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Note 16 - Stock Option Plan

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 16 - STOCK OPTION PLAN

RBB Bancorp 2010 Stock Option Plan

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

Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan

The Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan (the “Amended OSIP”) was approved by the Company’s board of directors in January 2019 and approved by the Company’s shareholders in May 2022. The Amended OSIP was designed to ensure continued availability of equity awards that will assist the Company in attracting and retaining competent managerial personnel and rewarding key employees, directors and other service providers for high levels of performance. Pursuant to the Amended OSIP, the Company’s board of directors are allowed to grant awards to eligible persons in the form of qualified and non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights and other incentive awards. The Company has reserved up to 30% of issued and outstanding shares of common stock as of the date the Company adopted the Amended OSIP, or 3,848,341 shares. As of December 31, 2023, there were 1,032,173 shares of common stock available for issuance under the Amended OSIP. This represents 5.5% of the issued and outstanding shares of the Company’s common stock as of December 31, 2023. Awards vest, become exercisable and contain such other terms and conditions as determined by the board of directors and set forth in individual agreements with the employees receiving the awards. The Amended OSIP enables the board of directors to set specific performance criteria that must be met before an award vests. The Amended OSIP allows for acceleration of vesting and exercise privileges of grants if a participant’s termination of employment is due to a change in control, death or total disability. If a participant’s job is terminated for cause, then all awards expire at the date of termination.

The Company recognized total stock-based compensation expense of $750,000, $848,000, and $1.1 million in 2023, 2022 and 2021. The total unrecognized stock-based expense totaled $517,000, $581,000, and $1.4 million as of December 31, 2023, 2022, and 2021.

Stock Options

The recorded compensation expense for stock option was $246,000, $300,000, and $485,000 and the Company recognized income tax expense/(benefit) of $3,000, ($587,000), and ($873,000) for the years ended December 31, 2023, 2022, and 2021, respectively. Unrecognized stock-based compensation expense related to options was $179,000, $400,000, and $635,000 as of December 31, 2023, 2022, and 2021, respectively. Unrecognized stock-based compensation expense will be recognized over a weighted-average period of 1.2 years as of December 31, 2023.

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 for 2023, 2022 and 2021.

		March 2023				December 2022				May 2022				July 2021				January 2021
Expected volatility			28.4	%			28.9	%			29.5	%			31.6	%			30.8	%
Expected term (years)			8.0				8.0				6.0				6.0				6.0
Expected dividends			2.92	%			2.55	%			2.52	%			1.98	%			1.86	%
Risk free rate			4.27	%			4.00	%			2.71	%			0.48	%			0.26	%
Grant date fair value		$	5.49			$	6.16			$	5.28			$	5.69			$	4.14

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

A summary of the status of the Company's stock option plan as of December 31, 2023 and changes during the year ended is presented below:

										*Weighted-*
						*Weighted-*				*Average*
						*Average*				*Remaining*				*Aggregate*
						*Exercise*				*Contractual*				*Intrinsic*
*(dollars in thousands, except for shares and per share data)*		*Shares*				*Price*				*Term in years*				*Value*
Outstanding at beginning of year			454,610			$	16.97
Granted			30,000				19.87
Exercised			(19,403	)			15.18
Forfeited/cancelled			(67,304	)			15.04
Outstanding at end of period			397,903			$	17.61				3.86			$	703

Options exercisable			332,232			$	17.26				3.05			$	657

The total fair value of the shares vested was $1.1 million, $1.1 million, and $1.2 million in 2023, 2022, and 2021, respectively. The number of unvested stock options were 65,671, 127,005, and 237,500 with a weighted average grant date fair value of $4.99, $4.69, and $4.28 as of December 31, 2023, 2022 and 2021, respectively. The decrease of unvested stock options during 2023 was due to 56,334 stock options vested with a weighted average grant date stock price of $18.40, 30,000 stock options forfeited with a weighted average grant date stock price of $19.87, 5,000 stock options exercised with a weighted average grant date stock price of $17.74, offset by 30,000 stock options granted with a weighted average grant date stock price of $19.87.

Cash received from the exercise of 19,403 share options was $295,000 for the period ended December 31, 2023. Cash received from the exercise of 445,308 share options was $5.5 million for the period ended December 31, 2022. Cash received from the exercise of 302,744 share options was $3.5 million for the period ended December 31, 2021. The intrinsic value of options exercised was $90,000, $4.0 million, and $3.8 million in 2023, 2022, and 2021, respectively.

Restricted Stock Units

The Company granted 32,248 restricted stock units at a closing price of $20.46 on January 18, 2023 to its directors and executive officers and 16,500 restricted stock units at a closing price of $13.93 on July 20, 2023 to its new president. These restricted stock units are scheduled to vest over a one year period for shares granted to directors and a three-year period for shares granted to executive officers from the grant date. As of December 31, 2023, there were 43,160 remaining unvested restricted stock units.

The recorded compensation expense for restricted stock units was $504,000 and $453,000 for the years ended December 31, 2023 and 2022, respectively. The Company did not grant restricted stock units in 2021. Unrecognized stock-based compensation expense related to restricted stock units was $338,000 and $182,000 as of December 31, 2023 and 2022, respectively. As of December 31, 2023, unrecognized stock-based compensation expense related to restricted stock units is expected to be recognized over the next 1.5 years.

The following table presents restricted stock unit activity during the twelve months ended December 31, 2023.

						*Weighted-Average*
						*Grant Date*
		*Shares*				*Fair Value*
Outstanding at beginning of year			14,786			$	27.16
Granted			48,748				18.25
Vested			(20,374	)			23.35
Outstanding at end of period			43,160			$	18.89

Restricted Stock Awards

The Company granted restricted stock awards for 60,000 shares at a closing price of $17.74 in 2021. These restricted stock awards were scheduled to vest over a three-year period from the January 21, 2021 grant date. Unvested restricted stock awards of 40,000 shares were forfeited and the expense related to the forfeited shares was reversed on April 8, 2022, due to a former employee's resignation. As of December 31, 2023, there were no outstanding restricted stock awards. The Company did not grant restricted stock awards in 2023 or 2022.

The recorded compensation expense for restricted stock awards was zero, $95,000, and $602,000 for the years ended December 31, 2023, 2022, and 2021, respectively. Unrecognized stock-based compensation expense related to restricted stock awards was zero, zero, and $729,000 as of December 31, 2023, 2022, and 2021, respectively.