Regulatory Matters

9 Months Ended

Sep. 30, 2017

Regulatory Matters

Regulatory Matters

Note 4:   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 initiate certain mandatory, and possibly additional discretionary, actions by federal and state banking regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s and Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of September 30, 2017 and December 31, 2016, that the Company and Bank met all capital adequacy requirements to which they were subject.

As of September 30, 2017 and December 31, 2016, the most recent notifications from the Federal Reserve Board and the Federal Deposit Insurance Corporation categorized the Company as well capitalized and Bank as well capitalized under the regulatory framework for prompt corrective action, respectively. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Company’s and Bank’s category.

The Bancorp and Bank’s actual capital amounts and ratios are also presented in the following tables.

					Minimum Amount				Minimum Amount
					Required for				To Be Well
	Actual				Adequately Capitalized1				Capitalized1
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2017	(Dollars in thousands)
Total capital1 (to risk-weighted assets)
Company	$	227,610	10.2	%	$	178,662	8.0	%	$	—	N/A
Bank		283,310	12.7	%		178,556	8.0	%		223,195	10.0	%
Tier I capital1 (to risk-weighted assets)
Company		220,095	9.9	%		133,996	6.0	%		—	N/A
Bank		275,853	12.4	%		133,917	6.0	%		178,556	8.0	%
Common Equity Tier I capital1 (to risk-weighted assets)
Company		178,514	8.0	%		100,497	4.5	%		—	N/A
Bank		275,853	12.4	%		100,438	4.5	%		145,077	6.5	%
Tier I capital1 (to average assets)
Company		220,095	7.0	%		126,150	4.0	%		—	N/A
Bank		275,853	8.7	%		126,441	4.0	%		158,052	5.0	%
December 31, 2016
Total capital1 (to risk-weighted assets)
Company	$	201,496	10.6	%	$	151,459	8.0	%	$	—	N/A
Bank		255,539	13.5	%		151,332	8.0	%		189,165	10.0	%
Tier I capital1 (to risk-weighted assets)
Company		195,188	10.3	%		113,594	6.0	%		—	N/A
Bank		249,231	13.2	%		113,499	6.0	%		151,332	8.0	%
Common Equity Tier I capital1 (to risk-weighted assets)
Company		153,607	8.1	%		85,196	4.5	%		—	N/A
Bank		249,231	13.2	%		85,124	4.5	%		122,957	6.5	%
Tier I capital1 (to average assets)
Company		195,188	6.6	%		118,082	4.0	%		—	N/A
Bank		249,231	8.4	%		118,258	4.0	%		147,822	5.0	%

1 As defined by regulatory agencies.

Beginning January 1, 2015, a new Basel III Capital Rule applied to the Bank. The following table lists the capital categories and ratios determined by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.

					Common Equity
	Total Risk-based		Tier 1 Risk-based		Tier 1 Risk-based		Tier 1
Capital Category	Capital ratio		Capital ratio		Capital ratio		Leverage ratio
Well capitalized	10	%	8	%	6.5	%	5	%
Adequately capitalized	8		6		4.5		4
Undercapitalized	<8		<6		<4.5		<4
Significantly undercapitalized	<6		<4		<3		<3
Critically undercapitalized	Tangible Equity/Total Assets </= 2%

The Basel III Capital Rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (CET1), (ii) specified that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and are being phased in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and is being 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 Company’s principal source of funds for dividend payments to shareholders is dividends received from the Bank. Banking regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the Bank’s retained net income (as defined) for the current year plus those for the previous two years, subject to the capital requirements described above. At September 30, 2017 and December 31, 2016, the amount available, without prior regulatory approval, for dividends from the Bank was $73.2 million and $44.5 million, respectively.