Regulatory Capital Requirements

6 Months Ended

Jun. 30, 2013

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements

Note 11. Regulatory Capital Requirements

The Company and Royal 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’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Royal Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  Under the informal agreement referenced in “Note 2 – Regulatory Matters and Significant Risks And Uncertainties” to the consolidated financial statements, Royal Bank is required to maintain a minimum Tier 1 leverage ratio of 8% and a Total risk-based capital ratio of 12%.  As of June 30, 2013, the Company and Royal Bank met all capital adequacy requirements to which it is subject and Royal Bank met the criteria for a well capitalized institution.

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Call Report instructions and under RAP, that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank’s current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for June 30, 2013 and the previous eleven quarters in accordance with U.S. GAAP.  The change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s and the Company’s capital ratios as shown below.  Royal Bank is in discussions with the FDIC to resolve the matter.

The table below sets forth Royal Bank’s capital ratios under RAP based on the FDIC’s interpretation of the Call Report instructions:

	As of June 30, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	72,511		15.45	%	$	37,536		8.00	%	$	46,919		10.00	%
Tier I capital (to risk-weighted assets)	$	66,531		14.18	%	$	18,768		4.00	%	$	28,152		6.00	%
Tier I capital (to average assets, leverage)	$	66,531		9.09	%	$	29,267		4.00	%	$	36,584		5.00	%

The tables below reflect the adjustments to the net loss as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the six
	months ended
(In thousands)	June 30, 2013
RAP net loss	$	(4,377	)
Tax lien adjustment, net of noncontrolling interest		3,883
U.S. GAAP net loss	$	(494	)

	At June 30, 2013
	As reported			As adjusted
	under RAP			for U.S. GAAP
Total capital (to risk-weighted assets)		15.45	%		16.62	%
Tier I capital (to risk-weighted assets)		14.18	%		15.35	%
Tier I capital (to average assets, leverage)		9.09	%		9.89	%

The tables below reflect the Company’s capital ratios:

	As of June 30, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount			Ratio
Total capital (to risk-weighted assets)	$	87,801		18.29	%	$	38,406		8.00	%		N/	A		N/	A
Tier I capital (to risk-weighted assets)	$	75,777		15.78	%	$	19,203		4.00	%		N/	A		N/	A
Tier I capital (to average assets, leverage)	$	75,777		10.17	%	$	29,801		4.00	%		N/	A		N/	A

The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C (“FR Y-9C”) as of June 30, 2013 consistent with U.S. GAAP and the FR Y-9C instructions.  In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the six
	months ended
(In thousands)	June 30, 2013
U.S. GAAP net loss	$	(685	)
Tax lien adjustment, net of noncontrolling interest		(3,883	)
RAP net loss	$	(4,568	)

	At June 30, 2013
	As reported			As adjusted
	under U.S. GAAP			for RAP
Total capital (to risk-weighted assets)		18.29	%		17.16	%
Tier I capital (to risk-weighted assets)		15.78	%		14.18	%
Tier I capital (to average assets, leverage)		10.17	%		9.09	%