Regulatory Matters

12 Months Ended

Dec. 31, 2020

Banking and Thrift, Other Disclosures [Abstract]

Regulatory Matters

Regulatory Matters

The Corporation 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 Corporation's and the Bank's financial statements. Capital adequacy guidelines, and additionally for the Bank, the 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 about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum capital amounts and ratios as set forth in the following table. To comply with the regulatory definition of well capitalized, a depository institution must maintain minimum capital amounts and ratios as set forth in the following table.

Under current 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 comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.50% of total risk-weighted assets. The Corporation's and Bank's intent is to maintain capital levels in excess of the capital conservation buffer, which requires Tier 1 Capital to Risk Weighted Assets to exceed 8.50% and Total Capital to Risk Weighted Assets to exceed 10.50%. The Corporation and the Bank were in compliance with these requirements for 2020.

The Corporation's and Bank's actual and required capital ratios as of December 31, 2020 and December 31, 2019 under regulatory capital rules were as follows.

	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
At December 31, 2020
Total Capital (to Risk-Weighted Assets):
Corporation	$	801,368	15.31	%	$	418,811	8.00	%	$	523,513	10.00	%
Bank	632,183		12.12		417,416		8.00		521,769		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	563,491		10.76		314,108		6.00		418,811		8.00
Bank	569,821		10.92		313,062		6.00		417,416		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	563,491		10.76		235,581		4.50		340,284		6.50
Bank	569,821		10.92		234,796		4.50		339,150		6.50
Tier 1 Capital (to Average Assets):
Corporation	563,491		9.08		248,224		4.00		310,280		5.00
Bank	569,821		9.21		247,494		4.00		309,368		5.00
At December 31, 2019
Total Capital (to Risk-Weighted Assets):
Corporation	$	655,010	13.78	%	$	380,276	8.00	%	$	475,344	10.00	%
Bank	552,142		11.66		378,724		8.00		473,405		10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation	524,137		11.03		285,207		6.00		380,276		8.00
Bank	516,087		10.90		284,043		6.00		378,724		8.00
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation	524,137		11.03		213,905		4.50		308,974		6.50
Bank	516,087		10.90		213,032		4.50		307,713		6.50
Tier 1 Capital (to Average Assets):
Corporation	524,137		10.02		209,330		4.00		261,663		5.00
Bank	516,087		9.90		208,589		4.00		260,737		5.00

At December 31, 2020 and December 31, 2019, management believes that the Corporation and the Bank continued to meet all capital adequacy requirements to which they are subject. At December 31, 2020, the Bank is categorized as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the Bank's category.

In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of the beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital.

Additionally, in March 2020, the Office of the Comptroller of the Currency, Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation announced the 2020 CECL interim final rule (IFR) designed to allow eligible firms to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the coronavirus (COVID-19). The 2020 CECL IFR allows Corporations that adopt CECL before December 31, 2020 to defer 100 percent of the day one transitional amounts described above through December 31, 2021 for regulatory capital purposes. Additionally, the 2020 CECL IFR allows electing firms to defer through

December 31, 2021 the approximate portion of the post day-one allowance attributable to CECL relative to the incurred loss methodology. This is calculated by applying a 25% scaling factor to the CECL provision.

The Corporation adopted the transition guidance and the 2020 CECL IFR relief and applied these effects to regulatory capital. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of CECL.

Dividends and Other Restrictions

The primary source of the Corporation's dividends paid to its shareholders is from the earnings of the Bank paid to the Corporation in the form of dividends.

The approval of the Federal Reserve Board of Governors is required for a state bank member in the Federal Reserve system to pay dividends if the total of all dividends declared in any calendar year exceeds the Bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2021 without approval of the Federal Reserve Board of Governors of approximately $92.1 million plus an additional amount equal to the Bank's net profits for 2021 up to the date of any such dividend declaration.

Federal Reserve Board policy applicable to the holding company also provides that, as a general matter, a bank holding company should inform the Federal Reserve and should eliminate, defer or significantly reduce the holding company's dividends if the holding company's net income for the preceding four quarters, net of dividends paid during the period, is not sufficient to fully fund the dividends, the holding company's prospective rate of earnings retention is inconsistent with its capital needs and overall current and prospective financial condition, or the holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Federal Reserve Board policy also provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period or that could result in a material adverse change to the organization's capital structure.

The Federal Reserve Act requires that the extension of credit by the Bank to certain affiliates, including the Corporation (parent), be secured by readily marketable securities, that the extension of credit to any one affiliate be limited to 10% of the Bank's capital and surplus (as defined), and that extensions of credit to all such affiliates be limited to 20% of the Bank's capital and surplus.