13.	STOCKHOLDERS’ EQUITY

Minimum 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 initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their 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. Prompt corrective action provisions are not applicable to mutual holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2013 and 2012, that the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 2013, 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 following table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

The Company’s and the Bank’s actual capital amounts and ratios follow:

 

		Actual								Minimum Capital Requirement								Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in thousands)
December 31, 2013
Total Capital (to Risk Weighted Assets):
Company		$	259,577				10.8	%		$	192,797				8.0	%			N/A				N/A
Bank			246,100				10.2				192,511				8.0			$	240,639				10.0	%
Tier 1 Capital (to Risk Weighted Assets):
Company			231,342				9.6				96,398				4.0				N/A				N/A
Bank			217,865				9.1				96,256				4.0				144,383				6.0
Tier 1 Capital (to Average Assets):
Company			231,342				8.7				105,999				4.0				N/A				N/A
Bank			217,865				8.2				105,702				4.0				132,127				5.0
December 31, 2012
Total Capital (to Risk Weighted Assets):
Company		$	237,527				11.9	%		$	159,344				8.0	%			N/A				N/A
Bank			201,113				10.2				157,224				8.0			$	196,531				10.0	%
Tier 1 Capital (to Risk Weighted Assets):
Company			215,255				10.8				79,672				4.0				N/A				N/A
Bank			178,852				9.1				78,612				4.0				117,918				6.0
Tier 1 Capital (to Average Assets):
Company			215,255				9.7				88,858				4.0				N/A				N/A
Bank			178,852				8.2				87,742				4.0				109,678				5.0

A reconciliation of the Company’s and Bank’s stockholders’ equity to regulatory capital follows:

 

		December 31, 2013								December 31, 2012
		Consolidated				Bank				Consolidated				Bank
		(In thousands)
Total stockholders’ equity per financial statements		$	249,205			$	235,728			$	233,943			$	197,399
Adjustments to Tier 1 capital:
Accumulated other comprehensive income			(4,104	)			(4,104	)			(4,915	)			(4,774	)
Goodwill disallowed			(13,687	)			(13,687	)			(13,687	)			(13,687	)
Servicing assets disallowed			(72	)			(72	)			(86	)			(86	)
Total Tier 1 capital			231,342				217,865				215,255				178,852
Adjustments to total capital:
Allowance for loan losses			25,335				25,335				20,504				20,504
45% of net unrealized gains on marketable equity securities			2,900				2,900				1,768				1,757
Total regulatory capital		$	259,577			$	246,100			$	237,527			$	201,113

 

In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The final rule becomes effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

Liquidation Account

At the time of the minority stock offering which was completed on January 22, 2008, the Company established a liquidation account in the amount of $114.2 million, which is equal to the net worth of the Company as of the date of the latest consolidated balance sheet appearing in the final prospectus distributed in connection with the offering. The liquidation account is maintained for the benefit of the eligible account holders and supplemental eligible account holders who maintain their accounts at the Bank after the offering. The liquidation account is reduced annually to the extent that such account holders have reduced their qualifying deposits as of each anniversary date and amounted to $44.1 million at December 31, 2013. Subsequent increases will not restore an account holder’s interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive balances for accounts held then.

Other Capital Restrictions

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount for dividends which may be paid in any calendar year cannot exceed the Bank’s net income for the current year, plus the Bank’s net income retained for the two previous years, without regulatory approval. At December 31, 2013, the Bank’s retained earnings available for the payment of dividends was $35.5 million. Loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Funds available for loans or advances by the Bank to the Company amounted to $23.6 million. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

Stock Repurchase Plan

As of December 31, 2013, the Company had repurchased 287,652 shares of its stock at an average price of $14.68 per share, or 31.8% of the 904,224 shares authorized for repurchase under the Company’s fourth repurchase program as adopted during 2011. The Company has repurchased 1,691,580 shares at an average price of $10.89 per share since December 2008.