Note 7 - Capital Requirements

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note 7. Capital Requirements

The Bank is 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 Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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.

The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015, with full compliance of all the requirements phased in over a multi-year schedule, and became fully phased in January 1, 2019. As part of the new requirements, the common equity Tier 1 capital ratio is calculated and utilized in the assessment of capital for all institutions. The final rules also established a “capital conservation buffer” above the new regulatory minimum capital requirements. The capital conservation buffer has been phased-in over four years, which began on January 1, 2016 and was fully implemented on January 1, 2019.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total (as defined in the regulations), Tier 1 (as defined), and common equity Tier 1 capital (as defined) to risk-weighted assets (as defined), and of Tier 1 capital to average assets. Management believes, as of September 30, 2020 and December 31, 2019, that the Bank met all capital adequacy requirements to which it is subject.

As of September 30, 2020, the most recent notification from the Federal Reserve Bank 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 risk-based capital and 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.

A comparison of the capital of the Bank at September 30, 2020 and December 31, 2019 with the minimum regulatory guidelines were as follows (dollars in thousands):

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2020
Total Capital (to Risk-Weighted Assets)	$	89,155		15.34	%	$	46,500		8.00	%	$	58,125		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	$	81,883		14.09	%	$	34,875		6.00	%	$	46,500		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	81,883		14.09	%	$	26,156		4.50	%	$	37,782		6.50	%
Tier 1 Capital (to Average Assets)	$	81,883		8.67	%	$	37,776		4.00	%	$	47,220		5.00	%
December 31, 2019
Total Capital (to Risk-Weighted Assets)	$	85,439		14.84	%	$	46,046		8.00	%	$	57,557		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	$	80,505		13.99	%	$	34,534		6.00	%	$	46,046		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	80,505		13.99	%	$	25,901		4.50	%	$	37,412		6.50	%
Tier 1 Capital (to Average Assets)	$	80,505		10.13	%	$	31,799		4.00	%	$	39,749		5.00	%

In addition to the regulatory minimum risk-based capital amounts presented above, the Bank must maintain a capital conservation buffer as required by the Basel III final rules. Accordingly, the Bank was required to maintain a capital conservation buffer of 2.50% at September 30, 2020 and December 31, 2019. Under the final rules, an institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. As of September 30, 2020 and December 31, 2019, the capital conservation buffer of the Bank was 7.34% and 6.84%, respectively.