Shareholders’ Equity - Corporate Requirements - Financial - CA

Section § 1150

This section explains how the commissioner will assess whether a bank or a proposed bank has enough shareholder equity.

Their evaluation considers several factors, including the bank’s business size and type, asset quality and liquidity, liabilities, ongoing operational costs, historical and future income potential, operational effectiveness, management quality, ownership, and any other relevant factors.

The goal is to ensure the bank has a solid financial foundation.

In determining for purposes of this division whether the shareholders’ equity of a bank or of a proposed bank is adequate, the commissioner shall consider:

(a) The nature and volume of the business of the bank;

(b) The amount, nature, quality, and liquidity of the assets of the bank;

(c) The amount and nature of the liabilities (including, but not limited to, any capital notes or debentures and any contingent liabilities) of the bank;

(d) The amount and nature of the fixed charges of the bank;

(e) The history of, and prospects for, the bank to earn and retain income;

(f) The quality of the operations of the bank;

(g) The quality of the management of the bank;

(h) The nature and quality of the ownership of the bank; and

(i) Such other factors as are in the opinion of the commissioner relevant.

shareholders' equity bank evaluation asset quality ...

Section § 1151

This law section allows banks in California to manage their financial accounts, specifically capital, surplus, and undivided profits, with their board's approval. However, there are a few rules they must follow. First, any contributed capital cannot be moved to the undivided profits account. Second, the undivided profits account cannot be more than the bank's retained earnings. Lastly, if a bank's shares have a set par value, the total in the capital account must at least match the total par value of all outstanding shares.

For purposes of any statute, regulation, or requirement of any governmental official or agency which refers to the capital (including, without limitation, stated capital, paid-in capital, and paid-up capital, but excluding contributed capital), surplus, or undivided profits of a bank, a bank, with the approval of its board, may establish and maintain capital, surplus, and undivided profits accounts and may from time to time allocate and reallocate its shareholders’ equity among such accounts; provided, however:

(a) That no part of the contributed capital of the bank shall be allocated to the undivided profits account of the bank;

(b) That the undivided profits account of the bank shall at no time exceed the retained earnings of the bank; and

(c) That, in case the articles of the bank provide that any of the bank’s shares shall have par value and specify the par value of such shares or in case the bank has determined the par value of any of its shares pursuant to Section 1120, the capital account of the bank shall be not less than the aggregate par value of such shares which are outstanding.

bank capital management capital accounts surplus accounts ...

Section § 1152

This law allows a bank with negative retained earnings, essentially a deficit in its financial reserves, to restructure its financial accounts through a process known as quasi-reorganization.

This action can eliminate the deficit, but requires approval from both the bank's shareholders and the financial commissioner.

A bank which has deficit retained earnings may, with the prior approval of its outstanding shares and of the commissioner, readjust its accounts in a quasi-reorganization. Such readjustment may include, without limitation, eliminating such deficit retained earnings.

deficit retained earnings bank restructuring quasi-reorganization ...