Regulatory Capital Requirements

9 Months Ended

Sep. 30, 2017

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements

Note 11.Regulatory Capital Requirements

The Company and Royal 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 possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Royal 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, the federal bank regulatory agencies adopted the final reforms on capital and liquidity generally referred to as “Basel III”, which were published by the Basel Committee on Banking Supervision and the Financial Stability Board. The agencies view the new capital requirements as a better reflection of banking organizations’ risk profiles, thereby improving the overall resiliency of the banking system. The rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement or “CET1”, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital, or tier 2 capital.  Basel III also introduced a non-risk adjusted tier 1 leverage ratio of 3%, based on a measure of total exposure rather than total assets, and new liquidity requirements.  

Under the rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of CET1 above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.   The new minimum capital requirements became effective on January 1, 2015.  The capital conservation buffer requirements phase in over a three-year period beginning January 1, 2016.  Effective January 1, 2019 the capital conservation buffer will effectively raise the minimum required common equity tier 1 capital ratio to 7.0%, the tier 1 capital ratio to 8.5%, and the total capital to 10.0%.  Management believes that as of September 30, 2017, the Company and Royal Bank would meet all capital adequacy requirements under the Basel III rules on a fully phased in basis as if all such requirements were currently in effect.  As of September 30, 2017, the Company and Royal Bank satisfied the criteria for a well-capitalized institution.

The table below sets forth Royal Bank’s capital ratios:

	At September 30, 2017
									To be well capitalized
					For capital				under prompt corrective
	Actual**				adequacy purposes				action provision
(Dollars in thousands)	Amount		Ratio		Amount		Ratio*		Amount		Ratio
Total capital (to risk-weighted assets)	$	86,153	13.955	%	$	57,106	9.250	%	$	61,736	10.000	%
Tier 1 capital (to risk-weighted assets)	$	78,334	12.689	%	$	44,759	7.250	%	$	49,389	8.000	%
Tier 1 capital (to average assets, leverage)	$	78,334	9.826	%	$	31,889	4.000	%	$	39,861	5.000	%
Common equity Tier 1 (to risk-weighted assets)	$	77,606	12.571	%	$	35,498	5.750	%	$	40,128	6.500	%

*    Ratios related to risk-weighted assets include the capital conservation buffer of 1.25%.  

**    Tax lien revenues recognized on accrual basis in accordance with U.S. GAAP.

The table below sets forth the Company’s capital ratios:

	At September 30, 2017
										To be well capitalized
					For capital					under the Federal
	Actual				adequacy purposes				Reserve's regulations
(Dollars in thousands)	Amount		Ratio		Amount		Ratio*		Amount		Ratio
Total capital (to risk-weighted assets)	$	91,246	14.761	%	$	57,181	9.250	%	$	61,817	10.00	%
Tier 1 capital (to risk-weighted assets)	$	78,139	12.640	%	$	44,817	7.250	%	$	37,090	6.00	%
Tier 1 capital (to average assets, leverage)	$	78,139	9.793	%	$	31,918	4.000	%		N/A	N/A
Common equity Tier 1 (to risk-weighted assets)	$	57,789	9.348	%	$	35,545	5.750	%		N/A	N/A

*Ratios related to risk-weighted assets include capital conservation buffer of 1.25%.