Regulatory Matters

12 Months Ended

Dec. 31, 2018

Regulatory Matters [Abstract]

Regulatory Matters

(17)  REGULATORY MATTERS

Under the Federal Reserve’s Regulation H, the Bank may not, without regulatory approval, declare or pay a dividend to DNB if the total of all dividends declared in a calendar year exceeds the total of (a) the Bank’s net income for that year and (b) its retained net income for the preceding two calendar years, less any required transfers to additional paid-in capital or to a fund for the retirement of preferred stock.

In July of 2013, the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements that were fully phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality – predominantly composed of retained earnings and common stock instruments. For community banks such as DNB First, National Association, a common equity Tier 1 capital ratio 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in by 0.625% per year from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.

The Bank remains well capitalized under the implementation of Basel III, which was effective January 1, 2015. In assessing a bank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level of earnings; concentrations of credit, quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and management’s overall ability to monitor and control risks.

Quantitative measures established by regulation to ensure capital adequacy require DNB to maintain certain minimum amounts and ratios as set forth below. Based on management’s assessment, DNB and the Bank meet all capital adequacy requirements to which they are subject. The Bank is considered “Well Capitalized” under the regulatory framework for prompt corrective action. To be categorized as Well Capitalized, the Bank must maintain minimum ratios as set forth below. There are no conditions or events since the most recent regulatory notification that management believes would have changed the Bank’s category. Actual capital amounts and ratios are presented in the following table.

										To Be Well
						For Capital				Capitalized Under
						Adequacy				Prompt Corrective
		Actual				Purposes*				Action Provisions*
(Dollars in thousands)		Amount	Ratio			Amount	Ratio			Amount	Ratio
DNB Financial Corporation
December 31, 2018:
Total risk-based capital	$	124,769	13.61	%	$	73,538	8.00	%		N/A	N/A
Common equity tier 1 capital		98,949	10.79			41,365	4.50			N/A	N/A
Tier 1 risk-based capital		107,949	11.77			55,153	6.00			N/A	N/A
Tier 1 (leverage) capital		107,949	9.48			45,557	4.00			N/A	N/A
December 31, 2017:
Total risk-based capital	$	113,400	13.73	%	$	66,083	8.00	%		N/A	N/A
Common equity tier 1 capital		88,459	10.71			37,172	4.50			N/A	N/A
Tier 1 risk-based capital		97,459	11.80			49,562	6.00			N/A	N/A
Tier 1 (leverage) capital		97,459	9.19			42,426	4.00			N/A	N/A
DNB First, N.A.
December 31, 2018:
Total risk-based capital	$	123,239	13.46	%	$	73,399	8.00	%	$	91,748	10.00	%
Common equity tier 1 capital		116,169	12.69			41,287	4.50			59,636	6.50
Tier 1 risk-based capital		116,169	12.69			55,049	6.00			73,399	8.00
Tier 1 (leverage) capital		116,169	10.21			45,503	4.00			56,879	5.00
December 31, 2017:
Total risk-based capital	$	112,050	13.59	%	$	65,953	8.00	%	$	82,441	10.00	%
Common equity tier 1 capital		105,859	12.84			37,098	4.50			53,587	6.50
Tier 1 risk-based capital		105,859	12.84			49,465	6.00			65,953	8.00
Tier 1 (leverage) capital		105,859	9.99			42,378	4.00			52,972	5.00

*Does not include capital conservation buffer of 1.250% for 2017 and 1.875% for 2018.