REGULATORY MATTERS

6 Months Ended

Jun. 30, 2019

Banking And Thrift [Abstract]

REGULATORY MATTERS

NOTE 13 - REGULATORY MATTERS

The Company on a consolidated basis 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 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 capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and Bank on January 1, 2015, with certain transition provisions that were fully phased in on January 1, 2019.  Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and or Tier 1 capital to adjusted quarterly average assets (as defined).  Management believes, as of June 30, 2019 and December 31, 2018 that the Bank met all capital adequacy requirements to which it was subject.

The Basel III Capital Rules, among other things, have (i) introduced a new capital measure called “Common Equity Tier I” (“CETI”), (ii) specified that Tier I capital consist of CETI and “Additional Tier I Capital” instruments meeting specified requirements, (iii) defined CETI narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CETI and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Starting in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reached 2.5% on January 1, 2019. The capital

conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.

As of June 30, 2019 and December 31, 2018, the Company’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Company must maintain minimum total risk-based, CETI, Tier 1 risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since June 30, 2019 that management believes have changed the Company’s category.

The Federal Reserve’s guidelines regarding the capital treatment of trust preferred securities limits restricted core capital elements (including trust preferred securities and qualifying perpetual preferred stock) to 25% of all core capital elements, net of goodwill less any associated deferred tax liability. Because the Company’s aggregate amount of trust preferred securities is less than the limit of 25% of Tier I capital, net of goodwill, the rules permit the inclusion of $10,310 of trust preferred securities in Tier I capital at June 30, 2019 and December 31, 2018. Additionally, the rules provide that trust preferred securities would no longer qualify for Tier I capital within five years of their maturity, but would be included as Tier 2 capital. However, the trust preferred securities would be amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year prior to maturity of the subordinated debentures.

A comparison of the Company’s and Bank’s actual capital amounts and ratios to required capital amounts and ratios are presented in the following tables as of:

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required Under Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2019
Total capital to risk-weighted assets:
Consolidated	$	242,311		12.92	%	$	150,082		8.00	%	$	196,983		10.50	%			n/a
Bank		245,026		13.06	%		150,088		8.00	%		196,990		10.50	%	$	187,610		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		226,568		12.08	%		112,562		6.00	%		159,462		8.50	%			n/a
Bank		229,283		12.22	%		112,566		6.00	%		159,468		8.50	%		150,088		8.00	%
Tier 1 capital to average assets:(1)
Consolidated		226,568		9.94	%		91,196		4.00	%		91,196		4.00	%			n/a
Bank		229,283		10.06	%		91,211		4.00	%		91,211		4.00	%		114,014		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		216,258		11.53	%		84,421		4.50	%		131,322		7.00	%			n/a
Bank		229,283		12.22	%		84,424		4.50	%		131,327		7.00	%		121,946		6.50	%
(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Consolidated Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required Under Basel III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2018
Total capital to risk-weighted assets:
Consolidated	$	241,791		13.25	%	$	146,020		8.00	%	$	191,651		10.50	%			n/a
Bank		242,142		13.27	%		146,015		8.00	%		191,645		10.50	%	$	182,519		10.00	%
Tier 1 capital to risk-weighted assets:
Consolidated		227,140		12.44	%		109,515		6.00	%		155,146		8.50	%			n/a
Bank		227,491		12.46	%		109,511		6.00	%		155,141		8.50	%		146,015		8.00	%
Tier 1 capital to average assets:
Consolidated		227,140		10.16	%		89,422		4.00	%		89,422		4.00	%			n/a
Bank		227,491		10.18	%		89,414		4.00	%		89,414		4.00	%		111,768		5.00	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		216,830		11.88	%		82,136		4.50	%		127,768		7.00	%			n/a
Bank		227,491		12.46	%		82,134		4.50	%		127,763		7.00	%		118,637		6.50	%

Dividends paid by Guaranty are mainly provided by dividends from its subsidiaries.  However, certain regulatory restrictions exist regarding the ability of its bank subsidiary to transfer funds to Guaranty in the form of cash dividends, loans or advances.  The amount of dividends that a subsidiary bank organized as a national banking association, such as the Bank, may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years.