Note 29 - Regulatory Matters

The Company is 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 consolidated 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.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1capital to risk-weighted assets, and of Tier 1 capital to average assets.

The following tables present actual and required capital ratios as of June 30, 2018 and December 31, 2017 for the Company and the Bank under Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of June 30, 2018 and December 31, 2017 based on the then phased-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


	Actual					Minimum Capital Required – Basel III Phase-in Schedule					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of June 30, 2018:
Total Capital
(to Risk Weighted Assets):
Consolidated	$	550,769		13.91	%	$	390,991		9.875	%	$	415,737		10.50	%		N/A		N/A
Tri Counties Bank	$	548,232		13.85	%	$	390,819		9.875	%	$	415,554		10.50	%	$	395,766		10.00	%
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated	$	517,518		13.07	%	$	311,803		7.875	%	$	336,549		8.50	%		N/A		N/A
Tri Counties Bank	$	514,981		13.01	%	$	311,666		7.875	%	$	336,401		8.50	%	$	316,613		8.00	%
Common equity Tier 1 Capital
(to Risk Weighted Assets):
Consolidated	$	462,278		11.68	%	$	252,412		6.375	%	$	277,158		7.00	%		N/A		N/A
Tri Counties Bank	$	514,981		13.01	%	$	252,301		6.375	%	$	277,036		7.00	%	$	257,248		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	517,518		10.92	%	$	189,647		4.000	%	$	189,647		4.00	%		N/A		N/A
Tri Counties Bank	$	514,981		10.86	%	$	189,643		4.000	%	$	189,643		4.00	%	$	237,054		5.00	%

	Actual					Minimum Capital Required – Basel III Phase-in Schedule					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of December 31, 2017:
Total Capital
(to Risk Weighted Assets):
Consolidated	$	528,805		14.07	%	$	347,694		9.25	%	$	394,679		10.50	%		N/A		N/A
Tri Counties Bank	$	525,384		13.98	%	$	347,535		9.25	%	$	394,499		10.50	%	$	375,713		10.00	%
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated	$	495,318		13.18	%	$	272,517		7.25	%	$	319,502		8.50	%		N/A		N/A
Tri Counties Bank	$	491,897		13.09	%	$	272,392		7.25	%	$	319,356		8.50	%	$	300,570		8.00	%
Common equity Tier 1 Capital
(to Risk Weighted Assets):
Consolidated	$	440,643		11.72	%	$	216,134		5.75	%	$	263,120		7.00	%		N/A		N/A
Tri Counties Bank	$	491,897		13.09	%	$	216,035		5.75	%	$	262,999		7.00	%	$	244,214		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	495,318		10.80	%	$	183,400		4.00	%	$	183,400		4.00	%		N/A		N/A
Tri Counties Bank	$	491,897		10.73	%	$	183,394		4.00	%	$	183,394		4.00	%	$	229,243		5.00	%

As of June 30, 2018, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis. Also, at June 30, 2018 and December 31, 2017, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

Beginning January 1, 2016, the Basel III Capital Rules implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At June 30, 2018, the Company and the Bank are in compliance with the capital conservation buffer requirement. The three risk-based capital ratios will increase by 0.625% each year through 2019, at which point, the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums will be 7.0%, 8.5% and 10.5%, respectively.

The following table sets forth the results of operations for the periods indicated, and is unaudited; however, in the opinion of Management, it reflects all adjustments (which include only normal recurring adjustments) necessary to present fairly the summarized results for such periods.


	2018 Quarters Ended
	December 31,	September 30,	June 30,			March 31,
	(dollars in thousands, except per share data)
Interest and dividend income:
Loans:
Discount accretion PCI – cash basis			$	180		$	246
Discount accretion PCI – other				95			60
Discount accretion PNCI				284			326
All other loan interest income				38,745			37,417

Total loan interest income				39,304			38,049
Debt securities, dividends and interest bearing cash at banks (not FTE)				9,174			9,072

Total interest income				48,478			47,121
Interest expense				2,609			2,135

Net interest income				45,869			44,986
(Benefit from reversal of) provision for loan losses				(638	)		(236	)

Net interest income after provision for loan losses				46,507			45,222
Noninterest income				12,174			12,290
Noninterest expense				37,870			38,162

Income before income taxes				20,811			19,350
Income tax expense				5,782			5,440

Net income			$	15,029		$	13,910

Per common share:
Net income (diluted)			$	0.65		$	0.60

Dividends			$	0.17		$	0.17


	2017 Quarters Ended
	December 31,		September 30,		June 30,			March 31,
	(dollars in thousands, except per share data)
Interest and dividend income:
Loans:
Discount accretion PCI – cash basis	$	516	$	398	$	386		$	112
Discount accretion PCI – other		445		407		797			631
Discount accretion PNCI		528		559		987			798
All other loan interest income		36,705		35,904		34,248			33,373

Total loan interest income		38,194		37,268		36,418			34,914
Debt securities, dividends and interest bearing cash at banks (not FTE)		8,767		8,645		8,626			8,570

Total interest income		46,961		45,913		45,044			43,484
Interest expense		1,868		1,829		1,610			1,491

Net interest income		45,093		44,084		43,434			41,993
Provision for (benefit from reversal of provision for) loan losses		1,677		765		(796	)		(1,557	)

Net interest income after provision for loan losses		43,416		43,319		44,230			43,550
Noninterest income		12,478		12,930		12,910			11,703
Noninterest expense		38,076		37,222		35,904			35,822

Income before income taxes		17,818		19,027		21,236			19,431
Income tax expense		14,829		7,130		7,647			7,352

Net income	$	2,989	$	11,897	$	13,589		$	12,079

Per common share:
Net income (diluted)	$	0.13	$	0.51	$	0.58		$	0.52

Dividends	$	0.17	$	0.17	$	0.17		$	0.15