CASH 2017 Annual Report

53 Our most recent CRA rating was “Satisfactory.” A less than “Satisfactory” CRA rating could have a negative effect on the OCC’s review of certain banking applications. Under the CRA, the Bank is evaluated periodically by its primary federal banking regulator to determine if it is meeting its continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. In the Bank’s most recent CRA examination dated January 3, 2017, the Bank received an overall rating of “Satisfactory.” If the Bank were to receive a future CRA rating of less than “Satisfactory,” the CRA requires the OCC to take such rating into account in considering an application for any of the following: (i) the establishment of a domestic branch; (ii) the relocation of its main office or of a branch; (iii) the merger or consolidation with or acquisition of assets or assumption of liabilities of an insured depository institution; or (iv) the conversion of the Bank to a national charter. Legislative and regulatory initiatives taken to date, including with respect to capital requirements may not achieve their intended objective. Under the Basel III Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. The Basel III Capital Rules include a new minimum ratio of CET1 Capital to risk-weighted assets of 4.5% and a capital conservation buffer of which is .0625% for 2016, rising by .0625% per year to 2.5% of risk-weighted assets for 2019 and later years. The Rules also impose a minimum ratio of tier 1 capital to risk-weighted assets of 6% and includes a minimum leverage ratio (tier 1 capital to average total assets) of 4% for all banking organizations. The Rules also emphasize CET1 Capital and implement strict eligibility criteria for regulatory capital instruments. The minimum total capital ratio remains at 8% but the general PCA framework has been changed to incorporate these increased minimum requirements. The Basel III Capital Rules phase-in period for smaller, less complex banking organizations like the Company and the Bank began in January 2015. The phase-in will gradually increase capital requirements for the Company and the Bank, making compliance and future growth more difficult to achieve. Should the Company or the Bank fail to meet the requirements of the Basel III Capital Rules, including the application of well-capitalized levels in connection with such rules, the Company and the Bank would be subject to adverse regulatory action by our regulators, which action could result in material adverse consequences for us, the Bank, and our shareholders. We have a concentration of our assets in mortgage-backed securities and municipal securities. As of September 30, 2017, approximately 13.4% of the Company’s assets were invested in mortgage backed securities, compared to 17.3% at September 30, 2016. The Company’s mortgage-backed and related securities portfolio consists primarily of securities issued by U.S. Government instrumentalities, including those of Fannie Mae and Freddie Mac which are in conservatorship. The FannieMae andFreddieMac certificates aremodified pass-throughmortgage-backed securities that represent undivided interests in underlying pools of fixed-rate, or certain types of adjustable-rate, predominantly single-family and, to a lesser extent, multi-family residential mortgages issued by these U.S. Government instrumentalities. Mortgage-backed securities remain subject to credit risk, and to the risk that a fluctuating interest rate environment, along with other risk factors such as the geographic distribution of the underlying mortgage loans may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such securities. As of September 30, 2017, approximately 26.8% of the Bank’s assets were invested in municipal securities, compared to approximately 29.6% at September 30, 2016. As of September 30, 2017, 26.4% of the Bank’s assets invested in municipal securities were non-bank qualified obligations. Municipal securities remain subject to the risk that a fluctuating interest rate environment may alter the value of the securities.