Regulatory Requirements and Restrictions

12 Months Ended

Dec. 31, 2016

Regulatory Requirements and Restrictions

Regulatory Requirements and Restrictions

NOTE 15: Regulatory Requirements and Restrictions

The Corporation (on a consolidated basis) 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 Corporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s and the Bank’s capital amounts and classification are subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In December 2013, the Federal Reserve Board issued a final rule that made technical changes to its market risk capital rule to align it with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The Basel III final rules required the Corporation and the Bank to comply with the following new minimum capital ratios, effective January 1, 2015: (1) a new common equity Tier 1 capital ratio (CET1) of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6% of risk-weighted assets (increased from the 2014 requirement of 4%); (3) a total capital ratio of 8% of risk-weighted assets (unchanged from the 2014 requirement); and (4) a leverage ratio of 4% of total assets. The Basel III Final Rules establish a capital conservation buffer of 2.5%, which is added to the 4.5% CET1 to risk-weighted assets to increase the ratio to at least 7%. The Basel III Final Rules also establish risk weightings that applied to many classes of assets held by community banks, importantly including applying higher risk weightings to certain commercial real estate loans. The Basel III Final Rules became effective January 1, 2015 and the Basel III Final Rules capital conservation buffer will be phased in from 2015 to 2019. For additional information about the Basel III Final Rules, see “Item 1. Business” under the heading “Regulation and Supervision” in this Annual Report.

As of December 31, 2016, the most recent notification from the FDIC, for the Bank, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized under regulations applicable at December 31, 2016, the Bank was required to maintain minimum total risk-based, Tier 1 risk-based, CET1 risk-based and Tier 1 leverage ratios as set forth in the table below.

The Corporation’s and the Bank’s actual capital amounts and ratios as of December 31, 2016 and 2015 are presented in the following table. Risk-weighted assets for the Corporation and C&F Bank were $1.15 billion and $1.15 billion, respectively at December 31, 2016 and $1.00 billion and $1.00 billion, respectively at December 31, 2015. Management believes that, as of December 31, 2016, the Corporation and C&F Bank met all capital adequacy requirements to which they are subject.

									Minimum To Be
									Well Capitalized
									Under Prompt
					Minimum Capital				Corrective Action
	Actual				Requirements				Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2016:
Total Capital (to Risk-Weighted Assets)
Corporation	$	159,525	13.9	%	$	91,695	8.0	%		N/A	N/A
C&F Bank		160,971	14.0			91,772	8.0		$	114,716	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation		144,819	12.6			68,772	6.0			N/A	N/A
C&F Bank		146,307	12.8			68,829	6.0			91,772	8.0
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Corporation		120,085	10.5			51,579	4.5			N/A	N/A
C&F Bank		146,307	12.8			51,622	4.5			74,565	6.5
Tier 1 Capital (to Average Assets)
Corporation		144,819	10.3			56,463	4.0			N/A	N/A
C&F Bank		146,307	10.2			57,097	4.0			71,371	5.0
As of December 31, 2015:
Total Capital (to Risk-Weighted Assets)
Corporation	$	150,102	15.0	%	$	80,216	8.0	%		N/A	N/A
C&F Bank		150,711	15.0			80,560	8.0		$	100,700	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation		137,210	13.7			60,162	6.0			N/A	N/A
C&F Bank		137,815	13.7			60,420	6.0			80,560	8.0
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Corporation		112,633	11.2			45,121	4.5			N/A	N/A
C&F Bank		137,815	13.7			45,315	4.5			65,455	6.5
Tier 1 Capital (to Average Tangible Assets)
Corporation		137,210	10.0			54,756	4.0			N/A	N/A
C&F Bank		137,815	10.1			54,792	4.0			68,491	5.0

In addition to the regulatory risk-based capital amounts presented above, the Corporation and the Bank must maintain a capital conservation buffer of additional total capital and CET1 as required by the Basel III final rules. The buffer began applying to the Corporation and the Bank on January 1, 2016, and is subject to phase-in from 2016 to 2019 in equal annual installments of 0.625%. Accordingly, at December 31, 2016, the Corporation and the Bank were required to maintain a capital conservation buffer of 0.625%. At December 31, 2016, the Corporation exceeded the total capital conservation buffer and the CET1 capital conservation buffer by 529 and 535 basis points, respectively. Also at December 31, 2016, the Bank exceeded the total capital conservation buffer and the CET1 capital conservation buffer by 541 and 763 basis points, respectively

On December 14, 2007, the Corporation issued $10.00 million of trust preferred securities through a statutory business trust for general corporate purposes including the refinancing of existing debt. On July 21, 2005, the Corporation issued $10.00 million of trust preferred securities through a statutory business trust to partially fund the purchase of 427,186 shares of the Corporation’s common stock at $41 per share on July 27, 2005. On December 17, 2003, CVBK issued $5.00 million of trust preferred securities through a statutory business trust for general corporate purposes, which was assumed by the Corporation when CVBK was merged into the Corporation on March 22, 2014. Based on the Corporation’s Tier 1 capital levels, the entire $25.00 million of trust preferred securities was eligible for inclusion in the Corporation’s Tier 1 capital as of December 31, 2016 and 2015.  

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by C&F Bank to the Corporation. The total amount of dividends that may be paid at any date by C&F Bank is generally limited to the retained earnings of C&F Bank, and loans or advances are limited to 10 percent of C&F Bank’s capital stock and surplus on a secured basis.