Regulatory Matters

6 Months Ended

Jun. 30, 2018

Regulatory Matters [Abstract]

Regulatory Matters

Note 5 -  Regulatory Matters

The Bank is 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 our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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 Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, federal bank regulatory agencies issued final results to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and include transition provisions which implement certain portions of the rules through January 1, 2019. Under the final rules, the effects of certain accumulated other comprehensive items are not excluded, however, banking organizations like us that are not considered “advanced approaches” banking organizations may make a one-time permanent election to continue to exclude these items. With the submission of the Call Report for the first quarter of 2015, we made this election in order to avoid significant variations in the level of capital that can be caused by interest rate fluctuations on the fair value of the Bank’s AFS securities portfolio.

The Basel III rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer requirements began to phase in effective January 2016 at 0.625% of risk-weighted assets and increase by that amount each year until fully implemented in January 2019. In 2018 the capital conservation buffer is 1.875%. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  A financial institution can elect to be subject to this new definition.

As of the date of the last regulatory exam, the Bank was considered “well capitalized” and as of June 30, 2018 the Bank continued to meet the requirements to be considered “well capitalized” based on applicable U.S. regulatory capital ratio requirements.

The Bank’s regulatory capital amounts and ratios were as follows:

					Minimum				Minimum				To be Well
					Requirements				Requirements				Capitalized Under
					for Capital Adequacy				with Capital				Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Provision
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2018	(dollars in thousands)
Common Equity Tier 1 Capital (to risk-weighted assets)	$	108,466	16.5	%	$	29,691	4.5	%	$	42,062	6.4	%	$	42,887	6.5	%
Total capital (to risk-weighted assets)		116,722	17.7	%		52,784	8.0	%		65,155	9.9	%		65,980	10.0	%
Tier 1 capital (to risk-weighted assets)		108,466	16.5	%		39,588	6.0	%		51,959	7.9	%		52,784	8.0	%
Tier 1 capital (to average quarterly assets)		108,466	13.6	%		31,968	4.0	%		46,952	5.9	%		39,960	5.0	%
December 31, 2017
Common Equity Tier 1 Capital (to risk-weighted assets)	$	105,721	16.5	%	$	28,904	4.5	%	$	36,933	5.8	%	$	41,750	6.5	%
Total capital (to risk-weighted assets)		113,758	17.7	%		51,385	8.0	%		59,414	9.3	%		64,231	10.0	%
Tier 1 capital (to risk-weighted assets)		105,721	16.5	%		38,539	6.0	%		46,567	7.3	%		51,385	8.0	%
Tier 1 capital (to average quarterly assets)		105,721	13.5	%		31,440	4.0	%		41,264	5.3	%		39,300	5.0	%