As of December 31, 2012: (i) the Bank was not subject to a directive from the OCC to increase its capital to  an amount in excess of the minimum regulatory capital requirements; (ii) the Bank exceeded its minimum regulatory  capital requirements under OCC capital adequacy guidelines; and (iii) the Bank was “well-capitalized,” as defined by  OCC regulations. As of December 31, 2012, the Company had regulatory capital in excess of the Federal Reserve’s  requirements and met the Dodd-Frank Act capital requirements. Basel III.  The current risk-based capital guidelines described above, which apply to the Bank and are being  phased in for the Company, are based upon the 1988 capital accord known as “Basel I” adopted by the international  Basel Committee on Banking Supervision, a committee of central banks and bank supervisors, as implemented by  the U.S. federal banking regulators on an interagency basis. In 2008, the banking agencies collaboratively began to  phase-in capital standards based on a second capital accord, referred to as “Basel II,” for large or “core”  international banks (generally defined for U.S. purposes as having total assets of $250 billion or more, or  consolidated foreign exposures of $10 billion or more). Basel II emphasized internal assessment of credit, market  and operational risk, as well as supervisory assessment and market discipline in determining minimum capital  requirements.  On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel  Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking  organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global  financial crisis. Basel III requires, among other things: • a new required ratio of minimum common equity equal to 4.5% of risk-weighted assets,  • an increase in the minimum required amount of Tier 1 capital from the current level of 4% of total assets to  6% of risk-weighted assets, and  • a continuation of the current minimum required amount of total capital at 8% of risk weighted assets.  In addition, institutions that seek the freedom to make capital distributions (including for dividends and  repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5%  in common equity attributable to a capital conservation buffer to be phased in over three years. The purpose of the  conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during  periods of financial and economic stress. Factoring in the conservation buffer increases the ratios depicted above to  7% for common equity, 8.5% for Tier 1 capital and 10.5% for total capital.  On June 12, 2012, the federal banking regulators (the OCC, the Federal Reserve and the FDIC) (the  “Agencies”) formally proposed for comment, in three separate but related proposals, rules to implement Basel III in  the United States. The proposals are: (i) the “Basel III Proposal,” which applies the Basel III capital framework to  almost all U.S. banking organizations; (ii) the “Standardized Approach Proposal,” which applies certain elements of  the Basel II standardized approach for credit risk weightings to almost all U.S. banking organizations; and (iii) the  “Advanced Approaches Proposal,” which applies changes made to Basel II and Basel III in the past few years to  large U.S. banking organizations subject to the advanced Basel II capital framework. The comment period for these  notices of proposed rulemaking ended October 22, 2012. The Basel III Proposal and the Standardized Approach Proposal are expected to have a direct impact on the  Company and the Bank. The Basel III Proposal is applicable to all U.S. banks that are subject to minimum capital  requirements, including federal and state banks, as well as to bank and savings and loan holding companies other  than “small bank holding companies” (generally bank holding companies with consolidated assets of less than  $500 million). There will be separate phase-in/phase-out periods for: (i) minimum capital ratios; (ii) regulatory  capital  adjustments  and  deductions;  (iii) nonqualifying  capital  instruments; (iv) capital conservation and  countercyclical capital buffers; (v) a supplemental leverage ratio for advanced approaches banks; and (vi) changes to  the FDIC’s prompt corrective action rules. The criteria in the U.S. proposal for common equity and additional Tier 1 capital instruments, as well as  Tier 2 capital instruments, are broadly consistent with the Basel III criteria. A number of instruments that now  qualify as Tier 1 capital will not qualify, or their qualification will change, if the Basel III Proposal becomes final.  For example, cumulative preferred stock and certain hybrid capital instruments, including trust preferred securities,  which the Company may retain under the Dodd-Frank Act, will no longer qualify as Tier 1 capital of any kind.  18 