Note 15 - Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

15.

REGULATORY CAPITAL REQUIREMENTS

Dividend payments made by the Company are subject to regulatory restrictions under Federal Reserve Board policy as well as to limitations under applicable provisions of Virginia corporate law. The Federal Reserve Board

may

prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized." Under Virginia law, dividends

may

be paid out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Furthermore, under FDIC regulations, the Bank is prohibited from making any capital distributions if, after making the distribution, the Bank’s capital ratios would be below the level necessary to categorize the Bank as “adequately capitalized” under the FDIC’s prompt corrective action regulations.

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about component risk weightings and other factors. The Company’s capital amounts and ratios are not significantly different from the Bank. At

December

31,

2016

and

2015

the Company’s and the Bank’s Tier

1

and total capital ratios and their Tier

1

leverage ratios exceeded minimum requirements. As of

December

31,

2016,

the most recent report filing date with the FDIC, the Bank’s regulatory capital position is categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum amounts and ratios, as set forth in the table below. There are no conditions or events since

December

31,

2016,

that management believes has changed the Bank's well capitalized category.

The Federal Reserve Board has approved and published final Basel III Capital Rules establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules, among other things, (i) introduced

CET1

as a new capital measure, (ii) specified that Tier

1

capital consists of

CET1

and “Additional Tier

1

capital” instruments meeting specified requirements, (iii) defined

CET1

narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to

CET1

and not to the other components of capital and (iv) expanded the scope of the deductions from and adjustments to capital as compared to existing regulations. The Basel III Capital Rules were effective for the Bank and the Company on

January

1,

2015.

CET1

capital for the Company and the Bank consists of common stock, related paid-in capital, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in

CET1.

CET1

for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of

2.50%

of

CET1

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 beginning

January

1,

2016,

at

0.625%

of risk-weighted assets, and increasing each year until fully implemented at

2.50%

on

January

1,

2019.

When fully phased in on

January

1,

2019,

Basel III will require (i) a minimum ratio of

CET1

capital to risk-weighted assets of at least

4.50%

, plus a

2.50%

capital conservation buffer, (ii) a minimum ratio of Tier

1

capital to risk-weighted assets of at least

6.00%

, plus the capital conservation buffer, (iii) a minimum ratio of total capital to risk-weighted assets of at least

8.00%

, plus the

2.50%

capital conservation buffer and (iv) a minimum leverage ratio of

4.00%

. The Bank’s actual regulatory capital amounts and ratios as of

December

31,

2016

and

2015

are as follows:

						Minimum for Capital					Minimum to be
Regulatory Capital Requirements	Actual					Adequacy Purposes					Well Capitalized
	Amount		Ratio			Amount		Ratio (1)			Amount		Ratio
	(Dollars in thousands)
December 31, 2016:
Total risk-based capital (1)	$	96,502		13.009	%	$	63,978		8.625	%	$	74,178		10.00	%
Tier 1 risk-based capital (1)		87,517		11.798	%		49,143		6.625	%		59,342		8.00	%
Common equity Tier 1 risk-based capital (1)		87,517		11.798	%		38,016		5.125	%		48,215		6.50	%
Tier 1 leverage capital		87,517		8.894	%		39,360		4.000	%		49,200		5.00	%
December 31, 2015:
Total risk-based capital	$	88,074		13.29	%	$	53,002		8.00	%	$	66,253		10.00	%
Tier 1 risk-based capital		79,871		12.06	%		39,752		6.00	%		53,002		8.00	%
Common equity Tier 1 risk-based capital		79,871		12.06	%		29,814		4.50	%		43,064		6.50	%
Tier 1 leverage capital		79,871		8.67	%		36,848		4.00	%		46,060		5.00	%

(1)

Includes

0.625%

phase in for capital conservation buffer to allow capital distributions and certain discretionary bonus payments.