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CAPITAL RATIOS AND SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

NOTE 7. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios are, as follows:


			Regulatory				Regulatory
	September 30,		Minimum to be		December 31,		Minimum to be
	2020		"Well-Capitalized"		2019		"Well-Capitalized"
Company (consolidated)
Total capital to risk-weighted assets	13.32	%	10.50	%	13.61	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	10.29		7.00		10.57		7.00
Tier 1 capital to risk-weighted assets	11.08		8.50		11.39		8.50
Tier 1 capital to average assets	8.14		5.00		8.13		5.00

Bank
Total capital to risk-weighted assets	13.03	%	10.50	%	12.42	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	12.33		7.00		11.79		7.00
Tier 1 capital to risk-weighted assets	12.33		8.50		11.79		8.50
Tier 1 capital to average assets	9.06		5.00		8.39		5.00

At each date shown, the Company and the Bank met the conditions to be classified as “well-capitalized” under the relevant regulatory framework. To be categorized as "well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

The Company and the Bank are subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk-weighted assets and the Company and the Bank each exceed the minimum to be "well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.

Accumulated other comprehensive income (loss)

Components of accumulated other comprehensive income is, as follows:


(in thousands)	September 30, 2020		December 31, 2019
Other accumulated comprehensive income, before tax:
Net unrealized gain on AFS securities	$	15,264	$	7,342
Net unrealized loss on hedging derivatives		(1,461)		(718)
Net unrealized loss on post-retirement plans		(1,512)		(1,512)

Income taxes related to items of accumulated other comprehensive income:
Net unrealized gain on AFS securities		(3,583)		(1,793)
Net unrealized loss on hedging derivatives		342		237
Net unrealized loss on post-retirement plans		355		355
Accumulated other comprehensive income	$	9,405	$	3,911

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019:


(in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended September 30, 2020
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	351	$	(82)	$	269
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on AFS securities		351		(82)		269

Net unrealized gain on cash flow hedging derivatives:
Net unrealized gain arising during the period		805		(190)		615
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on cash flow hedging derivatives		805		(190)		615

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	1,156	$	(272)	$	884

Three Months Ended September 30, 2019
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	3,357	$	(784)	$	2,573
Less: reclassification adjustment for gains (losses) realized in net income		157		(37)		120
Net unrealized gain on AFS securities		3,200		(747)		2,453

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period		(370)		85		(285)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives		(370)		85		(285)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	2,830	$	(662)	$	2,168


(in thousands)	Before Tax		Tax Effect		Net of Tax
Nine Months Ended September 30, 2020
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	9,408	$	(2,146)	$	7,262
Less: reclassification adjustment for gains (losses) realized in net income		1,486		(355)		1,131
Net unrealized gain on AFS securities		7,922		(1,791)		6,131

Net unrealized loss on derivative hedges:
Net unrealized loss arising during the period		(833)		196		(637)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on derivative hedges		(833)		196		(637)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	7,089	$	(1,595)	$	5,494

Nine Months Ended September 30, 2019
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	21,903	$	(5,118)	$	16,785
Less: reclassification adjustment for gains realized in net income		157		(37)		120
Net unrealized gain on AFS securities		21,746		(5,081)		16,665

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period		(2,372)		554		(1,818)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives		(2,372)		554		(1,818)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	19,374	$	(4,527)	$	14,847

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and nine months ended September 30, 2020 and 2019:


	Net unrealized		Net loss on		Net unrealized
	gain (loss)		effective cash		loss
	on AFS		flow hedging		on pension
(in thousands)	Securities		derivatives		plans		Total
Three Months Ended September 30, 2020
Balance at beginning of period	$	11,412	$	(1,734)	$	(1,157)	$	8,521
Other comprehensive gain before reclassifications		269		615		—		884
Less: amounts reclassified from accumulated other comprehensive income		—		—		—		—
Total other comprehensive income		269		615		—		884
Balance at end of period	$	11,681	$	(1,119)	$	(1,157)	$	9,405

Three Months Ended September 30, 2019
Balance at beginning of period	$	5,547	$	(3,782)	$	(888)	$	(5,628)
Other comprehensive gain (loss) before reclassifications		2,573		(285)		—		2,288
Less: amounts reclassified from accumulated other comprehensive income		120		—		—		120
Total other comprehensive income (loss)		2,453		(285)		—		2,168
Balance at end of period	$	8,000	$	(4,067)	$	(888)	$	3,045

Nine Months Ended September 30, 2020
Balance at beginning of period	$	5,550	$	(482)	$	(1,157)	$	3,911
Other comprehensive gain (loss) before reclassifications		7,262		(637)		—		6,625
Less: amounts reclassified from accumulated other comprehensive income		1,131		—		—		1,131
Total other comprehensive income (loss)		6,131		(637)		—		5,494
Balance at end of period	$	11,681	$	(1,119)	$	(1,157)	$	9,405

Nine Months Ended September 30, 2019
Balance at beginning of period	$	(8,665)	$	(2,249)	$	(888)	$	(11,802)
Other comprehensive gain (loss) before reclassifications		16,785		(1,818)		—		14,967
Less: amounts reclassified from accumulated other comprehensive income		120		—		—		120
Total other comprehensive income (loss)		16,665		(1,818)		—		14,847
Balance at end of period	$	8,000	$	(4,067)	$	(888)	$	3,045

The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income for three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,				Affected Line Item where
(in thousands)	2020		2019		2020		2019		Net Income is Presented
Net realized gains on AFS securities:
Before tax⁽¹⁾	$	—	$	157	$	1,486	$	157	Non-interest income
Tax effect		—		(37)		(355)		(37)	Tax expense
Total reclassifications for the period	$	—	$	120	$	1,131	$	120	Net of tax

(1)	Net realized gains before tax include gross realized gains $1.5 million and realized losses of $22 thousand for the nine months ended September 30, 2020 and gross realized gains of $716 thousand and realized losses of $559 thousand for the three and nine months ended September 30, 2019.