Note 18 - Regulatory Matters

12 Months Ended

Dec. 31, 2015

Disclosure Text Block [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

18. Regulatory Matters

The Company and its subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements will 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 banks must meet specific capital guidelines that involve quantitative measures of the banks’ assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and its subsidiary banks’ 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 and its subsidiary banks to maintain minimum amounts and ratios (set forth in the tables below). Prior to January 1, 2015, this included minimums of Tier 1 and total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to “Basel III”) that were effective for the Company beginning on January 1, 2015, subject to a phase-in period for certain provisions extending through January 1, 2019. The rules include a new common equity Tier 1 capital ratio, an increase to the minimum Tier 1 capital ratio, an increase to risk-weightings of certain assets, implementation of a new capital conservation buffer in excess of the required minimum (which is set to be phased in beginning in 2016), and changes to how regulatory capital is defined. The Company and each of its bank subsidiaries met the minimum capital ratios and a fully phased-in capital conservation buffer under the new rules at year-end 2015.

As of December 31, 2015, the most recent notification from the FDIC categorized the banks as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the banks must maintain minimum Common Equity Tier 1 Risk-based, Tier 1 Risk-based, Total Risk-based, and Tier 1 Leverage ratios as set forth in the tables below. There are no conditions or events since that notification that management believes have changed the institutions’ category.

The regulatory capital amounts and ratios of the consolidated Company and its subsidiary banks are presented in the following tables for the dates indicated.

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common Equity Tier 1 Risk-based Capital1
Consolidated	$	172,871		14.91	%	$	52,184		4.50	%		N/A		N/A
Farmers Bank		63,552		15.57			18,366		4.50		$	26,529		6.50	%
United Bank		65,862		18.67			15,879		4.50			22,936		6.50
First Citizens		28,743		13.55			9,543		4.50			13,784		6.50
Citizens Northern		25,770		14.42			8,044		4.50			11,619		6.50
Tier 1 Risk-based Capital1
Consolidated	$	220,371		19.00	%	$	69,579		6.00	%		N/A		N/A
Farmers Bank		63,552		15.57			24,488		6.00		$	32,651		8.00	%
United Bank		65,862		18.67			21,171		6.00			28,228		8.00
First Citizens		28,743		13.55			12,724		6.00			16,965		8.00
Citizens Northern		25,770		14.42			10,725		6.00			14,300		8.00
Total Risk-based Capital 1
Consolidated	$	230,686		19.89	%	$	92,772		8.00	%		N/A		N/A
Farmers Bank		66,728		16.35			32,651		8.00		$	40,814		10.00	%
United Bank		69,456		19.68			28,228		8.00			35,286		10.00
First Citizens		30,048		14.17			16,965		8.00			21,207		10.00
Citizens Northern		28,004		15.67			14,300		8.00			17,875		10.00
Tier 1 Leverage Capital 2
Consolidated	$	220,371		12.46	%	$	70,746		4.00	%		N/A		N/A
Farmers Bank		63,552		9.20			27,629		4.00		$	34,537		5.00	%
United Bank		65,862		12.89			20,442		4.00			25,553		5.00
First Citizens		28,743		9.20			12,493		4.00			15,617		5.00
Citizens Northern		25,770		10.79			9,555		4.00			11,943		5.00

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
(Dollars in thousands)	Actual					Adequacy Purposes					Action Provisions
December 31, 2014	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Risk-based Capital1
Consolidated	$	215,090		19.75	%	$	43,569		4.00	%		N/A		N/A
Farmers Bank		65,744		17.71			14,852		4.00		$	22,278		6.00	%
United Bank		57,691		18.00			12,820		4.00			19,230		6.00
First Citizens		29,703		13.66			8,700		4.00			13,049		6.00
Citizens Northern		24,575		14.46			6,798		4.00			10,197		6.00
Total Risk-based Capital 1
Consolidated	$	228,710		21.00	%	$	87,137		8.00	%		N/A		N/A
Farmers Bank		69,418		18.70			29,704		8.00		$	37,130		10.00	%
United Bank		61,728		19.26			25,640		8.00			32,050		10.00
First Citizens		31,094		14.30			17,399		8.00			21,749		10.00
Citizens Northern		26,703		15.71			13,596		8.00			16,995		10.00
Tier 1 Leverage Capital 2
Consolidated	$	215,090		12.04	%	$	71,461		4.00	%		N/A		N/A
Farmers Bank		65,744		9.40			27,965		4.00		$	34,956		5.00	%
United Bank		57,691		11.08			20,829		4.00			26,037		5.00
First Citizens		29,703		9.44			12,587		4.00			15,734		5.00
Citizens Northern		24,575		10.11			9,723		4.00			12,153		5.00

¹Common Equity Tier 1 Risk-based, Tier 1 Risk-based, and Total Risk-based Capital ratios are computed by dividing a bank’s Common Equity Tier 1, Tier 1, or Total Capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation. The safest assets (e.g., government obligations) are assigned a weighting of 0% with riskier assets receiving higher ratings (e.g., ordinary commercial loans are assigned a weighting of 100%).

²Tier 1 Leverage ratio is computed by dividing a bank’s Tier 1 Capital by its total quarterly average assets, as defined by regulation.

Payment of dividends by the Company’s subsidiary banks is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. Generally, capital distributions are limited to undistributed net income for the current and prior two years, subject to the capital requirements as summarized above.

On June 8, 2015, the Company redeemed the final 10,000 shares of its remaining outstanding Series A preferred stock. The shares were redeemed at the stated liquidation value of $1,000 per share, plus accrued dividends. The Company originally issued 30,000 shares of its Series A preferred stock in 2009. The redemption was the third and final partial redemption of the original shares issued. No additional debt or equity was issued in connection with any of the shares redeemed. 

Summary of Regulatory Agreements

United Bank  

During January 2014, United Bank entered into a Memorandum of Understanding (“Memorandum”) with the FDIC and Kentucky Department of Financial Institutions (“KDFI”), which replaced regulatory agreements dating back to November 2009 primarily relating to the bank’s level of nonperforming assets. This Memorandum was terminated in March 2015. In connection with the termination of the Memorandum, the Board of Directors of United Bank agreed to adopt a resolution which included many of the same provisions as the Memorandum, including the requirement to seek approval from the FDIC and KDFI prior to the payment of dividends to the Parent Company. United Bank has both complied with and satisfied the terms of the resolution. As of January 2016, all regulatory agreements and board resolutions between the FDIC, KDFI, and United Bank have been terminated.

Citizens Northern  

The FDIC and KDFI entered into a Memorandum with Citizens Northern in September 2010. This Memorandum was terminated and replaced in July 2013. The updated Memorandum included provisions that required the bank to maintain a Tier 1 leverage ratio at or above 9.0% and to obtain regulatory approval before declaring or paying a dividend to the Parent Company. The Memorandum was terminated in August 2015 following a joint examination by the FDIC and KDFI, which found satisfactory compliance with the terms of the Memorandum and overall improvement in financial condition.