Note 15 - Regulatory Capital Ratios

12 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note 15: Regulatory Capital Ratios

Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations for banks, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

The Basel III Capital Rules became effective for Hamilton Bank on

January 1, 2015 (

subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier

1

capital, Tier

1

capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier

1

capital to adjusted quarterly average assets (as defined).

In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier

1.

Common Equity Tier

1

for Hamilton Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Under the revised prompt corrective action requirements, as of

January 1, 2015,

insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (

1

) a common equity Tier

1

risk-based capital ratio of

6.5%;

(

2

) a Tier

1

risk-based capital ratio of

8%;

(

3

) a total risk-based capital ratio of

10%

and (

4

) a Tier

1

leverage ratio of

5%.

As of

March 31, 2018,

the Bank met all capital adequacy requirements under the Basel III Capital Rules to be considered “well capitalized” under prompt corrective action rules.

The implementation of the capital conservation buffer will begin on

January 1, 2016

at the

0.625%

level and be phased in over a

four

-year period (increasing by that amount on each subsequent

January 1,

until it reaches

2.5%

on

January 1, 2019).

The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does

not

have any current applicability to Hamilton Bank.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier

1

capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The following table presents actual and required capital ratios as of

March 31, 2018

and

March 31, 2017

for Hamilton Bank and the Company under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of

January 1, 2018

based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of

January 1, 2019

when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

						Minimum Capital					Minimum Capital					To be well
	Actual					Required - Basel III					Required - Basel III					capitalized (1)
						Phase-In Schedule					Fully Phased-In
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)					(dollars in thousands)
March 31, 2018
Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	39,126		10.61	%	$	23,498		6.375	%	$	25,802		7.00	%	$	23,959		6.50	%
Hamilton Bancorp		47,308		12.79	%		23,582		6.375	%		25,894		7.00	%		24,044		6.50	%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		41,998		11.39	%		36,399		9.875	%		38,703		10.50	%		36,860		10.00	%
Hamilton Bancorp		50,180		13.57	%		36,529		9.875	%		38,841		10.50	%		36,992		10.00	%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		39,126		10.61	%		29,027		7.875	%		31,331		8.50	%		29,488		8.00	%
Hamilton Bancorp		47,308		12.79	%		29,131		7.875	%		31,443		8.50	%		29,593		8.00	%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		39,126		7.64	%		20,497		4.000	%		20,497		4.00	%		25,621		5.00	%
Hamilton Bancorp		47,308		8.15	%		20,674		4.000	%		20,674		4.00	%		25,843		5.00	%
March 31, 2017
Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	40,084		12.13	%	$	18,996		5.750	%	$	23,126		7.00	%	$	21,474		6.50	%
Hamilton Bancorp		48,318		14.56	%		19,078		5.750	%		23,225		7.00	%	$	21,566		6.50	%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		42,334		12.81	%		30,559		9.250	%		34,689		10.50	%		33,037		10.00	%
Hamilton Bancorp		50,568		15.24	%		30,690		9.250	%		34,838		10.50	%		33,179		10.00	%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		40,084		12.13	%		23,952		7.250	%		28,081		8.50	%		26,429		8.00	%
Hamilton Bancorp		48,318		14.56	%		24,055		7.250	%		28,202		8.50	%		26,543		8.00	%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		40,084		8.28	%		19,365		4.000	%		19,365		4.00	%		24,207		5.00	%
Hamilton Bancorp		48,318		9.96	%		19,402		4.000	%		19,402		4.00	%		24,253		5.00	%

(

1

) - Under prompt corrective action

Tier

1

capital consists of total shareholders’ equity less goodwill, intangible assets, and deferred tax net operating loss carryforwards. Total capital includes a limited amount of the allowance for loan losses and a portion of any unrealized gain on equity securities. In calculating risk-weighted assets, specified risk percentages are applied to each category of asset and off-balance-sheet items.

Failure to meet the capital requirements could affect, among other things, the Bank's ability to accept brokered deposits and

may

significantly affect the operations of the Bank. During the quarter ended

December 31, 2016,

the Company transferred

$3.0

million in cash down to the Bank as capital to increase the Bank’s lending capacity and enhance the Bank’s capital ratios after falling below the Bank’s self-imposed internal minimum capital level in the prior quarter.

In its regulatory report filed as of

March 31, 2018,

the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. Management is

not

aware of any events that would have caused this classification to change. Management has

no

plans that should change the classification of the capital adequacy.