Note 11 - Minimum Regulatory Capital Requirement

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

1

1

: Minimum Regulatory Capital Requirement

In

August, 2018,

the Federal Reserve updated the Small Bank Holding Company Policy Statement (“the Statement”), in compliance with The Economic Growth, Regulatory Relief and Consumer Protection Act of

2018

(“EGRRCPA”). The Statement, among other things, exempts bank holding companies that fall below a certain asset threshold from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. The interim final rule expands the exemption to bank holding companies with consolidated total assets of less than

$3

billion. Prior to

August 2018,

the statement exempted bank holding companies with consolidated total assets of less than

$1

billion. As a result of the interim final rule, the Company qualifies as of

August, 2018

as a small bank holding company and is

no

longer subject to regulatory capital requirements on a consolidated basis.

The subsidiary bank continues to be subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and 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 regulators about components, risk weightings, and other factors.

The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective on

January 1, 2015 (

subject to a phase-in period continuing through

January 1, 2019

for certain provisions). Basel III Capital Rules established quantitative measures to ensure capital adequacy. The rules set forth minimum amounts and ratios for Common Equity Tier

1

capital (

“CET1”

), Tier

1

capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier

1

capital to adjusted quarterly average assets (as defined).

The Bank’s

CET1

capital include common stock and related surplus and retained earnings. Basel III Capital Rules provide an option to exclude components of accumulated other comprehensive income (loss) from

CET1

capital. Once made, the election is final and cannot be changed. The Bank elected to exclude components of accumulated other comprehensive income from

CET1

capital.

Tier

1

Capital includes

CET1

capital and additional Tier

1

capital components. At

December 31, 2018

and

2017,

the Bank did

not

hold any additional Tier

1

capital beyond

CET1

capital.

Total capital includes Tier

1

capital and Tier

2

capital. Tier

2

capital includes the allowance for loan losses.

The Bank’s risk-weighted assets were

$816,660

at

December 31, 2018

and

$805,656

as of

December 31, 2017.

Management believes, as of

December 31, 2018

and

2017,

that the Bank met all capital adequacy requirements to which it is subject.

As of

December 31, 2018,

the most recent notifications from the Office of the Comptroller of the Currency 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 total risk-based, Tier

1

risk-based, Common Equity Tier

1

risk-based and Tier

1

leverage ratios, as set forth in the following tables. There are

no

conditions or events since these notifications that management believes have changed the Bank’s category.

The Bank’s capital amounts and ratios as of

December 31, 2018

and

2017

are presented in the following tables.

	Actual					Minimum Capital Requirement (1)					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2018
Total capital (to risk weighted assets)	$	202,238		24.764	%	$	80,645		9.875	%	$	81,666		10.000	%
Tier 1 capital (to risk weighted assets)	$	194,823		23.856	%	$	64,312		7.875	%	$	65,333		8.000	%
Common Equity Tier 1 capital (to risk weighted assets)	$	194,823		23.856	%	$	52,062		6.375	%	$	53,083		6.500	%
Tier 1 capital (to average assets)	$	194,823		15.788	%	$	49,359		4.000	%	$	61,699		5.000	%

	Actual					Minimum Capital Requirement (1)					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 201 7
Total capital (to risk weighted assets)	$	195,903		24.316	%	$	74,523		9.250	%	$	80,566		10.000	%
Tier 1 capital (to risk weighted assets)	$	187,978		23.332	%	$	58,410		7.250	%	$	64,452		8.000	%
Common Equity Tier 1 capital (to risk weighted assets)	$	187,978		23.332	%	$	46,325		5.750	%	$	52,368		6.500	%
Tier 1 capital (to average assets)	$	187,978		15.254	%	$	49,293		4.000	%	$	61,616		5.000	%

( 1 ) Except with regard to the Bank’s Tier 1 capital to average assets ratio, the minimum capital requirement includes the current phased-in portion of the Basel III Capital Rules capital conservation buffer ( 1.25% ) which is added to the minimum capital requirements for capital adequacy purposes. The capital conservation buffer is being phased in through four equal annual installments of .0625% from 2016 to 2019, with full implementation in January 2019 ( 2.5% ). The Bank’s capital conservation buffer must consist of additional CET1 above regulatory minimum requirement. Failure to maintain the prescribed levels would result in limitations on capital distributions and discretionary bonuses to executives.