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Regulatory Capital Requirements
 6 Months Ended
Jun. 30, 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 June 30, 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 for the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.

 

As of June 30, 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 June 30, 2021 and December 31, 2020:

                  To be well-capitalized 
           For capital   under regulatory 
   Actual   adequacy purposes   guidelines 
(Dollars in thousands)  Amount   Ratio   Amount   Ratio (1)   Amount   Ratio 
As of June 30, 2021                              
Leverage  $129,817    10.55%  $49,205    4.0%  $61,507    5.0%
Common Equity Tier 1 Capital   108,817    14.73%   51,721    7.0%   48,027    6.5%
Tier 1 Capital   129,817    17.57%   62,804    8.5%   59,110    8.0%
Total Risk Based Capital   139,091    18.82%   77,581    10.5%   73,887    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 June 30, 2021 and December 31, 2020:

                            To be well-capitalized  
                            under prompt  
              For capital     corrective  
    Actual     adequacy purposes     action provisions  
(Dollars in thousands)   Amount     Ratio     Amount     Ratio (1)     Amount     Ratio  
As of June 30, 2021                                    
Leverage   $ 126,504       10.31 %   $ 49,074       4.0 %   $ 61,343       5.0 %
Common Equity Tier 1 Capital     126,504       17.14 %     51,657       7.0 %     47,967       6.5 %
Tier 1 Capital     126,504       17.14 %     62,726       8.5 %     59,036       8.0 %
Total Risk Based Capital     135,729       18.39 %     77,485       10.5 %     73,795       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%.