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Regulatory Capital Requirements
 6 Months Ended
Jun. 30, 2018
Banking and Thrift [Abstract]  
Regulatory Capital Requirements

9. Regulatory Capital Requirements

 

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of June 30, 2018, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.

 

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The Company and the Bank are subject to the capital rules (the “Basel III Rules”) that implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $1.0 billion).

 

The Basel III Rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a Tier 1 capital to risk-weighted assets minimum ratio of 6.0%, a Total Capital to risk-weighted assets minimum ratio of 8.0%, and a Tier 1 leverage minimum ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer began on January 1, 2016 at 0.625% of risk-weighted assets, was 1.25% effective on January 1, 2017, was 1.875% effective on January 1, 2018, and will increase to 2.5% on January 1, 2019.

 

As of June 30, 2018 and December 31, 2017, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.

 

The following is a comparison of the Company’s regulatory capital to minimum capital requirements at June 30, 2018 and December 31, 2017:

 

(Dollars in thousands)         For capital  
    Actual     adequacy purposes  
    Amount     Ratio     Amount     Ratio (1)  
As of June 30, 2018                                
Leverage   $ 94,793       10.10 %   $ 37,556       4.0 %
Common Equity Tier 1 Capital     73,860       12.93 %     36,426       6.4 %
Tier 1 Capital     94,793       16.59 %     44,996       7.9 %
Total Risk Based Capital     100,768       17.64 %     56,424       9.9 %
                                 
As of December 31, 2017                                
Leverage   $ 88,605       9.80 %   $ 36,180       4.0 %
Common Equity Tier 1 Capital     68,269       12.83 %     30,590       5.8 %
Tier 1 Capital     88,605       16.65 %     38,571       7.3 %
Total Risk Based Capital     94,208       17.71 %     49,211       9.3 %

 

  (1) The required ratios for capital adequacy purposes include a capital conservation buffer of 1.875% for June 30, 2018 and 1.25% for December 31, 2017

 

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at June 30, 2018 and December 31, 2017:

 

                            To be well-capitalized under prompt  
(Dollars in thousands)         For capital     corrective  
    Actual     adequacy purposes     action provisions  
    Amount     Ratio     Amount     Ratio(1)     Amount     Ratio  
As of June 30, 2018                                                
Leverage   $ 92,978       9.93 %   $ 37,451       4.0 %   $ 46,814       5.0 %
Common Equity Tier 1 Capital     92,978       16.30 %     36,355       6.4 %     37,068       6.5 %
Tier 1 Capital     92,978       16.30 %     44,909       7.9 %     45,622       8.0 %
Total Risk Based Capital     98,953       17.35 %     56,314       9.9 %     57,027       10.0 %
                                                 
As of December 31, 2017                                                
Leverage   $ 86,808       9.62 %   $ 36,097       4.0 %   $ 44,105       5.0 %
Common Equity Tier 1 Capital     86,808       16.35 %     30,529       5.8 %     33,222       6.5 %
Tier 1 Capital     86,808       16.35 %     38,493       7.3 %     40,888       8.0 %
Total Risk Based Capital     92,407       17.40 %     49,112       9.3 %     51,110       10.0 %

 

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 1.875% for June 30, 2018 and 1.25% for December 31, 2017.