance of the Consent Order, the Bank did ~~not~~ ~~admit or deny any charges of violating Bank Secrecy Act (“BSA”) and its implementing regulations.~~

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~~As defined in applicable regulations and~~The following tables set forth ~~in the tables below, RBB~~Bancorp’s consolidated and the ~~Bank continue to exceed the~~Bank’s capital amounts and ratios and related regulatory ~~capital minimum~~ requirements ~~and the Bank continues to exceed the "well capitalized" standards at~~as of the dates indicated:

Amount of Capital Required

To Be Well-Capitalized

Minimum Required for

Under Prompt Corrective

Actual

Capital Adequacy Purposes

Provisions

(dollars in thousands)

Amount

Ratio

Amount

Ratio ⁽¹⁾

Amount

Ratio

As of September 30, 2023:

Tier 1 Leverage Ratio

Consolidated
$ 469,453 11.68 % $ 160,744 4.0 % $ 200,930 5.0 %
Bank
561,797 13.99 % 160,666 4.0 % 200,833 5.0 %
Common Equity Tier 1 Risk-Based Capital Ratio

Consolidated
$ 454,569 17.65 % $ 115,916 4.5 % $ 167,434 6.5 %
Bank
561,797 21.83 % 115,791 4.5 % 167,254 6.5 %
Tier 1 Risk-Based Capital Ratio

Consolidated
$ 469,453 18.22 % $ 154,554 6.0 % $ 206,072 8.0 %
Bank
561,797 21.83 % 154,389 6.0 % 205,851 8.0 %
Total Risk-Based Capital Ratio

Consolidated
$ 675,805 26.24 % $ 206,072 8.0 % $ 257,590 10.0 %
Bank
594,096 23.09 % 205,851 8.0 % 257,314 10.0 %

						*Amount of Capital Required*
											*To Be Well-Capitalized*
						*Minimum Required for*					*Under Prompt Corrective*
*(dollars in thousands)*	*Actual*					*Capital Adequacy Purposes*					*Provisions*
As of March 31, 2024	*Amount*		*Ratio*			*Amount*		Ratio ⁽¹⁾			*Amount*		*Ratio*

Tier 1 Leverage Ratio
Consolidated	$	476,519		12.16	%	$	156,700		4.0	%	$	195,875		5.0	%
Bank		545,686		13.95	%		156,494		4.0	%		195,617		5.0	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated	$	461,526		19.10	%	$	108,758		4.5	%	$	157,095		6.5	%
Bank		545,686		22.60	%		108,643		4.5	%		156,929		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	476,519		19.72	%	$	145,011		6.0	%	$	193,348		8.0	%
Bank		545,686		22.60	%		144,857		6.0	%		193,143		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	626,123		25.91	%	$	193,348		8.0	%	$	241,685		10.0	%
Bank		576,015		23.86	%		193,143		8.0	%		241,429		10.0	%

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

Amount of Capital Required

To Be Well-Capitalized

Minimum Required for

Under Prompt Corrective

Actual

Capital Adequacy Purposes

Provisions

(dollars in thousands)

Amount

Ratio

Amount

Ratio ⁽¹⁾

Amount

Ratio

As of December 31, 2022:

Tier 1 Leverage Ratio

Consolidated
$ 446,776 11.67 % $ 153,116 4.0 % $ 191,395 5.0 %
Bank
569,071 14.89 % 152,900 4.0 % 191,124 5.0 %
Common Equity Tier 1 Risk Based Capital Ratio

Consolidated
$ 432,056 16.03 % $ 121,291 4.5 % $ 175,199 6.5 %
Bank
569,071 21.14 % 121,110 4.5 % 174,937 6.5 %
Tier 1 Risk-Based Capital Ratio

Consolidated
$ 446,776 16.58 % $ 161,722 6.0 % $ 215,629 8.0 %
Bank
569,071 21.14 % 161,481 6.0 % 215,307 8.0 %
Total Risk-Based Capital Ratio

Consolidated
$ 654,159 24.27 % $ 215,629 8.0 % $ 269,537 10.0 %
Bank
602,819 22.40 % 215,307 8.0 % 269,134 10.0 %

						*Amount of Capital Required*
											*To Be Well-Capitalized*
						*Minimum Required for*					*Under Prompt Corrective*
*(dollars in thousands)*	*Actual*					*Capital Adequacy Purposes*					*Provisions*
As of December 31, 2023	*Amount*		*Ratio*			*Amount*		Ratio ⁽¹⁾			*Amount*		*Ratio*

Tier 1 Leverage Ratio
Consolidated	$	472,152		11.99	%	$	157,526		4.0	%	$	196,907		5.0	%
Bank		535,952		13.62	%		157,454		4.0	%		196,818		5.0	%
Common Equity Tier 1 Risk Based Capital Ratio
Consolidated	$	457,214		19.07	%	$	107,886		4.5	%	$	155,836		6.5	%
Bank		535,952		22.41	%		107,598		4.5	%		155,419		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	472,152		19.69	%	$	143,849		6.0	%	$	191,798		8.0	%
Bank		535,952		22.41	%		143,464		6.0	%		191,285		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	621,423		25.92	%	$	191,798		8.0	%	$	239,748		10.0	%
Bank		565,997		23.67	%		191,285		8.0	%		239,106		10.0	%

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

The California Financial Code generally acts to prohibit banks from making a cash distribution to its shareholders in excess of the lesser of the bank's undivided profits or the bank's net income for its last three fiscal years less the amount of any distribution made by the bank's shareholders during the same period.

The California General Corporation Law generally acts to prohibit companies from paying dividends on common stock unless retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend. If a company fails this test, then it may still pay dividends if after giving effect to the dividend the company's assets are at least 125% of its liabilities.

Additionally, the Federal Reserve has issued guidance which requires that they be consulted before payment of a dividend if a financial holding company does not have earnings over the prior four quarters of at least equal to the dividend to be paid, plus other holding company obligations.

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NOTE 1817 - FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with ~~accounting guidance, the Company groups its~~ASC 820-10, we group financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The ~~hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level~~ 1 ~~measurements) and the lowest priority to unobservable inputs (Level~~ 3 ~~measurements). The~~ three levels of the fair value hierarchy are described as follows:

Fair Value Hierarchy

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, volatilities, etc.) or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly, in the market.

Level 3 - Valuation is generated from model-based techniques where one or more significant inputs are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect ~~the Company’s~~our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of matrix pricing, ~~discounted cash flow~~DCF models, and similar techniques.

~~The following is~~Assets and Liabilities Measured at Fair Value on a ~~description of valuation methodologies used for assets and liabilities recorded at fair value:~~Recurring Basis

Securities:

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2).

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 level 3 due to management’s estimate of market rate, cost and expiration timing on these contracts.

Assets and Liabilities Measured on a Non-Recurring Basis

Other Real Estate ~~Owned~~Owned::

Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned ~~(“OREO”)~~ are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized. Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect an expectation of the amount to be ultimately collected and selling costs (Level 3).

Appraisals for ~~OREO~~other real estate owned are performed by state licensed appraisers (for commercial properties) or state certified appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by ~~the Company.~~us. When a Notice of Default is recorded, an appraisal report is ordered. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or ~~industry-wide~~industry wide statistics for residential appraisals. Commercial appraisals are sent to an independent third party to review. ~~The Company~~We also ~~compares~~compare the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal values on any remaining other real estate owned to arrive at fair value. If the existing appraisal is older than twelve months, a new appraisal report is ordered. No significant adjustments to appraised values have been made as a result of this comparison process ~~prior to OREO sale date.~~

~~Interest Rate Lock Contracts and Forward Mortgage Loan Sale Contracts:~~ ~~The fair values~~as of interest rate lock contracts and forward mortgage loan sale contracts are determined by loan lock-in rate, loan funded rate, market interest rate, fees to be collected from the borrower, fees and costs associated with the origination of the loan, expiration timing, sale price, and the value of the retained servicing. The Company classified these derivatives as Level 3March 31, ~~due to management’s estimate of market rate, cost and expiration timing on these contracts.~~2024.

Collateral-dependent individually evaluated ~~loans~~loans:: Collateral-dependent individually evaluated loans are carried at fair value when it is probable that ~~the Company~~we will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable. ~~There were $2.6 million write-down on collateral-dependent loans that were individually evaluated to the fair value for the~~ ~~first~~~~nine~~ ~~months of~~ ~~2023.~~ ~~There was~~ no ~~collateral-dependent loan that was individually evaluated and written down to the fair value as of~~ ~~December 31, 2022.~~

The following table ~~provides the hierarchy and fair value for each major category of~~presents our financial assets and liabilities measured at fair value at ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022:~~on a recurring basis as of the dates indicated:

*(dollars in thousands)*	*Fair Value Measurements Using:*								*Fair Value Measurements Using:*
September 30, 2023	*Level 1*		*Level 2*		*Level 3*		*Total*
March 31, 2024									*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities	$	—	$	7,894	$	—	$	7,894	$	—	$	7,059	$	—	$	7,059
SBA agency securities		—		7,261		—		7,261		—		14,314		—		14,314
Mortgage-backed securities		—		33,437		—		33,437		—		33,180		—		33,180
Collateralized mortgage obligations		—		138,694		—		138,694		—		163,736		—		163,736
Commercial paper		—		129,073		—		129,073		—		77,066		—		77,066
Corporate debt securities		—		29,806		—		29,806		—		30,630		—		30,630
Municipal securities		—		8,213		—		8,213		—		9,209		—		9,209
Interest Rate Lock Contracts		—		—		9		9
Forward Mortgage Loan Sale Contracts		—		—		16		16
Equity securities ⁽¹⁾										—		—		22,262		22,262
Interest rate lock contracts ⁽¹⁾										—		—		17		17
Forward mortgage loan sale contracts ⁽¹⁾										—		—		29		29
	$	—	$	354,378	$	25	$	354,403	$	—	$	335,194	$	22,308	$	357,502
On a non-recurring basis:
Other real estate owned	$	—	$	—	$	284	$	284
Commercial real estate loans - collateral dependent impaired loans									$	—	$	—	$	9,972	$	9,972
Other real estate owned ⁽¹⁾										—		—		1,071		1,071
									$	—	$	—	$	11,043	$	11,043

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

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December 31, 2022	*Level 1*		*Level 2*		*Level 3*		*Total*
December 31, 2023									*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities	$	—	$	4,495	$	—	$	4,495	$	—	$	8,161	$	—	$	8,161
SBA agency securities		—		2,411		—		2,411		—		13,217		—		13,217
Mortgage-backed securities		—		42,928		—		42,928		—		34,652		—		34,652
Collateralized mortgage obligations		—		111,593		—		111,593		—		149,626		—		149,626
Commercial paper		—		49,537		—		49,537		—		73,105		—		73,105
Corporate debt securities		—		37,012		—		37,012		—		30,691		—		30,691
Municipal securities		—		8,854		—		8,854		—		9,509		—		9,509
Forward Mortgage Loan Sale Contracts		—		—		18		18
Equity securities ⁽¹⁾										—		—		22,251		22,251
Interest rate lock contracts⁽¹⁾										—		—		32		32
Forward mortgage loan sale contracts ⁽¹⁾										—		—		14		14
	$	—	$	256,830	$	18	$	256,848	$	—	$	318,961	$	22,297	$	341,258
On a non-recurring basis:
Other real estate owned	$	—	$	—	$	577	$	577
Commercial real estate loans - collateral-dependent impaired loans									$	—	$	—	$	10,209	$	10,209
SBA loans - collateral-dependent impaired loans										a—		—		1,148		1,148
									$	—	$	—	$	11,357	$	11,357

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

~~No write-downs to OREO were recorded for~~During the ~~nine~~three months ended ~~September~~March 31, 2024, there were write-downs of $116,000 on individually evaluated collateral-dependent loans with an aggregate fair value of $10.0 million as of ~~30,~~March 31, ~~2023~~2024. ~~or for~~During the ~~year~~three months ended December 31, 2023, ~~31,~~~~2022.~~

~~Quantitative information about the Company's OREO non-recurring Level~~ 3there write-downs of $521,000 on individually evaluated collateral-dependent loans with an aggregate fair value ~~measurements at~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~of $11.4 million as of December 31, 2023. The fair value of individually evaluated collateral-dependent loans were based on ~~31,~~third ~~2022~~ ~~is as follows:~~party appraisals with a management adjustment of 10% to reflect selling costs.

OREO consisted of~~one~~ ~~single-family residence with a fair value of $284,000 as of~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ two single-family residences with a fair value of ~~$577,000~~$1.1 million as of March 31, 2024 and no OREO as of December 31, ~~2022.~~2023. OnDuring the ~~September 1, 2023,~~ first~~OREO with a book value~~ quarter of ~~$293,000 was~~2024, the Company foreclosed on three properties related to the same borrower and soldone of the properties for a gain of ~~$190,000.~~$164,000 and the other two properties were recorded at their estimated fair values with a $560,000 gain recognized on the transfer to OREO. The fair value of OREO was ~~evaluated by~~based on third party appraisals with ~~unobservable input of~~ management adjustment in the range of 5%~~-6%~~-10% to reflect current conditions and selling costs.

~~Interest Rate Lock Commitments ("IRLCs"): Agreements under which~~The following table presents the Company agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Under the agreement, the Company commits to lend funds to a potential borrower (subject to the Company’s approval of the loan)gains recognized on a fixed or adjustable rate basis, regardless of whether interest rates change in the market, or on a floating rate basis. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancelling or expiration. Loan commitments generally range between 30 ~~and~~ 90 ~~days; however, the borrower is~~ ~~not~~ ~~obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose~~ ~~not~~ to close on the loans within the terms of the IRLCs. The Company uses best efforts commitments to substantially eliminate these risks. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

~~The FASB ASC provides that IRLCs on mortgage loans that will be held for resale are derivatives and must be accounted for~~assets measured at fair value on a non-recurring basis for the ~~balance sheet (if material). FASB ASC Topic~~ ~~820~~ ~~– Fair Value Measurements and Disclosures specifies how these derivatives are to be valued. Consequently, the Company has elected to account for these obligations at fair value.~~periods indicated:

Forward Mortgage Loan Sale Contracts ("FMLSCs"): The Company is subject to interest rate and price risk on its mortgage loans held for sale (“HFS”) from the loan funding date until the date the loan is sold. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate the interest rate and price risk to the Company. To avoid interest rate risk, the Company will enter into FMLSCs at the time they make an interest rate lock commitment to the buyer. They can enter into mortgage loan sales commitments on a “mandatory” or “best efforts” basis. Mandatory commitments provide that the loan must be delivered or the commitment be “paired off.” In general, best efforts commitments provide that the loan be delivered if and when it closes.

	*For the Three Months Ended March 31,*
*(dollars in thousands)*	*2024*		*2023*
Other real estate owned - Single family residential	$	560	$	—

~~Quantitative information about~~No write-downs to OREO were recorded for the ~~Company's recurring Level~~ 3three ~~fair value measurements as of~~months ended ~~September~~March 31, 2024 ~~30,~~~~2023~~ ~~and~~or for the year ended December 31, ~~2022~~ ~~is as follows:~~

At ~~December 31, 2022,~~ ~~fair value for IRLCs and FMLSCs totaled $18,000. All IRLCs and FMLSCs at~~ ~~December 31, 2022~~ ~~were funded and sold to Fannie Mae in the~~ ~~first~~~~three~~ ~~months of~~ 2023. ~~Changes in fair value were $7,000 in~~ ~~2023.~~ ~~Fair value for IRLCs and FMLSCs totaled $25,000 at~~ ~~September~~ ~~30,~~~~2023.~~

The fair value ~~measurements~~measurement of IRLCs and FMLSCs were primarily based on the buy price from borrowers ranging from 99 to ~~100,~~101, the sale price to Fannie Mae ranging from 99100 to ~~102,~~103, and the significant unobservable inputs using a margin cost rate of ~~ranging from 0.50% to 0.50%~~0.88%.

~~Forward commitments, also known as forward loan sales commitments, are considered to be derivatives under FASB ASC Topic~~ ~~815~~ ~~(Derivatives and Hedging) because they meet all of the following criteria:~~

●

~~They have a specified underlying (the contractually specified price for the loans)~~

●

~~They have a notional amount (the committed loan principal amount)~~

●

~~They require little or~~ no ~~initial net investment~~

●

~~They require or permit net settlement as the institution via a pair-off transaction or the payment of a pair-off fee.~~

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do ~~not~~ ~~reflect any premium or discount that could result from offering for sale at~~ ~~one~~ ~~time the entire holdings of a particular financial instrument. Because~~ no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are ~~not~~ ~~considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have~~ ~~not~~ ~~been considered in many of the estimates.~~

~~Because~~ no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique.

3027

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management maximizes the use of observable inputs and attempts to minimize the use of unobservable inputs when determining fair value measurements. Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do ~~not~~ ~~reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at~~ ~~one~~ time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have ~~not~~ ~~been considered in any of these estimates.~~

~~The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments:~~

~~For cash and due from banks, Federal funds sold, and cash equivalents, the carrying amount is assumed to be a reasonable estimate of fair value, a Level~~ 1 ~~measurement.~~

~~For short-term investments and interest-bearing deposits, the carrying amount is assumed to be a reasonable estimate of fair value, a Level~~ 1 ~~measurement.~~

~~Securities available for sale and held-to-maturity are measured by using quoted market prices for similar securities or dealer quotes, a Level~~ 2 measurement. This category generally includes U.S. Government agency securities, U.S. Government sponsored entities, state and municipal securities, mortgage backed securities, collateralized mortgage obligations and corporate bonds.

~~Equity securities fair value are measured based on unobservable inputs at the reporting date, a Level~~ 3 ~~measurement. Equity securities are comprised of affordable housing investment funds and other restricted stocks.~~

Fair values are estimated for portfolios of loans with similar financial characteristics. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair values are based primarily on ~~third~~~~-party vendor pricing to determine fair values based on the exit price notion.~~

The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 ~~measurement.~~

The fair value of impaired loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from HFS loans. The Company does ~~not~~ record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on the adjusted appraised value of the collateral, a Level 3 ~~measurement.~~

~~The Company records HFS loans at fair value based on quoted prices from~~ ~~third~~ ~~party sale analysis, existing sale agreements, or appraisal reports adjusted by sales commission assumption, a Level~~ 2 ~~measurement.~~

Mortgage and SBA servicing rights are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 ~~measurement.~~

The fair value of demand deposits, savings accounts, and certain money market deposits is assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities, a Level 2 ~~measurement.~~

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 Level 3 ~~measurement.~~

The fair value of FHLB advances is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 ~~measurement.~~

Subordinated debentures fair value is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 ~~measurement.~~

The fair value of long-term debt is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 ~~measurement.~~

~~Fair value is estimated in accordance with ASC Topic~~ ~~825.~~ ~~Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do~~ ~~not~~ ~~reflect any premium or discount that could result from offering for sale at~~ ~~one~~ ~~time the Bank’s entire holdings of a particular financial instrument. Because~~ no market exists for a significant portion of the Bank’s 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.

~~Table of Contents~~

The fair value hierarchy level and estimated fair value of significant financial instruments at ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~December 31, 2022~~ as of the dates indicated are summarized as follows:


		*September 30, 2023*				*December 31, 2022*					*March 31, 2024*				*December 31, 2023*
	*Fair Value*	*Carrying*		*Fair*		*Carrying*		*Fair*		*Fair Value*	*Carrying*		*Fair*		*Carrying*		*Fair*
*(dollars in thousands)*	*Hierarchy*	*Value*		*Value*		*Value*		*Value*		*Hierarchy*	*Value*		*Value*		*Value*		*Value*
Financial Assets:
Cash and due from banks	Level 1	$	330,791	$	330,791	$	83,548	$	83,548	Level 1	$	269,243	$	269,243	$	431,373	$	431,373
Interest-earning deposits in other financial institutions	Level 1		600		600		600		600	Level 1		600		600		600		600
Investment securities - AFS	Level 2		354,378		354,378		256,830		256,830	Level 2		335,194		335,194		318,961		318,961
Investment securities - HTM	Level 2		5,214		4,750		5,729		5,563	Level 2		5,204		5,047		5,209		5,097
Mortgage loans held for sale	Level 1		62		57		—		—	Level 1		3,903		3,903		1,911		1,845
Loans, net	Level 3		3,078,522		3,023,903		3,295,373		3,251,464	Level 3		2,985,673		2,920,578		2,989,958		2,918,296
Equity securities(1)	Level 3		22,235		22,235		22,238		22,238	Level 3		22,262		22,262		22,251		22,251
Servicing assets	Level 3		8,439		19,486		9,521		21,712	Level 3		7,794		14,794		8,110		14,883
Accrued Interest Receivable	Level 1/2/3		14,008		14,008		14,536		14,536
Accrued interest receivable ⁽¹⁾										Level 1/2/3		14,661		14,661		13,743		13,743

		*Carrying*		*Fair*		*Carrying*		*Fair*			*Notional*		*Fair*		*Notional*		*Fair*
Derivative assets:		*Value*		*Value*		*Value*		*Value*			*Value*		*Value*		*Value*		*Value*
Interest Rate Lock Contracts	Level 3	$	9	$	9	$	—	$	—
Forward Mortgage Loan Sale Contracts	Level 3		16		16		18		18
Interest rate lock contracts ⁽¹⁾										Level 3	$	1,265	$	17	$	1,255	$	32
Forward mortgage loan sale contracts ⁽¹⁾										Level 3		1,660		29		1,104		14

		*Carrying*		*Fair*		*Carrying*		*Fair*			*Carrying*		*Fair*		*Carrying*		*Fair*
Financial Liabilities:		*Value*		*Value*		*Value*		*Value*			*Value*		*Value*		*Value*		*Value*
Deposits	Level 2	$	3,154,072	$	3,120,299	$	2,977,683	$	2,960,529	Level 2	$	3,028,329	$	3,024,434	$	3,174,760	$	3,181,495
FHLB advances	Level 3		150,000		142,576		220,000		210,470	Level 3		150,000		150,000		150,000		144,891
Long-term debt	Level 3		174,019		130,154		173,585		132,709	Level 3		119,243		105,310		119,147		83,864
Subordinated debentures	Level 3		14,884		14,561		14,720		14,195	Level 3		14,993		14,993		14,938		14,566
Accrued Interest Payable	Level 2/3		11,333		11,333		3,711		3,711	Level 2/3		6,254		6,254		11,671		11,671

(321

~~Table of Contents~~

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

NOTE 1918 - EARNINGS PER SHARE

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

For the Three Months Ended September 30,

2023

2022

(dollars in thousands except shares and per share data)

Income

Shares

Income

Shares

Net income
$ 8,473 $ 16,652
Shares outstanding
18,995,303 19,011,672
Impact of weighting shares
— (23,229 )
Used in basic EPS
8,473 18,995,303 16,652 18,988,443
Dilutive effect of outstanding

Stock options
2,001 125,684
Restricted Stock Unit
— 16,320
Used in dilutive EPS
$ 8,473 18,997,304 $ 16,652 19,130,447

Basic earnings per common share
$ 0.45 $ 0.88
Diluted earnings per common share
$ 0.45 $ 0.87

	*For the Nine Months Ended September 30,*										For the Three Months Ended
	*2023*					*2022*					March 31, 2024				December 31, 2023				March 31, 2023
*(dollars in thousands except shares and per share data)*	*Income*		*Shares*			*Income*			*Shares*
*(dollars in thousands, except per share data)*											Income		Shares		Income		Shares		Income		Shares
Net income	$	30,392				$	46,746				$	8,036			$	12,073			$	10,970
Less: Earnings allocated to participating securities		—					(34	)
Shares outstanding				18,995,303						19,011,672				18,578,132				18,609,179				18,992,903
Impact of weighting shares				(3,724	)					131,060				23,145				278,322				(7,057	)
Used in basic EPS		30,392		18,991,579			46,712			19,142,732		8,036		18,601,277		12,073		18,887,501		10,970		18,985,846
Dilutive effect of outstanding
Stock options				17,633						249,115				11,153				8,468				49,806
Restricted Stock Units				4,626						23,711
Restricted stock units														38,660				4,382				14,033
Performance stock units														15,593				—				—
Used in dilutive EPS	$	30,392		19,013,838		$	46,712			19,415,558	$	8,036		18,666,683	$	12,073		18,900,351	$	10,970		19,049,685

Basic earnings per common share	$	1.60				$	2.44				$	0.43			$	0.64			$	0.58
Diluted earnings per common share	$	1.60				$	2.41				$	0.43			$	0.64			$	0.58

Stock options for ~~362,500~~222,500 shares and 99,000 shares of common stock and restricted stock units for ~~26,660~~3,005 shares and 7,767 shares of common stock were not considered in computing diluted earnings per common share for ~~September~~March 31, 2024 ~~30,~~and 2023, ~~and stock options for 15,000 shares were~~ ~~not~~ ~~considered in computing diluted earnings per common share for~~ ~~September~~ ~~30,~~~~2022,~~ because they were anti-dilutive.

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NOTE 2019 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The following is a summary of revenue from contracts with customers that are in-scope and not in-scope under ASC Topic ~~606:~~606 for the periods indicated:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(dollars in thousands)

2023

2022

2023

2022

Noninterest income, in scope

Fees and service charges on deposit accounts
$ 500 $ 508 $ 1,534 $ 1,582
Other fees (1)
202 157 682 474
Other income (2)
558 549 1,667 1,622
Gain on sale of OREO and fixed assets
222 — 222 757
Total in-scope noninterest income
1,482 1,214 4,105 4,435
Noninterest income, not in scope (3)
1,288 1,321 3,520 4,464
Total noninterest income
$ 2,770 $ 2,535 $ 7,625 $ 8,899

	*Three Months Ended*
*(dollars in thousands)*	*March 31, 2024*		*December 31, 2023*			*March 31, 2023*
Non-interest income, in scope
Fees and service charges on deposit accounts	$	457	$	480		$	472
Other fees⁽¹⁾		187		301			175
Other income ⁽²⁾		535		492			550
Gain/(loss) on sale of OREO		164		(57	)		—
Total in-scope non-interest income		1,343		1,216			1,197
Non-interest income, not in scope⁽³⁾		2,029		6,178			1,165
Total non-interest income	$	3,372	$	7,394		$	2,362

(1)

Other fees ~~consists~~consist of wealth management fees, miscellaneous loan fees and postage/courier fees.

(2)

Other income consists of safe deposit box rental income, wire transfer fees, security brokerage fees, annuity sales, insurance activity, and OREO income.

(3)

~~The amounts primarily represent~~Represents revenue ~~from contracts with customers~~ that ~~are~~is out of scope of ASC ~~606:~~606 ~~Net~~including net loan servicing income, letter of credit commissions, import/export commissions, recoveries on purchased loans, BOLI income, ~~and~~ gains (losses) on sales of ~~mortgage~~ loans, ~~loans~~gain on transfer to OREO, and ~~investment securities.~~CDFI ERP award.

The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below:

~~Table of Contents~~

Fees and Services Charges on Deposit Accounts

Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services, and can be terminated at will by either party; this includes fees from money service businesses. Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met.

Wealth Management Fees

~~The Company employs~~We employ financial consultants to provide investment planning services for customers including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees ~~the Company earns~~we earn are variable and are generally received monthly. ~~The Company recognizes~~We recognize revenue for the services performed at quarter-end based on actual transaction details received from the broker dealer ~~the Company engages.~~we engage.

In ~~the Company’s~~our wealth management division, revenue is primarily generated from (1) securities brokerage accounts, (2) investment advisor accounts, (3) full service brokerage implementation fees, and (4) life insurance and annuity products.

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

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

NOTE 2120 - QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

~~The Company began investing in qualified housing projects in~~ ~~2016.~~ At ~~September~~March 31, 2024 ~~30,~~~~2023~~and December 31, ~~2022,~~2023, ~~the balance of the investment for~~investments in qualified affordable housing projects ~~was $6.7~~totaled $6.1 million and ~~$7.6 million, respectively. This balance is~~$6.4 million. These balances are reflected in the accrued interest and other assets line on the consolidated balance sheets. Total unfunded commitments related to the investments in qualified housing projects totaled ~~$2.5~~$2.3 million at ~~September~~March 31, 2024 ~~30,~~~~2023~~and ~~$2.6 million at~~ December 31, ~~2022.~~2023. ~~The Company expects~~We expect to fulfill these commitments between ~~2023~~2024 and 2038.

~~For~~During the three months ended ~~September~~March 31, 2024, ~~30,~~December 31, 2023, ~~2023~~and ~~2022,~~March 31, 2023, we recognized tax credits from our investment in affordable housing tax projects of $285,000, $255,000, and $255,000, respectively. In addition, the Company recognized amortization expense related to these investments of $301,000, $282,000, and ~~$268,000,~~$282,000, respectively, ~~and for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2023~~ ~~and~~ ~~2022,~~ ~~the Company recognized amortization expense of $846,000 and $778,000, respectively. The amortization expense recognized~~which was included within income tax expense on the consolidated statements of income. We had no impairment losses during each of the three months ended March 31, 2024, December 31, 2023, and March 31, 2023.

NOTE 21 - REPURCHASE OF COMMON STOCK

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

NOTE 22 - SUBSEQUENT EVENTS

On ~~October~~April ~~19,~~18, ~~2023~~,2024, ~~RBB~~we announced the Board of Directors had declared a common stock cash dividend of $0.16 per share, ~~for the~~ ~~third~~ ~~quarter of~~ ~~2023.~~ ~~The dividend is~~ payable on ~~November~~May ~~10,~~13, ~~2023~~2024 to common shareholders of record as of ~~October~~May ~~30,~~1, ~~2023~~2024..

~~As previously disclosed in the Company's Current Report on Form~~ 8~~-K filed with the SEC on~~ ~~October 31, 2023,~~ ~~effective~~ ~~October 25, 2023,~~ the Bank entered into a Stipulation with the FDIC and the DFPI, consenting to the issuance of the Consent Order relating to the Bank’s AML/CFT compliance program. In connection to the issuance of the Consent Order, the Bank did ~~not~~ ~~admit or deny any charges of violating BSA and its implementing regulations.~~

Pursuant to the terms of the Consent Order, and within certain timeframes, the Bank is required to make certain enhancements and take certain actions with respect to its AML/CFT compliance program, including (i) enhancing personnel with oversight responsibilities with respect to the Bank’s AML/CFT compliance program, (ii) enhancing existing AML/CFT policies and practices, internal controls, customer due diligence, and training programs, and (iii) establishing an independent testing program to analyze and assess the Bank’s BSA Department. The Consent Order also requires the Bank to correct certain alleged violations of the BSA program, including internal controls, staffing and the timing of the filing of ~~one~~ ~~suspicious activity report. The Consent Order does~~ ~~not~~ ~~require the Bank to pay any civil money penalty, require additional capital, increase liquidity, improve asset quality or otherwise concern other aspects of the Bank’s operations.~~

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q ~~(the~~(this “Report” or “Form 10-Q”), the term ~~"Bancorp"~~“Bancorp” refers to RBB Bancorp and the term ~~"Bank"~~“Bank” refers to Royal Business Bank. The terms ~~"Company," "we," "us,"~~“Company,” “we,” “us,” and ~~"our"~~“our” refer to Bancorp and the Bank collectively. This Report contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

●

the Bank's ability to comply with the requirements of the consent order we have entered into with the Federal Deposit Insurance Corporation (“FDIC”) and the California Department of Financial Protection and Innovation (“DFPI”) and the possibility that we may be required to incur additional expenses or be subject to additional regulatory action, if we are unable to timely and satisfactorily comply with the consent order;

●

the effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures;

●

the potential for additional material weaknesses in the Company's internal controls over financial reporting or other potential control deficiencies of which the Company is not currently aware or which have not been detected;

●

business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the United ~~States.~~States (“U.S.”) federal budget or debt or turbulence or ~~uncertainty~~uncertainly in domestic or foreign financial ~~markets;~~markets;

●

~~recent~~ the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

●

adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity and regulatory responses to these developments;

●

~~the strength of the United States economy in general and the strength of the local economies in which we conduct operations;~~

●

possible additional provisions for credit losses and ~~charge-offs;~~charge-offs;

●

credit risks of lending activities and deterioration in asset or credit ~~quality;~~quality;

●

extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory ~~authorities;~~authorities;

●

increased costs of compliance and other risks associated with changes in regulation, including any amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);;

●

compliance with the Bank Secrecy Act and other money laundering statutes and ~~regulations;~~regulations;

●

potential goodwill ~~impairment;~~impairment;

●

liquidity ~~risk;~~risk;

●

fluctuations in interest ~~rates;~~rates;

●

~~the transition away from the London Interbank Offered Rate ("LIBOR") and related uncertainty, as well as the risks and costs related~~failure to ~~our adoption of Secured Overnight Financing Rate ("SOFR")~~comply with debt covenants;

●

risks associated with acquisitions and the expansion of our business into new ~~markets;~~markets;

●

inflation and ~~deflation;~~deflation;

●

real estate market conditions and the value of real estate ~~collateral;~~collateral;

●

the effects of having concentrations in our loan portfolio, including commercial real estate and the risks of geographic and industry concentrations;

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environmental ~~liabilities;~~liabilities;

●

our ability to compete with larger ~~competitors;~~competitors;

●

our ability to retain key ~~personnel;~~personnel;

●

successful management of reputational ~~risk;~~risk;

●

severe weather, natural disasters, earthquakes, ~~fires;~~fires; or other adverse external events could harm our ~~business;~~business;

●

geopolitical conditions, including acts or threats of terrorism, actions taken by the ~~United States~~U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, including the ~~conflicts~~war between Russia and Ukraine and in the Middle East, which could impact business and economic conditions in the ~~United States~~U.S. and ~~abroad;~~abroad;

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public health crises and pandemics, and their effects on the economic and business environments in which we operate, including our credit quality and business operations, as well as the impact on general economic and financial market conditions;

●

general economic or business conditions in Asia, and other regions where the Bank has ~~operations;~~operations;

●

failures, interruptions, or security breaches of our information ~~systems;~~systems;

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climate change, including any enhanced regulatory, compliance, credit and reputational risks and ~~costs;~~costs;

●

cybersecurity threats and the cost of defending against ~~them;~~them;

●

our ability to adapt our systems to the expanding use of technology in ~~banking;~~banking;

●

risk management processes and ~~strategies;~~strategies;

●

adverse results in legal ~~proceedings;~~proceedings;

●

the impact of regulatory enforcement actions, if ~~any;~~any;

●

certain provisions in our charter and bylaws that may affect acquisition of the ~~Company;~~

Company;

●

changes in tax laws and ~~regulations;~~regulations;

●

the impact of governmental efforts to restructure the U.S. financial regulatory ~~system;~~system;

●

the impact of ~~future~~recent or ~~recent~~future changes in the ~~Federal Deposit Insurance Corporation ("FDIC")~~FDIC insurance assessment rate ofand the rules and regulations related to the calculation of the FDIC insurance ~~assessment amount;~~assessments;

●

the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) or other accounting standards setters, including Accounting Standards Update (“ASU” or “Update”) 2016-13 (Topic 326, “Measurement of Current Losses on Financial Instruments, commonly referenced as the Current Expected Credit Losses Model (“CECL”) model, which changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future ~~periods;~~periods;

●

market disruption and ~~volatility;~~

●

~~fluctuations in our stock price;~~volatility;

●

restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital ~~structure;~~structure;

●

issuances of preferred ~~stock;~~stock;

●

our ability to raise additional capital, if needed, and the potential resulting dilution of interests of holders of our common ~~stock; and~~stock;

●

the soundness of other financial ~~institutions.~~institutions and our ongoing relations with our various federal and state regulators, including the SEC, FDIC, FRB and DFPI; and

●

our success at managing the risks involved in the foregoing items.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies that govern the application of ~~GAAP~~generally accepted accounting principles in the U.S. (“GAAP”) in the preparation of our financial statements. Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Allowance for Credit Losses ~~on Loans Held for Investment~~

The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination. The allowance for credit losses ("ACL") is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.

The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Any unexpected adverse changes or uncertainties to these factors that are beyond the Company’s control could result in increases to the ACL through additional provision for credit losses.

A sensitivity analysis of our ACL was performed as of ~~September 30, 2023.~~March 31, 2024. Based on this sensitivity analysis, a positive 25% change in prepayment ~~speeds~~speed would result in a ~~$981,000,~~$961,000, or ~~(2.31)~~(2.32)%, decrease to the ACL. A negative 25% change in prepayment ~~speeds~~speed would result in a ~~$1.3~~$1.27 million, or ~~3.1%~~3.08%, increase to the ACL. Additionally, a 1%one percentage point increase in the unemployment rate would result in a ~~$773,000,~~$742,000, or ~~1.8%~~1.80%, increase to the ACL and a 1%one percentage point decrease in the unemployment rate would result in a ~~$686,000,~~$675,000, or ~~(1.6)~~(1.63)%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

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~~Investment Securities~~

~~Effective January 1, 2022, upon~~On a quarterly basis, we stress test the ~~adoption of ASU 2016-13, the Company accounts for credit losses on available for sale (“AFS”) securities~~qualitative factors, which are lending policy, procedures and strategies, economic conditions, changes in ~~accordance with ASC 326-30. Debt securities are measured at fair value~~nature and subject to impairment testing. When a debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any)volume of the ~~decline~~portfolio, credit and lending staff, problem loan trends, loan review results, collateral value, concentrations and regulatory and business environment by creating two scenarios, moderate risk and major risk. In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Moderate Risk” while in ~~fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components~~the Major Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Major Risk.” Under the ~~fair value change. If~~Moderate Stress scenario, the ~~amount~~ACL would increase by $3.8 million, or 9.20%, as of March 31, 2024. Under the ~~amortized cost basis expected to be recovered increases in a future period,~~Major Stress scenario, the ~~valuation reserve~~ACL would ~~be reduced, but not more than the amount~~increase by $19.0 million, or 46.01%, as of ~~the current existing reserve for that security.~~March 31, 2024.

For ~~AFS debt securities~~additional information on the policies, methodologies and judgments used to determine the ACL, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

The determination of credit losses when fair value declines with respect to AFS securities involves significant judgment. Adverse changes in management’s assessment that concluded a credit impairmentour Annual Report filed on ~~investment securities could result in an increase in impairment charges that could negatively impact our earnings.~~

~~Goodwill and Other Intangible Assets~~

The Company performs goodwill impairment test in accordance with ASC 350 “Intangibles- Goodwill and Other.” The bank failures in the first half of 2023 caused a significant decline in bank stock prices, including the Company’s stock price. The bank failures in the first half of 2023 caused a significant decline in bank stock prices, including the Company’s stock price. After evaluating the prolonged decrease in the Company's market value, management performed a quantitative goodwill impairment analysis as of September 30, 2023. Management estimated the fair value of the Company using both the guideline public company method, market approach, and the discounted cash flow method, income approach. Based on this quantitative analysis, the fair value of the Company exceeds its carrying amount with a passing amount of 9.6%. Management has concluded that goodwill was not impaired at September 30, 2023.

~~Changes to assumptions, to selection and weighting in the valuation methods and to economic conditions could result in goodwill impairment losses that negatively impact our earnings.~~

~~Income Taxes~~

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

~~Deferred tax assets and liabilities are recognized~~Form 10-K for the ~~expected future tax consequences attributable~~fiscal year ended December 31, 2023 ("2023 Annual Report"), and Note 4 — Loans and Allowance for Credit Losses 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 expectedNotes to ~~apply to taxable income~~Consolidated Financial Statements in the years in which those temporary differences are expected to be recovered or settled. 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 ASC 740, a valuation allowance is required to be recognized if it is “more likely than not” that all or a portion of the Company's deferred tax assets will not be realized. The Company's policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for the Company's deferred tax assets if there is not sufficient positive evidence available to demonstrate utilization of the Company's deferred tax assets. Initial setup or an increase to deferred tax asset valuation allowance would be charged to income tax expense that would negatively impacted our earnings.this Form 10-Q.

Our significant accounting policies are described in greater detail in our audited consolidated financial statements included in our 2023 Annual Report, ~~filed on Form 10-K for the fiscal year ended December 31, 2022 and Amendment No. 1 to the Annual Report on Form 10-K/A (collectively our "2022 Annual Report"),~~ which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~RECENT DEVELOPMENTS~~

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As a result of the bank failures in the first half of 2023, we anticipate that regulators will propose certain actions, including reforms that will require higher capital, including increased requirements to issue long-term debt, as well as special assessments to repay losses to the FDIC's Deposit Insurance Fund. The Company expects to manage liquidity ratios based on these events but anticipates growth of deposits in tandem with loans. We are proactively offering various alternatives, including IntraFi Cash Service and Certificate of Deposit Account Registry Service, to clients with deposit balances that exceed $250,000 to reduce the level of uninsured deposits. The Company continues to monitor the economic environment, including recent disruptions in the banking sector, and will make changes as appropriate, but the continuing impact of the banking crisis on the Company's future operating results for the remainder of 2023 is uncertain and cannot be predicted.

The Company has sufficient capital and does not anticipate any need for additional liquidity as of September 30, 2023. As of September 30, 2023, we pledged loans of $1.5 billion with the Federal Home Loan Bank ("FHLB") and based on the values of loans we had $1.1 billion of additional borrowing capacity with the FHLB. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit. As of September 30, 2023, we had $92.0 million of unsecured federal funds lines. In addition, lines of credit from the Federal Reserve Discount Window were $41.9 million at September 30, 2023. We did not have any borrowings outstanding with the federal fund lines or Federal Reserve Discount Window at September 30, 2023. The Bank and the Company exceeded all regulatory capital requirements under Basel III and were considered to be “well-capitalized” at September 30, 2023.

RBB has been awarded a $5.0 million grant from the Community Development Financial Institutions ("CDFI") Equitable Recovery Program ("ERP") which aims to help CDFI's further their mission of helping low and low-to-moderate income communities. The grant was disbursed in September 2023 and its utilization is subject to various performance goals and measures that specify the use of the funds. Income recognition on the ERP award is deferred until those performance goals have been substantially met.

GENERAL

RBB is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, the Bank and RBB Asset Management Company ~~("RAM"~~(“RAM”). RAM was formed to hold and manage problem assets acquired in business combinations.

When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, 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-along basis. At ~~September 30, 2023, the Company~~March 31, 2024, we had total ~~consolidated~~ assets of ~~$4.1~~$3.9 billion, gross ~~consolidated~~ loans of ~~$3.1~~$3.0 billion, total ~~consolidated~~ deposits of ~~$3.2~~$3.0 billion and total ~~consolidated~~ shareholders' equity of ~~$502.5~~$514.0 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol ~~“RBB”.~~“RBB.”

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The Bank provides business-banking products and services predominantly to the Asian-American communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, in the Las Vegas, Nevada ~~the~~and New York City metropolitan areas, Chicago (Illinois), Edison ~~New Jersey, Chicago, Illinois,~~(New Jersey) and Honolulu ~~Hawaii. Specific~~(Hawaii). The products and services include ~~remote deposit, E-banking, mobile banking,~~ commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository ~~accounts.~~ accounts, including specialized services such as remote deposit, E-banking, and mobile banking.

We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority. A minority depository institution is eligible to receive from the FDIC and other federal regulatory agencies training, technical assistance and review, and assistance regarding the implementation of proposed new deposit taking and lending programs, as well as with respect to the adoption of applicable policies and procedures governing such programs. We intend to maintain our minority depository institution designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The ~~Company operates~~minority depository institution designation has been historically beneficial to us, as the FDIC has reviewed and assisted with the implementation of our deposit and lending programs, and we continue to use the program for technical assistance.

We operate full-service banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, and Westlake Village, California; Las Vegas, Nevada; Manhattan, Brooklyn, Flushing and Elmhurst, New York; the Chinatown and Bridgeport neighborhoods of Chicago, Illinois; Edison, New Jersey; and Honolulu, Hawaii. ~~The Company’s~~Our primary source of revenue is providing loans to customers, who are ~~predominantly~~predominately small and middle-market businesses and individuals.

~~The Company has~~We have completed six whole bank acquisitions and one branch acquisition from July 2011 through January 2022. All of ~~the Company’s~~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. The Company previously disclosed that, on December 28, 2021, it entered into a definitive agreement to acquire Gateway Bank F.S.B.(“Gateway”) in an all cash transaction, subject to certain terms and conditions. On September 28, 2023, the Company announced that it and Gateway have mutually agreed to terminate the definitive agreement, effective as of September 28, 2023. Neither party has or will have any liability or pay any penalty to the other party as a result of the termination, and each party has released the other from any and all claims related to the definitive agreement or the transactions contemplated by the definitive agreement.

OVERVIEW

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of ~~the Company~~RBB and its ~~wholly-owned~~wholly owned subsidiaries. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our audited financial statements included in our ~~2022~~2023 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report.

~~For the third quarter of 2023, we~~We reported net ~~earnings~~income of ~~$8.5~~$8.0 million, compared with $16.7 million for the third quarter of 2022, reflecting a decrease of $8.2 million from the third quarter of 2022, primarily due to a decrease of $11.4 million in net interest income and an increase of $179,000 in noninterest expense, partially offset by an increase of $235,000 in noninterest income, a decrease of $2.8 million in income tax expense and a decrease of $367,000 in the provision for credit losses. Dilutedor $0.43 diluted earnings ~~per share was $0.45~~ per share, for the ~~third~~ quarter ~~of 2023,~~ended March 31, 2024, compared to ~~$0.87~~net income of $12.1 million, or $0.64 diluted earnings per share, for the ~~same period last year.~~quarter ended December 31, 2023 and $11.0 million, or $0.58 per share for the quarter ended March 31, 2023. The results for the quarter ended December 31, 2023 included a Community Development Financial Institution (“CDFI”) Equitable Recovery Program (“ERP”) award of $5.0 million on a pre-tax basis; there was no similar income in the other periods presented.

At ~~September 30, 2023,~~March 31, 2024, total assets were ~~$4.1~~$3.9 billion, ~~an increase~~a decrease of ~~$150.3~~$148.0 million, or ~~3.8%~~3.7%, from total assets of ~~$3.9~~$4.0 billion at December 31, ~~2022,~~2023, primarily due to a ~~$247.2~~$162.1 million ~~increase~~decrease in cash and cash equivalents and a ~~$97.5~~$2.5 million ~~increase~~decrease in ~~AFS investment securities,~~gross loans, including loans held for sale (“HFS”), partially offset by a ~~$215.4~~$16.2 million ~~decrease~~increase in ~~gross loans.~~available for sale ("AFS") investment securities. The ~~increase~~decrease in cash and cash equivalents was primarily due to ~~an increase~~a decrease of $208.0 million in wholesale deposits. Wholesale deposits include brokered deposits, collateralized deposits from the ~~balances~~State of ~~time~~California, and deposits ~~of $410.1 million, partially offset by a $226.3 million decrease in noninterest bearing deposits.~~ acquired through internet listing services.

At ~~September 30, 2023,~~March 31, 2024, AFS investment securities totaled ~~$354.4~~$335.2 million, inclusive of a pre-tax net unrealized loss of ~~$37.1~~$30.2 million, compared to ~~$256.8~~$319.0 million, inclusive of a pre-tax unrealized loss of ~~$31.3~~$28.1 million at December 31, ~~2022.~~2023. The pre-tax unrealized ~~losses were~~loss was due to a decline in the value of AFS investment securities due to ~~increases in~~continued higher market interest ~~rates. HTM investment securities totaled $5.2 million and $5.7 million at September 30,~~rates in 2023 and ~~December 31, 2022, respectively.~~the first quarter of 2024.

Total loans held for investment ~~("HFI"~~(“HFI”), net of deferred fees and discounts, decreased ~~$215.5~~$4.5 million, or ~~6.5%~~0.15%, to ~~$3.1~~$3.0 billion at ~~September 30, 2023, compared to $3.3~~March 31, 2024, from $3.0 billion at December 31, ~~2022.~~2023. The decrease was primarily due to ~~decreases~~a decrease in single-family residential ("SFR") mortgages of $24.3 million and commercial ~~real estate~~and industrial (“~~CRE”~~C&I”) loans of ~~$147.9~~$8.7 million, ~~commercial and industrial ("C&I") loans of $73.6 million and~~partially offset by increases in construction and land development (“("C~~&D”~~&D") loans of ~~$17.1~~$16.6 million, ~~partially~~commercial real estate ("CRE") loans of $10.6 million, and Small Business Administration (“SBA”) loans of $2.6 million. In addition, mortgage loans HFS were $3.9 million at March 31, 2024, compared to $1.9 million at December 31, 2023. The loanto deposit ratio was 98.6% at March 31, 2024, compared to 94.2% at December 31, 2023, and 104.7% at March 31, 2023.

Total deposits were $3.0 billion as of March 31, 2024, a $146.4 million, or 4.6%, decrease compared to December 31, 2023. This decrease was due to a decrease in interest-bearing deposits as noninterest-bearing deposits remained relatively stable at $539.5 million. At March 31, 2024, noninterest-bearing deposits represented 17.8% of total deposits, compared to 17.0% at December 31, 2023. The decrease in interest-bearing deposits included a decrease in time deposits of $156.4 million, offset by an increase in ~~single-family residential (“SFR”) mortgage loans~~non-maturity deposits of ~~$41.2~~$10.1 million.

~~There were $62,000 mortgage loans held for sale ("HFS") as of September 30, 2023, and none as of December 31, 2022.~~

~~Noninterest-bearing~~ The decrease in time deposits ~~were $572.4~~included a $208.0 million decrease in wholesale deposits. Wholesale deposits totaled $197.6 million at ~~September 30, 2023, a decrease of $226.3 million, or 28.3%, compared to $798.7~~March 31, 2024 and $405.6 million at December 31, 2022. Interest-bearing deposits were $2.6 billion at September 30, 2023, an increase of $402.7 million, or 18.5%, compared to $2.2 billion at December 31, 2022. The decrease in noninterest-bearing deposits was driven primarily by customers transferring their deposit balances into higher yielding money market accounts and time deposits. At September 30, 2023, noninterest-bearing deposits were 18.1% of total deposits, compared to 26.8% at December 31, 2022.2023.

Borrowings, consisting of ~~FHLB~~ Federal Home Loan Bank ("FHLB")advances, long-term debt and subordinated debt, were ~~$338.9~~$284.2 million at ~~September 30, 2023, a decrease of $69.4 million,~~March 31, 2024, relatively unchanged compared to ~~$408.3~~$284.1 million as of December 31, ~~2022.~~ 2023. These balances include FHLB term advances of $150.0 million, which mature in the first quarter of 2025.

~~The Company reported $29.9~~As of March 31, 2024, the ACL totaled $42.4 million and ~~$25.4 million in right-of-use assets for operating leases and $31.3~~was comprised of an ALL of $41.7 million and ~~$26.5~~a reserve for unfunded commitments of $671,000 (included in “Accrued interest and other liabilities”). This compares to the ACL of $42.5 million ~~in lease liabilities as~~comprised of ~~September 30, 2023~~an ALL of $41.9 million and asa reserve for unfunded commitments of ~~December 31, 2022, respectively.~~

~~The ACL was $42.4 million at September 30, 2023, compared to $41.1 million~~$640,000 at December 31, ~~2022, an increase of $1.4 million~~2023. The ACL decreased $184,000 during the ~~nine-month period ended September 30,~~first quarter of 2024 due to net charge-offs. The allowance for loan losses (“ALL”) as a percentage of loans HFI was 1.38% at March 31, 2024, unchanged from December 31, 2023. The ALL as a percentage of nonperforming loans was 116% at March 31, 2024, a decrease from 133% at December 31, 2023.

At March 31, 2024, total shareholders' equity was $514.0 million, a $2.7 million increase compared to December 31, 2023, and a $19.2 million increase compared to March 31, 2023. The increase in shareholders' equity for the first quarter was due to ~~an increase in classified loans during~~net earnings of $8.0 million and $541,000 from the ~~first nine months~~exercise of 2023 that increased the qualitative factors utilized by the Company in establishing the level of its ACL under CECL. The ACL to total HFI loans outstanding was 1.36% as of September 30, 2023 as compared to 1.23% as of December 31, 2022.

~~Shareholders’ equity increased $17.9 million, or 3.7%, to $502.5 million during the nine-month period ending September 30, 2023 due to $30.4 million of net income, partially~~stock options, offset by ~~$9.1~~dividends paid of $3.0 million, of common stock ~~cash dividends~~share repurchases totaling $1.5 million, and ~~$4.1 million in~~higher net after tax unrealized losses on AFS ~~securities.~~ securities of $1.5 million. As a result, book value per share increased to $27.67 from $27.47 and tangible book value per share increased to $23.68 from $23.48. For additional information, see “Non-GAAP Financial Measures.”

On February 29, 2024, the Board of Directors authorized the repurchase of up to 1,000,000 shares of common stock, of which 956,465 shares were available as of March 31, 2024. The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with SEC Rules 10b5-1 and 10b-8. We repurchased 80,285 shares at a weighted average share price of $18.39 during the first quarter of 2024.

Our capital ratios under the revised capital framework referred to as Basel III remain well capitalized. As of ~~September 30, 2023,~~March 31, 2024, the Company’s Tier 1 leverage capital ratio was ~~11.68%~~12.16%, the common equity Tier 1 ratio was ~~17.65%~~19.10%, the Tier 1 risk-based capital ratio was ~~18.22%~~19.72%, and the total risk-based capital ratio was ~~26.24%~~25.91%. As of December 31, 2023, the Company's Tier 1 leverage capital ratio was 11.99%, common equity Tier 1 ratio was 19.07%, Tier 1 risk-based capital ratio totaled 19.69%, and total risk-based capital ratio was 25.92%. See “Analysis of Financial Condition — -- Regulatory Capital Requirements” herein for further discussion of our regulatory capital requirements.

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ANALYSIS OF RESULTS OF OPERATIONS

Financial Performance

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Three Months Ended
	2023			2022			2023			2022			March 31, 2024			December 31, 2023			March 31, 2023
	*(Dollars in thousands, except per share amounts)*
*(dollars in thousands, except per share data)*
Interest income	$	55,563		$	46,414		$	166,316		$	128,318		$	54,795		$	54,832		$	53,751
Interest expense		27,974			7,436			72,700			17,759			29,918			29,163			19,650
Net interest income		27,589			38,978			93,616			110,559			24,877			25,669			34,101
Provision for credit losses		1,399			1,766			3,793			3,048
Net interest income after provision for credit losses		26,190			37,212			89,823			107,511
Provision for (reversal of) credit losses														—			(431	)		2,014
Net interest income after provision for (reversal of) credit losses														24,877			26,100			32,087
Noninterest income		2,770			2,535			7,625			8,899			3,372			7,394			2,362
Noninterest expense		16,876			16,697			54,304			50,367			16,969			16,393			18,911
Income before income taxes		12,084			23,050			43,144			66,043			11,280			17,101			15,538
Income tax expense		3,611			6,398			12,752			19,297			3,244			5,028			4,568
Net income	$	8,473		$	16,652		$	30,392		$	46,746		$	8,036		$	12,073		$	10,970

Share Data
Earnings per common share:
Basic	$	0.45		$	0.88		$	1.60		$	2.44
Diluted (1)		0.45			0.87			1.60			2.41
Weighted average shares outstanding (1):
Earnings per common share ⁽¹⁾:
Basic		18,995,303			18,988,443			18,991,579			19,142,732		$	0.43		$	0.64		$	0.58
Diluted		18,997,304			19,130,447			19,013,838			19,415,558			0.43			0.64			0.58
Performance Ratios
Return on average assets, annualized		0.83	%		1.72	%		1.01	%		1.57	%		0.81	%		1.20	%		1.12	%
Return on average shareholders’ equity, annualized		6.66	%		13.93	%		8.14	%		13.28	%
Noninterest income to average assets, annualized		0.27	%		0.26	%		0.25	%		0.30	%
Noninterest expense to average assets, annualized		1.65	%		1.72	%		1.80	%		1.69	%
Return on average shareholders’ equity														6.30	%		9.48	%		9.04	%
Return on average tangible common equity, annualized (2)														7.37	%		11.12	%		10.66	%
Efficiency ratio		55.59	%		40.22	%		53.64	%		42.16	%		60.07	%		49.58	%		51.86	%
Dividend payout ratio		35.56	%		15.91	%		30.00	%		17.21	%
Average equity to asset ratio		12.40	%		12.34	%		12.38	%		11.78	%
Return on average tangible common equity, annualized (2)		7.82	%		16.58	%		9.58	%		15.80	%
Tangible common equity to tangible assets (2)														11.56	%		11.06	%		10.40	%
Tangible book value per share (2)	$	22.53		$	20.85		$	22.53		$	20.85		$	23.68		$	23.48		$	22.10

		(1)	Basic earnings per share ~~are~~is calculated by dividing earnings to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share ~~are~~is calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options and restricted stock units using the treasury stock method.
		(2)	~~Tangible book value per share and return~~Return on average tangible common equity, tangible common equity to tangible assets and tangible book value per share are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures.

~~Net~~Average Balance Sheet, Interest ~~Income~~and Yield/Rate Analysis

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for ~~2023~~2024 and ~~2022.~~2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. For additional information see “Capital Resources and Liquidity Management” and "Part I, Item 3. ~~Quantitative~~ "Quantitative and Qualitative Disclosures about Market Risk" included in this Report.

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The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the ~~three months and nine months ended September 30, 2023 and 2022.~~periods presented. The average balances are ~~principally~~ daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.

~~Interest-Earning Assets and Interest-Bearing Liabilities~~

	For the Three Months Ended September 30,														Three Months Ended
	2023							2022							March 31, 2024							December 31, 2023							March 31, 2023
(tax-equivalent basis, dollars in thousands)	Average		Interest		Yield /			Average		Interest		Yield /			Average		Interest		Yield /			Average		Interest		Yield /			Average		Interest		Yield /
	Balance		& Fees		Rate			Balance		& Fees		Rate			Balance		& Fees		Rate			Balance		& Fees		Rate			Balance		& Fees		Rate
Interest-earning assets:
Federal funds sold, cash equivalents and other ⁽¹⁾	$	285,484	$	3,735		5.19	%	$	141,737	$	1,042		2.92	%	$	379,979	$	5,637		5.97	%	$	348,940	$	5,231		5.95	%	$	110,750		1,272		4.66	%
Securities ⁽²⁾
Available for sale		369,459		4,187		4.50	%		318,066		1,758		2.19	%		320,015		3,589		4.51	%		329,426		3,684		4.44	%		277,206		2,510		3.67	%
Held to maturity		5,385		48		3.54	%		5,738		50		3.46	%		5,207		46		3.55	%		5,212		46		3.50	%		5,727		51		3.61	%
Mortgage loans held for sale		739		13		6.98	%		420		6		5.48	%		1,215		26		8.61	%		1,609		29		7.15	%		88		1		4.61	%
Loans held for investment: ⁽³⁾
Real estate		2,968,246		43,583		5.83	%		2,820,022		38,999		5.49	%		2,837,603		41,765		5.92	%		2,870,227		41,950		5.80	%		3,092,667		44,903		5.89	%
Commercial		187,140		4,021		8.52	%		303,899		4,583		5.98	%		179,605		3,756		8.41	%		183,396		3,916		8.47	%		249,911		5,038		8.18	%
Total loans held for investment		3,155,386		47,604		5.99	%		3,123,921		43,582		5.53	%		3,017,208		45,521		6.07	%		3,053,623		45,866		5.96	%		3,342,578		49,941		6.06	%
Total earning assets		3,816,453	$	55,587		5.78	%		3,589,882	$	46,438		5.13	%		3,723,624	$	54,819		5.92	%		3,738,810	$	54,856		5.82	%		3,736,349	$	53,775		5.84	%
Noninterest-earning assets		250,083							250,737							246,341							253,385							239,956
Total assets	$	4,066,536						$	3,840,619						$	3,969,965						$	3,992,195						$	3,976,305

Interest-bearing liabilities:
NOW	$	55,325	$	201		1.44	%	$	74,518	$	91		0.48	%	$	58,946	$	298		2.03	%	$	54,378	$	214		1.56	%	$	63,401	$	108		0.69	%
Money market		403,300		2,656		2.61	%		612,743		1,376		0.89	%		411,751		3,526		3.44	%		422,582		3,252		3.05	%		458,824		2,140		1.89	%
Saving deposits		123,709		249		0.80	%		147,349		62		0.17	%		157,227		654		1.67	%		148,354		560		1.50	%		120,695		49		0.16	%
Time deposits, less than $250,000		1,285,320		14,090		4.35	%		566,730		1,221		0.85	%		1,175,804		13,805		4.72	%		1,162,014		13,244		4.52	%		912,694		7,425		3.30	%
Time deposits, $250,000 and over		717,026		7,759		4.29	%		531,655		1,239		0.92	%		785,172		9,517		4.88	%		781,833		9,169		4.65	%		762,770		5,981		3.18	%
Total interest-bearing deposits		2,584,680		24,955		3.83	%		1,932,995		3,989		0.82	%		2,588,900		27,800		4.32	%		2,569,161		26,439		4.08	%		2,318,384		15,703		2.75	%
FHLB advances		150,000		440		1.16	%		239,674		1,020		1.69	%		150,000		439		1.18	%		150,000		440		1.16	%		229,778		1,409		2.49	%
Long-term debt		173,923		2,194		5.00	%		173,345		2,194		5.02	%		119,180		1,295		4.37	%		155,536		1,895		4.83	%		173,635		2,194		5.12	%
Subordinated debentures		14,848		385		10.29	%		14,629		233		6.32	%		14,957		384		10.33	%		14,902		389		10.36	%		14,739		344		9.47	%
Total interest-bearing liabilities		2,923,451		27,974		3.80	%		2,360,643		7,436		1.25	%		2,873,037		29,918		4.19	%		2,889,599		29,163		4.00	%		2,736,536		19,650		2.91	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		571,371							964,867							528,346							535,554							698,351
Other noninterest-bearing liabilities		67,282							41,003							55,795							61,858							49,118
Total noninterest-bearing liabilities		638,653							1,005,870							584,141							597,412							747,469
Shareholders' equity		504,432							474,106							512,787							505,184							492,300
Total liabilities and shareholders' equity	$	4,066,536						$	3,840,619						$	3,969,965						$	3,992,195						$	3,976,305
Net interest income / interest rate spreads			$	27,613		1.98	%			$	39,002		3.88	%			$	24,901		1.73	%			$	25,693		1.82	%			$	34,125		2.93	%
Net interest margin						2.87	%						4.31	%						2.69	%						2.73	%						3.70	%

Total cost of deposits															$	3,117,246	$	27,800		3.59	%	$	3,104,715	$	26,439		3.38	%	$	3,016,735	$	15,703		2.11	%
Total cost of funds															$	3,401,383	$	29,918		3.54	%	$	3,425,153	$	29,163		3.38	%	$	3,434,887	$	19,650		2.32	%

(1)

Includes income and average balances for FHLB stock, term federal funds, interest-bearing time deposits and other miscellaneous interest-bearing assets.

(2)

Interest income and average rates for tax-exempt securities are presented on a TEtax-equivalent basis.

(3)

Average loan balances include nonaccrual ~~loans.~~loans and are net of discounts, deferred fees and costs. Discounts on purchased loans were $921,000, $970,000 and $1.1 million as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively. Interest income on loans includes amortization of purchased discounts and deferred loan fees, net of deferred loan costs of $474,000, $542,000 and ~~discount accretion.~~

$91,000 for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

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The following table summarizes the extent to which changes in (1) interest rates and (2) volume of average interest-earning assets and average interest-bearing liabilities affected by our net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.

For the Nine Months Ended September 30,

2023

2022

(tax-equivalent basis, dollars in thousands)

Average

Interest

Yield /

Average

Interest

Yield /

Balance

& Fees

Rate

Balance

& Fees

Rate

Interest-earning assets:

Federal funds sold, cash equivalents and other ⁽¹⁾
$ 192,393 $ 7,626 5.30 % $ 338,253 $ 2,477 0.98 %
Securities: ⁽²⁾

Available for sale
332,007 10,245 4.13 % 369,808 4,126 1.49 %
Held to maturity
5,610 151 3.60 % 5,909 158 3.57 %
Mortgage loans held for sale
295 16 7.25 % 1,624 62 5.10 %
Loans held for investment: ⁽³⁾

Real estate
3,041,393 134,791 5.93 % 2,696,183 107,301 5.32 %
Commercial
214,618 13,562 8.45 % 336,630 14,268 5.67 %
Total loans held for investment
3,256,011 148,353 6.09 % 3,032,813 121,569 5.36 %
Total earning assets
3,786,316 $ 166,391 5.88 % 3,748,407 $ 128,392 4.58 %
Noninterest-earning assets
244,822 245,137
Total assets
$ 4,031,138 $ 3,993,544

Interest-bearing liabilities:

NOW deposits
$ 59,476 $ 511 1.15 % $ 75,182 $ 185 0.33 %
Money market deposits
431,299 7,315 2.27 % 654,522 2,777 0.57 %
Savings deposits
118,550 354 0.40 % 147,033 129 0.12 %
Time deposits, less than $250,000
1,141,290 33,905 3.97 % 573,401 2,698 0.63 %
Time deposits, $250,000 and over
729,699 20,519 3.76 % 542,535 2,842 0.70 %
Total interest-bearing deposits
2,480,314 62,604 3.37 % 1,992,673 8,631 0.58 %
FHLB advances
179,707 2,428 1.81 % 191,136 1,974 1.38 %
Long-term debt
173,780 6,584 5.07 % 173,202 6,583 5.08 %
Subordinated debentures
14,794 1,084 9.80 % 14,575 571 5.24 %
Total interest-bearing liabilities
2,848,595 72,700 3.41 % 2,371,586 17,759 1.00 %
Noninterest-bearing liabilities

Noninterest-bearing deposits
624,781 1,115,153
Other noninterest-bearing liabilities
58,786 36,257
Total noninterest-bearing liabilities
683,567 1,151,410
Shareholders' equity
498,976 470,548
Total liabilities and shareholders' equity
$ 4,031,138 $ 3,993,544
Net interest income / interest rate spreads
$ 93,691 2.47 % $ 110,633 3.58 %
Net interest margin
3.31 % 3.95 %

Three Months Ended March 31, 2024 compared with Three Months Ended December 31, 2023

Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023

Change due to:

Change due to:

(tax-equivalent basis, dollars in thousands)

Volume

Yield/Rate

Interest Variance

Volume

Yield/Rate

Interest Variance

Interest-earning assets:

Federal funds sold, cash equivalents & other ⁽¹⁾
$ 391 $ 15 $ 406 $ 3,913 $ 452 $ 4,365
Securities: ⁽²⁾

Available for sale
(359 ) 264 (95 ) 384 695 1,079
Held to maturity
— — — (4 ) (1 ) (5 )
Mortgage loans held for sale
(27 ) 24 (3 ) 23 2 25
Loans held for investment:

Real estate
(2,508 ) 2,323 (185 ) (4,703 ) 1,565 (3,138 )
Commercial
(119 ) (41 ) (160 ) (2,211 ) 929 (1,282 )
Total loans held for investment
(2,627 ) 2,282 (345 ) (6,914 ) 2,494 (4,420 )
Total interest-earning assets
$ (2,622 ) $ 2,585 $ (37 ) $ (2,598 ) $ 3,642 $ 1,044

Interest-bearing liabilities

NOW
$ 18 $ 66 $ 84 $ (53 ) $ 243 $ 190
Money market
(504 ) 778 274 (1,428 ) 2,814 1,386
Saving deposits
32 62 94 19 586 605
Time deposits, less than $250,000
119 442 561 2,560 3,820 6,380
Time deposits, $250,000 and over
28 320 348 184 3,352 3,536
Total interest-bearing deposits
(307 ) 1,668 1,361 1,282 10,815 12,097
FHLB advances
- (1 ) (1 ) (427 ) (543 ) (970 )
Long-term debt
(426 ) (174 ) (600 ) (613 ) (286 ) (899 )
Subordinated debentures
2 (7 ) (5 ) 6 34 40
Total interest-bearing liabilities
(731 ) 1,486 755 248 10,020 10,268
Changes in net interest income
$ (1,891 ) $ 1,099 $ (792 ) $ (2,846 ) $ (6,378 ) $ (9,224 )

(1)
Includes income ~~and average balances~~ for FHLB stock, term federal funds, interest-bearing time deposits and other miscellaneous interest-bearing assets.

(2)
Interest income and average rates for tax-exempt securities are presented on a TEtax-equivalent basis.
~~(3)~~
~~Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs and discount accretion.~~

42
36
Table of Contents

~~Interest Rates and Operating Interest Differential~~
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.

Comparison of Three Months Ended

Comparison of Nine Months Ended

September 30, 2023 and 2022

September 30, 2023 and 2022

Change due to:

Change due to:

(tax-equivalent basis, dollars in thousands)

Volume

Rate

Interest Variance

Volume

Rate

Interest Variance

Interest-earning assets:

Federal funds sold, cash equivalents & other (1)
$ 1,524 $ 1,169 $ 2,693 $ (2,145 ) $ 7,294 $ 5,149
Securities: (2)

Available for sale
323 2,106 2,429 (731 ) 6,850 6,119
Held to maturity
(8 ) 6 (2 ) (9 ) 2 (7 )
Mortgage loans held for sale
5 2 7 (77 ) 31 (46 )
Loans held for investment: (3)

Real estate
2,104 2,480 4,584 14,502 12,988 27,490
Commercial
(7,599 ) 7,037 (562 ) (8,255 ) 7,549 (706 )
Total loans held for investment
(5,495 ) 9,517 4,022 6,247 20,537 26,784
Total earning assets
$ (3,651 ) $ 12,800 $ 9,149 $ 3,285 $ 34,714 $ 37,999

Interest-bearing liabilities:

NOW
$ (150 ) $ 260 $ 110 $ (71 ) $ 397 $ 326
Money market
(2,975 ) 4,255 1,280 (1,817 ) 6,355 4,538
Saving deposits
(69 ) 256 187 (46 ) 271 225
Time deposits, less than $250,000
3,030 9,839 12,869 4,912 26,295 31,207
Time deposits, $250,000 and over
567 5,953 6,520 1,293 16,384 17,677
Total interest-bearing deposits
403 20,563 20,966 4,271 49,702 53,973
FHLB advances
(316 ) (264 ) (580 ) (192 ) 646 454
Long-term debt
32 (32 ) 0 22 (21 ) 1
Subordinated debentures
4 148 152 8 505 513
Total interest-bearing liabilities
123 20,415 20,538 4,109 50,832 54,941
Changes in net interest income
$ (3,774 ) $ (7,615 ) $ (11,389 ) $ (824 ) $ (16,118 ) $ (16,942 )

~~(1)~~
~~Includes income and average balances for FHLB stock, term federal funds, interest-bearing time deposits and other miscellaneous interest-bearing assets.~~
~~(2)~~
~~Interest income and average rates for tax-exempt securities are presented on a TE basis.~~
~~(3)~~
~~Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs and discount accretion.~~
43

~~Table of Contents~~
~~Results of Operations~~—~~Comparison of Results of Operations for the Three Months Ended September 30, 2023 and September 30, 2022~~
The following discussion of our results of operations compares the three months ended September 30, 2023 and 2022. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.
Net Interest Income/Average Balance ~~Sheet.~~Sheet In
Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023
Net interest income was $24.9 million for the ~~third~~first quarter of ~~2023, we generated $27.6~~2024, compared to $25.7 million ~~of taxable-equivalent net interest income, a decrease of $11.4 million, or 29.2%, from~~for the ~~$39.0 million of taxable-equivalent net interest income we earned in the third~~fourth quarter of ~~2022.~~2023. The $792,000 decrease in net interest income was ~~primarily~~due to higher interest expense of $755,000 and lower interest income of $37,000. The increase in interest expense was due to higher average rates paid on total interest-bearing liabilities, which are mostly average interest-bearing deposits, offset by lower average balances of total interest-bearing liabilities, including the favorable impact of our $55.0 million redemption of subordinated notes in the prior quarter. The increase in interest expense included a $1.4 million increase in interest expense on deposits due to a ~~301~~24 basis point increase in the average rate paid on interest-bearing deposits and a ~~$651.7~~$19.7 million increase in average interest-bearing ~~deposits, partially offset by~~deposits. The decrease in interest income included a 65$345,000 decrease in interest and fees on total loans due mostly to a $36.8 million, or 1.2%, decrease in the average balance of total loans outstanding as loan production moderated in the current interest rate environment.
Net interest margin was 2.69% for the first quarter of 2024, a decrease of four basis points from 2.73% for the fourth quarter of 2023. The decrease was due to the 16 basis point increase in the ~~average~~total cost of funds exceeding the 10 basis point increase in the yield on average total interest-earning assets. The yield on average total interest-earning assets ~~and a $31.8 million~~increased to 5.92% for the first quarter of 2024 compared to 5.82% for the fourth quarter of 2023 due mainly to an 11 basis point increase in the yield on average ~~gross loans.~~total loans to 6.07% for the first quarter of 2024 compared to 5.96% for the fourth quarter of 2023. The ~~Federal Reserve raised interest rates by 2.25% during~~16 basis point increase in the ~~12-month period from September 30, 2022 to September 30, 2023.~~
~~For the three months ended September 30, 2023 and 2022, our net interest margin~~overall cost of funds was ~~2.87% and 4.31%, respectively. The decrease in net interest margin was~~due primarily ~~due~~ to a ~~301~~24 basis point increase in the average cost of total interest-bearing deposits to 4.32% in the first quarter of 2024, offset by the positive impact of our $55.0 million redemption of subordinated notes during the fourth quarter of 2023. The cost of total interest-bearing deposits increased due primarily to repricing deposits as a result of the higher interest rate environment and peer bank deposit competition. In addition, while average noninterest-bearing deposits decreased $7.2 million, the ratio of average noninterest-bearing deposits to average total funding sources remained unchanged from the prior quarter at 16%.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net interest income was $24.9 million for the first quarter of 2024, compared to $34.1 million for the first quarter of 2023. The $9.2 million decrease in net interest income was primarily due to higher interest expense of $10.3 million offset partially by higher interest income of $1.1 million. The increase in interest expense was due to higher average rates paid on interest-bearing deposits, and a ~~$651.7 million~~change in the mix of total deposits. The increase in interest income was primarily due to higher market rates, offset by a change in the mix of interest earning assets including lower average loan balances as compared to the same quarter last year.
Net interest margin was 2.69% for the first quarter of 2024, a decrease of 101 basis points from 3.70% for the first quarter of 2023. The decrease was primarily due to a 157 basis point increase in the cost of interest-bearing deposits, partially offset by ~~a 65 basis point~~an increase in the ~~average~~ yield on ~~interest-earning assets,~~interest earning cash, investment securities, and ~~a $31.8 million increase in average gross~~ loans. The cost of interest-bearing deposits increased due to ~~increasing~~increased market rates including the Federal Reserve raising the target Federal Funds Rates during 2023 and peer bank deposit competition. ~~Our net interest margin~~The Federal Reserve increased the target Federal Funds Rate 100 basis points since the end of 2022, including 50 basis points since the end of first quarter of 2023. The weighted average Federal Funds Rate was 5.33% for the ~~three months ended September 30, 2023 and 2022, excluding accretion income on our purchased loan portfolios, would have been 2.87% and 4.30%, respectively.~~first quarter of 2024 compared to 4.65% for the first quarter of 2023.

Interest and fees on ~~HFI and HFS~~total loans for the ~~third~~first quarter of ~~2023 was $47.6~~2024 were $45.5 million compared to ~~$43.6~~$49.9 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~$4.0~~$4.4 million ~~or 9.2%, increase~~decrease was primarily due to a ~~46 basis point increase in the average yield on total loans and a $31.8~~$324.2 million ~~or 1.0%, increase~~decrease in the average balance of total loans outstanding. The ~~increase~~decrease in the average loan balance was primarily due to ~~organic~~strategic loans sales and moderated loan ~~growth. Purchased~~production to improve the risk profile of the loan ~~discount accretion income totaled $18,000~~portfolio and strengthen overall on-balance sheet liquidity in ~~the third quarter of 2023 compared~~response to ~~$112,000 in the third quarter of 2022.~~market conditions during 2023. For the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, the yield on total HFI and HFS loans was 5.99% and 5.53%, respectively, while~~ the yield on total loans ~~excluding accretion income on our purchased loan portfolio would have been 5.98%~~was 6.07% and ~~5.52%, respectively.~~ 6.06%.
~~The table below presents the accretion income by loan type for the three and nine months ended September 30, 2023 and 2022:~~

As of and For the Three Months Ended

As of and For the Nine Months Ended

September 30,

September 30,

(dollars in thousands)

2023

2022

2023

2022

Beginning balance of discount on purchased loans
$ 1,016 $ 1,388 $ 1,237 $ 1,727
Additions due to acquisitions:

Commercial and industrial
— — (6 ) 8
Commercial real estate
— — 350 26
Single family residential mortgages
— — — (52 )
Total additions
$ — $ — $ 344 $ (18 )
Accretion:

Commercial and industrial
(8 ) (1 ) (11 ) 3
SBA
2 2 18 8
Construction and land development
— — — (1 )
Commercial real estate
(62 ) (11 ) 309 1
Single family residential mortgages
86 122 267 422
Total accretion
$ 18 $ 112 $ 583 $ 433
Ending balance of discount on purchased loans
$ 998 $ 1,276 $ 998 $ 1,276

Interest expense on deposits increased to ~~$25.0~~$27.8 million for the ~~third~~first quarter of ~~2023~~2024 as compared to ~~$4.0~~$15.7 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~$21.0~~$12.1 million ~~or 525.6%,~~ increase in interest expense on deposits was primarily due to ~~a 301 basis point~~the increase in the average ~~rate~~rates paid on interest-bearing deposits ~~due to average higher rates paid on time deposits~~ and a ~~$651.7~~$270.5 million increase in average interest-bearing deposits. Average interest-bearing deposits increased, in part, to help offset a decrease in noninterest-bearing deposits as we worked to lower concentration risk in our deposit portfolio coupled with the impact of customers preferring their deposit balances in higher yielding deposit products in response to higher market interest rates. Average noninterest-bearing deposits decreased ~~$393.5~~$170.0 million to ~~$571.4 million from $964.9~~$528.3 million in the ~~third~~first quarter of ~~2022 primarily due~~2024 from $698.4 million in the first quarter of 2023. Average noninterest-bearing deposits as a percentage of total average deposits was 16% for the first quarter of 2024 compared to 23% for the ~~exit~~first quarter of ~~a single deposit relationship and customers transferring their deposit balances into higher yielding money market accounts and time deposits.~~2023.

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Table of Contents

Provision for Credit Losses
Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023
We recorded no provision for credit losses for the first quarter of 2024 compared to a reversal of provision for credit losses of $431,000 in the fourth quarter of 2023. The provision for credit losses ~~decreased $367,000 to $1.4 million~~for the three months ended March 31, 2024, included a reversal of provision for loan losses of $31,000, offset by a provision for credit losses for unfunded commitments of $31,000. The overall provision for credit losses for the first quarter of 2024 took into consideration several factors including: lower specific reserves, changes in the ~~third~~loan portfolio mix, credit quality metrics, including higher nonperforming loans at the end of the first quarter of 2024 compared to the end of 2023, and ongoing uncertainty in the economic indicators such as inflation and the outlook on market interest rates.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
We recorded a provision for credit losses of $2.0 million for the first quarter of 2023 compared to ~~$1.8 million~~no provision for the first quarter of 2024. There were $184,000 in net loan charge-offs in the ~~third~~first quarter of ~~2022.~~2024, as compared to $157,000 in net loan charge-offs in the first quarter of 2023. The ~~decrease~~higher provision during the first quarter of 2023 was reflective of ~~declines in loan growth, partially offset by~~ increases in classified loans during the first quarter of 2023 that increased the qualitative factors in the ~~Company's~~our CECL model. The provision for credit losses included a provision for credit losses of $1.5 million, partially offset by a credit for off-balance sheet commitments of $144,000 in the third quarter of 2023. There were $2.2 million in net loan charge-offs in the third quarter of 2023, as compared to $127,000 in net loan recoveries in the third quarter of 2022.
Noninterest Income

The following table sets forth the major components of our noninterest income for the ~~three and nine months ended September 30, 2023 and 2022:~~periods presented:

For the Three Months Ended September 30,

Increase (Decrease)

For the Nine Months Ended September 30,

Increase (Decrease)
Three Months Ended March 31, 2024 Compared To
(dollars in thousands)

2023

2022

$
%
2023

2022

$
% March 31, 2024 December 31, 2023 March 31, 2023 December 31, 2023 March 31, 2023
Noninterest income:

Service charges, fees and other
$ 1,357 $ 1,214 $ 143 11.8 % $ 4,150 $ 3,745 $ 405 10.8 % $ 992 $ 972 $ 1,023 $ 20 $ (31 )
Loan servicing income, net of amortization
589 616 731 (27 ) (142 )
Increase in cash surrender of bank owned life insurance
382 374 335 8 47
Gain on sale of loans
212 265 (53 ) (20.0 )% 258 1,783 (1,525 ) (85.5 )% 312 116 29 196 283
Loan servicing fee, net of amortization
623 724 (101 ) (14.0 )% 1,959 1,628 331 20.3 %
Increase in cash surrender of life insurance
356 332 24 7.2 % 1,036 986 50 5.1 %
Gain on sale of OREO
190 — 190 100.0 % 190 — 190 100.0 %
Gain on sale of fixed assets
32 — 32 100.0 % 32 757 (725 ) (95.8 )%
Gain/(loss) on OREO
724 (57 ) — 781 724
Other income
373 5,373 244 (5,000 ) 129
Total noninterest income
$ 2,770 $ 2,535 $ 235 9.3 % $ 7,625 $ 8,899 $ (1,274 ) (14.3 )% $ 3,372 $ 7,394 $ 2,362 $ (4,022 ) $ 1,010
Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023
Noninterest income for the first quarter of 2024 was $3.4 million, a decrease of $4.0 million from $7.4 million in the fourth quarter of 2023. The decrease was due primarily to the CDFI ERP award of $5.0 million recognized in the fourth quarter of 2023 with no similar income in the first quarter of 2024. This decrease was partially offset by gains on the transfer of two loans to other real estate owned (“OREO”) of $560,000 and higher net gains on the sale of OREO of $221,000 (both of which are included in “Gain on OREO”). There were three loans transferred to OREO totaling $2.5 million during the first quarter of 2024, of which one OREO with a carrying value of $1.4 million was sold. We also recognized a higher gain on sale of loans of $196,000.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Noninterest income increased ~~$235,000, or 9.3%,~~$1.0 million to ~~$2.8~~$3.4 million for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~$2.5~~$2.4 million for the same quarter in the prior year. The increase was primarily attributable to a ~~$190,000~~$724,000 increase in gain on OREO, as described above, and a $283,000 increase in gain on sale of ~~other real estate owned ("OREO"), a $143,000 increase in letter of credit commissions, wealth management commissions and other income,~~loans, offset partially ~~offset~~ by a ~~$101,000~~$142,000 decrease in loan servicing ~~income.~~income, net of amortization. The decrease in loan servicing income is due to a decrease in average loans being serviced, offset by the impact of lower pre-payments on such loans due to higher market rates.

~~Gain~~The following table presents information on ~~sale of~~ loans ~~is comprised primarily of gains on sale of~~servicing income for the periods presented:

Three Months Ended
March 31, 2024 Compared To
(dollars in thousands)
March 31, 2024 December 31, 2023 March 31, 2023 December 31, 2023 March 31, 2023
Loan servicing income, net of amortization:

Single-family residential loans
$ 443 $ 505 $ 566 $ (62 ) $ (123 )
SBA loans
146 111 165 35 (19 )
Total
$ 589 $ 616 $ 731 $ (27 ) $ (142 )
During the three months ended March 31, 2024, we were servicing SFR mortgage loans for other financial institutions, FHLMC and FNMA as well as servicing SBA loans. ~~Gain on sale~~The decline in the respective servicing portfolios is due to lower amounts of loans ~~totaled $212,000 in~~sold with servicing retained combined with the ~~third~~underlying loan portfolio activity of loans from the first quarter of 2023 ~~compared to $265,000 in~~through the ~~third~~first quarter of ~~2022.~~ 2024.
The ~~decrease was primarily due to~~following table presents loans serviced for others as of the increase in interest rates, which resulted in the decreases in FNMA, FHLMC, non-qualified loan originations and sales. In addition, $20 million mortgage loans were sold at par value but reflecting the net deferred cost resulted in a loss of $103,000 from those loans sold.dates indicated:

As of
March 31, 2024 Compared To
(dollars in thousands)
March 31, 2024 December 31, 2023 March 31, 2023 December 31, 2023 March 31, 2023
Loans serviced:

Single-family residential loans serviced
$ 990,930 $ 1,014,017 $ 1,098,526 $ (23,087 ) $ (107,596 )
SBA loans serviced
100,713 100,336 114,756 377 (14,043 )
Commercial real estate loans serviced
3,798 3,813 3,970 (15 ) (172 )
Construction loans
5,096 4,710 3,884 386 1,212
Total
$ 1,100,537 $ 1,122,876 $ 1,221,136 $ (22,339 ) $ (120,599 )

4538
Table of Contents

The following table presents information on loans sold and gain on loans sold for the ~~three and nine months ended September 30, 2023 and 2022.~~periods presented:

For the Three Months Ended September 30,

Increase (Decrease)

For the Nine Months Ended September 30,

Increase (Decrease)

(dollars in thousands)

2023

2022

$

%

2023

2022

$

%

Loans sold:

SBA
$ 3,014 $ 2,474 $ 540 21.8 % $ 3,141 $ 11,907 $ (8,766 ) (73.6 )%
Single family residential mortgage
28,846 3,810 25,036 657.1 % 31,092 43,314 (12,222 ) (28.2 )%
$ 31,860 $ 6,284 $ 25,576 407.0 % $ 34,233 $ 55,221 $ (20,988 ) (38.0 )%
Gain on loans sold:

SBA
$ 189 $ 130 $ 59 45.4 % $ 199 $ 653 $ (454 ) (69.5 )%
Single family residential mortgage
23 135 (112 ) (83.0 )% 59 1,130 (1,071 ) (94.8 )%
$ 212 $ 265 $ (53 ) (20.0 )% $ 258 $ 1,783 $ (1,525 ) (85.5 )%
Our loan servicing income, net of amortization, decreased by $101,000 to $623,000 for the three months ended September 30, 2023 compared to net servicing income of $724,000 for the three months ended September 30, 2022. Loan servicing income, net of amortization decreased due to the decrease in volume of SFR and SBA loans we are servicing. The following table presents information on loan servicing income for the three and nine months ended September 30, 2023 and 2022.
(dollars in thousands)

For the Three Months Ended September 30,

Increase (Decrease)

For the Nine Months Ended September 30,

Increase (Decrease)

For the period

2023

2022

$

%

2023

2022

$

%

Loan servicing income, net of amortization:

Single family residential loans serviced
$ 534 $ 491 $ 43 8.8 % $ 1,614 $ 1,189 $ 425 35.7 %
SBA loans serviced
89 233 (144 ) (61.8 )% 345 439 (94 ) (21.4 )%
Total
$ 623 $ 724 $ (101 ) (14.0 )% $ 1,959 $ 1,628 $ 331 20.3 %
As of September 30, 2023, we were servicing SFR mortgage loans for other financial institutions, FHLMC, and FNMA, and we were also servicing SBA loans. The decline in the respective servicing portfolios reflects prepayment of loans from the third quarter of 2022 through the third quarter of 2023.
~~The following table shows loans serviced for others as of September 30, 2023 and 2022:~~

September 30,

Increase (Decrease)

(dollars in thousands)

2023

2022

$

%

As of period-end

Single family residential loans serviced
$ 1,041,352 $ 1,157,832 $ (116,480 ) (10.1 )%
SBA loans serviced
102,605 128,020 (25,415 ) (19.9 )%
Commercial real estate loans serviced
3,933 4,011 (78 ) (1.9 )%
Construction loans serviced
4,388 — 4,388 100 %
Total
$ 1,152,278 $ 1,289,863 $ (137,585 ) (10.7 )%

Three Months Ended

(dollars in thousands)

March 31, 2024

December 31, 2023

March 31, 2023

Loans sold:

SBA
$ 3,407 $ 1,024 $ 127
Single-family residential mortgage
5,288 2,968 836
$ 8,695 $ 3,992 $ 963
Gain on loans sold:

SBA
$ 220 $ 64 $ 10
Single-family residential mortgage
92 52 19
$ 312 $ 116 $ 29

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Table of Contents

Noninterest Expense
The following table sets forth major components of our noninterest expense for the ~~three and nine months ended September 30, 2023 and 2022:~~periods presented:

For the Three Months Ended September 30,

Increase (Decrease)

For the Nine Months Ended September 30,

Increase (Decrease)
Three Months Ended March 31, 2024 Compared To
(dollars in thousands)

2023

2022

$

%

2023

2022

$

%
March 31, 2024 December 31, 2023 March 31, 2023 December 31, 2023 March 31, 2023
Noninterest expense:

Salaries and employee benefits
$ 9,744 $ 9,561 $ 183 1.9 % $ 28,935 $ 28,558 $ 377 1.3 % $ 9,927 $ 8,860 $ 9,864 $ 1,067 $ 63
Occupancy and equipment expense
2,414 2,349 65 2.8 % 7,242 6,728 514 7.6 %
Occupancy and equipment expenses
2,443 2,387 2,398 56 45
Data processing
1,315 1,306 9 0.7 % 3,969 3,857 112 2.9 % 1,420 1,357 1,299 63 121
Legal and professional
1,022 1,077 (55 ) (5.1 )% 6,907 4,337 2,570 59.3 % 880 1,291 3,013 (411 ) (2,133 )
Office expenses
437 382 55 14.4 % 1,163 1,033 130 12.6 % 356 349 375 7 (19 )
Marketing and business promotion
340 364 (24 ) (6.6 )% 892 1,172 (280 ) (23.9 )% 172 241 300 (69 ) (128 )
Insurance and regulatory assessments
730 441 289 65.5 % 2,043 1,360 683 50.2 % 982 1,122 504 (140 ) 478
Amortization of core deposit intangible
236 277 (41 ) (14.8 )% 708 833 (125 ) (15.0 )%
Core deposit premium
201 215 237 (14 ) (36 )
Other expenses
638 940 (302 ) (32.1 )% 2,445 2,489 (44 ) (1.8 )% 588 571 921 17 (333 )
Total noninterest expense
$ 16,876 $ 16,697 $ 179 1.1 % $ 54,304 $ 50,367 $ 3,937 7.8 % $ 16,969 $ 16,393 $ 18,911 $ 576 $ (1,942 )
Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023

Noninterest expense ~~increased $179,000, or 1.1%, to $16.9 million in~~for the ~~third~~first quarter of ~~2023 compared to $16.7~~2024 was $17.0 million, inan increase of $576,000 from $16.4 million for the ~~third~~fourth quarter of ~~2022. The~~2023. This increase was due primarily ~~due~~ to ~~a $240,000 increase in the FDIC assessment~~higher salaries and ~~a $183,000~~employee benefits expenses of $1.1 million, partially offset by lower legal and professional fees of $411,000 and lower insurance and regulatory assessments of $140,000. The increase in salaries and benefits ~~expense, partially offset by a $125,000 decrease~~is attributed to the timing of taxes and benefits, which are higher in ~~director travel expenses and a $144,000 decrease in compensation expense related to director restricted stock units.~~
~~Salaries and employee benefits expense increased $183,000, or 1.9%, to $9.7 million for~~ the ~~third~~first quarter of ~~2023 compared to $9.6 million for~~ the third quarter of 2022, due to normal salary increases and a decreased loan deferred cost salary offset due to lower loan originations partially offset by a decrease in bonus expense and commissions expense.year. The number of full-time equivalent employees was ~~380~~371 at ~~September 30, 2023~~March 31, 2024 compared to ~~382~~376 at ~~September 30, 2022. None of our employees are represented by a labor union, or governed by any collective bargaining agreements.~~
Occupancy and equipment expense increased $65,000, or 2.8%, to $2.4 million for the third quarter of 2023 compared to $2.3 million for the third quarter of 2022, primarily due to increases in rent.
~~Legal and professional expense decreased $55,000 to $1.0 million for the three months ended September 30, 2023 compared to $1.1 million for the three months ended September 30, 2022.~~December 31, 2023. The decrease in legal and professional ~~expense~~expenses from the ~~third~~fourth quarter of ~~2022~~2023 was due in part to higher legal recoveries of $65,000 as the first quarter included $165,000 in recoveries compared to $100,000 in the fourth quarter of 2023 coupled with lower external auditor fees.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Noninterest expense decreased $1.9 million to $17.0 million in the first quarter of 2024 compared to $18.9 million for the first quarter of 2023. The $1.9 million decrease was primarily due to a decrease in legal and other professional expenses of $2.1 million, other expenses of $333,000, and marketing and business promotion expense of $128,000, partially offset by an increase in insurance and regulatory assessments of $478,000. The decrease in legal and professional expenses was due mostly to lower legal expenses and external consulting and audit fees related to the previously disclosed internal investigation that was subsequently resolved. Marketing and business promotion expense decreased due to decreases in advertising and CRA donation expenses. Other expenses includes board of director compensation costs, which decreased $270,000 due to the insurance coverage with respect to legal expenses related to the Company's voluntary cooperation with the SEC's requests for information, as disclosed in the Company's Current Report on Form 8-K filed with the SEC on July 24, 2023, after all prior paymentsreconstitution of the ~~Company reached~~board after the ~~$1.0 million retention amount.~~
first quarter of 2023. Insurance and regulatory assessments increased ~~$289,000, or 65.5%,~~due mostly to ~~$730,000 in the third quarter of 2023 due to an~~a $435,000 increase in ~~the~~our FDIC assessment ~~by $240,000.~~due in part to the consent order issued in October 2023.

~~During the three months ended September 30,~~Income Tax Expense
Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023 ~~and 2022, the Company~~
We recorded an income tax provision of ~~$3.6~~$3.2 million and ~~$6.4~~$5.0 million, ~~respectively,~~ reflecting an effective tax rate of ~~29.9%~~28.8% and ~~27.8%~~29.4%, for the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, respectively. The Company did not recognize a~~December 31, 2023. Income tax ~~benefit from~~included an $8,000 expense for stock ~~option exercises~~options exercised for the three months ended ~~September 30,~~March 31, 2024 and December 2023.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
We recorded an income tax provision of $3.2 million and ~~recognized~~$4.6 million, reflecting an effective tax rate of 28.8% and 29.4%, for the three months ended March 31, 2024 and 2023. Income tax included an $8,000 expense for stock options exercised for the three months ended March 31, 2024 and a ~~tax~~$5,000 benefit ~~from stock option exercises of $276,000~~ for the same period in ~~2022.~~
Net income after tax amounted to $8.5 million for the third quarter of 2023, an $8.2 million, or a 49.1% decrease from $16.7 million in the third quarter of 2022 primarily due to a decrease of $11.4 million in net interest income and an increase of $179,000 in noninterest expense, partially offset by an increase of $235,000 in noninterest income, a decrease of $2.8 million in income tax expense and a decrease of $367,000 in the provision for credit losses.2023.

47
40
Table of Contents
~~Results of Operations~~—~~Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and September 30, 2022~~
The following discussion of our results of operations compares the nine months ended September 30, 2023 and 2022. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.
~~Net Interest Income/Average Balance Sheet.~~ In the first nine months of 2023, we generated $93.7 million of taxable-equivalent net interest income, a decrease of $16.9 million, or 15.3%, from the $110.6 million of taxable-equivalent net interest income we earned in the first nine months of 2022. The decrease in net interest income was primarily due to a 279 basis point increase in the average rate paid on interest-bearing deposits and a $487.6 million increase in average interest-bearing deposits, partially offset by a 130 basis point increase in the average yield on interest-earning assets, and a $221.9 million increase in average gross loans. The Federal Reserve raised interest rates by 2.25% during the 12-month period from September 30, 2022 to September 30, 2023.
For the nine months ended September 30, 2023 and 2022, our net interest margin was 3.31% and 3.95%, respectively. The decrease in net interest margin was primarily due to a 279 basis point increase in the average rate paid on interest-bearing deposits and a $487.6 million increase in average interest-bearing deposits, partially offset by a 130 basis point increase in the average yield on interest-earning assets, and a $221.9 million increase in average gross loans. The cost of interest-bearing deposits increased due to increasing market rates and peer bank deposit competition. Our net interest margin for the nine months ended September 30, 2023 and 2022, excluding accretion income on our purchased loan portfolios, would have been 3.29% and 3.93%, respectively.
Interest and fees on HFI and HFS loans for the first nine months of 2023 was $148.4 million compared to $121.6 million for the first nine months of 2022. The $26.7 million, or 22.0%, increase was primarily due to a $221.9 million, or 7.3%, increase in the average balance of total loans outstanding and a 73 basis point increase in the average yield on total loans. The increase in the average loan balance was primarily due to organic loan growth. Purchased loan discount accretion income totaled $583,000 in the first nine months of 2023 compared to $433,000 in the first nine months of 2022. For the nine months ended September 30, 2023 and 2022, the yield on total HFI and HFS loans was 6.09% and 5.36%, respectively, while the yield on total loans excluding accretion income on our purchased loan portfolio would have been 6.07% and 5.34%, respectively.
Interest expense on deposits increased to $62.6 million for the first nine months of 2023 as compared to $8.6 million for the first nine months of 2022. The $54.0 million, or 625.3%, increase in interest expense on deposits was primarily due to a 279 basis point increase in the average rate paid on interest-bearing deposits due to average higher rates paid on time deposits and a $487.6 million increase in average interest-bearing deposits. Average noninterest-bearing deposits decreased $490.4 million to $624.8 million from $1.1 billion in the first nine months of 2022 primarily due to the exit of a single deposit relationship and customers transferring their deposit balances into higher yielding money market accounts and time deposits.
The provision for credit losses increased $745,000 to $3.8 million in the first nine months of 2023 compared to $3.0 million in the first nine months of 2022. The increase was reflective of increases in classified loans during the first nine months of 2023 that increased the qualitative factors in the Company's CECL model. The provision for credit losses included a provision for credit losses of $4.3 million, partially offset by a credit for off-balance sheet commitments of $503,000 in the first nine months of 2023. There were $2.9 million in net loan charge-offs in the first nine months of 2023, as compared to $87,000 in net loan recoveries in the first nine months of 2022.
Noninterest income decreased $1.3 million, or 14.3%, to $7.6 million for the first nine months of 2023, compared to $8.9 million for the same period in the prior year. The decrease was primarily attributable to a $1.5 million decrease in gain on sale of loans due to increases in market rates of interest that caused decreases in both HFS loans and gain on loans sold and a $725,000 decrease in gain on sale of fixed assets partially offset by a $331,000 increase in loan servicing fees due to loan payoffs slowing down in 2023, a $316,000 increase in wealth management commissions and a $190,000 increase in gain on sale of OREO.
Gain on sale of loans is comprised primarily of gains on sale of SFR mortgage loans and SBA loans. Gain on sale of loans totaled $258,000 in the first nine months of 2023, compared to $1.8 million in the first nine months of 2022. The decrease was primarily caused by a decrease of $21.0 million in loan sale volume, primarily due to the increase in interest rates, which resulted in the decreases in FNMA, FHLMC, non-qualified mortgage loans, and SBA originations and loan sales.
Our loan servicing income, net of amortization, increased by $331,000 to $2.0 million for the nine months ended September 30, 2023 compared to net servicing income of $1.6 million for the nine months ended September 30, 2022. Loan servicing income, net of amortization increased due to higher interest rates, which affects the pre-payment speeds on loans serviced. We are experiencing lower loan pre-payments on SFR and SBA loans due to higher market rates. The decrease in SBA loan servicing income is due to a decrease in the volume of SBA loans we are servicing.
Noninterest expense increased $3.9 million, or 7.8%, to $54.3 million in the first nine months of 2023 compared to $50.4 million in the first nine months of 2022. The $3.9 million increase was primarily due to a $2.6 million increase in legal and other professional expense, a $683,000 increase in insurance and regulatory assessments, a $514,000 increase in occupancy and equipment expense, and a $377,000 increase in salaries and employee benefits expense due to new hires and merit increases to reflect economic inflation.
Salaries and employee benefits expense increased $377,000, or 1.3%, to $28.9 million for the first nine months of 2023 compared to $28.6 million for the first nine months of 2022, due to a $2.5 million decrease in deferred loan salary offset costs due to lower loan originations, normal salary increases and increases in health benefit costs, partially offset by decreases in bonuses and commissions.
Occupancy and equipment expense increased $514,000, or 7.6%, to $7.2 million for the first nine months of 2023 compared to $6.7 million for the first nine months of 2022, primarily due to increases in rent and real estate property taxes.
48

~~Table of Contents~~
Data processing expense increased $112,000, or 2.9%, to $4.0 million for the first nine months of 2023, compared to $3.9 million for the first nine months of 2022, primarily due to data processing and software license fees.
Legal and professional expense increased $2.6 million to $6.9 million in the nine months ended September 30, 2023 compared to $4.3 million for the nine months ended September 30, 2022. The $2.6 million increase in legal and professional expense from the first nine months of 2022 was due to a $1.8 million increase in legal expenses related to the Company's voluntary cooperation with the SEC’s requests for information, as disclosed in the Company's Current Report on Form 8-K filed with the SEC on July 24, 2023 and an increase of $923,000 in external auditor fees.
Insurance and regulatory assessments increased $683,000, or 50.2%, to $2.0 million in the first nine months of 2023 due to a $475,000 increase in the FDIC assessment and a $136,000 increase in directors and officers insurance expense.
During the nine months ended September 30, 2023 and 2022, the Company recorded an income tax provision of $12.8 million and $19.3 million, respectively, reflecting an effective tax rate of 29.6% and 29.2% for the nine months ended September 30, 2023 and 2022, respectively. The Company recognized tax benefit from stock option exercises of $5,000 for the nine months ended September 30, 2023 and $578,000 for the same period in 2022.
Net income after tax amounted to $30.4 million for the first nine months of 2023, a $16.4 million, or a 35.0% decrease from $46.7 million in the first nine months of 2022 primarily due to a $16.9 million decrease in net interest income, an increase of $3.9 million in noninterest expense, a decrease of $1.3 million in noninterest income, and an increase of $745,000 in the provision for credit losses, partially offset by a decrease of $6.5 million in income tax expense.

ANALYSIS OF FINANCIAL CONDITION

Assets

~~Total~~At March 31, 2024, total assets ~~increased $150.3 million to $4.1 billion as of September 30, 2023, from~~were $3.9 billion, asa decrease of $148.0 million, from total assets of $4.0 billion at December 31, ~~2022,~~2023, primarily due to ~~increases~~a $162.1 million decrease in cash and cash equivalents ~~of $247.2~~and a $2.5 million ~~and investment securities of $97.0 million,~~decrease in gross loans, partially offset by a $16.2 million increase in AFS investment securities. The decrease in ~~net HFI loans~~cash and cash equivalents was primarily due to a decrease of ~~$215.5 million.~~$208.0 million in wholesale deposits.

Investment Securities

We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio include:
●
providing a ready source of balance sheet liquidity to ensure adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition;
● serving as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and
● serving as a tool for modifying our interest rate risk profile pursuant to our established policies.
Our investment ~~strategy aims~~portfolio is comprised primarily of U.S. government agency securities, corporate note securities, mortgage-backed securities backed by government-sponsored entities and taxable and tax-exempt municipal securities.
Our investment policy is reviewed annually by our board of directors. Overall investment goals are established by our board of directors, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and members of our Asset Liability Committee (“ALCO”) of our board of directors. Our board of directors has delegated the responsibility of monitoring our investment activities to ~~maximize earnings while maintaining liquidity~~our ALCO. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our CEO and CFO. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We monitor our securities ~~with minimal~~portfolio to ensure it has adequate credit ~~risk. The types~~support and ~~maturities~~consider the lowest credit rating for identification of ~~securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions.~~potential credit impairment.

The following table sets forth the book value and percentage of each category of securities ~~at September 30, 2023 and December 31, 2022.~~as of the dates indicated. The book value for debt securities classified as AFS isare reflected at fair market value and the book value for securities classified as HTM isare reflected at amortized cost.

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

(dollars in thousands)

Amount

% of Total

Amount

% of Total

Amount

% of Total

Amount

% of Total

Securities, available for sale, at fair value

Government agency securities
$ 7,894 2.2 % $ 4,495 1.7 % $ 7,059 2.1 % $ 8,161 2.5 %
SBA agency securities
7,261 2.0 % 2,411 0.9 % 14,314 4.2 % 13,217 4.1 %
Mortgage-backed securities: residential
33,437 9.3 % 38,057 14.4 % 33,180 9.7 % 34,652 10.7 %
Mortgage-backed securities: commercial
— 0.0 % 4,871 1.9 %
Collateralized mortgage obligations: residential
71,199 19.8 % 69,903 26.6 % 88,099 26.0 % 82,327 25.3 %
Collateralized mortgage obligations: commercial
67,495 18.8 % 41,690 15.9 % 75,637 22.2 % 67,299 20.8 %
Commercial paper
129,073 35.9 % 49,537 18.9 % 77,066 22.6 % 73,105 22.6 %
Corporate debt securities ⁽¹⁾
29,806 8.3 % 37,012 14.1 % 30,630 9.0 % 30,691 9.5 %
Municipal securities
8,213 2.3 % 8,854 3.4 % 9,209 2.7 % 9,509 2.8 %
Total securities, available for sale, at fair value
$ 354,378 98.6 % $ 256,830 97.8 % $ 335,194 98.5 % $ 318,961 98.3 %
Securities, held to maturity, at amortized cost

Taxable municipal securities
$ 502 0.1 % $ 1,003 0.4 % $ 501 0.1 % $ 501 0.2 %
Tax-exempt municipal securities
4,712 1.3 % 4,726 1.8 % 4,703 1.4 % 4,708 1.5 %
Total securities, held to maturity, at amortized cost
5,214 1.4 % 5,729 2.2 % 5,204 1.5 % 5,209 1.7 %
Total securities
$ 359,592 100.0 % $ 262,559 100.0 % $ 340,398 100.0 % $ 324,170 100.0 %

(1)
Comprised of corporate note securities, commercial paper and financial institution subordinated debentures.

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The tables below set forth investment debt securities AFS and HTM ~~at September 30, 2023 and December 31, 2022.~~as of the dates indicated.

Amortized

Unrealized

Unrealized

Fair

March 31, 2024

Cost

Gains

Losses

Value

(dollars in thousands)

Amortized

Unrealized

Unrealized

Fair

September 30, 2023

Cost

Gains

Losses

Value

Available for sale

Government agency securities
$ 8,694 $ — $ (800 ) $ 7,894 $ 7,586 $ — $ (527 ) $ 7,059
SBA agency securities
7,533 — (272 ) 7,261 14,524 40 (250 ) 14,314
Mortgage-backed securities: residential
41,501 — (8,064 ) 33,437 39,567 — (6,387 ) 33,180
Collateralized mortgage obligations: residential
86,343 — (15,144 ) 71,199 100,808 169 (12,878 ) 88,099
Collateralized mortgage obligations: commercial
70,837 1 (3,343 ) 67,495 78,404 105 (2,872 ) 75,637
Commercial paper
129,105 — (32 ) 129,073 77,088 — (22 ) 77,066
Corporate debt securities
34,817 — (5,011 ) 29,806 34,784 21 (4,175 ) 30,630
Municipal securities
12,644 — (4,431 ) 8,213 12,627 — (3,418 ) 9,209
$ 391,474 $ 1 $ (37,097 ) $ 354,378 $ 365,388 $ 335 $ (30,529 ) $ 335,194
Held to maturity

Municipal taxable securities
$ 502 $ — $ (3 ) $ 499 $ 501 $ — $ (1 ) $ 500
Municipal securities
4,712 — (461 ) 4,251 4,703 — (156 ) 4,547
$ 5,214 $ — $ (464 ) $ 4,750 $ 5,204 $ — $ (157 ) $ 5,047
December 31, 2022

December 31, 2023

Available for sale

Government agency securities
$ 5,012 $ — $ (517 ) $ 4,495 $ 8,705 $ — $ (544 ) $ 8,161
SBA agency securities
2,634 — (223 ) 2,411 13,289 144 (216 ) 13,217
Mortgage-backed securities: residential
44,809 — (6,752 ) 38,057 40,507 — (5,855 ) 34,652
Mortgage-backed securities: commercial
4,887 — (16 ) 4,871
Collateralized mortgage obligations: residential
82,759 — (12,856 ) 69,903 94,071 454 (12,198 ) 82,327
Collateralized mortgage obligations: commercial
44,591 — (2,901 ) 41,690 69,941 22 (2,664 ) 67,299
Commercial paper
49,551 2 (16 ) 49,537 73,121 — (16 ) 73,105
Corporate debt securities
41,176 1 (4,165 ) 37,012 34,800 — (4,109 ) 30,691
Municipal securities
12,669 — (3,815 ) 8,854 12,636 — (3,127 ) 9,509
$ 288,088 $ 3 $ (31,261 ) $ 256,830 $ 347,070 $ 620 $ (28,729 ) $ 318,961
Held to maturity

Municipal taxable securities
$ 1,003 $ 7 $ (3 ) $ 1,007 $ 501 $ 3 $ — $ 504
Municipal securities
4,726 — (170 ) 4,556 4,708 — (115 ) 4,593
$ 5,729 $ 7 $ (173 ) $ 5,563 $ 5,209 $ 3 $ (115 ) $ 5,097

The weighted-average book yield on the total investment portfolio at ~~September 30, 2023~~March 31, 2024 was ~~3.66%~~4.16% with a weighted-average life of ~~4.7~~5.1 years. This compares to a weighted-average book yield of ~~2.55%~~4.00% with a weighted-average life of ~~5.8~~5.1 years at December 31, ~~2022.~~2023. The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

The table below shows our investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of March 31, 2024. The amortized cost and fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Less than One Year

More than One Year to Five Years

More than Five Years to Ten Years

More than Ten Years

Total

Fair Weighted Fair Weighted Fair Weighted Fair Weighted Fair Weighted
March 31, 2024

Value

Average Yield

Value

Average Yield

Value

Average Yield

Value

Average Yield

Value

Average Yield

(dollars in thousands)

Government agency securities
$ — — % $ 7,059 2.97 % $ — — % $ — — % $ 7,059 2.97 %
SBA securities
— — % 2,024 2.65 % 12,290 5.93 % — — % 14,314 5.43 %
Mortgage-backed securities: residential
— — % 9,428 0.93 % 16,327 2.27 % 7,425 2.04 % 33,180 1.86 %
Collateralized mortgage obligations: residential
16 1.80 % 35,226 4.74 % 52,857 2.08 % — — % 88,099 3.04 %
Collateralized mortgage obligations: commercial
4,071 7.14 % 18,023 3.93 % 53,543 5.86 % — — % 75,637 5.44 %
Commercial paper
77,066 5.98 % — — % — — % — — % 77,066 5.98 %
Corporate debt securities
— — % 12,533 4.09 % 16,160 3.61 % 1,937 2.89 % 30,630 3.73 %
Municipal securities
— — % — — % — — % 9,209 1.92 % 9,209 1.92 %
Total available for sale
$ 81,153 6.04 % $ 84,293 3.85 % $ 151,177 3.92 % $ 18,571 2.07 % $ 335,194 4.27 %

Municipal taxable securities
$ — — % $ 500 5.25 % $ — — % $ — — % $ 500 5.25 %
Municipal securities
— — % — — % 2,847 2.77 % 1,700 2.59 % 4,547 2.71 %
Total held to maturity
$ — — % $ 500 5.25 % $ 2,847 2.77 % $ 1,700 2.59 % $ 5,047 2.96 %
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Table of Contents

The table below shows ~~the Company’s~~our investment securities’ gross unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired. A summary of our analysis of these securities and the unrealized losses is described more fully in "Note 4 — Investment Securities" of our consolidated financial statements included in our ~~2022~~2023 Annual Report. Economic trends may adversely affect the value of the portfolio of investment securities that we hold.

Less than Twelve Months

Twelve Months or More

Total

Less than Twelve Months

Twelve Months or More

Total

Unrealized Unrealized Unrealized
March 31, 2024

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(dollars in thousands)

Unrealized

Unrealized

Unrealized

September 30, 2023

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Government sponsored agencies
$ 4,119 $ (174 ) $ 3,775 $ (626 ) $ 7,894 $ (800 ) $ 3,513 $ (57 ) $ 3,546 $ (470 ) $ 7,059 $ (527 )
SBA Agency Securities
— — 2,115 (272 ) 2,115 (272 )
SBA securities
6,341 (33 ) 2,023 (217 ) 8,364 (250 )
Mortgage-backed securities: residential
— — 33,437 (8,064 ) 33,437 (8,064 ) — — 33,180 (6,387 ) 33,180 (6,387 )
Collateralized mortgage obligations: residential
11,956 (310 ) 59,243 (14,834 ) 71,199 (15,144 ) 13,963 (146 ) 60,647 (12,732 ) 74,610 (12,878 )
Collateralized mortgage obligations: commercial
23,696 (121 ) 38,800 (3,222 ) 62,496 (3,343 ) 26,029 (267 ) 34,431 (2,605 ) 60,460 (2,872 )
Commercial paper
114,185 (32 ) — — 114,185 (32 )
Commercial paper ⁽¹⁾
39,731 (22 ) — — 39,731 (22 )
Corporate debt securities
— — 29,806 (5,011 ) 29,806 (5,011 ) — — 27,559 (4,175 ) 27,559 (4,175 )
Municipal securities
— — 8,213 (4,431 ) 8,213 (4,431 ) — — 9,209 (3,418 ) 9,209 (3,418 )
Total available for sale
$ 153,956 $ (637 ) $ 175,389 $ (36,460 ) $ 329,345 $ (37,097 ) $ 89,577 $ (525 ) $ 170,595 $ (30,004 ) $ 260,172 $ (30,529 )

Municipal taxable securities
$ 499 $ (3 ) $ — $ — $ 499 (3 ) $ 500 $ (1 ) $ — $ — $ 500 $ (1 )
Municipal securities
1,281 (134 ) 2,970 (327 ) 4,251 (461 ) 788 (12 ) 3,759 (144 ) 4,547 (156 )
Total held to maturity
$ 1,780 $ (137 ) $ 2,970 $ (327 ) $ 4,750 $ (464 ) $ 1,288 $ (13 ) $ 3,759 $ (144 ) $ 5,047 $ (157 )

December 31, 2022

Government sponsored agencies
$ 354 $ (24 ) $ 4,141 $ (493 ) $ 4,495 $ (517 )
SBA agency securities
2,411 (223 ) — — 2,411 (223 )
Mortgage-backed securities: residential
5,535 (362 ) 32,522 (6,390 ) 38,057 (6,752 )
Mortgage-backed securities: commercial
4,871 (16 ) — — 4,871 (16 )
Collateralized mortgage obligations: residential
27,050 (1,842 ) 39,815 (11,014 ) 66,865 (12,856 )
Collateralized mortgage obligations: commercial
18,741 (790 ) 22,949 (2,111 ) 41,690 (2,901 )
Commercial paper
39,624 (16 ) — — 39,624 (16 )
Corporate debt securities
22,977 (1,843 ) 10,330 (2,322 ) 33,307 (4,165 )
Municipal securities
— — 8,854 (3,815 ) 8,854 (3,815 )
Total available for sale
$ 121,563 $ (5,116 ) $ 118,611 $ (26,145 ) $ 240,174 $ (31,261 )

Municipal taxable securities
$ 498 $ (3 ) $ — $ — $ 498 (3 )
Municipal securities
4,556 (170 ) — — 4,556 (170 )
Total held to maturity
$ 5,054 $ (173 ) $ — $ — $ 5,054 $ (173 )
(1)
We held $37.3 million of commercial paper where the amortized cost and fair value are equal as of March 31, 2024.

Less than Twelve Months

Twelve Months or More

Total

Unrealized Unrealized Unrealized
December 31, 2023

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(dollars in thousands)

Government sponsored agencies
$ 4,238 $ (72 ) $ 3,923 $ (472 ) $ 8,161 $ (544 )
SBA securities
5,102 (18 ) 2,094 (198 ) 7,196 (216 )
Mortgage-backed securities: residential
— — 34,652 (5,855 ) 34,652 (5,855 )
Collateralized mortgage obligations: residential
2,597 (37 ) 60,275 (12,161 ) 62,872 (12,198 )
Collateralized mortgage obligations: commercial
18,463 (70 ) 35,077 (2,594 ) 53,540 (2,664 )
Commercial paper ⁽¹⁾
53,211 (16 ) — — 53,211 (16 )
Corporate debt securities
— — 30,691 (4,109 ) 30,691 (4,109 )
Municipal securities
— — 9,509 (3,127 ) 9,509 (3,127 )
Total available for sale
$ 83,611 $ (213 ) $ 176,221 $ (28,516 ) $ 259,832 $ (28,729 )

Municipal securities
$ 1,397 $ (19 ) $ 3,196 $ (96 ) $ 4,593 $ (115 )
Total held to maturity
$ 1,397 $ (19 ) $ 3,196 $ (96 ) $ 4,593 $ (115 )
(1)
We held $19.9 million of commercial paper where the amortized cost and fair value are equal as of December 31, 2023.

~~The Company~~There was no ACL on the HTM securities portfolio as of March 31, 2024 and December 31, 2023. We monitor our securities portfolio to ensure all of our investments have adequate credit support and we consider the lowest credit rating for identification of potential credit impairment. As of March 31, 2024, we believe there was no impairment. In addition, we did not ~~record any charges for other-than-temporary impairment losses for~~have the ~~three~~current intent to sell securities with a fair value below amortized cost at March 31, 2024, and ~~nine months ended September 30, 2023~~it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. As of March 31, 2024, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and ~~2022.~~market conditions.

~~Loan Portfolio~~Loans

The loan portfolio is the largest category of our earning assets. At ~~September 30, 2023,~~March 31, 2024, total loans HFI, ~~loans,~~ net of ~~ACL,~~ALL, totaled ~~$3.1~~$3.0 billion. Net loans HFI decreased $4.5 million, or 0.1%, to $3.0 billion at March 31, 2024 as compared to $3.0 billion at December 31, 2023. The decrease was primarily due a $24.3 million decrease in SFR mortgages, an $8.7 million decrease in C&I loans, and a $1.4 million decrease in other loans, partially offset by a $16.6 million increase in C&D loans, a $10.6 million increase in CRE loans, and a $2.6 million increase in SBA loans. SFR mortgage loans represent approximately 50% of our total loans as of March 31, 2024 and December 31, 2023.
43
The following table presents the balance and associated percentage of ~~each major category in~~ our loan portfolio, ~~at September 30, 2023 and December 31, 2022:~~by loan segment, as of the dates indicated:

As of September 30, 2023

As of December 31, 2022

As of March 31, 2024

As of December 31 2023

(dollars in thousands)

$

%

$

%

$

%

$

%

Loans:⁽¹⁾

Real Estate:

Loans HFI:⁽¹⁾

Construction and land development
$ 259,778 8.3 % $ 276,876 8.3 % $ 198,070 6.5 % $ 181,469 6.0 %
Commercial real estate ⁽²⁾
1,164,210 37.3 % 1,312,132 39.3 % 1,178,498 38.9 % 1,167,857 38.5 %
Single-family residential mortgages
1,505,307 48.2 % 1,464,108 43.9 % 1,463,497 48.4 % 1,487,796 49.1 %
Commercial:

Commercial and industrial
127,655 4.1 % 201,223 6.0 % 121,441 4.0 % 130,096 4.3 %
SBA
50,420 1.6 % 61,411 1.8 % 54,677 1.8 % 52,074 1.7 %
Other:

Other loans
13,582 0.5 % 20,699 0.7 % 11,178 0.4 % 12,569 0.4 %
Total loans
3,120,952 100.0 % 3,336,449 100.0 %
Allowance for credit losses
(42,430 ) (41,076 )
Total loans, net
$ 3,078,522 $ 3,295,373
Total loans HFI
3,027,361 100.0 % 3,031,861 100.0 %
Allowance for loan losses
(41,688 ) (41,903 )
Total loans HFI, net ⁽¹⁾
$ 2,985,673 $ 2,989,958

(1)
Net of discounts and deferred fees and costs.

(2)
Includes non-farm and non-residential real estate loans, multifamily residential and ~~single-family residential~~SFR loans for a business purpose.

51

~~Table~~
The following table presents the geographic locations of ~~Contents~~
loans in our loan portfolio, by loan segment, as of the date indicated:

As of March 31, 2024

Construction and land development

Commercial real estate
Single-family residential mortgages
Commercial and Industrial

SBA

Other

Total loans, net

(dollars in thousands)

$

$

$

$

$

$

$

%

Loans HFI:

California
$ 129,794 $ 575,876 $ 689,255 $ 110,692 $ 36,916 $ 1,517 $ 1,544,050 51.0 %
Hawaii
— 2,049 4,709 105 — 10 6,873 0.2 %
Illinois
225 37,711 48,724 1,006 — 97 87,763 2.9 %
New Jersey
— 21,158 23,946 462 — 184 45,750 1.5 %
Nevada
— 61,885 22,029 398 2,792 117 87,221 2.9 %
New York
56,362 171,882 667,354 792 1,976 3,501 901,867 29.8 %
Other
11,689 307,937 7,480 7,986 12,993 5,752 353,837 11.7 %
Total loans HFI
$ 198,070 $ 1,178,498 $ 1,463,497 $ 121,441 $ 54,677 $ 11,178 $ 3,027,361 100.0 %

~~Total HFI~~The majority of our loan portfolio is based on collateral or businesses located in California and New York, which represent 80.8% of our loan portfolio. Loans secured by collateral in other states represented approximately 19.2% of our portfolio and the majority of these loans ~~decreased $215.5 million, or 6.5%, to $3.1 billion~~are secured by CRE with a weighted average loan-to-value (“LTV”) of 58.5% at ~~September 30, 2023 compared to $3.3 billion at December~~March 31, 2022. The decrease was primarily due to decreases in CRE loans of $147.9 million, C&I loans of $73.6 million, and C&D loans of $17.1 million, partially offset by an increase in SFR mortgage loans of $41.2 million.2024.

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

C&I loans decreased ~~$73.6~~$8.7 million, or ~~36.6%~~6.7%, to ~~$127.7~~$121.4 million as of ~~September 30, 2023~~March 31, 2024 compared to ~~$201.2~~$130.1 million at December 31, ~~2022~~2023 primarily due to decreases in mortgage warehouse lines and a decrease in usages of the credit lines due to increases in market rates of interest. The interest ~~rates.~~rate on these loans are generally Wall Street Journal Prime rate based.

44
Commercial real estate loans. CRE loans include owner-occupied and non-occupied ~~commercial real estate,~~CRE, multi-family residential and SFR mortgage loans originated for a business purpose. ~~The~~Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are ~~prime-based~~Prime rate based and have a maturity of five years or ~~less. Our policy maximum loan-to-value (“LTV”) ratio is 75%~~less except for ~~CRE loans; however, we temporarily lowered~~ the ~~applicable LTV to 70% to be conservative in regards to real estate valuations.~~SFR loans originated for a business purpose which may have a maturity of one year. The multi-family residential loans generally have interest rates based on the 5-year treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. The total CRE portfolio ~~decreased $147.9~~increased $10.6 million, or ~~11.3%~~0.9%, to ~~$1.2~~$1.18 billion at ~~September 30, 2023,~~March 31, 2024, compared to ~~$1.3~~$1.17 billion at December 31, 2022 primarily due to the Company's efforts to reduce loans with higher risk and partly due to loans refinancing with other lenders. CRE portfolio decreases caused lower loan to deposit ratio and strengthened the liquidity position of the Company.2023. The multi-family residential loan portfolio was ~~$553.5~~$570.2 million as of ~~September 30, 2023~~March 31, 2024 and ~~$643.2~~$573.4 million as of December 31, ~~2022.~~2023. The SFR mortgage loan portfolio originated for a business purpose totaled ~~$60.9~~$51.9 million as of ~~September 30, 2023~~March 31, 2024 and ~~$69.3~~$48.7 million as of December 31, ~~2022.~~2023.

The following table presents the LTV ratios at origination for CRE loans by property type as of the date indicated:
March 31, 2024

LTV Distribution

(dollars in thousands)

<45%

45%≤54%

55%≤64%

65%≤74% ⁽¹⁾

>85%

Total

Non-owner occupied:

Hotel/Motel
$ 18,500 $ 11,845 $ 15,905 $ 6,069 $ — $ 52,319
Office
8,644 — 17,156 — 8,535 34,335
Rent Controlled NY Multifamily
25,712 18,119 8,364 — — 52,195
Mobile Home
42,867 72,389 68,259 87,127 — 270,642
Mixed Use
90,194 23,672 8,832 64,456 — 187,154
Apartments
20,912 45,020 33,183 53,907 — 153,022
Warehouse
13,412 23,662 46,501 4,209 1,438 89,222
Retail
26,362 19,813 22,597 905 — 69,677
SFR Rental
12,842 30,501 14,767 5,791 — 63,901
Other
4,565 — 1,686 — — 6,251
Total non-owner occupied
$ 264,010 $ 245,021 $ 237,250 $ 222,464 $ 9,973 $ 978,718
Owner-occupied:

Hotel/Motel
642 28,411 42,913 — — 71,966
Office
661 2,842 786 1,301 — 5,590
Rent Controlled NY Multifamily
1,449 — 358 — — 1,807
Mixed Use
3,430 4,043 5,236 — — 12,709
Warehouse
5,426 11,039 37,786 26,993 — 81,244
Retail
4,131 8,543 4,856 — — 17,530
SFR Rental
— 1,113 — — — 1,113
Other
1,402 166 440 5,813 — 7,821
Total owner-occupied
$ 17,141 $ 56,157 $ 92,375 $ 34,107 $ — $ 199,780
Total
$ 281,151 $ 301,178 $ 329,625 $ 256,571 $ 9,973 $ 1,178,498
(1)
No loans in the 75% - 85% LTV Distribution
The following table presents the LTV ratios at origination for CRE loans by state as of the date indicated:
March 31, 2024

LTV Distribution

(dollars in thousands)

<45%

45%≤54%

55%≤64%

65%≤74% ⁽¹⁾

>85%

Total

Non-owner occupied:

California
$ 138,603 $ 120,577 $ 88,884 $ 73,871 $ — $ 421,935
New York
67,475 56,712 30,317 4,040 — 158,544
Nevada
22,308 17,332 16,862 1,441 — 57,943
Illinois
17,318 2,637 3,239 1,159 9,973 34,326
New Jersey
324 865 16,259 905 — 18,353
Hawaii
299 894 — — — 1,193
Other
17,683 46,004 81,689 141,048 — 286,424
Total non-owner occupied
$ 264,010 $ 245,021 $ 237,250 $ 222,464 $ 9,973 $ 978,718
Owner-occupied:

California
8,861 35,613 77,537 31,930 — 153,941
New York
7,187 1,885 3,413 853 — 13,338
Nevada
— 2,618 — 1,324 — 3,942
Illinois
557 1,267 1,561 — — 3,385
New Jersey
536 1,969 300 — — 2,805
Hawaii
— 856 — — — 856
Other
— 11,949 9,564 — — 21,513
Total owner-occupied
$ 17,141 $ 56,157 $ 92,375 $ 34,107 $ — $ 199,780
Total
$ 281,151 $ 301,178 $ 329,625 $ 256,571 $ 9,973 $ 1,178,498
(1)
No loans in the >75% - 85% LTV Distribution
45
Construction and land development loans. Our C&D loans ~~decreased $17.1~~are comprised of residential construction, commercial construction and land acquisition and development construction. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months. C&D loans increased $16.6 million, or ~~6.2%~~9.1%, to ~~$259.8~~$198.1 million at ~~September 30, 2023~~March 31, 2024 as compared to ~~$276.9~~$181.5 million at December 31, ~~2022,~~2023, as ~~repayments~~originations exceeded loan ~~originations.~~ repayments.
The following table shows the categories of our C&D portfolio as of ~~September 30, 2023 and December 31, 2022:~~the dates indicated:

As of September 30, 2023

As of December 31, 2022

Increase (Decrease)

As of March 31, 2024

As of December 31, 2023

Increase (Decrease)

(dollars in thousands)

$

Mix %

$

Mix %

$

%

$

Mix %

$

Mix %

$

%

Residential construction
$ 153,471 59.1 % $ 166,558 60.1 % $ (13,087 ) (7.9 )% $ 84,161 42.5 % $ 80,341 44.2 % $ 3,820 4.8 %
Commercial construction
74,849 28.8 % 77,231 27.9 % (2,382 ) (3.1 )% 93,167 47.0 % 78,053 43.0 % 15,114 19.4 %
Land development
31,458 12.1 % 33,087 12.0 % (1,629 ) (4.9 )% 20,742 10.5 % 23,075 12.7 % (2,333 ) (10.1 )%
Total construction and land development loans
$ 259,778 100.0 % $ 276,876 100.0 % $ (17,098 ) (6.2 )% $ 198,070 100.0 % $ 181,469 100.0 % $ 16,601 9.1 %

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

SBA loans ~~decreased $11.0~~increased $2.6 million, or ~~17.9%~~5.0%, to ~~$50.4~~$54.7 million at ~~September 30, 2023~~March 31, 2024 compared to ~~$61.4~~$52.1 million at December 31, ~~2022.~~2023. We originated SBA loans of ~~$7.5~~$8.4 million during the first ~~nine~~three months of ~~2023.~~2024. Offsetting these loan originations were loan sales of ~~$3.1~~$3.4 million and net loan payoffs and paydowns of ~~$15.4~~$2.4 million during the first ~~nine~~three months of ~~2023.~~2024.

~~We originate both qualified and non-qualified, alternative documentation~~ SFR ~~mortgage loans through correspondent relationships or through our branch network or retail channel to accommodate the needs of the Asian-American market.~~Loans. As of ~~September 30, 2023,~~March 31, 2024, we had $1.5 billion of SFR real estate loans, representing ~~48.2%~~48.4% of our loans HFI portfolio. SFR real estate loans decreased $24.3 million, or 1.6%, during the first quarter of 2024 due to lower loan ~~portfolio.~~
originations compared to net payoffs and paydowns. As of ~~September 30, 2023,~~March 31, 2024, the weighted-average LTV of the portfolio was ~~57.4%~~60.0%, the weighted average FICO score was 763, and the average duration was 2.8 years. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the ~~portfolio was 2.3 years.~~
Asian-American market. The loans HFI are generally originated through our retail branch network to our customers. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages, which are generally originated through our branch network and may be sold directly to FNMA and FHLMC. We originate non-qualified SFR mortgage loans both to sell and hold for investment. ~~The HFI loans are generally originated through our retail branch network to our customers.~~

~~Except for SFR~~There were $3.9 million loans HFS as of March 31, 2024 compared to $1.9 million loans HFS as of December 31, 2023. The loans sold to ~~FNMA, FHLMC or in connection with a securitization, the loans~~other banks are sold with no ~~representation~~representations or warranties and with a replacement feature for the first 90-days if the loan pays off early. ~~We originate qualified mortgages and sell them directly~~For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or ~~FHLMC. These~~a premium refund if paid-off in the first 90-days with respect to all loans ~~are underwritten under FNMA or FHLMC guidelines~~sold. As a condition of the sale, the buyer must have the loans audited for underwriting and ~~sold with the normal FNMA conditions. In addition, we may sell some of our non-qualified SFR mortgage loans to FNMA in a bulk sale with limited recourse to us.~~compliance standards.

SFR mortgage real estate loans increased $41.2 million, or 2.8%, to $1.51 billion as of September 30, 2023 as compared to $1.46 billion as of December 31, 2022. The increase was due to greater loan originations compared to net pay-offs and paydowns. There were $62,000 HFS loans as of September 30, 2023, compared to none as of December 31, 2022, ~~primarily due to decreasing loan originations caused by increases in market interest rates.~~

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Loan Quality

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

In connection with our acquisitions, we hire a third-party to determine the fair value of loans acquired. In many instances, fair values were determined by estimating the cash flows expected to result from those loans and discounting them at appropriate market rates. The excess of expected cash flows above the fair valueAnalysis of the ~~majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with FASB ASC 310-20,~~ ~~Receivables~~Allowance for Loan Losses—~~Nonrefundable Fees and Other Costs~~.

The following table allocates the ~~allowance for credit losses,~~ALL, or the allowance, by category:

As of March 31,

As of December 31,

As of September 30, 2023

As of December 31, 2022

2024

2023

(dollars in thousands)

$

% ⁽¹⁾

$

% ⁽¹⁾

$

% ⁽¹⁾

$

%⁽¹⁾

Loans:

Real Estate:

Construction and land development
$ 1,767 0.68 % $ 2,638 0.95 % $ 1,311 0.66 % $ 1,219 0.67 %
Commercial real estate ⁽²⁾
17,575 1.51 % 17,657 1.35 % 18,307 1.55 % 17,826 1.53 %
Single family residential mortgages
20,340 1.35 % 17,640 1.20 %
Commercial:

Single-family residential mortgages
19,878 1.36 % 20,117 1.35 %
Commercial and industrial
1,367 1.07 % 1,804 0.90 % 1,294 1.07 % 1,348 1.04 %
SBA
1,176 2.33 % 621 1.01 % 735 1.34 % 1,196 2.30 %
Other:

Other
205 1.51 % 716 3.46 % 163 1.46 % 197 1.57 %
Allowance for credit losses
$ 42,430 1.36 % $ 41,076 1.23 %
Allowance for loan losses
$ 41,688 1.38 % $ 41,903 1.38 %

(1)
% of allowance to total loans in the respective category

(2)
Includes non-farm and non-residential real estate loans, multi-family residential and single-family residential loans originated for a business purpose.

Allowance for Credit ~~Losses.~~Losses

~~The Company accounts~~We account for credit losses on loans in accordance with ASC 326, which requires ~~the Company~~us to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL for loans is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. ~~The Company has~~We have elected to utilize a ~~discounted cash flow (“DCF”)~~DCF approach for all segments except consumer loans and warehouse mortgage loans, for ~~which we elected to utilize~~these a remaining life ~~approach.~~approach was elected.

~~The Company’s~~Our DCF loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. ~~The~~We use ~~of reasonable~~both internal and ~~supportable forecasts requires significant judgment, such as selecting unemployment forecast scenarios~~external qualitative factors within the CECL model including: lending policies, procedures, and ~~related scenario-weighting, as well as determining the appropriate length~~strategies; changes in nature and volume of the ~~forecast horizon.~~portfolio; credit and lending personnel experience; changes in volume and trends in classified, delinquent, and nonaccrual loans; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions. Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. ~~The Company’s~~Our CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. ~~The Company is~~We are using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

The Company uses both internal and external qualitative factors within the CECL model: lending policies, procedures, and strategies; economic conditions; changes in nature and volume of the portfolio; credit staffing and administration experience; problem loan trends; loan review results; collateral values; concentrations; and regulatory and business environment.
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Individual loans considered to be uncollectible are charged off against the ~~allowance.~~ACL. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be ~~other-than-temporary.~~probable. Recoveries on loans previously charged off are added to the ~~allowance.~~ACL. Net charge-offs to average loans HFI were ~~0.12%~~0.02% for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~zero percent~~0.10% for the twelve months ended December 31, ~~2022.~~2023.

The ACL was $42.4 million at ~~September 30, 2023~~March 31, 2024 compared to ~~$41.1~~$42.5 million at December 31, ~~2022.~~2023. The ~~$1.4 million increase~~$184,000 decrease in ~~2023~~the first quarter of 2024 was primarily due to ~~a provision for credit losses of $4.3 million, partially offset by~~ net charge-offs of ~~$2.9 million.~~$184,000.

The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the ~~three and nine months ended September 30, 2023 and 2022:~~periods indicated:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
For the Three Months Ended March 31,

(dollars in thousands)

2023

2022

2023

2022

2024

2023

Balance, beginning of period
$ 43,092 $ 36,289 $ 41,076 $ 32,912 $ 41,903 $ 41,076
ASU 2016-13 transition adjustment
— — — 2,135
Adjusted beginning balance
$ 43,092 $ 36,289 $ 41,076 $ 35,047
Charge-offs:

Commercial and industrial
— (5 ) — (5 )
SBA
— — (62 ) —
Construction & land development
(12 ) (12 )
Commercial real estate
(2,138 ) — (2,537 ) — (116 ) —
Single-family residential mortgages
— — (93 ) — — (93 )
Commercial and industrial
(3 ) —
Other
(67 ) (44 ) (288 ) (146 ) (95 ) (68 )
Total charge-offs
(2,217 ) (49 ) (2,992 ) (151 ) (214 ) (161 )
Recoveries:

Commercial and industrial
2 1 2 2 1
SBA
— 168 — 227 — 1
Other
9 7 47 9 29 3
Total recoveries
11 176 49 238 30 4
Net (charge-offs) recoveries
(2,206 ) 127 (2,943 ) 87
Provision for credit losses
1,544 1,766 4,297 3,048
Net (charge-offs)/recoveries
(184 ) (157 )
(Reversal of ) provision for credit losses - loans
(31 ) 2,152
Balance, end of period
$ 42,430 $ 38,182 $ 42,430 $ 38,182 $ 41,688 $ 43,071

Reserve for off-balance sheet credit commitments

Balance, beginning of period
$ 798 $ 2,115 $ 1,157 $ 1,203
Impact of ASU 2016-13 adoption
— — — $ 1,045
Adjusted beginning balance
$ 798 $ 2,115 $ 1,157 $ 2,248
Reversal for credit losses
(144 ) (28 ) (503 ) (161 )
Balance, end of period
$ 654 $ 2,087 $ 654 $ 2,087
Balance at beginning of year
$ 640 $ 1,156
Reserve for (reversal of) unfunded commitments
31 (138 )
Balance at the end of period
$ 671 $ 1,018

Total HFI loans at end of period
3,120,952 3,220,913 3,120,952 3,220,913
Average HFI loans
3,155,386 3,123,921 3,256,011 3,032,813
Net (charge-offs) recoveries to average HFI loans
(0.28 )% 0.02 % (0.12 )% 0.00 %
Allowance for credit losses to total loans
1.36 % 1.19 % 1.36 % 1.19 %
Credit discount on loans purchased through acquisitions
$ 2,257 $ 2,769 $ 2,257 $ 2,769
Total allowance for credit losses (ACL)
$ 42,359 $ 44,089

Total loans HFI at end of period
$ 3,027,361 $ 3,342,416
Average loans HFI
$ 3,017,208 $ 3,342,578
Net charge-offs to average loans HFI
(0.02 %) (0.02 %)
Allowance for loan losses to total loans HFI
1.38 % 1.29 %

Problem Loans. Loans are considered delinquent when principal or interest payments are past due 30 days or more; delinquent loans may remain on accrual status between 30 days and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

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

Real estate ~~we acquire as a result of~~acquired by foreclosure or ~~by deed-in-lieu~~deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis (carrying value) by a charge to the allowance for credit losses, if necessary, or a gain recognized through noninterest income, as appropriate. Once classified as an OREO, ~~until sold, and~~it is subsequently carried at ~~estimated~~the lower of our carrying value of the property or its fair value. Fair value is based on current appraisals less estimated ~~costs to sell.~~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.

5448
~~Table of Contents~~

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

As of September 30,

As of December 31,

(dollars in thousands)

2023

2022

Modified loans:

Total modified loans
$ — $ —
Accruing troubled debt restructured loans:

Commercial and industrial
— 306
Commercial real estate
— 894
Total accruing troubled debt restructured loans
— 1,200
Nonaccrual loans:

Commercial and industrial
761 713
SBA
2,009 2,245
Construction and land development
128 141
Commercial real estate
20,330 13,189
Single-family residential mortgages
16,868 5,936
Other
50 99
Total nonaccrual loans
40,146 22,323
Total nonperforming loans
40,146 23,523
OREO
284 577
Nonperforming assets
$ 40,430 $ 24,100
Nonperforming loans to total loans
1.29 % 0.71 %
Nonperforming assets to total assets
0.99 % 0.61 %

As of March 31,

As of December 31,

(dollars in thousands)

2024

2023

Nonaccrual loans:

Commercial real estate
$ 10,314 $ 10,569
Single-family residential mortgages
22,806 18,103
Commercial and industrial
1,780 854
SBA
1,026 2,085
Other
9 8
Total nonaccrual loans
35,935 31,619
Total nonperforming loans
35,935 31,619
OREO
1,071 —
Nonperforming assets
$ 37,006 $ 31,619
Nonperforming loans to total loans HFI
1.19 % 1.04 %
Nonperforming assets to total assets
0.95 % 0.79 %
Nonperforming loans to tangible common equity and ALL
7.46 % 6.60 %
Nonperforming assets to tangible common equity and ALL
7.68 % 6.60 %

Nonperforming ~~loans increased $16.6~~assets totaled $37.0 million, or 0.95% of total assets, at March 31, 2024, compared to ~~$40.1~~$31.6 million, ~~at September 30, 2023, from $23.5 million~~or 0.79% of total assets, at December 31, ~~2022.~~2023. The ~~$16.6~~$5.4 million increase in nonperforming ~~loans~~assets was due to ~~increases~~loans placed on nonaccrual status of $7.7 million, consisting primarily of SFR mortgages, and additional OREO of $1.1 million (included in ~~nonperforming residential mortgage loans of $15.5 million~~“Accrued interest and ~~CRE loans of $10.8 million,~~other assets”), partially offset by ~~nonperforming loan~~ payoffs or paydowns of ~~$5.5~~$3.0 million ~~non-performing loan charge-offs~~ of ~~$2.8 million and~~nonaccrual loans, loans that migrated to accruing status of ~~$1.6 million during the first nine months~~$257,000, and nonaccrual loan charge-offs of ~~2023.~~$125,000.

Our 30-89 day delinquent loans, excluding ~~nonaccrual~~nonperforming loans, ~~were $19.7~~increased $4.1 million to $21.0 million as of ~~September 30, 2023,~~March 31, 2024 compared to ~~$15.2~~$16.8 million as of December 31, ~~2022.~~2023. The ~~$4.4 million~~ increase in past due loans was ~~primarily~~ due to $19.6 million in new delinquent loans, partially offset by $7.3 million in loans that ~~migrated into~~were placed on nonaccrual status, ~~of $7.5~~$5.9 million in loans that migrated back to past due for less than 30 days, and $2.2 million in ~~the amount of $7.4 million, and~~loan payoffs and paydowns of $1.0 million, partially offset by the addition of new delinquent loans in the aggregate amount of $20.4 million, including a new delinquent CRE loan of $16.1 million that was over 30 days delinquent due to a one business day payment delay, which reverted back to current status in October 2023.or paydowns.

NoWe did not recognize any interest income on nonaccrual loans ~~was recognized on a cash basis for the three or nine months ended September 30, 2023 and 2022.~~
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, or interest rate reduction. The Company may provide multiple types of concessions on one loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
~~There were no loans that were both experiencing financial difficulty and modified~~ during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, ~~and~~while the ~~year ended December 31, 2022.~~loans were in nonaccrual status.

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

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

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

Special

March 31, 2024

Pass

Mention

Substandard

Doubtful

Total

(dollars in thousands)

Real Estate:

Construction and land development
$ 186,381 $ 11,689 $ — $ — $ 198,070
Commercial real estate
1,148,697 6,851 22,950 — 1,178,498
Single-family residential mortgages
1,440,007 — 23,490 — 1,463,497
Commercial:

Commercial and industrial
112,364 678 8,399 — 121,441
SBA
51,072 1,362 2,243 — 54,677
Other:
11,090 — 88 — 11,178
Total
$ 2,949,611 $ 20,580 $ 57,170 $ — $ 3,027,361

Special

December 31, 2023

Pass

Mention

Substandard

Doubtful

Total

(dollars in thousands)

Real Estate:

Construction and land development
$ 169,793 $ 11,676 $ — $ — $ 181,469
Commercial real estate
1,123,887 12,599 31,371 — 1,167,857
Single-family residential mortgages
1,464,531 4,474 18,791 — 1,487,796
Commercial:
—
Commercial and industrial
119,858 2,737 7,501 — 130,096
SBA
47,397 1,356 3,321 — 52,074
Other:
12,454 — 115 — 12,569
Total
$ 2,937,920 $ 32,842 $ 61,099 $ — $ 3,031,861
Special mention ~~decreased $11.0~~loans totaled $20.6 million, or 0.68% of total loans, at March 31, 2024, compared to ~~$31.2~~$32.8 million, ~~at September 30, 2023 from $42.2 million~~or 1.08% of total loans, at December 31, ~~2022.~~2023. The decrease ~~in special mention loans~~ was due to ~~special mention loans payoffs or paydowns of $23.7 million C&I loans and $410,000 CRE loans, downgrades to substandard loans of $8.9 million CRE loans, and~~ upgrades to pass loans of ~~$5.3~~$6.5 million, ~~C&I~~a downgrade to substandard loans of $3.9 million, and loan paydowns of $2.7 million, partially offset by additional special mention loans of ~~$12.7~~$674,000.
Substandard loans totaled $57.2 million, ~~CRE~~or 1.89% of total loans, ~~$11.7~~at March 31, 2024, compared to $61.1 million, ~~C&D~~or 2.02% of total loans, ~~and $2.6 million C&I loans. Loans classified as substandard increased $9.4 million to $71.4 million at September 30, 2023 from $62.0 million~~ at December 31, ~~2022.~~2023. The ~~increase in substandard loans~~$3.9 million decrease was due to ~~downgrades~~loan paydowns of $11.0 million, upgrades to pass loans of $277,000, an upgrade to special mention loans of $200,000, and substandard loan charge-offs of $125,000, partially offset by a downgrade from special mention loans of ~~$8.9~~$3.9 million and additional substandard loans of $11.6 million CRE loans, and $10.2 million SFR mortgage loans, partially offset by upgrades to watch and pass loans of $9.9 million, substandard loans payoffs or paydowns of $6.1 million CRE loans, and substandard loans payoffs or paydowns of $3.8 ~~million SFR mortgage loans.~~million.

~~Cash~~Goodwill and cash equivalents increased $247.2 million, or 295.9%, to $330.8 million as of September 30, 2023 as compared to $83.5 million at December 31, 2022. The increase in cash and cash equivalents was due to increases in the balances of time deposits due to Bank-wide promotions of time deposits to strengthen our liquidity position and a slowdown in lending.
The Federal Reserve announced the reduction of the reserve requirement ratio to zero percent across all deposit tiers, effective March 26, 2020. Depository institutions that were required to maintain deposits in a Federal Reserve Bank account to satisfy reserve requirements will no longer be required to do so and can use the additional liquidity to lend to individuals and businesses. It is our understanding that the Federal Reserve currently has no current plans to reinstate the reserve requirement. However, the Federal Reserve may adjust reserve requirement ratios in the future if conditions warrant.
Other Intangible Assets. Goodwill was $71.5 million at both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. Other intangible assets, which consist of ~~core deposit intangibles ("CDI"),~~CDI, were ~~$3.0~~$2.6 million and ~~$3.7~~$2.8 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022, respectively. The CDI~~2023. These core deposit intangible assets are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of ~~eight~~3 to ~~ten~~10 years. ~~The bank failures in the first half of~~
Liabilities. Total liabilities decreased by $150.7 million to $3.4 billion at March 31, 2024 from $3.5 billion at December 31, 2023, ~~caused~~primarily due to a ~~significant decline in bank stock prices, including the Company’s stock price. After evaluating the prolonged~~$146.4 million decrease in ~~the Company's market value, management performed~~deposits. This decrease was due to a ~~quantitative goodwill impairment analysis~~decrease in interest-bearing deposits as noninterest-bearing deposits remained relatively stable at $539.5 million. The decrease in interest-bearing deposits included a decrease in time deposits of ~~September 30, 2023. Management estimated the fair value~~$156.4 million, offset by an increase in non-maturity deposits of the Company using both the guideline public company method, market approach, and the discounted cash flow method, income approach. Based on this quantitative analysis, the fair value of the Company exceeds its carrying amount with$10.1 million. The decrease in time deposits included a ~~passing amount of 9.6%. Management has concluded that goodwill was not impaired at September 30, 2023.~~$208.0 million decrease in wholesale deposits.

55
49
Table of Contents

~~Total liabilities increased~~Deposits.
.
The following table presents the composition of our deposit portfolio by $128.9 million to $3.6 billion at September 30, 2023 from $3.4 billion at December 31, 2022, primarily due to a $410.1 million increase in time deposits, partially offset by a $226.3 million decrease in noninterest-bearing demand deposits and a $70.0 million decrease in FHLB advances.account type as of the dates indicated:

~~As an Asian-American business bank that focuses on successful businesses and their owners, many of our depositors choose to make large deposits with us.~~

March 31, 2024

December 31, 2023

(dollars in thousands)
$

%

$

%

Noninterest-bearing demand deposits:
$ 539,517 17.82 % $ 539,621 17.00 %
Interest-bearing deposits:

NOW
55,095 1.82 % 57,969 1.83 %
Money market
428,505 14.15 % 412,415 12.99 %
Savings
159,240 5.26 % 162,344 5.11 %
Time deposits $250,000 and under
1,083,898 35.79 % 1,190,821 37.51 %
Time deposits over $250,000
762,074 25.16 % 811,589 25.56 %
Total interest-bearing deposits
2,488,812 82.18 % 2,635,139 83.00 %
Total deposits
$ 3,028,329 100.00 % $ 3,174,760 100.00 %

The following table summarizes our average deposit balances and weighted average rates for the ~~three months ended September 30, 2023 and year ended December 31, 2022:~~periods presented:

For the Three Months Ended

For the Year Ended
For the Three Months Ended For the Year Ended

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

Weighted

Weighted

Weighted

Weighted

Average

Average

Average

Average

Average

Average

Average

Average

(dollars in thousands)

Balance

Rate (%)

Balance

Rate (%)

Balance

Rate (%)

Balance

Rate (%)

Noninterest-bearing demand
$ 571,371 — $ 1,050,063 —
Interest-bearing:

Noninterest-bearing demand deposits
$ 528,346 — $ 602,291 —
Interest-bearing deposits:

NOW
55,325 1.44 % 73,335 0.36 % 58,946 2.03 % 58,191 1.25 %
Money market
403,300 2.61 % 631,094 0.81 % 411,751 3.44 % 429,102 2.46 %
Savings
123,709 0.80 % 144,409 0.13 % 157,227 1.67 % 126,062 0.73 %
Time, less than $250,000
1,285,320 4.35 % 609,464 1.08 %
Time, $250,000 and over
717,026 4.29 % 565,059 1.20 %
Total interest-bearing
2,584,680 3.83 % 2,023,361 0.93 %
Time deposits $250,000 and under
1,175,804 4.72 % 1,146,513 4.11 %
Time deposits over $250,000
785,172 4.88 % 742,839 4.00 %
Total interest-bearing deposits
2,588,900 4.32 % 2,502,707 3.56 %
Total deposits
$ 3,156,051 3.14 % $ 3,073,424 0.61 % $ 3,117,246 3.59 % $ 3,104,998 2.87 %

The following table sets forth the maturity of time deposits ~~of $250,000 or more and all wholesale deposits~~ as of ~~September 30, 2023:~~March 31, 2024:

Maturity Within:

(dollars in thousands)

Three Months

After Three to Six Months

Six to 12 Months

After 12 Months

Total

Time, $250,000 and over
$ 228,022 $ 281,606 $ 238,989 $ 1,961 $ 750,578
Wholesale deposits ⁽¹⁾
12,796 39,950 7,000 — 59,746
Time, brokered
180,732 139,985 — — 320,717
Total
$ 421,550 $ 461,541 $ 245,989 $ 1,961 $ 1,131,041

Maturity Within:

(dollars in thousands)

Three Months or less

After Three to Six Months

After Six to 12 Months

After 12 Months

Total

Time Deposits:

Time deposits $250,000 and under ⁽¹⁾
$ 286,012 $ 268,368 $ 363,467 $ 13,051 $ 1,083,898
Time deposits over $250,000 ⁽²⁾
207,974 220,864 332,510 726 762,074
Total time deposits
$ 493,986 $ 489,232 $ 695,977 $ 13,777 $ 1,845,972

(1)
~~Wholesale~~Includes wholesale deposits ~~are defined as time~~of $187.6 million.
(2)
Includes wholesale deposits ~~under $250,000 originated through internet rate line and/or other deposit originators.~~
of $10.0 million.
We acquire wholesale time deposits from the internet and outside deposit originators as needed to supplement liquidity. The total amount of such deposits was $59.7 million as of September 30, 2023 and $7.1 million as of December 31, 2022. The Bank had $320.7 million in brokered deposits at September 30, 2023 and $255.0 million in brokered deposits at December 31, 2022. The increases in brokered deposits and wholesale deposits were a result of efforts to strengthen our liquidity position.

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

(dollars in thousands)
March 31 2024 December 31 2023

September 30, 2023

December 31, 2022

Uninsured deposits
$ 1,316,275 $ 1,212,517 $ 1,305,040 $ 1,367,568
50

~~The~~Of the $762.1 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is ~~$548.1~~$566.5 million at ~~September 30, 2023.~~March 31, 2024. The following table sets forth the maturity distribution of ~~the estimated uninsured~~ time deposits in amounts of more than $250,000 as of the date indicated.

As of September 30,

(dollars in thousands)

2023

March 31, 2024

3 months or less
$ 159,754 $ 167,492
Over 3 months through 6 months
193,071 162,706
Over 6 months through 12 months
186,253 236,039
Over 12 months
9,042 226
Total
$ 548,120 $ 566,463

~~Total~~We acquire deposits ~~increased $176.4~~through wholesale channels including brokered deposits, collateralized deposits from the State of California, and internet listing services as needed to supplement liquidity. The total amount of such deposits at March 31, 2024 was $197.6 million ~~to $3.2 billion at September 30, 2023 as compared to $3.0 billion~~and $405.6 million at December 31, ~~2022.~~2023. Brokered time deposits were $153.0 million at March 31, 2024 and $254.9 million at December 31, 2023.
In addition, we offer deposit products through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit. Time deposits held through the CDARS program were $149.5 million at March 31, 2024 and $135.7 million at December 31, 2023 and ICS deposits totaled $122.2 million at March 31, 2024 and $109.2 million at December 31, 2023. The increase ~~was mainly~~in the participation in these programs is due to ~~increases~~our focus on enhancing liquidity in the balances of higher yielding time deposits. As of September 30, 2023, total deposits were comprised of 18.1% noninterest-bearing demand accounts, 19.3% of interest-bearing non-maturity accounts and 62.6% of time deposits.recent periods.

~~As of September 30, 2023, $3,000 in deposit overdrafts were reclassified as other loans. As of December 31, 2022, the amount was $108,000.~~
56

~~Table of Contents~~
FHLB Borrowings. In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. We had no FHLB ~~short-term~~overnight advances at ~~September 30, 2023~~March 31, 2024 and ~~$70.0 million in FHLB short-term advances at~~ December 31, 2022. The Company secured the short-term FHLB advances in order to maintain its liquidity to meet its funding needs due to reduced concentration of certain deposit customers and other deposit outflows.2023. We had $150.0 million in FHLB ~~long-term~~ advances at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022. The~~2023, which had an original term isof five years ~~maturing by March~~and a maturity date in the first quarter of 2025. The average fixed interest rate on FHLB ~~long-term~~ advances is 1.18%. ~~The Company~~We secured this funding in case it experienced a liquidity issue caused by the COVID-19 pandemic and to obtain an attractive interest rate. The following table sets forth information on our total FHLB advances ~~during~~at and for the periods presented:

As of and For the Three Months Ended

As of and For the Nine Months Ended

September 30,

September 30,

(dollars in thousands)

2023

2022

2023

2022

Outstanding at period-end
$ 150,000 $ 240,000 $ 150,000 $ 240,000
Average amount outstanding
150,000 239,674 179,707 191,136
Maximum amount outstanding at any month-end
150,000 270,000 220,000 270,000
Weighted average interest rate:

During period
1.18 % 1.69 % 1.81 % 1.38 %
End of period
1.18 % 1.94 % 1.18 % 1.94 %

As of and For the Three Months Ended March 31,

(dollars in thousands)

2024

2023

FHLB Borrowings:

Outstanding at period-end
$ 150,000 $ 220,000
Average amount outstanding
150,000 229,778
Maximum amount outstanding at any month-end
150,000 220,000
Weighted average interest rate:

During period
1.18 % 2.49 %
End of period
1.18 % 2.43 %

~~In November 2018,~~Long-term Debt. Long-term debt consists of subordinated notes. As of March 31, 2024, the ~~Company issued $55.0 million~~amount of ~~6.18% fixed-to-floating rate~~ subordinated notes ~~due~~outstanding was $119.2 million as compared to $119.1 million at December 1, 2028 (the "2028 Subordinated Notes"). The Company used the net proceeds from the offering for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at the Company. The 2028 Subordinated Notes bear interest at the initial rate of 6.18% per annum from December 1, 2018 until but excluding December 1, 2023, payable on June 1 and December 1 of each year. Thereafter, the Company will pay interest on the principal amount of this note at a variable rate equal to three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 315 basis points each March 1, June 1, September 1 and December 1.
On December 1, 2023, the Company intends to redeem the 2028 Subordinated Notes at a redemption price equal to 100% of the principal amount of the 2028 Subordinated Notes plus accrued and unpaid interest to but excluding December 1,31, 2023. ~~The 2028 Subordinated Notes have an aggregate principal amount outstanding of $55 million. From and after December 1, 2023, all interest on the 2028 Subordinated Notes will cease to accrue.~~

In March 2021, ~~the Company~~we issued ~~$120~~$120.0 million of 4.00% ~~fixed-to-floating~~fixed to floating rate subordinated notes due April 1, 2031 (the ~~"2031~~“2031 Subordinated ~~Notes"~~Notes”). The interest rate is fixed through ~~July~~April 1, 2026 and floats at ~~three-month SOFR~~three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter. ~~The Company~~We can redeem the 2031 Subordinated Notes beginning April 1, 2026. The 2031 Subordinated Notes are considered Tier 2 capital at the Company.

51
Subordinated Debentures. Subordinated debentures consist of subordinated ~~notes. As~~debentures issued in connection with three separate trust preferred securities and totaled $15.0 million as of ~~September 30, 2023~~March 31, 2024 and $14.9 million as of December 31, ~~2022, the amount outstanding was $14.9 million and $14.7 million, respectively.~~2023. Under the terms of our subordinated ~~notes and~~debentures issued in connection with the ~~related subordinated note purchase agreements,~~issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the ~~long term~~long-term debt. In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. These subordinated ~~notes~~debentures consist of the ~~following:~~following and are described in detail after the table below:

(dollars in thousands)

Issue Date

Principal Amount

Unamortized Valuation Reserve

Recorded Value

Stated Rate Description

March 31, 2024 Effective Rate

Stated Maturity
Subordinated debentures:

TFC Trust

December 22, 2006

$ 5,155

$ 1,166

$ 3,989

Three-month CME Term SOFR plus 0.26% (a) plus 1.65%,

7.24%

March 15, 2037
FAIC Trust

December 15, 2004

7,217

822

6,395

Three-month CME Term SOFR plus 0.26% (a) plus 2.25%

7.84%

December 15, 2034
PGBH Trust

December 15, 2004

5,155

546

4,609

Three-month CME Term SOFR plus 0.26% (a) plus 2.10%

7.69%

December 15, 2034
Total

$ 17,527

$ 2,534

$ 14,993

(a)
Represents applicable tenor spread adjustment when the original LIBOR index was discontinued on June 30, 2023.
At March 31, 2024, we were in compliance with all covenants under our long-term debt agreements.

● The Company maintains the TFC Statutory Trust ("TFC Trust"), which has issued a total of $5.2 million securities ($5.0 million in capital securities and $155,000 in common securities). ~~These trust preferred securities were originally issued by~~The TFC Trust which was a subsidiary of TFC Holding Company, which was acquired by the Company in February 2016. The Company determined the fair value as of the valuation date of the TFC Trust issuance was $3.3 million, indicating a discount of $1.9 million. The underlying debentures bear interest equal to three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, payable each March 15, June 15, September 15 and December 15. The maturity date is March 15, 2037. The subordinated debentures have a variable rate of interest equal to ~~the three-month~~three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was ~~7.32% at September 30, 2023~~7.24% as of March 31, 2024, and three-month LIBOR plus 1.65%, which was ~~6.42%~~7.30% at December 31, ~~2022.~~2023.

● The Company maintains the First American International Statutory Trust I ("FAIC Trust"), which has issued a total of $7.2 million securities ($7.0 million in capital securities and $217,000 in common securities). ~~These trust preferred securities were originally issued by~~The FAIC Trust ~~which was~~subordinated debentures have a ~~subsidiary~~variable rate of FAIC, which the Company acquired in October 2018. The Company determined the fair value as of the valuation date of the FAIC Trust issuance was $6.0 million, with a discount of $1.2 million. The underlying debentures bear interest equal to ~~three-month~~three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.25%, ~~payable each~~which was 7.84% as of March ~~15, June 15, September 15~~31, 2024, and ~~December 15. The maturity is December 15, 2034. The rate~~three-month LIBOR plus 2.25%, which was ~~7.92% at September 30, 2023 and 7.02%~~7.90% at December 31, ~~2022.~~2023.

~~● In January 2020,~~The Company maintains the ~~Company, through the acquisition of PGB Holdings, Inc., acquired~~ Pacific Global Bank Trust I ("PGBH Trust"), a Delaware statutory trust formed in December 2004. PGBH Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000. ~~There was a $763,000 discount recorded to arrive at market value which is treated as a yield adjustment and is amortized over the life of the security.~~ The ~~Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The~~PGBH subordinated debentures have a variable rate of interest equal to ~~the three-month~~three-month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 2.10% ~~through final maturity on December 15, 2034. The rate~~, which was ~~7.77% at September 30, 2023~~7.69% as of March 31, 2024, and ~~6.87%~~three-month LIBOR plus 2.10%, which was 7.75% at December 31, ~~2022.~~2023.

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Table of Contents

Capital Resources and Liquidity Management

Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on ~~AFS~~available for sale investment securities.

Shareholders’ equity increased ~~$17.9~~$2.7 million, or ~~3.7%~~0.5%, to ~~$502.5~~$514.0 million ~~during~~as of March 31, 2024 from $511.3 million at December 31, 2023. The increase in shareholders' equity for the ~~nine-month period ended September 30, 2023~~first quarter was due to ~~$30.4~~net earnings of $8.0 million and $541,000 from the exercise of ~~net income,~~stock options, partially offset by ~~$9.1~~dividends paid of $3.0 million, of common stock ~~cash dividends~~share repurchases totaling $1.5 million, and ~~$4.1 million in~~higher net after tax unrealized losses on AFS ~~securities.~~securities of $1.5 million. As a result, book value per share increased to $27.67 from $27.47 and tangible book value per share increased to $23.68 from $23.48. For additional information, see "Non-GAAP Financial Measures."

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

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

Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

~~The Bank's net loan to deposit ratio was 97.6% at September 30, 2023~~We have sufficient capital and ~~110.7% at~~do not anticipate any need for additional liquidity as of March 31, 2024. As of March 31, 2024, we had $92.0 million of federal funds lines, of which $80.0 million is on an unsecured basis and $12.0 million is collateralized by investment securities with fair market value of $21.1 million, with no amounts advanced against the lines. At December 31, ~~2022. The Bank's uninsured deposits were $1.3 billion at September 30,~~ 2023, ~~and $1.2 billion at December 31, 2022.~~
~~As of both September 30, 2023 and December 31, 2022,~~ we had $92.0 million of unsecured ~~federal~~fed funds ~~lines~~line, with no ~~amounts advanced against the lines as of such dates.~~advances drawn. In addition, lines of credit from the Federal Reserve Discount Window were ~~$41.9~~$43.9 million at ~~September 30, 2023~~March 31, 2024 and ~~$12.0~~$42.3 million at December 31, ~~2022, respectively.~~2023. Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling ~~$63.3 million and $16.8~~$62.4 million as of ~~September 30, 2023~~March 31, 2024 and $62.8 million as of December 31, ~~2022, respectively.~~2023. We did not have any borrowings outstanding with the Federal Reserve at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, and our borrowing capacity is limited only by eligible collateral.

At ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, we had $150.0 million in FHLB ~~long-term advances outstanding. We had no FHLB short-term~~term advances outstanding ~~at September 30, 2023 and $70.0 million~~which mature in ~~FHLB short-term advances outstanding at December 31, 2022.~~the first quarter of 2025. Based on the values of loans pledged as collateral, we had ~~$1.1~~$1.0 billion of secured borrowing capacity with the FHLB as of ~~September 30, 2023~~March 31, 2024 and ~~$1.1~~$1.0 billion at December 31, ~~2022.~~2023.

RBB is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. RBB’s main source of funding is dividends declared and paid to RBB by the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to RBB. Management believes that these limitations will not impact our ability to meet ~~the Company’s~~our ongoing short-term cash obligations. At March 31, 2024, RBB had $41.4 million in cash, of which $40.6 million was on deposit at the Bank.

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Regulatory Capital Requirements

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

In the wake of the global financial crisis of 2008-2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions. The Dodd-Frank Act and banking regulations promulgated by the U.S. federal banking regulators to implement Basel III have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of stockholders' equity. These provisions, which generally became applicable to RBB and the Bank on January 1, 2015, impose meaningfully more stringent regulatory capital requirements than those applicable to RBB and the Bank prior to that date. In addition, the Basel III regulations implemented a concept known as the “capital conservation buffer.” In general, banks and bank holding companies are required to hold a buffer of common equity Tier 1 capital equal to 2.5% of risk-weighted assets over each minimum capital ratio to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers. For community banks, the capital conservation buffer requirement commenced on January 1, 2016, with a gradual phase-in. Full compliance with the capital conservation buffer was required by January 1, 2019.
The table below summarizes the minimum capital requirements applicable to RBB and the Bank pursuant to Basel III regulations as of the dates ~~reflected and assuming the capital conservation buffer has been fully-phased in.~~reflected. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions. For example, banks and bank holding companies experiencing internal growth or making acquisitions generally will be expected to maintain strong capital positions substantially above the minimum supervisory levels. Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. The table below also summarizes the capital requirements applicable to RBB and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as RBB’s and the Bank’s capital ratios as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. RBB and the Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the table below:

Ratio at September 30, 2023

Ratio at December 31, 2022

Regulatory Capital Ratio Requirements

Regulatory Capital Ratio Requirements, including fully phased-in Capital Conservation Buffer

Minimum Requirement for "Well Capitalized" Depository Institution

Tier 1 Leverage Ratio

Consolidated
11.68 % 11.67 % 4.00 % 4.00 % 5.00 %
Bank
13.99 % 14.89 % 4.00 % 4.00 % 5.00 %
Common Equity Tier 1 Risk-Based Capital Ratio

Consolidated
17.65 % 16.03 % 4.50 % 7.00 % 6.50 %
Bank
21.83 % 21.14 % 4.50 % 7.00 % 6.50 %
Tier 1 Risk-Based Capital Ratio

Consolidated
18.22 % 16.58 % 6.00 % 8.50 % 8.00 %
Bank
21.83 % 21.14 % 6.00 % 8.50 % 8.00 %
Total Risk-Based Capital Ratio

Consolidated
26.24 % 24.27 % 8.00 % 10.50 % 10.00 %
Bank
23.09 % 22.40 % 8.00 % 10.50 % 10.00 %
The Basel III regulations also revised the definition of capital and describe the capital components and eligibility criteria for common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital. The most significant changes to the capital criteria were that: (i) the prior concept of unrestricted Tier 1 capital and restricted Tier 1 capital has been replaced with additional Tier 1 capital and a regulatory capital ratio that is based on common equity Tier 1 capital; and (ii) trust preferred securities and cumulative perpetual preferred stock issued after May 19, 2010 no longer qualify as Tier 1 capital. This change is already effective due to the Dodd-Frank Act, although such instruments issued prior to May 19, 2010 continue to qualify as Tier 1 capital (assuming they qualified as such under the prior regulatory capital standards and that the asset size of the issuer does not exceed $15 billion), subject to the 25% of Tier 1 capital limit.

Ratio at March 31, 2024

Ratio at December 31, 2023

Regulatory Capital Ratio Requirements

Regulatory Capital Ratio Requirements

Minimum Requirement for "Well Capitalized" Depository Institution

Tier 1 Leverage Ratio

Consolidated
12.16 % 11.99 % 4.00 % 4.00 % 5.00 %
Bank
13.95 % 13.62 % 4.00 % 4.00 % 5.00 %
Common Equity Tier 1 Risk-Based Capital Ratio

Consolidated
19.10 % 19.07 % 4.50 % 7.00 % 6.50 %
Bank
22.60 % 22.41 % 4.50 % 7.00 % 6.50 %
Tier 1 Risk-Based Capital Ratio

Consolidated
19.72 % 19.69 % 6.00 % 8.50 % 8.00 %
Bank
22.60 % 22.41 % 6.00 % 8.50 % 8.00 %
Total Risk-Based Capital Ratio

Consolidated
25.91 % 25.92 % 8.00 % 10.50 % 10.00 %
Bank
23.86 % 23.67 % 8.00 % 10.50 % 10.00 %

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Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at ~~September 30, 2023:~~March 31, 2024:

Payments Due

Payments Due

Within

One to

Three to

After Five

Within

One to

Three to

After Five

(dollars in thousands)

One Year

Three Years

Five Years

Years

Total

One Year

Three Years

Five Years

Years

Total

Deposits without a stated maturity
$ 1,180,413 $ — $ — $ — $ 1,180,413
Deposits without a stated maturity:
$ 1,182,357 $ — $ — $ — $ 1,182,357
Time deposits
1,963,393 9,199 1,067 — 1,973,659 1,832,195 12,586 1,191 — 1,845,972
FHLB advances
— 150,000 — — 150,000 150,000 — — — 150,000
Long-term debt
54,967 — — 119,052 174,019 — — — 119,243 119,243
Subordinated debentures
— — — 14,884 14,884 — — — 14,993 14,993
Leases
4,674 9,579 9,090 11,523 34,866 5,137 11,390 9,672 10,101 36,300
Total contractual obligations
$ 3,203,447 $ 168,778 $ 10,157 $ 145,459 $ 3,527,841 $ 3,169,689 $ 23,976 $ 10,863 $ 144,337 $ 3,348,865

Off-Balance Sheet Arrangements

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

In the ordinary course of business, ~~the Company enters~~we enter into financial commitments to meet the financing needs of ~~its~~our customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk ~~not~~in excess of the amount recognized in the ~~Company’s financial statements.~~ACL in the consolidated balance sheets. Such off-balance sheet commitments totaled $197.4 million as of March 31, 2024 and $190.7 million as of December 31, 2023.

~~The Company’s~~Our exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. ~~The Company uses~~We use the same credit policies in making commitments as ~~it does~~we do for loans reflected in ~~its~~our financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. ~~The Company evaluates~~We evaluate each client’s ~~credit worthiness~~creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.
In addition, we invest in various affordable housing partnerships and Small Business Investment Company ("SBIC") funds. Pursuant to these investments, we commit to an investment amount to be fulfilled in future periods. Such unfunded commitments totaled $3.3 million as of March 31, 2024 and $3.3 million as of December 31, 2023.

Non-GAAP Financial Measures

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

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

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

(dollars in thousands, except share and per share data)

September 30, 2023

December 31, 2022

(dollars in thousands)

March 31, 2024

December 31, 2023

Tangible Common Equity Ratios:

Tangible common equity:

Total shareholders' equity
$ 502,511 $ 484,563 $ 513,986 $ 511,260
Adjustments

Goodwill
(71,498 ) (71,498 ) (71,498 ) (71,498 )
Core deposit intangible
(3,010 ) (3,718 ) (2,594 ) (2,795 )
Tangible common equity
$ 428,003 $ 409,347 $ 439,894 $ 436,967
Tangible assets:

Total assets-GAAP
$ 4,069,354 $ 3,919,058 $ 3,878,006 $ 4,026,025
Adjustments

Goodwill
(71,498 ) (71,498 ) (71,498 ) (71,498 )
Core deposit intangible
(3,010 ) (3,718 ) (2,594 ) (2,795 )
Tangible assets:
$ 3,994,846 $ 3,843,842 $ 3,803,914 $ 3,951,732
Common shares outstanding
18,995,303 18,965,776 18,578,132 18,609,179
Common equity to assets ratio
12.35 % 12.36 % 13.25 % 12.70 %
Book value per share
$ 26.45 $ 25.55 $ 27.67 $ 27.47
Tangible common equity to tangible assets ratio
10.71 % 10.65 % 11.56 % 11.06 %
Tangible book value per share
$ 22.53 $ 21.58 $ 23.68 $ 23.48

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(dollars in thousands)

2023

2022

2023

2022

Net income available to common shareholders
$ 8,473 $ 16,652 $ 30,392 $ 46,746
Average shareholders' equity
504,432 474,106 498,976 470,548
Adjustments:

Goodwill
(71,498 ) (71,498 ) (71,498 ) (70,763 )
Core deposit intangible
(3,165 ) (4,154 ) (3,398 ) (4,215 )
Adjusted average tangible common equity
$ 429,769 $ 398,454 $ 424,080 $ 395,570
Return on average tangible common equity

7.82
% 16.58 %
9.58
% 15.80 %

For the Three Months Ended March 31,

(dollars in thousands)

2024

2023

Return on average tangible common equity:

Net income available to common shareholders
$ 8,036 $ 10,970
Average shareholders' equity
512,787 492,300
Adjustments:

Average goodwill
(71,498 ) (71,498 )
Average core deposit intangible
(2,726 ) (3,636 )
Adjusted average tangible common equity
$ 438,563 $ 417,166
Return on average tangible common equity
7.37 % 10.66 %

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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market ~~Risk~~Risk.
Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified three primary sources of market risk: interest rate risk, price risk and basis risk.

Interest Rate ~~Risk~~Risk. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the ~~repricings~~repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).

Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and subject to fair value accounting. We have price risk from the available for sale SFR mortgage loans and fixed-rate available for sale securities.
Basis Risk. Basis risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk in the SFR mortgage loan portfolio, the multifamily loan portfolio and our securities portfolio.
Our ~~asset liability committee ("ALCO"),~~ALCO establishes broad policy limits with respect to interest rate risk. The ALCO establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. ~~Our~~The ALCO ~~meets monthly to monitor~~monitors the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk ~~limits.~~limits and to oversee management's balance sheet risk management strategies.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on ~~our~~ interest-earning assets would reprice upward more quickly than rates paid on ~~our~~ interest-bearing liabilities, thus expanding ~~our~~the net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on ~~our~~ interest-bearing liabilities would reprice upward more quickly than rates earned on ~~our~~ interest-earning assets, thus compressing ~~our~~the net interest margin.

Income Simulation and Economic Value Analysis.Interest rate risk measurement is calculated and reported to the board and the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

We use two approaches to model interest rate risk: Net Interest Income at Risk ~~("NII~~(NII at ~~Risk")~~Risk), and Economic Value of Equity ~~("EVE"~~(“EVE”). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and ~~derivatives.~~derivatives over a 12 month time horizon assuming a flat balance sheet and an instantaneous and parallel shift in market interest rates in 100 basis point increments. We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The model results do not take into consideration any steps management might take to respond to the changes in interest rates or changes in competitor or customer behavior. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

Net Interest Income Sensitivity

Net Interest Income Sensitivity

Immediate Change in Rates

Immediate Change in Rates

(dollars in thousands)
-300 -200 -100
+100

+200

+300
-300 -200 -100
+100

+200

+300

September 30, 2023

March 31, 2024

Dollar change
$ 11,761 $ 7,018 $ 2,737 $ 5,001 $ 9,545 $ 14,203 $ 9,640 $ 5,982 $ 2,606 $ 1,032 $ 1,376 $ 1,958
Percent change
10.67 % 6.36 % 2.48 % 4.54 % 8.66 % 12.88 % 9.1 % 5.7 % 2.5 % 1.0 % 1.3 % 1.9 %
December 31, 2022

December 31, 2023

Dollar change
$ 3,267 $ 5,538 $ 3,462 $ 5,745 $ 11,545 $ 17,212 $ 11,086 $ 6,553 $ 2,545 $ 470 $ 50 $ (455 )
Percent change
2.39 % 4.06 % 2.54 % 4.21 % 8.46 % 12.61 % 10.5 % 6.2 % 2.4 % 0.4 % 0.1 % (0.4 )%

~~We report~~As of March 31, 2024, our NII at Risk ~~to isolate~~profile is liability sensitive in the ~~change~~down rate scenarios and generally neutral in ~~income related solely to interest earning assets and interest-bearing liabilities.~~the up rate scenarios. This is directionally consistent with our profile at December 31, 2023. The NII at Risk results ~~included in~~are within board policy limits. Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the ~~table above reflect~~uncertainty of the ~~analysis used quarterly by management. It models immediate -300, -200, -100, +100, +200,~~magnitude, timing and ~~+300 basis point parallel shifts in market~~direction of future interest ~~rates, implied by~~rate movement or the ~~forward~~shape of the yield ~~curve over the next one-year period.~~curve.

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~~The NII at Risk reported at September 30, 2023, projects that our earnings are expected to be asset sensitive to changes in interest rates over the next year.~~
Economic value of equity ("EVE") is a cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used for asset/liability management and measures changes in the economic value of the Bank.

Economic Value of Equity Sensitivity (Shock)

Economic Value of Equity Sensitivity (Shock)

Immediate Change in Rates

Immediate Change in Rates

(dollars in thousands)
-300 -200 -100
+100

+200

+300
-300 -200 -100
+100

+200

+300

September 30, 2023

March 31, 2024

Dollar change
(23,018 ) (986 ) 9,165 (28,637 ) (60,638 ) (93,489 ) $ (69,169 ) $ (37,622 ) $ (13,447 ) $ (18,303 ) $ (49,462 ) $ (90,129 )
Percent change
(3.86 )% -0.17 % 1.54 % (4.80 )% (10.16 )% (15.67 )% (10.6 )% (5.8 )% (2.1 )% (2.8 )% (7.6 )% (13.8 )%
December 31, 2022

December 31, 2023

Dollar change
(83,032 ) (30,544 ) (3,801 ) (22,540 ) (47,643 ) (74,319 ) $ (26,488 ) $ (7,430 ) $ 4,856 $ (28,251 ) $ (69,646 ) $ (111,281 )
Percent change
(12.92 )% (4.75 )% (0.59 )% (3.51 )% (7.41 )% (11.56 )% (4.8 %) (1.3 %) 0.9 % (5.1 %) (12.6 %) (20.1 )%

The EVE ~~results included in~~at March 31, 2024 indicates that the ~~table above reflect the analysis used quarterly by management. It models immediate +/-100, +/-200, and +/-300 basis point parallel shifts in market interest rates.~~
The EVE ~~reported at September 30, 2023 projects that as interest rates increase immediately, the economic value of equity~~ position is expected to ~~decrease.~~decrease in both the up and down rate scenarios. When interest rates rise, fixed rate assets generally lose economic ~~value;~~value as these assets are discounted at a higher rate demonstrating that the longer ~~the~~ duration ~~the~~assets result in greater ~~the~~ value to be lost. ~~The~~When interest rates fall, the opposite is true, ~~when interest rates fall.~~
~~Price Risk represents the risk of loss arising from adverse movements~~however these positives are offset by a decrease in the ~~prices~~value of ~~financial instruments that~~floating rate assets as well as the value of noninterest-bearing deposits. Noninterest-bearing deposits have a lower value in lower interest rate environments. Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the uncertainty of the magnitude, timing and direction of future interest rate movement or the shape of the yield curve. The EVE results are ~~carried at fair value and subject to fair value accounting. We have price risk from our available for sale SFR mortgage loans and our fixed-rate available for sale securities.~~
Basis Risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk in our SFR mortgage loan portfolio and our securities portfolio.within board policy limits.

ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company’s management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of ~~the end of such period, the Company’s~~March 31, 2024, our disclosure controls and procedures were ~~not effective due to material weaknesses in the Company’s internal control over financial reporting described below.~~effective.

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~~Material Weakness in Internal Control Over Financial Reporting~~Remediation Efforts.

~~Our principal executive officer and principal financial officer identified material~~During the quarter ended March 31, 2024, we fully remediated the internal control weaknesses related to the Company’s internal control over financial reporting and, as such, concluded that the Company's internal control over financial reporting was ineffective as of September 30, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The following material weaknesses were identified in the Company’s internal control over financial reporting:
●
The Company failed to design and maintain effective controls with respect to the review, analysis and approval of related party transactions and relied on the completeness and accuracy of director and officer questionnaires. The material weakness resulted in an adjustment to the Company’s related party transaction disclosures as of September 30, 2022 and December 31, 2022. This material weakness did not result in any adjustment to the related party disclosure or misstatement as of September 30, 2023.
● The Company failed to design and maintain effective controls over segregation of duties with respect to the review, posting and approval of journal entries and accounts payable transactions and maintain effective IT access controls around the related system. The material weakness did not result in a misstatement.
● The Company failed to design and maintain effective controls with respect to the review of various assumptions and judgements within the CECL model including subjective assumptions within the quantitative discounted cash flow calculation and subjective judgements related to qualitative factors and maintain effective IT access controls around the related system. The material weakness did not result in a misstatement.
● The Company’s control environment failed to demonstrate a commitment to attract, develop, and retain competent individuals in the area of internal control over financial reporting. The material weakness did not result in a misstatement.
●
The Company failed to design and maintain effective controls related to infrequent transactions such as the income recognition for the Community Development Financial Institution Equitable Recovery Program award (the "Award"). The material weakness resulted in external auditor’s audit adjustment and did not result in a misstatement in Form 10Q.

The Company has concluded that the existence of these material weaknesses did not result in a material misstatement of the Company’s financial statements included in its 2022 Annual Report or in its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023.
~~Remediation Efforts~~
Subsequent to the period covered by the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, with respect to the material weakness set forth in the first and second bullet points above, and subsequent to the period covered by the 2022 Annual Report with respect to the material weaknesses identified in the third and fourth bullet points above, management has been actively engaged in developing remediation plans to address the material weaknesses noted above.
In order to remediate the material weakness related to related party transactions, the Company has enhanced training for those individuals responsible for reporting related party transactions. Further, the Company has and will continue to enhance controls to evaluate the completeness of reported relationships and to flag related party transactions in the Company’s books and records. Based on subsequent remediation efforts and enhanced controls, no adjustment was made to the Company related party transactions disclosure as of September 30, 2023.
In order to remediate the material weakness related to the review, posting and approval of journal entries and accounts payable transactions, the Company implemented new controls to segregate the posting function from review and approval functions of journal entries and accounts payable transactions. The Company will continue to enhance controls over the completeness of journal entry and accounts payable reviews to ensure all transactions are independently reviewed by an individual of sufficient authority. Further, the Company has and will continue to enhance controls over provisioning and periodic monitoring of user access to the related system.
In order to remediate the material weakness related to the CECL model, the Company has and will continue to enhance its review controls over subjective assumptions within the quantitative factors and the subjective judgments related to qualitative factors. Further, the Company has and will continue to enhance controls over provisioning and periodic monitoring of user access to the related system.
~~In order to remediate the material weakness related to the Company’s~~our control environment ~~the Company has hired a dedicated SOX Manager with knowledge~~ and ~~skills~~infrequent transactions. We believe we have demonstrated our commitment to attracting, developing and retaining competent individuals in the area of internal ~~control~~controls over financial ~~reporting. In addition~~reporting with respect to ~~supplementing internal staff, the Company engaged an outside advisory firm~~strengthening our control environment. We believe we have designed and implemented controls to ~~assist the Company to enhance the internal control over financial reporting.~~
~~In order to remediate the material weakness related to~~ensure unusual or infrequent transactions are evaluated completely and timely for the ~~Company is designing~~proper accounting treatment and ~~implementing new~~financial statement disclosure. These material weaknesses are considered remediated and enhanced controls of infrequent transactions. For the Award related process, the Company plans to enhance controls to review performance requirements and conditions to be fully satisfied prior to recognizing the full basis of the Award. We believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not been designed, implemented nor operated for a sufficient amount of time to concludemanagement has concluded, through testing, that ~~the material weakness has been remediated. We will continue to monitor the effectiveness of~~ these controls ~~and will make any further changes management determines appropriate.~~
Management believes they have made significant progress in implementing new and enhanced controls to address the above identified material weaknesses. However, the new and enhanced controls have not been designed and/or operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.are operating effectively.

Changes in Internal ~~Control~~Controls Over Financial Reporting.

Other than described above, during the most recent ~~fiscal~~ quarter ended March 31, 2024, there have not been any changes in the Company’s internal ~~control~~controls over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal ~~control~~controls over financial reporting.

6459
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PART II - OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business. Management believes that none of the legal proceedings occurring in the ordinary course of business, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.

ITEM 1A.
RISK FACTORS

~~The section titled Risk Factors~~There have been no material changes to the risk factors previously disclosed in Part I, Item 1A1A. "Risk Factors" of our ~~2022~~2023 Annual ~~Report included a discussion~~Report. The materiality of ~~the many~~any risks and uncertainties ~~we face, any one~~identified in our Forward Looking Statements contained in this Report or ~~more of which~~those that are presently unforeseen could ~~have a material~~result in significant adverse ~~effect~~effects on our ~~business,~~financial condition, results of operations ~~financial condition (including capital~~ and ~~liquidity), or prospects or the value~~cash flows. See Part I, Item 2 for “Management’s Discussion and Analysis of ~~or return on an investment~~Financial Condition and Results of Operations” in ~~the Company. The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in our 2022 Annual Report:~~
~~The Company and the Bank are operating under enhanced regulatory supervision that could materially and adversely affect our business.~~
As previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on October 31, 2023, effective on October 25, 2023, the Bank entered into a Stipulation to the Issuance of a Consent Order with its bank regulatory agencies, the FDIC and DFPI, consenting to the issuance of a consent order (the “Consent Order”) relating to weaknesses in the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) compliance program.
Under the terms of the Consent Order, the Bank is required to make certain enhancements and take certain actions, which include, but are not limited to: (i) enhancing personnel with oversight responsibilities with respect to the Bank’s AML/CFT compliance program, (ii) enhancing existing AML/CFT policies and practices, internal controls, customer due diligence, and training programs, and (iii) establishing an independent testing program to analyze and assess the Bank’s BSA Department. The Consent Order also requires the Bank to correct certain alleged violations of the AML/CFT compliance program, including internal controls, staffing and the timing of the filing of one suspicious activity report.
If the Bank fails to timely and satisfactorily comply with the Consent Order, the Bank may be required to incur additional expenses in order to comply with the Consent Order and may be subject to additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement of the Consent Order through court proceedings. These additional expenses or regulatory actions, including penalties and legal expenses, could have a material and adverse effect on our business, results of operations, financial condition, cash flows and stock price.
Our failure to comply with the Consent Order may result in additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement of the Consent Order through court proceedings, which could have a material and adverse effect on our business, results of operations, financial condition, cash flows and stock price.
this Report.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On ~~April 22, 2021, March 16, 2022, and June 14, 2022,~~February 29, 2024 the Board of Directors approved a stock repurchase program to buy back up to an aggregate of ~~500,000~~1,000,000 shares ~~500,000~~of Company common stock. We repurchased 80,285 shares ~~and 500,000 shares, respectively,~~for $1.5 million of our ~~common stock. For the three months ended September 30, 2023, we did not repurchase any shares of~~outstanding common stock during the first quarter of 2024 and as ~~shown in the table below.~~of March 31, 2024. There are 956,465 shares remaining under an authorized repurchase program.

~~Issuer Purchases of Equity Securities~~
~~(a)~~
~~(b)~~
~~(c)~~
~~(d)~~
~~Period~~
~~Total Number of Shares Purchased~~
~~Average Price Paid per Share~~
~~Total Number of Shares Purchased as Part of Publicly Announced Plan~~
~~Maximum Number of Shares that May Yet Be Purchased Under the Plan~~
~~July 1, 2023 to July 31, 2023~~
— $ — — ~~433,124~~
~~August 1, 2023 to August 31, 2023~~
— $ — — ~~433,124~~
~~September 1, 2023 to September 30, 2023~~
— $ — — ~~433,124~~
~~Total~~
— ~~433,124~~

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plan

Maximum Number of Shares that May Yet Be Purchased Under the Plan

January 1, 2024 to January 31, 2024
36,636 $ 19.49 36,636 114
February 1, 2024 to February 39, 2024
— $ — — 114
March 1, 2024 to March 31, 2024
43,649 $ 17.47 43,649 956,465
Total
80,285 $ 18.39 43,649 956,465

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.
OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the quarter ended ~~September 30, 2023,~~March 31, 2024, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of ~~the Company’s~~our common stock that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 ~~CFR §~~CFR§ 229.408(c).

6560
Table of Contents

ITEM 6.
EXHIBITS

Exhibit No

Description of Exhibits

3.1

Articles of Incorporation of RBB Bancorp ⁽¹⁾

3.2

Bylaws of RBB Bancorp ⁽²⁾

3.3

Amendment to Bylaws of RBB Bancorp ⁽⁴⁾

4.1

Specimen Common Stock Certificate of RBB Bancorp ⁽³⁾

The other instruments defining the rights of holders of the long-term debt securities of the Company and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.

10.1 RBB Bancorp 2017 Omnibus Stock Incentive Plan Form of Performance Share Award Agreement
10.2 Third Amendment of Employment Agreement, effective as of March 25, 2024, between RBB Bancorp, Royal Business Bank and Mr. David Morris⁽⁵⁾
10.3 Second Amendment of Employment Agreement, effective as of March 25, 2024, between RBB Bancorp, Royal Business Bank and Mr. Jeffrey Yeh⁽⁶⁾
10.4 Second Amendment of Employment Agreement, effective as of March 25, 2024, between RBB Bancorp, Royal Business Bank and Mr. I-Ming (Vincent) Liu⁽⁷⁾
10.5 First Amendment of Employment Agreement, effective as of March 25, 2024, between RBB Bancorp, Royal Business Bank and Mr. Gary Fan⁽⁸⁾
10.6 Employment Agreement, effective as of April 22, 2024, between RBB Bancorp, Royal Business Bank and Ms. Lynn M. Hopkins⁽⁹⁾

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

The cover page of RBB Bancorp’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2023,~~March 31, 2024, formatted in Inline XBRL (contained in Exhibit 101)

(1)
Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.
(2)
Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.
(3)
Incorporated by reference from Exhibit 4.1 of the Registrant’s Registration Statement in Form S-1 filed with the SEC on June 28, 2017.

(4)
Incorporated by reference from Exhibit 3.3 of the Registrant’s Quarterly Report in Form 10-Q filed with the SEC on November 13, 2018.
(5)
Incorporated by reference from Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March, 29, 2024.

(6)
Incorporated by reference from Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on March, 29, 2024.
(7)
Incorporated by reference from Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on March, 29, 2024.
(8)
Incorporated by reference from Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on March, 29, 2024.
(9)
Incorporated by reference from Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 22, 2024.
6661
Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RBB BANCORP

(Registrant)

Date: ~~November 14, 2023~~May 9, 2024

/s/ David Morris

David Morris
Chief Executive Officer

Date: ~~November 14, 2023~~May 9, 2024 /s/ ~~Alex Ko~~Lynn Hopkins

~~Alex Ko~~Lynn Hopkins
Executive Vice President, Chief Financial Officer

6762

PART I – FINANCIAL INFORMATION (UNAUDITED)		3
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	98
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3630
	CRITICAL ACCOUNTING POLICIES	3731
	OVERVIEW	3933
	ANALYSIS OF THE RESULTS OF OPERATIONS	4034
	ANALYSIS OF FINANCIAL CONDITION	4941
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6257
ITEM 4.	CONTROLS AND PROCEDURES	6358
PART II - OTHER INFORMATION		6560
ITEM 1.	LEGAL PROCEEDINGS	6560
ITEM 1A.	RISK FACTORS	6560
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6560
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6560
ITEM 4.	MINE SAFETY DISCLOSURES	6560
ITEM 5.	OTHER INFORMATION	6560
ITEM 6.	EXHIBITS	6661
SIGNATURES		6762

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest and dividend income:
Interest and fees on loans	$	47,617	$	43,588	$	148,369	$	121,631
Interest on interest-earning deposits		3,193		373		6,096		655
Interest on investment securities		4,211		1,784		10,321		4,210
Dividend income on FHLB stock		290		224		814		673
Interest on federal funds sold and other		252		445		716		1,149
Total interest income		55,563		46,414		166,316		128,318
Interest expense:
Interest on savings deposits, now and money market accounts		3,106		1,529		8,180		3,091
Interest on time deposits		21,849		2,460		54,424		5,540
Interest on subordinated debentures and long-term debt		2,579		2,427		7,668		7,154
Interest on other borrowed funds		440		1,020		2,428		1,974
Total interest expense		27,974		7,436		72,700		17,759
Net interest income		27,589		38,978		93,616		110,559
Provision for credit losses		1,399		1,766		3,793		3,048
Net interest income after provision for credit losses		26,190		37,212		89,823		107,511
Noninterest income:
Service charges, fees and other		1,357		1,214		4,150		3,745
Gain on sale of loans		212		265		258		1,783
Loan servicing fees, net of amortization		623		724		1,959		1,628
Increase in cash surrender value of life insurance		356		332		1,036		986
Gain on sale of OREO		190		—		190		—
Gain on sale of fixed assets		32		—		32		757
		2,770		2,535		7,625		8,899
Noninterest expense:
Salaries and employee benefits		9,744		9,561		28,935		28,558
Occupancy and equipment expenses		2,414		2,349		7,242		6,728
Data processing		1,315		1,306		3,969		3,857
Legal and professional		1,022		1,077		6,907		4,337
Office expenses		437		382		1,163		1,033
Marketing and business promotion		340		364		892		1,172
Insurance and regulatory assessments		730		441		2,043		1,360
Core deposit premium		236		277		708		833
Other expenses		638		940		2,445		2,489
		16,876		16,697		54,304		50,367
Income before income taxes		12,084		23,050		43,144		66,043
Income tax expense		3,611		6,398		12,752		19,297
Net income	$	8,473	$	16,652	$	30,392	$	46,746

Net income per share
Basic	$	0.45	$	0.88	$	1.60	$	2.44
Diluted		0.45		0.87		1.60		2.41

Weighted-average common shares outstanding
Basic		18,995,303		18,988,443		18,991,579		19,142,732
Diluted		18,997,304		19,130,447		19,013,838		19,415,558

	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
	*2023*			*2022*			*2023*			*2022*
Net income	$	8,473		$	16,652		$	30,392		$	46,746

Other comprehensive loss:
Unrealized loss on securities available for sale:		(4,824	)		(9,773	)		(5,838	)		(30,140	)

Related income tax effect:		1,468			2,999			1,742			9,275

Total other comprehensive loss		(3,356	)		(6,774	)		(4,096	)		(20,865	)

Total comprehensive income	$	5,117		$	9,878		$	26,296		$	25,881

			*Adjustments*
			*due to*
	*Balance at*		*Adoption of*			*Balance at*
*(dollars in thousands)*	*December 31, 2021*		*ASC 326*			*January 1, 2022*
Assets:
Allowance for credit losses on loans	$	32,912	$	2,135		$	35,047
Deferred tax assets		4,855		977			5,832
Liabilities:
Allowance for unfunded commitments	$	1,203	$	1,045		$	2,248
Shareholders' equity:
Retained earnings, net of tax	$	181,329	$	(2,204	)	$	179,125

*(dollars in thousands)*		30-59		60-89	90 Days		Total		Loans Not				Nonaccrual
December 31, 2022	Days		Days		Or More		Past		Past Due		Total		Loans
Real estate:
Construction and land development	$	—	$	—	$	141	$	141	$	276,735	$	276,876	$	141
Commercial real estate		558		240		1,191		1,989		1,310,143		1,312,132		13,189
Single-family residential mortgages		12,764		2,555		4,100		19,419		1,444,689		1,464,108		5,936
Commercial:
Commercial and industrial		—		545		7		552		200,671		201,223		713
SBA		150		1,017		1,228		2,395		59,016		61,411		2,245
Other:		154		76		99		329		20,370		20,699		99
	$	13,626	$	4,433	$	6,766	$	24,825	$	3,311,624	$	3,336,449	$	22,323

	*Three Months Ended*
	*September 30, 2023*						*September 30, 2022*
	*Mortgage*			*SBA*			*Mortgage*			*SBA*
*(dollars in thousands)*	*Loans*			*Loans*			*Loans*			*Loans*
Servicing assets:
Beginning of period	$	6,856		$	1,846		$	7,966		$	2,490
Additions		112			46			49			46
Disposals		(82	)		(103	)		(151	)		(28	)
Amortized to expense		(171	)		(65	)		(229	)		(89	)
End of period	$	6,715		$	1,724		$	7,635		$	2,419

(dollars in thousands)		*$250,000 and under*		*Greater than $250,000*		*Total*
One year	$	1,229,527	$	733,866	$	1,963,393
Two to three years		7,537		1,662		9,199
Over three years		767		300		1,067
Total	$	1,237,831	$	735,828	$	1,973,659

	*For the nine months ended*			*For the year ended*
	*September 30,*			*December 31,*
*(dollars in thousands)*	*2023*			*2022*
Beginning balance	$	6,869		$	8,441
Repayments		—			(1,572	)
Balance re-categorized to non-related party		(6,869	)		—
Ending balance	$	—		$	6,869

				Weighted-Average
				Grant Date
	*Shares*			*Fair Value*
Outstanding at beginning of year		14,786		$	27.16
Granted		32,248			20.46
Vested		(20,374	)		23.35
Forfeited/cancelled		—			—
Outstanding at end of period		26,660		$	21.97


	Three Months Ended March 31, 2024 compared with Three Months Ended December 31, 2023									Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023
	Change due to:									Change due to:
*(tax-equivalent basis, dollars in thousands)*	Volume			Yield/Rate			Interest Variance			Volume			Yield/Rate			Interest Variance
Interest-earning assets:
Federal funds sold, cash equivalents & other ⁽¹⁾	$	391		$	15		$	406		$	3,913		$	452		$	4,365
Securities: ⁽²⁾
Available for sale		(359	)		264			(95	)		384			695			1,079
Held to maturity		—			—			—			(4	)		(1	)		(5	)
Mortgage loans held for sale		(27	)		24			(3	)		23			2			25
Loans held for investment:
Real estate		(2,508	)		2,323			(185	)		(4,703	)		1,565			(3,138	)
Commercial		(119	)		(41	)		(160	)		(2,211	)		929			(1,282	)
Total loans held for investment		(2,627	)		2,282			(345	)		(6,914	)		2,494			(4,420	)
Total interest-earning assets	$	(2,622	)	$	2,585		$	(37	)	$	(2,598	)	$	3,642		$	1,044

Interest-bearing liabilities
NOW	$	18		$	66		$	84		$	(53	)	$	243		$	190
Money market		(504	)		778			274			(1,428	)		2,814			1,386
Saving deposits		32			62			94			19			586			605
Time deposits, less than $250,000		119			442			561			2,560			3,820			6,380
Time deposits, $250,000 and over		28			320			348			184			3,352			3,536
Total interest-bearing deposits		(307	)		1,668			1,361			1,282			10,815			12,097
FHLB advances		-			(1	)		(1	)		(427	)		(543	)		(970	)
Long-term debt		(426	)		(174	)		(600	)		(613	)		(286	)		(899	)
Subordinated debentures		2			(7	)		(5	)		6			34			40
Total interest-bearing liabilities		(731	)		1,486			755			248			10,020			10,268
Changes in net interest income	$	(1,891	)	$	1,099		$	(792	)	$	(2,846	)	$	(6,378	)	$	(9,224	)

	Comparison of Three Months Ended									Comparison of Nine Months Ended
	September 30, 2023 and 2022									September 30, 2023 and 2022
	Change due to:									Change due to:
(tax-equivalent basis, dollars in thousands)	Volume			Rate			Interest Variance			Volume			Rate			Interest Variance
Interest-earning assets:
Federal funds sold, cash equivalents & other (1)	$	1,524		$	1,169		$	2,693		$	(2,145	)	$	7,294		$	5,149
Securities: (2)
Available for sale		323			2,106			2,429			(731	)		6,850			6,119
Held to maturity		(8	)		6			(2	)		(9	)		2			(7	)
Mortgage loans held for sale		5			2			7			(77	)		31			(46	)
Loans held for investment: (3)
Real estate		2,104			2,480			4,584			14,502			12,988			27,490
Commercial		(7,599	)		7,037			(562	)		(8,255	)		7,549			(706	)
Total loans held for investment		(5,495	)		9,517			4,022			6,247			20,537			26,784
Total earning assets	$	(3,651	)	$	12,800		$	9,149		$	3,285		$	34,714		$	37,999

Interest-bearing liabilities:
NOW	$	(150	)	$	260		$	110		$	(71	)	$	397		$	326
Money market		(2,975	)		4,255			1,280			(1,817	)		6,355			4,538
Saving deposits		(69	)		256			187			(46	)		271			225
Time deposits, less than $250,000		3,030			9,839			12,869			4,912			26,295			31,207
Time deposits, $250,000 and over		567			5,953			6,520			1,293			16,384			17,677
Total interest-bearing deposits		403			20,563			20,966			4,271			49,702			53,973
FHLB advances		(316	)		(264	)		(580	)		(192	)		646			454
Long-term debt		32			(32	)		0			22			(21	)		1
Subordinated debentures		4			148			152			8			505			513
Total interest-bearing liabilities		123			20,415			20,538			4,109			50,832			54,941
Changes in net interest income	$	(3,774	)	$	(7,615	)	$	(11,389	)	$	(824	)	$	(16,118	)	$	(16,942	)

	As of and For the Three Months Ended						As of and For the Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2023			2022			2023			2022
Beginning balance of discount on purchased loans	$	1,016		$	1,388		$	1,237		$	1,727
Additions due to acquisitions:
Commercial and industrial		—			—			(6	)		8
Commercial real estate		—			—			350			26
Single family residential mortgages		—			—			—			(52	)
Total additions	$	—		$	—		$	344		$	(18	)
Accretion:
Commercial and industrial		(8	)		(1	)		(11	)		3
SBA		2			2			18			8
Construction and land development		—			—			—			(1	)
Commercial real estate		(62	)		(11	)		309			1
Single family residential mortgages		86			122			267			422
Total accretion	$	18		$	112		$	583		$	433
Ending balance of discount on purchased loans	$	998		$	1,276		$	998		$	1,276

	For the Three Months Ended September 30,				Increase (Decrease)					For the Nine Months Ended September 30,				Increase (Decrease)						Three Months Ended							March 31, 2024 Compared To
(dollars in thousands)	2023		2022		$				%	2023		2022		$				%		March 31, 2024		December 31, 2023			March 31, 2023		December 31, 2023			March 31, 2023
Noninterest income:
Service charges, fees and other	$	1,357	$	1,214	$	143		11.8	%	$	4,150	$	3,745	$	405		10.8	%	$	992	$	972		$	1,023	$	20		$	(31	)
Loan servicing income, net of amortization																				589		616			731		(27	)		(142	)
Increase in cash surrender of bank owned life insurance																				382		374			335		8			47
Gain on sale of loans		212		265		(53	)	(20.0	)%		258		1,783		(1,525	)	(85.5	)%		312		116			29		196			283
Loan servicing fee, net of amortization		623		724		(101	)	(14.0	)%		1,959		1,628		331		20.3	%
Increase in cash surrender of life insurance		356		332		24		7.2	%		1,036		986		50		5.1	%
Gain on sale of OREO		190		—		190		100.0	%		190		—		190		100.0	%
Gain on sale of fixed assets		32		—		32		100.0	%		32		757		(725	)	(95.8	)%
Gain/(loss) on OREO																				724		(57	)		—		781			724
Other income																				373		5,373			244		(5,000	)		129
Total noninterest income	$	2,770	$	2,535	$	235		9.3	%	$	7,625	$	8,899	$	(1,274	)	(14.3	)%	$	3,372	$	7,394		$	2,362	$	(4,022	)	$	1,010

	As of						March 31, 2024 Compared To
*(dollars in thousands)*		March 31, 2024		December 31, 2023		March 31, 2023		December 31, 2023			March 31, 2023
Loans serviced:
Single-family residential loans serviced	$	990,930	$	1,014,017	$	1,098,526	$	(23,087	)	$	(107,596	)
SBA loans serviced		100,713		100,336		114,756		377			(14,043	)
Commercial real estate loans serviced		3,798		3,813		3,970		(15	)		(172	)
Construction loans		5,096		4,710		3,884		386			1,212
Total	$	1,100,537	$	1,122,876	$	1,221,136	$	(22,339	)	$	(120,599	)

	For the Three Months Ended September 30,				Increase (Decrease)						For the Nine Months Ended September 30,				Increase (Decrease)
*(dollars in thousands)*	2023		2022		$			%			2023		2022		$			%
Loans sold:
SBA	$	3,014	$	2,474	$	540			21.8	%	$	3,141	$	11,907	$	(8,766	)		(73.6	)%
Single family residential mortgage		28,846		3,810		25,036			657.1	%		31,092		43,314		(12,222	)		(28.2	)%
	$	31,860	$	6,284	$	25,576			407.0	%	$	34,233	$	55,221	$	(20,988	)		(38.0	)%
Gain on loans sold:
SBA	$	189	$	130	$	59			45.4	%	$	199	$	653	$	(454	)		(69.5	)%
Single family residential mortgage		23		135		(112	)		(83.0	)%		59		1,130		(1,071	)		(94.8	)%
	$	212	$	265	$	(53	)		(20.0	)%	$	258	$	1,783	$	(1,525	)		(85.5	)%

										Amortized		Unrealized		Unrealized			Fair
March 31, 2024										Cost		Gains		Losses			Value
*(dollars in thousands)*	Amortized		Unrealized		Unrealized			Fair
September 30, 2023	Cost		Gains		Losses			Value
Available for sale
Government agency securities	$	8,694	$	—	$	(800	)	$	7,894	$	7,586	$	—	$	(527	)	$	7,059
SBA agency securities		7,533		—		(272	)		7,261		14,524		40		(250	)		14,314
Mortgage-backed securities: residential		41,501		—		(8,064	)		33,437		39,567		—		(6,387	)		33,180
Collateralized mortgage obligations: residential		86,343		—		(15,144	)		71,199		100,808		169		(12,878	)		88,099
Collateralized mortgage obligations: commercial		70,837		1		(3,343	)		67,495		78,404		105		(2,872	)		75,637
Commercial paper		129,105		—		(32	)		129,073		77,088		—		(22	)		77,066
Corporate debt securities		34,817		—		(5,011	)		29,806		34,784		21		(4,175	)		30,630
Municipal securities		12,644		—		(4,431	)		8,213		12,627		—		(3,418	)		9,209
	$	391,474	$	1	$	(37,097	)	$	354,378	$	365,388	$	335	$	(30,529	)	$	335,194
Held to maturity
Municipal taxable securities	$	502	$	—	$	(3	)	$	499	$	501	$	—	$	(1	)	$	500
Municipal securities		4,712		—		(461	)		4,251		4,703		—		(156	)		4,547
	$	5,214	$	—	$	(464	)	$	4,750	$	5,204	$	—	$	(157	)	$	5,047
December 31, 2022
December 31, 2023
Available for sale
Government agency securities	$	5,012	$	—	$	(517	)	$	4,495	$	8,705	$	—	$	(544	)	$	8,161
SBA agency securities		2,634		—		(223	)		2,411		13,289		144		(216	)		13,217
Mortgage-backed securities: residential		44,809		—		(6,752	)		38,057		40,507		—		(5,855	)		34,652
Mortgage-backed securities: commercial		4,887		—		(16	)		4,871
Collateralized mortgage obligations: residential		82,759		—		(12,856	)		69,903		94,071		454		(12,198	)		82,327
Collateralized mortgage obligations: commercial		44,591		—		(2,901	)		41,690		69,941		22		(2,664	)		67,299
Commercial paper		49,551		2		(16	)		49,537		73,121		—		(16	)		73,105
Corporate debt securities		41,176		1		(4,165	)		37,012		34,800		—		(4,109	)		30,691
Municipal securities		12,669		—		(3,815	)		8,854		12,636		—		(3,127	)		9,509
	$	288,088	$	3	$	(31,261	)	$	256,830	$	347,070	$	620	$	(28,729	)	$	318,961
Held to maturity
Municipal taxable securities	$	1,003	$	7	$	(3	)	$	1,007	$	501	$	3	$	—		$	504
Municipal securities		4,726		—		(170	)		4,556		4,708		—		(115	)		4,593
	$	5,729	$	7	$	(173	)	$	5,563	$	5,209	$	3	$	(115	)	$	5,097

	Less than One Year					More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
	Fair		Weighted			Fair		Weighted			Fair		Weighted			Fair		Weighted			Fair		Weighted
March 31, 2024	Value		Average Yield			Value		Average Yield			Value		Average Yield			Value		Average Yield			Value		Average Yield
*(dollars in thousands)*
Government agency securities	$	—		—	%	$	7,059		2.97	%	$	—		—	%	$	—		—	%	$	7,059		2.97	%
SBA securities		—		—	%		2,024		2.65	%		12,290		5.93	%		—		—	%		14,314		5.43	%
Mortgage-backed securities: residential		—		—	%		9,428		0.93	%		16,327		2.27	%		7,425		2.04	%		33,180		1.86	%
Collateralized mortgage obligations: residential		16		1.80	%		35,226		4.74	%		52,857		2.08	%		—		—	%		88,099		3.04	%
Collateralized mortgage obligations: commercial		4,071		7.14	%		18,023		3.93	%		53,543		5.86	%		—		—	%		75,637		5.44	%
Commercial paper		77,066		5.98	%		—		—	%		—		—	%		—		—	%		77,066		5.98	%
Corporate debt securities		—		—	%		12,533		4.09	%		16,160		3.61	%		1,937		2.89	%		30,630		3.73	%
Municipal securities		—		—	%		—		—	%		—		—	%		9,209		1.92	%		9,209		1.92	%
Total available for sale	$	81,153		6.04	%	$	84,293		3.85	%	$	151,177		3.92	%	$	18,571		2.07	%	$	335,194		4.27	%

Municipal taxable securities	$	—		—	%	$	500		5.25	%	$	—		—	%	$	—		—	%	$	500		5.25	%
Municipal securities		—		—	%		—		—	%		2,847		2.77	%		1,700		2.59	%		4,547		2.71	%
Total held to maturity	$	—		—	%	$	500		5.25	%	$	2,847		2.77	%	$	1,700		2.59	%	$	5,047		2.96	%

	Less than Twelve Months					Twelve Months or More					Total					Less than Twelve Months					Twelve Months or More					Total
																		Unrealized					Unrealized					Unrealized
March 31, 2024																Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
*(dollars in thousands)*			Unrealized					Unrealized					Unrealized
September 30, 2023	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Government sponsored agencies	$	4,119	$	(174	)	$	3,775	$	(626	)	$	7,894	$	(800	)	$	3,513	$	(57	)	$	3,546	$	(470	)	$	7,059	$	(527	)
SBA Agency Securities		—		—			2,115		(272	)		2,115		(272	)
SBA securities																	6,341		(33	)		2,023		(217	)		8,364		(250	)
Mortgage-backed securities: residential		—		—			33,437		(8,064	)		33,437		(8,064	)		—		—			33,180		(6,387	)		33,180		(6,387	)
Collateralized mortgage obligations: residential		11,956		(310	)		59,243		(14,834	)		71,199		(15,144	)		13,963		(146	)		60,647		(12,732	)		74,610		(12,878	)
Collateralized mortgage obligations: commercial		23,696		(121	)		38,800		(3,222	)		62,496		(3,343	)		26,029		(267	)		34,431		(2,605	)		60,460		(2,872	)
Commercial paper		114,185		(32	)		—		—			114,185		(32	)
Commercial paper ⁽¹⁾																	39,731		(22	)		—		—			39,731		(22	)
Corporate debt securities		—		—			29,806		(5,011	)		29,806		(5,011	)		—		—			27,559		(4,175	)		27,559		(4,175	)
Municipal securities		—		—			8,213		(4,431	)		8,213		(4,431	)		—		—			9,209		(3,418	)		9,209		(3,418	)
Total available for sale	$	153,956	$	(637	)	$	175,389	$	(36,460	)	$	329,345	$	(37,097	)	$	89,577	$	(525	)	$	170,595	$	(30,004	)	$	260,172	$	(30,529	)

Municipal taxable securities	$	499	$	(3	)	$	—	$	—		$	499		(3	)	$	500	$	(1	)	$	—	$	—		$	500	$	(1	)
Municipal securities		1,281		(134	)		2,970		(327	)		4,251		(461	)		788		(12	)		3,759		(144	)		4,547		(156	)
Total held to maturity	$	1,780	$	(137	)	$	2,970	$	(327	)	$	4,750	$	(464	)	$	1,288	$	(13	)	$	3,759	$	(144	)	$	5,047	$	(157	)

December 31, 2022
Government sponsored agencies	$	354	$	(24	)	$	4,141	$	(493	)	$	4,495	$	(517	)
SBA agency securities		2,411		(223	)		—		—			2,411		(223	)
Mortgage-backed securities: residential		5,535		(362	)		32,522		(6,390	)		38,057		(6,752	)
Mortgage-backed securities: commercial		4,871		(16	)		—		—			4,871		(16	)
Collateralized mortgage obligations: residential		27,050		(1,842	)		39,815		(11,014	)		66,865		(12,856	)
Collateralized mortgage obligations: commercial		18,741		(790	)		22,949		(2,111	)		41,690		(2,901	)
Commercial paper		39,624		(16	)		—		—			39,624		(16	)
Corporate debt securities		22,977		(1,843	)		10,330		(2,322	)		33,307		(4,165	)
Municipal securities		—		—			8,854		(3,815	)		8,854		(3,815	)
Total available for sale	$	121,563	$	(5,116	)	$	118,611	$	(26,145	)	$	240,174	$	(31,261	)

Municipal taxable securities	$	498	$	(3	)	$	—	$	—		$	498		(3	)
Municipal securities		4,556		(170	)		—		—			4,556		(170	)
Total held to maturity	$	5,054	$	(173	)	$	—	$	—		$	5,054	$	(173	)

	As of September 30, 2023						As of December 31, 2022						As of March 31, 2024						As of December 31 2023
(dollars in thousands)	$			%			$			%			$			%			$			%
Loans:⁽¹⁾
Real Estate:
Loans HFI:⁽¹⁾
Construction and land development	$	259,778			8.3	%	$	276,876			8.3	%	$	198,070			6.5	%	$	181,469			6.0	%
Commercial real estate ⁽²⁾		1,164,210			37.3	%		1,312,132			39.3	%		1,178,498			38.9	%		1,167,857			38.5	%
Single-family residential mortgages		1,505,307			48.2	%		1,464,108			43.9	%		1,463,497			48.4	%		1,487,796			49.1	%
Commercial:
Commercial and industrial		127,655			4.1	%		201,223			6.0	%		121,441			4.0	%		130,096			4.3	%
SBA		50,420			1.6	%		61,411			1.8	%		54,677			1.8	%		52,074			1.7	%
Other:
Other loans		13,582			0.5	%		20,699			0.7	%		11,178			0.4	%		12,569			0.4	%
Total loans		3,120,952			100.0	%		3,336,449			100.0	%
Allowance for credit losses		(42,430	)					(41,076	)
Total loans, net	$	3,078,522					$	3,295,373
Total loans HFI														3,027,361			100.0	%		3,031,861			100.0	%
Allowance for loan losses														(41,688	)					(41,903	)
Total loans HFI, net ⁽¹⁾													$	2,985,673					$	2,989,958

March 31, 2024	LTV Distribution
*(dollars in thousands)*	<45%		45%≤54%		55%≤64%		65%≤74% ⁽¹⁾		>85%		Total
Non-owner occupied:
Hotel/Motel	$	18,500	$	11,845	$	15,905	$	6,069	$	—	$	52,319
Office		8,644		—		17,156		—		8,535		34,335
Rent Controlled NY Multifamily		25,712		18,119		8,364		—		—		52,195
Mobile Home		42,867		72,389		68,259		87,127		—		270,642
Mixed Use		90,194		23,672		8,832		64,456		—		187,154
Apartments		20,912		45,020		33,183		53,907		—		153,022
Warehouse		13,412		23,662		46,501		4,209		1,438		89,222
Retail		26,362		19,813		22,597		905		—		69,677
SFR Rental		12,842		30,501		14,767		5,791		—		63,901
Other		4,565		—		1,686		—		—		6,251
Total non-owner occupied	$	264,010	$	245,021	$	237,250	$	222,464	$	9,973	$	978,718
Owner-occupied:
Hotel/Motel		642		28,411		42,913		—		—		71,966
Office		661		2,842		786		1,301		—		5,590
Rent Controlled NY Multifamily		1,449		—		358		—		—		1,807
Mixed Use		3,430		4,043		5,236		—		—		12,709
Warehouse		5,426		11,039		37,786		26,993		—		81,244
Retail		4,131		8,543		4,856		—		—		17,530
SFR Rental		—		1,113		—		—		—		1,113
Other		1,402		166		440		5,813		—		7,821
Total owner-occupied	$	17,141	$	56,157	$	92,375	$	34,107	$	—	$	199,780
Total	$	281,151	$	301,178	$	329,625	$	256,571	$	9,973	$	1,178,498

	As of September 30, 2023					As of December 31, 2022					Increase (Decrease)						As of March 31, 2024					As of December 31, 2023					Increase (Decrease)
(dollars in thousands)	$		Mix %			$		Mix %			$			%			$		Mix %			$		Mix %			$			%
Residential construction	$	153,471		59.1	%	$	166,558		60.1	%	$	(13,087	)		(7.9	)%	$	84,161		42.5	%	$	80,341		44.2	%	$	3,820			4.8	%
Commercial construction		74,849		28.8	%		77,231		27.9	%		(2,382	)		(3.1	)%		93,167		47.0	%		78,053		43.0	%		15,114			19.4	%
Land development		31,458		12.1	%		33,087		12.0	%		(1,629	)		(4.9	)%		20,742		10.5	%		23,075		12.7	%		(2,333	)		(10.1	)%
Total construction and land development loans	$	259,778		100.0	%	$	276,876		100.0	%	$	(17,098	)		(6.2	)%	$	198,070		100.0	%	$	181,469		100.0	%	$	16,601			9.1	%

											As of March 31,					As of December 31,
	As of September 30, 2023					As of December 31, 2022					2024					2023
(dollars in thousands)	$		% ⁽¹⁾			$		% ⁽¹⁾			$		% ⁽¹⁾			$		%⁽¹⁾
Loans:
Real Estate:
Construction and land development	$	1,767		0.68	%	$	2,638		0.95	%	$	1,311		0.66	%	$	1,219		0.67	%
Commercial real estate ⁽²⁾		17,575		1.51	%		17,657		1.35	%		18,307		1.55	%		17,826		1.53	%
Single family residential mortgages		20,340		1.35	%		17,640		1.20	%
Commercial:
Single-family residential mortgages												19,878		1.36	%		20,117		1.35	%
Commercial and industrial		1,367		1.07	%		1,804		0.90	%		1,294		1.07	%		1,348		1.04	%
SBA		1,176		2.33	%		621		1.01	%		735		1.34	%		1,196		2.30	%
Other:
Other		205		1.51	%		716		3.46	%		163		1.46	%		197		1.57	%
Allowance for credit losses	$	42,430		1.36	%	$	41,076		1.23	%
Allowance for loan losses											$	41,688		1.38	%	$	41,903		1.38	%

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
(dollars in thousands)	2023			2022			2023			2022			2024			2023
Balance, beginning of period	$	43,092		$	36,289		$	41,076		$	32,912		$	41,903		$	41,076
ASU 2016-13 transition adjustment		—			—			—			2,135
Adjusted beginning balance	$	43,092		$	36,289		$	41,076		$	35,047
Charge-offs:
Commercial and industrial		—			(5	)		—			(5	)
SBA		—			—			(62	)		—
Construction & land development		(12	)					(12	)
Commercial real estate		(2,138	)		—			(2,537	)		—			(116	)		—
Single-family residential mortgages		—			—			(93	)		—			—			(93	)
Commercial and industrial														(3	)		—
Other		(67	)		(44	)		(288	)		(146	)		(95	)		(68	)
Total charge-offs		(2,217	)		(49	)		(2,992	)		(151	)		(214	)		(161	)
Recoveries:
Commercial and industrial		2			1			2			2			1
SBA		—			168			—			227			—			1
Other		9			7			47			9			29			3
Total recoveries		11			176			49			238			30			4
Net (charge-offs) recoveries		(2,206	)		127			(2,943	)		87
Provision for credit losses		1,544			1,766			4,297			3,048
Net (charge-offs)/recoveries														(184	)		(157	)
(Reversal of ) provision for credit losses - loans														(31	)		2,152
Balance, end of period	$	42,430		$	38,182		$	42,430		$	38,182		$	41,688		$	43,071

Reserve for off-balance sheet credit commitments
Balance, beginning of period	$	798		$	2,115		$	1,157		$	1,203
Impact of ASU 2016-13 adoption		—			—			—		$	1,045
Adjusted beginning balance	$	798		$	2,115		$	1,157		$	2,248
Reversal for credit losses		(144	)		(28	)		(503	)		(161	)
Balance, end of period	$	654		$	2,087		$	654		$	2,087
Balance at beginning of year													$	640		$	1,156
Reserve for (reversal of) unfunded commitments														31			(138	)
Balance at the end of period													$	671		$	1,018

Total HFI loans at end of period		3,120,952			3,220,913			3,120,952			3,220,913
Average HFI loans		3,155,386			3,123,921			3,256,011			3,032,813
Net (charge-offs) recoveries to average HFI loans		(0.28	)%		0.02	%		(0.12	)%		0.00	%
Allowance for credit losses to total loans		1.36	%		1.19	%		1.36	%		1.19	%
Credit discount on loans purchased through acquisitions	$	2,257		$	2,769		$	2,257		$	2,769
Total allowance for credit losses (ACL)													$	42,359		$	44,089

Total loans HFI at end of period													$	3,027,361		$	3,342,416
Average loans HFI													$	3,017,208		$	3,342,578
Net charge-offs to average loans HFI														(0.02	%)		(0.02	%)
Allowance for loan losses to total loans HFI														1.38	%		1.29	%

	As of September 30,			As of December 31,
(dollars in thousands)	2023			2022
Modified loans:
Total modified loans	$	—		$	—
Accruing troubled debt restructured loans:
Commercial and industrial		—			306
Commercial real estate		—			894
Total accruing troubled debt restructured loans		—			1,200
Nonaccrual loans:
Commercial and industrial		761			713
SBA		2,009			2,245
Construction and land development		128			141
Commercial real estate		20,330			13,189
Single-family residential mortgages		16,868			5,936
Other		50			99
Total nonaccrual loans		40,146			22,323
Total nonperforming loans		40,146			23,523
OREO		284			577
Nonperforming assets	$	40,430		$	24,100
Nonperforming loans to total loans		1.29	%		0.71	%
Nonperforming assets to total assets		0.99	%		0.61	%

			Special
March 31, 2024	Pass		Mention		Substandard		Doubtful		Total
*(dollars in thousands)*
Real Estate:
Construction and land development	$	186,381	$	11,689	$	—	$	—	$	198,070
Commercial real estate		1,148,697		6,851		22,950		—		1,178,498
Single-family residential mortgages		1,440,007		—		23,490		—		1,463,497
Commercial:
Commercial and industrial		112,364		678		8,399		—		121,441
SBA		51,072		1,362		2,243		—		54,677
Other:		11,090		—		88		—		11,178
Total	$	2,949,611	$	20,580	$	57,170	$	—	$	3,027,361

	For the Three Months Ended					For the Year Ended					For the Three Months Ended					For the Year Ended
	September 30, 2023					December 31, 2022					March 31, 2024					December 31, 2023
			Weighted					Weighted					Weighted					Weighted
	Average		Average			Average		Average			Average		Average			Average		Average
(dollars in thousands)	Balance		Rate (%)			Balance		Rate (%)			Balance		Rate (%)			Balance		Rate (%)
Noninterest-bearing demand	$	571,371		—		$	1,050,063		—
Interest-bearing:
Noninterest-bearing demand deposits											$	528,346		—		$	602,291		—
Interest-bearing deposits:
NOW		55,325		1.44	%		73,335		0.36	%		58,946		2.03	%		58,191		1.25	%
Money market		403,300		2.61	%		631,094		0.81	%		411,751		3.44	%		429,102		2.46	%
Savings		123,709		0.80	%		144,409		0.13	%		157,227		1.67	%		126,062		0.73	%
Time, less than $250,000		1,285,320		4.35	%		609,464		1.08	%
Time, $250,000 and over		717,026		4.29	%		565,059		1.20	%
Total interest-bearing		2,584,680		3.83	%		2,023,361		0.93	%
Time deposits $250,000 and under												1,175,804		4.72	%		1,146,513		4.11	%
Time deposits over $250,000												785,172		4.88	%		742,839		4.00	%
Total interest-bearing deposits												2,588,900		4.32	%		2,502,707		3.56	%
Total deposits	$	3,156,051		3.14	%	$	3,073,424		0.61	%	$	3,117,246		3.59	%	$	3,104,998		2.87	%

	Maturity Within:
(dollars in thousands)	Three Months		After Three to Six Months		Six to 12 Months		After 12 Months		Total
Time, $250,000 and over	$	228,022	$	281,606	$	238,989	$	1,961	$	750,578
Wholesale deposits ⁽¹⁾		12,796		39,950		7,000		—		59,746
Time, brokered		180,732		139,985		—		—		320,717
Total	$	421,550	$	461,541	$	245,989	$	1,961	$	1,131,041

	Maturity Within:
*(dollars in thousands)*	Three Months or less		After Three to Six Months		After Six to 12 Months		After 12 Months		Total
Time Deposits:
Time deposits $250,000 and under ⁽¹⁾	$	286,012	$	268,368	$	363,467	$	13,051	$	1,083,898
Time deposits over $250,000 ⁽²⁾		207,974		220,864		332,510		726		762,074
Total time deposits	$	493,986	$	489,232	$	695,977	$	13,777	$	1,845,972

	(1)	~~Wholesale~~Includes wholesale deposits ~~are defined as time~~of $187.6 million.
	(2)	Includes wholesale deposits ~~under $250,000 originated through internet rate line and/or other deposit originators.~~ of $10.0 million.

(dollars in thousands)						March 31 2024		December 31 2023
	September 30, 2023		December 31, 2022
Uninsured deposits	$	1,316,275	$	1,212,517	$	1,305,040	$	1,367,568

	As of and For the Three Months Ended March 31,
*(dollars in thousands)*	2024			2023
FHLB Borrowings:
Outstanding at period-end	$	150,000		$	220,000
Average amount outstanding		150,000			229,778
Maximum amount outstanding at any month-end		150,000			220,000
Weighted average interest rate:
During period		1.18	%		2.49	%
End of period		1.18	%		2.43	%