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Regulatory Capital Requirements
 3 Months Ended
Mar. 31, 2021
Regulatory Capital Requirements

10. 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 March 31, 2021, 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 Basel III Rule, which is 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 $3.0 billion).

 

The Basel III Rule includes a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, equal to 2.5% of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The capital conservation buffer increases the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.

 

As of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020:

 

(Dollars in thousands)              To be well-capitalized 
           For capital   under regulatory 
   Actual   adequacy purposes   guidelines 
   Amount   Ratio   Amount   Ratio (1)   Amount   Ratio 
As of March 31, 2021                        
Leverage  $125,652    10.43%  $48,185    4.0%  $60,232    5.0%
Common Equity Tier 1 Capital   104,652    14.38%   50,946    7.0%   47,307    6.5%
Tier 1 Capital   125,652    17.26%   61,863    8.5%   58,224    8.0%
Total Risk Based Capital   134,752    18.51%   76,419    10.5%   72,780    10.0%
                               
As of December 31, 2020                              
Leverage  $121,068    10.70%  $45,262    4.0%  $56,577    5.0%
Common Equity Tier 1 Capital   100,068    13.77%   50,866    7.0%   47,233    6.5%
Tier 1 Capital   121,068    16.66%   61,766    8.5%   58,133    8.0%
Total Risk Based Capital   129,983    17.89%   76,300    10.5%   72,666    10.0%

 

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%.  

  

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at March 31, 2021 and December 31, 2020:

                   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 March 31, 2021                        
Leverage  $122,481    10.19%  $48,064    4.0%  $60,080    5.0%
Common Equity Tier 1 Capital   122,481    16.84%   50,901    7.0%   47,265    6.5%
Tier 1 Capital   122,481    16.84%   61,808    8.5%   58,173    8.0%
Total Risk Based Capital   131,574    18.09%   76,352    10.5%   72,716    10.0%
                               
As of December 31, 2020                              
Leverage  $118,174    10.47%  $45,139    4.0%  $56,423    5.0%
Common Equity Tier 1 Capital   118,174    16.27%   50,829    7.0%   47,199    6.5%
Tier 1 Capital   118,174    16.27%   61,721    8.5%   58,091    8.0%
Total Risk Based Capital   127,089    17.50%   76,244    10.5%   72,613    10.0%

 

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%.