In addition, the D-F Act added a new Section 13 to the Bank
Holding Company Act, the so-called Volcker Rule, (the Rule) which generally restricts certain banking entities such as the Company and its subsidiaries or affiliates, from engaging in
proprietary trading activities and owning equity in or sponsoring any private equity or hedge fund. The Rule became effective July 21, 2012. The final implementing regulations for the Rule were issued by various regulatory agencies in December,
2013 and under an extended conformance regulation compliance was required to be achieved by July 21, 2015. The conformance period for investments in and relationships with certain legacy covered funds has been extended to
July 21, 2017. Under the Rule, the Company may be restricted from engaging in proprietary trading, investing in third party hedge or private equity funds or sponsoring new funds unless it qualifies for an exemption from the rule. The Company
has little involvement in prohibited proprietary trading or investment activities in covered funds and the Company does not expect that complying with the requirements of the Rule will have any material effect on the Companys financial
condition or results of operation.
Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories
and off-balance-sheet items. Also, the Basel Committee has issued capital standards entitled Basel III: A global regulatory framework for more resilient banks and banking systems (Basel
III). The Federal Reserve Board has finalized its rule implementing the Basel III regulatory capital framework. The rule that came into effect in January 2015 sets the Basel III minimum regulatory capital requirements for all organizations. It
included a new common equity Tier I ratio of 4.5 percent of risk-weighted assets, raised the minimum Tier I capital ratio from 4 percent to 6 percent of risk-weighted assets and would set a new conservation buffer of 2.5 percent
of risk-weighted assets. The implementation of the framework did not have a material impact on the Companys financial condition or results of operations.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, which represents the most comprehensive reform to the U.S. tax
code in over thirty years. The majority of the provisions of the Tax Act took effect on January 1, 2018. The Tax Act lowered the Companys federal tax rate from 34% to 21%. Also, for tax years beginning after December 31, 2017, the
corporate Alternative Minimum Tax (AMT) has been repealed. For 2018 through 2021, the AMT credit carryforward can offset regular tax liability and is refundable in an amount equal to 50% (100% for 2021) of the excess of the minimum tax
credit for the tax year over the amount of the credit allowable for the year against regular tax liability. Accordingly, it is anticipated that the full amount of the alternative minimum tax credit carryforward will be recovered in tax years
beginning before 2022. The Tax Act also contains other provisions that may affect the Company currently or in future years. Among these are changes to the deductibility of meals and entertainment, the deductibility of executive compensation, the
dividend received deduction and net operating loss carryforwards. Tax Act changes for individuals include lower tax rates, mortgage interest and state and local tax limitations as well as an increase in the standard deduction, among others.
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, or the EGRRCPA, became law. This is the most significant financial
institution legislation since the D-F Act. The EGRRCPA changes certain of the regulatory requirements of the D-F Act and includes provisions intended to relieve the
regulatory burden on community banks. Among other things for qualifying community banks with less than $10 billion in total consolidated assets the EGRRCPA contains a safe harbor from the D-F
Act ability to repay mortgage requirements, an exemption from the Volcker Rule, may permit filing of simplified Call Reports, and potentially will result in some alleviation of the D-F Act and U.S.
Basel III capital mandates. The EGRRCPA requires the federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with
total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%. Qualifying banks that exceed the
minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements including the capital ratio requirements that are required to be considered well capitalized under Section 38 of Federal
Deposit Insurance Act.
On September 30, 2018, total loans outstanding
were $2,261,339,000 up by $85,395,000 from the total on December 31, 2017. At September 30, 2018, commercial real estate loans accounted for 32.3%, commercial and industrial accounted for 34.7%, and residential real estate loans, including
home equity loans, accounted for 27.4% of total loans.
Commercial real estate loans decreased slightly to $730,265,000 from $732,491,000 on
December 31, 2017 primarily as a result of loan repayments. Commercial and industrial loans increased to $783,960,000 at September 30, 2018 from $763,807,000 at December 31, 2017, primarily as a result of loan originations.
Construction loans decreased to $12,434,000 at September 30, 2018 from $18,931,000 on December 31, 2017, primarily as a result of loan repayments and refinancing of existing loans to other loan categories. Residential real estate loans
increased to $335,114,000 on September 30, 2018 from $287,731,000 on December 31, 2017, primarily as a result of new loan originations. Home equity loans increased to $283,818,000 on September 30, 2018 from $247,345,000 at
December 31, 2017, primarily as a result of a home equity loan promotion. Municipal loans decreased to $94,532,000 from $106,599,000, primarily as a result of payoffs to existing loans.
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