MINIMUM REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2016

MINIMUM REGULATORY CAPITAL REQUIREMENTS

MINIMUM REGULATORY CAPITAL REQUIREMENTS

11.MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Bank is 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 Bank’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.  The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Effective January 1, 2015 (with a phase-in period of two to four years for certain components), the Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the FDIC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act.  The regulations require a common equity Tier 1 (“CET1”) capital ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum Tier 1 leverage ratio of 4.0%.  CET1 generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under new prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CET1 capital ratio of 6.5%, a Tier 1 risk based capital ratio of 8.0%,  a total risk based capital ratio of 10.0% and a Tier 1 leverage ratio of 5.0%.  In addition, the regulations establish a capital conservation buffer above the required capital ratios that began phasing in on January 1, 2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019.  Failure to maintain the capital conservation buffer will limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses.  As of December 31, 2016, the Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer.

 Management believes, as of December 31, 2016 and 2015, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2016, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage capital ratios as set forth in the following tables.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

									Minimum
									To Be Well
					Minimum				Capitalized Under
					Capital				Prompt Corrective
	Actual				Requirement				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
At December 31, 2016
Total Capital to Risk Weighted Assets	$	33,177	13.5	%	$	19,645	8.0	%	$	24,556	10.0	%
Tier 1 Capital to Risk Weighted Assets		30,572	12.4			14,734	6.0			19,645	8.0
Common Equity Tier 1 Capital to Risk Weighted Assets		30,572	12.4			11,050	4.5			15,962	6.5
Tier 1 Capital to Total Assets		30,572	9.7			12,605	4.0			15,756	5.0

									Minimum
									To Be Well
					Minimum				Capitalized Under
					Capital				Prompt Corrective
	Actual				Requirement				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
At December 31, 2015
Total Capital to Risk Weighted Assets	$	31,701	14.3	%	$	17,721	8.0	%	$	22,151	10.0	%
Tier 1 Capital to Risk Weighted Assets		29,293	13.2			13,291	6.0			17,721	8.0
Common Equity Tier 1 Capital to Risk Weighted Assets		29,293	13.2			9,968	4.5			14,398	6.5
Tier 1 Capital to Total Assets		29,293	10.0			11,754	4.0			14,693	5.0

Other capital restrictions

Federal banking regulations place certain restrictions on dividends paid, stock repurchases and other transactions charged to the capital accounts of the Company and the Bank. Capital distributions in the form of dividends paid to the Bank’s stockholder for any one year may not exceed the Bank’s net income for the year to date plus the Bank’s retained net income for the preceding two years.  In addition, dividends paid would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. The Bank and the Company may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. See Note 17 — Liquidation Account Related to Reorganization for further information.