CAPITAL

12 Months Ended

Dec. 31, 2018

Banking and Thrift [Abstract]

CAPITAL

NOTE 21 CAPITAL

Capital Requirements and Ratios

The Bank is subject to various capital requirements administered by 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 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.

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 and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital (as defined) to average assets (as defined), and Common Equity Tier 1 capital (as defined) to risk-weighted assets (as defined). As of December 31, 2018, the Bank meets all capital adequacy requirements to which it is subject.

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement issued in February of 2015, and is no longer obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies. The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2018 and 2017, respectively. These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.

		Actual		Minimum Capital Requirement			Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)	Amount		Ratio	Amount	Ratio		Amount	Ratio
December 31, 2018:
Total Capital to Risk Weighted Assets	$	70,002	14.39%	$  38,912	8.0%	$	48,640	10.0%
Tier 1 Capital to Risk Weighted Assets		64,666	13.29%	29,184	6.0%		38,912	8.0%
Tier 1 Capital to Average Assets		64,666	9.59%	26,960	4.0%		33,700	5.0%
Common Equity Tier 1 Capital
to Risk Weighted Assets		64,666	13.29%	21,888	4.5%		31,616	6.5%
December 31, 2017:
Total Capital to Risk Weighted Assets	$	68,787	15.30%	$  35,970	8.0%	$	44,962	10.0%
Tier 1 Capital to Risk Weighted Assets		63,160	14.05%	26,977	6.0%		35,970	8.0%
Tier 1 Capital to Average Assets		63,160	9.56%	26,422	4.0%		33,028	5.0%
Common Equity Tier 1 Capital
to Risk Weighted Assets		63,160	14.05%	20,233	4.5%		29,225	6.5%

As of December 31, 2018, the Bank was 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, Tier 1 leverage, and Common Equity Tier 1 ratios as set forth in the above tables. There are no conditions or events since the notification that management believes have changed the Bank’s category.

Under Basel III Capital requirements, beginning January 1, 2016, a capital conservation buffer of 0.625% became effective. The capital conservation buffer is 1.25% as of December 31, 2018 and the Bank met that requirement with a buffer of 6.39%. The capital conservation buffer will be gradually increased through January 1, 2019 to 2.5%. Banks will be required to maintain levels that meet the required minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments.

Common Stock Warrants

The company issued common stock warrants as a result of the completion of its common stock offering in 2012. The warrants were immediately exercisable to purchase common stock over the next five years at a price of $1.75 per share with an expiration date of December 20, 2017. A summary of the activity in the common stock warrants up to their expiration date is as follows:

	2017
	Number of Warrants			Exercise Price
Outstanding and exercisable, beginning of year		881,978		$	1.75
Exercised		(636,364	)		1.75
Expired		(245,614	)		1.75
Outstanding and exercisable, end of year		—		$	—

As a result of the exercises shown above an additional $1.1 million of capital was raised by the Company during 2017. The additional liquidity provided by the funds will be used by the Company to pay its operating expenses and trust preferred interest payments.

Payment of Dividend to Company and Retirement of Stock

On October 23, 2017, the Board of Directors approved for the Bank to pay the Company a dividend of $111 thousand using 68,735 shares of the Company’s common stock that had been repossessed by the Bank as a result of collection activities on loans. The Board of Directors then approved for the Company to retire the 68,735 shares of the Company’s common stock. By law, the 68,735 shares of the Company’s common stock became part of the Company’s authorized and unissued shares and would be available for reissuance in the future.