1
2
3
ABOUT US 2016
ORIGIN
RBB Bancorp is a bank holding company owning Royal Business Bank (“Bank”) and
RBB Asset Management Company (“RAM”).
The Bank was formed in 2008 to serve the banking needs of the Chinese-American
community in the Los Angeles area and has since expanded to serve Orange and
Ventura Coun�es, as well as the Clark County, Nevada market.
GROWTH
duc�on office.
The Bank has grown to $1.4 billion in assets with 13 branches and one loan pro-
Our Bank is customer-focused, community-oriented and commi�ed to making our
neighborhoods be�er places to live and work. We take pride in being involved in
the communi�es that we serve.
SERVICES
Personal and Business Banking
Mobile Banking
Mortgage Lending
SBA Lending
Commercial Lending
Commercial Real Estate Lending
Construc�on Lending
Interna�onal Trade Financing
Cash Management
CONSTRUCTION
REAL ESTATE
CASH MANAGEMENT
Cash Vault
ACH
Business Online Banking
Business Bill Payment
Remote Capture Deposit
Wire Transfer
Zero Balance Account
COMMERCIAL
&
INDUSTRY
WHAT WE DO
Building personal rela�onships with
our customers is central to our
philosophy. We want to help them
meet their goals and help secure a
brighter future for genera�ons to
come.
We provide the kind of security and
stability that you can count on.
Visit us online at www.rbbusa.com or
at any of our branches.
MOBILE BANKING
RBB Mobile Banking allows you to
securely view account balances and
recent transac�ons, transfer funds
between your accounts, pay your
bills, send Popmoney transfers, find
branch loca�ons, set up account
alerts, and even make mobile
deposits...all from the convenience
of your mobile device.
HIGHLIGHTS OF THE YEAR
4
HIGHLIGHTS OF THE YEAR
ABOUT US 2016
ORIGIN
RBB Bancorp is a bank holding company owning Royal Business Bank (“Bank”) and
RBB Asset Management Company (“RAM”).
The Bank was formed in 2008 to serve the banking needs of the Chinese-American
community in the Los Angeles area and has since expanded to serve Orange and
Ventura Coun�es, as well as the Clark County, Nevada market.
GROWTH
The Bank has grown to $1.4 billion in assets with 13 branches and one loan pro-
duc�on office.
Our Bank is customer-focused, community-oriented and commi�ed to making our
neighborhoods be�er places to live and work. We take pride in being involved in
the communi�es that we serve.
SERVICES
Personal and Business Banking
Mobile Banking
Mortgage Lending
SBA Lending
Commercial Lending
Commercial Real Estate Lending
Construc�on Lending
Interna�onal Trade Financing
Cash Management
CONSTRUCTION
REAL ESTATE
CASH MANAGEMENT
Cash Vault
ACH
Business Online Banking
Business Bill Payment
Remote Capture Deposit
Wire Transfer
Zero Balance Account
HIGHLIGHTS OF THE YEAR
COMMERCIAL
&
INDUSTRY
WHAT WE DO
Building personal rela�onships with
our customers is central to our
philosophy. We want to help them
meet their goals and help secure a
brighter future for genera�ons to
come.
We provide the kind of security and
stability that you can count on.
Visit us online at www.rbbusa.com or
at any of our branches.
MOBILE BANKING
RBB Mobile Banking allows you to
securely view account balances and
recent transac�ons, transfer funds
between your accounts, pay your
bills, send Popmoney transfers, find
branch loca�ons, set up account
alerts, and even make mobile
deposits...all from the convenience
of your mobile device.
HIGHLIGHTS OF THE YEAR
5
EXECUTIVES
ROYAL BUSINESS BANK
(In Thousands)
NET INCOME
2011
2012
2013
2014
2015
2016
$7,920
$4,046
$7,003
$10,428
$12,973
$19,079
ASSETS (In Thousands)
2012
$502,427
2012
$576,484
2013
$723,409
2014
$925,891
2015
$1,023,084
$1,395,551
2016
(In Thousands)
TOTAL EQUITY
2011
2012
2013
2014
2015
2016
$71,552
$108,113
$137,992
$151,980
$163,645
$181,585
6
Alan Thian 田詒鴻
Chairman of the Board
CEO / President
Simon C Pang 馮振發
Executive Vice President
Chief Strategy Officer
Vincent Liu 劉憶明
Executive Vice President
Chief Operations Officer
David Morris
Executive Vice President
Chief Financial Officer
Jeffrey Yeh 葉士杰
Executive Vice President
Chief Credit Officer
Tsu Te Huang 黃祖德
Executive Vice President
Branch Administrator
Larsen Lee
Executive Vice President
Director of Mortgage Lending
7
BOARD OF DIRECTORS
ROYAL BUSINESS BANK
Louis Chang 張見齊
Emeritus Chairman
Founder
Alan Thian 田詒鴻
Chairman of the Board
CEO / President
Peter Chang 張銘輝
Board Member
Wendell Chen 陳文杰
Board Member
Peggy Huang 蘇百瑾
Board Member
Dr. Ruey-Chyr Kao 高瑞治
Board Member
James Kao PhD 高文環
Board Member
2016 ANNUAL REPORT
8
Christopher Koo CPA 古志明
Board Member
Christopher Lin PhD 林創一
Board Member
Ko-Yen Lin 林國彥
Board Member
Paul Lin 林柏彥
Board Member
Richard Lin 林鋒
Board Member
Catherine Thian 田慧明
Board Member
2016 ANNUAL REPORT
9
10
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 2016, 2015 AND 2014
This statement has not been reviewed or confirmed for accuracy or relevance
by the Federal Reserve Deposit Insurance Company
11
CONTENTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1
13
14
2
16
4
17
5
18
6
19
7
20 through 61
8 through 49
12
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants
VALUE THE DIFFERENCE
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors and Shareholders of
RBB Bancorp and Subsidiaries
Los Angeles, California
We have audited the accompanying consolidated financial statements of RBB Bancorp and Subsidiaries, which
are comprised of the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 2016, and the related notes to the consolidated financial
statements. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of RBB Bancorp and Subsidiaries as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016
in accordance with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), RBB Bancorp's internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 22, 2017, expressed an
unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Laguna Hills, California
March 22, 2017
25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 www.vtdcpa.com Fax: 949.768.8408
1
13
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
(In thousands, except for share amounts)
ASSETS
Cash and Due from Banks
Federal Funds Sold and Other Cash Equivalents
TOTAL CASH AND CASH EQUIVALENTS
2016
2015
$
74,213
44,500
118,713
$
80,391
33,500
113,891
Interest-Bearing Deposits in Other Financial Institutions
345
7,462
Securities:
Available for Sale
Held to Maturity (Fair Value 2016 - $6,553; 2015 - $7,144)
Mortgage Loans Held for Sale
Loans Held for Investment:
Real Estate
Commercial
TOTAL LOANS
Unaccreted Discount on Acquired Loans
Deferred Loan Costs (Fees), Net
Allowance for Loan Losses
NET LOANS
Premises and Equipment
Federal Home Loan Bank ("FHLB") Stock
Net Deferred Tax Assets
Other Real Estate Owned ("OREO")
Cash Surrender Value of Life Insurance
Goodwill
Servicing Assets
Core Deposit Intangibles
Accrued Interest and Other Assets
39,277
6,214
44,345
755,301
361,227
1,116,528
(8,085)
2,003
1,110,446
(14,162)
1,096,284
6,585
6,770
11,097
833
21,958
29,940
3,704
1,793
7,693
20,416
6,678
41,496
525,433
267,266
792,699
(1,712)
1,375
792,362
(10,023)
782,339
6,860
4,149
7,449
293
21,398
4,001
2,105
466
4,081
$
1,395,551
$
1,023,084
The accompanying notes are an integral part of these consolidated financial statements.
2
14
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
(In thousands, except for share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand
Savings, NOW and Money Market Accounts
Time Deposits Under $250,000
Time Deposits $250,000 and Over
TOTAL DEPOSITS
Reserve for Unfunded Commitments
Income Tax Payable
Long-Term Debt
Subordinated Debentures
Accrued Interest and Other Liabilities
TOTAL LIABILITIES
Commitments and Contingencies - Notes 6 and 12
Shareholders' Equity:
Preferred Stock - 100,000,000 Shares Authorized, No Par Value;
None Outstanding
Common Stock - 100,000,000 Shares Authorized, No Par Value;
12,827,803 and 12,770,571 Shares Issued and Outstanding
for 2016 and 2015 Respectively
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss) - Net Unrealized
Loss on Securities Available for Sale, Net of Tax of
$186 in 2016 and $134 in 2015
TOTAL SHAREHOLDERS' EQUITY
2016
2015
$
174,272
296,699
310,969
370,823
1,152,763
$
114,647
243,585
209,748
285,437
853,417
604
793
49,383
3,334
7,089
1,213,966
-
-
320
1,174
-
-
4,528
859,439
-
-
142,651
8,417
30,784
141,873
7,706
14,259
(267)
181,585
1,395,551
$
(193)
163,645
1,023,084
$
The accompanying notes are an integral part of these consolidated financial statements.
3
15
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands, except per share amounts)
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans
Interest on Interest-Bearing Deposits
Interest on Investment Securities
Dividend Income on FHLB Stock
Interest on Federal Funds Sold and Other
TOTAL INTEREST INCOME
INTEREST EXPENSE
Interest on Savings Deposits, NOW and Money Market Accounts
Interest on Time Deposits
Interest on Subordinated Debentures and other
Interest on Other Borrowed Funds
TOTAL INTEREST EXPENSE
NET INTEREST INCOME
Provision for Loan Losses
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
NONINTEREST INCOME
Service Charges, Fees and Other
Gain on Sale of Loans
Recoveries on Loans Acquired in Business Combinations
Increase in Cash Surrender of Life Insurance
Gain on Sale of Securities
Gain on Sale of OREO
(Loss) Gain on Sale of Fixed Assets
NONINTEREST EXPENSE
Salaries and Employee Benefits
Occupancy and Equipment Expenses
Data Processing
Legal and Professional
Office Expenses
Marketing and Business Promotion
Insurance and Regulatory Assessments
Amortization of Intangibles
OREO Expenses (Income), net
Other Expenses
INCOME BEFORE INCOME TAXES
Income Tax Expense
NET INCOME
NET INCOME PER SHARE - BASIC
NET INCOME PER SHARE - DILUTED
2016
2015
2014
$
65,888
334
872
800
295
68,189
$
41,026
246
553
474
214
42,513
$
36,614
62
969
287
217
38,149
1,975
6,968
2,547
217
11,707
56,482
4,974
51,508
2,373
5,847
170
560
19
-
(3)
8,966
1,343
5,592
-
1
6,936
35,577
1,386
34,191
1,568
4,316
103
579
78
1,218
-
7,862
1,104
3,412
-
6
4,522
33,627
1,446
32,181
1,415
2,496
204
608
268
493
12
5,496
13,784
3,098
2,018
1,565
598
542
883
372
28
5,018
27,906
32,568
13,489
19,079
1.49
1.39
$
$
$
11,122
2,359
1,532
954
353
475
761
117
(18)
2,429
20,084
21,969
8,996
12,973
1.02
0.96
$
$
$
10,426
2,356
1,446
2,417
312
317
591
131
112
2,004
20,112
17,565
7,137
10,428
0.82
0.79
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
4
16
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands)
Net Income
$
19,079
$
12,973
$
10,428
2016
2015
2014
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized Gains (Losses) on Securities Available for Sale:
Change in Unrealized Gains (Losses)
Reclassification of Gains Recognized in Net Income
Related Income Tax Effect:
Change in Unrealized Gains (Losses)
Reclassification of Gains Recognized in Net Income
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
(107)
(19)
(126)
44
8
52
(74)
(161)
(78)
(239)
66
32
98
(141)
672
(268)
404
(276)
110
(166)
238
TOTAL COMPREHENSIVE INCOME
$
19,005
$
12,832
$
10,666
The accompanying notes are an integral part of these consolidated financial statements.
5
17
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands, except share amounts)
Balance at December 31, 2013
Net Income
Exercise of Stock Options,
Including Tax Benefits of $67
Stock-Based Compensation
Common Stock
Amount
Shares
11,658,259
Additional
Paid-in
Capital
Retained
Earnings
$
125,707
$
5,201
$
7,375
10,428
164,600
2,150
(438)
1,610
5% Stock Dividend
587,540
8,355
(8,355)
Other Comprehensive
Income, Net of Taxes
Accumulated
Other
Comprehensive
Income (Loss)
$
(290)
Total
$
137,993
10,428
1,712
1,610
-
238
238
Balance at December 31, 2014
12,410,399
$
136,212
$
6,373
$
9,448
$
(52)
$
151,981
Net Income
Exercise of Stock Options,
Including Tax Benefits of $21
Stock-Based Compensation
48,729
613
(122)
1,455
2.5% Stock Dividend
311,443
5,048
Cash Dividend
Other Comprehensive
Loss, Net of Taxes
12,973
(5,048)
(3,114)
12,973
491
1,455
-
(3,114)
(141)
(141)
Balance at December 31, 2015
12,770,571
$
141,873
$
7,706
$
14,259
$
(193)
$
163,645
Net Income
Exercise of Stock Options,
Including Tax Benefits of $10
Stock-Based Compensation
Cash Dividend
Other Comprehensive
Loss, Net of Taxes
57,232
778
(183)
894
19,079
(2,554)
19,079
595
894
(2,554)
(74)
(74)
Balance at December 31, 2016
12,827,803
$
142,651
$
8,417
$
30,784
$
(267)
$
181,585
The accompanying notes are an integral part of these consolidated financial statements.
6
18
RBB BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands)
OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash From
Operating Activities:
Depreciation and Amortization of Premises, Equipment and Intangibles
Net Amortization (Accretion) of Securities, Loans, Deposits, and Other
Provision for Loan Losses
Stock-Based Compensation
Deferred Tax Expense (Benefit)
Gain on Sale of Securities
Gain on Sale of Loans
Gain on Sale of Other Real Estate Owned
Increase in Cash Surrender Value of Life Insurance
Loans Originated and Purchased for Sale
Proceeds from Loans Sold
Other Items
NET CASH FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Decrease (Increase) in Interest-Bearing Deposits
Securities Available for Sale:
Purchases
Maturities, Prepayments and Calls
Sales
(Purchase) Redemption of FHLB Stock and Other Equity Securities, net
Net Decrease (Increase) in Loans
Proceeds from Sales of Other Real Estate Owned
Net Cash Paid in Connection with Acquisition
Purchases of Premises and Equipment
NET CASH FROM INVESTING ACTIVITIES
FINANCING ACTIVITIES
Net (Decrease) Increase in Demand Deposits and Savings Accounts
Net (Decrease) Increase in Time Deposits
Net Change in FHLB Advances
Cash Dividends Paid
Issuance of Subordinated Debentures, net of issuance costs
Issuance of Common Stock
NET CASH FROM FINANCING ACTIVITIES
INCREASE IN CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period
CASH AND CASH EQUIVALENTS AT END OF YEAR
Supplemental Disclosures of Cash Flow Information:
Interest Paid
Taxes Paid
Transfer from Loans to Other Real Estate Owned
Transfer of Loans to Held for Sale
Securities Held to Maturity Transferred to Available for Sale
2016
2015
2014
$
19,079
$
12,973
$
10,428
1,360
(7,199)
4,974
894
1,289
(19)
(5,847)
-
(560)
(184,030)
221,328
3,950
55,219
1,020
(1,012)
1,386
1,455
1,361
(78)
(4,316)
(1,218)
(579)
(157,409)
176,744
(1,232)
29,095
919
(2,204)
1,446
1,610
(218)
(268)
(2,496)
(493)
(608)
(95,143)
52,442
2,533
(32,052)
9,437
(7,262)
(100)
(12,485)
4,403
5,083
(3,265)
40,290
-
(35,051)
(210)
8,202
(5,471)
4,115
5,514
(766)
(103,128)
2,086
-
(468)
(105,380)
-
11,272
25,606
164
(122,445)
843
-
(417)
(85,077)
(47,679)
(58,235)
-
(2,554)
49,274
595
(58,599)
4,822
113,891
118,713
$
65,761
20,343
-
(3,114)
-
491
83,481
7,196
106,695
113,891
$
12,724
180,614
(7,000)
-
-
1,712
188,050
70,921
35,774
106,695
$
$
$
$
$
$
12,342
12,515
540
71,626
433
$
6,872
7,120
$
$
-
53,127
$
$
-
$
4,487
$
5,810
$
-
$
89,359
$
-
The accompanying notes are an integral part of these consolidated financial statements.
7
19
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations
The accompanying consolidated financial statements include the accounts of RBB Bancorp and its wholly-owned
subsidiaries Royal Business Bank ("Bank") 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.
Parent only condensed financial information on RBB Bancorp is provided in Note 21.
The Company operates full-service banking offices in Los Angeles, San Gabriel, Torrance, Rowland Heights,
Westlake Village, Oxnard, Monterey Park, Diamond Bar, Cerritos, West LA, Arcadia, and Silverlake, California
and Las Vegas, Nevada and a loan production office in the City of Industry, California. The Company's primary
source of revenue is providing loans to customers, who are predominately small and middle-market businesses
and individuals.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through March 22, 2017, which is
the date the financial statements were available to be issued.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America 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. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, term federal funds sold and interest-bearing deposits
in other financial institutions with original maturities of less than 90 days. Net cash flows are reported for
customer loan and deposit transactions and interest-bearing deposits in other financial institutions.
Cash and Due from Banks
Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit
with the Federal Reserve Bank. The reserves required to be held as of December 31, 2016 and 2015 were
$9,811,000 and $4,560,000, respectively. The Company maintains amounts in due from bank accounts, which
may exceed federally insured limits. The Company has not experienced any losses in such accounts.
8
20
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Interest-Bearing Deposits in Other Financial Institutions
Interest-bearing deposits in other financial institutions not included in cash and cash equivalents are carried at
cost.
Investment Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive
intent and ability to hold them to maturity. Debt securities not classified as held to maturity are classified as
available for sale. Equity securities with readily determinable fair values are classified as available for sale.
Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax.
Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities
are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded
on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment ("OTTI") on at least a semi-annual 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. For debt securities that do
not meet the aforementioned criteria, the amount of impairment is split into two components as follows; OTTI
related to credit loss, which must be recognized in the income statement and; OTTI related to other factors, which
is recognized in other comprehensive income. The credit loss is defined as the difference between the present
value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire
amount of impairment is recognized through earnings.
Loans Held For Sale
Mortgage loans originated or acquired and intended for sale in the secondary market are carried at the lower of
aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if
any, are recorded as a valuation allowance and charged to earnings. Loans held for sale consist primarily of first
trust deed mortgages on single-family residential properties located in California.
Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage
loans sold is reduced by the amount allocated to the servicing right, when applicable. Gains and losses on sales of
mortgage loans are based on the difference between the selling price and the carrying value of the related loans
sold.
9
21
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on
purchased loans. Loan origination fees and certain direct origination costs are deferred and recognized in interest
income using the level-yield method without anticipating prepayments.
Premiums and discounts on loans purchased are grouped by type and certain common risk characteristics and
amortized or accreted as an adjustment of yield over the weighted-average remaining contractual lives of each
group of loans, adjusted for prepayments when applicable, using methodologies which approximate the interest
method.
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of
interest on loans is discontinued when principal or interest is past due 90 days or when, in the opinion of
management, there is reasonable doubt as to collectability based on contractual terms of the loan. 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. Interest accruals are resumed on such loans only when they
are brought current with respect to interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to all principal and interest.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are
charged against the allowance when management believes the uncollectability of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance
required using past loan loss experience, the nature and volume of the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's
judgment, should be charged-off. Amounts are charged-off when available information confirms that specific
loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied
to each segment.
The Company determines a separate allowance for each portfolio segment. The allowance consists of specific
and general reserves. Specific reserves relate to loans that are individually classified as impaired. A loan is
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. Factors considered in determining
impairment include payment status, collateral value and the probability of collecting all amounts when due.
Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be
discounted at the loan's effective interest rate, or measured by reference to an observable market value, if one
exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement
method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are
measured at the fair value of the collateral.
10
22
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for Loan Losses - Continued
The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest
income on nonaccrual loans. Loans, for which the terms have been modified resulting in a concession, and for
which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified
as impaired with measurement of impairment as described above.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected
solely from the collateral.
General reserves cover non-impaired loans and are based on historical loss rates of peer institutions for each
portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated
credit losses as of the evaluation date to differ from the portfolio segment's historical loss experience. Qualitative
factors include consideration of the following: changes in lending policies and procedures; changes in economic
conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of
lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and
other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral
for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition
and legal and regulatory requirements.
Portfolio segments identified by the Company include real estate and commercial loans. Relevant risk
characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios, and
financial performance.
Certain Acquired Loans
As part of business acquisitions, the Company acquires certain loans that have shown evidence of credit
deterioration since origination. These acquired loans are recorded at the allocated fair value, such that there is no
carryover of the seller's allowance for loan losses. Such acquired loans are accounted for individually. The
Company estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash
flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan
(accretable yield). The excess of the loan's contractual principal and interest over expected cash flows is not
recorded (non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If
the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance
for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as
part of future interest income.
11
23
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Servicing Rights
When mortgage and Small Business Administration ("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.
Servicing fee income, which is reported on the income statement as Service Charges, Fees and Other, 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.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.
Control over transferred assets is deemed to be surrendered when the assets have been isolated from the
Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets, and the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.
Gains on sales of mortgage and SBA loans totaled $5.8 million, $4.3 million, and $2.5 million in 2016, 2015, and
2014, respectively. Gains on sale of mortgage loans totaled $3.4 million, $1.6 million, and $182,000, and gains
on sale of SBA loans totaled $2.4 million, $2.7 million, and $2.3 million in 2016, 2015, and 2014 respectively.
Premises and Equipment
Land is carried at cost. Premises, leasehold improvements and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful
lives, which is thirty years for premises and ranges from three to ten years for leasehold improvements and
equipment. Leasehold improvements are amortized using the straight-line method over the estimated useful lives
of the improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or major
repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.
12
24
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Other Real Estate Owned
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of
foreclosure, establishing a new cost basis by a charge to the allowance for loan losses, if necessary. Other real
estate owned is carried at the lower of the Company's carrying value of the property or its fair value, less
estimated carrying costs and costs of disposition. Fair value is based on current appraisals less estimated selling
costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation
allowance. Operating expenses and related income of such properties and gains and losses on their disposition are
included in other operating income and expenses.
Goodwill and Other Intangible Assets
Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair
value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities
assumed as of the acquisition date. Goodwill resulting from whole bank acquisitions is not amortized, but tested
for impairment at least annually. The Company has selected December 31 as the date to perform the annual
impairment test. Goodwill amounted to $29.9 million and $4.0 million as of December 31, 2016 and 2015,
respectively, and is the only intangible asset with an indefinite life on the balance sheet. No impairment was
recognized on goodwill during 2016 and 2015.
Other intangible assets consist of core deposit intangible ("CDI") assets arising from whole bank acquisitions.
CDI assets are amortized on an accelerated method over their estimated useful life of 8 to 10 years. CDI was
recognized in the 2013 acquisition of Los Angeles National Bank and in the 2016 acquisition of TFC Holding
Company. The unamortized balance as of December 31, 2016 and 2015 was $1,793,000 and $466,000,
respectively. CDI amortization expense was $372,000, $117,000, and $131,000 in 2016, 2015 and 2014,
respectively.
Estimated CDI amortization expense for the next 5 years is as follows (dollars in thousands):
2017
2018
2019
2020
2021
$
355
311
274
244
172
13
25
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Company Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. Company owned life insurance is
recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the
cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Federal Home Loan Bank ("FHLB") Stock
The Company is a member of the FHLB system. Members are required to own a certain amount of stock based
on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost,
classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par
value. Both cash and stock dividends are reported as income.
Stock-Based Compensation
Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at
the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. This cost is
recognized over the period which an employee is required to provide services in exchange for the award,
generally defined as the vesting period.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Tax effects
from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position
is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to
uncertain tax positions are recorded as part of income tax expense.
Retirement Plans
The Company established a 401(k) plan in 2010. The Company contributed $221,000, $125,000, and $46,000 in
2016, 2015, and 2014, respectively.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income
includes unrealized gains and losses on securities available for sale.
14
26
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Financial Instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments
consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit as described
in Note 12. Such financial instruments are recorded in the financial statements when they are funded.
Earnings Per Share ("EPS")
Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Fair Value Measurement
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has
the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
See Note 16 and Note 17 for more information and disclosures relating to the Company's fair value
measurements.
Operating Segments
Management has determined that since generally all of the banking products and services offered by the Company
are available in each branch of the Bank, all branches are located within the same economic environment and
management does not allocate resources based on the performance of different lending or transaction activities, it
is appropriate to aggregate the Bank branches and report them as a single operating segment.
15
27
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Reclassifications
Certain reclassifications have been made in the 2015 and 2014 financial statements to conform to the presentation
used in 2016. These reclassifications had no impact on the Company's previously reported financial statements.
Newly Issued Not Yet Effective Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2014-09, Revenue from Contracts with Customers (Topic 606). This Update requires an entity to recognize
revenue as performance obligations 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 the updated guidance: (1) identify the contract(s) with a customer; (2) identify
the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price
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 guidance does not apply to
revenue associated with financial instruments and therefore the Company does not expect the new guidance to
have a material impact on revenue closely associated with financial instruments, including interest income. The
Company plans to perform an overall assessment of revenue streams that may be affected by the ASU including
deposit related fees to determine if there would be a potential impact on the Company’s Consolidated Financial
Statements. The Company plans to adopt ASU No. 2014-09 on January 1, 2018.
In January 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.
16
28
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 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 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 ASU on the
Company’s Consolidated Financial Statements.
In March 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 plans to adopt ASU 2016-09 on January 1, 2018.
The Company plans to recognize forfeitures as they occur. The adoption of the ASU will not have a material
effect on the Company’s Financial Statements or Disclosures. The adoption of ASU 2016-09 could result in
increased volatility to income tax expense that is reported related to excess tax benefits and tax.
17
29
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instrument (Topic
326). This ASU significantly changes how entities will measure credit losses for most financial assets and certain
other instruments that aren't 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) financial assets subject to credit losses and measured at amortized
cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held to
maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available for
sale ("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 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 effective for interim and annual reporting periods 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 December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after
December 15, 2018. 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. The implementation of the provisions of ASU No. 2016-13 will most likely impact the Company’s
Consolidated Financial Statements as to the level of reserves that will be required for credit losses. The Company
will continue to access the potential impact that this ASU will have on the Company’s Consolidated Financial
Statements.
18
30
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instrument (Topic
326). This ASU significantly changes how entities will measure credit losses for most financial assets and certain
other instruments that aren't 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) financial assets subject to credit losses and measured at amortized
cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held to
maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available for
sale ("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 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 effective for interim and annual reporting periods 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 December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after
December 15, 2018. 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. The implementation of the provisions of ASU No. 2016-13 will most likely impact the Company’s
Consolidated Financial Statements as to the level of reserves that will be required for credit losses. The Company
will continue to access the potential impact that this ASU will have on the Company’s Consolidated Financial
Statements.
RBB BANCORP AND SUBSIDIARIES
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
TFC HOLDING COMPANY ACQUISITION:
NOTE 2 – ACQUISITIONS
On February 19, 2016, the Company acquired all the assets and assumed all the liabilities of TFC Holding
Company in exchange for cash of $86.7 million. TFC Holding Company operated six branches in the Los Angeles
metropolitan area. The Company acquired TFC Holding Company to strategically increase its existing presence in
the Los Angeles area. Goodwill in the amount of $25.9 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 following table represents the assets acquired and liabilities assumed of TFC Holding Company as of
February 19, 2016 and the fair value adjustments and amounts recorded by the Company in 2016 under the
acquisition method of accounting:
(dollars in thousands)
TFC
Book Value
Fair Value
Adjustments
Fair
Value
ASSETS ACQUIRED
Cash and Cash Equivalents
Interest-Bearing Deposits in Other Financial Institutions
Net Investments - Available for Sale
Loans, gross
Allowance for Loan Losses
Bank Premises and Equipment
Deferred Income Taxes
Other Assets
Total Assets Acquired
LIABILITIES ASSUMED
Deposits
Subordinated Debentures
Other Liabilities
Total Liabilities Assumed
Excess of Assets Acquired Over Liabilities Assumed
Cash Paid
Goodwill Recognized
$
$
-
$
-
(106)
(13,211)
9,857
-
858
1,699
(903)
$
51,613
2,320
15,846
387,676
-
225
4,885
7,294
469,859
$
$
$
$
51,613
2,320
15,952
400,887
(9,857)
225
4,027
5,595
470,762
404,465
5,155
566
410,186
60,576
470,762
848
(1,900)
-
(1,052)
149
(903)
$
405,313
3,255
566
409,134
60,725
86,664
25,939
$
$
$
The Company accounted for the transaction under the acquisition method of accounting which requires purchased
assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company
determined the fair value of loans, leases, core deposit intangible, deposits, and Subordinated Debentures with the
assistance of a third party valuation.
18
19
31
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 2 - ACQUISITIONS – Continued
The estimated fair values are subject to refinement as additional information relative to the closing date fair values
becomes available through the measurement period. While additional significant changes to the closing date fair
values are not expected, any information relative to the changes in these fair values will be evaluated to determine
if such changes are due to events and circumstances that existed as of the acquisition date. During the
measurement period, any such changes will be recorded as part of the closing date fair value.
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 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 Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 310-20.
For loans acquired, the contractual amounts due, expected cash flows to be collected, interest component and fair
value as of the respective acquisition dates were as follows:
(dollars in thousands)
Contractual Amounts Due
Cash Flows not Expected to be Collected
Expected Cash Flows
Interest Component of Expected Cash Flows
Fair Value of Acquired Loans
$
Acquired Loans
441,275
-
441,275
53,599
387,676
$
None of the loans acquired 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.
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.
20
32
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 3 - INVESTMENT SECURITIES
The following table summarizes the amortized cost and fair value of securities available for sale and held to
maturity at December 31, 2016 and 2015, and the corresponding amounts of gross unrealized gains and losses
recognized in accumulated other comprehensive income:
(dollars in thousands)
December 31, 2016
Available for Sale
Government Agency Securities
Mortgage-Backed Securities-
Government Sponsored Agencies
Corporate Debt Securities
Held to Maturity
Municipal Taxable Securities
Municipal Securities
December 31, 2015
Available for Sale
Mortgage-Backed Securities-
Government Sponsored Agencies
Corporate Debt Securities
Held to Maturity
Municipal Taxable Securities
Municipal Securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
5,453
$
-
$
(136)
$
5,317
23,913
10,364
39,730
$
38
21
59
$
(311)
(65)
(512)
$
23,640
10,320
39,277
$
$
$
$
$
5,301
913
6,214
328
11
339
-
$
-
$
-
$
$
5,629
924
6,553
$
$
15,292
5,451
20,743
-
$
-
$
-
$
$
(263)
(64)
(327)
15,029
5,387
20,416
$
$
$
$
$
$
5,741
937
6,678
440
26
466
-
$
-
$
-
$
$
6,181
963
7,144
During 2016, 2015 and 2014 the Company sold $5.1 million, $5.5 million and $25.6 million of securities
available for sale, recognizing gross gains of $19,000, $78,000 and $268,000, respectively.
One security with a fair value of $933,000 and $1,220,000 was pledged to secure a local agency deposit at
December 31, 2016 and December 31, 2015, respectively.
21
33
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 3 - INVESTMENT SECURITIES - Continued
The amortized cost and fair value of the investment securities portfolio as of December 31, 2016 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.
Available for Sale
Held to Maturity
(dollars in thousands)
Within One Year
Due From One through Five Years
Due from Five to Ten Years
Amortized
Cost
RBB BANCORP AND SUBSIDIARIES
$
Fair
Value
$
Amortized
Cost
-
$
26,432
13,298
Fair
Value
$
-
26,215
13,062
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
1,002
1,957
3,255
1,016
2,092
3,445
NOTE 3 - INVESTMENT SECURITIES - Continued
$
39,730
$
39,277
$
6,214
$
6,553
The following table summarizes securities with unrealized losses at December 31, 2016 and December 31, 2015,
The amortized cost and fair value of the investment securities portfolio as of December 31, 2016 are shown by
aggregated by major security type and length of time in a continuous unrealized loss position. There were no
expected maturity below. Expected maturities may differ from contractual maturities if borrowers have the right
Held to Maturity Securities in a continuous unrealized loss position at December 31, 2016 and December 31,
to call or prepay obligations with or without call or prepayment penalties.
2015:
(dollars in thousands)
Within One Year
December 31, 2016
Government Agency Securities
Due From One through Five Years
Due from Five to Ten Years
Mortgage-Backed Securities-
Government Sponsored Agencies
Corporate Debt Securities
Twelve Months or More
Held to Maturity
Total
Fair Value
Estimated
Unrealized
Amortized
Fair
Fair Value
Losses
Cost
Value
$
$
1,002
-
$
-
$
-
26,215
1,957
5,317
3,255
13,062
Unrealized
Fair
Losses
Value
$
$
Estimated
Fair Value
$
5,317
Less than Twelve Months
Available for Sale
Estimated
Unrealized
$
$
Amortized
Losses
Cost
$
-
26,432
(136)
13,298
(221)
39,730
(65)
(422)
1,016
2,092
(136)
3,445
(311)
6,553
(65)
(512)
6,214
39,277
$
$
Total Available for Sale
16,231
$
5,147
26,695
The following table summarizes securities with unrealized losses at December 31, 2016 and December 31, 2015,
aggregated by major security type and length of time in a continuous unrealized loss position. There were no
December 31, 2015
Held to Maturity Securities in a continuous unrealized loss position at December 31, 2016 and December 31,
Government Agency Securities
2015:
Mortgage-Backed Securities-
Government Sponsored Agencies
Corporate Debt Securities
(90)
$
-
(90)
2,504
-
2,504
5,147
29,199
$
-
$
-
$
-
$
-
$
-
$
-
$
$
18,735
$
Total
$
$
$
(79)
Unrealized
Less than Twelve Months
10,581
Estimated
5,387
Fair Value
$
15,968
(64)
(143)
$
Losses
Twelve Months or More
4,448
Estimated
-
Fair Value
$
4,448
(184)
Unrealized
-
(184)
Losses
$
(263)
Unrealized
(64)
(327)
Losses
$
15,029
Estimated
5,387
Fair Value
$
20,416
December 31, 2016
Government Agency Securities
Mortgage-Backed Securities-
Unrealized losses have not been recognized into income because the issuer bonds are of high credit quality,
Government Sponsored Agencies
16,231
management does not intend to sell, it is not more likely than not that management would be required to sell the
Corporate Debt Securities
5,147
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.
$
26,695
Total Available for Sale
2,504
-
2,504
5,147
29,199
(90)
-
(90)
(65)
(512)
(65)
(422)
$
-
$
-
$
$
18,735
$
$
5,317
5,317
$
$
$
(221)
(136)
(311)
(136)
$
$
Total Available for Sale
December 31, 2015
Government Agency Securities
Mortgage-Backed Securities-
Government Sponsored Agencies
Corporate Debt Securities
Total Available for Sale
$
-
$
-
$
-
$
-
$
-
$
-
(79)
(64)
(143)
$
22
10,581
34
5,387
15,968
$
(184)
-
(184)
$
4,448
-
4,448
$
(263)
15,029
(64)
(327)
$
5,387
20,416
$
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.
22
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS
The Company's loan portfolio consists primarily of loans to borrowers within Los Angeles and Orange County,
California. 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.
A summary of the changes in the allowance for loan losses as of December 31 follows:
(dollars in thousands)
2016
Beginning Balance
Additions to the Allowance Charged to Expense
Recoveries on Loans Charged-Off
Less Loans Charged-Off
Ending Balance
$
10,023
4,974
-
14,997
(835)
2015
$
8,848
1,386
211
10,445
(422)
2014
$
7,549
1,446
95
9,090
(242)
$
14,162
$
10,023
$
8,848
The following table presents the recorded investment in loans and impairment method as of December 31, 2016,
2015 and 2014 and the activity in the allowance for loan losses for the years then ended, by portfolio segment:
23
35
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS – Continued
(dollars in thousands)
December 31, 2016
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
Reserves:
Specific
General
Loans Acquired with Deteriorated Credit Quality
Loans Evaluated for Impairment:
Individually
Collectively
Loans Acquired with Deteriorated Credit Quality
December 31, 2015
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
Reserves:
Specific
General
Loans Acquired with Deteriorated Credit Quality
Loans Evaluated for Impairment:
Individually
Collectively
Loans Acquired with Deteriorated Credit Quality
December 31, 2014
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
Reserves:
Specific
General
Loans Acquired with Deteriorated Credit Quality
Loans Evaluated for Impairment:
Individually
Collectively
Loans Acquired with Deteriorated Credit Quality
Real Estate
Commercial
Total
$
$
$
5,788
2,323
-
-
8,111
-
$
8,111
-
8,111
$
$
$
$
$
$
$
$
$
$
$
3,577
359,234
-
362,811
6,133
1,103,583
730
1,110,446
$
$
$
$
$
$
$
$
$
-
$
5,788
-
5,788
$
-
$
4,235
-
4,235
$
-
$
10,023
-
10,023
$
$
$
$
$
$
$
$
$
$
4,235
2,651
(835)
-
6,051
1,782
4,269
-
6,051
3,152
1,494
(422)
11
4,235
4,630
264,610
-
269,240
2,442
952
(242)
-
3,152
10,023
4,974
(835)
-
14,162
1,782
12,380
-
14,162
8,848
1,386
(422)
211
10,023
6,112
784,573
1,677
792,362
7,550
1,445
(242)
95
8,848
2,556
744,349
730
747,635
5,696
(108)
-
200
5,788
1,482
519,963
1,677
523,122
5,108
493
-
95
5,696
$
$
$
$
-
5,696
-
5,696
$
$
-
3,152
-
3,152
$
$
-
8,848
-
8,848
$
$
$
$
3,216
517,873
1,933
523,022
593
176,821
-
177,414
3,809
694,694
1,933
700,436
$
$
$
24
36
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS - Continued
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 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
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.
25
37
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS - Continued
The risk category of loans by class of loans was as follows as of December 31, 2016 and 2015:
(dollars in thousands)
December 31, 2016
Real Estate:
Construction and Land
Development
Residential Real Estate
Commercial Real Estate
Commercial:
Other
SBA
December 31, 2015
Real Estate:
Construction and Land
Development
Residential Real Estate
Commercial Real Estate
Commercial:
Other
SBA
Pass
Special
Mention
Substandard
Impaired
Total
$
87,174
258,415
353,290
194,227
151,066
1,044,172
$
$
1,932
13,950
4,562
$
-
6,272
19,484
$
303
-
2,253
$
89,409
278,637
379,589
-
1,934
22,378
$
9,616
2,391
37,763
$
-
3,577
6,133
$
203,843
158,968
1,110,446
$
$
67,278
231,771
218,844
-
$
-
-
-
$
-
3,747
$
315
-
1,167
$
67,593
231,771
223,758
157,394
103,846
779,133
$
999
-
999
$
2,086
285
6,118
$
-
4,630
6,112
$
160,479
108,761
792,362
$
26
38
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS – Continued
The following tables present the recorded investment in non-accrual and loans past due over 90 days still on
accrual by class of loans as of December 31, 2016 and December 31, 2015:
(dollars in thousands)
Commercial:
SBA
Non-Accrual
2016
2015
Loans Past Due Over
90 Days Still Accruing
2016
2015
$
3,577
$
4,365
$
-
$
-
The following table presents the aging of the recorded investment in past-due loans as of December 31, 2016 and
2015 by class of loans:
(dollars in thousands)
December 31, 2016
Real Estate:
Construction and Land
Development
Residential Real Estate
Commercial Real Estate
Commercial:
Other
SBA
December 31, 2015
Real Estate:
Construction and Land
Development
Residential Real Estate
Commercial:
Other
SBA
30-59
Days
Past Due
60-89
Days
Past Due
Greater Than
89 Days
Past Due
Total
Past Due
Loans Not
Past Due
Total
-
$
-
-
-
$
-
-
-
$
-
-
-
$
-
-
$
89,409
278,637
379,589
$
89,409
278,637
379,589
343
-
$
343
-
-
$
-
-
3,577
3,577
$
343
3,577
3,920
$
203,500
155,391
1,106,526
$
203,843
158,968
1,110,446
$
-
$
-
-
-
$
-
-
-
$
-
-
-
$
-
-
$
67,593
231,771
223,758
$
67,593
231,771
223,758
271
-
271
$
-
-
$
-
-
4,365
4,365
$
271
4,365
4,636
$
160,208
104,396
787,726
$
160,479
108,761
792,362
$
27
39
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS - Continued
Information relating to individually impaired loans presented by class of loans was as follows as of
December 31, 2016 and 2015:
(dollars in thousands)
December 31, 2016
With no Related Allowance Recorded
Construction and Land
Development
Commercial Real Estate
Commercial - SBA
Subtotal
With an Allowance Recorded
Commercial - SBA
Total
December 31, 2015
With no Related Allowance Recorded
Construction and Land
Development
Commercial Real Estate
Commercial - SBA
Total
December 31, 2014
With no Related Allowance Recorded
Construction and Land
Development
Commercial Real Estate
Commercial - SBA
Unpaid
Principal
Balance
Recorded
Investment
Average
Balance
Interest
Income
Related
Allowance
$
303
2,253
18
2,574
$
303
2,253
18
2,574
$
309
1,710
93
2,112
$
21
280
-
301
$
-
-
-
-
3,559
6,133
$
3,559
6,133
$
3,559
5,671
$
$
-
301
1,782
1,782
$
$
$
$
$
$
$
320
1,145
4,545
6,010
$
4
195
14
213
$
-
$
-
-
$
-
$
$
$
$
1,382
2,507
588
4,477
216
327
9
552
$
-
-
-
$
-
$
$
$
$
315
1,167
4,630
6,112
702
2,519
593
3,814
315
1,167
4,630
6,112
697
2,519
593
3,809
No interest income was recognized on a cash basis as of December 31, 2016, 2015 and 2014.
28
40
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS - Continued
The Company had six and seven loans identified as troubled debt restructurings ("TDR's") at December 31, 2016
and 2015, respectively. A specific reserve for $1,782,000 has been allocated for one loan as of December 31,
2016. There are no commitments to lend additional amounts as of December 31, 2016 and 2015, respectively, to
customers with outstanding loans that are classified as TDR's.
During the year ended December 31, 2016, the terms of certain loans were modified as TDR's. The modification
of the terms generally included loans where a moratorium on loan payments was granted. Such moratoriums
ranged from three months to six months on the loans restructured in 2016.
The following table presents loans by class modified as TDR's that occurred during the year ended
December 31, 2016:
(dollars in thousands)
December 31, 2016
Commercial Real Estate
December 31, 2015
Commercial - SBA
Pre-
Modification
Recorded
Investment
Post-
Modification
Recorded
Investment
$
1,047
$
1,047
$
4,606
$
4,606
Number of
Loans
1
3
Two loans to the same customer which were modified in 2015 later defaulted. Default for this purpose is defined
as the loan being 90 days or more past due under the modified terms. The total carrying value of those two loans
as of December 31, 2015 was approximately $4,365,000, of which approximately $4,163,000 was supported by
SBA guarantees.
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 as of December 31 were as
follows:
(dollars in thousands)
Outstanding Balance
Carrying Amount
2016
$
$
878
730
2015
$
$
2,444
1,677
For these purchased credit-impaired loans, the Company did not increase the allowance for loan losses during
2016 or 2015 as there were no significant reductions in the expected cash flows.
29
41
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 4 - LOANS - Continued
Below is a summary of activity in the accretable yield on purchased credit-impaired loans for 2016 and 2015:
(dollars in thousands)
Balance, Beginning of Year
Disposals
Restructuring as TDR
Accretion of Income
Balance, End of Year
NOTE 5 - LOAN SERVICING
2016
$
349
-
(22)
(185)
2015
$
574
(99)
-
(126)
2014
$
771
-
-
(197)
$
142
$
349
$
574
Mortgage and SBA loans serviced for others are not reported as assets. The principal balances as of December 31
are as follows:
(dollars in thousands)
2016
2015
Loans Serviced for Others:
Mortgage Loans
SBA Loans
Activity for servicing assets follows:
$
$
259,207
110,263
$
$
106,866
74,371
(dollars in thousands)
Servicing Assets:
Beginning of year
Additions
Amortized to expense
End of year
2016
2015
2014
Mortgage
Loans
SBA
Loans
Mortgage
Loans
SBA
Loans
Mortgage
Loans
SBA
Loans
$
$
$
$
298
912
(208)
1,002
1,807
1,353
(458)
2,702
-
$
329
(31)
298
$
720
1,268
(181)
1,807
-
$
-
-
$
-
$
$
$
$
128
724
(132)
720
The fair value of servicing assets for mortgage loans was $1,184,000 and $298,000 as of December 31, 2016 and
2015, respectively. The fair value of servicing assets for SBA loans was $3,142,000 and $2,305,000 as of
December 31, 2016 and 2015, respectively.
Servicing fees net of servicing asset amortization totaled $615,000, $272,000, and $54,000 for the years ended
December 31, 2016, 2015, and 2014, respectively.
30
42
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31 follows:
(dollars in thousands)
Land and Buildings
Leasehold Improvements
Furniture, Fixtures, and Equipment
Less Accumulated Depreciation and Amortization
2016
$
2015
$
5,423
2,885
2,950
11,258
(4,673)
6,585
5,424
2,728
2,675
10,827
(3,967)
6,860
$
$
Depreciation and amortization expense was $750,000, $625,000, and $591,000 for 2016, 2015, and 2014,
respectively.
19The 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 as of December 31, 2016:
(dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
$
$
1,568
1,270
704
440
330
129
4,441
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 $1.6 million, $1.2 million,
and $1.2 million for 2016, 2015, and 2014, respectively.
31
43
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 7 - DEPOSITS
At December 31, 2016 the scheduled maturities of time deposits are as follows:
(dollars in thousands)
One year
Two to three years
$
$
668,913
12,879
681,792
NOTE 8 - LONG-TERM DEBT
At December 31, 2016 long-term debt was as follows:
(dollars in thousands)
6.5% fixed to floating rate subordinated
debentures, due March 31, 2026
Principal
Unamortized
Debt Issuance
Costs
$
50,000
$
617
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 3 month LIBOR plus 516 basis
points thereafter. The sub-debt is considered Tier-two capital at the Company. The Company allocated $35
million to the Bank as Tier-one capital.
NOTE 9 - SUBORDINATED DEBENTURES
The Company, through the acquisition of TFC Bancorp, acquired TFC Statutory Trust. The Trust contained 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 of subordinated debentures to the trust in exchange for ownership of all of the
common security of the trust and the proceeds of the preferred securities sold by the trust. The Company is not
considered the primary beneficiary of this trust (variable interest entity), therefore the 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. There was a $1,900,000 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
amount of amortization expense recognized in 2016 was $79,000. The Company also purchased an investment in
the common stock of the 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) plus 1.65%, which was 2.61% at December 31,
2016.
32
44
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 10 - 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. As of December 31, 2016 the Company may
borrow on an unsecured basis, up to $20 million, $10 million, $12 million and $5 million overnight from
Zions Bank, Wells Fargo Bank, First Tennessee National Bank, and Pacific Coast Bankers' Bank,
respectively.
Letter of Credit Arrangements. As of December 31, 2016 the Company had an unsecured commercial
letter of credit line with Wells Fargo Bank for $2 million.
FRB Secured Line of Credit. The secured borrowing capacity of $15 million at December 31, 2016 is
collateralized by loans pledged with a carrying value of $25.6 million.
FHLB Secured Line of Credit. The secured borrowing capacity of $387.3 million at December 31, 2016 is
collateralized by loans pledged with a carrying value of $434.6 million.
There were no amounts outstanding under any of the arrangements above as of December 31, 2016 and 2015.
2
33
45
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 11 - 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.
Income tax expense consists of the following:
(dollars in thousands)
2016
2015
2014
Current:
Federal
State
Deferred
$
$
$
9,359
2,841
12,200
1,289
13,489
5,662
1,973
7,635
1,361
8,996
5,580
1,775
7,355
(218)
7,137
$
$
$
A comparison of the federal statutory income tax rates to the Company's effective income tax rates at
December 31 follows:
2016
2015
2014
(dollars in thousands)
Amount
Rate
Amount
Rate
Amount
Rate
Statutory Federal Tax
State Franchise Tax, Net of Federal Benefit
Tax-Exempt Income
Other Items, Net
$
11,399
2,281
(202)
11
35.0%
7.0%
0.6%)
0.0%
(
$
7,469
1,550
(203)
180
34.0%
7.1%
0.9%)
0.8%
(
$
5,972
1,224
(213)
154
34.0%
7.0%
1.2%)
0.9%
(
Actual Tax Expense
$
13,489
41.4%
$
8,996
41.0%
$
7,137
40.6%
34
46
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 11 - INCOME TAXES – Continued
Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
principles with respect to income and expense recognition. The following is a summary of the components of the
net deferred tax asset accounts recognized in the accompanying balance sheets at December 31:
(dollars in thousands)
2016
2015
Deferred Tax Assets:
Pre-Opening Expenses
Allowance For Loan Losses
Stock-Based Compensation
Off Balance Sheet Reserve
Operating Loss Carryforwards
Other Real Estate Owned
Acquisition Accounting Fair Value Adjustments
Unrealized Loss on AFS Securities
Other
Deferred Tax Liabilities:
Depreciation
Other
Net Deferred Tax Assets
$
287
5,954
2,576
254
693
17
1,779
186
2,520
14,266
$
321
4,076
2,345
132
796
13
457
134
1,905
10,179
(917)
(2,252)
(3,169)
11,097
$
(1,024)
(1,706)
(2,730)
7,449
$
The Company has net operating loss carryforwards from acquisitions of approximately $697,000 for federal
income and approximately $6.4 million for California franchise tax purposes. Net operating loss carry forwards,
to the extent not used will begin to expire in 2027. Net operating loss carryforwards available from acquisitions
are substantially limited by Section 382 of the Internal Revenue Code and benefits not expected to be realized due
to the limitation have been excluded from the deferred tax asset and net operating loss carryforward amounts
noted above. The Company is subject to federal income tax and franchise tax of the state of California. Income
tax returns for the years ended after December 31, 2012 are open to audit by the federal authorities and for the
years ended after December 31, 2011 are open to audit by California state authorities.
35
47
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 12 - COMMITMENTS
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.
As of December 31, 2016 and 2015, the Company had the following financial commitments whose contractual
amount represents credit risk:
(dollars in thousands)
Commitments to Make Loans
Unused Lines of Credit
Commercial and Similar Letters of Credit
Standby Letters of Credit
2016
Fixed
Rate
Variable
Rate
2015
Fixed
Rate
Variable
Rate
$
54,812
38,943
8,966
1,100
$
13,191
53,435
-
150
$
31,597
48,351
10,424
780
$
10,613
37,723
-
205
$
103,821
$
66,776
$
91,152
$
48,541
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.
36
48
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 13 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates were as follows:
(dollars in thousands)
Balance, Beginning of Year
New Loans and Advances
Repayments
Balance, End of Year
2016
$
2015
$
3,971
1,274
(1,800)
3,445
9,283
11,888
(17,200)
3,971
$
$
Loan commitments outstanding to executive officers, directors and their related interests with whom they are
associated totaled approximately $2.3 million and $2.1 million as of December 31, 2016 and 2015, respectively.
Deposits from principal officers, directors, and their affiliates at year-end 2016 and 2015 were $37.2 million and
$42.1 million.
NOTE 14- STOCK OPTION PLAN
Under the terms of the Company's 2010 Stock Option Plan, officers and key employees may be granted both
nonqualified and incentive stock options and directors and organizers, who are not also an officer or employee,
may only be granted nonqualified stock options. The Plan provides for options to purchase up to 30 percent of the
outstanding common stock at a price not less than 100 percent of the fair market value of the stock on the date of
the grant. Stock options expire no later than ten years from the date of the grant and generally vest over three
years. The Company recognized stock-based compensation expense of $894,000, $1.5 million, and $1.6 million
in 2016, 2015, and 2014 and recognized income tax benefits on that expense of $267,000, $482,000, and
$454,000, respectively.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions presented below:
Expected Volatility
Expected Term
Expected Dividends
Risk Free Rate
Grant Date Fair Value
2016
35.0%
6.0 Years
None
1.93%
6.76
$
2015
35.0%
6.0 Years
None
1.84%
6.29
$
Since the Company has a limited amount of historical stock activity the expected volatility is based on the
historical volatility of similar banks that have a longer trading history. The expected term represents the
estimated average period of time that the options remain outstanding. Since the Company does not have
sufficient historical data on the exercise of stock options, the expected term is based on the "simplified" method
that measures the expected term as the average of the vesting period and the contractual term. 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.
37
49
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 14 - STOCK OPTION PLAN - Continued
A summary of the status of the Company's stock option plan as of December 31, 2016 and changes during the
year then ended is presented below:
(dollars in thousands, except for share amounts)
Outstanding at Beginning of Year
Granted
Exercised
Forfeited or Expired
Shares
2,374,657
210,000
(57,232)
(32,291)
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Weighted-
Average
Exercise
Price
$
$
$
$
10.68
18.25
10.22
15.81
Outstanding at End of Year
2,495,134
$
11.26
4.7 Years
$
17,449
Options Exercisable
2,166,308
$
10.35
4.1 Years
$
17,123
As of December 31, 2016 there was approximately $1,453,000 of total unrecognized compensation cost related to
outstanding stock options that will be recognized over a weighted-average period of 1.5 years. The intrinsic value
of options exercised was $216,000, $231,000, and $609,000 in 2016, 2015, and 2014, respectively.
NOTE 15 - REGULATORY MATTERS
Holding companies (with assets over $1 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 financial statements.
In July, 2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on
Banking Supervision's capital guidelines for U.S. banks. The new rules became effective on January 1, 2015,
with certain of the requirements phased-in over a multi-year schedule. Under the rules, minimum requirements
increased for both the quantity and quality of capital held by the Bank. The rules include a new common equity
Tier 1 ("CET1") capital to risk-weighted assets ratio with minimums for capital adequacy and prompt corrective
action purposes of 4.5% and 6.5%, respectively. The minimum Tier 1 capital to risk-weighted assets ratio was
raised from 4.0% to 6.0% under the capital adequacy framework and from 6.0% to 8.0% to be well-capitalized
under the prompt corrective action framework. In addition, the rules introduced the concept of a "conservation
buffer" of 2.5% applicable to the three capital adequacy risk-weighted asset ratios (CET1, Tier 1, and Total). The
conservation buffer will be phased-in on a pro rata basis over a four year period beginning in 2016. 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.
38
50
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 15 - REGULATORY MATTERS - Continued
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).
The capital conservation buffer for 2016 is 9.057%. The net unrealized gain or loss on available for sale securities
is not included in computing regulatory capital. Management believes, as of December 31, 2016 and 2015, that
the Bank meets all capital adequacy requirements to which it is 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 as set forth in the table below.
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 as of December 31, 2016:
Amount of Capital Required
Actual
For Capital
Adequacy
Purposes
To Be Well-
Capitalized
Under Prompt
Corrective
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
217,244
$
$
192,784
19.2%
17.1%
NA
90,417
$
153,682
$
$
178,645
13.6%
15.8%
NA
67,813
$
150,786
$
$
178,645
13.3%
15.8%
NA
50,860
$
$
153,682
$
178,645
11.0%
12.8%
NA
55,777
$
NA
8.0%
NA
6.0%
NA
4.5%
NA
4.0%
NA
$
113,021
NA
10.0%
NA
90,417
$
NA
73,464
$
NA
69,722
$
NA
8.0%
NA
6.5%
NA
5.0%
(dollars in thousands)
As of December 31, 2016:
Total Capital (to Risk-Weighted Assets)
Consolidated
Bank
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
Bank
CET1 Capital (to Risk-Weighted Assets)
Consolidated
Bank
Tier 1 Capital (to Average Assets)
Consolidated
Bank
39
51
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 15 - REGULATORY MATTERS – Continued
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 as of December 31, 2015:
Amount of Capital Required
Actual
For Capital
Adequacy
Purposes
To Be Well-
Capitalized
Under Prompt
Corrective
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
168,851
$
$
154,468
21.5%
19.7%
NA
62,625
$
159,020
$
$
144,675
20.2%
18.5%
NA
46,969
$
159,020
$
$
144,675
20.2%
18.5%
NA
35,227
$
$
159,020
$
144,675
15.3%
13.9%
NA
41,514
$
NA
8.0%
NA
6.0%
NA
4.5%
NA
4.0%
NA
78,281
$
NA
10.0%
NA
62,625
$
NA
50,883
$
NA
51,893
$
NA
8.0%
NA
6.5%
NA
5.0%
(dollars in thousands)
As of December 31, 2015:
Total Capital (to Risk-Weighted Assets)
Consolidated
Bank
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
Bank
CET1 Capital (to Risk-Weighted Assets)
Consolidated
Bank
Tier 1 Capital (to Average Assets)
Consolidated
Bank
The California Financial Code generally acts to prohibit banks from making a cash distribution to its shareholders
in excess of the lesser of the bank's undivided profits or the bank's net income for its last three fiscal years less the
amount of any distribution made by the bank's shareholders during the same period.
The California general corporation law generally acts to prohibit companies from paying dividends on common
stock unless 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 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.
40
52
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 16 - 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) 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).
Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties
classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell.
In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
Fair values are generally based on third party appraisals of the property which are commonly adjusted by
management to reflect an expectation of the amount to be ultimately collected and selling costs (Level 3).
Appraisals for other real estate owned are performed by state licensed appraisers (for commercial properties) or
state certified appraisers (for residential properties) whose qualifications and licenses have been reviewed and
verified by the Company. 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 December 31, 2016.
41
53
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 16 - FAIR VALUE MEASUREMENTS - Continued
The following table provides the hierarchy and fair value for each major category of assets and liabilities
measured at fair value at December 31, 2016 and 2015:
(dollars in thousands)
December 31, 2016
Assets Measured at Fair Value:
On a Recurring Basis:
Securities Available for Sale
On a Non-Recurring Basis:
Other Real Estate Owned
December 31, 2015
Assets Measured at Fair Value:
On a Recurring Basis:
Securities Available for Sale
On a Non-Recurring Basis:
Other Real Estate Owned
Fair Value Measurements Using:
Level 2
Level 3
Level 1
Total
$
-
$
39,277
$
-
$
39,277
$
-
$
-
$
833
$
833
$
-
$
20,416
$
-
$
20,416
$
-
$
-
$
293
$
293
No write-downs to OREO were recorded in 2016 or 2015.
Quantitative information about the Company's non-recurring Level 3 fair value measurements as of
December 31, 2016 and 2015 is as follows:
(dollars in thousands)
December 31, 2016
Other Real Estate Owned
Fair Value
Amount
$
833
December 31, 2015
Other Real Estate Owned
$
293
Unobservable
Valuation
Technique
Input
Third Party Management Adjustments 10% - 15%
Appraisals
Adjustment
Range
to Reflect Current
Conditions and Selling
Costs
Weighted-
Average
Adjustment
12%
Third Party Management Adjustments
Appraisals
to Reflect Current
Conditions and Selling
Costs
13%
13%
42
54
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 17 - 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.
The following methods and assumptions were used to estimate the fair value of significant financial instruments
not previously presented:
Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values.
Time Deposits in Other Banks
Fair values for time deposits with other banks are estimated using discounted cash flow analyses, using interest
rates currently being offered with similar terms.
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.
43
55
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Deposits
The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and
certain types of money market accounts are, by definition based on carrying value. Fair value for fixed-rate
certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. 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.
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 is estimated using the fees currently
charged to enter into similar agreements. The fair value of these financial instruments is not material.
The fair value hierarchy level and estimated fair value of significant financial instruments at December 31, 2016
and 2015 are summarized as follows:
44
56
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
(dollars in thousands)
Financial Assets:
Cash and Due From Banks
Federal Funds Sold and Other
Cash Equivalents
Interest-Bearing Deposits in Other
Financial Institutions
Investment Securities - AFS
Investment Securities - HTM
Mortgage Loans Held for Sale
Loans, Net
Financial Liabilities:
Deposits
Long-Term Debt
Subordinated Debentures
2016
2015
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Level 1
$
74,213
$
74,213
$
80,391
$
80,391
Level 1
44,500
44,500
33,500
33,500
Level 1
Level 2
Level 2
Level 1
Level 3
345
39,277
6,214
44,345
1,096,284
345
39,277
6,553
45,433
1,095,944
7,462
20,416
6,678
41,496
782,339
7,462
20,416
7,144
42,096
807,290
Level 2
Level 2
Level 3
$
1,152,763
49,383
3,334
$
1,140,707
48,447
3,334
$
853,417
-
-
$
848,639
-
-
45
57
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 18 - 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:
2016
2015
2014
(dollars in thousands)
Net Income as Reported
Shares Outstanding at Year End
Impact of Weighting Shares
Purchased During the Year
Income
$
19,079
Used in Basic EPS
19,079
Dilutive Effect of Outstanding
Stock Options
Used in Dilutive EPS
$
19,079
Shares
12,827,803
(26,813)
12,800,990
894,910
13,695,900
Income
$
12,973
12,973
$
12,973
Shares
12,770,571
(8,739)
12,761,832
790,850
13,552,682
Income
$
10,428
10,428
$
10,428
Shares
12,720,659
(78,599)
12,642,060
528,625
13,170,685
Stock options for 321,000, 139,225, and 159,400 shares of common stock were not considered in computing
diluted earnings per common share for 2016, 2015, and 2014, respectively, because they were anti-dilutive.
NOTE 19 - STOCK DIVIDENDS
The Company issued a 2.5% and a 5% stock dividend in 2015, and 2014 respectively. No stock dividend was
issued in 2016. The per share data in the statements of income and the footnotes have been adjusted to give
retroactive effect to these dividends.
NOTE 20 – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS
.
The Company began investing in qualified housing projects in 2016. At December 31, 2016 the balance of the
investment for qualified affordable housing projects was $986,000. 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 $840,000 at December 31, 2016. The Company expects to fulfill
these commitments during the year ending 2027.
During the year ending December 2016, the Company recognized amortization expense of $14,000, which was
included within income tax expense on the consolidated statements of income.
Additionally, during the year ended December 31, 2016, the Company recognized tax credits and other benefits
from its investment in affordable housing tax credits of $12,000.
46
58
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 21 - PARENT ONLY CONDENSED FINANCIAL INFORMATION
December 31, 2016 and 2015
(Dollars in Thousands)
2016
2015
ASSETS
Cash and Cash Equivalents
Investment in Bank Subsidiary
Investment in Royal Asset Management ("RAM")
Other Assets
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Long Term Debt
Subordinated Debentures
Other Liabilities
Total Liabilities
Shareholders' Equity:
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
$
$
17,497
209,727
6,125
1,455
234,804
8,852
149,300
5,851
106
164,109
$
$
49,383
3,334
8
52,725
-
-
(30)
(30)
142,651
8,417
31,278
(267)
182,079
234,804
$
141,873
7,706
14,753
(193)
164,139
164,109
$
CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
Years Ended December 31, 2016, 2015 and 2014
(Dollars in Thousands)
Interest Expense
Noninterest Expense
Loss Before Equity in Undistributed
Income of Subsidiaries
Equity in Undistributed Income of:
Royal Business Bank
Royal Asset Management
Income before Income Taxes
Income Tax Benefit
Net Income
Other Comprehensive Income (Loss)
Total Comprehensive Income
2016
$
2,728
123
2015
$
-
298
2014
-
$
117
(2,851)
(298)
(117)
20,483
274
17,906
1,173
19,079
(74)
19,005
$
12,310
804
12,816
125
12,941
(141)
12,800
$
10,037
450
10,370
48
10,418
238
10,656
$
47
59
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
NOTE 21 - PARENT ONLY CONDENSED FINANCIAL INFORMATION - Continued
CONDENSED STATEMENTS OF CASH FLOW
Years Ended December 31, 2016, 2015 and 2014
(Dollars in Thousands)
2016
2015
2014
Cash Flows from Operating Activities:
Net Income
Provision for deferred income taxes
Undistributed Income of Subsidiaries
Change in Other Assets and Liabilities
Cash Flows from Investment Activities:
Outlays for business acquisitions
Investment in Subsidiaries
Cash Flows from Financing Activities:
Issuance of Subordinated Debentures, net of issuance costs
Dividends Paid
Issuance of Common Stock
$
19,079
(1,172)
(20,757)
29
(2,821)
$
12,941
(125)
(13,114)
135
(163)
$
10,418
(49)
(10,487)
(9)
(127)
(839)
(35,000)
(35,839)
49,274
(2,554)
585
47,305
-
5,000
5,000
-
(3,114)
470
(2,644)
-
(10,000)
(10,000)
-
-
1,645
1,645
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents Beginning of Year
Cash and Cash Equivalents End of Year
8,645
8,852
17,497
$
2,193
6,659
8,852
$
(8,482)
15,141
6,659
$
48
60
RBB BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
Note 22 - Subsequent Events
On January 18, 2017, the Company announced that the Board of Directors had declared a cash dividend of $0.30
per common share. The cash dividend is payable on February 28, 2017 to stockholders of record at the close of
business on February 15, 2017 in the amount of $3,848,000.
We have evaluated events that have occurred subsequent to December 31, 2016 through March 22, 2017, and
have concluded there are no subsequent events that would require recognition in the accompanying consolidated
financial statements.
49
61
62
63
64