Equity

12 Months Ended

Dec. 31, 2018

EQUITY

Minimum regulatory capital requirements

The Company (on a consolidated basis) 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 the 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 bank holding companies.

Federal banking regulations include minimum capital ratios as displayed in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. The capital conservation buffer is being phased in over three years, beginning on January 1, 2016, with an initial phase-in of 0.625%. Also, certain deductions from and adjustments to regulatory capital are being phased in over several years. The required minimum conservation buffer is 1.875% as of December 31, 2018 and will increase to 2.5% on January 1, 2019. Management believes that the Company’s capital levels will remain characterized as well-capitalized throughout the phase-in periods. Management believes that the Company will remain characterized as “well capitalized” throughout the phase-in periods.

As of December 31, 2018, 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, an institution must maintain minimum ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes, as of December 31, 2018 and 2017, that the Company and the Bank meet all capital adequacy requirements to which they are subject. The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2018 and 2017 are also presented in the following table.



	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Blue Hills Bancorp, Inc.:
December 31, 2018
Total capital (to risk weighted assets)	$	417,198	18.2	%	$	183,559	8.0	%	$	229,449	10.0	%
Tier 1 capital (to risk weighted assets)	397,863		17.3		137,669		6.0		183,559		8.0
Common equity Tier 1 (to risk weighted assets)	397,863		17.3		103,252		4.5		149,142		6.5
Tier 1 capital (to average assets)	397,863		14.4		110,640		4.0		138,301		5.0
December 31, 2017
Total capital (to risk weighted assets)	410,088		19.7		166,635		8.0		208,294		10.0
Tier 1 capital (to risk weighted assets)	389,211		18.7		124,977		6.0		166,635		8.0
Common equity Tier 1 (to risk weighted assets)	389,211		18.7		93,732		4.5		135,391		6.5
Tier 1 capital (to average assets)	389,211		14.9		104,278		4.0		130,348		5.0
Blue Hills Bank:
December 31, 2018
Total capital (to risk weighted assets)	363,890		15.9		183,401		8.0		229,251		10.0
Tier 1 capital (to risk weighted assets)	344,555		15.0		137,550		6.0		183,401		8.0
Common equity Tier 1 (to risk weighted assets)	344,555		15.0		103,163		4.5		149,013		6.5
Tier 1 capital (to average assets)	344,555		12.5		110,487		4.0		138,108		5.0
December 31, 2017
Total capital (to risk weighted assets)	341,175		16.4		166,391		8.0		207,988		10.0
Tier 1 capital (to risk weighted assets)	320,298		15.4		124,793		6.0		166,391		8.0
Common equity Tier 1 (to risk weighted assets)	320,298		15.4		93,595		4.5		135,192		6.5
Tier 1 capital (to average assets)	320,298		12.3		104,137		4.0		130,171		5.0

Preferred stock

The Company has authorized 50,000,000 shares, zero par value of Preferred Stock. As of December 31, 2018, there were no shares issued or outstanding.

Restrictions on dividends, loans and advances

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 of 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. Loans or advances are limited to 10 percent of the Bank’s capital stock and surplus on a secured basis. At December 31, 2018, the Bank's retained earnings available for the payment of dividends was $47.1 million. Funds available for loans or advances by the Bank to the Company amounted to $33.8 million. In addition, as a result of regulatory capital requirements, $183.4 million of the Company's $351.3 million equity in the net assets of the Bank was restricted at December 31, 2018.

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 capital requirements.

The payment of dividends by the Company is subject to Maryland law. The Company can pay dividends on its common stock if, after giving effect to such distribution, (i) it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and (ii) its total assets exceed the sum of its liabilities and the amount needed, if Blue Hills Bancorp were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference in the event of dissolution; provided, however, that even if the Company's assets are less than the amount necessary to satisfy the requirement set forth in (ii) above, the Company may make a distribution from: (A) the Company's net earnings for the fiscal year in which the distribution is made; (B) the Company's net earnings for the preceding fiscal year; or (C) the sum of the Company's net earnings for the preceding eight fiscal quarters. The holders of common stock of the Company will be entitled to receive and share equally in dividends as may be declared by our Board of Directors out of funds legally available. If the Company issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

Liquidation account

At the time of conversion to a stock holding company, the Company substantially restricted retained earnings by establishing a liquidation account and the Bank established a parallel liquidation account. The liquidation accounts amounted to $40.0 million and $49.0 million at December 31, 2018 and 2017, respectively, and are maintained for the benefit of eligible deposit account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank, each account holder will be entitled to receive a distribution from the liquidation accounts as described in the Plan of Conversion. Neither the Company nor the Bank may declare or pay a cash dividend on its common stock if such dividend would cause its regulatory capital to be reduced below the amount required to maintain its respective liquidation account.

Blue Hills Bancorp, Inc. 10-K