REGULATORY CAPITAL MATTERS

12 Months Ended

Dec. 31, 2019

Banking and Thrift [Abstract]

REGULATORY CAPITAL MATTERS

NOTE 17 – REGULATORY CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Management believes that, as of December 31, 2019, the Company and Bank meet all capital adequacy requirements to which they are subject.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, in order to avoid limitations on

capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of Common Equity Tier 1 Capital above its minimum risk-based capital requirements. The buffer is measured relative to RWA. Phase-in of the capital conservation buffer requirements began on January 1, 2016 and the requirements were fully phased in on January 1, 2019. The capital conservation buffer threshold for 2019 was 2.5%. A banking organization with a buffer greater than 2.5% will not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% will be subject to increasingly stringent limitations as the buffer approaches zero. The rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. Effectively, the Basel III framework will require us to meet minimum capital ratios of (i) 7% for Common Equity Tier 1 Capital, (ii) 8.5% Tier 1 Capital, and (iii) 10.5% Total Capital. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer will exceed the prompt corrective action (“PCA”) well-capitalized thresholds. PCA regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes have changed the institution’s category. Actual and required capital amounts and ratios are presented below as of December 31, 2019 and 2018 for the Company and Bank.

	Actual		Required For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action Regulations(1)
	Amount	Ratio	Amount	Ratio	Amount	Ratio
December 31, 2019
Company-Level
Common equity Tier 1 capital to RWA	$388,199	11.9%	$146,711	4.5%	N/A	N/A
Total Capital to RWA	$487,966	15.0%	$260,819	8.0%	N/A	N/A
Tier 1 (Core) Capital to RWA	$388,199	11.9%	$195,614	6.0%	N/A	N/A
Tier 1 (Core) Capital to average assets	$388,199	10.3%	$151,456	4.0%	N/A	N/A
Bank-Level
Common equity Tier 1 capital to RWA	$441,348	13.6%	$146,491	4.5%	$211,599	6.5%
Total Capital to RWA	$482,183	14.8%	$260,429	8.0%	$325,536	10.0%
Tier 1 (Core) Capital to RWA	$441,348	13.6%	$195,322	6.0%	$260,429	8.0%
Tier 1 (Core) Capital to average assets	$441,348	11.7%	$151,255	4.0%	$189,069	5.0%
December 31, 2018
Company-Level
Common equity Tier 1 capital to RWA	$367,096	12.2%	$135,598	4.5%	N/A	N/A
Total Capital to RWA	$449,325	14.9%	$241,064	8.0%	N/A	N/A
Tier 1 (Core) Capital to RWA	$367,096	12.2%	$180,798	6.0%	N/A	N/A
Tier 1 (Core) Capital to average assets	$367,096	8.8%	$167,553	4.0%	N/A	N/A
Bank-Level
Common equity Tier 1 capital to RWA	$421,335	14.0%	$135,613	4.5%	$195,886	6.5%
Total Capital to RWA	$444,871	14.8%	$241,090	8.0%	$301,363	10.0%
Tier 1 (Core) Capital to RWA	$421,335	14.0%	$180,818	6.0%	$241,090	8.0%
Tier 1 (Core) Capital to average assets	$421,335	10.1%	$167,420	4.0%	$209,275	5.0%

Note: Minimum ratios presented exclude the capital conservation buffer.

Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. Under these dividend restrictions, and while maintaining its "well capitalized" status, the Bank could pay aggregate dividends of approximately 80,072 to the Company, at December 31, 2019. This amount is not necessarily indicative of amounts that may be paid or available to be paid in future periods.