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Shareholders' Equity and Regulatory Capital Requirements
 12 Months Ended
Mar. 31, 2015
Notes  
Shareholders' Equity and Regulatory Capital Requirements

15.   SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL REQUIREMENTS

 

The Company’s articles of incorporation authorize 250,000 shares of serial preferred stock. No preferred shares were issued or outstanding at March 31, 2015 or 2014.

 

The Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”). 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 Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and tier I capital to risk-weighted assets, core capital to total assets and tangible capital to tangible assets (set forth in the table below). Management believes the Bank met all capital adequacy requirements to which it was subject to as of March 31, 2015.

 

Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Bank is now subject to new capital requirements adopted by the OCC, which create a new required ratio for common equity Tier 1 (“CET1”) capital, increases the leverage and Tier 1 capital ratios, changes the risk-weightings of certain assets for purposes of the risk-based capital ratios, creates an additional capital conservation buffer over the required capital ratios and changes what qualifies as capital for purposes of meeting these various capital requirements. The Bank is required to maintain additional levels of Tier 1 common equity over the minimum risk-based capital levels before it may pay dividends, repurchase shares or pay discretionary bonuses.

 

The new minimum requirements are a ratio of common equity Tier 1 capital (CET1 capital) to total risk-weighted assets the (“CET1 risk-based ratio”) of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0%, and a leverage ratio of 4.0%.

 

In addition to the capital requirements, there are a number of changes in what constitutes regulatory capital, subject to a certain transition period. These changes include the phasing-out of certain instruments as qualifying capital. The Bank does not have any of these instruments. Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital, subject to a transition period ending December 31, 2017. CET1 consists of Tier 1 capital less all capital components that are not considered common equity. In addition, Tier 1 capital includes accumulated other comprehensive income, which includes all unrealized gains and losses on available for sale debt and equity securities, subject to a transition period ending December 31, 2017. Because of the Bank’s asset size, the Bank is not considered an advanced approaches banking organization and has elected to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its capital calculations.

 

The new requirements also include changes in the risk-weighting of assets to better reflect credit risk and other risk exposure. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.

 

In addition to the minimum CET1, Tier 1 and total capital ratios, the Bank will have to maintain a capital conservation buffer consisting of additional CET1 capital equal to 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.

 

Under the new standards, in order to be considered well-capitalized, the Bank must maintain a CET1 risk-based ratio of 6.5% (new), a Tier 1 risk-based ratio of 8% (increased from 6%), a total risk-based capital ratio of 10% (unchanged) and a leverage ratio of 5% (unchanged).

 

As of March 31, 2015, the most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. The Bank’s actual and required minimum capital amounts and ratios are as follows at the dates indicated (dollars in thousands):

 

 

 

Actual

 

 

For Capital Adequacy Purposes

 

 

“Well Capitalized” Under Prompt Corrective Action

 

 

 

Amount

 

Ratio

 

 

Amount

 

Ratio

 

 

Amount

 

Ratio

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Risk-Weighted Assets)

$

95,713

 

15.89

%

$

48,188

 

8.0

%

$

72,282

 

12.0

% (1)

Tier 1 Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Risk-Weighted Assets)

 

88,122

 

14.63

 

 

36,141

 

6.0

 

 

48,188

 

8.0

 

Common equity tier 1 Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Risk-Weighted Assets)

 

88,122

 

14.63

 

 

27,106

 

4.5

 

 

39,152

 

6.5

 

Tier 1 Capital (Leverage):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Adjusted Tangible Assets)

 

88,122

 

10.89

 

 

32,355

 

4.0

 

 

72,799

 

9.0

 (1)

Tangible Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Tangible Assets)

 

88,122

 

10.89

 

 

12,133

 

1.5

 

 

N/A

 

N/A

 

 

 

 

 

Actual

 

 

For Capital Adequacy Purposes

 

 

“Well Capitalized” Under Prompt Corrective Action

 

 

 

Amount

 

Ratio

 

 

Amount

 

Ratio

 

 

Amount

 

Ratio

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Risk-Weighted Assets)

$

90,733

 

16.66

%

$

43,572

 

8.0

%

$

65,359

 

12.0

% (1)

Tier 1 Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Risk-Weighted Assets)

 

83,850

 

15.40

 

 

21,786

 

4.0

 

 

32,679

 

6.0

 

Tier 1 Capital (Leverage):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Adjusted Tangible Assets)

 

83,850

 

10.71

 

 

31,320

 

4.0

 

 

70,469

 

9.0

 (1)

Tangible Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(To Tangible Assets)

 

83,850

 

10.71

 

 

11,745

 

1.5

 

 

N/A

 

N/A

 

 

(1)    The Bank agreed with the OCC to establish higher minimum capital ratios and to maintain a Tier 1 capital (leverage) ratio of not less than 9.0% and a total risked-based capital ratio of not less than 12.0% in order to be deemed “well capitalized”.

 

For a savings and loan holding company with less than $1.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If the Company was subject to regulatory guidelines for bank holding companies with $1.0 billion or more in assets, at March 31, 2015, the Company would have exceeded all regulatory capital requirements

 

At periodic intervals, the OCC and the FDIC routinely examine the Bank’s financial condition and risk management processes as part of their legally prescribed oversight. Based on their examinations, these regulators can direct that the Company’s Consolidated Financial Statements be adjusted in accordance with their findings. A future examination by the OCC or the FDIC could include a review of certain transactions or other amounts reported in the Company’s 2015 Consolidated Financial Statements. The Company did not repurchase any shares of common stock for the years ended March 31, 2015, 2014 or 2013.