Capital Adequacy and Restriction on Dividends

12 Months Ended

Dec. 31, 2018

Capital Adequacy and Restriction on Dividends [Abstract]

Capital Adequacy and Restriction on Dividends

(11)Capital Adequacy and Restriction on Dividends

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s and the Bank's consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank's 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 help ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below).

In July 2013, the Federal Reserve Board and the other U.S. federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations and to conform this framework to the guidelines published by the Basel Committee on Banking Supervision (Basel Committee) known as the Basel III Global Regulatory Framework for Capital and Liquidity.  These rules adopted by the FRB and the other federal banking agencies (the U.S. Basel III Capital Rules) replaced the federal banking agencies' general risk-based capital rules, advanced approaches rule, market-risk rule, and leverage rules, in accordance with certain transition provisions. The Bank became subject to the new rules on January 1, 2015. The new rules implement higher minimum capital requirements, include a new common equity Tier 1 capital requirement, and establish criteria that instruments must meet in order to be considered common equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. When fully phased in by January 1, 2019, the final rules will provide for increased minimum capital ratios as follows: (a) a common equity Tier 1 capital ratio of 4.5%; (b) a Tier 1 capital ratio of 6% (which is an increase from 4.0%); (c) a total capital ratio of 8%; and (d) a Tier 1 leverage ratio to average consolidated assets of 4%. Under the new rules, in order to avoid certain limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk based capital requirements (equal to 2.5% of total risk-weighted assets when fully phased in). The phase-in of the capital conservation buffer began on January 1, 2016, and must be completed by January 1, 2019. The U.S. Basel III Capital Rules also provide for various adjustments and deductions to the definitions of regulatory capital that phased in from January 1, 2014 through December 31, 2017.

Management believes, as of December 31, 2018, that the Bank met all capital adequacy requirements to which it is subject.  As of December 31, 2018, the most recent notification from the Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must meet the minimum ratios as set forth below. As of the date hereof, there have been no conditions or events since that notification that management believes have changed the institution’s category.

The Company and the Bank had Tier I Leverage, Common Equity Tier 1, Tier I Risk-Based and Total Risk-Based capital above the “well capitalized” levels at December 31, 2018 and 2017, respectively, as set forth in the following tables (calculated in accordance with the Basel III capital rules):

	The Company
	2018						2017						Adequately Capitalized
	Capital			Ratio			Capital			Ratio			Ratio
Tier 1 Leverage Capital (to Average Assets)		$	117,497		9.3	%		$	104,441		8.6	%		4.0	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)			117,497		13.5	%			104,441		12.3	%		4.5	%
Tier 1 Capital (to Risk-Weighted Assets)			117,497		13.5	%			104,441		12.3	%		6.0	%
Total Risk-Based Capital (to Risk-Weighted Assets)			128,442		14.7	%			115,082		13.5	%		8.0	%

	The Bank
	2018						2017						Adequately Capitalized			Well Capitalized
	Capital			Ratio			Capital			Ratio			Ratio			Ratio
Tier 1 Leverage Capital (to Average Assets)		$	114,342		9.0	%		$	101,631		8.4	%		4.0	%		5.0	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)			114,342		13.1	%			101,631		12.0	%		4.5	%		6.5	%
Tier 1 Capital (to Risk-Weighted Assets)			114,342		13.1	%			101,631		12.0	%		6.0	%		8.0	%
Total Risk-Based Capital (to Risk-Weighted Assets)			125,287		14.4	%			112,272		13.2	%		8.0	%		10.0	%

Cash dividends declared by the Bank are restricted under California State banking laws to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period.