Capital and Regulatory Matters

12 Months Ended

Dec. 31, 2015

Capital and Regulatory Matters

Capital and Regulatory Matters

Note 13—Capital and Regulatory Matters

Effective September 9, 2010, the Company and the Bank agreed to the issuance of cease and desist orders (the "Orders") by the Office of Thrift Supervision, which was succeeded by the Office of the Comptroller of the Currency ("OCC"). The Order applicable to the Company prohibits the Company from paying dividends to its stockholders without the prior written approval of the FRB, which is now the federal regulator for savings and loan holding companies. In addition, the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt of written notice of non-objection from the FRB. The FRB provided written notice of non-objection for the Company's payments of interest on the Debentures during the fourth quarter of 2014 and the year 2015.

Effective November 23, 2015, the OCC has terminated the Consent Order, which was entered into by the Bank with the OCC in October 2013 and superseded the Order applicable to the Bank. This decision follows a full regulatory review of the Bank that the staff of the OCC completed in July 2015. The regulatory order from the FRB for the Company was terminated on February 5, 2016.

The Bank's capital requirements are administered by the OCC and 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 the OCC. Failure to meet capital requirements can result in regulatory action.

The federal banking regulators approved final capital rules ("Basel III Capital Rules") in July 2013 implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules prescribe a standardized approach for calculating risk-weighted assets and revised the definition and calculation of Tier 1 capital, Total capital, and include a new Common Equity Tier 1 capital ("CET1"). Under the Basel III Capital Rules, the minimum capital ratios effective as of January 1, 2015 are:

•           4.5% CET1 to risk-weighted assets;

•           6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

•           8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

•           4.0% Tier 1 capital to average consolidated assets (known as the "leverage ratio").

A new capital conservation buffer is also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.

The Basel III Capital rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the following increased capital level requirements in order to qualify as "well capitalized:" (i) a new CET1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 5% (unchanged from previous rules).

The Basel III Capital Rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). At December 31, 2015, the Bank's level of capital exceeded all regulatory capital requirements and its regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. Actual and required capital amounts and ratios at December 31, 2015 and 2014 are presented below.

	Actual					Minimum Capital Requirements					Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2015:
Tier 1 (Leverage)	$	46,028		11.56	%	$	15,923		4.0	%	$	19,903		5.0	%
Common Equity Tier 1	$	46,028		19.45	%	$	10,650		4.5	%	$	15,383		6.5	%
Tier 1	$	46,028		19.45	%	$	14,200		6.0	%	$	18,933		8.0	%
Total Capital	$	49,010		20.71	%	$	18,933		8.0	%	$	23,667		10.0	%

	Actual					Required for Capital Adequacy Purposes					Capital Requirements under Consent Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2014:
Tier 1 (Leverage)	$	39,773		11.34	%	$	14,028		4.00	%	$	31,562		9.00	%
Tier 1	$	39,773		16.41	%	$	9,695		4.00	%		N/A		N/A
Total Capital	$	42,870		17.69	%	$	19,390		8.00	%	$	31,508		13.00	%