Note 17 - Regulatory Matters

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

1 7. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking regulators.

The Bank is a state chartered bank jointly supervised by the Arkansas State Bank Department (“ASBD”) and the Board of Governors of the Federal Reserve System (“FRB”). The FRB is the primary regulator for the Company. Failure to meet minimum regulatory capital requirements can result in certain mandatory—and possible additional discretionary—actions by regulators that, if undertaken, could have a direct and material effect on the Company’s or the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s 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 the Bank to maintain minimum amounts and ratios (set forth in the following table) of tier

1

capital (as defined by regulation) to average assets (as defined by regulation) and common equity tier

1

capital, tier

1

capital and total capital (as defined by regulation) to risk-weighted assets (as defined by regulation). Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of the most recent notification from regulatory authorities, the 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 ratios as set forth in the table below. There are

no

conditions or events since that notification that management believes have changed any of the Bank

’s categorizations.

The actual

and required capital amounts (in thousands) and ratios of the Company (Consolidated) and the Bank as of

September 30, 2017

and

December 31, 2016

are presented in the following tables:

											To be Categorized
											as Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes *					Action Provisions
September 30, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Capital to Adjusted Average Assets
Consolidated	$	201,385		9.16	%	$	87,932		4.00	%		N/A		N/A
Bear State Bank		211,433		9.62	%		87,905		4.00	%	$	109,881		5.00	%
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	$	201,385		10.84	%	$	83,631		4.50	%		N/A		N/A
Bear State Bank		211,433		11.38	%		83,571		4.50	%	$	120,714		6.50	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	201,385		10.84	%	$	111,508		6.00	%		N/A		N/A
Bear State Bank		211,433		11.38	%		111,428		6.00	%	$	148,571		8.00	%
Total Capital to Risk-Weighted Assets
Consolidated	$	220,067		11.84	%	$	148,677		8.00	%		N/A		N/A
Bear State Bank		230,115		12.39	%		148,571		8.00	%	$	185,714		10.00	%
December 31, 201 6
Tier 1 Capital to Adjusted Average Assets
Consolidated	$	186,604		9.47	%	$	78,840		4.00	%		N/A		N/A
Bear State Bank		204,319		10.38	%		78,710		4.00	%	$	98,388		5.00	%
Common Equity Tier 1 to Risk-Weighted Assets
Consolidated	$	186,604		11.04	%	$	76,084		4.50	%		N/A		N/A
Bear State Bank		204,319		12.10	%		76,017		4.50	%	$	109,802		6.50	%
Tier I Capital to Risk-Weighted Assets
Consolidated	$	186,604		11.04	%	$	101,445		6.00	%		N/A		N/A
Bear State Bank		204,319		12.10	%		101,355		6.00	%	$	135,141		8.00	%
Total Capital to Risk-Weighted Assets
Consolidated	$	202,188		11.96	%	$	135,261		8.00	%		N/A		N/A
Bear State Bank		219,903		13.02	%		135,141		8.00	%	$	168,926		10.00	%

*

Beginning in

2016,

a Capital Conservation Buffer (“CCB”) requirement became effective for banking organizations. The Basel III Rules limit capital distributions and certain discretionary bonus payments if the banking organization does

not

hold a “capital conservation buffer” consisting of

2.5%

of common equity tier

1

capital, tier

1

capital and total capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements. The capital conservation buffer began to be phased in on

January 1, 2016,

at

0.625%

of risk-weighted assets, and will continue to be increased each year by that amount until fully implemented at

2.5%

on

January 1, 2019.

When fully phased in on

January 1, 2019,

the Basel III Rules will require the Company and Bank to maintain (i) a minimum ratio of common equity tier

1

capital to risk-weighted assets of at least

4.5%,

plus a

2.5%

capital conservation buffer, which effectively results in a minimum ratio of

7.0%

upon full implementation, (ii) a minimum ratio of tier

1

capital to risk-weighted assets of at least

6.0%,

plus a

2.5%

capital conservation buffer, which effectively results in a minimum ratio of

8.50%

upon full implementation, (iii) a minimum ratio of total capital to risk-weighted assets of at least

8.0%,

plus a

2.5%

capital conservation buffer, which effectively results in a minimum ratio of

10.5%

upon full implementation and (iv) a minimum leverage ratio of at least

4.0%.

Dividends

.

The Company

may

not

declare or pay cash dividends on its shares of common stock if the effect thereof would cause its stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements for insured institutions. In addition, the Bank is subject to limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. ASBD regulations specify that the maximum dividend state banks

may

payto the parent company in any calendar year without prior approval is

75%

of the current year earnings plus

75%

of the retained net earnings of the preceding year. Since the Bank is also under supervision of the FRB, the maximum dividend that

may

be paid without prior approval by the FRB is the Bank’s net profits to date for that year combined with its retained net profits for the preceding

two

years.  At

September 30, 2017,

the Bank had approximately

$20.7

million available for payment of dividends to the Company without prior regulatory approval from the ASBD and approximately

$21.0

million available for payment of dividends to the Company without prior regulatory approval from the FRB.

The principal source of the Company

’s revenues is dividends from the Bank. Our ability to pay dividends to our stockholders depends to a large extent upon the dividends we receive from the Bank.

Repurchase Program.

During the

three

and

nine

months ended

September 30, 2017,

the Company did

not

repurchase any shares of its common stock. The Company’s share repurchase program was initially approved by the Board of Directors on

March 13, 2015

and amended on

April 20, 2016,

whereby the Company is authorized to repurchase up to

$2

million of its common stock (the “Repurchase Program”). As of

September 30, 2017,

the Company had

$2

million remaining under the Repurchase Program.