REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2018

REGULATORY CAPITAL REQUIREMENTS

REGULATORY CAPITAL REQUIREMENTS

18. REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications also are 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 and the Bank to maintain minimum amounts and ratios of total and tier 1 capital to risk weighted assets and of tier 1 capital to average assets. Tier 1 capital, risk weighted assets and average assets are as defined by regulation. The required minimums for the Company and Bank are set forth in the tables that follow. The Company and the Bank met all capital adequacy requirements at December 31, 2018 and 2017.

On January 1, 2015, the Basel III Capital Rules became effective and include transition provisions through January 1, 2019. These rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based on common equity tier 1 capital ("CET1"); b) 6.0% based on tier 1 capital; and c) 8.0% based on total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of total average assets) of 4.0% is also required under the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased by 0.625% each subsequent January 1, until fully implemented at 2.5% on January 1, 2019. Including the capital conservation buffer, the Company and the Bank effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based on CET1; b) 8.5% based on tier 1 capital; and c) 10.5% based on total regulatory capital.

The Company and the Bank made the one-time, permanent election to continue to exclude the effects of accumulated other comprehensive income or loss items included in stockholders’ equity for the purposes of determining the regulatory capital ratios.

As of December 31, 2018, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain minimum total risk-based, tier 1 risk-based and tier 1 leverage ratios as set forth in the tables below. Since that notification, there are no conditions or events that management believes have changed the institution’s category.

The following tables present actual capital levels and minimum required levels for the Company and the Bank under Basel III rules at December 31, 2018 and 2017:

	December 31, 2018
									Minimum Capital				Minimum To Be Well
					Minimum Capital				Adequacy Requirement with				Capitalized Under Prompt
	Actual Capital				Adequacy Requirement				Capital Conservation Buffer				Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk-weighted assets:
Consolidated	$	360,688	10.4	%	$	155,836	4.5	%	$	220,767	6.375	%		n/a	n/a
Bank		438,963	12.7			155,831	4.5			220,761	6.375		$	225,089	6.5	%
Total capital to risk-weighted assets:
Consolidated		472,382	13.6			277,041	8.0			341,973	9.875			n/a	n/a
Bank		470,657	13.6			277,033	8.0			341,963	9.875			346,291	10.0
Tier 1 capital to risk-weighted assets:
Consolidated		360,688	10.4			207,781	6.0			272,712	7.875			n/a	n/a
Bank		438,963	12.7			207,775	6.0			272,704	7.875			277,033	8.0
Tier 1 capital to average assets:
Consolidated		360,688	8.1			177,782	4.0			n/a	n/a			n/a	n/a
Bank		438,963	9.9			177,776	4.0			n/a	n/a			222,220	5.0

	December 31, 2017
									Minimum Capital				Minimum To Be Well
					Minimum Capital				Adequacy Requirement with				Capitalized Under Prompt
	Actual Capital				Adequacy Requirement				Capital Conservation Buffer				Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk-weighted assets:
Consolidated	$	336,393	10.0	%	$	152,011	4.5	%	$	194,237	5.75	%		n/a	n/a
Bank		408,089	12.1			152,002	4.5			194,224	5.75		$	219,558	6.5	%
Total capital to risk-weighted assets:
Consolidated		448,376	13.3			270,242	8.0			312,468	9.25			n/a	n/a
Bank		440,072	13.0			270,225	8.0			312,448	9.25			337,781	10.0
Tier 1 capital to risk-weighted assets:
Consolidated		336,393	10.0			202,682	6.0			244,907	7.25			n/a	n/a
Bank		408,089	12.1			202,669	6.0			244,892	7.25			270,225	8.0
Tier 1 capital to average assets:
Consolidated		336,393	7.9			170,440	4.0			n/a	n/a			n/a	n/a
Bank		408,089	9.6			170,441	4.0			n/a	n/a			213,051	5.0