Regulatory Capital Requirements and Restrictions

9 Months Ended

Sep. 30, 2015

Regulatory Capital Requirements and Restrictions

Note 11. Regulatory Capital Requirements and Restrictions

In July 2013, the Board of Governors of the Federal Reserve System issued final rules that made technical changes to its capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Bank to comply with the following minimum capital ratios: (i) a new Common Equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). The following additional capital requirements related to the capital conservation buffer will be phased in over a four year period beginning January 1, 2016. When fully phased in on January 1, 2019, the rules will require the Bank to maintain (i) a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets. The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The Company’s and the Bank’s actual capital amounts and ratios as of September 30, 2015 and December 31, 2014, are presented in the following tables:

											Minimum
											To Be Well
											Capitalized Under
						Minimum					Prompt Corrective
	Actual					Capital Requirement					Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2015:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	49,249		16.19	%	$	24,330		8.00	%		N/A		N/A
Bank of Lancaster		41,769		13.84	%		24,136		8.00	%	$	30,171		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		39,036		12.84	%		12,165		4.00	%		N/A		N/A
Bank of Lancaster		38,395		12.73	%		12,068		4.00	%	$	18,102		6	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated
Bank of Lancaster		39,036		12.84	%		12,165		4.00	%		N/A		N/A
		38,395		12.73	%		12,068		4.00	%	$	15,085		5	%
Tier 1 Capital (to Average Assets)
Consolidated
Bank of Lancaster		39,036		9.16	%		17,042		4.00	%		N/A		N/A
		38,395		9.19	%		16,712		4.00	%	$	20,890		5	%

											Minimum
											To Be Well
											Capitalized Under
						Minimum					Prompt Corrective
	Actual					Capital Requirement					Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2014:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	41,445		15.02	%	$	22,074		8.00	%		N/A		N/A
Bank of Lancaster		36,446		13.30	%		21,927		8.00	%	$	27,409		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		38,240		13.86	%		11,037		4.00	%		N/A		N/A
Bank of Lancaster		33,241		12.13	%		10,964		4.00	%	$	16,445		6	%
Tier 1 Capital (to Average Assets)
Consolidated		38,240		10.36	%		14,770		4.00	%		N/A		N/A
Bank of Lancaster		33,241		9.07	%		14,664		4.00	%	$	18,329		5	%