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12. Regulatory Matters
 12 Months Ended
Dec. 31, 2018
Banking and Thrift [Abstract]  
Regulatory Matters

The Company is 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 Company’s 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 assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The 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 of capital in relation to both on- and off-balance sheet items at various risk weights. Total capital consists of two tiers of capital. Tier 1 capital includes common shareholders’ equity and trust preferred securities less adjustments for intangible assets. Tier 2 capital consists of the allowance for loan losses, up to 1.25% of risk-weighted assets and other adjustments. Management believes, as of December 31, 2018, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

 

As of December 31, 2018, the most recent notification from the FDIC 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 table below. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

 

In 2013, the Federal Reserve Board approved its final rule on the Basel III capital standards, which implement changes to the regulatory capital framework for banking organizations. The Basel III capital standards, which became effective January 1, 2015, include new risk-based capital and leverage ratios, which are being phased in from 2015 to 2019. The new minimum capital level requirements applicable to the Company and the Bank under the final rules are as follows: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total risk based capital ratio of 8% (unchanged from previous rules); and (iv) a Tier 1 leverage ratio of 4% (unchanged from previous rules). An additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes beginning on January 1, 2016 at 0.625% and is being phased in through 2019 (increasing by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019). This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained earnings that could be utilized for such actions.

 

The Company’s and the Bank’s actual capital amounts and ratios are presented below:

 

(Dollars in thousands)                  
   Actual  For Capital Adequacy Purposes  To Be Well Capitalized Under Prompt Corrective Action Provisions
   Amount  Ratio  Amount  Ratio  Amount  Ratio
                   
As of December 31, 2018:                              
                               
Total Capital (to Risk-Weighted Assets)                              
Consolidated  $149,076    16.15%   91,133    9.88%   N/A    N/A 
Bank  $146,640    15.91%   90,995    9.88%   92,147    10.00%
Tier 1 Capital (to Risk-Weighted Assets)                              
Consolidated  $142,631    15.46%   72,676    7.88%   N/A    N/A 
Bank  $140,195    15.21%   72,566    7.88%   73,717    8.00%
Tier 1 Capital (to Average Assets)                              
Consolidated  $142,631    13.05%   43,723    4.00%   N/A    N/A 
Bank  $140,195    12.76%   43,950    4.00%   54,937    5.00%
 Common Equity Tier 1 (to Risk-Weighted Assets)
                              
Consolidated  $122,631    13.29%   58,833    6.38%   N/A    N/A 
Bank  $140,195    15.21%   58,744    6.38%   59,895    6.50%

 

(Dollars in thousands)                  
   Actual  For Capital Adequacy Purposes  To Be Well Capitalized Under Prompt Corrective Action Provisions
   Amount  Ratio  Amount  Ratio  Amount  Ratio
                   
As of December 31, 2017:                              
                               
Total Capital (to Risk-Weighted Assets)                              
Consolidated  $138,492    16.06%   79,758    9.25%   N/A    N/A 
Bank  $136,299    15.83%   79,627    9.25%   86,084    10.00%
Tier 1 Capital (to Risk-Weighted Assets)                              
Consolidated  $132,126    15.32%   62,513    7.25%   N/A    N/A 
Bank  $129,933    15.09%   62,411    7.25%   68,867    8.00%
Tier 1 Capital (to Average Assets)                              
Consolidated  $132,126    11.94%   44,255    4.00%   N/A    N/A 
Bank  $129,933    11.69%   44,475    4.00%   55,594    5.00%
 Common Equity Tier 1 (to Risk-Weighted Assets)
                              
Consolidated  $112,126    13.00%   49,579    5.75%   N/A    N/A 
Bank  $129,933    15.09%   49,498    5.75%   55,954    6.50%