Regulatory Matters

12 Months Ended

Dec. 31, 2016

NOTE 22 – Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and 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 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 Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Total capital includes Tier 1 and Tier 2 capital. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Management believes, as of December 31, 2016, that the Company and Bank exceed all well capitalized requirements to which they are subject.

In July 2013, the FDIC approved a final rule to implement the Basel III regulatory capital reforms among other changes required by the Dodd-Frank Act. The framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, taking into account the impact of risk. The approved rule includes a new minimum ratio of common equity Tier 1 (“CET1”) capital to risk-weighted assets of 4.5% as well as a CET1 capital conservation buffer of 2.5% of risk-weighted assets. The rule also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking institutions. For the largest, most internationally active banking organizations, the rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. In terms of quality of capital, the final rule emphasized common equity Tier 1 capital and implemented strict eligibility criteria for regulatory capital instruments. It also changed the methodology for calculating risk-weighted assets to enhance risk sensitivity. The changes began to take effect for the Bank in January 2015.

The following table summarizes the capital amounts and ratios of the Bank and the Company and the regulatory minimum requirements at December 31, 2016 and 2015.


	Actual		For capital adequacy purposes minimum		To be well capitalized under prompt corrective action provisions minimum
(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio
As of December 31, 2016
The Bank
Total Capital (to risk weighted assets)	$132,839	11.69%	90,910	8.00%	113,628	10.00%
Tier 1 Capital (to risk weighted assets)	118,626	10.44%	68,183	6.00%	90,910	8.00%
Common Equity Tier 1 Capital (to risk weighted assets)	118,626	10.44%	51,137	4.50%	73,864	6.50%
Tier 1 Capital (to average assets)	118,626	9.08%	52,273	4.00%	65,342	5.00%

The Company
Total Capital (to risk weighted assets)	137,588	12.11%	90,910	8.00%	n/a	n/a
Tier 1 Capital (to risk weighted assets)	123,375	10.86%	68,183	6.00%	n/a	n/a
Common Equity Tier 1 Capital (to risk weighted assets)	110,375	9.71%	51,137	4.50%	n/a	n/a
Tier 1 Capital (to average assets)	123,375	9.42%	52,392	4.00%	n/a	n/a


	Actual		For capital adequacy purposes minimum		To be well capitalized under prompt corrective action provisions minimum
(dollars in thousands)	Amount	Ratio	Amount	Ratio	Amount	Ratio
As of December 31, 2015
The Bank
Total Capital (to risk weighted assets)	$116,992	11.67%	80,166	8.00%	100,208	10.00%
Tier 1 Capital (to risk weighted assets)	104,452	10.42%	60,125	6.00%	80,166	8.00%
Common Equity Tier 1 Capital (to risk weighted assets)	104,452	10.42%	45,094	4.50%	65,135	6.50%
Tier 1 Capital (to average assets)	104,452	8.57%	48,753	4.00%	60,941	5.00%

The Company
Total Capital (to risk weighted assets)	119,783	11.95%	80,166	8.00%	n/a	n/a
Tier 1 Capital (to risk weighted assets)	107,243	10.70%	60,125	6.00%	n/a	n/a
Common Equity Tier 1 Capital (to risk weighted assets)	94,243	9.40%	45,094	4.50%	n/a	n/a
Tier 1 Capital (to average assets)	107,243	8.78%	48,876	6.00%	n/a	n/a

- Definition

The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958577-112826

Reference 2: http://www.xbrl.org/2003/role/presentationRef
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958572-112826

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-Publisher FASB
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958569-112826

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-Publisher FASB
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958570-112826

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958575-112826

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
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-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958568-112826

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 505
-Section 50
-Paragraph 1D
-URI http://asc.fasb.org/extlink&oid=35709795&loc=SL5958573-112826

+ Details