SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

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. Under the Basel Committee on Banking Supervision's capital guidelines for U.S. Banks ("Basel III rules"), an entity must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The required capital conservation buffer was 1.25% for 2017, is 1.875% for 2018 and will be 2.50% for 2019 under phase-in rules. The Company and the Bank have elected not to include net unrealized gain or loss on available for sale securities in computing regulatory capital.

Effective with the third quarter of 2018, the FRB raised the consolidated asset limit on small bank holding companies from $1,000,000,000 to $3,000,000,000 and a company with assets under the revised limits is not subject to the FRB consolidated capital rules. A company with consolidated assets under the revised limit may continue to file reports that include capital amounts and ratios. The Company has elected to continue to file those reports.

Management believes, at September 30, 2018 and December 31, 2017, that the Company and the Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action 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 September 30, 2018, 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 Bank's category.

The following table presents capital amounts and ratios at September 30, 2018 and December 31, 2017.



	Actual				For Capital Adequacy Purposes (includes applicable capital conservation buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2018
Total Capital to risk weighted assets
Consolidated	$	163,976	13.4	%	$	120,679	9.875	%	n/a		n/a
Bank	161,352		13.2	%	120,544		9.875	%	$	122,070	10.0	%
Tier 1 Capital to risk weighted assets
Consolidated	149,288		12.2	%	96,238		7.875	%	n/a		n/a
Bank	146,664		12.0	%	96,130		7.875	%	97,656		8.0	%
Common Tier 1 (CET1) to risk weighted assets
Consolidated	149,288		12.2	%	77,907		6.375	%	n/a		n/a
Bank	146,664		12.0	%	77,820		6.375	%	79,345		6.5	%
Tier 1 Capital to average assets
Consolidated	149,288		8.9	%	67,406		4.0	%	n/a		n/a
Bank	146,664		8.7	%	67,595		4.0	%	84,493		5.0	%
December 31, 2017
Total Capital to risk weighted assets
Consolidated	$	152,386	13.3	%	$	106,040	9.250	%	n/a		n/a
Bank	148,997		13.0	%	105,747		9.250	%	$	114,321	10.0	%
Tier 1 Capital to risk weighted assets
Consolidated	138,774		12.1	%	83,112		7.250	%	n/a		n/a
Bank	135,385		11.8	%	82,883		7.250	%	91,457		8.0	%
Common Tier 1 (CET1) to risk weighted assets
Consolidated	138,774		12.1	%	65,917		5.750	%	n/a		n/a
Bank	135,385		11.8	%	65,734		5.750	%	74,308		6.5	%
Tier 1 Capital to average assets
Consolidated	138,774		8.9	%	62,042		4.0	%	n/a		n/a
Bank	135,385		8.7	%	62,066		4.0	%	77,582		5.0	%

In September 2015, the Board of Directors of the Company authorized a share repurchase program under which the Company may repurchase up to 5% of the Company's outstanding shares of common stock, or approximately 416,000 shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act of 1934, as amended. When and if appropriate, repurchases may be made in open market or privately negotiated transactions, depending on market conditions, regulatory requirements and other corporate considerations, as determined by management. Share repurchases may not occur and may be discontinued at any time. At September 30, 2018, 82,725 shares had been repurchased under the program at a total cost of $1,438,000, or $17.38 per share.

On October 17, 2018, the Board declared a cash dividend of $0.13 per common share, which was paid on November 5, 2018 to shareholders of record at October 29, 2018.