Regulatory Capital Requirements

9 Months Ended

Sep. 30, 2014

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 September 30, 2014, 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 September 30, 2014 and the previous 16 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.  The resolution of this matter will be decided by additional joint regulatory agency guidance which includes the Federal Reserve Bank, the FDIC, and the OCC.

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

	At September 30, 2014
									To be well capitalized
					For capital				under prompt corrective
	Actual				adequacy purposes				action provision
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets)	$	76,403	15.99	%	$	38,237	8.00	%	$	47,796	10.00	%
Tier I capital (to risk-weighted assets)	$	70,970	14.85	%	$	19,118	4.00	%	$	28,677	6.00	%
Tier I capital (to average assets, leverage)	$	70,970	9.96	%	$	28,492	4.00	%	$	35,615	5.00	%

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

	For the nine
	months ended
(In thousands)	September 30, 2014
RAP net income	$	682
Tax lien adjustment, net of noncontrolling interest		3,556
U.S. GAAP net income	$	4,238

	At September 30, 2014
	As reported		As adjusted
	under RAP		for U.S. GAAP
Total capital (to risk-weighted assets)	15.99	%	16.61	%
Tier I capital (to risk-weighted assets)	14.85	%	15.49	%
Tier I capital (to average assets, leverage)	9.96	%	10.42	%

The tables below reflect the Company’s capital ratios:

	At September 30, 2014
									To be well capitalized
					For capital				under prompt corrective
	Actual				adequacy purposes				action provision
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
Total capital (to risk-weighted assets)	$	94,205	19.37	%	$	38,899	8.00	%	N/A	N/A
Tier I capital (to risk-weighted assets)	$	85,328	17.55	%	$	19,449	4.00	%	N/A	N/A
Tier I capital (to average assets, leverage)	$	85,328	11.78	%	$	28,975	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 September 30, 2014 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 nine
	months ended
(In thousands)	September 30, 2014
U.S. GAAP net income	$	4,298
Tax lien adjustment, net of noncontrolling interest		(3,556)
RAP net income	$	742

	At September 30, 2014
	As reported		As adjusted
	under U.S. GAAP		for RAP
Total capital (to risk-weighted assets)	19.37	%	18.78	%
Tier I capital (to risk-weighted assets)	17.55	%	16.68	%
Tier I capital (to average assets, leverage)	11.78	%	11.17	%