Note 15 - Stock-based Compensation

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 15 - STOCK-BASED COMPENSATION

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

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

Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan

The Amended and Restated RBB Bancorp 2017 Omnibus Stock Incentive Plan (the "Amended OSIP") was approved by our board of directors in January 2019 and approved by our shareholders in May 2022. The Amended OSIP was designed to ensure continued availability of equity awards that will assist us in attracting and retaining competent managerial personnel and rewarding key employees, directors and other service providers for high levels of performance. Pursuant to the Amended OSIP, our board of directors are allowed to grant awards to eligible persons in the form of qualified and non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights and other incentive awards. We reserved up to 30% of issued and outstanding shares of common stock as of the date we adopted the Amended OSIP, or 3,848,341 shares. As of September 30, 2024, there were 1,004,658 shares of common stock available for issuance under the Amended OSIP. This represents 5.7% of the issued and outstanding shares of our common stock as of September 30, 2024. 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.

Stock Options

Compensation expense for stock options was $14,000, $14,000, and $59,000 for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, and $49,000 and $190,000 for the nine months ended September 30, 2024 and 2023. Unrecognized stock-based compensation expense related to options was $131,000 and $179,000 as of September 30, 2024 and December 31, 2023. Unrecognized compensation expense related to stock options, as of September 30 2024, is expected to be recognized over the next 2.5 years.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The table below summarizes the assumptions and grant date fair value for stock options granted in March 2023. No stock options have been granted after March 31, 2023.

	March 2023
Expected volatility		28.4	%
Expected term (years)		8.0
Expected dividends		2.92	%
Risk free rate		4.27	%
Grant date fair value	$	5.49

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

The table below presents a summary of our stock options awards and activity as of and for the nine months ended September 30, 2024.

	Outstanding Options			Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term in years		Aggregate Intrinsic Value
	(dollars in thousands, except for per share data)
Outstanding at beginning of year		397,903		$	17.61
Exercised		(85,250	)		15.33
Forfeited/cancelled		(111,153	)		17.75
Outstanding at end of period		201,500		$	18.49		5.43	$	913
Options exercisable		174,167		$	18.06		5.00	$	863

The total fair value of the shares vested was $652,000 and $643,000 during the nine months ended September 30, 2024, and 2023. Unvested stock options totaled 27,333, 65,671, and 101,671 with a weighted average grant date fair value of $6.05, $4.99, and $5.21, respectively, as of September 30, 2024, December 31, 2023, and September 30, 2023. The decrease of unvested stock options during the nine months ended September 30, 2024 was due to 28,337 stock options vested with a weighted average grant date stock price of $18.18, and 10,001 exercised with a weighted average grant date fair value of $17.74.

Cash received from the exercise of 16,000 stock options was $307,000 for the three months ended September 30, 2024 and no stock options were exercised for the three months ended September 30, 2023. The intrinsic value of options exercised was $55,000 for the three months ended September 30, 2024. Cash received from the exercise of 85,250 stock options was $1.3 million for the nine months ended September 30, 2024 and cash received from the exercise of 9,153 stock options was $159,000 for the nine months ended September 30, 2023. The intrinsic value of options exercised was $316,000 and $25,000 for the nine months ended September 30, 2024 and 2023.

Restricted Stock Units

We award time-based restricted stock units (“TRSUs”) and performance-based restricted stock units (“PRSUs”), which we also refer to collectively as restricted stock units (“RSUs”). We granted 138,668 RSUs during the nine months ended September 30, 2024, with a weighted average price of $18.37. The RSUs granted during the nine months ended September 30, 2024 included 31,270 PRSUs with an estimated fair value as of the March 20, 2024 grant date of $19.13 and are subject to pre-established performance metrics with market conditions that will be measured in the future and subject to oversight and approval by the Board of Director’s Compensation Committee. The TRSUs have original lives ranging from 1 to 4 years and PRSUs have an original life of 3 years. As of September 30, 2024, there were 140,475 unvested RSUs outstanding.

The recorded compensation expense for RSUs was $250,000, $371,000, and $84,000 for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, and $740,000 and $420,000 for the nine months ended September 30, 2024 and 2023. Unrecognized stock-based compensation expense related to RSUs was $2.1 million and $422,000 as of September 30, 2024 and 2023. As of September 30, 2024, unrecognized stock-based compensation expense related to RSUs is expected to be recognized over the next 2.5 years.

The following table presents RSUs activity during the nine months ended September 30, 2024. 

				Weighted-Average
				Grant Date
	RSUs			Fair Value Per Share
Outstanding at beginning of year		43,160		$	18.89
Granted		138,668			18.37
Vested		(41,353	)		19.05
Outstanding at end of period		140,475		$	18.33