Note 16 - Stock-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 16 - STOCK-BASED COMPENSATION

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. In May 2022, the Amended OSIP was approved by the Company's shareholders to allow for the granting of restricted stock units. The Amended OSIP was designed to ensure continued availability of equity awards that will assist the Company 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 September 30, 2023, there were 1,018,673 shares of common stock available for issuance under the Amended OSIP. This represents 5.4% of the issued and outstanding shares of the Company’s common stock as of September 30, 2023. Awards vest, become exercisable and contain such other terms and conditions as determined by the board of directors and set forth in individual agreements with the employees receiving the awards. The Amended OSIP enables the board of directors to set specific performance criteria that must be met before an award vests. The Amended OSIP allows for acceleration of vesting and exercise privileges of grants if a participant’s termination of employment is due to a change in control, death or total disability. If a participant’s job is terminated for cause, then all awards expire at the date of termination.

The recorded compensation expense for stock options was $59,000 and $72,000 and the Company recognized income tax benefit of zero and $276,000 for the three months ended September 30, 2023 and 2022, respectively. The recorded compensation expense for stock options was $190,000 and $228,000 and the Company recognized income tax benefit of $5,000 and $578,000 for the nine months ended September 30, 2023 and 2022, respectively. Unrecognized stock-based compensation expense related to options was $375,000 and $332,000 as of September 30, 2023 and 2022, respectively. Unrecognized stock-based compensation expense related to options will be recognized over a weighted-average period of 2.0 years as of September 30, 2023.

The fair value of each option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions presented below for 2023 and 2022.

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

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

A summary of the status of option awards pursuant to the Company's stock option plans as of September 30, 2023 and changes during the nine months ended September 30, 2023 is presented below:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
(dollars in thousands, except for shares and per share data)	Shares			Price		Term in years		Value
Outstanding at beginning of year		454,610		$	16.97
Granted		30,000			19.87
Exercised		(9,153	)		17.38
Forfeited/cancelled		(37,304	)		11.15
Outstanding at end of period		438,153		$	17.66		4.39	$	—
Options exercisable		336,482		$	17.06		3.11	$	—

As of December 31, 2022, the number of unvested stock options was 127,005 with a weighted-average grant date fair value of $4.69. During nine months ended September 30, 2023, there were 30,000 unvested stock options granted with a weighted-average grant date stock price of $19.87 and 50,334 stock options vested with a weighted average grant date stock price of $18.07. During the nine months ended September 30, 2023, there were a total of 5,000 stock options exercised with weighted average grant date stock price of $17.74 and no unvested stock options were forfeited. 

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

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

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. 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 September 30, 2023, there were 26,660 remaining unvested restricted stock units.

The recorded compensation expense for restricted stock units was $84,000 and $202,000 for the three months ended September 30, 2023 and 2022, respectively, and $420,000 and $357,000 for the nine months ended September 30, 2023 and 2022, respectively. Unrecognized stock-based compensation expense related to restricted stock units was $422,000 and $320,000 as of September 30, 2023 and 2022, respectively. As of September 30, 2023, unrecognized stock-based compensation expense related to restricted stock units is expected to be recognized over the next 1.4 years.

The following table presents restricted stock unit activity during the nine months ended September 30, 2023.

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