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The Company is a bank holding company within the meaning of the BHC Act and is registered as such with the Federal
Reserve Board. A bank holding company is required to file annual reports and other information with the Federal
Reserve regarding its business operations and those of its subsidiaries. In general, the BHC Act limits the business of
bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve has
determined to be so closely related to banking as to be a proper incident thereto, including securities brokerage services,
investment advisory services, fiduciary services, and management advisory and data processing services, among others.
A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a
broader range of activities that are financial in nature or complementary to a financial activity (as determined by the
Federal Reserve or Treasury regulations), such as securities underwriting and dealing, insurance underwriting and
agency, and making merchant banking investments. The Company has not elected to become a financial holding com-
pany but may do so at some point in the future if deemed appropriate in view of opportunities or circumstances at the
time.
The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition of more than five percent of
the voting shares of a commercial bank or its parent holding company. Acquisitions by the Bank are subject instead to
the Bank Merger Act, which requires the prior approval of an acquiring bank’s primary federal regulator for any merger
with or acquisition of another bank.
The Company and the Bank are deemed to be “affiliates” of each other and thus are subject to Sections 23A and 23B
of the Federal Reserve Act as well as related Federal Reserve Regulation W which impose both quantitative and qual-
itative restrictions and limitations on transactions between affiliates. The Bank is also subject to laws and regulations
requiring that all loans and extensions of credit to our executive officers, directors, principal shareholders and related
parties must, among other things, be made on substantially the same terms and follow credit underwriting procedures
no less stringent than those prevailing at the time for comparable transactions with persons not related to the Bank.
Under certain conditions, the Federal Reserve has the authority to restrict the payment of cash dividends by a bank
holding company as an unsafe and unsound banking practice, and may require a bank holding company to obtain the
prior approval of the Federal Reserve prior to purchasing or redeeming its own equity securities, unless certain condi-
tions are met. The Federal Reserve also has the authority to regulate the debt of bank holding companies.
A bank holding company is required to act as a source of financial and managerial strength for its subsidiary banks and
must commit resources as necessary to support such subsidiaries. In this connection, the Federal Reserve may require
a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of
the payment of dividends to the shareholders if the Federal Reserve Board believes the payment of such dividends
would be an unsafe or unsound practice.
Regulation of the Bank Generally
As a state chartered bank, the Bank is subject to broad federal regulation and oversight extending to all its operations
by the FDIC and to state regulation by the California Department of Business Oversight (the “DBO”). The Bank is
also subject to certain regulations of the Federal Reserve Board.
Capital Adequacy Requirements
The Company and the Bank are subject to the regulations of the Federal Reserve Board and the FDIC, respectively,
governing capital adequacy. These agencies have adopted risk-based capital guidelines to provide a systematic analyt-
ical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking
organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes disincentives to
holding liquid, low-risk assets. Capital levels, as measured by these standards, are also used to categorize financial
institutions for purposes of certain prompt corrective action regulatory provisions.
Prior to January 1, 2015, the guidelines included a minimum required ratio of qualifying Tier 1 plus Tier 2 capital to
total risk weighted assets of 8% (“Total Risk-Based Capital Ratio” or “Total RBC Ratio”), and a minimum required
ratio of Tier 1 capital to total risk weighted assets of 4% (“Tier 1 Risk-Based Capital Ratio” or “Tier 1 RBC Ratio”).
The guidelines also provided for a minimum Leverage Ratio, which is defined as Tier 1 capital to adjusted average
assets (quarterly average assets less the disallowed capital items discussed below). The minimum Leverage Ratio is