Regulatory Matters

12 Months Ended

Dec. 31, 2016

Regulatory Matters

Regulatory Matters

17. Regulatory Matters

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 trigger certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial condition and results of operations.  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 and the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of regulatory capital (as defined in the regulations) to risk-weighted assets and of regulatory capital to average assets.  At December 31, 2016 and 2015, management believes the Company and Bank meet all capital adequacy requirements to which they are subject.

In January 2015, the Company implemented the Basel III capital rules adopted by the federal banking agencies in 2014.  Basel III imposed higher minimum capital requirements, created a new Common Equity Tier 1 capital requirement, established a Capital Conservation Buffer (CCB) and changed the risk-weighting guidelines for various assets types.  The CCB, which became effective in 2016, is designed to establish a capital range above minimum requirements to insulate banks from periods of stress and impose constraints on dividends, share repurchases and discretionary bonus payments when capital levels fall below prescribed levels. The minimum CCB in 2016 is 0.625% and increases 0.625% annually through 2019 to 2.5%. 

At December 31, 2016, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.  To be categorized as well-capitalized the Bank must maintain minimum total risk-based, Common Equity Tier 1 risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table.  There are no conditions or events that management believes have changed the Bank’s categories. 

The following tables present amounts at December 31, 2016 and 2015 under the Basel III guidelines. 

	At December 31, 2016				Capitalized ratio
	Bank		Company				Minimum ratio plus
(in thousands)	Ratios		Ratios		Well(1)		fully phased-in CCB
Common equity tier 1 capital	11.9	%	9.8	%	6.5	%	7.0	%
Tier 1 capital	11.9	%	11.6	%	8.0	%	8.5	%
Total capital	12.9	%	14.5	%	10.0	%	10.5	%
Tier 1 leverage	10.4	%	10.2	%	5.0	%	4.0	%

	At December 31, 2015				Capitalized ratio
	Bank		Company				Minimum ratio plus
(in thousands)	Ratios		Ratios		Well(1)		fully phased-in CCB
Common equity tier 1 capital	10.9	%	8.8	%	6.5	%	7.0	%
Tier 1 capital	10.9	%	10.5	%	8.0	%	8.5	%
Total capital	12.1	%	13.7	%	10.0	%	10.5	%
Tier 1 leverage	10.1	%	9.8	%	5.0	%	4.0	%

(1) The ratios for the well-capitalized requirement are only applicable to the Bank.  However, the Company manages its capital position as if the requirement applies to the consolidated entity and has presented the ratios as if they also applied to the Company.