21. REGULATORY MATTERS

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 21. REGULATORY MATTERS

The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital. 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 the Bank’s assets, liabilities, and certain off balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 being phased in over a multi-year schedule, and becoming fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2016 is 0.625%. The net unrealized gain on securities available for sale and the unfunded pension liability are not included in computing regulatory capital.

Quantitative measures established by regulation, to ensure capital adequacy, require the Bank to maintain minimum amounts and ratios. These ratios are defined in the regulations and the amounts are set forth in the table below. Management believes, as of December 31, 2016, that the Bank meet all capital adequacy requirements to which they are subject.

As of the most recent notification from the Federal Reserve Bank Report of Examination, the subsidiary bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

The actual capital ratios for the Bank are presented in the following table (dollars in thousands):

	Actual					Minimum Capital Requirement					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based ratio	$	93,519		15.08	%	$	49,615		8.00	%	$	62,019		10.00	%
Tier 1 risk-based ratio		85,976		13.86	%		37,212		6.00	%		49,615		8.00	%
Common equity tier 1		85,976		13.86	%		27,909		4.50	%		40,312		6.50	%
Total assets leverage ratio		85,976		11.83	%		29,065		4.00	%		36,331		5.00	%

	Actual					Minimum Capital Requirement					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based ratio	$	86,053		15.24	%	$	45,157		8.00	%		56,447		10.00	%
Tier 1 risk-based ratio		78,976		13.99	%		33,868		6.00	%		45,157		8.00	%
Common equity tier 1		78,976		13.99	%		25,401		4.50	%		36,690		6.50	%
Total assets leverage ratio		78,976		12.06	%		26,185		4.00	%		32,731		5.00	%