Regulatory Matters

12 Months Ended

Dec. 31, 2019

Regulatory Matters

Regulatory Matters

Note 11: 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 regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company and the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

In July 2013, the Federal Reserve approved final rules, referred to herein as the Basel III Rules, establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Rules generally implement the Basel Committee on Banking Supervision’s December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards. The Basel III Rules substantially revise the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including the Company and Citizens, as compared to the current U.S. general risk-based capital rules. The Basel III Rules revise the definitions and the components of regulatory capital, as well as address other issues affecting the computation of regulatory capital ratios. The Basel III rules added another capital ratio component “Tier 1 Common Capital Ratio” which is a measurement of a bank’s core equity capital compared with its total risk-weighted assets The Basel III Rules also prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the current categories to a larger more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset classes.

The Basel III capital rules became effective for the Company and Unified on January 1, 2015, subject to phase-in periods for certain components.The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

As of December 31, 2019, the Company exceeded its minimum regulatory capital requirements with a total risk-based capital ratio of 16.7%, common equity tier 1 ratio of 13.1%, Tier 1 risk-based capital ratio of 14.0% and a Tier 1 leverage ratio of 9.5%.

As of December 31, 2019, the most recent notification from Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company’s and Bank’s actual capital amounts and ratios are presented in the following table.

									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of December 31, 2019
Total Capital
(to Risk-Weighted Assets)
Consolidated	$	83,653	16.7	%	$	40,027	8.0	%		N/A	N/A
Unified		68,953	13.8			39,972	8.0		$	49,776	10.0	%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated	$	57,422	11.5	%	$	22,515	4.5	%		N/A	N/A
Unified		66,722	13.4			22,484	4.5		$	32,355	6.5	%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated	$	61,422	12.3	%	$	30,020	6.0	%		N/A	N/A
Unified		66,722	13.4			29,979	6.0		$	39,821	8.0	%
Tier I Capital
(to Average Assets)
Consolidated	$	61,422	9.5	%	$	30,020	4.0	%		N/A	N/A
Unified		66,722	10.1			29,979	4.0		$	33,10	5.0	%
As of December 31, 2018
Total Capital
(to Risk-Weighted Assets)
Consolidated	$	53,461	12.0	%	$	35,720	8.0	%		N/A	N/A
Unified		50,690	11.4			35,643	8.0		$	44,554	10.0	%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated	$	47,418	10.6	%	$	20,092	4.5	%		N/A	N/A
Unified		48,647	10.9			20,049	4.5		$	28,960	6.5	%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated	$	51,418	11.5	%	$	26,790	6.0	%		N/A	N/A
Unified		48,647	10.9			26,733	6.0		$	35,643	8.0	%
Tier I Capital
(to Average Assets)
Consolidated	$	51,418	8.8	%	$	23,275	4.0	%		N/A	N/A
Unified		48,647	8.4			23,189	4.0		$	28,986	5.0	%