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Note 16 - Regulatory Matters

9 Months Ended

Sep. 30, 2020

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 16 - REGULATORY MATTERS

Holding companies (with assets over $3 billion at the beginning of the year) and banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company’s 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 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 implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019). 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.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. Management believes, at September 30, 2020 and December 31, 2019, that RBB and the Bank satisfied all capital adequacy requirements to which they were subject.

As defined in applicable regulations and set forth in the tables below, RBB and the Bank continue to exceed the regulatory capital minimum requirements and the Bank continues to exceed the "well capitalized" standards at the dates indicated:

						*Amount of Capital Required*
											*Minimum Required Plus*					*To Be Well-*
						*Minimum Required for*					*Conservation Buffer Capital*					*Capitalized Under Prompt*
	*Actual*					*Capital Adequacy Purposes*					*Fully Phased-In*					*Corrective Provisions*
*(dollars in thousands)*	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*
As of September 30, 2020:
Tier 1 Leverage Ratio
Consolidated	$	361,290		11.47	%	$	125,998		4.0	%	$	125,998		4.0	%	$	157,497		5.0	%
Bank		445,699		14.16	%		125,929		4.0	%		125,929		4.0	%		157,411		5.0	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated		347,061		14.11	%		110,704		4.5	%		172,207		7.0	%		159,906		6.5	%
Bank		445,699		18.13	%		110,432		4.5	%		171,783		7.0	%		159,513		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated		361,290		14.69	%		147,606		6.0	%		209,108		8.5	%		196,808		8.0	%
Bank		445,699		18.13	%		147,242		6.0	%		208,593		8.5	%		196,323		8.0	%
Total Risk-Based Capital Ratio
Consolidated		493,358		20.05	%		196,808		8.0	%		258,310		10.5	%		246,010		10.0	%
Bank		473,462		19.26	%		196,323		8.0	%		257,674		10.5	%		245,404		10.0	%

						*Amount of Capital Required*
											*Minimum Required Plus*					*To Be Well-*
						*Minimum Required for*					*Capital Conservation Buffer*					*Capitalized Under Prompt*
	*Actual*					*Capital Adequacy Purposes*					*Fully Phased-In*					*Corrective Provisions*
*(dollars in thousands)*	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*
As of December 31, 2019:
Tier 1 Leverage Ratio
Consolidated	$	353,572		12.89	%	$	109,735		4.0	%	$	109,735		4.0	%	$	137,169		5.0	%
Bank		417,036		15.23	%		108,150		4.0	%		108,150		4.0	%		135,187		5.0	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated		343,899		17.16	%		90,165		4.5	%		140,256		7.0	%		130,238		6.5	%
Bank		417,036		20.87	%		89,127		4.5	%		138,642		7.0	%		128,739		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated		353,572		17.65	%		120,219		6.0	%		170,311		8.5	%		160,292		8.0	%
Bank		417,036		20.87	%		118,836		6.0	%		168,351		8.5	%		158,448		8.0	%
Total Risk-Based Capital Ratio
Consolidated		477,262		23.82	%		160,292		8.0	%		210,384		10.5	%		200,366		10.0	%
Bank		436,677		21.86	%		158,448		8.0	%		207,964		10.5	%		198,061		10.0	%

The California Financial Code generally acts to prohibit banks from making a cash distribution to its shareholders in excess of the lesser of the bank's undivided profits or the bank's net income for its last three fiscal years less the amount of any distribution made by the bank's shareholders during the same period.

The California General Corporation Law 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 has issued guidance which requires that they be consulted before payment of a dividend if a financial holding company does not have earnings over the prior four quarters of at least equal to the dividend to be paid, plus other holding company obligations.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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