Regulatory Matters

3 Months Ended

Mar. 31, 2017

Regulated Operations [Abstract]

Regulatory Matters

Regulatory Matters

Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp 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. Bancorp’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to provide for capital adequacy require Bancorp and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Tier 1 capital to average assets, common equity Tier 1 capital to risk-weighted assets (“CET1”), and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations).

Federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. Such actions could potentially include a leverage capital limit, a risk-based capital requirement, and any other measure of capital deemed appropriate by the federal banking regulator for measuring the capital adequacy of an insured depository institution. In addition, payment of dividends by Bancorp and the Bank are subject to restriction by state and federal regulators and availability of retained earnings.

In July 2013, the Board of Governors of the Federal Reserve System and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III”). Under the final rules, which became effective for the Bancorp and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements increased for both the quantity and quality of capital held by the Bancorp and the Bank. The rules include a CET1ratio of 4.5% and a capital conservation buffer of 2.5% above the regulatory minimum risk-based capital requirements, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III also (i) raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), (ii) effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and (iii) requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.

Bancorp’s and Bank’s actual capital amounts and ratios and the required capital ratios under the prompt corrective action framework as of March 31, 2017 and December 31, 2016 are presented in the following table (dollars in thousands): 

	Actual				Regulatory minimum to be “adequately capitalized”				Basel III Minimum Capital Adequacy with Capital Conservation Buffer			Regulatory minimum to be “well capitalized”
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio	Capital Amount		Ratio
March 31, 2017
Tier 1 leverage (to average assets)
Bancorp	$	268,576	9.0	%	$	119,006	4.0	%	N/A		N/A	$	148,758	5.0	%
Bank	263,389		8.9	%	118,810		4.0	%	N/A		N/A	148,512		5.0	%
CET1 capital (to risk weighted assets)
Bancorp	268,576		10.9		111,111		4.5		143,210		5.8	160,494		6.5
Bank	263,389		10.6		111,460		4.5		143,660		5.8	160,998		6.5
Tier 1 capital (to risk-weighted assets)
Bancorp	268,576		10.9		148,148		6.0		180,247		7.3	197,531		8.0
Bank	263,389		10.6		148,614		6.0		180,813		7.3	198,152		8.0
Total capital (to risk-weighted assets)
Bancorp	294,376		11.9		197,531		8.0		229,630		9.3	246,914		10.0
Bank	289,189		11.7		198,152		8.0		230,351		9.3	247,690		10.0
December 31, 2016
Tier 1 leverage (to average assets)
Bancorp	$	259,216	8.6	%	$	120,604	4.0	%	N/A		N/A	$	150,754	5.0	%
Bank	254,270		8.4	%	120,462		4.0	%	N/A		N/A	150,578		5.0	%
CET1 capital (to risk weighted assets)
Bancorp	259,216		10.5		110,738		4.5		$	125,504	5.1	159,955		6.5
Bank	254,270		10.3		110,933		4.5		$	125,724	5.1	160,237		6.5
Tier 1 capital (to risk-weighted assets)
Bancorp	259,216		10.5		147,651		6.0		$	162,416	6.6	196,868		8.0
Bank	254,270		10.3		147,911		6.0		$	162,702	6.6	197,214		8.0
Total capital (to risk-weighted assets)
Bancorp	284,949		11.6		196,868		8.0		$	211,633	8.6	246,085		10.0
Bank	280,003		11.4		197,214		8.0		212,005		8.6	246,518		10.0