First Financial Northwest, Inc. - 10-K filing on 2017-03-10

Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2016

Regulatory Capital Requirements [Abstract]

Under Federal regulations, pre-conversion retained earnings are restricted for the protection of pre-conversion depositors.

The Bank is subject to various regulatory capital requirements administered by the 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 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 their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table that follows) of total and Tier 1 capital to risk-weighted assets (as defined in the regulations) and of Tier 1 capital to average assets.

As of December 31, 2016, according to the most recent notification from the FDIC, the Bank was categorized as well‑capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios at December 31, 2016, and 2015, are presented in the following table.



									To be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2016:
Total risk-based capital
Bank only	$	130,078	15.61	%	$	66,662	8.00	%	$	83,328	10.00	%
Parent company	149,890		17.93		66,874		8.00		83,592		10.00

Tier 1 risk-based capital
Bank only	119,652		14.36		49,997		6.00		66,662		8.00
Parent company	139,430		16.68		50,155		6.00		66,874		8.00

Common equity tier 1 capital (“CET1”)
Bank only	119,652		14.36		37,498		4.50		54,163		6.50
Parent company	139,430		16.68		37,616		4.50		54,335		6.50

Tier 1 leverage capital
Bank only	119,652		11.17		42,846		4.00		53,558		5.00
Parent company	139,430		13.02		42,837		4.00		53,546		5.00

December 31, 2015:
Total risk-based capital
Bank only	$	121,237	17.62	%	$	55,058	8.00	%	$	68,823	10.00	%
Parent company	179,551		25.94		55,369		8.00		69,211		10.00

Tier 1 risk-based capital
Bank only	112,613		16.36		41,294		6.00		55,058		8.00
Parent company	170,877		24.69		41,527		6.00		55,369		8.00

Common equity tier 1 capital
Bank only	112,613		16.36		30,970		4.50		44,735		6.50
Parent company	170,877		24.69		31,145		4.50		44,987		6.50

Tier 1 leverage capital
Bank only	112,613		11.61		38,787		4.00		48,484		5.00
Parent company	170,877		17.55		38,952		4.00		48,484		5.00

In addition to the minimum CET1, Tier 1, total capital and leverage ratios, the Bank now has to maintain a capital conservation buffer consisting of additional CET1 capital above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement began to be phased in starting in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount equal to 2.5% of risk-weighted assets in January 2019.