Regulatory Matters

12 Months Ended

Dec. 31, 2015

Regulatory Matters [Abstract]

Regulatory Matters

Note 2.  Regulatory Matters

The Bank is limited as to the amount it may lend to the Corporation, unless such loans are collateralized by specific obligations. State regulations also limit the amount of dividends the Bank can pay to the Corporation and are generally limited to the Bank’s accumulated net earnings, which were $86.8 million at December 31, 2015.  In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.  The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  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 Corporation’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 capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).  Although not adopted in regulation form, the Pennsylvania Department of Banking utilizes capital standards requiring a minimum leverage capital ratio of 6% and a risk-based capital ratio of 10%, defined substantially the same as those by the FDIC.  Management believes, as of December 31, 2015, that the Corporation and the Bank met all capital adequacy requirements to which it is subject. 

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for bank holding companies and U.S banks, generally referred to as “Basel III.” The Basel III standards were effective for the Corporation and the Bank, effective January 1, 2015 (subject to a phase-in period for certain provisions).  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place.  The capital ratios to be considered “well capitalized” under Basel III are: (1) Common Equity Tier 1(CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3)Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%.  The CET1 ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. The rules also include changes in the risk weights of certain assets to better reflect credit and other risk exposures. In addition, a capital conservation buffer will be phased-in beginning January 1, 2016 at 0.125%, increasing each year until fully implemented in 2019 at 2.5% above the minimum capital ratios required to avoid any capital distribution restrictions. The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. When fully implemented, the capital conservation buffer will have the effect of increasing the minimum capital ratios by 2.5%.  As of December 31, 2015, the Bank was “well capitalized’ under the Basel III requirements and believes it would be “well capitalized” on a fully-phased in basis had such a requirement been in effect.

The following table presents the regulatory capital ratio requirements for the Corporation and the Bank.

	As of December 31, 2015
				Regulatory Ratios
				Adequately Capitalized			Well Capitalized
	Actual			Minimum			Minimum
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
Common Equity Tier 1 Risk-based Capital Ratio (1)
Corporation	$	108,279	15.08%	$	32,310	4.50%		N/A	N/A
Bank		106,180	14.76%		32,364	4.50%	$	46,747	6.50%
Tier 1 Risk-based Capital Ratio (2)
Corporation	$	108,279	15.08%	$	43,080	6.00%		N/A	N/A
Bank		106,180	14.76%		43,151	6.00%	$	57,535	8.00%
Total Risk-based Capital Ratio (3)
Corporation	$	117,298	16.34%	$	57,440	8.00%		N/A	N/A
Bank		115,214	16.02%		57,535	8.00%	$	71,919	10.00%
Tier 1 Leverage Ratio (4)
Corporation	$	108,279	10.59%	$	40,897	4.00%		N/A	N/A
Bank		106,180	10.37%		40,948	4.00%	$	51,185	5.00%

	As of December 31, 2014
				Regulatory Ratios
				Adequately Capitalized			Well Capitalized
	Actual			Minimum			Minimum
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
Tier 1 Risk-based Capital Ratio (2)
Corporation	$	97,594	14.19%	$	27,504	4.00%		N/A	N/A
Bank		95,777	13.96%		27,448	4.00%	$	41,171	6.00%
Total Risk-based Capital Ratio (3)
Corporation	$	106,529	15.49%	$	55,007	8.00%		N/A	N/A
Bank		104,712	15.26%		54,895	8.00%	$	68,619	10.00%
Tier 1 Leverage Ratio (4)
Corporation	$	97,594	9.69%	$	40,279	4.00%		N/A	N/A
Bank		95,777	9.55%		40,109	4.00%	$	50,136	5.00%

(1) Common equity Tier 1 capital / total risk-weighted assets, (2) Tier 1 capital / total risk-weighted assets, (3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets