REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2018

The Company (on a consolidated basis) and the 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 possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and 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 classification 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 Company and Bank to maintain minimum amounts and ratios of Total, Tier 1 and common equity Tier 1 (“CET1”) capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes the Company and the Bank met all capital adequacy requirements to which they are subject as of December 31, 2018 and 2017.

As of December 31, 2018 and 2017, the most recent notifications from the regulatory agencies categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, an institution must maintain minimum Total risk-based, Tier 1 risk-based, CET1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since these notifications that management believes have changed the Bank’s category.

The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.



	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions ⁽²⁾
(in thousands)	Amount		Ratio ⁽¹⁾		Amount		Ratio ⁽¹⁾		Amount		Ratio ⁽¹⁾
December 31, 2018
Company
Total risk-based capital	$	326,235	12.9	%	$	202,836	8.0	%
Tier 1 risk-based capital	301,125		11.9		152,127		6.0
Common equity Tier 1 capital	271,435		10.7		114,095		4.5
Leverage	301,125		10.4		115,483		4.0
Bank
Total risk-based capital	$	274,492	10.8	%	$	202,800	8.0	%	$	253,501	10.0	%
Tier 1 risk-based capital	261,339		10.3		152,100		6.0		202,800		8.0
Common equity Tier 1 capital	261,339		10.3		114,075		4.5		164,775		6.5
Leverage	261,339		9.1		115,280		4.0		144,100		5.0
December 31, 2017
Company
Total risk-based capital	$	299,043	12.8	%	$	186,475	8.0	%
Tier 1 risk-based capital	274,469		11.8		139,856		6.0
Common equity Tier 1 capital	245,214		10.5		104,892		4.5
Leverage	274,469		10.0		109,298		4.0
Bank
Total risk-based capital	$	267,165	11.5	%	$	186,606	8.0	%	$	233,257	10.0	%
Tier 1 risk-based capital	254,512		10.9		139,954		6.0		186,606		8.0
Common equity Tier 1 capital	254,512		10.9		104,966		4.5		151,617		6.5
Leverage	254,512		9.3		109,226		4.0		136,532		5.0

(1)

The Total risk-based capital ratio is defined as Tier 1 capital plus tier 2 capital divided by total risk-weighted assets. The Tier 1 risk-based capital ratio is defined as Tier 1 capital divided by total risk-weighted assets. CET1 risk-based capital ratio is defined as Tier 1 capital, with deductions for goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities, and limitations on the inclusion of deferred tax assets, mortgage servicing assets and investments in other financial institutions, in each case as provided further in the rules, divided by total risk-weighted assets. The Leverage ratio is defined as Tier 1 capital divided by the most recent quarter’s average total assets as adjusted.


(2)	Prompt corrective action provisions are not applicable at the bank holding company level.

Dividends declared by the Bank that exceed the retained net income for the most current year plus retained net income for the preceding two years must be approved by Federal regulatory agencies. At December 31, 2018, the Bank had minimal capacity to pay dividends without seeking regulatory approval, as the Bank's 2018 dividends to the Company approximated its 2018 net income.

- Definition

The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

+ References

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+ Details