Note 17 - Regulatory Matters

9 Months Ended

Sep. 30, 2023

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 the Company’s financial statements.

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 that at September 30, 2023 and December 31, 2022, RBB and the Bank satisfied all capital adequacy requirements to which they were subject.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a three-year period the day-one adverse regulatory capital effects of ASU 2016-13. Additionally, in March 2020, the U.S. federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the COVID-19 pandemic. As a result, entities will have the option to gradually phase in the full effect of CECL on regulatory capital over a five-year transition period. Effective January 1, 2022, the Company retroactively adopted ASU 2016-13, reflected the full effect of CECL at December 31, 2022, and did not elect the three-year or five-year CECL phase-in options on regulatory capital.

As previously disclosed in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on October 31, 2023, effective on October 25, 2023, the Bank entered into a Stipulation to the Issuance of a Consent Order (the “Stipulation”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the California Department of Financial Protection and Innovation (the “DFPI”), consenting to the issuance of a consent order (the “Consent Order”) relating to the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) compliance program. In connection to the issuance of the Consent Order, the Bank did not admit or deny any charges of violating Bank Secrecy Act (“BSA”) and its implementing regulations. 

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
											To Be Well-Capitalized
						Minimum Required for					Under Prompt Corrective
	Actual					Capital Adequacy Purposes					Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
As of September 30, 2023:
Tier 1 Leverage Ratio
Consolidated	$	469,453		11.68	%	$	160,744		4.0	%	$	200,930		5.0	%
Bank		561,797		13.99	%		160,666		4.0	%		200,833		5.0	%
Common Equity Tier 1 Risk-Based Capital Ratio
Consolidated	$	454,569		17.65	%	$	115,916		4.5	%	$	167,434		6.5	%
Bank		561,797		21.83	%		115,791		4.5	%		167,254		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	469,453		18.22	%	$	154,554		6.0	%	$	206,072		8.0	%
Bank		561,797		21.83	%		154,389		6.0	%		205,851		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	675,805		26.24	%	$	206,072		8.0	%	$	257,590		10.0	%
Bank		594,096		23.09	%		205,851		8.0	%		257,314		10.0	%

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

						Amount of Capital Required
											To Be Well-Capitalized
						Minimum Required for					Under Prompt Corrective
	Actual					Capital Adequacy Purposes					Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
As of December 31, 2022:
Tier 1 Leverage Ratio
Consolidated	$	446,776		11.67	%	$	153,116		4.0	%	$	191,395		5.0	%
Bank		569,071		14.89	%		152,900		4.0	%		191,124		5.0	%
Common Equity Tier 1 Risk Based Capital Ratio
Consolidated	$	432,056		16.03	%	$	121,291		4.5	%	$	175,199		6.5	%
Bank		569,071		21.14	%		121,110		4.5	%		174,937		6.5	%
Tier 1 Risk-Based Capital Ratio
Consolidated	$	446,776		16.58	%	$	161,722		6.0	%	$	215,629		8.0	%
Bank		569,071		21.14	%		161,481		6.0	%		215,307		8.0	%
Total Risk-Based Capital Ratio
Consolidated	$	654,159		24.27	%	$	215,629		8.0	%	$	269,537		10.0	%
Bank		602,819		22.40	%		215,307		8.0	%		269,134		10.0	%

(1) These ratios are exclusive of the 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 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.