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

~~SEPTEMBER 30, 2017~~ MARCH 31, 2022(UNAUDITED) AND DECEMBER 31, ~~2016~~2021 (AUDITED) (CONTINUED)

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

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

FOR THETHREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2022 AND ~~2016~~2021

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

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

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

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

RBB Bancorp (“RBB”) is a ~~bank~~financial holding company registered under the Bank Holding Company Act of 1956, as amended. ~~Our~~RBB Bancorp’s principal business is to serve as the holding company for ~~our~~its wholly-owned banking subsidiaries, Royal Business 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.

At ~~September 30, 2017,~~March 31, 2022, the Company had total consolidated assets of ~~$1.6~~$4.0 billion, gross consolidated loans (held for investment and held for sale) of ~~$1.2~~$3.0 billion, total consolidated deposits of ~~$1.3~~$3.2 billion and total consolidated stockholders' equity of ~~$260.3~~$464.8 million. ~~On July 31, 2017, the Company completed its initial public offering of 3,750,000 shares at a price to the public of $23.00 per share. The Company’s~~RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB”.

The Bank provides ~~business banking~~business-banking services to the Chinese-American communities in Los Angeles County, Orange County and Ventura County ~~and~~in California, in Las Vegas, Nevada, the New York City, New York metropolitan area, including Edison, New Jersey, Chicago, Illinois, and Honolulu, Hawaii. Specific services include remote deposit, E-banking, mobile banking, commercial and investor real estate loans, business loans and lines of credit, ~~SBA~~ Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts. ~~RAM was formed to hold and manage problem assets acquired in business combinations.~~The Bank closed its acquisition of the Honolulu, Hawaii branch from Bank of the Orient ("BOTO") on January 14, 2022.

The Company operates full-service banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, ~~West LA,~~ and Westlake Village, ~~California and~~California; Las Vegas, ~~Nevada~~Nevada; Manhattan, Brooklyn, Flushing, and ~~a loan production office in~~Elmhurst, New York; the ~~City~~Chinatown and Bridgeport neighborhoods of ~~Industry, California.~~Chicago, Illinois; Edison, New Jersey; and Honolulu, Hawaii. The ~~Company's~~Company’s primary source of revenue is providing loans to customers, who are ~~predominately~~predominantly small and middle-market businesses and individuals. On May 2, 2022 we opened our Bensonhurst branch on 86^th Street in Brooklyn, New York.

The Company generates its revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities. ~~We have~~The Company also ~~derived~~derives income from noninterest sources, such as fees received in connection with various lending and deposit services, ~~residential mortgage loan originations,~~ loan servicing, ~~and~~ gain on sales of ~~loans. Our principle~~loans and wealth management services. The Company’s principal expenses include interest expense on deposits and subordinated debentures, and operating expenses, such as salaries and employee benefits, occupancy and equipment, data processing, and income tax expense.

The Company has completed ~~four~~six whole bank acquisitions from July 8, 2011 through ~~February 19, 2016, including~~January 2022. All of the ~~acquisition of TFC Holding Company on February 19, 2016. Our~~Company’s 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. ~~See Note 3. Acquisitions, for more information about~~The Company announced the ~~TFC acquisition.~~agreement to acquire Gateway Bank F.S.B., and believes the transaction will close in the fourth quarter of 2022.

The Board of Governors of the Federal Reserve System (“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. The Federal Reserve has indicated that it may adjust reserve requirement ratios in the future if conditions warrant.

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

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~~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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 are not necessarily indicative of the results for the full year. ~~Certain amounts reported for 2016 have been reclassified to be consistent with the reporting for 2017.~~ These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the ~~years~~year ended December 31, ~~2016, 2015 and 2014,~~ 2021, included in our ~~registration statement~~Annual Report filed ~~under~~on Form ~~S-1.~~

~~Principles of Consolidation~~ 10-K for the fiscal year ended December 31, 2021 and ~~Nature of Operations~~

~~The accompanying unaudited consolidated financial statements include~~Amendment No.1 to the ~~accounts of RBB Bancorp and its wholly-owned subsidiaries Royal Business Bank ("Bank"~~Annual Report on Form 10-K/A (collectively our “2021 Annual Report”) ~~and RBB Asset Management Company ("RAM"), collectively referred to herein as "the Company"~~. ~~All significant intercompany transactions have been eliminated.~~

~~RBB Bancorp was formed in January 2011 as a bank holding company. RAM was formed in 2012 to hold and manage problem assets acquired in business combinations.~~

~~RBB Bancorp has no significant business activity other than its investments in Royal Business Bank and RAM.~~

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~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 our estimate of the allowance for loan losses and the fair value of mortgage servicing rights could change as actual results could differ from those estimates. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements were compiled in accordance with the accounting policies set forth in Note 12 – Basis of Presentation and Summary of Significant Policies in our Consolidated Financial Statements as of and for the ~~periods~~year ended December 31, ~~2016, 2015, and 2014,~~2021, included in our ~~registration statement on Form S-1.~~2021 Annual Report. The accompanying consolidated unaudited financial statements reflect all adjustments consisting of normal recurring adjustments that, in the opinion of management, are necessary to reflect a fair statement of our consolidated financial condition, results of operations, and cash flows. The results of operations for acquired companies are included from the dates of acquisition. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.

~~In May 2014, the~~ Financial Accounting Standards Board ("FASB") ~~issued~~issues Accounting Standards ~~Update~~Updates ("ASU" or “Update”) ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~and Accounting Standards Codifications (“ASC”), which are the primary source of GAAP.

When RBB conducted its initial public offering (“IPO”) in 2017, we qualified as an emerging growth company (“EGC”). ~~This Update requires~~We will remain an ~~entity~~EGC until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.0 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which we are deemed to ~~recognize revenue~~be a “large accelerated filer” under the Securities Exchange Act of 1934, as ~~performance obligations~~amended (the “Exchange Act”). We anticipate no longer qualifying as an EGC on December 31, 2022. EGCs are ~~met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is~~ entitled to ~~receive for those goods or services. The following steps are applied in~~reduced regulatory and reporting requirements under the ~~updated guidance: (1) identify~~Securities Act of 1933, as amended (the “Securities Act”), and the ~~contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price~~Exchange Act, as compared to ~~the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.~~ ~~These amendments are effective for~~ public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and one year later for nonpublic business entities. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The Company plans to adopt ASU 2014-09 on January 1, 2019 utilizing the modified retrospective approach. Since the guidance does not apply to revenue associated with financial instruments such as loans and investments, which are accounted for under other provisions of GAAP, we do not expect it to impact interest income, our largest component of income. The Company will perform an overall assessment of revenue streams potentially affected by the ASU, including certain deposit related fees and interchange fees, to determine the impact this guidance will have on our consolidated financial statements. ("PBE").

In ~~January~~February 2016, the FASB issued ASU ~~2016-01,~~ ~~Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)~~. Changes made to the current measurement model primarily affect the accounting for equity securities and readily determinable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The Update also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. This Update is generally effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and one year later for nonpublic business entities. Based upon a preliminary evaluation of the guidance in ASU No. 2016-01 the Company does not believe that the ASU will have a material impact on the Company’s consolidated financial statements. The Company will continue to monitor any updates to the guidance.

~~In February~~ 2016 ~~the FASB issued Accounting Standards Update (ASU) 2016-02,~~ -02,Leases (Topic ~~842)~~842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance. ~~The amendments in this Update are effective for interim and annual periods beginning after December 15, 2018, for public business entities and one year later for all other entities.~~ ~~The Company has several lease agreements which are currently considered operating leases and are therefore not included on the Company’s Consolidated Balance Sheets.~~ Under the new guidance, the Company ~~expects that some of the lease agreements will have to be~~ recognized on the Consolidated Balance Sheets ~~as a~~ right-of-use ~~asset~~assets with a corresponding lease liability. ~~Based upon a preliminary evaluation the Company expects that the ASU will have an impact on the Company’s Consolidated Balance Sheets.~~ The Company ~~will continue to evaluate how extensive the impact will be under the~~early adopted this ASU on January 1, 2021 and recorded the ~~Company’s consolidated financial statements.~~right-of-use asset and lease liability of approximately $26.8 million.

In ~~March~~June 2016, the FASB issued ASU ~~2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting (Topic 718.)~~ ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Under ASU 2016-09, excess tax benefits and certain tax deficiencies will no longer be recorded in additional paid-in capital ("APIC"). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. In addition, the guidance requires excess tax benefits be presented as an operating activity on the statement of cash flows rather than as a financing activity. ASU 2016-09 also permits an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. This guidance is effective for public business entities for interim and annual reporting periods beginning after December 15, 2016 and for nonpublic business entities annual reporting periods beginning after December 15, 2017, and interim periods within the reporting periods beginning after December 15, 2018. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company early adopted the ASU as of January 1, 2017. The Company plans to recognize forfeitures as they occur. The early adoption of the ASU did not have a material effect on the company’s financial statements or disclosures.

~~In June 2016, the FASB issued ASU No. 2016-13,~~-13, Measurement of Credit Losses on Financial Instrument (Topic ~~326).~~326), including subsequent amending ASUs. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that ~~aren't~~are not measured at fair value through net income. ~~In issuing the standard, the FASB is responding to criticism that today's guidance delays recognition of credit losses.~~ The standard will replace today's "incurred loss" approach with an "expected loss" model. The new model, referred to as the current expected credit loss ("CECL") model, will apply to: ~~(1)~~(1) financial assets subject to credit losses and measured at amortized cost, and ~~(2)~~(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. ~~The CECL model does not apply to~~For available for sale ~~("AFS"~~(“AFS”) ~~debt securities. For AFS~~ debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ~~As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The~~ ASU ~~also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13~~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, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU ~~No. 2016-13 is~~2016-13 was originally proposed to be effective for interim and annual reporting periods for an emerging growth company beginning after ~~December 15, 2019, for SEC filers, one year later for non SEC filing public business entities and annual reporting periods beginning after~~ December 15, 2020, ~~for nonpublic business entities and interim periods within the reporting periods beginning after~~ but was subsequently extended until December ~~15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018.~~ 31, 2022. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company has begun its evaluation of the impact of the implementation of ASU ~~2016-13.~~2016-13. The implementation of the provisions of ASU ~~No. 2016-13~~2016-13 will most likely impact the Company’s ~~Consolidated Financial Statements~~consolidated financial statements as to the level of reserves that will be required for credit losses. The Company will continue to ~~access~~assess the potential impact that this ~~ASU~~Update will have on the Company’s consolidated financial statements. The Company will adopt CECL (ASU 2016-13) on December 31, 2022.

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. At this point, RBB does not expect to take the option to phase in effect of CECL.

In ~~August 2016,~~ January 2017, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 ~~and will require application using a retrospective transition method. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Currently, Topic 805 specifies three elements of a business – inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. This led many transactions to be accounted for as business combinations rather than asset purchases under legacy GAAP. The primary goal of ASU 2017-01 is to narrow the definition of a business, and the guidance in this update provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this update should be applied prospectively on or after the effective date. The Company is currently evaluating this ASU to determine the impact on its consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~-04, Intangibles—Goodwill and Other (Topic ~~350)~~350). This ~~ASU~~Update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. As a result, under ~~the ASU,~~this Update, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” For PBE's, ASU ~~No. 2017-14~~2017-04 is effective for annual and any interim impairment tests performed in periods beginning after December 15, 2019 for public business entities that are SEC filers, December 15, 2020 for business entities that are not SEC filers, and December 15, 2021 for all other entities. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The2019. As an EGC, the Company will ~~continue to access the potential impact that~~adopt this ASU ~~will have~~ on ~~the Company’s consolidated financial statements.~~

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which is intended to enhance “the accounting for the amortization of premiums for purchased callable debt securities.” The ASU shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments in this Update affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The ASU’s amendments are effective for public business entities for interim and annual periods beginning after December 15, 2018. For other entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods thereafter. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The implementation of the provisions31, 2022. Adoption of ASU ~~No. 2017-08 will most likely~~ 2017-04 is not expected to have a ~~material~~significant impact ~~the Company’s consolidated financial statements. The Company will continue to access the potential impact that this ASU will have~~ on the Company’s consolidated financial statements.

In ~~May 2017,~~ August 2018, the FASB issued ASU ~~No. 2017-09, “Compensation – Stock Compensation (Topic 718)~~2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): ~~Scope~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This Update provides additional guidance to ASU 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (CCA), on the accounting for implementation, setup, and other upfront costs (collectively referred to as implementation costs) apply to entities that are a customer in a hosting arrangement. This Update applies to entities that are a customer in a hosting arrangement that is a service contract. Costs for implementation activities in the application development stage are capitalized depending on the nature of ~~codification Accounting.” The amendments in ASU 2017-09 provide guidance about which changes~~the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. This Update also requires the customer to expense the ~~terms or conditions~~capitalized implementation costs of a ~~share- entity to apply modification accounting. An entity should account for~~hosting arrangement that is a service contract over the ~~effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)~~term of the ~~modified award~~hosting arrangement. This Update is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASU No. 2017-09 are effective for ~~annual periods, and interim within those~~an EGC for annual reporting periods beginning after December 15, ~~2017; early~~2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments in this Update is ~~permitted.~~permitted, including adoption in any interim period, for all entities. The amendments in this ~~ASU~~Update should be applied either retrospectively or prospectively to ~~an award modified on or~~all implementation costs incurred after the ~~adoption date.~~date of adoption. This Update will most likely not have a material impact unless the Company incurs implementation costs for a CCA that is a service contract.

In January 2020, the FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)”. This ASU is for equity securities accounted for by the equity method. The amendment clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company ~~does~~ has equity securities on our balance sheet but are not ~~expect~~ material to be considered for the equity method. For an EGC, this ASU tois effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted this ASU on January 1, 2022 and this ASU did not have a material impact on the Company’s consolidated financial statements.

Table of Contents

In ~~July 2017,~~ February 2020, the FASB issued ASU ~~2017-13—Revenue Recognition~~2020-02, “Financial Instruments—Credit Losses (Topic ~~605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),~~326) and Leases (Topic ~~842):~~ 842)—Amendments to SEC Paragraphs Pursuant to ~~the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior~~ SEC Staff ~~Announcements~~Accounting Bulletin No.119 and ~~Observer Comments~~Update to SEC Section on Effective Date Related to Accounting Standards Update No.2016-02, Leases (Topic 842) (SEC Update)”. ~~At the July 20, 2017, EITF meeting,~~This is an amendment to add the SEC ~~staff announced that it~~Staff guidance on CECL to the FASB codification. It contains guidance on what the SEC would ~~not object~~expect the Company to perform and document when ~~certain public business entities (PBEs) elect~~measuring and recording its allowance for credit losses for financial assets recorded at amortized cost. As an EGC, the Company will implement CECL on December 31, 2022.

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 ~~use~~ease the ~~non-PBE effective dates solely~~financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to ~~adopt the FASB’s new standards on revenue (ASC 606) and leases (ASC 842)~~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 ~~reflects comments~~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 (generally through December 31, 2022). For contract modifications, companies can account for the modification as a continuation of the existing contract without additional analysis. For held-to-maturity (“HTM”) debt securities, one-time sale and/or transfer to available-for-sale or trading may be made byfor HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. Regarding the ~~SEC.~~effective date and transition: (1) companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 (e.g. January 1, 2020 for calendar year-end companies) or any date thereafter, (2) the ASU applies prospectively to contract modifications and hedging relationships, and (3) the one-time election to sell and/or transfer debt securities classified as HTM may be made at any time after March 12, 2020. 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. Of the Company’s $3.0 billion in total gross loans as of March 31, 2022, approximately 6.8% have a LIBOR based reference rate. The Company ~~will continue~~has several issuances of LIBOR based long-term debt and subordinated debentures. Refer to ~~evaluate how extensive the impact will be under the ASU on~~Notes 9 and 10 of the Company’s consolidated financial ~~statements.~~statements included in this Form 10-Q. The Company is developing new SOFR-based loan products that will be equivalent to prior LIBOR-based loan products. We anticipate a neutral financial impact.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)~~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. Early adoption is permitted. This ASU will be effective for the Company on January 1, 2023.

In November 2021, the FASB issued ASU 2021-10 "Disclosures by Business Entities about Government Assistance". The amendments in this Update require the annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This Update is applicable to the Company and was adopted January 1, 2022.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This pronouncement eliminates the accounting guidance on troubled debt restructurings ("TDRs") for creditors and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. As the Company will adopt ASU 2016-13 (“CECL”) on December 31, 2022, ASU 2022-02 will also be effective for the Company on December 31, 2022.

On ~~February 19, 2016,~~ January 14, 2022, the ~~Company~~Bank completed the acquisition of the Honolulu, Hawaii branch office of BOTO. 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 ~~all~~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 ~~assumed all~~ the ~~liabilities~~premium paid. Goodwill of ~~TFC Holding Company in exchange for cash~~$2.3 million and core deposit premium of ~~$86.7 million. At closing, TFC primarily consisted of TomatoBank, its wholly owned subsidiary and $3.3 million of trust preferred debentures. TFC Holding Company operated six branches in~~$729,000 was recognized from the ~~Los Angeles metropolitan area.~~ Honolulu branch purchase.

The Company acquired ~~TFC Holding Company~~this branch to strategically ~~increase its existing~~establish a presence in the ~~Los Angeles~~Hawaiian Islands area. Goodwill in the amount of ~~$25.9~~$2.3 million was recognized in 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 total fair value of assets acquired approximated $469.9 million, which included $51.6 million in cash and cash equivalents, $2.3 million in interest bearing deposits in other financial institutions, $2.0 million in FHLB stock, $387.7 million in loans, $15.8 million in available for sale securities, $4.9 million in deferred tax assets, $225,000 in fixed assets, $1.7 million in core deposit intangible assets and $3.7 million in other assets. The total fair value of liabilities assumed was $409.1 million, which included $405.3 million in deposits, $3.3 million in subordinated debentures and $566,000 in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of February 19, 2016. Thefollowing table represents the assets acquired and liabilities assumed ~~have been accounted for~~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. The Company determined the fair value of loans, leases, core deposit intangible, deposits, and subordinated debentures with the assistance of a third party valuation.~~accounting:

The fair values are estimates and are subject to adjustment for up to one year after the acquisition ~~date or when additional information relative~~date.

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 ~~the closing date~~be recorded at their respective fair values ~~becomes available and such information is considered final, whichever is earlier. While additional significant changes to~~at the ~~closing~~ date of acquisition.

The loan portfolio of the Honolulu branch was recorded at fair ~~values are not expected, any information relative to~~value at the ~~changes in these fair values will be evaluated to determine if such changes are due to events and circumstances that existed~~date of acquisition with the assistance of a third-party valuation. A valuation of the loan portfolio was performed as of the acquisition ~~date. During the measurement period, any such changes will be recorded as part of the closing~~ date ~~fair value. The measurement period ended on February 19, 2017.~~

~~In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected~~ to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The excess of expected cash flows aboveassess the fair value of the ~~majority~~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 0 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 ~~loans will~~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 ~~accreted~~able to ~~interest income~~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 ~~lives~~life of the ~~loans in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20.~~certificates of deposit at market-based interest rates.

Third-party acquisition related expenses are recognized as incurred and continue until the ~~loans~~ acquired ~~had evidence of deterioration of credit quality since origination for which it was probable, at acquisition, that the~~system is converted and operational functions become fully integrated. The Company ~~would be unable to collect all contractually required payments receivable.~~

~~In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previously recorded by TFC Holding Company.~~

~~Non-recurring~~incurred third-party acquisition related expenses in ~~connection with~~ the ~~TFC acquisition were $1.7 million~~consolidated statements of income for the ~~nine months ended September 30, 2016. There were no non-recurring acquisition related expenses for~~periods indicated in the ~~nine months ended September 30, 2017~~Statements of Income in the expense item “Merger expenses”.

~~RBB BANCORP AND SUBSIDIARIES~~For the Honolulu branch, during the first quarter of 2022, revenue was $96,000 and the net loss was $87,000.

Table of Contents

The following table summarizes the amortized cost and fair value of ~~securities~~ available for sale (“AFS”) debt securities and held to maturity ~~at September 30, 2017~~(“HTM”) debt securities as of March 31, 2022 and December 31, ~~2016,~~ 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

One security with a fair value of ~~$840,000~~$99,000 and ~~$933,000~~$117,000 at March 31, 2022 and December 31, 2021, respectively, was pledged to secure a local agency ~~deposit at September 30, 2017~~deposit.

There were 0 sales of investment securities during the three months ended March 31, 2022 and ~~December 31, 2016,~~2021, respectively.

The amortized cost and fair value of the investment securities portfolio at ~~September 30, 2017~~ March 31, 2022 and December 31, 2021 are shown by expected maturity below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The following table summarizes ~~available for sale~~investment securities with unrealized losses at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, aggregated by major security type and length of time in a continuous unrealized loss ~~position. There were no held to maturity securities in a continuous unrealized loss position at September 30, 2017 and December 31, 2016:~~position:

Unrealized losses have not been recognized into income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach maturity.

Management evaluates securities for other-than-temporary impairment ~~("OTTI"~~(“OTTI”) on ~~at least~~ a ~~semi-annual~~quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

Equity Securities - The Company has several CRA equity investments. The Company recorded no loss nor gain for the three months ended March 31, 2022 and a loss of $20,000 for the three months ended March 31, 2021 due to the decrease in the fair value of those equity investments without readily determinable fair values. CRA equity securities were $20.0 million as of March 31, 2022 and December 31, 2021.

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

The following tables present the balance and activity related to the allowance for loan losses for held for investment loans by type for the periods presented.

Table of Contents

Nine Months Ended September 30,

2017

2016

(dollars in thousands)

Real Estate

Commercial

Unallocated

Total

Real Estate

Commercial

Unallocated

Total

Beginning balance

$
8,111

$
6,051

$
—

$
14,162

$
5,788

$
4,235

$
—

$
10,023

Additions (reductions) to the allowance
charged to expense

(439
)

(3,435
)

386

(3,488
)

4,487

(888
)

—

3,599

Recoveries on loans charged-off

—

746

—

746

—

—

—

—

Less loans charged-off

—

—

—

—

—

(223
)

—

(223
)
Ending balance

$
7,672

$
3,362

$
386

$
11,420

$
10,275

$
3,124

$
—

$
13,399

The following table presents the recorded investment in loans and impairment method as of March 31, 2022and ~~for the nine months ended September 30, 2017~~2021 and ~~September 30, 2016, and the activity in the allowance for loan losses for the year ended~~ December 31, ~~2016,~~ 2021, by portfolio segment:

(dollars in thousands)
As of September 30, 2017	Real Estate		Commercial		Unallocated		Total
March 31, 2022									*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Reserves:
Specific	$	—	$	—	$	—	$	—	$	0	$	26	$	0	$	0	$	26
General		7,672		3,362		386		11,420		29,022		3,774		470		0		33,266
Loans acquired with deteriorated credit quality		—		—		—		—
	$	7,672	$	3,362	$	386	$	11,420
Total allowance for loan losses									$	29,022	$	3,800	$	470	$	0	$	33,292
Loans evaluated for impairment:
Individually	$	2,580	$	1,370	$	—	$	3,950	$	10,905	$	9,783	$	3	$	0	$	20,691
Collectively		819,654		372,602		—		1,192,256		2,618,427		338,730		28,636		0		2,985,793
Loans acquired with deteriorated credit quality		316		—		—		316
	$	822,550	$	373,972	$	—	$	1,196,522
Total loans, net of deferred loan fees and unaccreted discount on acquired loans									$	2,629,332	$	348,513	$	28,639	$	0	$	3,006,484

As of December 31, 2016

Real Estate

Commercial

Unallocated

Total

Allowance for loan losses:

Beginning of year

$
5,788

$
4,235

$
—

$
10,023

Provisions

2,323

2,651

—

4,974

Charge-offs

—

(835
)

—

(835
)
Recoveries

—

—

—

—

$
8,111

$
6,051

$
—

$
14,162

Reserves:

Specific

$
—

$
1,782

$
—

$
1,782

General

8,111

4,269

—

12,380

Loans acquired with deteriorated credit quality

—

—

—

—

$
8,111

$
6,051

$
—

$
14,162

Loans evaluated for impairment:

Individually

$
2,556

$
3,577

$
—

$
6,133

Collectively

744,349

359,234

—

1,103,583

Loans acquired with deteriorated credit quality

730

—

—

730

$
747,635

$
362,811

$
—

$
1,110,446

March 31, 2021	*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Reserves:
Specific	$	0	$	524	$	0	$	0	$	524
General		25,934		4,257		46		34		30,271
Total allowance for loan losses	$	25,934	$	4,781	$	46	$	34	$	30,795
Loans evaluated for impairment:
Individually	$	11,429	$	8,482	$	0	$	0	$	19,911
Collectively		2,302,662		388,864		3,768		0		2,695,294
Total loans, net of deferred loan fees and unaccreted discount on acquired loans	$	2,314,091	$	397,346	$	3,768	$	0	$	2,715,205

December 31, 2021	*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Reserves:
Specific	$	0	$	30	$	0	$	0	$	30
General		28,592		3,763		527		0		32,882
Total allowance for loan losses	$	28,592	$	3,793	$	527	$	0	$	32,912
Loans evaluated for impairment:
Individually	$	10,340	$	10,385	$	0	$	0	$	20,725
Collectively		2,545,379		334,460		30,786		0		2,910,625
Total loans, net of deferred loan fees and unaccreted discount on acquired loans	$	2,555,719	$	344,845	$	30,786	$	0	$	2,931,350

The Company categorizes 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 loans individually by classifying the loans as to credit risk. This

~~RBB BANCORP AND SUBSIDIARIES~~

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

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 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~~management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

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

Impaired - A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired.

Table of Contents

The risk category of loans by class of loans was as follows at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

(dollars in thousands)			Special										*Special*
September 30, 2017	Pass		Mention		Substandard		Impaired		Total
March 31, 2022											*Pass*		*Mention*		*Substandard*		*Impaired*		*Total*
Real estate:
Construction and land development	$	94,004	$	—	$	—	$	293	$	94,297	$	346,625	$	0	$	0	$	141	$	346,766
Commercial real estate		444,108		4,517		40,174		2,287		491,086		1,177,470		1,773		33,517		5,225		1,217,985
Single-family residential mortgages		237,167		—		—		—		237,167		1,058,985		0		57		5,539		1,064,581
Commercial:
Other		222,743		960		971		1,293		225,967
Commercial and industrial												248,852		23,332		3,975		4,666		280,825
SBA		143,507		1,819		2,602		77		148,005		55,049		1,302		6,220		5,117		67,688
Other:												28,636		0		0		3		28,639
	$	1,141,529	$	7,296	$	43,747	$	3,950	$	1,196,522	$	2,915,617	$	26,407	$	43,769	$	20,691	$	3,006,484

December 31, 2016
Real estate:
Construction and land development	$	87,174	$	1,932	$	—	$	303	$	89,409
Commercial real estate		475,499		4,562		19,484		2,253		501,798
Single-family residential mortgages		136,206		13,950		6,272		—		156,428
Commercial:
Other		194,227		—		9,616		—		203,843
SBA		151,066		1,934		2,391		3,577		158,968
	$	1,044,172	$	22,378	$	37,763	$	6,133	$	1,110,446

*(dollars in thousands)*			*Special*
December 31, 2021	*Pass*		*Mention*		*Substandard*		*Impaired*		*Total*
Real estate:
Construction and land development	$	299,333	$	3,662	$	0	$	149	$	303,144
Commercial real estate		1,184,889		2,006		55,104		6,000		1,247,999
Single-family residential mortgages		1,000,385		0		0		4,191		1,004,576
Commercial:
Commercial and industrial		255,439		0		9,148		4,122		268,709
SBA		62,300		1,303		6,270		6,263		76,136
Other:		30,786		0		0		0		30,786
	$	2,833,132	$	6,971	$	70,522	$	20,725	$	2,931,350

~~The following table presents the recorded investment in non-accrual loans by class of loans. There were no loans past due 90 days and still on accrual at September 30, 2017 and December 31, 2016:~~

September 30

December 31,

(dollars in thousands)

2017

2016

Commercial:

SBA

$
77

$
3,577

~~RBB BANCORP AND SUBSIDIARIES~~

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

The following table presents the aging of the recorded investment in past-due loans at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~ 2021 by class of loans:

*(dollars in thousands)*	30-59		60-89		*90 Days*		*Total*		*Loans Not*				*Non-Accrual*
March 31, 2022	*Days*		*Days*		*Or More*		*Past Due*		*Past Due*		*Total Loans*		*Loans (1)*
Real estate:
Construction and land development	$	6,700	$	0	$	141	$	6,841	$	339,925	$	346,766	$	141
Commercial real estate		505		0		3,669		4,174		1,213,811		1,217,985		3,916
Single-family residential mortgages		8,639		0		3,340		11,979		1,052,602		1,064,581		5,539
Commercial:
Commercial and industrial		70		497		3,689		4,256		276,569		280,825		4,282
SBA		1,887		0		3,748		5,635		62,053		67,688		5,117
Other:		56		9		3		68		28,571		28,639		3
	$	17,857	$	506	$	14,590	$	32,953	$	2,973,531	$	3,006,484	$	18,998
Real estate:
Single-family residential mortgages held for sale	$	0	$	0	$	0	$	0	$	3,572	$	3,572	$	0

*(dollars in thousands)*	30-59		60-89		*90 Days*		*Total*		*Loans Not*				*Non-Accrual*
December 31, 2021	*Days*		*Days*		*Or More*		*Past Due*		*Past Due*		*Total Loans*		*Loans (1)*
Real estate:
Construction and land development	$	0	$	0	$	149	$	149	$	302,995	$	303,144	$	149
Commercial real estate		1,914		3,002		667		5,583		1,242,416		1,247,999		4,672
Single-family residential mortgages		10,554		2,238		2,680		15,472		989,104		1,004,576		4,191
Commercial:
Commercial and industrial		1,575		0		3,689		5,264		263,445		268,709		3,712
SBA		0		1,733		4,839		6,572		69,564		76,136		6,263
Other:		57		7		0		64		30,722		30,786		0
	$	14,100	$	6,980	$	12,024	$	33,104	$	2,898,246	$	2,931,350	$	18,987
Real estate:
Single-family residential mortgages held for sale	$	0	$	0	$	0	$	0	$	5,957	$	5,957	$	0

(1)

Included in total loans.

The Company has 0 loans that are 90 days or more past due and still accruing at March 31, 2022 and December 31, 2021.

30-59

60-89

Greater Than

(dollars in thousands)

Days

Days

89 Days

Total

Loans Not

September 30, 2017

Past Due

Past Due

Past Due

Past Due

Past Due

Total

Real estate:

Construction and land development

$
—

$
—

$
—

$
—

$
94,297

$
94,297

Commercial real estate

—

—

—

—

491,086

491,086

Single-family residential mortgages

531

—

—

531

236,636

237,167

Commercial:

—

Other

213

—

—

213

225,754

225,967

SBA

254

1,434

—

1,688

146,317

148,005

$
998

$
1,434

$
—

$
2,432

$
1,194,090

$
1,196,522

December 31, 2016

Real estate:

Construction and land development

$
—

$
—

$
—

$
—

$
89,409

$
89,409

Commercial real estate

—

—

—

—

501,798

501,798

Single-family residential mortgages

—

—

—

—

156,428

156,428

Commercial:

Other

343

—

—

343

203,500

203,843

SBA

—

—

3,577

3,577

155,391

158,968

$
343

$
—

$
3,577

$
3,920

$
1,106,526

$
1,110,446

19

Table of Contents

Information relating to individually impaired loans presented by class of loans was as follows at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

	Unpaid										*Unpaid*
(dollars in thousands)	Principal		Recorded		Average		Interest		Related		*Principal*		*Recorded*		*Related*
September 30, 2017	Balance		Investment		Balance		Income		Allowance
March 31, 2022											*Balance*		*Investment*		*Allowance*
With no related allowance recorded
Construction and land development	$	293	$	293	$	298	$	16	$	—	$	173	$	141	$	—
Commercial and industrial												4,660		4,643		—
Commercial real estate		2,287		2,287		2,270		253		—		5,271		5,225		—
Single-family residential mortgage loans												5,784		5,539		—
Commercial - SBA		1,370		1,370		685		79		—		5,120		5,104		—
Other												3		3		0
With related allowance recorded
Commercial and industrial												24		23		24
Commercial-SBA												14		13		2
Total	$	3,950	$	3,950	$	3,253	$	348	$	—	$	21,049	$	20,691	$	26

December 31, 2016
With no related allowance recorded
Construction and land development	$	303	$	303	$	309	$	21	$	—
Commercial real estate		2,253		2,253		1,710		280		—
Commercial - SBA		18		18		93		—		—
Subtotal		2,574		2,574		2,112		301		—

With an allowance recorded
Commercial - SBA		3,559		3,559		3,559		—		1,782
Total	$	6,133	$	6,133	$	5,671	$	301	$	1,782

	*Unpaid*
*(dollars in thousands)*	*Principal*		*Recorded*		*Related*
December 31, 2021	*Balance*		*Investment*		*Allowance*

Construction and land development	$	173	$	149	$	0
Commercial and industrial		4,096		4,096		0
Commercial real estate		6,059		6,000		0
Residential mortgage loans		4,365		4,191		0
Commercial - SBA		6,274		6,245		0
Other		0		0		0
With related allowance recorded
Commercial and industrial		27		26		27
Commercial-SBA		18		18		3
Total	$	21,012	$	20,725	$	30

The following table presents information on impaired loans and leases, disaggregated by loan segment, for the periods indicated:

	*Three Months Ended*
	*March 31, 2022*				*March 31, 2021*
	*Average*		*Interest*		*Average*		*Interest*
*(dollars in thousands)*	*Balance*		*Income*		*Balance*		*Income*
With no related allowance recorded
Construction and land development	$	173	$	8	$	173	$	0
Commercial and industrial		4,669		6		1,211		7
Commercial real estate		5,302		32		2,627		33
Residential mortgage loans		5,807		0		8,980		0
Commercial - SBA		5,321		0		7,154		0
Other		3		0		0		0
With related allowance recorded
Commercial and industrial		25		0		520		0
Commercial - SBA		17		0		32		0
Total	$	21,317	$	46	$	20,697	$	40

No interest income on non-accrual loans was recognized on a cash basis for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 and~~2021 or for the year ended December 31, ~~2016.~~ 2021.

~~RBB BANCORP AND SUBSIDIARIES~~

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

The ~~Company had five~~Coronavirus Aid, Relief, and ~~six loans identified~~Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as troubled debt restructurings ("~~TDR's"~~TDRs") ~~at September 30, 2017~~ and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, ~~2016, respectively. A specific reserve~~2020 or 60 days after the end of ~~$1,782,000 had been allocated for one~~the coronavirus emergency declaration and (ii) the applicable loan at was not more than 30 days past due as of December 31, ~~2016.~~2019. The Consolidated Appropriations Act (“CAA”), signed into law on December 27, 2020, extends the applicable period to include modifications to loans held by financial institutions executed between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the date of the termination of the COVID-19 national emergency. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

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The Company identified 7 loans as TDRs at March 31, 2022 and 9 loans at December 31, 2021, with aggregate balances of $3.2 million and $3.4 million, respectively. Non-accrual TDRs were $1.6 million and $1.7 million at March 31, 2022 and December 31, 2021, respectively. There were no$2,000 and $3,000 specific reserves ~~on TDRs~~allocated to such loans as of ~~September 30, 2017.~~March 31, 2022 and December 31, 2021, respectively. There are no0 commitments to lend additional amounts at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~ 2021 to customers with outstanding loans that are classified as ~~TDR's.~~

~~During the year ended December 31, 2016 and for the nine months ended September 30, 2017, the terms of certain~~TDRs. There were 0 non-accrual loans that were modified as ~~TDR's. The modification of~~TDRs during the ~~terms generally included loans where a moratorium on loan payments was granted. Such moratoriums ranged from three~~past twelve months ~~to twelve months on~~that had payment defaults during the ~~loans restructured in 2017 and 2016.~~periods.

~~The following table presents~~

There were 0 loans ~~by class~~ modified as TDRs ~~that occurred~~ during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~the year ended December 31, 2016;~~2021.

Pre-

Post-

Modification

Modification

(dollars in thousands)

Number of

Recorded

Recorded

September 30, 2017

Loans

Investment

Investment

Commercial

1

$
1,293

$
1,293

Pre-

Post-

Modification

Modification

(dollars in thousands)

Number of

Recorded

Recorded

December 31, 2016

Loans

Investment

Investment

Commercial real estate

1

$
1,047

$
1,047

The Company has purchased loans as part of its whole bank acquisitions, for which there was at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

~~The outstanding balance and carrying amount of purchased credit-impaired loans at September 30, 2017 and December 31, 2016 were as follows:~~

September 30,

December 31,

(dollars in thousands)

2017

2016

Outstanding balance

$
324

$
878

Carrying amount

$
316

$
730

For these purchased credit-impaired loans, the Company did not increase the allowance for loan losses during the nine months ended September 30, 2017 or for the year ended December 31, 2016, as there were no significant reductions in the expected cash flows.

~~Below is a summary of activity in the accretable yield on purchased credit-impaired loans for the nine months ended September 30, 2017 and for the year ended December 31, 2016:~~

September 30,

December 31,

(dollars in thousands)

2017

2016

Beginning balance

$
142

$
349

Restructuring as TDR

—

(22
)
Accretion of income

(134
)

(185
)
Ending balance

$
8

$
142

~~RBB BANCORP AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)~~NOTE 6 - LOAN SERVICING

~~NOTE 6 - LOAN SERVICING~~

Mortgage, SBA and ~~SBA~~CRE loans serviced for others are not reported as assets. The principal balances at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~ 2021 are as follows:

	September 30,		December 31,		*March 31,*		*December 31,*
(dollars in thousands)	2017		2016		*2022*		*2021*
Loans serviced for others:
Mortgage loans	$	306,168	$	259,207	$	1,236,179	$	1,308,672
SBA loans	$	166,148	$	110,263		142,023		138,173
Commercial real estate loans						4,050		4,070

~~Activity for servicing assets follows:~~

The fair value of servicing assets for mortgage loans was ~~$1,804,000~~$16.3 million and ~~$1,184,000~~$15.4 million at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, respectively. The fair value of servicing assets for SBA loans was ~~$4,982,000~~$4.1 million and ~~$3,142,000~~$4.1 million at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, 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 market place. The analysis accounts for recent transactions, and supply and demand within the market.

Servicing fees net of servicing asset amortization totaled ~~$571,000~~$432,000 and ~~$384,000~~$246,000 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively.

When mortgage and ~~Small Business Administration ("SBA")~~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 later determines 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. During the three months ended March 31, 2022 and 2021, the Company did not record any impairment writedowns on mortgage servicing rights.

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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 netted against loan servicing fee income.

	Nine Months Ended						Nine Months Ended						*Three Months Ended*
	September 30, 2017						September 30, 2016						*March 31, 2022*						*March 31, 2021*
	Mortgage			SBA			Mortgage			SBA			*Mortgage*			*SBA*			*Mortgage*			*SBA*
(dollars in thousands)	Loans			Loans			Loans			Loans			*Loans*			*Loans*			*Loans*			*Loans*
Servicing assets:
Beginning of year	$	1,002		$	2,702		$	298		$	1,807
Beginning of period													$	8,748		$	2,769		$	10,529		$	3,436
Additions		501			2,149			602			1,033			299			163			628			77
Disposals		(134	)		(202	)		(31	)		(99	)		(391	)		(51	)		(621	)		(83	)
Amortized to expense		(271	)		(377	)		(109	)		(244	)		(392	)		(97	)		(580	)		(122	)
End of period	$	1,098		$	4,272		$	760		$	2,497		$	8,264		$	2,784		$	9,956		$	3,308

NOTE 7 - GOODWILL AND INTANGIBLES

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any ~~noncontrolling~~non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank and branch acquisitions ~~is not amortized, but~~are tested for impairment at least annually. The Company has historically selected December 3131st as the date to perform the annual impairment test. Goodwill amounted to ~~$29.9~~$71.5 million and $69.2 million at ~~September 30, 2017~~March 31, 2022 and at December 31, ~~2016,~~2021, respectively, and is the only intangible asset with an indefinite life on the Company's balance sheet. ~~There were no impairment losses~~Goodwill in the amount of $2.3 million was recognized ~~on goodwill during~~in conjunction with the ~~nine months ended September 30, 2017 and 2016.~~acquisition of the Honolulu, Hawaii branch office.

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. During the quarter ended March 31,2022, $729,000 of CDI was recognized in conjunction with for the ~~2013 acquisition of~~

~~RBB BANCORP AND SUBSIDIARIES~~

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

~~Los Angeles National Bank and in the 2016 acquisition of TFC Holding Company.~~Hawaii branch purchase. The unamortized balance at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021 was ~~$1,525,000~~$4.5 million and ~~$1,793,000, respectively, for both Los Angeles National Bank and TFC Holding Company.~~$4.1 million, respectively. CDI amortization expense was ~~$268,000~~$279,000 and ~~$268,000~~$301,000 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~September 30, 2016, respectively, for both Los Angeles National Bank and TFC Holding Company.~~2021, respectively.

Estimated CDI amortization expense for future years is as ~~follows (dollars in thousands):~~follows:

*(dollars in thousands)*
As of March 31:
Remainder of 2022	$	807
2023		923
2024		784
2025		672
2026		501
Thereafter		838
Total	$	4,525

Year ending December 31:

2017 remaining

$
87

2018

311

2019

274

2020

244

2021

172

Thereafter

437

Total

$
1,525

22

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NOTE 8 - DEPOSITS

~~NOTE 8 - DEPOSITS~~

At ~~September 30, 2017,~~March 31, 2022, the scheduled maturities of time deposits are as follows:

(dollars in thousands)				*March 31, 2022*
One year	$	660,187	$	1,088,147
Two to three years		8,513		33,087
	$	668,700
Over three years				2,266
Total			$	1,123,500

NOTE 9 - LONG-TERM DEBT

In November 2018, the Company issued $55 million of 6.18% fixed to floating rate subordinated debentures, due December 1, 2028. The interest rate is fixed through December 1, 2023 and floats at three month LIBOR plus 315 basis points thereafter. The Company can redeem these subordinated debentures beginning December 1, 2023. The subordinated debentures are considered Tier 2 capital at the Company. The Company contributed $25 million to the Bank as Tier 1 capital.

In March 2021, the Company issued $120 million of 4.00% fixed to floating rate subordinated debentures, due April 1,2031. The interest rate is fixed through April 1,2026 and floats at three month SOFR plus 329 basis points thereafter. The Company can redeem these subordinated debentures beginning April 1,2026. The subordinated debentures are considered Tier 2 capital at the Company. The Company contributed $25 million to the Bank as Tier 1 capital

At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021, long-term debt was as follows:

	September 30,		December 31,			*March 31,*		*December 31,*
(dollars in thousands)	2017		2016		*2022*		*2021*
Principal	$	50,000	$	50,000	$	175,000	$	175,000
Unamortized debt issuance costs	$	508	$	617	$	1,848	$	1,993

~~In March 2016,~~The following table presents interest and amortization expense the Company ~~issued $50 million of 6.5% fixed to floating rate subordinated debentures, due~~ incurred for the three months ended March 31, ~~2026.~~ 2022 and 2021:

	*For the Three Months Ended March 31,*
*(dollars in thousands)*	*2022*		*2021*
Interest Expense:
Interest	$	2,050	$	1,729
Amortization		145		79

The ~~interest~~British banking regulators will continue the use of LIBOR rates through December 2022, and some will continue into 2023. At this point in time, the Company has adopted SOFR as the alternative reference rate ~~is fixed through March 31, 2021 and floats at 3 month~~to replace LIBOR ~~plus 516 basis points thereafter. The sub-debt is considered Tier-two capital at the Company. The Company allocated $35 million~~with respect to the ~~Bank as Tier-one capital.~~Company’s long-term debt.

NOTE 10 - SUBORDINATED DEBENTURES

The Company, through the acquisition of TFC ~~Bancorp,~~Holding Company (“TFC”) in 2016, acquired TFC Statutory ~~Trust.~~Trust (the “Trust”). The Trust ~~contained~~conducted a pooled private offering of 5,000 trust preferred securities with a liquidation amount of $1,000 per security. TFC ~~Bancorp~~ issued ~~$5,000,000~~$5 million of subordinated debentures to the ~~trust~~Trust in exchange for ownership of all of the common ~~security~~securities of the ~~trust~~Trust and the proceeds of the preferred securities sold by the ~~trust.~~Trust. The Company is not considered the primary beneficiary of this ~~trust~~Trust (variable interest entity), therefore the ~~trust~~Trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability at market value as of the close of the acquisition, which was ~~$3,255,000.~~$3.3 million. There was a ~~$1,900,000~~$1.9 million valuation reserve recorded to arrive at market value, which is treated as a yield adjustment and is amortized over the life of the security. The ~~amount of amortization expense recognized for the nine months ended September 30, 2017 and 2016 was $68,000 and $55,000, respectively. The~~ Company also purchased an investment in the common stock of the ~~trust~~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 ~~Bank~~ on or after March 15, 2012, at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on March 15, 2037. 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 ~~the~~ three month ~~London Interbank Offered Rate (LIBOR)~~LIBOR plus 1.65%, which was ~~2.97%~~2.48% as of March 31, 2022 and ~~2.61%~~1.85% at ~~September 30, 2017 and~~ December 31, ~~2016, respectively.~~2021.

Table of Contents

In October 2018, the Company, 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 $7,000,000 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 $217,000, which is included in other assets. There was a $1.2 million valuation reserve 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 subordinated debentures have a variable rate of interest equal to three-month LIBOR plus 2.25% through final maturity on December 15, 2034. The rate at March 31, 2022 was 3.08% and 2.45% at December 31, 2021.

~~RBB BANCORP AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)~~In January 2020, the Company, through the acquisition of PGBH, 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 $5,000,000 and 155 common securities with an aggregate liquidation amount of $155,000. PGBH issued $5.2 million of subordinated debentures to PGBH Trust in exchange for ownership of all the common securities of PGBH Trust. There was a $763,000 valuation reserve 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 subordinated debentures have a variable rate of interest equal to three-month LIBOR plus 2.10% through final maturity on December 15, 2034. The rate at March 31, 2022 was 2.93% and 2.30% at December 31, 2021.

The Company paid interest expense of $100,000 and $95,000 for the three months ended March 31, 2022 and 2021, respectively, on the subordinated debentures. The amount of aggregate amortization expense recognized for the three months ended March 31, 2022 and 2021 was $55,000 and $55,000, respectively.

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 may redeem them.

The British banking regulators eliminated the use of the LIBOR rate at the end of 2021. At this point in time, the Company has adopted SOFR as the alternative reference rate to replace LIBOR with respect to the Company’s subordinated debentures

NOTE 11 - BORROWING ARRANGEMENTS

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

Federal Funds Arrangements with Commercial Banks. At ~~September 30, 2017,~~March 31, 2022, the Company may borrow on an unsecured basis, up to $20.0 million, $10.0 million, $12.0 million and ~~$5.0~~$50.0 million overnight from Zions Bank, Wells Fargo Bank, First ~~Tennessee National~~Horizon Bank, and Pacific Coast Bankers' Bank, respectively.

Letter of Credit Arrangements. At ~~September 30, 2017,~~March 31, 2022, the Company had an unsecured commercial letter of credit line with Wells Fargo Bank for $2.0 million.

FRB Secured Line of Credit. The secured borrowing capacity with the FRB of ~~$15.2~~$18.0 million at ~~September 30, 2017~~March 31, 2022 is collateralized by loans pledged with a carrying value of ~~$25.2~~$22.7 million.

FHLB Secured Line of Credit. The secured borrowing capacity with the FHLB of ~~$326.9~~$893.4 million at ~~September 30, 2017~~March 31, 2022 is collateralized by loans pledged with a carrying value of ~~$373.9 million.~~$1.2 billion.

FHLB Advances. At March 31, 2022, the Company had 0 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 $435,000 and $435,000 on such FHLB advances for the three months ended March 31, 2022 and 2021, respectively. There were no0 amounts outstanding under any of the other borrowing arrangements above as of March 31, 2022 and at ~~September 30, 2017 or~~ December 31, ~~2016.~~2021 except the $150.0 million of FHLB advances maturing in 2025.

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NOTE 12 - 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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, the Company recorded an income tax provision of ~~$13.8~~$6.4 million and ~~$9.6~~$5.6 million, respectively, reflecting an effective tax rate of ~~40.0%~~30.4% and ~~41.2%~~31.1% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively. ~~During~~The Company recognized a tax benefit from stock option exercises of $23,000 and $56,000 for the three months ended ~~September 30, 2017~~March 31, 2022 and 2016, the Company recorded an income tax provision of $4.0 million and $4.1 million, respectively, reflecting and effective tax rate of 37.8% and 41.7% for the three months ended September 30, 2017 and 2019,2021, respectively.

~~NOTE 13 - COMMITMENTS~~

The Company leases several of its operating facilities under various noncancellable operating leases expiring at various dates through 2022. The Company is also responsible for common area maintenance, taxes and insurance at the various branch locations.

~~Future minimum rent payments on the Company's leases were as follows at September 30, 2017:~~

(dollars in thousands)

Year ending December 31:

2017 remaining

$
410

2018

1,350

2019

754

2020

496

2021

382

Thereafter

130

$
3,522

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 $1.1 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.NOTE 13 - COMMITMENTS

~~RBB BANCORP AND SUBSIDIARIES~~

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

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

The Company's 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 the same credit policies in making commitments as it does for loans reflected in the financial statements.

At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, the Company had the following financial commitments whose contractual amount represents credit risk:

	September 30,		December 31,
	2017		2016		*March 31,*		*December 31,*
(dollars in thousands)					*2022*		*2021*
Commitments to make loans	$	97,116	$	68,003	$	202,537	$	202,288
Unused lines of credit		97,662		92,378		260,255		251,931
Commercial and similar letters of credit		4,144		8,966		3,001		1,214
Standby letters of credit		1,575		1,250		4,328		4,728
	$	200,497	$	170,597
Total					$	470,121	$	460,161

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 each client's credit worthiness 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 is involved in various matters of litigation which have arisen in the ordinary course of business and accruals for estimates of potential losses have been provided when necessary and appropriate under generally accepted accounting principles. In the opinion of management, the disposition of such pending litigation will not have a material effect on the Company's financial statements.

NOTE 14 - LEASES

On January 1, 2021, the Company adopted ASU 2016-02, Leases (Topic 842) and elected the package of practical expedients that permits the Company to not reassess its prior conclusions about 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 asset also includes 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 March 31, 2022.

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 its incremental borrowing rate to determine the present value of its lease liabilities.

The Company leases several of its operating facilities under various non-cancellable operating leases expiring at various dates through 2036. The Company is also responsible for common area maintenance, taxes, and insurance at the various branch locations.

Future minimum rent payments on the Company’s leases were as follows at March 31, 2022:

*(dollars in thousands)*
As of March 31, 2022:
2022 remaining	$	3,484
2023		4,284
2024		3,123
2025		2,927
2026		2,913
Thereafter		6,886
Total	$	23,617
Less amount of payment representing interest		(303	)
Total present value of lease payments	$	23,314

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 $1.3 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively. The Company received rental income of $135,000 and $105,000 in the first quarter of 2022 and 2021, respectively.

The following table presents the operating lease related assets and liabilities recorded on the Consolidated Balance Sheet, and the weighted-average remaining lease terms and discount rates as of March 31, 2022 and December 31, 2021:

	*March 31,*			*December 31,*
*(dollars in thousands)*	*2022*			*2021*
Operating Leases
ROU assets	$	22,451		$	22,454
Lease liabilities		23,314			23,282

Weighted-average remaining lease term (in years)		6.58			6.84
Weighted-average discount rate		1.03	%		1.01	%

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NOTE 15 - RELATED PARTY TRANSACTIONS

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

	September 30,			December 31,			*March 31,*			*December 31,*
(dollars in thousands)	2017			2016			*2022*			*2021*
Beginning balance	$	3,445		$	3,971		$	8,441		$	1,243
New loans and advances		900			1,274			0			10,292
Repayments		(3,345	)		(1,800	)		(772	)	$	(3,094	)
Ending balance	$	1,000		$	3,445		$	7,669		$	8,441

~~Loan~~There were $772,000 unfunded loan commitments outstanding to executive officers, directors and their related interests with whom they are associated ~~totaled approximately $3.4 million~~at March 31, 2022 and ~~$2.3 million~~NaN at ~~September 30, 2017 and~~ December 31, ~~2016, respectively.~~2021.

Deposits from principal officers, directors, and their affiliates at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~ 2021 were ~~$42.9~~$63.2 million and ~~$37.2~~$57.6 million, respectively.

~~RBB BANCORP AND SUBSIDIARIES~~Several directors and their affiliates own in the aggregate $8.1 million of RBB's subordinated debentures as of March 31, 2022.

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

Table of Contents

NOTE 16 - STOCK-BASED COMPENSATION

~~NOTE 15 - STOCK-BASED COMPENSATION~~

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

Under the RBB Bancorp 2010 Stock Option Plan (the “2010 Plan”), the Company was permitted to grant awards to eligible persons in the form of qualified and non-qualified stock options. The Company reserved up to 30% of the issued and outstanding shares of common stock as of the date the Company adopted the 2010 Plan or 3,494,478 shares, for issuance under the 2010 Plan.

~~The~~ Following receipt of shareholder approval of the 2017 Omnibus Stock Incentive Plan or(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.

RBB Bancorp 2017 Omnibus Stock Incentive Plan

The OSIP was adopted by the Company’s board of directors on in January ~~18,~~ 2017 and approved by the Company’s shareholders ~~at the Company’s annual meeting on~~ in May ~~23,~~ 2017. The OSIP was designed to ensure continued availability of equity awards that will assist the Company in attracting and retaining competent managerial personnel and rewarding key employees, directors and other service providers for high levels of performance. Pursuant to the OSIP, the Company’s 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 reserved up to 30% of issued and outstanding shares of common stock as of the date the Company adopted the ~~2017~~ OSIP, or 3,848,341 shares. As of March 31, 2022, there were 994,047 shares of common stock available for issuance under the OSIP. This represents ~~24%~~5.2% of the issued and outstanding shares of the Company’s common stock as of ~~September 30, 2017. As of September 30, 2017, there were 1,353,207 shares of common stock available for issuance under the OSIP.~~March 31, 2022. 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 OSIP enables the board of directors to set specific performance criteria that must be met before an award vests. The 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.

~~RBB Bancorp 2010 Stock Option Plan~~

~~Under the 2010 Plan,~~The recorded compensation expense for stock options was $86,000 and $111,000 and the Company recognized income tax benefit of $23,000 and $56,000 for the three months ended March 31, 2022 and 2021, respectively. Unrecognized stock-based compensation expense related to options was ~~permitted~~$399,000 and $924,000 as of March 31, 2022 and 2021, respectively. Unrecognized stock-based compensation expense will be recognized over a weighted-average period of 1.4 years as of March 31, 2022.

There were 0 options granted during the first quarter of 2022. The fair value of prior option grants were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions presented below for 2021 and 2020.

	July 2021			January 2021
Expected volatility		31.6	%		30.8	%
Expected term (years)	6.0 years			6.0 years
Expected dividends		1.98	%		1.86	%
Risk free rate		0.48	%		0.26	%
Grant date fair value	$	5.69		$	4.14

	July 2021			January 2021
Expected volatility		31.6	%		30.8	%
Expected term (years)	6.0 years			6.0 years
Expected dividends		1.98	%		1.86	%
Risk free rate		0.48	%		0.26	%
Grant date fair value	$	5.69		$	4.14

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

A summary of the status of option awards pursuant to ~~eligible persons in~~ the ~~form~~Company's stock option plans as of ~~qualified~~March 31, 2022 and ~~non-qualified~~changes during the three months ended is presented below:

						*Weighted-*
				*Weighted-*		*Average*
				*Average*		*Remaining*		*Aggregate*
				*Exercise*		*Contractual*		*Intrinsic*
*(dollars in thousands, except for share amounts)*	*Shares*			*Price*		*Term in years*		*Value*
Outstanding at beginning of year		943,918		$	14.66
Granted		0			0
Exercised		(25,763	)		15.30
Forfeited/cancelled		(51,001	)		15.77
Outstanding at end of period		867,154		$	14.57		3.12	$	7,736

Options exercisable		759,148		$	14.03		2.32	$	7,179

The total fair value of the shares vested was $1.8 million and $740,000 during the three months ended March 31, 2022 and 2021, respectively. The number of unvested stock ~~options.~~ options were 108,006 and 245,500 with a weighted-average grant date fair value of $4.27 and $4.11 as of March 31, 2022 and 2021, respectively.

Cash received from the exercise of 25,763 stock options was $394,000 for the three months ended March 31, 2022 and cash received from the exercise of 32,289 stock options was $340,000 for the three months ended March 31, 2021. The intrinsic value of options exercised was $189,000 and $305,000 for the three months ended March 31, 2022 and 2021, respectively.

The Company ~~reserved up~~did not grant restricted stock in 2022. The Company granted restricted stock for 60,000 shares at a closing price of $17.74 in 2021. These restricted stock awards are scheduled to ~~30%~~vest over a three year period from the January 21, 2021 grant date. As of March 31, 2022, there were 40,000 remaining unvested restricted stock awards.

The recorded compensation expense for restricted stock was $89,000 and $176,000 for the ~~issued~~three months ended March 31, 2022 and ~~outstanding shares of common~~2021, respectively. Unrecognized stock-based compensation expense related to restricted stock was $640,000 and $1.2 million as of March 31, 2022 and 2021, respectively. Unrecognized stock-based compensation expense related to restricted stock was reversed in April 2022, due to a former employee's resignation on April 8, 2022.

The following table presents restricted stock activity during the ~~date~~three months ended March 31, 2022.

				*Weighted-Average*
				*Grant Date*
*(dollars in thousands, except for share amounts)*	*Shares*			*Fair Value*
Outstanding at beginning of year		60,000		$	17.74
Granted		0			0
Vested		(20,000	)		17.74
Forfeited/cancelled		0			0
Outstanding at end of period		40,000		$	17.74

Table of Contents

The Company granted 39,497 restricted stock units at a closing price of $27.16 in 2022 to its directors and executive officers, subject to the ~~Company adopted the 2010 Plan or 3,494,478 shares, for issuance under the 2010 Plan. After~~ approval of the ~~OSIP at~~Company’s shareholders. These restricted stock units are scheduled to vest over a two year period for shares granted to directors and a three year period for shares granted to executive officers from the ~~Company’s annual meeting on May 23, 2017, no additional grants will be made under the 2010 Plan. The 2010 Plan has terminated and options that~~January 19, 2022 grant date. As of March 31, 2022. there were granted under that 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 all38,807 remaining unvested ~~awards expire at the date of termination.~~restricted stock units.

The ~~Company recognized~~recorded compensation expense for restricted stock units was $83,000 and NaN for the three months ended March 31, 2022 and 2021, respectively. Unrecognized stock-based compensation expense related to restricted stock unit was $971,000 and 0 as of ~~$592,000~~March 31, 2022 and ~~$646,000 and~~2021, respectively. As of March 31, 2022, unrecognized stock-based compensation expense related to restricted stock units is expected to be recognized ~~income tax benefits on that expense of $487,000 and $191,000 for~~over the ~~nine~~next 2.5 years.

The following table presents restricted stock unit activity during the three months ended ~~September 30, 2017~~March 31, 2022.

				Weighted-Average
				Grant Date
*(dollars in thousands, except for share amounts)*	Shares			Fair Value
Outstanding at beginning of year		0		$	0
Granted		39,497			27.16
Vested		0			0
Forfeited/cancelled		(690	)		27.16
Outstanding at end of period		38,807		$	27.16

On January 19, 2022, the board of directors of RBB Bancorp approved an amendment and ~~2016, respectively.~~restatement of the RBB 2017 Omnibus Stock Incentive Plan

NOTE 1617 - REGULATORY MATTERS

Holding companies (with assets over $1$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~~Company’s 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"~~ (“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,~~(CET1, Tier 1, and Total). The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and ~~will be~~was phased in over a ~~four-year~~four-year period (increasing by that amount on each subsequent January 1, until it ~~reaches~~reached 2.5% on January 1, 2019). ~~The capital conservation buffer for September 30, 2017 is 11.08% and 12.49% for the Bank and Bancorp, respectively.~~ 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.

~~RBB BANCORP AND SUBSIDIARIES~~

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

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 30, 2017~~March 31, 2022 and December 31, ~~2016, that~~2021, RBB and the Bank ~~meets~~satisfied all capital adequacy requirements to which ~~it is~~they were subject.

As of December 31, 2016, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category). To be categorized as well-capitalized, the Bank must maintain minimum ratios asdefined in applicable regulations and set forth in the ~~table below.~~

~~The following table sets forth~~tables below, RBB ~~Bancorp's consolidated~~ and the ~~Bank's actual~~Bank continue to exceed the regulatory capital ~~amounts~~minimum requirements and ~~ratios and related regulatory requirements for~~ the Bank continues to exceed the "well capitalized" standards at ~~September 30, 2017:~~the dates indicated:

Amount of Capital Required

To Be Well-

Capitalized

For Capital

Under Prompt

Adequacy

Corrective

Actual

Purposes

Provisions

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of September 30, 2017:

Tier 1 Leverage Ratio

Consolidated

$
232,521

14.91
%

NA

NA

NA

NA

Bank

$
227,104

14.57
%

$
62,363

4.0%

$
77,953

5.0%

Common Equity Tier 1 Risk-Based Capital Ratio

Consolidated

$
229,244

18.23
%

NA

NA

NA

NA

Bank

$
227,104

18.13
%

$
56,377

4.5%

$
81,433

6.5%

Tier 1 Risk-Based Capital Ratio

Consolidated

$
232,521

18.49
%

NA

NA

NA

NA

Bank

$
227,104

18.13
%

$
75,169

6.0%

$
100,225

8.0%

Total Risk-Based Capital Ratio

Consolidated

$
293,922

23.37
%

NA

NA

NA

NA

Bank

$
239,013

19.08
%

$
100,225

8.0%

$
125,282

10.0%

~~RBB BANCORP AND SUBSIDIARIES~~

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

~~The following table sets forth RBB Bancorp's consolidated and the Bank's actual capital amounts and ratios and related regulatory requirements for the Bank at December 31, 2016:~~

						*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*			*Amount*		*Ratio*
As of March 31, 2022:
Tier 1 Leverage Ratio
Consolidated	$	415,013		9.90	%	$	167,665		4.0	%		N/A		N/A
Bank		514,298		12.29	%		167,428		4.0	%		209,284		5.0	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated	$	400,457		14.12	%	$	127,617		4.5	%		N/A		N/A
Bank		514,298		18.15	%		127,522		4.5	%		184,199		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	415,013		14.63	%	$	170,156		6.0	%		N/A		N/A
Bank		514,298		18.15	%		170,030		6.0	%		226,706		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	622,644		21.96	%	$	226,875		8.0	%		N/A		N/A
Bank		548,777		19.37	%		226,706		8.0	%		283,383		10.0	%

Amount of Capital Required

To Be Well-

Capitalized

For Capital

Under Prompt

Adequacy

Corrective

Actual

Purposes

Provisions

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2016:

Tier 1 Leverage Ratio

Consolidated

$
153,682

11.00%

NA

NA

NA

NA

Bank

$
178,645

12.81%

$
55,777

4.0%

$
69,722

5.0%

Common Equity Tier 1 Risk-Based Capital Ratio

Consolidated

$
150,786

13.30%

NA

NA

NA

NA

Bank

$
178,645

15.81%

$
50,860

4.5%

$
73,464

6.5%

Tier 1 Risk-Based Capital Ratio

Consolidated

$
153,682

13.56%

NA

NA

NA

NA

Bank

$
178,645

15.81%

$
67,813

6.0%

$
90,417

8.0%

Total Risk-Based Capital Ratio

Consolidated

$
217,244

19.17%

NA

NA

NA

NA

Bank

$
192,784

17.06%

$
90,417

8.0%

$
113,021

10.0%

28

Table of Contents

						*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*			*Amount*		*Ratio*
As of December 31, 2021:
Tier 1 Leverage Ratio
Consolidated	$	410,134		10.21	%	$	160,642		4.0	%		N/A		N/A
Bank		499,325		12.45	%		160,418		4.0	%		200,523		5.0	%
Common Equity Tier 1 Risk Based Capital Ratio
Consolidated	$	395,632		14.86	%	$	119,841		4.5	%		N/A		N/A
Bank		499,325		18.80	%		119,550		4.5	%		172,684		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	410,134		15.40	%	$	159,788		6.0	%		N/A		N/A
Bank		499,325		18.80	%		159,401		6.0	%		212,534		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	616,440		23.15	%	$	213,051		8.0	%		N/A		N/A
Bank		532,544		20.05	%		212,534		8.0	%		265,668		10.0	%

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~~General Corporation Law generally acts to prohibit companies from paying dividends on common stock unless ~~its~~ 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 ~~Bank~~ has issued guidance which requires that they be consulted before payment of a dividend if a ~~bank~~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.

Table of Contents

NOTE 1718 - FAIR VALUE MEASUREMENTS

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities:The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1)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)2).

Other Real Estate 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 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)3).

~~RBB BANCORP AND SUBSIDIARIES~~

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

Appraisals for ~~other real estate owned~~OREO 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. When a Notice of Default is recorded, an appraisal report is ordered. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison to independent data sources such as recent market data or industry wide-statistics for residential appraisals. Commercial appraisals are sent to an independent third party to review. The Company also compares 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 as of ~~September 30, 2017.~~March 31, 2022.

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

Collateral-dependent impaired loans: Collateral-dependent impaired loans are carried at fair value when it is probable that the Company 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. Collateral-dependent impaired loans evaluated with specific reserves are classified as Level 3 assets. There were no loans of this type as of March 31, 2022 and December 31, 2021.

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

(dollars in thousands)	Fair Value Measurements Using:								*Fair Value Measurements Using:*
September 30, 2017	Level 1		Level 2		Level 3		Total
March 31, 2022									*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities			$	4,957			$	4,957	$	0	$	5,066	$	0	$	5,066
SBA agency securities										0		3,122		0		3,122
Mortgage-backed securities								-		0		45,466		0		45,466
Government sponsored agencies				33,256				33,256
Collateralized mortgage obligations										0		115,518		0		115,518
Commercial paper										0		205,110		0		205,110
Corporate debt securities				17,484				17,484		0		36,054		0		36,054
	$	—	$	55,697	$	—	$	55,697
Municipal securities										0		10,112		0		10,112
Interest Rate Lock Contracts										0		0		16		16
Forward Mortgage Loan Sale Contracts										0		0		16		16
									$	0	$	420,448	$	32	$	420,480
On a non-recurring basis:
Other real estate owned	$	—	$	—	$	293	$	293	$	0	$	0	$	293	$	293

December 31, 2016
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities			$	5,317				5,317
Mortgage-backed securities
Government sponsored agencies				23,640				23,640
Corporate debt securities				10,320				10,320
	$	—	$	39,277	$	—	$	39,277

On a non-recurring basis:
Other real estate owned	$	—	$	—	$	833	$	833

December 31, 2021	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets measured at fair value:
On a recurring basis:
Securities available for sale
Government agency securities	$	0	$	5,610	$	0	$	5,610
SBA agency securities		0		3,469		0		3,469
Mortgage-backed securities		0		55,025		0		55,025
Collateralized mortgage obligations		0		119,511		0		119,511
Commercial paper		0		129,926		0		129,926
Corporate debt securities		0		42,205		0		42,205
Municipal securities		0		12,514		0		12,514
Interest Rate Lock Contracts		0		0		141		141
Forward Mortgage Loan Sale Contracts		0		0		124		124
	$	0	$	368,260	$	265	$	368,525
On a non-recurring basis:
Other real estate owned	$	0	$	0	$	293	$	293

NoNaN write-downs to OREO were recorded in for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 or for the year ended December 31, ~~2016.~~2021.

Table of Contents

~~RBB BANCORP AND SUBSIDIARIES~~

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

Quantitative information about the Company's recurring Level 3 fair value measurements as of March 31, 2022 and December 31, 2021 is as follows:

At December 31, 2021, fair value for IRLCs and FMLSCs totaled $265,000. All IRLCs and FMLSCs at December 31, 2021 were funded and sold to Fannie Mae in the firstthree months of 2022. Changes in fair value were $233,000 in 2022. Fair value for IRLCs and FMLSCs totaled $32,000 at March 31, 2022.

The fair value measurement of IRLCs and FMLSCs were primarily based on the buy price from borrowers ranging from 97 to 100, the sale price to Fannie Mae ranging from 98 to 103, and the significant unobservable inputs using margin cost rate of 1.50%.

Quantitative information about the Company's OREO non-recurring Level 3 fair value measurements at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021 is as follows:

OREO consists of one single-family residence with a fair value of $293,000 as of March 31, 2022 and December 31, 2021. OREO was evaluated by third party appraisals with unobservable input of management adjustment in the range of 5%-6% to reflect current conditions and selling costs.

Interest Rate Lock Commitments ("IRLCs"): Agreements under which 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) 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 Accounting Standards Codification (“FASB ASC”) provides that IRLCs on mortgage loans that will be held for resale are derivatives and must be accounted for at fair value on the balance sheet (if material). FASB ASC Topic 820 – Fair Value Measurements and Disclosures specifies how these derivatives are to be valued. Commitments to originate mortgage loans to be held for investment and other types of loans are generally not derivatives. Consequently, the Company has elected to account for these obligations at fair value.

Forward Mortgage Loan Sale Contracts ("FMLSCs"): The Company is subject to interest rate and price risk on its mortgage loans held for sale from the loan funding date until the date the loan is sold. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate 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.

Mandatory delivery 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.

Weighted-

(dollars in thousands)

Fair Value

Valuation

Unobservable

Adjustment

Average

September 30, 2017

Amount

Technique

Input

Range

Adjustment

Other real estate owned

$
293

Third Party

Management Adjustments

15%

15%

Appraisals

to Reflect Current

Conditions and Selling

Costs

December 31, 2016

Other real estate owned

$
833

Third Party

Management Adjustments

10% - 15%

12%

Appraisals

to Reflect Current

Conditions and Selling

Costs

NOTE 1819 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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.

In accordance with accounting guidance, the Company groups its 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:

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 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 models, and similar techniques.

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.

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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 ~~were used~~ to estimate the fair value of ~~significant~~each class of financial ~~instruments not previously presented:~~instruments:

~~Cash and Cash Equivalents~~

~~The carrying amounts of~~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 ~~instruments approximate~~investments and interest-bearing deposits, the carrying amount is assumed to be a reasonable estimate of fair ~~values.~~value, a Level 1 measurement.

~~Time Deposits in Other Banks~~

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 (“MBS”), 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 ~~for time deposits with other banks~~ are estimated ~~using discounted cash flow analyses, using interest rates currently being offered~~for portfolios of loans with similar ~~terms.~~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.

~~Mortgage Loans Held~~

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 loans held for ~~Sale~~sale. 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 ~~mortgage~~ loans held for sale 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 1 measurement.

Mortgage and SBA servicing rights are calculated by discounting scheduled cash flows through the ~~net premium received on recent sales of mortgage loans for identical pools of loans.~~estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 2 measurement.

~~Loans~~

~~For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.~~ The fair values for all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The methods utilized to estimate the fair value of ~~loans do not necessarily represent an exit price.~~

~~RBB BANCORP AND SUBSIDIARIES~~

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

~~Deposits~~

demand deposits, savings accounts, and certain money market deposits is assumed to be the amount payable on demand at the reporting date. The fair ~~values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types~~value of ~~money market accounts are, by definition based on carrying value. Fair value for fixed-rate~~fixed-maturity certificates of deposit is estimated using ~~a discounted cash flow calculation that applies interest~~the rates currently ~~being~~ offered ~~on certificates to a schedule of aggregate expected monthly~~for deposits with similar remaining maturities, ~~on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant~~

~~Long-Term Debt~~

~~The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in~~ a Level 2 ~~classification.~~ measurement.

~~Subordinated Debentures~~

The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

~~Off-Balance Sheet Financial Instruments~~

The fair value of commitments to extend credit and standby letters of credit, interest rate lock commitments and forward mortgage loan sales contracts is estimated using the fees currently charged to enter into similar agreements. Unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability result in a Level 3 measurement.

The fair value of ~~these~~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.

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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, ~~is not material.~~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.

The fair value hierarchy level and estimated fair value of significant financial instruments at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~ 2021 are summarized as follows:

		September 30,				December 31,
		2017				2016					*March 31, 2022*				*December 31, 2021*
	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	$	69,552	$	69,552	$	74,213	$	74,213	Level 1	$	149,767	$	149,767	$	501,372	$	501,372
Federal funds sold and other cash equivalents	Level 1		96,500		96,500		44,500		44,500	Level 1		200,000		200,000		193,000		193,000
Interest-earning deposits in other financial institutions	Level 1		100		100		345		345	Level 1		600		600		600		600
Investment securities - AFS	Level 2		55,697		55,697		39,277		39,277	Level 2		420,448		420,448		368,260		368,260
Investment securities - HTM	Level 2		5,191		5,485		6,214		6,553	Level 2		6,246		6,292		6,252		6,577
Mortgage loans held for sale	Level 1		125,704		128,491		44,345		45,433	Level 1		3,572		3,624		5,957		6,055
Loans, net	Level 3		1,185,102		1,205,092		1,096,284		1,095,944	Level 3		2,973,192		2,984,592		2,898,438		2,908,742
Equity securities										Level 3		19,977		19,977		19,992		19,992
Servicing assets:										Level 2		11,048		20,422		11,517		19,442

											*Notional*		*Fair*		*Notional*		*Fair*
Derivative assets:											*Value*		*Value*		*Value*		*Value*
Interest Rate Lock Contracts										Level 3	$	7,356	$	16	$	8,099	$	141
Forward Mortgage Loan Sale Contracts										Level 3		10,365		16		14,296		124

											*Carrying*		*Fair*		*Carrying*		*Fair*
Financial Liabilities:											*Value*		*Value*		*Value*		*Value*
Deposits	Level 2		1,318,292		1,315,698	$	1,152,763	$	1,140,707	Level 2	$	3,168,253	$	3,164,659	$	3,385,532	$	3,388,008
FHLB advances										Level 3		150,000		138,368		150,000		143,237
Long-term debt	Level 2		49,492		47,657		49,383		48,447	Level 3		173,152		167,441		173,007		175,773
Subordinated debentures	Level 3		3,402		3,582		3,334		3,334	Level 3		14,556		14,120		14,502		13,991

~~RBB BANCORP AND SUBSIDIARIES~~

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

NOTE 1920 - EARNINGS PER SHARE ~~("EPS")~~

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

	*For the Three Months Ended March 31,*
	*2022*					*2021*
*(dollars in thousands except per share amounts)*	*Income*			*Shares*		*Income*			*Shares*
Net income as reported	$	14,617				$	12,456
Less: Earnings allocated to participating securities	$	(32	)			$	(40	)
Shares outstanding					19,247,970					19,528,249
Impact of weighting shares					129,437					(52,435	)
Used in basic EPS		14,585			19,377,407		12,416			19,475,814
Dilutive effect of outstanding
Stock options					391,302					337,027
Restricted Stock Unit					30,614					0
Used in dilutive EPS	$	14,585			19,799,323	$	12,416			19,812,841

Basic earnings per common share	$	0.75				$	0.64
Diluted earnings per common share	$	0.74				$	0.63

Stock options for 0 shares and 51,000 shares of common stock were not considered in computing diluted earnings per common share for March 31, 2022 and 2021, respectively because they were anti-dilutive.

Nine Months Ended

September 30

2017

2016

(dollars in thousands except per share amounts)

Income

Shares

Income

Shares

Net income as reported

$
20,640

$
13,693

Shares outstanding

15,790,611

12,827,803

Impact of weighting shares

(2,309,152
)

(35,927
)
Used in basic EPS

20,640

13,481,459

13,693

12,791,876

Dilutive effect of outstanding

Stock options

1,077,584

896,122

Used in dilutive EPS

$
20,640

14,559,043

$
13,693

13,687,998

Basic earnings per common share

$
1.53

$
1.07

Diluted earnings per common share

$
1.42

$
1.00

33

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NOTE 21– 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 Topic 606:

	*For the Three Months Ended March 31,*
*(dollars in thousands)*	*2022*		*2021*
Non-interest income, in scope (1)
Fees and service charges on deposit accounts	$	520	$	687
Other fees (2)		133		135
Other income (3)		509		630
Total in-scope non-interest income		1,162		1,452
Non-interest income, not in scope (4)		1,782		4,442
Total non-interest income	$	2,944	$	5,894

(1)

There were no adjustments to the Company's financial statements recorded as a result of the adoption of ASC 606.

(2)

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

(3)

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

(4)

The amounts primarily represent revenue from contracts with customers that are out of scope of ASC 606: 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 and investment securities.

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:

Three Months Ended

September 30

2017

2016

(dollars in thousands except per share amounts)

Income

Shares

Income

Shares

Net income as reported

$
6,611

$
5,697

Shares outstanding

15,790,611

12,827,803

Impact of weighting shares

(1,023,154
)

-

Used in basic EPS

6,611

14,767,457

5,697

12,827,803

Dilutive effect of outstanding

Stock options

1,084,472

889,429

Used in dilutive EPS

$
6,611

15,851,929

$
5,697

13,717,232

Basic earnings per common share

$
0.45

$
0.44

Diluted earnings per common share

$
0.42

$
0.42

34

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 (“MSBs”). 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 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 are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter-end based on actual transaction details received from the broker dealer the Company engages.

In the Company’s 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.

NOTE 2022 - QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company began investing in qualified housing projects in 2016. At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, the balance of the investment for qualified affordable housing projects was ~~$5,768,000~~$6.4 million and ~~$986,000,~~$6.6 million, respectively. This balance is 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 ~~$4,572,000~~$823,000 and ~~$840,000~~$826,000 at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~ 2021, respectively. The Company expects to fulfill these commitments ~~during the years ending 2027~~between 2022 and ~~2028.~~2029.

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, the Company recognized amortization expense of ~~$218,000~~$255,000 and ~~$10,000,~~$259,000, respectively, which was included within income tax expense on the consolidated statements of income.

NOTE 23 - RECENT DEVELOPMENTS

~~NOTE 21 - RECENT DEVELOPMENTS~~

On ~~July 27, 2017,~~ April 20, 2022, the Company completed its public offering of 3,750,000 shares at a price to the public of $23.00 per share and a total offering size of $86,250,000. The offering was originally 3,000,000 shares but due to demand, it was increased to 3,750,000 shares. The Company sold 2,857,756 shares and the selling shareholders sold 892,244 shares of the Company’s common stock. The offering resulted in gross proceeds to the Company of approximately $65.7 million. The Company contributed $25 million of the net proceeds received from this offering to the Bank in July 2017. Our stock now trades on the Nasdaq Global Select Market under the symbol “RBB”. The increase to capital net of expenses is approximately $60.2 million.

~~RBB BANCORP AND SUBSIDIARIES~~

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

~~On October 19, 2017, RBB Bancorp declared~~announced a cash dividend of ~~$0.08~~$0.14 per share for the ~~third~~first quarter of ~~2017.~~2022. The dividend is payable on ~~November 30, 2017~~ May 6, 2022to common shareholders of record as of ~~October 31, 2017.~~

May 2, 2022.

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ITEM 2.

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

~~Cautionary Note Regarding Forward-Looking Statements~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis for the nine months ended September 30, 2017. This discussion should be read in conjunction with the unaudited consolidated financial statements, accompanying footnotes and supplemental financial data included herein. The emphasis of this discussion will be amounts as of September 30, 2017 compared to December 31, 2016 for the balance sheets and the nine months ended September 30, 2017 compared to September 30, 2016 for the statements of income.

Because we conduct our material business operations through our bank subsidiary, Royal Business Bank, the discussion and analysis relates to activities primarily conducted by the Bank. We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net income, pre-tax and pre-loan provision earnings, net interest margin, efficiency ratio, ratio of allowance for credit losses to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

This Quarterly Report on Form 10-Q (the “Report” or "Form 10-Q) 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.

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Although general business and economic conditions have begun to recover, the recovery could be slowed or ~~will be important~~reversed by a number of factors, ~~that~~including increases in COVID-19 infections, the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets, which could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill or other intangible assets in future periods. Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response, to the COVID-19 pandemic could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with regulatory guidance. In addition to the foregoing, the following additional factors, among others, could cause our ~~actual results~~financial performance to differ materially from ~~those indicated~~that expressed in ~~these~~such forward-looking ~~statements, including, but not limited to, the following:~~statements:

~~business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic market areas;~~

~~economic, market, operational, liquidity, credit and interest rate risks associated with our business;~~

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~~lack of seasoning in our loan portfolio;~~

~~deteriorating asset quality and higher loan charge-offs;~~

~~the laws and regulations applicable to our business;~~

~~our ability to achieve organic loan and deposit growth and the composition of such growth;~~

~~increased competition in the financial services industry, nationally, regionally or locally;~~

~~our ability to maintain our historical earnings trends;~~

~~our ability to raise additional capital to implement our business plan;~~

~~material weaknesses in our internal control over financial reporting;~~

~~systems failures or interruptions involving our information technology and telecommunications systems or third-party servicers;~~

~~the composition of our management team and our ability to attract and retain key personnel;~~

~~the fiscal position of the U.S. federal government and the soundness of other financial institutions;~~

~~our ability to monitor our lending relationships;~~

~~the composition of our loan portfolio, including the identity of our borrowers and the concentration of loans in energy-related industries and in our specialized industries;~~

●

•our ability to monitor our lending relationships;

●

the composition of our loan portfolio, and the concentration of loans in mortgage-related industries;

●

the portion of our loan portfolio that is comprised of participations and shared national credits;

●

the amount of nonperforming and classified assets we hold;

●

time and effort necessary to resolve nonperforming assets;

●

the effect of acquisitions we may make, including without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

●

our limited operating history as an integrated company including prior acquisitions;

●

environmental liability associated with our lending activities;

●

geopolitical and public health conditions such as acts or threats of terrorism, military conflicts, pandemics and public health issues or crises, such as that related to the COVID-19 pandemic;

●

the geographic concentration of our markets in Southern California, Las Vegas (Nevada), Chicago (Illinois), Honolulu (Hawaii), New York City metropolitan area and the southwest United States;

●

the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;

●

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators;

●

the transition away from the LIBOR calculation process and related uncertainty as well as the risks and costs related to our adoption of SOFR;

●

possible impairment charges to goodwill;

●

natural disasters, earthquakes, fires and severe weather;

●

the effect of changes in accounting policies and practices as may be adopted from time to time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which will change how we estimate credit losses and may increase the required level of our allowance for loan losses after adoption;

●

requirements to remediate adverse examination findings;

●

changes in the scope and cost of FDIC deposit insurance premiums;

●

implementation of regulatory initiatives regarding bank capital requirements that may require heightened capital;

●

the obligations associated with being a public company;

●

cybersecurity threats and the cost of defending against them;

●

RBB’s status as an EGC and the potential effects of no longer qualifying as an EGC in future periods;

●

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

●

our modeling estimates related to an increased interest rate environment;

●

our ability to achieve the cost savings and efficiencies in connection with branch closures;

	●	our estimates as to our expected operational leverage and the expected additional loan capacity of our relationship managers;
	●	geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, including the war between Russia and Ukraine, which could impact business and economic conditions in the United States and abroad

●

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

~~the amount of nonperforming and classified assets we hold;~~

~~time and effort necessary to resolve nonperforming assets;~~

~~our ability to identify potential candidates for, consummate, and achieve synergies resulting from, potential future acquisitions;~~

~~our limited operating history as an integrated company and our recent acquisitions;~~

~~environmental liability associated with our lending activities;~~

~~the geographic concentration of our markets in California and the southwest United States;~~

~~the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;~~

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, such as the Dodd-Frank Act, and their application by our regulators;

~~requirements to remediate adverse examination findings;~~

~~changes in the scope and cost of FDIC deposit insurance premiums;~~

~~implementation of regulatory initiatives regarding bank capital requirements that may require heightened capital;~~

~~the obligations associated with being a public company;~~

~~our success at managing the risks involved in the foregoing items;~~

~~our modeling estimates related to an increased interest rate environment;~~

~~our ability to achieve the cost savings and efficiencies in connection with branch closures; and~~

~~our estimates as to our expected operational leverage and the expected additional loan capacity of our relationship managers.~~

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.

~~The following discussion provides information about the results~~

Table of operations, financial condition, liquidity and capital resources of RBB Bancorp and its 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 registration statement on Form S-1 filed with the SEC, for the year ended December 31, 2016, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this report.

Contents

CRITICAL ~~ACCOU~~~~NTING~~ACCOUNTING POLICIES

The discussion and analysis of the Company’s unaudited consolidated financial statements are based upon its unaudited consolidated financial statements, which have been prepared in accordance with ~~accounting principles generally accepted in the United States of America.~~GAAP. The preparation of these unaudited consolidated financial statements requires management to make estimates and judgments 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.

The following is a summary of the more judgmental and complex accounting estimates and principles. In each area, we have identified the variables we believe are most important in our estimation process. We utilize information available to us to make the necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables and information could change future valuations and impact the results of operations.

~~Loans held for investment~~

●

Loans held for investment

●

Loans available for sale

●

Securities

●

Allowance for loan losses (“ALLL”)

●

Goodwill and other intangible assets

●

Deferred income taxes

●

Servicing rights

●

Income taxes

●

Stock-based compensation

~~Loans available for sale~~

~~Securities~~

~~Allowance for loan losses (ALLL)~~

~~Goodwill and other intangible assets~~

~~Deferred income taxes~~

~~Servicing rights~~

~~Income Taxes~~

~~Stock-Based Compensation~~

Our significant accounting policies are described in greater detail in our ~~2016~~2021 audited consolidated financial statements included in ~~the Form S-1 in “Note 1 – Summary of Significant Accounting Policies” section, and in the “Critical Accounting Policies and Estimates” section, included in~~ our ~~registration statement on Form S-1 as filed with the SEC on July 25, 2017,~~2021 Annual Report, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL

RBB is a financial holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as the holding company for the Bank and RAM. At March 31, 2022, RBB had total consolidated assets of $4.0 billion, gross consolidated loans of $3.0 billion HFI and HFS, total consolidated deposits of $3.2 billion and total consolidated stockholders' equity of $464.8 million. RBB’s common stock trades on the Nasdaq Global Select Market under the symbol “RBB”.

The Bank provides consumer and business banking services to the Chinese-American communities in Los Angeles County, Orange County, Ventura County (California), Brooklyn, Queens and Manhattan (New York City), Chinatown and Bridgeport (Chicago), Las Vegas (Clark County, Nevada), Edison, New Jersey and in Honolulu, Hawaii, including remote deposit, E-banking, mobile banking, commercial and investor real estate loans, business loans and lines of credit, SBA 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts. RAM was formed to hold and manage problem assets acquired in business combinations.

The Company operates 23 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), Brooklyn, Queens and Manhattan (New York City), Chinatown and Bridgeport (Chicago), Las Vegas (Nevada), Edison, New Jersey and Honolulu, Hawaii. We opened our 24th full-service banking office in the Bensonhurst area of Brooklyn, New York on May 2, 2022.

The Bank completed the acquisition of the Honolulu, Hawaii branch from BOTO on January 14, 2022. The Bank assumed all deposits totaling $81.7 million, selected performing loans totaling $7.4 million, and 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.

RBB has completed six whole bank acquisitions since 2011, including the acquisition of Pacific Global Bank Holdings, Inc. ("PGBH") which was completed on January 10, 2020.

On April 11, 2022, RBB Bancorp announced that President and Chief Executive Officer Alan Thian resigned effective immediately following the completion of an internal investigation conducted by a special committee of the Board of Directors. Mr. Thian had been on a paid leave of absence since February 22, 2022. The investigation, which was conducted by an independent outside law firm on behalf of a special committee of the Board of Directors, identified violations of Company policies and procedures, including those relating to personnel decisions, as well as resulting adverse effects on officer and employee morale. The Board of Directors and management indicated that the violations did not have any overall adverse financial impact on the Company. Mr. Thian's restricted stock units were forfeited.

Table of Contents

OVERVIEW

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of RBB and its 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 2021 Annual Report, and the unaudited consolidated financial statements and accompanying notes presented elsewhere in this Report.

For the ~~third~~first quarter of ~~2017,~~2022, we reported net earnings of ~~$6.6~~$14.6 million, compared with ~~$8.5~~$12.5 million for the ~~second~~first quarter of ~~2017 and $5.7 million for the third quarter of 2016. This represented a decrease of $1.9 million over the prior quarter and~~2021, reflecting an increase of ~~$914,000~~$2.2 million from the ~~third~~first quarter of ~~2016.~~2021. Diluted earnings per share ~~were $0.42~~was $0.74 per share for the ~~third~~first quarter of ~~2017,~~2022, compared to ~~$0.62 in the prior quarter and $0.42~~$0.63 for the same period last year. The decline in earnings per share relative to the second quarter of 2017 was attributable to the recapture of $4.2 million of provision for loan losses that positively impacted the prior quarter’s results. Diluted earnings per share remained the same from the 3^rd ~~quarter of 2016 due to additional shares issued as a result of the recent public offering.~~

At ~~September 30, 2017,~~March 31, 2022, total assets were ~~$1.6~~$4.0 billion, ~~an increase~~a decrease of ~~$247.2~~$214.6 million, or ~~17.7%~~5.1%, from total assets of ~~$1.4~~$4.2 billion at December 31, ~~2016.~~2021. Interest-earning assets were ~~$1.5~~$3.8 billion as of ~~September 30, 2017, an increase~~March 31, 2022, a decrease of ~~$229.9~~$213.6 million, or ~~17.4%~~5.4%, ~~when~~ compared with ~~$1.3~~$4.0 billion at December 31, ~~2016.~~2021. The ~~increase~~decrease in interest-earning assets was primarily due to ~~an $86.1~~a $338.5 million ~~increase~~decrease in ~~total loans, a $47.3 million increase in cash and~~federal funds & cash equivalents and ~~an $81.4~~a $2.4 million ~~increase~~decrease in mortgage loans held for ~~sale.~~sale, partially offset by a $75.1 million increase in loans held for investment and a $52.2 million increase in investment securities.

At ~~September 30, 2017, available for sale (AFS)~~March 31, 2022, AFS investment securities totaled ~~$55.7~~$420.4 million, inclusive of a pre-tax net unrealized loss of $14.9 million, compared to $368.3 million, inclusive of a pre-tax unrealized loss of ~~$231,000, compared to $39.3~~$2.4 million ~~inclusive of a pre-tax unrealized loss of $453,000~~ at December 31, ~~2016. At September 30, 2017, held to maturity (HTM)~~2021. HTM investment securities totaled ~~$5.2 million.~~$6.2 million at March 31, 2022 and $6.3 million at December 31, 2021.

Total HFI loans and leases, net of deferred fees and discounts, increased $75.1 million or 2.6% to $3.01 billion at March 31, 2022, compared to $2.93 billion at December 31, 2021. The increase was primarily due to organic loan growth. From December 31, 2021 to March 31, 2022, single-family residential (“SFR”) mortgage loans increased by $60.0 million, construction and land development (“C&D”) loans increased by $43.6 million, and commercial and industrial ("C&I") loans increased by $12.1 million. These increases were partially offset by a decrease in commercial real estate (“CRE”) loans of $30.0 million, and a decrease of $8.4 million in SBA loans.

HFS loans were $3.6 million at March 31, 2022, compared to $6.0 million at December 31, 2021. The decrease was due to loan sales.

Noninterest-bearing deposits were $1.2 billion at ~~September 30, 2017,~~March 31, 2022, a decrease of $131.8 million, or 10.2%, compared to ~~$1.1~~$1.3 billion at December 31, ~~2016 and $1.1~~2021. Interest-bearing deposits were $2.01 billion at ~~September 30, 2016. Total loans and leases (net~~March 31, 2022, a decrease of ~~deferred fees, discounts and the allowance for loan losses) increased $88.8~~$85.5 million, or ~~8.1%, from December 31, 2016. The $88.8 million increase in total loans was principally due to increases of approximately $80.7 million in~~ ~~single-family residential (~~SFR) mortgage loans, $22.1 million in commercial and industrial loans, $4.9 million in construction loans and partially offset by decreases of $10.7 million in commercial real estate loans and $11.0 million in SBA loans.

~~Noninterest-bearing deposits were $287.6 million at September 30, 2017, an increase of $113.3 million, or 65.0%~~4.1%, compared to ~~$174.3 million~~$2.09 billion at December 31, ~~2016.~~2021. The decreases were driven by normal business fluctuations. At ~~September 30, 2017,~~March 31, 2022, noninterest-bearing deposits were ~~21.8%~~36.6% of total deposits, compared to ~~15.1%~~38.1% at December 31, ~~2016. The growth in non-interest deposits is mainly due to marketing efforts by our branches and by branch management.~~ 2021.

Our average cost of total deposits was ~~0.83%~~0.27% for the quarter ended ~~September 30, 2017,~~March 31, 2022, compared to ~~0.77%~~0.55% for the same period last year. The ~~increase~~decrease is primarily due to a ~~slight~~$647.8 million increase in ~~rates of 7 basis points offset by~~average noninterest bearing demand deposits, and a decrease in ~~volume~~the average rate paid on interest-bearing deposits to 0.44% from 0.73% due to ~~TomatoBank deposit runoff.~~ the decline in market rates.

Borrowings, consisting of long-term FHLB advances, long-term debt ~~remained constant~~and subordinated debt, increased to $337.7 million at ~~$52.9 million as of September 30, 2017~~March 31, 2022, compared to ~~$52.7~~$337.5 million as of December 31, ~~2016. Although we borrowed from~~2021, or an increase of $199,000 or 0.1% The $150.0 million in five-year original term FHLB advances have an average fixed rate of 1.18% and will mature by March 2025. The purpose of the ~~FHLB during~~advances was to enhance our liquidity in light of the ~~quarter,~~COVID-19 pandemic at an attractive interest rate. As of March 31, 2022 and December 31, 2021, we had no ~~FHLB borrowings at September 30, 2017.~~short-term advances from the FHLB.

The Company adopted ASU 2016-02, Leases, as of January 1, 2021. As of March 31, 2022, the Company reported $22.5 million in right-of-use assets for operating leases and $23.3 million in lease liabilities.

The allowance for loan losses was ~~$11.4~~$33.3 million at ~~September 30, 2017,~~March 31, 2022, compared to ~~$14.2~~$32.9 million at December 31, ~~2016. The allowance for loan losses increased by $793,000~~2021, an increase of $380,000 during the ~~third quarter of 2017.~~three-month period ending March 31, 2022. The increase was due to a ~~result of a $700,000~~$366,000 loan loss provision, ~~due~~attributable to ~~an increase~~loan growth, partially offset by a decrease in ~~loan volume plus a $93,000 recovery on loans charged-off.~~our COVID-19 reserve because of the improving economic conditions. The allowance for loan losses to total HFI loans and leases outstanding was ~~0.95%~~1.11% and ~~1.19%~~1.12% as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively. In the first nine months of 2017 there was a $3.5 million net recapture in the provision for loan losses compared to $3.6 million provision expense for the same period of 2016. The decrease was $7.1 million or 196.9%. The recapture reflects both the receipt of a guaranteed payment on a SBA 7A guaranteed loan of $629,000 in May 2017 that was previously charged-off and the receipt of $3.6 million in July 2017 pursuant to a SBA loan guaranty that we previously fully reserved for in the allowance for loan losses.

Shareholders’ equity ~~increased $78.7~~decreased $1.9 million, or ~~43.4%~~0.4%, to ~~$260.3~~$464.8 million during the ~~first nine months~~three-month period ending March 31, 2022 due to $2.7 million of ~~2017 as $20.6~~common stock dividends, $5.7 million from the repurchase of common stock and a $8.7 million decrease in net accumulated other comprehensive income, which was partially offset by $14.6 million of net income, ~~$60.2 million~~$394,000 from the ~~Company’s public offering, $268,000~~exercise of ~~additional paid in capital~~stock options and ~~$130,000 increase in accumulated other comprehensive income exceeded $3.8 million of common dividends declared.~~$257,000 from stock-based compensation. The ~~increase~~decrease in accumulated other comprehensive income primarily resulted from ~~increases~~decreases in unrealized gains on ~~available for sale~~AFS securities.

Our capital ratios under the revised capital framework referred to as Basel III remain ~~well-above regulatory standards.~~well capitalized. As of ~~September 30, 2017,~~March 31, 2022, the Company’s Tier 1 leverage capital ratio ~~totaled 14.91%~~was 9.90%, ~~our~~the common equity Tier 1 ratio ~~totaled 18.23%~~was 14.12%, ~~our~~the Tier 1 risk-based capital ratio ~~totaled 18.49%~~was 14.63%, and ~~our~~the total risk-based capital ratio ~~totaled 23.37%~~was 21.96%. ~~Refer to our~~ See “Analysis of Financial Condition -- Regulatory Capital ~~Requirements~~ Requirements” herein for a further discussion onof our regulatory capital ~~ratios. During~~ ~~the quarter we raised $60.2 million in common stock (which was net of $5.5 million in expenses) through our initial public offering (IPO), which was completed on July 27, 2017.~~requirements.

On April 11, 2022, the Company announced that its President and Chief Executive Officer, Alan Thian, had resigned effective immediately following the completion of an internal investigation conducted by a special committee of the board of directors. Mr. Thian had been on a paid leave of absence since February 22, 2022. The investigation, which was conducted by an independent outside law firm on behalf of a special committee of the board of directors, identified violations of Company policies and procedures, including those relating to personnel decisions, as well as resulting adverse effects on officer and employee morale. The board of directors and management indicated that the violations did not have any overall adverse financial impact on the Company.

Table of Contents

ANALYSIS OF ~~THE RES~~~~ULTS~~RESULTS OF OPERATIONS

Financial Performance

	For the Three Months Ended												For the Nine Months Ended
	September 30,						Variance						September 30,						Variance						For the Three Months Ended March 31,						Increase (Decrease)
	2017			2016			$			%			2017			2016			$			%			2022			2021			$ or #			%
	(Dollars in thousands, except per share amounts)																								*(Dollars in thousands, except per share amounts)*
Interest income	$	18,346		$	18,699		$	(353	)		-1.9	%	$	52,626		$	51,473		$	1,153			2.2	%	$	39,566		$	35,540		$	4,026		11.3		%
Interest expense		3,618			3,241			(377	)		-11.6	%		10,350			8,481			(1,869	)		-22.0	%		5,075			6,055			(980	)	(16.2		)%
Net interest income		14,728			15,458			(730	)		-4.7	%		42,276			42,992			(716	)		-1.7	%		34,491			29,485			5,006		17.0		%
Provision (recapture) for loan losses		700			1,250			550			44.0	%		(3,488	)		3,599			7,087			196.9	%
Net interest income after provision (recapture) for credit losses		14,028			14,208			(180	)		-1.3	%		45,764			39,393			6,371			16.2	%
Provision for loan losses																										366			1,500			(1,134	)	(75.6		)%
Net interest income after provision for loan losses																										34,125			27,985			6,140		21.9		%
Noninterest income		3,796			2,596			1,200			46.2	%		9,403			6,283			3,120			49.7	%		2,944			5,894			(2,950	)	(50.1		)%
Noninterest expense		(7,200	)		(7,037	)		163			-2.3	%		(20,738	)		(22,374	)		(1,636	)		7.3	%		16,061			15,792			269		1.7		%
Income before income taxes		10,624			9,767			857			8.8	%		34,429			23,302			11,127			47.8	%		21,008			18,087			2,921		16.1		%
Income tax expense		(4,013	)		(4,070	)		(57	)		1.4	%		(13,789	)		(9,609	)		4,180			-43.5	%		6,391			5,631			760		13.5		%
Net income	$	6,611		$	5,697		$	914			16.0	%	$	20,640		$	13,693		$	6,947			50.7	%	$	14,617		$	12,456		$	2,161		17.3		%
Share Data
Earnings per common share:
Basic	$	0.45		$	0.44		$	0.01					$	1.53		$	1.07		$	0.45					$	0.75		$	0.64		$	0.11		17.2		%
Diluted (1)	$	0.42		$	0.42			—					$	1.42		$	1.00		$	0.43						0.74			0.63			0.11		17.5		%
Return on average assets		1.65	%		1.56	%		0.09	%					1.83	%		1.32	%		0.51	%
Return on average shareholders’ equity		11.04	%		12.88	%		-1.83	%					13.59	%		10.78	%		2.82	%
Efficiency ratio (2)		38.87	%		38.98	%		-0.11	%					40.13	%		45.41	%		-5.28	%
Tangible common equity to tangible assets (3)		14.20	%		10.20	%		4.00	%					14.20	%		10.20	%		4.00	%
Tangible book value per share (3)	$	16.49		$	13.75		$	2.73					$	16.49		$	13.75		$	2.73
Return on average tangible common equity (3)		12.73	%		15.73	%		-2.99	%					92.17	%		61.09	%		31.08	%
Adjusted return on average assets (3)		1.68	%		1.10	%		0.58	%					1.52	%		1.20	%		0.31	%
Adjusted return on average tangible common equity (3)		12.98	%		11.06	%		1.91	%					13.33	%		12.11	%		1.22	%
Weighted average shares outstanding (1):
Basic																										19,377,407			19,475,814			(98,407	)	(0.5		)%
Diluted																										19,799,323			19,812,841			(13,518	)	(0.1		)%
Performance Ratios
Return on average assets, annualized																										1.39	%		1.47	%		(0.08	)%	(5.4		)%
Return on average shareholders’ equity, annualized																										12.59	%		11.64	%		0.95	%	8.2		%
Noninterest income to average assets, annualized																										0.28	%		0.70	%		(0.42	)%	(60.0		)%
Noninterest expense to average assets, annualized																										1.53	%		1.86	%		(0.33	)%	(17.7		)%
Efficiency ratio																										42.90	%		44.64	%		(1.74	)%	(3.9		)%
Dividend payout ratio																										18.67	%		18.75	%		(0.08	)%	(0.4		)%
Average equity to asset ratio																										11.06	%		12.63	%		(1.57	)%		(12.4	)%
Return on average tangible common equity, annualized (2)																										14.91	%		14.05	%		0.86	%	6.1		%
Tangible book value per share (2)																									$	20.20		$	18.51		$	1.69		9.1		%

(1)

~~Earnings per share are calculated utilizing the two-class method.~~ Basic earnings per share are calculated by dividing earnings to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options using the treasury stock method.

~~(2)~~

Efficiency ratio represents noninterest expenses, as adjusted, divided by the sum of fully taxable equivalent net interest income plus noninterest income, as adjusted. Noninterest expense adjustments exclude integration and acquisition related expenses. Noninterest income adjustments exclude bargain purchase gains, realized gains or losses from the sale of investment securities, gains or losses on sale of other assets and CDFI Fund grant.

~~(3)~~

(2)

Tangible book value per share ~~adjusted return on average assets, adjusted~~and return on average tangible common equity ~~return on average tangible common equity and tangible common equity~~are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a reconciliation of these measures to ~~tangible assets are non-GAAP financial~~their most comparable GAAP measures. ~~See "Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures.~~

Table of Contents

Net Interest Income

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)~~(“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of ~~35%.~~21% for 2022 and 2021. 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. ~~See~~For additional information see the sections on “Capital Resources and Liquidity Management” and Item 3. Quantitative and Qualitative Disclosures about Market Risk included ~~herein.~~in this Report.

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 ended ~~September 30, 2017~~March 31, 2022 and ~~2016 and the nine months ended September 30, 2017 and 2016.~~2021. 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,
	2017							2016							For the Three Months Ended March 31,
	Average		Interest		Yield /			Average		Interest		Yield /			2022							2021
(tax-equivalent basis, dollars in thousands)	Balance		& Fees		Rate			Balance		& Fees		Rate			Average		Interest		Yield /			Average		Interest		Yield /
Earning assets:
															Balance		& Fees		Rate			Balance		& Fees		Rate
Interest-earning assets:
Federal funds sold, cash equivalents and other (1)	$	202,005	$	815		1.60	%	$	103,624	$	326		1.25	%	$	628,634	$	673		0.43	%	$	215,230	$	397		0.75	%
Securities (2)
Available for sale		43,075		276		2.54	%		30,269		149		1.95	%		392,858		974		1.01	%		239,768		571		0.97	%
Held to maturity		5,533		55		3.92	%		6,226		54		3.45	%		6,250		57		3.70	%		7,000		64		3.71	%
Mortgage loans held for sale		98,807		1,149		4.61	%		63,304		764		4.80	%		3,652		43		4.78	%		54,021		411		3.09	%
Loans held for investment: (3)
Real estate		766,911		10,673		5.52	%		807,197		12,711		6.26	%		2,602,382		33,095		5.16	%		2,307,431		29,521		5.19	%
Commercial ~~(4)~~		377,501		5,379		5.65	%		361,200		4,696		5.17	%		380,978		4,748		5.05	%		384,442		4,584		4.84	%
Total loans HFI		1,144,411		16,051		5.56	%		1,168,397		17,407		5.93	%
Total loans held for investment																2,983,360		37,843		5.14	%		2,691,873		34,105		5.14	%
Total earning assets		1,493,833	$	18,346		4.87	%		1,371,820	$	18,699		5.42	%		4,014,754	$	39,590		4.00	%		3,207,892	$	35,548		4.49	%
Noninterest-earning assets		96,555							80,212							241,235							228,002
Total assets	$	1,590,388						$	1,452,032						$	4,255,989						$	3,435,894

Interest-bearing liabilities
NOW and money market deposits	$	333,471	$	606		0.72	%	$	290,963	$	480		0.66	%
Savings deposits		36,746		43		0.46	%		35,533		41		0.45	%
Time deposits		690,378		2,061		1.18	%		713,087		1,802		1.01	%
Interest-bearing liabilities:
NOW															$	75,399	$	43		0.23	%	$	64,592	$	44		0.28	%
Money market																720,197		643		0.36	%		579,347		623		0.44	%
Saving deposits																145,327		32		0.09	%		131,151		31		0.10	%
Time deposits, less than $250,000																600,563		754		0.51	%		663,029		1,496		0.92	%
Time deposits, $250,000 and over																570,210		820		0.58	%		593,981		1,468		1.00	%
Total interest-bearing deposits		1,060,596		2,711		1.01	%		1,039,583		2,322		0.89	%		2,111,696		2,292		0.44	%		2,032,100		3,662		0.73	%
FHLB short-term advances		—		—		—			11,902		16		0.55	%
FHLB advances																150,000		435		1.18	%		150,000		435		1.18	%
Long-term debt		49,470		848		6.80	%		49,333		849		6.85	%		173,058		2,194		5.14	%		111,739		1,808		6.56	%
Subordinated debentures		3,388		60		6.99	%		3,255		54		6.55	%		14,521		154		4.30	%		14,302		150		4.25	%
Total interest-bearing liabilities		1,113,455	$	3,618		1.29	%		1,104,072	$	3,241		1.17	%		2,449,275		5,075		0.84	%		2,308,141		6,055		1.06	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		227,854							162,005							1,301,497							653,674
Other noninterest-bearing liabilities		11,599							9,934							34,319							40,119
Total noninterest-bearing liabilities		239,453							171,939							1,335,816							693,793
Shareholders' equity		237,480							176,021							470,898		��					433,960
Total liabilities and shareholders' equity	$	1,590,388						$	1,452,032						$	4,255,989						$	3,435,894
Net interest income / interest rate spreads			$	14,727		3.58	%			$	15,458		4.25	%			$	34,515		3.16	%			$	29,493		3.43	%
Net interest margin						3.91	%						4.48	%						3.49	%						3.73	%

(1)

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

(2)

~~We have an insignificant amount of tax-exempt loans and securities, less than $1 million.~~ Interest income and average rates for tax-exempt ~~loans and~~ securities are presented on a tax-equivalent ~~basis as of September 30, 2017 and 2016.~~basis.

(3)

Average loan balances include nonaccrual ~~loans and loans held for sale.~~loans. Interest income on loans includes - amortization of deferred loan fees, net of deferred loan ~~costs.~~

costs and discount accretion.

~~(4)~~

~~Includes purchased receivables, which are short term loans made to investment grade companies and are used for cash - management purposes by the Company.~~

Table of Contents

For the nine months ended September 30,

2017

2016

Average

Interest

Yield /

Average

Interest

Yield /

(tax-equivalent basis, dollars in thousands)

Balance

& Fees

Rate

Balance

& Fees

Rate

Earning assets:

Federal funds sold, cash
   equivalents and other (1)

$
151,755

$
1,712

1.51
%

$
80,475

$
811

1.35
%
Securities (2)

Available for sale

40,862

746

2.44
%

28,703

433

2.01
%
Held to maturity

5,980

176

3.94
%

6,378

187

3.92
%
Mortgage loans held for sale

74,230

2,617

4.71
%

66,848

2,421

4.84
%
Loans held for investment: (3)

Real estate

766,974

31,990

5.58
%

771,131

34,386

5.96
%
Commercial (4)

374,979

15,384

5.49
%

351,731

13,236

5.03
%
Total loans HFI

1,141,953

47,375

5.55
%

1,122,862

47,621

5.67
%
Total earning assets

1,414,780

$
52,627

4.97
%

1,305,266

$
51,474

��

5.27
%
Noninterest-earning assets

93,160

84,539

Total assets

$
1,507,940

$
1,389,806

Interest-bearing liabilities

NOW and money market deposits

$
301,254

$
1,577

0.70
%

$
282,790

$
1,371

0.65
%
Savings deposits

34,879

121

0.46
%

34,718

118

0.45
%
Time deposits

695,020

5,903

1.14
%

682,484

5,144

1.01
%
Total interest-bearing deposits

1,031,153

7,602

0.99
%

999,992

6,634

0.89
%
FHLB short-term advances

5,128

29

0.77
%

5,949

24

0.54
%
Long-term debt

49,433

2,547

6.89
%

33,001

1,697

6.87
%
Subordinated debentures

3,366

173

6.88
%

2,673

127

6.34
%
Total interest-bearing liabilities

1,089,080

$
10,352

1.27
%

1,041,615

$
8,481

1.09
%
Noninterest-bearing liabilities

Noninterest-bearing deposits

205,532

163,518

Other noninterest-bearing liabilities

10,274

15,052

Total noninterest-bearing liabilities

215,805

178,569

Shareholders' equity

203,054

169,622

Total liabilities and shareholders
   equity

$
1,507,940

$
1,389,806

Net interest income / interest rate
   spreads

$
42,275

3.70
%

$
42,993

4.18
%
Net interest margin

4.00
%

4.40
%

~~(1)~~

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

~~(2)~~

We have an insignificant amount of tax-exempt loans and securities, less than $1 million. Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis as of September 30, 2017 and 2016.

~~(3)~~

~~Average loan balances include nonaccrual loans and loans held for sale. Interest income on loans includes - amortization of deferred loan fees, net of deferred loan costs.~~

~~(4)~~

~~Includes purchased receivables, which are short term loans made to investment grade companies and are used for cash - management purposes by the Company.~~

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 ~~tables show~~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
	Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016									Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016									March 31, 2022 and 2021
	Change due to:									Change due to:									Change due to:
(tax-equivalent basis, dollars in thousands)	Volume			Rate			Interest Variance			Volume			Rate			Interest Variance			Volume			Rate			Interest Variance
Earning assets:
Federal funds sold, cash equivalents & other (1)	$	394		$	95		$	489		$	269		$	632		$	901		$	1,353		$	(1,077	)	$	276
Securities (2)
Securities: (2)
Available for sale		82			46			128			74			239			313			379			24			403
Held to maturity		(7	)		8			1			(4	)		(7	)		(11	)		(7	)		0			(7	)
Mortgage loans held for sale		409			(24	)		385			87			110			197			(1,383	)		1,015			(368	)
Loans held for investment: (3)
Real estate		(556	)		(1,482	)		(2,038	)		(58	)		(2,337	)		(2,395	)		4,744			(1,170	)		3,574
Commercial (4)		230			452			682			319			1,830			2,148
Total loans		(326	)		(1,030	)		(1,356	)		261			(508	)		(247	)
Commercial																				(250	)		414			164
Total loans held for investment																				4,494			(756	)		3,738
Total earning assets	$	552		$	(905	)	$	(353	)	$	687		$	466		$	1,153		$	4,836		$	(794	)	$	4,042

Interest-bearing liabilities
NOW and money market deposits	$	77		$	50		$	127		$	32		$	174		$	206
Savings deposits		1			1			2			—			3			3
Time deposits		(67	)		327			260			36			723			759
NOW																			$	30		$	(31	)	$	(1	)
Money market																				542			(522	)		20
Saving deposits																				14			(13	)		1
Time deposits, less than $250,000																				(130	)		(612	)		(742	)
Time deposits, $250,000 and over																				(56	)		(592	)		(648	)
Total interest-bearing deposits		11			378			389			68			900			968			400			(1,770	)		(1,370	)
FHLB short-term advances		0			(16	)		(16	)		(2	)		7			5
Long-term debt		2			(4	)		(2	)		283			566			849			2,553			(2,167	)		386
Subordinated debentures		2			4			6			12			35			47			2			2			4
Total interest-bearing liabilities		15			362			377			361			1,509			1,869			2,955			(3,935	)		(980	)
Net interest	$	537		$	(1,267	)	$	(730	)	$	326		$	(1,042	)	$	(716	)
Changes in net interest income																			$	1,881		$	3,141		$	5,022

(1)

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

(2)

(3)

Average loan balances include nonaccrual ~~loans and loans held for sale.~~loans. Interest income on loans includes - amortization of deferred loan fees, net of deferred loan ~~costs.~~

costs and discount accretion.

~~(4)~~

~~Includes purchased receivables, which are short term loans made to investment grade companies and are used for cash - management purposes by the Company.~~

Table of Contents

Results of ~~Operations—~~Operations—Comparison of Results of Operations for the Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021

The following discussion of our results of operations compares the three months ended ~~September 30, 2017 to the three months ended September 30, 2016.~~March 31, 2022 and 2021. The results of operations for the three months ended ~~September 30, 2017~~March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, ~~2017.~~2022.

Net Interest Income/Average Balance ~~Sheet~~

Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans and securities) and interest expense on funding sources (primarily interest-bearing deposits and borrowings). Net interest income is impacted by the level of interest-earning assets and related funding sources, as well as changes in the levels of interest rates. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest-bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets.

Sheet.In the ~~third~~first quarter of ~~2017,~~2022, we generated ~~$14.7~~$34.5 million of taxable-equivalent net interest income, which was ~~a decrease~~an increase of ~~$730,000,~~$5.0 million, or ~~4.72%~~17.0%, from the ~~$15.5~~$29.5 million of taxable-equivalent net interest income we ~~produced~~earned in the ~~third~~first quarter of ~~2016.~~2021. The ~~decrease~~increase in net interest income was primarily due to an $806.9 million increase in average earning assets and a 5522 basis point decrease in the average rate paid on interest-bearing liabilities, partially offset by a 49 basis point decrease in the average yield on interest-earning assets. The decreases in average yield on interest-earning assets and ~~an 12~~the average rate paid on interest-bearing liabilities were primarily due to a decrease in market rates. The increase in average interest-earning assets resulted from increases in average federal funds sold and cash equivalents, investment securities and average loan balances.

Our average interest-bearing deposit balances increased by $79.6 million, primarily as a result of organic growth. The decrease in interest expense was primarily due to a 22 basis point ~~increase~~decrease in the average rate paid on interest-bearing deposits reflecting an increase in deposit rates, partially offset by an 8.9% increase in the average balance of interest-earning assets. The increase in the average balance of interest-earning assets reflected increases in federal funds sold, cash and other equivalents and securities average balances. The increase in federal funds sold, cash equivalents and other average balances of $98.4 million is primarily due to the Company’s public offering in July 2017, runoff of loans and increased deposit production in the third quarter of 2017. The decrease in average loan balances of $24.0 million is primarily due to the runoff of loans following the acquisition of TomatoBank on February 19, 2016. Our deposit average balances increased by $86.9 million primarily due to enhanced marketing efforts in 2017. The increase in interest expense was primarily due to increased time deposit rates.liabilities. For the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, our ~~reported~~ net interest margin was ~~3.91%~~3.49% and ~~4.48%~~3.73%, respectively. Our net interest margin benefits from discount accretion on our purchased loan portfolios. Our net interest margin for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, excluding accretion income, would have been ~~3.74%~~3.46% and 3.67%, respectively.

~~Interest Income.~~

Total tax-equivalent interest income was ~~$18.3~~$39.6 million for the ~~third~~first quarter of ~~2017~~2022 compared to ~~$18.7~~$35.5 million for the ~~third~~first quarter of ~~2016.~~2021. The ~~$353,000,~~$4.0 million, or ~~1.9%~~11.4%, ~~decrease~~increase in total tax-equivalent interest income was primarily due to ~~decreases~~a $806.9 million increase in ~~purchase discount accretion,~~average earning assets, partially offset by ~~increases~~a 49 basis point decrease in the yield on average ~~balances and yields on federal funds sold and other cash equivalents and securities.~~earning assets.

Interest and fees on HFI and HFS loans for the ~~third~~first quarter of ~~2017~~2022 was ~~$17.2~~$37.9 million compared to ~~$18.2~~$34.5 million for the ~~third~~first quarter of ~~2016.~~2021. The ~~$969,000,~~$3.4 million, or ~~5.3%~~9.8%, ~~decrease~~increase was primarily due to a ~~37 basis point decrease in the average yield on loans partially offset by a 0.9%~~$241.1 million, or 8.8%, increase in the average balance of total loans ~~outstanding. In addition interest~~outstanding and ~~fees~~a 4 basis point increase in the average yield on ~~loans decreased~~total loans. The increase in the average loan balance was primarily due to organic loan growth. Purchased loan discount accretion income totaled $246,000 in the first quarter of 2022 compared to $481,000 in the ~~third~~first quarter of 2016 due to lower accretion associated with purchase accounting discounts established on TomatoBank loans. Accretion income totaled $639,000 in the third quarter of 2017 compared to $2.8 million in the third quarter of 2016.2021. The average yield on loans benefits from discount accretion on our purchased loan portfolio. For the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, the yield on total HFI and HFS loans was ~~5.56%~~5.14% and ~~5.93%~~5.10%, respectively, while the yield on total loans excluding accretion income would have been ~~5.34%~~5.11% and ~~4.97%~~5.03%, respectively. Due to payoffs of acquired loans, we expect accretion income to ~~continue to~~ decline ~~throughout 2017 in comparison to 2016. The table below illustrates by loan type~~through the ~~accretion income for September 30, 2017 and September 30, 2016. There were no additions due to acquisitions during the third quarters~~remainder of ~~2017 and 2016.~~2022.

	As of and for the					As of and For the Three Months Ended
	Three Months					March 31,
	Ended September 30,
(Dollars are in thousands)	2017		2016
(dollars in thousands)						2022			2021
Beginning balance of discount on purchased loans	$	6,140	$	12,184		$	1,726		$	2,872
Additions due to acquisitions:
Commercial and industrial							8			—
Commercial real estate							26			—
Single family residential mortgages							(52	)		—
Total additions						$	(18	)	$	—
Accretion:
Commercial and industrial		54		231			4			(5	)
SBA		5		(7	)		3			3
Construction and land development		4		80			(1	)		1
Commercial real estate		569		2,471			54			159
Single-family residential mortgages		7		32
Single family residential mortgages							186			323
Total accretion	$	639	$	2,807		$	246		$	481
Ending balance of discount on purchased loans	$	5,501	$	9,377		$	1,462		$	2,391

Interest income on our total securities portfolio (taxable equivalent) increased ~~$128,000,~~$396,000, or ~~63.1%~~62.4%, to ~~$331,000~~$1.0 million in the ~~third~~first quarter of ~~2017~~2022 compared to ~~$203,000~~$635,000 in the ~~third~~first quarter of ~~2016.~~2021. This increase is ~~mainly~~primarily attributable to ana $152.3 million, or 61.7%, increase in the average ~~balances~~balance, plus a 1 basis point increase in the yield on average securities, in the first quarter of ~~$12.1 million or 33.2%,~~2022 as ~~management purchased $16.8 million~~compared to the first quarter of 2021. Securities income reported in ~~corporate bonds and transferred~~the average balance sheet has been adjusted to a ~~corporate sub-debt loan~~tax-equivalent basis; interest income reported in the Company’s consolidated statements of ~~$1 million to investments once the loan became DTC eligible.~~income has not been grossed-up.

Interest income on interest-earning deposits, dividend income on FHLB stock, federal funds sold, cash equivalents and other investments increased to ~~$326,000~~$673,000 for the three months ended ~~September 30, 2017~~March 31, 2022 compared to ~~$92,000~~$397,000 for the three months ended ~~September 30, 2016.~~March 31, 2021. This increase was primarily due to ana $413.4 million increase in the ~~level~~average balance of short-term cash investments, partially offset by a 32 basis point decrease in addition to an increase in short-term interest rates. The increase in short-term cash investments is primarily due to raising capital through our public offering in July and an increase in deposits during the ~~third quarter.~~average yield between the two periods.

~~Interest Expense.~~

Interest expense on interest-bearing liabilities ~~increased $377,000,~~decreased by $980,000, or ~~11.6%~~16.2%, to ~~$3.6~~$5.1 million for the ~~third~~first quarter of ~~2017~~2022 as compared to ~~$3.2~~$6.1 million in the ~~third~~first quarter of ~~2016~~2021 due to ~~increases~~decreases in interest ~~expense~~rates on both deposits and ~~borrowings.~~borrowings, partially offset by a $141.1 million increase in average interest-bearing liabilities.

Interest expense on deposits ~~increased to $2.7 million for the third quarter of 2017 as compared~~decreased to $2.3 million for the ~~third~~first quarter of ~~2016.~~2022 as compared to $3.7 million for the first quarter of 2021. The ~~$388,000,~~$1.4 million, or ~~16.7%~~37.4%, ~~increase~~decrease in interest expense on deposits was primarily due to a 1229 basis point ~~increase~~decrease in the average rate paid on interest-bearing deposits, plus a ~~2.0%~~$86.2 million decrease in average time deposits, partially offset by $165.8 million increase in ~~the~~average NOW, money market and saving deposits. Deposits increased due to organic deposit growth. The average balance of interest-bearing deposits ~~The increase~~increased $79.6 million, or 3.9%, from $2.0 billion in the ~~average balance~~first quarter of ~~interest-bearing~~2021 compared to $2.1 billion in the first quarter of 2022. Average brokered certificates of deposit were $1.5 million in the first quarter of 2022 compared to $17.4 million in the first quarter of 2021. Average non-interest-bearing deposits ~~resulted~~increased to $1.3 billion, or 99.1%, from ~~increases~~$653.7 million in ~~NOW and money market balances partially offset by decreases in time deposit maturities.~~the first quarter of 2021. The ~~increase~~29 basis point decrease in the average rate paid on interest-bearing deposits was primarily due to ~~the impact of higher~~lower market interest ~~rates on deposits.~~rates.

Table of Contents

Interest expense on ~~subordinated notes~~FHLB advances was $435,000 in both the first quarter of 2021 and the first quarter of 2022. The average balance remained unchanged from $150.0 million between the two quarters. The $150.0 million in FHLB advances at March 31, 2022 were fixed-rate FHLB advances with an average rate of 1.18% maturing in the first quarter of 2025. The purpose of this borrowing was to obtain funding in order to enhance liquidity in light of the COVID-19 pandemic and obtain funding at an attractive interest rate. The Company had no outstanding overnight FHLB advances as of March 31, 2022 and no overnight FHLB advances as of March 31, 2021.

Interest expense on long-term debt and subordinated debentures increased ~~$5,000~~by $390,000 to ~~$908,000~~$2.3 million in the ~~third~~first quarter of ~~2017 as~~2022 from $2.0 million during the first quarter of 2021. The average balance of long-term debt and subordinated debentures increased to $187.6 million in the first quarter of 2022, compared to ~~$903,000~~$126.0 million in the ~~third~~first quarter of ~~2016. Interest expense~~2021. The average rate on ~~FHLB short-term advances~~long-term debt and subordinated debentures was ~~zero~~5.08% in the ~~third~~first quarter of ~~2017 as~~2022 compared to ~~$16,000~~6.30% in the ~~third~~first quarter of ~~2016.~~2021.

Provision for ~~(or Recapture of)~~ Loan ~~Losses.~~ Losses. The $1.1 million decrease in the provision for loan losses, ~~decreased $550,000 or 44.0%,~~ to ~~$700,000~~$366,000 in the ~~third~~first quarter of ~~2017 from $1.25~~2022 compared to $1.5 million in the ~~third~~first quarter of ~~2016,~~2021, was primarily attributable to the reversal of COVID-19 pandemic reserve due to ~~increased~~less severe status than two years ago. There were $14,000 in net loan ~~quality~~recoveries in the ~~SBA~~first quarter of 2022, as compared to $42,000 in net loan ~~portfolio.~~ charge-offs in the first quarter of 2021.

Noninterest Income.Noninterest income ~~increased $1.2~~decreased $3.0 million, or ~~46.2%~~50.1%, to ~~$3.8~~$2.9 million for the ~~third~~first quarter of ~~2017,~~2022, compared to ~~$2.6~~$5.9 million in the same quarter in the prior ~~comparable quarter.~~year. The following table sets forth the major components of our noninterest income for the ~~third quarter of 2017 compared to the third quarter of 2016:~~three months ended March 31, 2022 and 2021:

	For the Three Months Ended
	September 30,				Increase			For the Three Months Ended March 31,						Increase (Decrease)
(dollars in thousands)	2017		2016		(decrease)			2022			2021			$			%
Noninterest income:
Service charges, fees and other	$	518	$	443	$	75		$	1,116		$	1,410		$	(294	)		(20.9	)%
Gain on sale of loans		2,584		1,870		714			1,174			3,841			(2,667	)		(69.4	)%
Loan servicing fee, net of amortization		314		95		219			432			246			186			75.6	%
Recoveries on loans acquired in business combinations		19		47		(28	)		5			5			—			0.0	%
Unrealized loss on equity investments									—			(20	)		20			(100.0	)%
(Loss) Gain on derivatives									(108	)		225			(333	)		(148.0	)%
Increase in cash surrender of life insurance		219		141		78			325			187			138			73.8	%
Gain on sale of OREO		142		—		142
Total noninterest income	$	3,796	$	2,596	$	1,200		$	2,944		$	5,894		$	(2,950	)		(50.1	)%

Service charges, fees and other income.Service charges, fees and other income totaled ~~$518,000~~$1.1 million in the ~~third~~first quarter of ~~2017~~2022, compared to ~~$443,000~~$1.4 million in the ~~third~~first quarter of ~~2016.~~2021. The ~~increase~~$294,000 decrease was in ~~services charges, fees and other income is attributable to increased fee income on deposit accounts~~ primarily due to ~~increased demand deposits and restructuring of our fee schedule.~~a $362,000 decrease in analysis charges.

Gain on sale of loans.~~Gain~~ Gains on sale of loans isare comprised primarily of gains on sale of ~~single-family residential~~SFR mortgage loans and ~~gains on sale of~~ SBA loans. ~~Gain~~Gains on sale of loans totaled ~~$2.6~~$1.2 million in the ~~third~~first quarter of ~~2017~~2022, compared to ~~$1.9~~$3.8 million in the ~~third~~first quarter of ~~2016.~~ 2021. The decrease was primarily caused by a decrease of $98.3 million in loan sale volume, primarily due to a decrease in FNMA and non-qualified mortgage loan sales.

Table of Contents

The following table presents information on loans sold and gains ~~earned~~on loans sold for the ~~third quarter of 2017~~three months ended March 31, 2022 and ~~2016:~~2021.

	For the Three Months Ended				For the Three Months Ended March 31,				Increase (Decrease)
(dollars in thousands)	September 30 2017		September 30 2016		2022		2021		$			%
Loans sold:
SBA	$	22,614	$	15,971	$	8,349	$	3,540	$	4,809			135.8	%
Mortgage		43,415		41,602
Single family residential mortgage						26,932		130,088		(103,156	)		(79.3	)%
	$	66,030	$	57,573	$	35,281	$	133,628	$	(98,347	)		(73.6	)%
Gain on loans sold:
SBA	$	1,615	$	978	$	463	$	355	$	108			30.4	%
Mortgage		969		892
Single family residential mortgage						711		3,486		(2,775	)		(79.6	)%
	$	2,584	$	1,870	$	1,174	$	3,841	$	(2,667	)		(69.4	)%

The increase in SBA loan sales is a result of the Company changing the timing of our SBA loan sales. Prior to 2017, we sold the majority of our SBA loans during the fourth quarter of each year. Beginning in 2017, we are selling SBA loans on a quarterly basis, and we intend to sell such loans through the remaining quarter of 2017 in the amount of approximately $16 million.

In the third quarter of 2017 we sold $43.4 million of single-family mortgage loans for a gain of $969,000. In the third quarter of 2016 we sold $41.6 million of single-family mortgage loans for a gain of $892,000 million. For the fourth quarter of 2017, we plan to sell approximately $90 million of single-family mortgage loans.

Loan servicing income, net of amortization.Loan servicing income, net of amortization was $315,000 for the three months ended September 30, 2017 compared to $96,000 for the three months ended September 30, 2016. The increase in loan servicing income is due the increase in the loan servicing portfolio. The single-family residential mortgage loan servicing portfolio was $306.2 million as of September 30, 2017 compared to $230.6 million as of September 30, 2016. The SBA loan servicing portfolio was $166.1 million as of September 30, 2017 compared to $101.4 million as of September 30, 2016. The increase in the respective servicing portfolios reflect the growth in our originations and sales of single-family residential and SBA loans in 2016 and the first nine months of 2017.

~~Recoveries on loans acquired in business combinations.~~ Recoveries on loans acquired in business combinations decreased $28,000 to $19,000 in the quarter ended September 30, 2017 compared to $47,000 in the comparable quarter of 2016. This decrease is primarily due to our having completed collections on former VCBB and FAB loans, offset slightly by new recoveries resulting from the TomatoBank acquisition.

~~Increase in cash surrender of life insurance.~~ Cash surrender value increased $78,000 to $219,000 in the quarter ended September 30, 2017 compared to $141,000 in the third quarter in 2016 primarily due to our purchase of an additional $10.0 million in bank owned life insurance, or BOLI, in January 2017.

~~Gain on sale of OREO. In the third quarter of 2017, one OREO property was sold for a gain of $142,000.~~

~~Noninterest expense~~ increased $163,000, or 2.3%, to $7.2 million in the third quarter of 2017 compared to $7.0 million in the third quarter of 2016. The following table sets forth the major components of our noninterest expense for the third quarter of 2017 compared to the third quarter of 2016:

For the Three Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest expense:

Salaries and employee benefits

$
4,178

$
3,481

$
697

Occupancy and equipment expenses

705

766

(61
)
Data processing

458

563

(105
)
Legal and professional

318

511

(193
)
Office expenses

153

153

—

Marketing and business promotion

250

102

148

Insurance and regulatory assessments

201

284

(83
)
Amortization of intangibles

87

103

(16
)
OREO expenses (income)

6

6

—

Other expenses

844

1,068

(224
)
Total noninterest expense

$
7,200

$
7,037

$
163

~~Salaries and employee benefits.~~ Salaries and employee benefits expense increased $697,000, or 20.0%, to $4.2 million for the third quarter of 2017 compared to $3.5 million for the third quarter of 2016. The increase in salaries and employee benefits is due to additional employees in mortgage, BSA, compliance and finance/accounting (related to the Company going public), as well as normal salary increases.

~~Occupancy and equipment.~~ Occupancy and equipment expense decreased $61,000, or 7.9%, to $705,000 for the third quarter of 2017 compared to $766,000 for the third quarter of 2016. The decrease is mainly due to furniture and fixture being fully depreciated in our Los Angeles headquarters and San Gabriel credit and administration locations.

~~Data processing.~~ Data processing expense decreased $105,000, or 18.7%, to $458,000 for the third quarter of 2017, compared to $563,000 for the third quarter of 2016. The decrease was primarily due to discontinuing data lines that were duplicative.

~~Legal and professional.~~ Legal and professional expense decreased $193,000 to $318,000 for the third quarter of 2017, compared to $511,000 for the third quarter of 2016. Prior to 2017, we would accrue the entire amount of our estimate of the legal expense for a particular matter. Beginning in 2017, we began accruing for legal expenses as such expenses are incurred.

~~Office expenses.~~ ~~Office expenses were unchanged at $153,000 in the third quarter of 2017 from the third quarter of 2016.~~

~~Marketing and business promotion.~~ Marketing and business promotion expense increased $148,000, or 145.6%, to $250,000 in the third quarter of 2017, compared to $102,000 for the third quarter of 2016. This increase was due to additional donations to CRA organizations, as per our policy.

~~Insurance and regulatory assessments.~~ Insurance and regulatory assessments decreased $83,000, or 29.2%, to $201,000 for the third quarter of 2017, compared to $284,000 for the third quarter of 2016. The decrease was primarily due to lower FDIC insurance expense due to lower accrual rates after our de novo period ended. Our FDIC insurance expense was $120,000 for the three months ended September 30, 2017 compared to $200,000 for the three months ended September 30, 2016. Our DBO regulatory assessment was $31,000 for the three months ended September 30, 2017 compared to $32,000 for the same period in 2016. Our corporate insurance was $49,000 for the three months ended September 30, 2017 compared to $52,000 for the three months ended September 30, 2016.

~~Amortization of intangibles.~~ ~~Amortization of intangibles totaled $87,000 for the three months ended September 30, 2017 versus $103,000 for the three months ended September 30, 2016.~~

~~OREO expenses (income).~~ ~~Net OREO expenses were $6,000 for the third quarter of 2017, and $6,000 in the third quarter of 2016.~~

~~Other expenses.~~ Other expenses decreased $224,000, or 21.0%, to $844,000 for the third quarter of 2017, compared to $1.1 million in the third quarter of 2016. This decrease is primarily due to a reduction in the provision for off-balance sheet commitments of $350,000, which primarily consist of commercial real estate and commercial & industrial commitments.

~~Income Tax Expense~~

Income tax expense was $4.0 million in the third quarter of 2017 compared to $4.1 million in the third quarter of 2016. Effective tax rates were 37.8% and 41.7% in the third quarter of 2017 and the third quarter of 2016, respectively. The decrease in income tax expense and the effective tax rate was primarily due to tax benefits recognized on stock option expense for the exercise of incentive stock options which was $310,000 for the three months ended September 30, 2017.

~~Net Income~~

Net income amounted to $6.6 million for the third quarter 2017, a $914,000 or 16.1% increase from the third quarter of 2016, primarily due to the increased gain on loan sales and net loan servicing fees.

~~Results of Operations—Comparison of Results of Operations for the Nine Months Ended September 30, 2017 and September 30, 2016~~

The following discussion of our results of operations compares the nine months ended September 30, 2017 and September 30, 2016, respectively. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017.

~~Net Interest Income/Average Balance Sheet~~

In the first nine months of 2017, we generated net interest income of $42.3 million, a decrease of $716,000 or 1.7%, from the net interest income of the same period in 2016. This decrease was largely due to a 30 basis point decrease in the average yield on interest-earning assets partially offset by 8.4% increase in the average balance of interest-earning assets. The increase in the average balance of interest-earning assets was primarily due to funds from the Company’s July public offering, organic growth in commercial and industrial, construction and single-family residential mortgage loans. The decrease in the average yield on interest-earning assets was primarily due to the reduction in accretion income associated with purchase accounting discounts established on loans acquired in the TomatoBank acquisition. For the nine months ended September 30, 2017 and 2016, our reported net interest margin was 4.00% and 4.40%, respectively. Our net interest margin benefits from discount accretion on our purchased loan portfolios. Our net interest margin for the nine months ended September 30, 2017 and 2016, excluding accretion income, would have been 3.75% and 3.76%, respectively.

~~Interest Income.~~ Total interest income was $52.6 million for the first nine months of 2017 compared to $51.5 million for the same period in 2016. The $1.2 million, or 2.2%, increase in total interest income was due to increases in interest earned on our interest-earning balances, securities portfolio and Federal funds sold.

Interest and fees on loans (held for investment and held for sale) was $50.0 million for the nine months ending September 30, 2017 compared to $50.0 million for the same period in 2016. The $50,000, or 0.1%, decrease in interest income on loans was primarily due to a 13 basis point decrease in the yield on loans partially offset by a 2.2% increase in the average balance of loans outstanding. The increase in the average balance of loans outstanding was primarily due to organic loan growth in commercial and industrial, single-family residential mortgage loans and construction loans during 2017. The average yield on loans held for investment benefits from discount accretion on our acquired loan portfolios. For the nine months ended September 30, 2017 and 2016, the yield on total loans was 5.55% and 5.67%, respectively, while the yield on total loans excluding accretion income would have been 5.21% and 4.92%, respectively. A substantial portion of our acquired loan portfolio that is subject to discount accretion consists of commercial real estate loans. The table below illustrates by loan type the accretion income for the first nine months of 2017 and 2016:

As of and for the

Nine Months

Ended September 30,

(Dollars are in thousands)

2017

2016

Beginning balance of discount on purchased loans

$
8,085

$
1,712

Additions due to acquisitions:

Commercial and industrial

—

737

SBA

—

177

Construction and land development

—

736

Commercial real estate

—

12,224

Single-family residential mortgages

—

—

Total additions

$
—

$
13,874

Accretion:

Commercial and industrial

186

726

SBA

17

17

Construction and land development

41

620

Commercial real estate

2,293

4,735

Single-family residential mortgages

47

111

Total accretion

$
2,584

$
6,209

Ending balance of discount on purchased loans

$
5,501

$
9,377

Interest income on our securities portfolio increased $302,000, or 48.8%, to $922,000 in the first nine months of 2017 compared to the same period of 2016. The increase in interest income on securities was primarily due to an increased average balance of $11.8 million, or 33.5%, and by a 27 basis point increase in the average yield on securities. We purchased $19.8 million of debt securities with an average yield of 3.39%, which includes the transfer of a corporate sub-debt loan for $1 million to investments once the loan became DTC eligible, in the first nine months of 2017. These purchases increased our average yield by changing the mix of asset classes in our securities portfolio. We have temporarily invested a portion of the proceeds received from our issuance of $50 million of subordinated notes into subordinated debt issued by other community banks and expect to deploy such funds into new loan originations over the next two years.

Interest income on our federal funds sold, cash equivalents and other investments increased $469,000, or 294.7%, to $628,000 in the first nine months of 2017 compared to $159,000 in the same period of 2016. The increase in interest income on cash equivalents was due to a 16 basis point increase in average yield of cash equivalents plus a major increase in the average balance of $71.3 million from the Company’s public offering. The main reasons for the increased yield were the increase in the federal funds rate and placing higher balances into term federal funds for liquidity management purposes.

~~Interest Expense.~~ Interest expense on interest-bearing liabilities increased $1.9 million, or 22.0%, to $10.4 million in in the first nine months of 2017 compared to the same period of 2016 due to a 4.6% increase in the average balance outstanding and an 18 basis point increase in the average rate. Deposit expense increased due to the addition of, and having TomatoBank deposits, for the full nine months in 2017 compared to four and a half months in 2016. In addition, the sub-debt interest expense is higher because the debt was outstanding for the first nine months of 2017, compared to three months in the same period in 2016.

Interest expense on interest-bearing deposits increased to $7.6 million in the first nine months of 2017 compared to $6.6 million in the same period in 2016. The $968,000, or 14.6%, increase in interest expense on deposits was primarily due to the average balance of deposits increasing 3.1%, combined with a 10 basis point increase in rates. The increase in the average balance of deposits resulted primarily from normal growth of deposit accounts.

Interest expense on borrowings increased to $2.7 million in the first nine months of 2017 compared to $1.8 million in the same period of 2016. This increase reflected increased interest expense on subordinated notes, subordinated debentures and other borrowed funds, consisting of FHLB short-term advances of less than 90-days. The increase in interest expense on subordinated notes of $2.7 million followed the issuance of $50.0 million of subordinated notes on March 31, 2016. The increase in interest expense on subordinated debentures of $47,000 was due to a 25.9% increase in the average balance plus a 55 basis point increase in the average rate. The increase in interest expense on other borrowed funds of $5,000 was due to the average rate on these borrowings increasing 23 basis points partially offset by a 13.8% decrease in the average FHLB short-term advances during the first nine months of 2017, which were utilized to fund single-family residential mortgage loans that were originated and held for sale during the year.

~~Provision for (or Recapture) of Loan Losses.~~ In the first nine months of 2017 there was a $3.5 million net recapture in the provision for loan losses compared to $3.6 million provision expense for the same period of 2016. The decrease was $7.1 million or 196.9%. The recapture reflects both the receipt of a guaranteed payment on a SBA 7A guaranteed loan of $629,000 in May 2017 that was previously charged-off and the receipt of $3.6 million in July 2017 pursuant to a SBA loan guaranty that we previously fully reserved for in the allowance for loan losses.

~~Noninterest Income.~~ Noninterest income increased $3.1 million or 49.7%, to $9.4 million in the first half of 2017. The following table sets forth major components of our noninterest income for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:

For the Nine Months Ended

September 30,

Increase

(dollars in thousands)

2017

2016

(decrease)

Noninterest income:

Service charges, fees and other

$
1,624

$
1,182

$
442

Gain on sale of loans

6,370

4,136

2,234

Loan servicing fee, net of amortization

571

384

187

Recoveries on loans acquired in business
combinations

76

139

(63
)
Increase in cash surrender of
life insurance

620

423

197

Gain on sale of securities

—

19

(19
)
Gain on sale of OREO

142

—

142

Total noninterest income

$
9,403

$
6,283

$
3,120

~~Service charges, fees and others.~~ Noninterest income from service charges, fees and other income increased to $1.6 million in the first nine months of 2017 compared to $1.2 million in the first same period of 2016. This increase primarily resulted from services charges on deposit accounts and fees from other operations.

~~Gain on sale of loans.~~ Our gain on sale of loans increased to $6.4 million in the first nine months of 2017 compared to $4.1 million in the same period of 2016 due to an increased amount of SBA loans sold. The gain on sale of single-family residential mortgage loans was $1.8 million in the first nine months of 2017 compared to $2.5 million in the first nine months of 2016, for a $682,000 decrease.

For the Nine Months Ended

(dollars in thousands)

September 30 2017

September 30 2016

Loans sold:

SBA

$
68,927

$
27,620

Mortgage

81,071

139,805

$
149,998

$
167,425

Gain on loans sold:

SBA

$
4,599

$
1,683

Mortgage

1,771

2,453

$
6,370

$
4,136

We sold $68.9 million in SBA loans in the first nine months of 2017 compared to $27.6 million in the same period of 2016, resulting in a gain on sale of loans of $4.6 million in the first nine months of 2017 compared to $1.7 million in the same period of 2016. The increase reflects our efforts to increase our originations and sales of such loans to generate additional

~~noninterest income. A lower volume of single-family residential mortgage loans was sold as a result of management’s decision to retain more loans in the portfolio.~~

~~Loan servicing income, net of amortization.~~ Our loan servicing income, net of amortization, increased by ~~$187,000~~$186,000 to ~~$571,000~~$432,000 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 compared to ~~$384,000~~net servicing income of $246,000 for the ~~nine~~three months ended ~~September 30, 2016. Servicing~~March 31, 2021. Loan servicing income, net of amortization increased due to higher interest rates, which affects the ~~increased~~pre-payment speeds on loans serviced. We are experiencing lower loan pre-payments in SFR loans due to higher mortgage rates. The decrease in SBA loan servicing income is due to the decrease in the volume of loans being serviced for others. We were servicing $306.2 million of single-family residential mortgage loans as of September 30, 2017 compared to $230.6 million as of December 31, 2016. We were also servicing $166.1 million of SBA loans aswe are servicing. The following table presents information on loans servicing income for the three months ended March 31, 2022 and 2021.

*(dollars in thousands)*	For the Three Months Ended March 31,				Increase (Decrease)
*For the period*	2022		2021		$			%
Loan servicing income, net of amortization:
Single family residential loans serviced	$	250	$	10	$	240			2400.0	%
SBA loans serviced		182		236		(54	)		(22.9	)%
Total	$	432	$	246	$	186			75.6	%

As of ~~September 30, 2017 compared to $101.4 million as of December~~March 31, ~~2016.~~2022, we are servicing SFR mortgage loans for other financial institutions and FNMA, and we are also servicing SBA and CRE loans. The ~~increase~~decline in the respective servicing portfolios reflects prepayment of loans from year-end 2021 through the ~~growth in our originations~~first quarter of 2022.

The following table shows loans serviced for others as of March 31, 2022 and ~~sales of single-family residential and SBA loans in 2017.~~2021:

	March 31,				Increase (Decrease)
*(dollars in thousands)*	2022		2021		$			%
*As of period-end*
Single family residential loans serviced	$	1,236,179	$	1,526,285	$	(290,106	)		(19.0	)%
SBA loans serviced		142,023		154,064		(12,041	)		(7.8	)%
Commercial real estate loans serviced		4,050		4,126		(76	)		(1.8	)%
Total	$	1,382,252	$	1,684,475	$	(302,223	)		(17.9	)%

Recoveries on loans acquired in business combinations. Recoveries on loans acquired in business combinations ~~decreased $63,000~~was $5,000 and $5,000 for quarters ended March 31, 2022 and 2021, respectively.

Unrealized loss on equity investments. There was no unrealized loss on equity investments for the first quarter of 2022, compared to ~~$76,000~~$20,000 unrealized loss in the first ~~nine months~~quarter of ~~2017~~2021, per the guidance of ASU 2016-01.

(Loss) Gain on Derivatives. The $108,000 loss on derivatives in the first quarter was due to a higher market rate and a lower amount of loans that were committed to be delivered to FNMA at quarter-end, which compared to ~~$139,000 in~~$225,000 of gains for the ~~same period~~first quarter of ~~2016. This decrease primarily resulted~~2021.

Cash surrender value of life insurance. The income from ~~lesser recoveries on loans acquired from other bank acquisitions.~~

~~Increase in~~the cash surrender value of life ~~insurance.~~ ~~Cash surrender value~~insurance increased ~~$197,000 to $620,000~~$138,000 in the ~~first nine months of 2017 compared to $423,000 in the same period of 2016, primarily due to an additional $10 million purchase of bank owned life insurance (BOLI) in 2017.~~

~~Gain on sales of securities, net.~~ During the first nine months of 2017, we sold no securities. During the first nine months of 2016, we sold a taxable municipal bond for $452,000 that resulted in a gain of $19,000, and we sold $4.6 million of mortgage-backed securities for no gain or loss.

~~Gain on sale of OREO. During the first nine months of 2017, one OREO property was sold for a gain of $142,000.~~

~~Noninterest Expense~~

~~Noninterest expense decreased $1.6 million or 7.3%, to $20.7 million for the first nine months of 2017~~quarter ended March 31, 2022 compared to the same ~~period~~quarter in 2021. We purchased additional BOLI in the second quarter of ~~2016.~~2021.

Table of Contents

Noninterest expense. Noninterest expense increased $269,000 or 1.7%, to $16.1 million in the first quarter of 2022 compared to $15.8 million in the first quarter of 2021. The following table sets forth major components of our noninterest expense for the ~~nine~~three months ended ~~September 30, 2017 compared to the nine months ended September 30, 2016:~~March 31, 2022 and 2021:

	For the Nine Months Ended
	September 30,				Increase			For the Three Months Ended March 31,				Increase (Decrease)
(dollars in thousands)	2017		2016		(decrease)			2022		2021		$			%
Noninterest expense:
Salaries and employee benefits	$	12,604	$	10,547	$	2,057		$	9,369	$	9,242	$	127			1.4	%
Occupancy and equipment expenses		2,176		2,388		(212	)		2,206		2,242		(36	)		(1.6	)%
Data processing		1,264		1,488		(224	)		1,258		1,440		(182	)		(12.6	)%
Legal and professional		227		1,478		(1,251	)		1,006		805		201			25.0	%
Office expenses		484		455		29			293		255		38			14.9	%
Marketing and business promotion		575		408		167			307		184		123			66.8	%
Insurance and regulatory assessments		611		810		(199	)		441		348		93			26.7	%
Amortization of intangibles		268		268		—
OREO expenses (income)		34		16		18
Amortization of core deposit intangible									279		301		(22	)		(7.3	)%
OREO expenses									8		5		3			60.0	%
Merger expenses									37		42		(5	)		(11.9	)%
Other expenses		2,495		4,516		(2,021	)		857		928		(71	)		(7.7	)%
Total noninterest expense	$	20,738	$	22,374	$	(1,636	)	$	16,061	$	15,792	$	269			1.7	%

Salaries and employee ~~benefits.~~ benefits expense.Salaries and employee benefits expense increased ~~$2.1 million,~~$127,000, or ~~19.5%~~1.4%, to ~~$12.6~~$9.4 million infor the first ~~nine months~~quarter of ~~2017~~2022 compared to ~~$10.5~~$9.2 million for the first quarter of 2021, due to normal salary increases and increases in ~~the same period of 2016. This increase was primarily attributable to increased staff in credit administration, finance, single-family residential mortgage and risk management.~~health benefit costs. The number of full-time equivalent employees was ~~195~~357 at ~~September 30, 2017~~March 31, 2022 compared to ~~169~~366 at ~~September 30, 2016.~~March 31, 2021. None of our employees are represented by a labor union, or governed by any collective bargaining agreements. We consider relations with our employees to be satisfactory. On a periodic basis, the human resources department will advise senior management of the following human capital management metrics: (1) open positions, (2) overtime expense, (3) staff turnover, and (4) employee headcount.

Occupancy and ~~equipment.~~ equipment expense.Occupancy and equipment expense decreased ~~$212,000,~~$36,000, or ~~8.9%~~1.6%, to $2.2 million infor the first ~~nine months~~quarter of ~~2017~~2022 compared to ~~$2.4~~$2.2 million for the ~~same period~~first quarter of ~~2016. This decrease was mainly~~2021 due to ~~closing two TomatoBank branches~~moving one branch to a lower rent property , offset by adding the Hawaai branch and increases in ~~June 2016 and decreased furniture depreciation in our Los Angeles headquarter office and credit administration department.~~rental income.

Data ~~processing.~~ processing expense.Data processing expense decreased ~~$224,000,~~$182,000, or ~~15.1%~~12.6%, to $1.3 million infor the first ~~nine months~~quarter of ~~2017~~2022, compared to ~~$1.5~~$1.4 million for the ~~same period~~first quarter of ~~2016. This decrease resulted primarily from~~2021, due to continued expense control and migrating to more cost effective cloud based systems. Effective June 2019, the ~~reduction of duplicated~~Company renegotiated its data processing ~~costs and data line expense incurred subsequent to the TomatoBank acquisition. Conversion expense associated~~master agreement with the ~~TomatoBank acquisition~~vendor, under which the Company is ~~in the “other expenses” line item.~~allowed to offset future monthly data processing expenses up to approximately $2.2 million through January 2026. As of March 31, 2022, $1.2 million of this benefit remained for future use.

Legal and ~~professional.~~ professional expense.Legal and professional expense ~~decreased $1.3~~increased $201,000 to $1.0 million ~~or 84.6%, to $227,000~~ in the ~~first nine~~three months ~~of 2017~~ended March 31, 2022 compared to ~~$1.5 million~~$805,000 for the ~~same period of 2016.~~three months ended March 31, 2021. This ~~decrease~~increase was primarily due to ~~resolution of lawsuits and~~ a ~~change in the legal accrual procedure.~~previously announced Board-authorized special investigation.

Office expenses.Office expenses are comprised of communications, postage, armored car, and office supplies and ~~totaled $484,000 in first nine~~were $293,000 for the three months ~~of 2017~~ended March 31, 2022 compared to ~~$455,000~~$255,000 for ~~same period of 2016.~~the three months ended March 31, 2021. This ~~6.4%~~ increase primarily resulted from normal business ~~growth.~~activity.

Marketing and business ~~promotion.~~ promotion expense.Marketing and business promotion expense increased ~~$167,000,~~by $123,000, or ~~41.0%~~66.8%, to ~~$575,000~~$307,000 in the first ~~nine months~~quarter of ~~2017~~2022, compared to ~~$408,000~~$184,000 for the ~~same period~~first quarter of ~~2016. This~~2021. The increase was primarily due to ~~normal business growth.~~increased marketing efforts in the first quarter of 2022 that were reduced in 2021 due to COVID-19.

Table of Contents

Insurance and regulatory ~~assessments.~~ expenses.Insurance and regulatory ~~assessment expense was $611,000~~assessments increased $93,000, or 26.7%, to $441,000 in the first ~~nine months~~quarter of ~~2017~~2022 due to an increase in the FDIC assessment by $80,000.

Amortization of core deposit intangible expense. Amortization of the core deposit intangible was $279,000 in the first quarter of 2022, compared to ~~$810,000~~$301,000 in the same period of ~~2016. The $199,000 or 24.6% decrease was primarily due to lower FDIC assessment following exiting our denovo period. Our FDIC insurance assessment was $360,000 for~~2021. During the first ~~nine months~~quarter, the Company recognized $729,000 of ~~2017~~core deposit intangible associated with the acquisition of the Honolulu Branch office of the Bank of the Orient.

Merger expenses. Merger expense was $37,000 in the first quarter of 2022 compared to ~~$563,000~~$42,000 in the same period of ~~2016. Our DBO regulatory assessment was $95,000~~2021, following the completion of the Honolulu, Hawaii branch acquisition in the first quarter of 2022.

Other expenses. Other expenses decreased $71,000, or 7.7%, to $857,000 for the first ~~nine months~~quarter of ~~2017~~2022, compared to ~~$82,000~~$928,000 in the first quarter of 2021. There was a provision reserve for unfunded commitments recorded of $17,000 in the first quarter of 2022 compared to a provision of $63,000 in the first quarter of 2021.

Income Tax Expense. During the three months ended March 31, 2022 and 2021, the Company recorded an income tax provision of $6.4 million and $5.6 million, respectively, reflecting an effective tax rate of 30.4% and 31.1% for the three months ended March 31, 2022 and 2021, respectively. The Company recognized tax benefit from stock option exercises of $23,000 for the three months ended March 31, 2022 and $56,000 for the same period ~~of 2016. Our corporate insurance expenses, including our directors and officers insurance and our fidelity bond, was $155,000~~in 2021.

Net Income. Net income after tax amounted to $14.6 million for the first ~~nine months of 2017 compared to $163,000 in the same period of 2016.~~

~~Amortization of intangibles.~~ Amortization of intangibles was $268,000 in the first nine months of 2017 compared to $268,000 in the same period of 2016. The core deposit intangible asset associated with the acquisition of TomatoBank is being amortized.

~~OREO expenses (income).~~ ~~Net OREO expense was $34,000 in the first nine months of 2017 compared to $16,000 in the same period of 2016, an~~quarter 2022, a $2.2 million increase, ~~of $18,000, which was mainly due to the addition of~~or a ~~$540,000 OREO property in 2016 that was marketed for sale. The OREO was subsequently sold in August 2017 for a gain of $142,000.~~

~~Other noninterest expense.~~ ~~Other noninterest expense totaled $2.5~~17.3% increase from $12.5 million in the first ~~nine months~~quarter of ~~2017~~2021. For the first quarter of 2022 as compared to ~~$4.5~~the first quarter of 2021, net interest income before the provision for loan losses increased by $5.0 million, the provision for ~~the same period of 2016. This decrease of $2.0 million followed the TomatoBank acquisition in 2016, with $854,000 in systems termination and conversion fees and~~loan losses decreased by $1.1 million, ~~in change in control payments pursuant to agreements assumed~~non-interest income decreased by ~~us in such acquisition not repeating in 2017.~~

~~Income Tax Expense~~

~~Income tax~~$3.0 million, non-interest expense ~~was $13.8 million in the first nine months of 2017 compared to $9.6 million in the same period of 2016. The increase in~~increased by $269,000, and income tax expense ~~was consistent with the related growth in pre-tax income. Effective tax rates were 40.1% and 41.2% in the first nine months~~increased by $760,000.

Table of 2017 and 2016, respectively. The lower effective tax rate in 2017 was primarily due to higher permanent tax differences. The tax benefit on the exercise of incentive stock options was $310,000 for the nine months ended September 30, 2017.Contents

~~Net Income~~

Net income increased $6.9 million to $20.6 million in the first nine months of 2017, compared to $13.7 million in the same period of 2016. The increase is primarily due to the recapture of the loan loss provision, and an increase in noninterest income due to increased gain on sales of SBA loans, partially offset by higher staff expenses. In addition legal and professional and other noninterest expenses decreased from the same period of 2016 due to the additional expenses incurred as a result of the Tomato Bank acquisition in 2016.

ANALYSIS OF FINANCIAL CONDITION

~~Assets.~~

Assets

Total assets were ~~$1.6~~$4.0 billion as of ~~September 30, 2017~~March 31, 2022 and ~~$1.4~~$4.2 billion as of December 31, ~~2016. We increased our~~2021. Cash and cash equivalents decreased by $344.6 million and HFS loans ~~held for investment~~decreased by ~~$86.1~~$2.4 million, ~~primarily in construction, single-family residential mortgages, and commercial and industrial loans,~~which were partially offset by decreases in commercial real estate and SBA loans. The decrease in SBA loans is primarily due to the Company selling more SBA loans than originating and the decrease in commercial real estate loans is due to payoffs from the acquired TomatoBank loans. Our mortgage loans held for sale increased by $81.4an increase of $52.2 million in ~~the first nine-months of 2017. We also~~

purchased $10.0 million in bank owned life insurance (BOLI) in the first quarter of 2017 to partially offset the increase in benefit expenses. The increase in assets was funded by an increase in deposits of $165.5 millioninvestment securities and ~~$78.7~~a $75.1 million increase in ~~equity.~~net HFI loans.

Investment Securities

Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on our current and projected liquidity and interest rate sensitivity positions.

The following table sets forth the book value and percentage of each category of securities at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016.~~2021. The book value for debt securities classified as available for sale is ~~equal to~~reflected at fair market value and the book value for securities classified as held to maturity is ~~equal to~~reflected at amortized cost.

	September 30, 2017					December 31, 2016
	Book		% of			Book		% of			March 31, 2022					December 31, 2021
(dollars in thousands)	Value		Total			Value		Total			Amount		% of Total			Amount		% of Total
Securities, available for sale, at fair value
U.S. government agency securities	$	4,957		8.1	%	$	5,317		11.7	%
Mortgage-backed securities
Government sponsored agencies		33,256		54.6			23,640		52.0
Corporate debt securities		17,484		28.7			10,320		22.6
Government agency securities											$	5,066		1.2	%	$	5,610		1.5	%
SBA agency securities												3,122		0.7	%		3,469		0.9	%
Mortgage-backed securities - Government sponsored agencies												45,466		10.7	%		55,025		14.7	%
Collateralized mortgage obligations												115,518		27.1	%		119,511		31.9	%
Commercial paper												205,110		48.1	%		129,926		34.7	%
Corporate debt securities ⁽¹⁾												36,054		8.4	%		42,205		11.3	%
Municipal securities												10,112		2.4	%		12,514		3.3	%
Total securities, available for sale, at fair value	$	55,697		91.5	%	$	39,277		86.3	%	$	420,448		98.6	%	$	368,260		98.3	%
Securities, held to maturity, at amortized cost
Taxable municipal securities	$	4,296		7.1	%	$	5,301		11.7	%	$	1,505		0.4	%	$	1,506		0.4	%
Tax-exempt municipal securities		895		1.5			913		2.0			4,741		1.0	%		4,746		1.3	%
Total securities, held to maturity, at amortized cost		5,191		8.5			6,214		13.7			6,246		1.4	%		6,252		1.7	%
Total securities	$	60,888		100.0	%	$	45,491		100.0	%	$	426,694		100.0	%	$	374,512		100.0	%

(1)

Comprised of corporate ~~debt~~note securities, commercial paper and financial institution subordinated ~~debentures~~debentures.

Table of Contents

The tables below set forth investment debt securities AFS and HTM for the periods presented.

			Gross		Gross
(dollars in thousands)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
September 30, 2017	Cost		Gains		Losses			Value
March 31, 2022										Cost		Gains		Losses			Value
Available for sale
U.S government agency securities	$	5,057	$	—	$	(100	)	$	4,957
Mortgage-backed securities
Government sponsored agencies		33,530		44		(318	)		33,256
Government agency securities										$	5,373	$	—	$	(307	)	$	5,066
SBA agency securities											3,182		—		(60	)		3,122
Mortgage-backed securities- Government sponsored agencies											48,686		—		(3,220	)		45,466
Collateralized mortgage obligations											122,621		—		(7,103	)		115,518
Commercial paper											205,326		—		(216	)		205,110
Corporate debt securities		17,341		203		(60	)		17,484		37,477		69		(1,492	)		36,054
	$	55,928	$	247	$	(478	)	$	55,697
Municipal securities											12,693		—		(2,581	)		10,112
										$	435,358	$	69	$	(14,979	)	$	420,448
Held to maturity
Municipal taxable securities	$	4,296	$	278	$	—		$	4,574	$	1,505	$	36	$	—		$	1,541
Municipal securities		895		16		—			911		4,741		16		(6	)		4,751
	$	5,191	$	294	$	—		$	5,485	$	6,246	$	52	$	(6	)	$	6,292

December 31, 2016
December 31, 2021
Available for sale
U.S. government agency securities	$	5,453	$	—	$	(136	)	$	5,317
Mortgage-backed securities
Government sponsored agencies		23,913		38		(311	)		23,640
Government agency securities										$	5,689	$	4	$	(83	)	$	5,610
SBA securities											3,351		118		—			3,469
Mortgage-backed securities- Government sponsored agencies											55,534		31		(540	)		55,025
Collateralized mortgage obligations											121,377		128		(1,994	)		119,511
Commercial paper											129,962		—		(36	)		129,926
Corporate debt securities		10,364		21		(65	)		10,320		41,999		460		(254	)		42,205
	$	39,730	$	59	$	(512	)	$	39,277
Municipal securities											12,701		—		(187	)		12,514
										$	370,613	$	741	$	(3,094	)	$	368,260
Held to maturity
Municipal taxable securities	$	5,301	$	328	$	—		$	5,629	$	1,506	$	77	$	—		$	1,583
Municipal securities		913		11		—			924		4,746		248		—			4,994
	$	6,214	$	339	$	—		$	6,553	$	6,252	$	325	$	—		$	6,577

The weighted-average book yield on the total investment portfolio at ~~September 30, 2017~~March 31, 2022 was ~~2.63%~~1.09% with a weighted-average life of ~~6.4~~3.8 years. This compares to a weighted-average book yield of ~~2.51% at December 31, 2016~~1.03% with a weighted-average life of ~~4.8 years.~~3.8 years at December 31, 2021. The ~~weighted average~~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.

~~Approximately 62%~~

Table of the securities in the total investment portfolio, at September 30, 2016, are issued by the U.S. government or U.S. government- sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest. As of September 30, 2017, no U.S. government agency bonds are callable.

Contents

The ~~tables~~table below ~~show~~shows the Company’s 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, 2017~~March 31, 2022 and December 31, ~~2016.~~2021. 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 ~~interest~~ 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 3 4 —Investment Securities in the ~~notes~~Notes to the ~~2016~~2021 consolidated financial statements included in ~~the Form S-1.~~our 2021 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
	Unrealized			Estimated		Unrealized			Estimated		Unrealized			Estimated		Less than Twelve Months							Twelve Months or More							Total
(dollars in thousands)	Losses			Fair Value		Losses			Fair Value		Losses			Fair Value		Unrealized			Estimated		No. of		Unrealized			Estimated		No. of		Unrealized			Estimated		No. of
September 30, 2017
Government agency securities	$	(100	)	$	4,957	$	—		$	—	$	(100	)	$	4,957
Mortgage-backed securities
March 31, 2022																Losses			Fair Value		Issuances		Losses			Fair Value		Issuances		Losses			Fair Value		Issuances
Government sponsored agencies		(255	)		26,916		(63	)		2,105		(318	)		29,021	$	(307	)	$	5,066		3	$	—		$	—		—	$	(307	)	$	5,066		3
SBA Agency Securities																	(60	)		3,122		4		—			—		—		(60	)		3,122		4
Mortgage-backed securities- Government sponsored agencies																	(2,536	)		33,698		12		(684	)		11,769		3		(3,220	)		45,467		15
Collateralized mortgage obligations																	(5,989	)		84,608		31		(1,114	)		25,845		7		(7,103	)		110,453		38
Commercial paper																	(216	)		205,110		30		—			—		—		(216	)		205,110		30
Corporate debt securities		(60	)		5,994		—			—		(60	)		5,994		(1,096	)		20,916		23		(396	)		2,872		2		(1,492	)		23,788		25
Municipal securities																	(2,263	)		8,817		8		(318	)		1,295		3		(2,581	)		10,112		11
Total available for sale	$	(415	)	$	37,867	$	(63	)	$	2,105	$	(478	)	$	39,972	$	(12,467	)	$	361,337		111	$	(2,512	)	$	41,781		15	$	(14,979	)	$	403,118		126

December 31, 2016
Government agency securities	$	(136	)	$	5,317	$	—		$	—	$	(136	)	$	5,317
Mortgage-backed securities
December 31, 2021
Government sponsored agencies		(221	)		16,231		(90	)		2,504		(311	)		18,735	$	(83	)	$	4,860		1	$	—		$	—		—	$	(83	)	$	4,860		1
Mortgage-backed securities- Government sponsored agencies																	(536	)		44,009		12		(4	)		9,974		2		(540	)		53,983		14
Collateralized mortgage obligations																	(1,916	)		79,851		23		(78	)		17,782		4		(1,994	)		97,633		27
Commercial paper																	(36	)		129,926		19		—			—		—		(36	)		129,926		19
Corporate debt securities		(65	)		5,147		—			—		(65	)		5,147		(254	)		13,208		12		—			—		—		(254	)		13,208		12
Municipal securities																	(160	)		11,447		9		(27	)		1,067		2		(187	)		12,514		11
Total available for sale	$	(422	)	$	26,695	$	(90	)	$	2,504	$	(512	)	$	29,199	$	(2,985	)	$	283,301		76	$	(109	)	$	28,823		8	$	(3,094	)	$	312,124		84

The Company did not record any charges for other-than-temporary impairment losses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016.~~2021.

~~Loans~~

Table of Contents

~~The loan portfolio is the largest category of our earning assets.~~ Loans

At ~~September 30, 2017,~~March 31, 2022, total loans held for investment, net of allowance for loan losses, totaled ~~$1.2~~$3.0 billion. Prior to 2014, we mainly had two lending products, commercial and industrial loans and commercial real estate (CRE) loans. In 2014, we made the strategic move to diversify our lending into single-family residential mortgage and SBA loans. The following table presents the balance and associated percentage of each major category in our loan portfolio at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

	As of September 30, 2017					As of December 31, 2016					As of March 31, 2022						As of December 31, 2021
(dollars in thousands)	$			%		$			%		$			Mix %			$			Mix %
Loans:(1)
Commercial and industrial	$	225,967			18.9	$	203,843			18.4	$	280,825			9.3	%	$	268,709			9.2	%
SBA		148,005			12.4		158,968			14.3		67,688			2.3	%		76,136			2.6	%
Construction and land development		94,297			7.9		89,409			8.1		346,766			11.5	%		303,144			10.3	%
Commercial real estate ~~(1)~~(2)		491,086			41.0		501,798			45.2		1,217,985			40.5	%		1,247,999			42.6	%
Single-family residential mortgages		237,167			19.8		156,428			14.1		1,064,581			35.4	%		1,004,576			34.3	%
Total loans,(2)	$	1,196,522			100.0	$	1,110,446			100.0
Other loans												28,639			1.0	%		30,786			1.0	%
Total loans												3,006,484			100.0	%		2,931,350			100	%
Allowance for loan losses		(11,420	)				(14,162	)				(33,292	)					(32,912	)
Total loans, net	$	1,185,102				$	1,096,284				$	2,973,192					$	2,898,438

(1)

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

(2)

Includes non-farm & non-residential real estate loans, multifamily ~~resident~~residential and ~~1-4 family single family~~single-family residential ~~loan~~loans for a business ~~purpose~~

purpose.

~~(2)~~

~~Net of discounts and deferred fees and costs~~

~~Net~~

Total HFI loans increased ~~$88.8~~$75.1 million, or ~~8.1%~~2.6%, to ~~$1.2~~$3.0 billion at ~~September 30, 2017 as~~March 31, 2022 compared to $2.9 billion at December 31, ~~2016.~~2021. The ~~increase in net loans~~total loan portfolio increased primarily ~~resulted from organic growth~~ in single-family residential ~~mortgage,~~mortgages, construction and land development loans and commercial and industrial,

~~loans, which was~~ partially offset by ~~the sale of~~decreases in commercial real estate, SBA loans and ~~continued run-off of TomatoBank commercial real estate loans (the runoff of TomatoBank loans decreased substantially).~~other loans.

Outstanding loan balances increased due to new loan originations, advances on outstanding commitments and loans acquired as a result of acquisitions of other financial institutions, net of amounts received for loan payments and payoffs, charge-offs of loans and transfers of loans to OREO.

Commercial and industrial loans. We provide a mix of variable and fixed rate commercial and industrial 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. Commercial and industrial 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, ~~bank subordinated debentures with a maturity of 10 years,~~ 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 commercial and industrial loans are collateralized by business assets or by real estate.

Commercial and industrial loans increased ~~$22.1~~$12.1 million, or ~~10.9%~~4.5%, to ~~$226.0~~$280.8 million as of ~~September 30, 2017~~March 31, 2022 compared to ~~$203.8~~$268.7 million at December 31, ~~2016. This increase resulted primarily from an increase in shared national credits of $9.9 million, mortgage warehouse lines of $7.9 million and decrease in purchased receivables of $20.2 million.~~2021 due to normal loan activity.

Commercial real estate loans. Commercial real estate loans include owner-occupied and non-occupied commercial real estate, multi-family residential and ~~single-family residential~~SFR mortgage loans originated for a business purpose. The interest rate for the majority of these loans are ~~Prime based~~prime-based and have a maturity of five years or less except for the single-family residential loans originated for a business purpose which may have a maturity of one year. At September 30, 2017, approximately 9.9% of the commercial real estate portfolio consisted of fixed-rate loans.less. Our policy maximum loan-to-value ~~or LTV~~(“LTV”) ratio is 75% for commercial real estate ~~loans.~~loans; however, we temporarily lowered the applicable LTV to 70% to be conservative in regards to real estate valuations. The total commercial real estate portfolio ~~totaled $491.1~~decreased $30.0 million, or 2.4%, to $1.22 billion at ~~September 30, 2017~~March 31, 2022, compared to $1.25 billion at December 31, 2021. The multi-family residential loan portfolio was $520.0 million as of March 31, 2022 and ~~$501.8~~$545.9 million as of December 31, ~~2016, of which $178.2 million and $159.5 million, respectively, are secured by owner occupied properties.~~2021. The ~~multi-family residential loan portfolio totaled $71.0 million as of September 30, 2017 and $70.6 million as of December 31, 2016. The single-family residential~~SFR mortgage loan portfolio originated for a business purpose totaled ~~$46.7~~$58.3 million as of ~~September 30, 2017~~March 31, 2022 and ~~$51.6~~$65.6 million as of December 31, ~~2016.~~2021.

Commercial real estate loans decreased $10.7 million, or 2.1%, to $491.1 million at September 30, 2017 as compared to $501.8 million at December 31, 2016. This decrease resulted primarily from the continued pay-off of TomatoBank commercial real estate and single-family residential loans originated for a business purpose.

Construction and land development loans. Construction and land development loans increased ~~$4.9~~$43.6 million, or ~~5.5%~~14.4%, to ~~$94.3~~$346.8 million at ~~September 30, 2017~~March 31, 2022 as compared to ~~$89.4~~$303.1 million at December 31, ~~2016. This increase in construction and land development loans was primarily due to construction loan~~2021, as originations ~~exceeding~~exceeded loan repayments.

The following table shows the categories of our construction and land development portfolio as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

	As of September 30, 2017				As of December 31, 2016				As of March 31, 2022					As of December 31, 2021					Increase (Decrease)
(dollars in thousands)	$		%		$		%		$		Mix %			$		Mix %			$		%
Residential construction	$	55,048		55.1	$	47,986		53.7	$	237,650		68.5	%	$	211,850		69.9	%	$	25,800		12.2	%
Commercial construction		26,511		30.1		35,404		39.6		75,690		21.8	%		71,918		23.7	%		3,772		5.2	%
Land development		12,738		14.8		6,019		6.7		33,426		9.7	%		19,376		6.4	%		14,050		72.5	%
Total Construction and land development loans	$	94,297		100.0	$	89,409		100.0
Total construction and land development loans									$	346,766		100.0	%	$	303,144		100.0	%	$	43,622		14.4	%

~~Small Business Administration~~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.

We originate SBA loans through our branch staff, loan officers and through SBA brokers. For the first nine months of 2017, $14.8 million or 17.5% of SBA loan originations were produced by branch staff and loan officers. The remaining $66.3 million was referred to us through SBA brokers.

As of September 30, 2017 our SBA portfolio totaled $148.0 million of which $68.7 million is guaranteed by the SBA and $79.1 million is unguaranteed, of which $75.8 million is secured by real estate and $3.3 million is unsecured or secured by business assets. We monitor the unguaranteed portfolio by type of real estate collateral. As of September 30, 2017, $44.3 million or 56.0% is secured by hotel/motels; $11.5 million or 14.6% by gas stations; and $20.0 million or 25.3% in other real estate types. We further analyze the unguaranteed portfolio by location. As of September 30, 2017, $63.3 million or 39.8% is located in California; $3.0 million or 3.5% is located in Nevada; $23.5 million or 19.4% is located in Texas; $23.3 million or 15.6% is located in Washington; and $34.7 million or 21.7% is located in other states.

SBA loans decreased ~~$11.0~~$8.5 million, or ~~6.9%~~11.1%, to ~~$148.0~~$67.7 million at ~~September 30, 2017~~March 31, 2022 compared to ~~$159.0~~$76.1 million at December 31, ~~2016. This decrease was primarily due to~~2021. We originated SBA loans of $11.9 million during the first three months of 2022. Partially offsetting the loan origination were loan sales of ~~$68.9~~$8.3 million ~~offset by $74.0~~and net loan payoffs and paydowns of $12.1 million ~~in originations in~~during the first ~~nine-months~~three months of ~~2017. In 2017, we began selling SBA loans quarterly, whereas previously, we primarily sold SBA loans annually in November of each year.~~2022.

~~Single-family residential real estate loans.~~

SFR Loans. We originate ~~mainly~~both qualified and non-qualified, alternative documentation ~~single-family residential~~SFR mortgage loans through correspondent relationships or through our branch network or retail ~~channel.~~channel to accommodate the needs of the Asian-American market. As of March 31, 2022, we had $1.1 billion of SFR real estate loans, representing 35.4% of our HFI loan portfolio, excluding available for sale SFR loans.

There are three non-qualified SFR loan products. The ~~loan product is a~~five-year and seven-year hybrid adjustable mortgage ~~with a current start rate of 4.6% which re-prices after~~re-price at five and seven years, respectively, to the one-year ~~LIBOR~~Constant Maturity Treasury rate plus ~~2.75%.~~ 3.00% for Primary Residences or plus 3.50% for Second Home/Investment. The start rate for the five-year hybrid is 4.00% plus 0.5% in points while the start rate for the seven-year hybrid is 4.25% plus 0.5% in points. The start rate for the 30-year fixed mortgage is 4.875% plus 0.5% in points.

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As of ~~September 30, 2017,~~March 31, 2022, the ~~average~~weighted-average loan-to-value of the portfolio was ~~59.9%~~56.6%, the weighted average FICO score was ~~750~~761 and the average duration of the portfolio was ~~4.7~~2.5 years. We also offer qualified ~~single-family residential~~SFR mortgage loans as a correspondent to a national financial institution.

We originate ~~these~~ non-qualified ~~single-family residential~~SFR mortgage loans both to sell and hold for investment. The loans held for investment are generally originated through our retail branch network to our customers, many of whom establish a deposit ~~relationships~~relationship with ~~us. During~~us and by correspondent relationships. At this time, we are not selling non-qualified SFR mortgages.

Except for SFR loans sold to FNMA or in connection with a securitization, the loans are sold with no representation or warranties and with a replacement feature for the first ~~nine-months~~90-days if the loan pays off early. As a condition of ~~2017,~~the sale, the buyer must have the loans audited for underwriting and compliance standards. We originate qualified mortgages and sell them directly to FNMA. These loans are underwritten under FNMA guidelines and sold with the normal FNMA conditions. In addition, we ~~originated $113.1 million~~may sell some of ~~such loans through~~ our ~~retail channel and $173.7 million through our correspondent channel. We sell many of these~~ non-qualified ~~single-family residential~~SFR mortgage loans to ~~other Asian-American banks. While our loan sales~~FNMA in a bulk sale with limited recourse to ~~date have been primarily to two banks, we expect to be expanding our network of banks who will purchase our single-family loan product.~~us.

~~Single-family residential~~

SFR mortgage real estate loans ~~which~~(which include ~~$2.2~~$5.3 million of home equity ~~loans,~~loans) increased ~~$80.7~~$60.0 million, or ~~51.6%~~6.0%, to ~~$237.2 million~~$1.1 billion as of ~~September 30, 2017~~March 31, 2022 as compared to ~~$156.4 million~~$1.0 billion as of December 31, ~~2016.~~2021. In addition, loans held for sale ~~increased $81.4~~decreased $2.4 million, or ~~183.5%~~40.0%, to ~~$125.7~~$3.6 million as of ~~September 30, 2017~~March 31, 2022 compared to ~~$44.3~~$6.0 million December 31, ~~2016.~~2021. The ~~increase~~decrease in loans held for sale is ~~mainly~~primarily due to ~~a decrease in selling single-family residential mortgage loans in the first quarter~~loan sales.

Table of ~~2017 compared to the same period in 2016. For the fourth quarter of 2017 we plan to sell approximately $40 million in single-family residential mortgage loans.~~Contents

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 comprehensive methodology to monitor these credit quality standards, including 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 addition to our allowance for loan losses, our purchase discounts on acquired loans provide additional protections against ~~credit~~loan losses.

Discounts on Purchased Loans. ~~At acquisition~~In connection with our acquisitions, we hire a third-party to determine the fair value of loans acquired. In many ~~of the cases~~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 value of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with FASB ~~Accounting Standards Codification, or~~ ASC ~~310-20.~~

None of the loans we acquired after 2011 had evidence of deterioration of credit quality since origination for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable. Loans acquired that had evidence of deterioration of credit quality since origination are referred to as PCI (“purchase credit impaired”) loans.310-20, Receivables—Nonrefundable Fees and Other Costs.

With our acquisitions of FAB and VCBB, we acquired $16.7 million contractual amount due with a fair value of $9.7 million of PCI loans. The outstanding balance and carrying amount of PCI loans as of September 30, 2017 and December 31, 2016 were $324,000 and $316,000 and $878,000 and $730,000, respectively. For these PCI loans, the Company did not record an allowance for loan losses for 2017 or 2016 as there were no significant reductions in the expected cash flows.

Analysis of the Allowance for Loan Losses. The following table allocates the allowance for loan losses, or the allowance, by category:

	As of September 30, 2017				As of December 31, 2016				As of March 31, 2022					As of December 31, 2021
(dollars in thousands)	$		% (1)		$		% (1)		$		% (1)			$		% (1)
Loans:
Commercial and industrial	$	2,303		1.02	$	2,581		1.27	$	2,899		1.03	%	$	2,813		1.05	%
SBA ~~(2)~~		1,059		0.72		3,345		2.10		901		1.33	%		980		1.29	%
Construction and land development		1,057		1.12		1,206		1.35		4,748		1.37	%		4,150		1.37	%
Commercial real estate ~~(3)~~(2)		3,581		0.73		5,952		1.19		15,880		1.30	%		16,603		1.33	%
Single-family residential mortgages		3,034		1.28		1,078		0.69
Unallocated		386		—		—		—
Single family residential mortgages										8,394		0.79	%		7,839		0.78	%
Other										470		1.64	%		527		1.71	%
Allowance for loan losses	$	11,420		0.95	$	14,162		1.28	$	33,292		1.11	%	$	32,912		1.12	%

(1)

~~Represents the percentage~~% of ~~the~~ allowance to total loans in the respective ~~category.~~category

(2)

~~The decrease in the allowance on SBA~~Includes non-farm and non-residential real estate loans, ~~from December 31, 2016 is attributable to the receipt of $3.6 million from the SBA as previously discussed.~~multi-family residential and single-family residential loans originated for a business purpose.

~~(3)~~

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

The allowance and the balance of accretable credit discounts represent our estimate of probable and reasonably estimable ~~credit~~loan losses inherent in loans held for investment as of the respective balance sheet date. The accretable credit discount was $3.1 million at ~~September 30, 2017. Including the non-accretable credit discount as a percentage of the allowance~~March 31, 2022 and ~~credit discounts to loans was 1.2%.~~$3.3 million at December 31, 2021.

Allowance for loan losses. Our methodology for assessing the appropriateness of the allowance for loan losses includes a general allowance for performing loans, which are grouped based on similar characteristics, and a specific allowance for individual impaired loans or loans considered by management to be in a high-risk category. General allowances are established based on a number of factors, including historical loss rates, an assessment of portfolio trends and conditions, accrual status and economic conditions.

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For commercial and industrial, SBA, commercial real estate, construction and land development and ~~single family residential~~SFR mortgage loans held for investment, a specific allowance may be assigned to individual loans based on an impairment analysis. Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on an analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the estimated market value or the fair value of the underlying collateral. Interest income on impaired loans is accrued as earned, unless the loan is placed on nonaccrual status.

Credit-discount on loans purchased through ~~acquisition.~~ bank acquisitions. Purchased loans are recorded at market value in two categories, credit discount, and liquidity discount and premiums. The remaining credit discount at the end of a period is compared to the analysis for loan losses for each acquisition. If the credit discount is greater than the expected loss no additional provision is needed. The following table shows our credit discounts by loan portfolio for purchased loans only as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016.~~2021. We have recorded additional reserves of ~~$221,000~~$1.4 million due to the credit discounts on ~~the LANB acquisitions~~acquired loans being less than the analysis for loan losses on those acquisitions as of ~~September 30, 2017.~~March 31, 2022.

	As of September 30,			As of December 31,			As of March 31,			As of December 31,
(dollars in thousands)	2017			2016			2022			2021
Commercial and industrial	$	178		$	346		$	34		$	38
SBA		69			91			30			31
Construction and land development		4			61			2			2
Commercial real estate		2,818			4,516			567			629
Single-family residential mortgages		73			110			2,451			2,619
Total credit discount on purchased loans	$	3,142		$	5,124		$	3,084		$	3,319
Total remaining balance of purchased loans through acquisition	$	267,931		$	336,310		$	397,112		$	418,038
Credit-discount to remaining balance of purchased loans		1.17	%		1.52	%		0.78	%		0.79	%

Individual loans considered to be uncollectible are charged off against the allowance. 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. Recoveries on loans previously charged off are added to the allowance. Net charge-offs (recoveries) to average loans were ~~(0.06)%~~0.00% and ~~none~~0.01% for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 and (0.07)% and 0.02% for the nine months ended September 30, 2017 and 2016,~~2021, respectively.

The allowance for loan losses was ~~$11.4~~$33.3 million at ~~September 30, 2017~~March 31, 2022 compared to ~~$14.2~~$32.9 million at December 31, ~~2016.~~2021. The ~~$2.7 million decrease at September 30, 2017 compared to December 31, 2016~~$380,000 increase was due to ~~receipt of~~ a guaranteed payment on a SBA 7A guaranteed loan of $629,000 in May 2017 that was previously charged-off and the receipt of $3.6 million in July 2017 pursuant to a SBA loan guaranty that we previously fully reserved for in the allowance for loan losses plus the $700,000$366,000 loan loss provision ~~for the third quarter of 2017.~~driven by loan growth and $14,000 in net recoveries.

We analyze the loan portfolio, including delinquencies, concentrations, and risk characteristics, at least quarterly in order to assess the overall level of the allowance and nonaccretable discounts. We also rely on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends.

In determining the allowance and the related provision for ~~loan~~credit losses, we consider three principal elements: (i) valuation allowances based upon probable losses identified during the review of impaired commercial and industrial, commercial real estate, construction and land development loans, (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and qualitative factors and (iii) review of the credit discounts in relationship to the valuation allowance calculated for purchased loans. Provisions for ~~loan~~credit losses are charged to operations to record changes to the total allowance to a level deemed appropriate by us.

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The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge-offs for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:

	As of and for the
	Nine Months
	Ended September 30,						For the Three Months Ended March 31,
(dollars in thousands)	2017			2016			2022			2021
Balance, beginning of period	$	14,162		$	10,023		$	32,912		$	29,337
Charge-offs:
SBA		—			223
Other								(47	)		(42	)
Total charge-offs		—			223			(47	)		(42	)
Recoveries:
Commercial and industrial								1			—
SBA		746			—			59			—
Other								1			—
Total recoveries		746			—			61			—
Net charge-offs		(746	)		223
Provision for (recapture of) loan losses		(3,488	)		3,599
Net (charge-offs)/recoveries								14			(42	)
Provision for loan losses								366			1,500
Balance, end of period		11,420			13,399		$	33,292		$	30,795
Total loans at end of period (1)		1,196,522			1,121,873
Average loans(2)		1,141,953			1,122,862
Net charge-offs to average loans		-0.07	%		0.02	%
Total HFI loans at end of period								3,006,484			2,715,205
Average HFI loans								2,983,360			2,691,873
Net charge-offs to average HFI loans								0.00	%		0.01	%
Allowance for loan losses to total loans		0.95	%		1.19	%		1.11	%		1.13	%
Credit-discount on loans purchased through acquisition		3,142			6,247
Allowance for loan losses plus credit-discount to total loans		1.22	%		1.75	%
Credit discount on loans purchased through acquisitions							$	3,084		$	4,328

~~(1)~~

~~Total loans are net of discounts and deferred fees and cost~~

~~(2)~~

~~Excludes loans held for sale~~

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.

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and performing restructured loans. Income from loans on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a ~~troubled debt restructuring, or~~ TDR. 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. A restructured loan is considered impaired despite its accrual status and a specific reserve is calculated based on the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent.

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Pursuant to recent regulatory guidance, we have elected under the CARES Act to not apply GAAP requirements to loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR, and have suspended the determination of loan modifications related to the pandemic from being treated as TDRs. Modifications include the following: (1) forbearance agreements, (2) interest-rate modifications, (3) repayment plans, and (4) any other similar arrangements that defer or delay payments of principal or interest. The relief from TDR guidance applies to modifications of loans that were not more than 30 days past due as of December 31, 2019, and that occur beginning on March 1, 2020, until January 1, 2022. The suspension of TDR accounting and reporting guidance may not be applied to any loan of a borrower that is not related to the COVID-19 pandemic.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is carried at ~~the balance of the loan at the time of foreclosure or at~~ estimated fair value less estimated costs to ~~sell, whichever is less.~~sell.

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 loans modified under ~~troubled debt restructurings.~~TDRs. Nonperforming loans exclude PCI loans. The balances of nonperforming loans reflect the net investment in these assets.

	As of			As of
	September 30,			December 31,			As of March 31,			As of December 31,
(dollars in thousands)	2017			2016			2022			2021
Nonperforming loans:
Accruing troubled debt restructured loans:
Commercial and industrial	$	1,293		$	—		$	384		$	410
Commercial real estate								1,309			1,328
Total accruing troubled debt restructured loans								1,693			1,738
Non-accrual loans:
Commercial and industrial								4,282			3,712
SBA								5,117			6,263
Construction and land development		293			303			141			149
Commercial real estate		2,287			2,253			3,916			4,672
Total troubled debt restructures		3,873			2,556
Non-accrual loans:
SBA		77			3,577
Single-family residential mortgages								5,539			4,191
Other								3			—
Total non-accrual loans		77			3,577			18,998			18,987
Total non-performing loans		3,950			6,133			20,691			20,725
Other real estate owned		293			833
OREO								293			293
Nonperforming assets	$	4,243		$	6,966		$	20,984		$	21,018
Nonperforming loans to total loans		0.33	%		0.55	%		0.69	%		0.71	%
Nonperforming assets to total assets		0.26	%		0.50	%		0.52	%		0.50	%

The $34,000 decrease in nonperforming loans at ~~September 30, 2017~~March 31, 2022 was primarily due to ~~receiving~~payoffs and paydowns of ~~a $3.6~~$2.3 million, ~~payment on a guaranteed non-accrual SBA~~partially offset by the addition of three SFR loans in the amounts of $1.6 million, two C&I loans in the amount of $578,000 and one home improvement loan in ~~July 2017, two loans~~the amount of ~~$539,000 were paid off subsequent to September 30, 2017,~~$3,000 and ~~$1.7 million was returned to accrual status. We had~~recovery of one ~~addition to the nonperforming loans of $1.3 million~~non-accrual loan for $58,000 during the first ~~nine~~three months of ~~2017.~~2022.

Our 30-89 day delinquent loans, ~~decreased to $2.4~~excluding nonaccrual loans were $17.6 million as of ~~September 30, 2017. Of this amount, all have been brought current or been paid-off except for $1.7 million. Of~~March 31, 2022 compared to $17.6 million as of December 31, 2021. The $5,000 decrease in past due loans (which consist primarily of SFR mortgages) was due to the ~~$1.7 million in delinquent loans, $1.4 million is currently on a payment plan.~~decreasing economic impact of the COVID-19 pandemic.

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We did not recognize any interest income on nonaccrual loans during the ~~periods~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~December 31, 2016~~2021, while the loans were in nonaccrual status. We recognized interest income on ~~commercial and commercial real estate~~ loans modified under ~~troubled debt restructurings~~TDRs of ~~$348,000~~$46,000 and ~~$301,000~~$40,000 during the ~~periods~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~December 31, 2016,~~2021, respectively.

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.

COVID-19 Impact on Loan Quality. We decreased SBA lending during the first quarter of 2022 as the Bank’s SBA’s PPP Program ended on May 31, 2021. As of March 31, 2022, the Company has approximately 14 PPP loans with the SBA in the total amount of approximately $2.6 million, or 0.08%, of the Company’s total HFI loan portfolio.

As of March 31, 2022, the Company had no loans deferred as a result of the COVID-19 pandemic.

Cash and Cash Equivalents. Cash and cash equivalents ~~increased $47.3~~decreased $344.6 million, or ~~39.9%~~49.6%, to ~~$166.1~~$349.8 million as of ~~September 30, 2017~~March 31, 2022 as compared to ~~$118.7~~$694.4 million at December 31, ~~2016.~~2021. This ~~increase~~decrease was primarily due to ~~$223.3~~$33.1 million ofin cash from ~~financing~~operating activities, ~~primarily $60.2 million from the issuance of common stock (net of expenses), net increases in deposits of $178.6 million,~~ partially offset by ~~funds~~$307.0 million used in ~~investment~~financing activities ~~of $155.8 million.~~and $70.8 million used in investing activities.

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.

Goodwill and Other Intangible Assets. Goodwill was ~~$29.9~~$71.5 million and $69.2 million at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively. Goodwill in the amount of $2.3 million was recorded due to the Honolulu, Hawaii branch acquisition in the first of quarter of 2022. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. ~~Our other~~Other intangible assets, which ~~consist~~consists of ~~core deposit intangibles,~~CDI, were ~~$1.5~~$4.5 million and ~~$1.8~~$4.1 million at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively. ~~These~~CDI of $729,000 was recorded due to the Hawaii branch purchase in the first of quarter of 2022. The CDI assets are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 3eight to 10ten years.

On February 17, 2016, we completed the TFC acquisition. At closing, the acquired entity primarily consisted of TomatoBank, and $5.2 million of subordinated debentures. TomatoBank provided commercial and retail banking services primarily to Asian-Americans through six branches in the metro Los Angeles area.

We acquired TFC for $86.7 million in cash. The identifiable assets acquired of $469.9 million and liabilities assumed of $409.1 million were recorded at fair value. The identifiable assets acquired included the establishment of a $1.7 million core deposit intangible, which is being amortized on an accelerated basis over 8 to 10 years. Based upon the acquisition date fair values of the net assets acquired, we recorded $25.9 million of goodwill in our consolidated balance sheet.

Liabilities. Total liabilities ~~increased $168.4~~decreased by $212.8 million to ~~$1.4~~$3.5 billion ~~or 13.9%,~~ at ~~September 30, 2017~~March 31, 2022 from $3.8 billion at December 31, ~~2016,~~2021, primarily due to ~~deposit growth.~~$217.3 million decrease in deposits.

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Deposits. As a Chinese-American business bank that focuses on successful businesses and their owners, many of our depositors choose to ~~leave~~make large deposits with us. The Bank measures core deposits by reviewing all relationships over $250,000 on a quarterly basis. ~~After discussions with our regulators on the proper way to measure core deposits, we now~~We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet service. This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000. As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. As of ~~September 30, 2017,~~March 31, 2022, the Bank considers ~~$1.0~~$2.6 billion or ~~79.4%~~82.5%, of our deposits as core relationships.

As of ~~September 30, 2017,~~March 31, 2022, our top ten deposit relationships totaled ~~$319.5~~$730.0 million, of which ~~four are~~one is related to directors and shareholders of the Company for a total of ~~$104.2~~$39.5 million, or ~~32.6%~~approximately 5.4% of our top ten deposit relationships. As of ~~September 30, 2017,~~March 31, 2022, our directors and shareholders with deposits over $250,000 totaled ~~$194.9~~$62.7 million, or ~~18.4%~~2.8%, of all relationships over $250,000.

The following table summarizes our average deposit balances and weighted average rates ~~at September 30, 2017~~for the three months ended March 31, 2022 and year ended December 31, ~~2016:~~2021:

	For the quarter ended				For the year ended				For the Three Months Ended					For the Year Ended
	September 30, 2017				December 31, 2016				March 31, 2022					December 31, 2021
			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	$	227,854		—	$	151,441		—	$	1,301,497		—		$	938,710		—
Interest-bearing:
NOW		19,192		0.23		18,848		0.25		75,399		0.23	%		69,211		0.27	%
Money market										720,197		0.36	%		637,539		0.39	%
Savings		36,746		0.46		34,149		0.49		145,327		0.09	%		137,534		0.10	%
Money market		314,279		0.75		252,472		0.66
Time, less than $250,000		327,926		1.18		311,071		1.07		600,563		0.51	%		640,747		0.70	%
Time, $250,000 and over		362,452		1.18		354,733		1.17		570,210		0.58	%		597,770		0.79	%
Total interest-bearing		1,060,596				971,272				2,111,696		0.44	%		2,082,801		0.57	%
Total deposits	$	1,288,450			$	1,122,713			$	3,413,193		0.27	%	$	3,021,511		0.40	%

The following table sets forth the maturity of time deposits of $250,000 or more and wholesale deposits as of ~~September 30, 2017:~~March 31, 2022:

	As of September 30, 2017
	Maturity Within:										Maturity Within:
(dollars in thousands)	Three Months		Three to Six Months		Six to 12 Months		After 12 Months		Total		Three Months		After Three to Six Months		Six to 12 Months		After 12 Months		Total
Time, $250,000 and over	$	82,259	$	81,992	$	181,632	$	5,190	$	351,073	$	190,324	$	187,951	$	178,504	$	4,446	$	561,225
Wholesale deposits (1)		11,767		5,825		22,652		—		40,244		22,214		4,305		4,333		5,263		36,115
Time, brokered												—		—		—		—		—
Total	$	94,026	$	87,817	$	204,284	$	5,190	$	391,317	$	212,538	$	192,256	$	182,837	$	9,709	$	597,340

(1)

Wholesale deposits are defined as time deposits ~~under $250,000~~ originated through via internet rate line and/or through other deposit ~~originators and are considered non-core deposits.~~originators.

We ~~acquired~~acquire wholesale time deposits from the internet and outside deposits originators as needed to supplement liquidity. These time deposits are primarily under $250,000 and we do not consider them core deposits. The total amount of such deposits was $36.1 million as of ~~September 30, 2017 was $40.2~~March 31, 2022 and $70.1 million ~~or 3.2% of total deposits. The balances of such deposits~~ as of December 31, ~~2016 were $31.0 million.~~2021. The Bank ~~did not have any~~had no brokered deposits ~~during any~~at March 31, 2022 and $2.4 million in brokered deposits at December 31, 2021. The brokered deposits were acquired to support our loan growth.

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

(dollars in thousands)
	March 31, 2022		December 31, 2021
Uninsured deposits	$	1,578,868	$	1,823,410

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $449.2 milllion at March 31, 2022. The following table sets forth the maturity distribution of the estimated uninsured time ~~periods presented.~~deposits

	As of March 31,
(dollars in thousands)	2022
3 months or less	$	143,777
Over 3 months through 6 months		161,382
Over 6 months through 12 months		141,334
Over 12 months		2,752
Total	$	449,245

Total deposits ~~increased $165.5~~decreased $217.3 million to ~~$1.3~~$3.2 billion at ~~September 30, 2017~~March 31, 2022 as compared to ~~$1.2~~$3.4 billion at December 31, ~~2016, as we grew non-maturity deposit categories.~~2021. The decrease was expected and mainly due to customers placing funds into other investments. As of ~~September 30, 2017,~~March 31, 2022, total deposits were comprised of ~~22%~~36.6% noninterest-bearing demand accounts, ~~27%~~27.9% of interest-bearing ~~transaction~~non-maturity accounts and ~~51%~~35.5% of time deposits.

~~Short-Term~~

As of March 31, 2022, $322,000 in deposit overdrafts were reclassified as other loans. As of December 31, 2021, the amount was $20,000.

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FHLB Borrowings. In addition to deposits, we ~~use~~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 ~~did not have any~~had no FHLB short-term ~~borrowings as of September 30, 2017 or~~advances at March 31, 2022 and December 31, ~~2016.~~2021. We had $150.0 million in FHLB long-term advances at March 31, 2022 and December 31, 2021. The ~~weighted~~original term is five years, maturing by March 2025. The average fixed interest rate ~~on our short-term borrowings was 0.77%~~is 1.18%. The Company secured this funding in case it experienced a liquidity issue caused by the COVID-19 pandemic and ~~0.18% for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.~~to obtain an attractive interest rate. The following table sets forth information on our ~~short-term~~total FHLB advances during the periods presented:

	As of and for the						As of and For the Three Months Ended
	Nine Months Ended September 30,						March 31,
(dollars in thousands)	2017			2016			2022			2021
Outstanding at period-end	$	—		$	10,000		$	150,000		$	150,000
Average amount outstanding	$	5,128		$	5,949			150,000			150,000
Maximum amount outstanding at any month-end	$	10,000		$	20,000			150,000			150,000
Weighted average interest rate:
During period		0.77	%		0.54	%		1.18	%		1.18	%
End of period		—			0.49	%		1.18	%		1.18	%

~~Long-Term~~Long-term Debt. ~~Long-term debt consists~~In March 2016, the Company issued $50 million of 6.5% fixed-to-floating rate subordinated debentures, due March 31, 2026. The interest rate is fixed through March 31, 2021 and floats at three month LIBOR plus 516 basis points thereafter. The Company redeemed these subordinated debentures on March 31, 2021. The redemption price for the subordinated debentures was equal to 100% of principal amount of the notes redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date of March 31, 2021.

In November 2018, the Company issued $55.0 million of 6.18% fixed-to-floating rate subordinated notes due December 1, 2028. 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 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 LIBOR plus 315 basis points each March 1, June 1, September 1 and December 1.

In March 2021, the Company issued $120 million of 4.00% fixed-to-floating rate subordinated debentures due April 1, 2031. The interest rate is fixed through July 1, 2026 and floats at 3 month SOFR plus 329 basis points thereafter. The Company can redeem these subordinated debentures beginning April 1, 2026. The subordinated debentures are considered Tier 2 capital at the Company.

Subordinated Debentures. Subordinated debentures consist of subordinated notes. As of ~~September 30, 2017~~March 31, 2022 and December 31, 2021, the amount outstanding was ~~$49.5~~$14.6 million and ~~$49.4~~$14.5 million, at December 31, 2016. On March 31 and April 15, 2016, we issued $50 million of subordinated notes for aggregate proceeds of $49.4 million. The subordinated notes have a maturity date of April 1, 2026 at a fixed rate of 6.5% for the first five years and a floating rate based on the three-month London Interbank Offered Rate (LIBOR) plus 516 basis points thereafter.respectively. Under the terms of our subordinated notes and the related subordinated notes purchase agreements, 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. These subordinated notes consist of the following:

~~Subordinated Debentures.~~ ~~We acquired~~

● The Company maintains the TFC Statutory 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 Trust, which was a subsidiary of TFC, which was acquired by the Company in February 2016. The Company determined the fair value as of the valuation date of the Trust issuance was $3.3 million, indicating a discount of $1.9 million. The underlying debentures bear interest equal to three month LIBOR 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 LIBOR plus 1.65%, which was 2.48% as ~~part~~of March 31, 2022 and 1.85% at December 31, 2021.

● The Company maintains the 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 FAIC Trust, which was a subsidiary of FAIC, which the Company acquired in October 2018. The Company determined the fair value as of the ~~TFC acquisition (TFC Statutory~~valuation date of the FAIC Trust ~~I) and recorded it at fair value~~issuance was $6.0 million, with a discount of ~~$3.3~~$1.2 million. The ~~fair~~underlying debentures bear interest equal to three month LIBOR plus 2.25%, payable each March 15, June 15, September 15 and December 15. The maturity is December 15, 2034. The rate at March 31, 2022 was 3.08% and 2.45% at December 31, 2021.

● In January 2020, the Company, through the acquisition of PGBH, acquired 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 ~~being accreted~~amortized over the ~~remaining~~ life of the ~~securities. As of September 30, 2017 and December 31, 2016, we had $3.4 million, and $3.3 million, respectively, of~~security. The Company has the option to defer interest payments on the subordinated ~~debentures. These~~ debentures ~~mature on March 15, 2037 and~~from time to time for a period not to exceed five consecutive years. The subordinated debentures have a variable rate of interest equal to the three-month LIBOR plus ~~1.65%.~~2.10% through final maturity on December 15, 2034. The rate at March 31, 2022 was 2.93% and 2.30% at December 31, 2021.

~~In July 2017,~~

The British banking regulators ~~announced plans to eliminate~~eliminated use of the LIBOR rate byat the end of ~~2021, before these~~2021. At this point in time, the Company has adopted SOFR as the alternative reference rate to replace LIBOR with respect to the Company’s long-term debt and subordinated ~~notes and debentures mature. For these subordinated notes and debentures, there are provisions for amendments to establish a new interest rate benchmark.~~debentures.

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Capital Resources and Liquidity Management

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

Shareholders’ equity ~~increased $78.7~~decreased $1.9 million, or ~~43.4%~~0.4%, to ~~$260.3~~$464.8 million during the ~~first nine months~~three-month period ending March 31, 2022 due to $2.7 million of ~~2017 as $60.2~~common stock dividends, $5.7 million from the ~~July public offering, $20.6~~repurchase of common stock and a $8.7 million ofdecrease in net ~~income, $268,000 of additional paid in capital and $130,000 increase in~~ accumulated other comprehensive ~~income exceeded $3.8 million of common dividends declared.~~income. The ~~increase~~decrease in accumulated other comprehensive income primarily resulted from ~~increases~~decreases in unrealized gains on ~~available for sale securities.~~AFS securities, which was partially offset by $14.6 million of net income, $394,000 from the exercise of stock options and $257,000 from stock-based compensation.

On July 27, 2017, we completed our initial public offering of 3,750,000 shares at a price to the public of $23.00 per share and a total offering size of $86,250,000. The offering was originally 3,000,000 shares but due to demand, we increased it to 3,750,000 shares. RBB Bancorp sold 2,857,756 shares and the selling shareholders sold 892,244 shares of RBB Bancorp’s common stock. The offering resulted in gross proceeds to RBB Bancorp of approximately $65.7 million. RBB Bancorp contributed $25 million of the net proceeds received from this offering to the Bank. Our stock now trades on the Nasdaq Global Select Market under the symbol “RBB”. The increase to capital net of expenses is approximately $60.2 million.

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-earning~~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 ~~noncore~~non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window and the issuance of preferred or common securities. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in our consolidated financial statements.

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

As of ~~September 30, 2017~~both March 31, 2022 and December 31, ~~2016,~~2021, we had ~~$47.0 million and $49.0~~$92.0 million of unsecured federal funds lines ~~respectively,~~ with no amounts advanced against the lines as of such dates. In addition, lines of credit from the Federal Reserve Discount Window were $18.0 million at ~~September 30, 2017~~March 31, 2022 and $22.3 million at December 31, ~~2016 were $15.2 million and $15.0 million,~~2021, respectively. Federal Reserve Discount Window lines were collateralized by a pool of ~~commercial real estate~~ loans totaling ~~$25.3~~$22.7 million and ~~$25.6~~$33.2 million as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively. We did not have any borrowings outstanding with the Federal Reserve at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021, and our borrowing capacity is limited only by eligible collateral.

At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021, we ~~did not have any~~had $150.0 million in FHLB long-term advances outstanding. At March 31, 2022 and December 31, 2021, we had no FHLB short-term (overnight) advances outstanding. Based on the values of loans pledged as collateral, we had ~~$326.9~~$893.4 million ~~and $387.3 million~~ of ~~additional~~ borrowing capacity with the FHLB as of ~~September 30, 2017~~March 31, 2022 and $833.6 million at December 31, ~~2016, respectively. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit.~~2021.

~~The Company~~

RBB is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. ~~The Company’s~~RBB’s main source of funding is dividends declared and paid to usRBB by the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to ~~the Company.~~RBB. Management believes that these limitations will not impact our ability to meet ~~our~~the Company’s ongoing short-term cash obligations.

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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 and 2009,~~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 Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and ~~new~~ 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 common stock. These provisions, which generally became applicable to ~~the Company~~RBB and the Bank on January 1, 2015, impose meaningfully more stringent regulatory capital requirements than those applicable to ~~the Company~~RBB and the Bank prior to that date. In addition, the Basel III regulations ~~will implement~~implemented a concept known as the “capital conservation buffer.” In general, banks and bank holding companies ~~will be~~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 ~~will be~~was required by January 1, 2019.

The table below summarizes the minimum capital requirements applicable to usRBB and the Bank pursuant to Basel III regulations as of the dates reflected and assuming the capital conservation buffer has been fully-phased in. 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 usRBB and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as ~~our~~RBB’s and the Bank’s capital ratios as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016. We~~2021. RBB and the Bank exceeded all regulatory capital requirements under Basel III and ~~were~~the Bank was considered to be “well-capitalized” as of the dates reflected in the table below:

	Ratio at September 30, 2017		Ratio at December 31, 2016		Regulatory Capital Ratio Requirements		Regulatory Capital Ratio Requirements, including fully phased-in Capital Conservation Buffer		Minimum Requirement for "Well Capitalized" Depository Institution		Ratio at March 31, 2022			Ratio at December 31, 2021			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		14.91%		11.00%		4.00%		4.00%	N/A			9.90	%		10.21	%		4.00	%		4.00	%		N/A
Bank		14.57%		12.81%		4.00%		4.00%		5.00%		12.29	%		12.45	%		4.00	%		4.00	%		5.00	%
Common Equity Tier 1 Risk-Based Capital Ratio (1)
Consolidated		18.23%		13.30%		4.50%		7.00%	N/A			14.12	%		14.86	%		4.50	%		7.00	%		N/A
Bank		18.13%		15.81%		4.50%		7.00%		6.50%		18.15	%		18.80	%		4.50	%		7.00	%		6.50	%
Tier 1 Risk-Based Capital Ratio
Consolidated		18.49%		13.56%		6.00%		8.50%	N/A			14.63	%		15.40	%		6.00	%		8.50	%		N/A
Bank		18.13%		15.81%		6.00%		8.50%		8.00%		18.15	%		18.80	%		6.00	%		8.50	%		8.00	%
Total Risk-Based Capital Ratio
Consolidated		23.37%		19.17%		8.00%		10.50%	N/A			21.96	%		23.15	%		8.00	%		10.50	%		N/A
Bank		19.08%		17.06%		8.00%		10.50%		10.00%		19.37	%		20.05	%		8.00	%		10.50	%		10.00	%

~~(1)~~

~~The common equity tier 1 risk-based ratio, or CET1, is a new ratio created by the Basel III regulations beginning January 1, 2015.~~

The Basel III regulations also ~~revise~~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 ~~are~~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)~~standards and that the asset size of the issuer does not exceed $15 billion), subject to the 25% of Tier 1 capital limit.

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Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at ~~September 30, 2017:~~March 31, 2022:

	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	$	649,592	$	—	$	—	$	—	$	649,592	$	2,044,753	$	—	$	—	$	—	$	2,044,753
Time deposits		660,188		8,514		—		—		668,702		1,088,146		33,087		2,267		—		1,123,500
FHLB advances												—		150,000		—		—		150,000
Long-term debt		—		—		—		50,000		50,000		—		—		—		173,152		173,152
Subordinated debentures		—		—		—		5,155		5,155		—		—		—		14,556		14,556
Leases		410		2,104		878		130		3,522		4,673		6,945		5,788		6,212		23,618
Total contractual obligations	$	1,310,190	$	10,618	$	878	$	55,285	$	1,376,971	$	3,137,572	$	190,032	$	8,055	$	193,920	$	3,529,579

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 into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.

The Company’s 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 the same credit policies in making commitments as it does for loans reflected in ~~the~~its 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 each client’s credit worthiness 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.

Non-GAAP Financial Measures

Some of the financial measures included ~~in this Form 10-Q~~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.”~~equity”. Our management uses these non-GAAP financial measures in its 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 accounting 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)	September 30, 2017			December 31, 2016			March 31, 2022			December 31, 2021
Tangible common equity:
Total shareholders' equity	$	260,331		$	181,585		$	464,825		$	466,683
Adjustments
Goodwill		(29,940	)		(29,940	)		(71,498	)		(69,243	)
Core deposit intangible		(1,525	)		(1,793	)		(4,525	)		(4,075	)
Tangible common equity	$	228,866		$	149,852		$	388,802		$	393,365
Tangible assets:
Total assets-GAAP	$	1,642,714		$	1,395,551		$	4,013,569		$	4,228,194
Adjustments
Goodwill		(29,940	)		(29,940	)		(71,498	)		(69,243	)
Core deposit intangible		(1,525	)		(1,793	)		(4,525	)		(4,075	)
Tangible assets:	$	1,611,249		$	1,363,818		$	3,937,546		$	4,154,876
Common shares outstanding		15,790,611			12,827,803			19,247,970			19,455,544
Common equity to assets ratio								11.58	%		11.04	%
Book value per share							$	24.15		$	23.99
Tangible common equity to tangible assets ratio		14.20	%		10.99	%		9.87	%		9.47	%
Tangible book value per share	$	14.49		$	11.68		$	20.20		$	20.22

Return on Average Tangible Common Equity. Management measures return on average tangible common equity ~~(ROATCE)~~(“ROATCE”) to assess the Company’s 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:

As of and for the

As of and for the

Three Months

Nine Months

Ended September 30,

Ended September 30,

(dollars in thousands)

2017

2016

2017

2016

Net income available to common shareholders

$
6,611

$
5,697

$
20,640

$
13,693

Average shareholder's equity

237,480

176,021

203,054

169,622

Adjustments:

Goodwill

(29,940
)

(29,940
)

(29,940
)

(29,940
)

Core deposit intangible

(1,577
)

(1,959
)

(1,665
)

(1,754
)

Adjusted average tangible common equity

$
205,964

$
144,122

$
171,449

$
137,929

Return on average tangible common equity

12.73
%

15.73
%

16.10
%

13.26
%

	For the Three Months Ended March 31,
*(dollars in thousands)*	2022			2021
Net income available to common shareholders	$	14,617		$	12,456
Average shareholders equity		470,898			433,960
Adjustments:
Goodwill		(69,268	)		(69,243	)
Core deposit intangible		(4,061	)		(5,092	)
Adjusted average tangible common equity	$	397,569		$	359,625
Return on average tangible common equity		14.91	%		14.05	%

~~Adjusted Earnings Metrics.~~ ~~Management uses the measure adjusted earnings to assess the performance~~Table of our core business and the strength of our capital position. We believe that this non-GAAP financial measure provides meaningful additional information about us to assist investors in evaluating our operating results. 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 adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average tangible common equity to their most comparable GAAP measures:

As of and for the

As of and for the

Three Months

Nine Months

Ended September 30,

Ended September 30,

(dollars in thousands)

2017

2016

2017

2016

Adjusted earnings metrics

Income before taxes - GAAP

10,624

9,767

34,429

23,302

Adjustments to interest income

Accretion of purchase discounts

(638
)

(2,895
)

(2,584
)

(6,298
)

Provision (recapture) for loan loss

700

—

(3,488
)

2,349

Adjustments to noninterest income

Gain on sale of OREO

142

—

142

—

Gain on sale on investment securities, net

—

—

—

(19
)

Integration and acquisition expenses

—

—

14

1,944

Total adjustments to income

204

(2,895
)

(5,916
)

(2,024
)

Adjusted earnings pre-tax

10,828

6,872

28,513

21,278

Adjusted taxes

4,090

2,864

11,420

8,774

Adjusted earnings non-GAAP

6,738

4,008

17,094

12,504

Adjusted diluted EPS

$
0.43

$
0.29

$
1.17

$
0.91

Weighted average diluted common shares
outstanding

15,851,929

13,717,232

14,559,043

13,687,998

Average assets

$
1,590,388

$
1,452,032

$
1,507,940

$
1,389,806

Adjusted return on average assets

1.68
%

1.10
%

1.52
%

1.20
%

Average tangible common equity

$
205,964

$
144,122

$
171,449

$
137,929

Adjusted return on average tangible common
equity

12.98
%

11.06
%

13.33
%

12.11
%

Contents

Regulatory Reporting to Financial Statements

Some of the financial measures included in this prospectus differ from those reported on the FRB Y-9(c) report. These financial measures include “core deposits to total deposits” and “net non-core funding dependency ratio”. Our management uses these financial measures in its analysis of our performance.

Core Deposits ~~to Total Deposits Ratio.~~ and Non-core Funding Dependency. The Bank measures core deposits by reviewing all relationships over $250,000 on a quarterly basis. ~~After discussions with our regulators on the proper way to measure core deposits, we now~~We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet service. This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000. As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. The following table reconciles the adjusted core deposit to total ~~deposits.~~deposits and the adjusted net non-core dependency ratio.

As of

As of

September 30, 2017

December 31, 2016

(dollars in thousands)

Adjusted core deposit to total deposit ratio and net
   non-core funding dependency ratio:

Core deposits  (1)

$
967,219

$
781,940

Adjustments to core deposits

CD > $250,000 considered core deposits (2)

298,191

325,453

Less internet deposits < $250,000 considered
   non-core (3)

(40,244
)

(30,971
)
Less other deposits not considered core (4)

(178,325
)

(171,800
)
Adjusted core deposits

1,046,841

904,622

Total deposits

1,318,292

$
1,152,763

Adjusted core deposits to total deposits ratio

79.41
%

78.47
%

	As of
(dollars in thousands)	March 31, 2022			December 31, 2021

Adjusted core deposit to total deposit ratio:
Core deposits: demand and savings deposits of any amount plus time deposits less than $250,000	$	2,615,027		$	2,807,033
Adjustments:
CDs > $250,000 considered core deposits ⁽¹⁾		305,161			317,501
Less brokered deposits considered non-core		—			(2,398	)
Less internet and outside deposit originated time deposits < $250,000 considered non-core		(38,318	)		(70,303	)
Less other deposits not considered core ⁽²⁾		(91,558	)		(90,116	)
Total adjustments		175,285			154,684
Adjusted core deposits		2,790,312			2,961,717
Total deposits	$	3,168,253		$	3,385,532
Adjusted core deposits to total deposits ratio		88.07	%		87.48	%
Non-core deposits: Time deposits greater than $250,000	$	553,226		$	578,499
Less total adjustments		(175,285	)		(154,684	)
Total adjusted non-core deposits		377,941			423,815
Short term borrowing outstanding		—			—
Adjusted non-core liabilities (A)		377,941			423,815
Short term assets⁽³⁾		563,822			837,941
Adjustment to short term assets:
Purchased receivables with maturities less than 90-days		—			—
Adjusted short term assets (B)		563,822			837,941
Net non-core funding (A-B)	$	(185,881	)	$	(414,126	)
Total earning assets		3,775,148			3,988,715
Adjusted net non-core funding dependency ratio		-4.92	%		-10.38	%

(1)

~~Core deposits comprise all demand and savings deposits~~Comprised of ~~any amount plus~~ time deposits ~~less than $250,000.~~to core customers over $250,000 as defined in the lead-in to the table above.

(2)

Comprised of ~~time~~demand and savings deposits ~~to core customers~~in relationships over ~~$250,000 as defined in the lead-in to the table above.~~

~~(3)~~

~~Comprised of internet and outside deposit originator time deposits less than~~ $250,000, which are considered non-core deposits because they do not ~~considered~~satisfy the definition of core deposits set forth in the lead-in to ~~be core deposits.~~the table above.

~~(4)~~

Comprised of demand and savings deposits in relationships over $250,000 which are considered non-core deposits because they do not satisfy the definition of core deposits set forth in the lead-in to the table above.

~~Net Non-Core Funding Dependency Ratio.~~ Management measures net non-core funding dependency ratio by using the data provided under “Core Deposits to Total Deposits Ratio” on page 65 to make adjustments to the traditional definition of net non-core funding dependency ratio. The traditional net non-core funding dependency ratio measures non-core funding sources less short term assets divided by total earning assets. The ratio indicates the dependency of the Company on non-core funding. The following table reconciles the adjusted net non-core dependency ratio.

As of

As of

September 30, 2017

December 31, 2016

(dollars in thousands)

Non-core deposits (1)

$
351,073

$
370,823

Adjustment to Non-core deposits

CD > $250,000 considered core deposits (2)

(298,191
)

(325,453
)
Internet deposits considered non-core (3)

40,244

30,971

Other deposits not considered core

178,325

171,800

Adjusted non-core deposits

271,451

248,141

Short term borrowings outstanding

—

—

Adjusted non-core liabilities (A)

271,451

248,141

Short term assets (4)

166,152

108,537

Adjustment to short term assets

Purchased receivables with maturities less
than 90-days

2,238

22,368

Adjusted short term assets (B)

168,390

130,905

Net non-core funding (A-B)

$
103,061

$
117,236

Total earning assets

$
1,549,266

$
1,316,651

Adjusted net non-core funding dependency ratio

6.65
%

8.90
%

~~(1)~~

~~Non-core deposits are time deposits greater than $250,000~~

~~(2)~~

~~Time deposits to core customers over $250,000~~

(3)

~~Internet and outside deposit originator time deposits less than $250,000~~

~~(4)~~

Short term assets include cash equivalents and investment with maturities less than one ~~year~~year.

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Other

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market ~~Risk.~~ ~~Market risk~~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 two primary sources of market risk: interest rate risk and price risk.

Interest Rate Risk

~~Overview.~~ ~~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 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 LIBOR (basis risk).

Our asset liability committee ~~or ALCO~~("ALCO"), establishes broad policy limits with respect to interest rate risk. 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 ALCO meets monthly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.

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 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 net interest margin.

~~Income Simulation and Economic Value Analysis.~~

Interest rate risk measurement is calculated and reported to the board and 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 or ("NII at ~~Risk,~~Risk") and Economic Value of Equity ~~or EVE.~~("EVE"). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives. 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)	-100			100			200			-200			-100			+100			+200
September 30, 2017
March 31, 2022
Dollar change	$	(1,947	)	$	4,432		$	9,317		$	(6,331	)	$	(3,675	)	$	12,055		$	24,734
Percent change		-3.44	%		7.84	%		16.47	%		(4.57	)%		(2.65	)%		8.71	%		17.86	%
December 31, 2016:
December 31, 2021
Dollar change		650			3,315			7,813		$	(685	)	$	135		$	13,590		$	27,947
Percent change		1.30	%		6.61	%		15.58	%		(0.53	)%		0.10	%		10.44	%		21.46	%

We report NII at Risk to isolate the change in income related solely to interest earning assets and ~~interest- bearing~~interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models ~~gradual~~immediate -200, -100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period. Due to the current low level of short-term interest rates, the analysis reflects a declining interest rate scenario of 100 basis points, the point at which many assets and liabilities reach zero percent.

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We are within board policy limits for the +/-100 and ~~+200~~+/-200 basis point scenarios. The NII at Risk reported at ~~September 30, 2017,~~March 31, 2022, projects that our earnings are expected to be ~~materially~~slightly asset sensitive to changes in interest rates over the next year. In recent periods, the amount of ~~fixed~~floating rate assets increased, resulting in a position shift from interest rate neutral to slightly asset ~~sensitive to asset~~ sensitive.

	Economic Value of Equity Sensitivity (Shock)									Economic Value of Equity Sensitivity (Shock)
	Immediate Change in Rates									Immediate Change in Rates
(dollars in thousands)	-100			100			200			-200			-100			+100			+200
September 30, 2017
March 31, 2022
Dollar change	$	(33,612	)	$	11,571		$	19,375			(186,790	)		(79,577	)		18,427			32,119
Percent change		-12.78	%		4.40	%		7.37	%		(27.26	)%		(11.61	)%		2.69	%		4.69	%
December 31, 2016:
December 31, 2021
Dollar change		(23,016	)		13,611			20,980			(140,235	)		(97,523	)		31,226			56,888
Percent change		-9.60	%		5.70	%		8.80	%		(24.61	)%		(17.12	)%		5.48	%		9.98	%

The EVE results included in the table above reflect the analysis used quarterly by management. It models immediate +/-100 ~~+100~~ and ~~+200~~+/-200 basis point parallel shifts in market interest rates. Due to the current low level of short-term interest rates, the analysis reflects a declining interest rate scenario of 100 basis points, the point at which many assets and liabilities reach zero percent.

We are within board policy limits for the ~~+/-100~~+100 and ~~+200~~+/-200 basis point scenarios. The EVE for the -100 basis point scenario is slightly out of compliance, primarily due to a large deposit over the quarter-end and the amount of borrowings we have at the holding company. The likelihood that interest rates decrease further or become negative is small, in management's opinion. Therefore, this scenario is considered remote. The EVE reported at ~~September 30, 2017~~March 31, 2022 projects that as interest rates increase immediately, the economic value of equity position will be expected to ~~increase.~~increase slightly. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall.

Price ~~Risk.~~ ~~Price risk~~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 our available for sale ~~single-family residential~~SFR mortgage loans and our fixed-rate available for sale securities.

Basis ~~Risk.~~ ~~Basis risk~~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 ~~single-family residential~~SFR mortgage loan portfolio and our securities portfolio.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company’s management, including our Interim President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the ~~Securities Exchange Act of 1934, as amended (the~~ “Exchange ~~Act”))~~Act), as of the end of the period covered by this ~~report.~~Form 10-Q. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.effective.

Changes in internal control over financial reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this ~~report~~Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II - ~~OTHE~~ROTHER INFORMATION

ITEM1.

LEGAL PROCEEDINGS

~~Certain lawsuits and claims arising~~

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, ~~have been filed~~individually or are pending against us or our affiliates, including but not limited to actions involving federal and state securities law claims, employment, wage-hour and labor law claims, lender liability claims, trust and estate administration claims, and consumer and privacy claims, some of which may be styled as “class action” or representative cases. Where appropriate, we establish reserves in accordance with FASB guidance over loss contingencies (ASC 450). The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the ~~legal or regulatory matters currently pending or threatened could~~aggregate, will have a material adverse ~~effect~~impact on ~~our liquidity, consolidated financial position, and/or~~the results of ~~operations. As~~operations or financial condition of ~~June 30, 2017,~~ the ~~Company does not have any litigation reserves.~~Company.

ITEM1A.

RISK FACTORS

There have been no material changes to the risk factors as previously disclosed in Item 1A to Part I of our ~~consolidated audited financial statements included in our registration statement on Form S-1 filed with the SEC, for the year ended December 31, 2016.~~2021 Annual Report. The materiality of any risks and uncertainties identified in our ~~Forward Looking Statements~~"Cautionary Note Regarding Forward-Looking Statements" contained in this ~~report~~Report or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Part I, Item 2 for “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this ~~Quarterly Report on~~ Form 10-Q.

ITEM2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~EQUITY SECURITIES AND USE OF~~ PROCEEDS

On June 24, 2019 and on April 22, 2021, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 1.0 million and 500,000, respectively, shares of our common stock. On March 16, 2022, the Board of Directors approved a stock repurchase program to buy back up to an aggregate amount of 500,000 shares of our common stock. For the three months ended March 31, 2022, we repurchased shares of common stock, as set forth in the table below.

	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 Publically Announced Plan		Maximum Number of Shares that May Yet Be Purchased Under the Plan
January 1, 2022 to January 31, 2022		1,934	$	26.05		1,934		333,716
February 1, 2022 to February 28, 2022		25,432	$	23.17		25,432		308,284
March 1, 2022 to March 31, 2022		205,971	$	24.74		205,971		602,313
Total		233,337						602,313

~~Not Applicable~~

ITEM3.

DEFAULTS UPON SENIOR SECURITIES

None.

~~Not Applicable~~

ITEM4.

MINE SAFETY DISCLOSURES

Not ~~Applicable~~applicable.

ITEM5.

OTHER INFORMATION

None.

Table of Contents

~~None~~

ITEM6.

EXHIBITS

ExhibitNo

Description ofExhibits


~~Exhibit~~No.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)

		~~Description~~The other instruments defining the rights of ~~Exhibits~~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		First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. I-Ming (Vincent) Liu

10.2		First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. David R. Morris

10.3		First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. Simon Pang

10.4		First Amendment of Employment Agreement dated October 22, 2021 between RBB Bancorp, Royal Business Bank and Mr. Jeffrey Yeh

31.1		CertificationofChiefExecutiveOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002

31.2		CertificationofChiefFinancialOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002

32.1		CertificationofChiefExecutiveOfficerpursuanttoSection906oftheSarbanes-OxleyActof2002

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 March 31, 2022, 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.

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SIGNATURES

~~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 13, 2017~~May 9, 2022		/s/ David Morris
		David Morris Duly Authorized Officer, Interim President and Chief Executive Officer, Executive Vice President and Chief Financial Officer

1055Wilshire Blvd., Suite 1200,
~~660 S. Figueroa Street, Suite 1888~~
Los Angeles, California	90017

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

PART I – FINANCIAL INFORMATION (UNAUDITED)			3
~~PART I – FINANCIAL INFORMATION (UNAUDITED)~~ITEM 1.	3

~~ITEM 1.~~	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	3

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	9

ITEM 2.	~~MANAGEMENT’S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3236
	CRITICAL ACCOUNTING POLICIES		38
	OVERVIEW	~~CRITICAL ACCOUNTING POLICIES~~39	34

	~~OVERVIEW~~	34

	ANALYSIS OF THE RESULTS OF OPERATIONS	3640

	ANALYSIS OF FINANCIAL CONDITION	4948

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	68

~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~65	69

ITEM 4.	CONTROLS AND PROCEDURES	66
PART II - OTHER INFORMATION		7067
ITEM 1.	LEGAL PROCEEDINGS	67
ITEM 1.1A.	~~LEGAL PROCEEDINGS~~RISK FACTORS	7067

ITEM ~~1A.~~2.	~~RISK FACTORS~~	70

~~ITEM 2.~~	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7067

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	70

~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~67	70

~~ITEM 5.~~	~~OTHER INFORMATION~~	70

~~ITEM 6.~~	~~EXHIBITS~~	70

~~SIGNATURES~~ITEM 4.	MINE SAFETY DISCLOSURES	7167
ITEM 5.	OTHER INFORMATION	67
ITEM 6.	EXHIBITS	68
SIGNATURES		69

Liabilities and Shareholders’ Equity
	September 30,			December 31,
	2017			2016
Deposits:
Noninterest-bearing demand	$	287,574		$	174,272
Savings, NOW and money market accounts		362,018			296,699
Time deposits under $250,000		317,627			310,969
Time deposits $250,000 and over		351,073			370,823
Total deposits		1,318,292			1,152,763

Reserve for unfunded commitments		489			604
Income tax payable		—			793
Long-term debt		49,492			49,383
Subordinated debentures		3,402			3,334
Accrued interest and other liabilities		10,708			7,089
Total liabilities		1,382,383			1,213,966

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; 15,790,611 shares issued and outstanding at September 30, 2017 and 12,827,803 shares at December 31,2016		204,206			142,651
Additional paid-in capital		8,686			8,417
Retained earnings		47,576			30,784
Accumulated other comprehensive income (loss) - net unrealized loss on securities available for sale, net of tax of $95 at September 30, 2017 and $186 at December 31, 2016		(137	)		(267	)
Total shareholders’ equity		260,331			181,585
	$	1,642,714		$	1,395,551

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017			2016
Interest and dividend income:
Interest and fees on loans	$	17,200	$	18,169	$	49,992		$	50,042
Interest on interest-earning deposits		371		80		731			236
Interest on investment securities		331		203		922			620
Dividend income on FHLB stock		118		155		353			416
Interest on federal funds sold and other		326		92		628			159
Total interest income		18,346		18,699		52,626			51,473
Interest expense:
Interest on savings deposits, now and money market accounts		649		521		1,698			1,489
Interest on time deposits		2,061		1,801		5,903			5,144
Interest on subordinated debentures and other		908		903		2,720			1,824
Interest on other borrowed funds		—		16		29			24
Total interest expense		3,618		3,241		10,350			8,481
Net interest income		14,728		15,458		42,276			42,992
Provision (recapture) for credit losses		700		1,250		(3,488	)		3,599

Net interest income after provision (recapture) for credit losses		14,028		14,208		45,764			39,393
Noninterest income:
Service charges, fees and other		518		443		1,624			1,182
Gain on sale of loans		2,584		1,870		6,370			4,136
Loan servicing fees, net of amortization		314		95		571			384
Recoveries on loans acquired in business combinations		19		47		76			139
Increase in cash surrender value of life insurance		219		141		620			423
Gain on sale of securities		—		—		—			19
Gain on sale of OREO		142		—		142			—
		3,796		2,596		9,403			6,283
Noninterest expense:
Salaries and employee benefits		4,178		3,481		12,604			10,547
Occupancy and equipment expenses		705		766		2,176			2,388
Data processing		458		563		1,264			1,488
Legal and professional		318		511		227			1,478
Office expenses		153		153		484			455
Marketing and business promotion		250		102		575			408
Insurance and regulatory assessments		201		284		611			810
Amortization of intangibles		87		103		268			268
OREO expenses		6		6		34			16
Other expenses		844		1,068		2,495			4,516
		7,200		7,037		20,738			22,374
Income before income taxes		10,624		9,767		34,429			23,302
Income tax expense		4,013		4,070		13,789			9,609
Net income	$	6,611	$	5,697	$	20,640		$	13,693

Net income per share
Basic	$	0.45	$	0.44	$	1.53		$	1.07
Diluted	$	0.42	$	0.42	$	1.42		$	1.00
Cash dividends declared per common share	$	—	$	—	$	0.30		$	0.20

											Accumulated
					Additional						Other
	Common Stock				Paid-in			Retained			Comprehensive
	Shares		Amount		Capital			Earnings			Income (Loss)			Total
Balance at January 1, 2017		12,827,803	$	142,651	$	8,417		$	30,784		$	(267	)	$	181,585
Net income									20,640						20,640
Stock-based compensation						592									592
Cash dividend									(3,848	)					(3,848	)
Stock options exercised		105,052		1,338		(323	)								1,015
Issuance of common stock, net of issuance costs		2,857,756		60,217											60,217
Other comprehensive income, net of taxes												130			130
Balance at September 30, 2017		15,790,611	$	204,206	$	8,686		$	47,576		$	(137	)	$	260,331

Balance at January 1, 2016		12,770,571	$	141,873	$	7,706		$	14,259		$	(193	)	$	163,645
Net income									13,693						13,693
Stock-based compensation						646									646
Cash dividend									(2,554	)					(2,554	)
Stock options exercised		57,232		778		(183	)								595
Other comprehensive income, net of taxes												408			408
Balance at September 30, 2016		12,827,803	$	142,651	$	8,169		$	25,398		$	215		$	176,433

	*Common Stock*														*Accumulated*
	*Shares*			*Amount*			*Additional Paid-in Capital*			*Retained Earnings*			*Non- Controlling Interest*		*Other Comprehensive (Loss) Income*			*Total*
Balance at December 31, 2021		19,455,544		$	282,335		$	4,603		$	181,329		$	72	$	(1,656	)	$	466,683
Net income		—			0			0			14,617			0		0			14,617
Stock-based compensation		—			0			257			0			0		0			257
Restricted stock vested		—			355			(355	)		0			0		0			0
Cash dividend		—			0			0			(2,724	)		0		0			(2,724	)
Stock options exercised, net of expense recognized		25,763			507			(113	)		0			0		0			394
Repurchase of common stock		(233,337	)		(3,361	)		0			(2,373	)		—		—			(5,734	)
Other comprehensive loss, net of taxes		—			0			0			0			0		(8,668	)		(8,668	)
Balance at March 31, 2022		19,247,970		$	279,836		$	4,392		$	190,849		$	72	$	(10,324	)	$	464,825

Balance at December 31, 2020		19,565,921		$	284,261		$	4,932		$	138,094		$	72	$	1,129		$	428,488
Net income		—			0			0			12,456			0		0			12,456
Stock-based compensation		—			0			287			0			0		0			287
Restricted stock granted		60,000			—			—			—			—		—			—
Cash dividend		—			0			0			(2,347	)		0		0			(2,347	)
Stock options exercised, net of expense recognized		32,289			464			(124	)		0			0		0			340
Repurchase of common stock		(129,961	)		(1,880	)		0			(397	)		0		0			(2,277	)
Other comprehensive loss, net of taxes		—			0			0			0			0		(1,279	)		(1,279	)
Balance at March 31, 2021		19,528,249		$	282,845		$	5,095		$	147,806		$	72	$	(150	)	$	435,668

	*BOTO*			*Fair Value*			*Fair*
*(dollars in thousands)*	*Book Value*			*Adjustments*			*Value*
Assets acquired
Cash and cash equivalents	$	312		$	0		$	312
Loans, gross		7,352			38			7,390
Bank premises and equipment		12			0			12
Core deposit premium		0			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			0			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	)
	$	8,088		$	407
Cash received								71,040
Goodwill recognized							$	2,255

			Gross		Gross							*Gross*		*Gross*
(dollars in thousands)	Amortized		Unrealized		Unrealized			Fair		*Amortized*		*Unrealized*		*Unrealized*			*Fair*
September 30, 2017	Cost		Gains		Losses			Value
March 31, 2022										*Cost*		*Gains*		*Losses*			*Value*
Available for sale
Government agency securities	$	5,057	$	—	$	(100	)	$	4,957	$	5,373	$	0	$	(307	)	$	5,066
Mortgage-backed securities
Government sponsored agencies		33,530		44		(318	)		33,256
SBA agency securities											3,182		0		(60	)		3,122
Mortgage-backed securities- Government sponsored agencies											48,686		0		(3,220	)		45,466
Collateralized mortgage obligations											122,621		0		(7,103	)		115,518
Commercial paper											205,326		0		(216	)		205,110
Corporate debt securities		17,341		203		(60	)		17,484		37,477		69		(1,492	)		36,054
	$	55,928	$	247	$	(478	)	$	55,697
Municipal securities											12,693		0		(2,581	)		10,112
Total										$	435,358	$	69	$	(14,979	)	$	420,448

Held to maturity
Municipal taxable securities	$	4,296	$	278	$	—		$	4,574	$	1,505	$	36	$	0		$	1,541
Municipal securities		895		16		—			911		4,741		16		(6	)		4,751
	$	5,191	$	294	$	—		$	5,485

December 31, 2016
Available for sale
Government agency securities	$	5,453	$	—	$	(136	)	$	5,317
Mortgage-backed securities
Government sponsored agencies		23,913		38		(311	)		23,640
Corporate debt securities		10,364		21		(65	)		10,320
	$	39,730	$	59	$	(512	)	$	39,277

Held to maturity
Municipal taxable securities	$	5,301	$	328	$	—		$	5,629
Municipal securities		913		11		—			924
	$	6,214	$	339	$	—		$	6,553
Total										$	6,246	$	52	$	(6	)	$	6,292

	*Less than One Year*				*More than One Year to Five Years*				*More than Five Years to Ten Years*				*More than Ten Years*				*Total*
	*Amortized*		*Estimated*		*Amortized*		*Estimated*		*Amortized*		*Estimated*		*Amortized*		*Estimated*		*Amortized*		*Estimated*
*(dollars in thousands)*	*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*		*Cost*		*Fair Value*
March 31, 2022
Government agency securities	$	0	$	0	$	5,373	$	5,066	$	0	$	0	$	0	$	0	$	5,373	$	5,066
SBA securities		0		0		1,382		1,344		1,800		1,778		0		0		3,182		3,122
Mortgage-backed securities- Government sponsored agencies		0		0		20,341		19,525		25,528		23,378		2,817		2,563		48,686		45,466
Collateralized mortgage obligations		3,130		3,129		28,604		27,171		90,887		85,218		0		0		122,621		115,518
Commercial paper		205,326		205,110		0		0		0		0		0		0		205,326		205,110
Corporate debt securities		5,000		5,000		7,880		7,839		21,918		20,932		2,679		2,283		37,477		36,054
Municipal securities		0		0		0		0		0		0		12,693		10,112		12,693		10,112
Total available for sale	$	213,456	$	213,239	$	63,580	$	60,945	$	140,133	$	131,306	$	18,189	$	14,958	$	435,358	$	420,448

Municipal taxable securities	$	500	$	500	$	1,005	$	1,041	$	0	$	0	$	0	$	0	$	1,505	$	1,541
Municipal securities		0		0		0		0		1,743		1,740		2,998		3,011		4,741		4,751
Total held to maturity	$	500	$	500	$	1,005	$	1,041	$	1,743	$	1,740	$	2,998	$	3,011	$	6,246	$	6,292
*(dollars in thousands)*
December 31, 2021
Government agency securities	$	0	$	0	$	5,689	$	5,610	$	0	$	0	$	0	$	0	$	5,689	$	5,610
SBA securities		0		0		1,551		1,582		1,800		1,887		0		0		3,351		3,469
Mortgage-backed securities- Government sponsored agencies		5,001		4,998		35,254		35,000		15,279		15,027		0		0		55,534		55,025
Collateralized mortgage obligations		117		117		78,021		76,496		43,239		42,898		0		0		121,377		119,511
Commercial paper		129,962		129,926		0		0		0		0		0		0		129,962		129,926
Corporate debt securities		7,999		8,007		8,389		8,633		22,927		22,931		2,684		2,634		41,999		42,205
Municipal securities		0		0		0		0		0		0		12,701		12,514		12,701		12,514
Total available for sale	$	143,079	$	143,048	$	128,904	$	127,321	$	83,245	$	82,743	$	15,385	$	15,148	$	370,613	$	368,260

Municipal taxable securities	$	500	$	502	$	1,006	$	1,081	$	0	$	0	$	0	$	0	$	1,506	$	1,583
Municipal securities		0		0		0		0		1,743		1,818		3,003		3,176		4,746		4,994
Total held to maturity	$	500	$	502	$	1,006	$	1,081	$	1,743	$	1,818	$	3,003	$	3,176	$	6,252	$	6,577

	*Less than Twelve Months*							*Twelve Months or More*							*Total*

*(dollars in thousands)*	*Unrealized Losses*			*Estimated Fair Value*		*No. of Issuances*		*Unrealized Losses*			*Estimated Fair Value*		*No. of Issuances*		*Unrealized Losses*			*Estimated Fair Value*		*No. of Issuances*
December 31, 2021
Government agency securities	$	(83	)	$	4,860		1	$	0		$	0		0	$	(83	)	$	4,860		1
Mortgage-backed securities- Government sponsored agencies		(536	)		44,009		12		(4	)		9,974		2		(540	)		53,983		14
Collateralized mortgage obligations		(1,916	)		79,851		23		(78	)		17,782		4		(1,994	)		97,633		27
Commercial paper		(36	)		129,926		19		0			0		0		(36	)		129,926		19
Corporate debt securities		(254	)		13,208		12		0			0		0		(254	)		13,208		12
Municipal securities		(160	)		11,447		9		(27	)		1,067		2		(187	)		12,514		11
Total available for sale	$	(2,985	)	$	283,301		76	$	(109	)	$	28,823		8	$	(3,094	)	$	312,124		84

	Three Months Ended September 30,
	2017										2016
(dollars in thousands)	Real Estate		Commercial			Unallocated			Total		Real Estate		Commercial		Unallocated		Total
Beginning balance	$	6,433	$	3,384		$	810		$	10,627	$	9,455	$	2,694	$	—	$	12,149
Additions (reductions) to the allowance charged to expense		1,239		(115	)		(424	)		700		820		430		—		1,250
Recoveries on loans charged-off		—		93			—			93		—		—		—		—
Less loans charged-off		—		—			—			—		—		—		—		—
Ending balance	$	7,672	$	3,362		$	386		$	11,420	$	10,275	$	3,124	$	—	$	13,399

	*For the Year Ended December 31, 2021*
(dollars in thousands)	*Real Estate*			*Commercial*			*Other*			*Total*
Allowance for loan losses:
Beginning balance	$	24,677		$	4,617		$	43		$	29,337
Provisions		3,982			(480	)		457			3,959
Charge-offs		(67	)		(501	)		(59	)		(627	)
Recoveries		0			157			86			243
	$	28,592		$	3,793		$	527		$	32,912

	Nine Months Ended September 30,
	2017											2016
(dollars in thousands)	Real Estate			Commercial			Unallocated		Total			Real Estate		Commercial			Unallocated		Total
Beginning balance	$	8,111		$	6,051		$	—	$	14,162		$	5,788	$	4,235		$	—	$	10,023
Additions (reductions) to the allowance charged to expense		(439	)		(3,435	)		386		(3,488	)		4,487		(888	)		—		3,599
Recoveries on loans charged-off		—			746			—		746			—		—			—		—
Less loans charged-off		—			—			—		—			—		(223	)		—		(223	)
Ending balance	$	7,672		$	3,362		$	386	$	11,420		$	10,275	$	3,124		$	—	$	13,399

	September 30		December 31,
(dollars in thousands)	2017		2016
Commercial:
SBA	$	77	$	3,577

	30-59		60-89		Greater Than
(dollars in thousands)	Days		Days		89 Days		Total		Loans Not
September 30, 2017	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	94,297	$	94,297
Commercial real estate		—		—		—		—		491,086		491,086
Single-family residential mortgages		531		—		—		531		236,636		237,167
Commercial:								—
Other		213		—		—		213		225,754		225,967
SBA		254		1,434		—		1,688		146,317		148,005
	$	998	$	1,434	$	—	$	2,432	$	1,194,090	$	1,196,522

December 31, 2016
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	89,409	$	89,409
Commercial real estate		—		—		—		—		501,798		501,798
Single-family residential mortgages		—		—		—		—		156,428		156,428
Commercial:
Other		343		—		—		343		203,500		203,843
SBA		—		—		3,577		3,577		155,391		158,968
	$	343	$	—	$	3,577	$	3,920	$	1,106,526	$	1,110,446

Year ending December 31:
2017 remaining	$	87
2018		311
2019		274
2020		244
2021		172
Thereafter		437
Total	$	1,525

						Amount of Capital Required
										To Be Well-
										Capitalized
						For Capital				Under Prompt
						Adequacy				Corrective
	Actual					Purposes				Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio		Amount		Ratio
As of September 30, 2017:
Tier 1 Leverage Ratio
Consolidated	$	232,521		14.91	%	NA		NA		NA		NA
Bank	$	227,104		14.57	%	$	62,363		4.0%	$	77,953		5.0%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated	$	229,244		18.23	%	NA		NA		NA		NA
Bank	$	227,104		18.13	%	$	56,377		4.5%	$	81,433		6.5%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	232,521		18.49	%	NA		NA		NA		NA
Bank	$	227,104		18.13	%	$	75,169		6.0%	$	100,225		8.0%
Total Risk-Based Capital Ratio
Consolidated	$	293,922		23.37	%	NA		NA		NA		NA
Bank	$	239,013		19.08	%	$	100,225		8.0%	$	125,282		10.0%

	For the nine months ended September 30,
	2017							2016
	Average		Interest		Yield /			Average		Interest			Yield /
(tax-equivalent basis, dollars in thousands)	Balance		& Fees		Rate			Balance		& Fees			Rate
Earning assets:
Federal funds sold, cash equivalents and other (1)	$	151,755	$	1,712		1.51	%	$	80,475	$	811			1.35	%
Securities (2)
Available for sale		40,862		746		2.44	%		28,703		433			2.01	%
Held to maturity		5,980		176		3.94	%		6,378		187			3.92	%
Mortgage loans held for sale		74,230		2,617		4.71	%		66,848		2,421			4.84	%
Loans held for investment: (3)
Real estate		766,974		31,990		5.58	%		771,131		34,386			5.96	%
Commercial (4)		374,979		15,384		5.49	%		351,731		13,236			5.03	%
Total loans HFI		1,141,953		47,375		5.55	%		1,122,862		47,621			5.67	%
Total earning assets		1,414,780	$	52,627		4.97	%		1,305,266	$	51,474	��		5.27	%
Noninterest-earning assets		93,160							84,539
Total assets	$	1,507,940						$	1,389,806

Interest-bearing liabilities
NOW and money market deposits	$	301,254	$	1,577		0.70	%	$	282,790	$	1,371			0.65	%
Savings deposits		34,879		121		0.46	%		34,718		118			0.45	%
Time deposits		695,020		5,903		1.14	%		682,484		5,144			1.01	%
Total interest-bearing deposits		1,031,153		7,602		0.99	%		999,992		6,634			0.89	%
FHLB short-term advances		5,128		29		0.77	%		5,949		24			0.54	%
Long-term debt		49,433		2,547		6.89	%		33,001		1,697			6.87	%
Subordinated debentures		3,366		173		6.88	%		2,673		127			6.34	%
Total interest-bearing liabilities		1,089,080	$	10,352		1.27	%		1,041,615	$	8,481			1.09	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		205,532							163,518
Other noninterest-bearing liabilities		10,274							15,052
Total noninterest-bearing liabilities		215,805							178,569
Shareholders' equity		203,054							169,622
Total liabilities and shareholders equity	$	1,507,940						$	1,389,806
Net interest income / interest rate spreads			$	42,275		3.70	%			$	42,993			4.18	%
Net interest margin						4.00	%							4.40	%

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