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Note 17 - Regulatory Matters
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 17 - 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 our financial statements.

 

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At December 31, 2024, the Company and the Bank were in compliance with the capital conservation buffer requirements. 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, we have elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. Management believes, at December 31, 2024 and December 31, 2023, we satisfied all capital adequacy requirements to which we were subject.

 

As of December 31, 2024 and 2023, 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 Bancorp’s consolidated and the Bank’s actual capital amounts and ratios and related regulatory requirements as of the dates indicated:

 

          

Amount of Capital Required

 
                  

To Be Well Capitalized

 
          

Minimum Required for

  

Under Prompt Corrective

 
  

Actual

  

Capital Adequacy Purposes

  

Provisions

 
  

Amount

  

Ratio

  

Amount

  

Ratio (1)

  

Amount

  

Ratio

 

As of December 31, 2024:

 (dollars in thousands)

Tier 1 Leverage Ratio

                        

Consolidated

 $469,785   11.92% $157,660   4.0% $197,075   5.0%

Bank

  549,889   13.96%  157,529   4.0%  196,912   5.0%

Common Equity Tier 1 Risk-Based Capital Ratio

                        

Consolidated

 $455,084   17.94% $114,133   4.5% $164,859   6.5%

Bank

  549,889   21.74%  113,843   4.5%  164,440   6.5%

Tier 1 Risk-Based Capital Ratio

                        

Consolidated

 $469,785   18.52% $152,178   6.0% $202,903   8.0%

Bank

  549,889   21.74%  151,791   6.0%  202,388   8.0%

Total Risk-Based Capital Ratio

                        

Consolidated

 $621,225   24.49% $202,903   8.0% $253,629   10.0%

Bank

  581,720   22.99%  202,388   8.0%  252,985   10.0%

 

(1) These ratios are exclusive of the 2.5% capital conservation buffer.

 

          

Amount of Capital Required

 
                  

To Be Well Capitalized

 
          

Minimum Required for

  

Under Prompt Corrective

 
  

Actual

  

Capital Adequacy Purposes

  

Provisions

 
  

Amount

  

Ratio

  

Amount

  

Ratio (1)

  

Amount

  

Ratio

 

As of December 31, 2023:

 (dollars in thousands) 

Tier 1 Leverage Ratio

                        

Consolidated

 $472,152   11.99% $157,526   4.0% $196,907   5.0%

Bank

  535,952   13.62%  157,454   4.0%  196,818   5.0%

Common Equity Tier 1 Risk Based Capital Ratio

                        

Consolidated

 $457,214   19.07% $107,886   4.5% $155,836   6.5%

Bank

  535,952   22.41%  107,598   4.5%  155,419   6.5%

Tier 1 Risk-Based Capital Ratio

                        

Consolidated

 $472,152   19.69% $143,849   6.0% $191,798   8.0%

Bank

  535,952   22.41%  143,464   6.0%  191,285   8.0%

Total Risk-Based Capital Ratio

                        

Consolidated

 $621,423   25.92% $191,798   8.0% $239,748   10.0%

Bank

  565,997   23.67%  191,285   8.0%  239,106   10.0%

 

(1) These ratios are exclusive of the 2.5% capital conservation buffer.

 

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 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 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.