Regulatory Matters and Shareholders' Equity

6 Months Ended

Jun. 30, 2016

Banking and Thrift [Abstract]

Regulatory Matters and Shareholders' Equity

Note 8 - Regulatory Matters and Shareholders’ Equity

The ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances is restricted by applicable regulations. Regulatory approval is required if the total of all dividends declared by a state-chartered bank in any calendar year exceeds net profits (as defined) for that year combined with the retained net profits for the two preceding years. At June 30, 2016, $1,256,000 of undistributed earnings of the Bank, included in consolidated shareholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval.

The Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet the minimum regulatory capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that if undertaken, could have a direct material adverse effect on the Company and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to average total assets (as defined). As of June 30, 2016, the Bank met all applicable capital adequacy requirements.

As of June 30, 2016, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since quarter-end that management believes have changed the Bank’s category.

The Federal Reserve Board approved a final rule in 2006 that expands the definition of a small bank holding company (“BHC”) under the Board’s Small Bank Holding Company Policy Statement and the Board’s risk-based and leverage capital guidelines for bank holding companies. In 2015, the Federal Reserve increased the asset limit to qualify as a small bank holding company from $500 million to $1 billion. Currently, the Company meets the eligibility criteria of a small BHC and is exempt from risk-based capital and leverage rules (including Basel III). However, the Bank is not exempt from those requirements.

The Bank’s actual capital ratios, which include the impact of the merger of Citizens at June 30, 2016 and December 31, 2015, and the minimum ratios required for capital adequacy purposes to be considered well capitalized under the prompt corrective action provisions, are summarized below for the periods presented:

	Actual					Minimum Regulatory Capital Ratios under Basel III (with 2016 0.625% capital conservation buffer phase-in*)						Well Capitalized under Basel III
	Amount		Ratio			Amount		Ratio				Amount		Ratio
	(Dollars in thousands)
As of June 30, 2016:
Total risk-based capital (to risk-weighted assets)*	$	42,854		11.0	%	$	33,658	³8.625%				$	39,024		³10.0	%
Tier 1 capital (to risk-weighted assets)*		39,188		10.0	%		25,853	³6.625%					31,219		³8.0	%
Tier 1 capital (to average total assets)		39,188		7.5	%		20,906	³4.0%					26,133		³5.0	%
Common equity tier 1 risk-based capital (to risk-weighted assets)*		39,188		10.0	%		20,000	³5.125%					25,365		³6.5	%
	Actual					Minimum Regulatory Capital Ratios under Basel III (without 2.5% capital conservation buffer phase-in)						Well Capitalized under Basel III
	Amount		Ratio			Amount			Ratio			Amount		Ratio
As of December 31, 2015:
Total risk-based capital (to risk-weighted assets)	$	43,128		10.7	%		$32,296			³8.0	%	$	40,370		³10.0	%
Tier 1 capital (to risk-weighted assets)		38,710		9.6	%		24,222			³6.0	%		32,296		³8.0	%
Tier 1 capital (to average total assets)		38,710		7.2	%		21,611			³4.0	%		27,014		³5.0	%
Common equity tier 1 risk-based capital (to risk-weighted assets)		38,710		9.6	%		18,167			³4.5	%		26,241		³6.5	%

* The Basel III capital rules became effective for the Bank on January 1, 2015. A new capital ratio - Common equity tier 1 risk-based capital – was introduced under the Basel III capital rules. Since the buffer phase-in of the capital rules was effective in January 2016, the presentation for June 30, 2016 takes into account the transitional capital conservation buffer phase-in, which added 0.625% to the minimum regulatory capital ratios, whereas the December 31, 2015 presentation does not reflect the buffer phase-in.