Regulatory Capital Requirements

9 Months Ended

Sep. 30, 2020

Regulatory Capital Requirements

Regulatory Capital Requirements

9. 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 September 30, 2020, 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. The capital conservation buffer increases the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.

As of September 30, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019:

(Dollars in thousands)					For capital
	Actual				adequacy purposes
	Amount		Ratio		Amount		Ratio (1)
As of September 30, 2020
Leverage	$	116,240		10.40%	$	44,715		4.0%
Common Equity Tier 1 Capital		95,240		13.19%		50,533		7.0%
Tier 1 Capital		116,240		16.10%		61,361		8.5%
Total Risk Based Capital		124,746		17.28%		75,799		10.5%
As of December 31, 2019
Leverage	$	106,938		10.94%	$	39,109		4.0%
Common Equity Tier 1 Capital		85,938		13.09%		45,952		7.0%
Tier 1 Capital		106,938		16.29%		55,799		8.5%
Total Risk Based Capital		113,545		17.30%		68,928		10.5%

(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 September 30, 2020 and December 31, 2019:

									To be well-capitalized
									under prompt
(Dollars in thousands)					For capital				corrective
	Actual				adequacy purposes				action provisions
	Amount		Ratio		Amount		Ratio(1)		Amount		Ratio
As of September 30, 2020
Leverage	$	113,659		10.20%	$	44,592		4.0%	$	55,740		5.0%
Common Equity Tier 1 Capital		113,659		15.76%		50,490		7.0%		46,884		6.5%
Tier 1 Capital		113,659		15.76%		61,310		8.5%		57,703		8.0%
Total Risk Based Capital		122,165		16.94%		75,736		10.5%		72,129		10.0%
As of December 31, 2019
Leverage	$	104,510		10.72%	$	38,984		4.0%	$	48,730		5.0%
Common Equity Tier 1 Capital		104,510		15.94%		45,884		7.0%		42,607		6.5%
Tier 1 Capital		104,510		15.94%		55,716		8.5%		52,439		8.0%
Total Risk Based Capital		111,117		16.95%		68,826		10.5%		65,549		10.0%

(1) The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%.