Note 20 - Regulatory Matters

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE

2

0

— REGULATORY MATTERS

The Bank and the Company 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 possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications 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 to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of

December 

31,

2018,

that the Bank and Company meets all capital adequacy requirements to which they are subject.

As of

December 

31,

2018,

the most recent notification from the Federal Reserve Bank categorized the Bank 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, Common Equity Tier

1

risk-based and Tier I leverage ratios as set forth in the following table. There are

no

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

The Company and Bank’s actual capital amounts and ratios at

December 

31,

2018

and

2017,

are presented in the following table.

							To be well
							capitalized under
(in thousands)				Adequately capitalized			prompt corrective
	Actual			threshold (1)			action provisions
Capital ratios for Bank:	Amount		Ratio	Amount		Ratio	Amount		Ratio
As of December 31, 2018
Total capital (to Risk- Weighted Assets)	$	104,253	11.7%	$	87,691	> 9.875%	$	88,801	> 10.0%
Tier I capital (to Risk- Weighted Assets)	$	95,172	10.7%	$	69,931	> 7.875%	$	71,041	> 8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	95,172	10.7%	$	56,611	> 6.375%	$	57,721	> 6.5%
Tier I capital (to Average Assets)	$	95,172	8.7%	$	43,665	> 4.0%	$	54,581	> 5.0%
As of December 31, 2017
Total capital (to Risk- Weighted Assets)	$	93,933	11.3%	$	77,102	> 9.25%	$	83,354	> 10.0%
Tier I capital (to Risk- Weighted Assets)	$	85,462	10.3%	$	60,431	> 7.25%	$	66,683	> 8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	85,462	10.3%	$	47,928	> 5.75%	$	54,180	> 6.5%
Tier I capital (to Average Assets)	$	85,462	8.4%	$	40,820	> 4.0%	$	51,025	> 5.0%
Capital ratios for Bancorp:
As of December 31, 2018
Total capital (to Risk- Weighted Assets)	$	104,613	11.8%	$	87,699	> 9.875%		N/A	N/A
Tier I capital (to Risk- Weighted Assets)	$	95,532	10.8%	$	69,937	> 7.875%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	95,532	10.8%	$	56,616	> 6.375%		N/A	N/A
Tier I capital (to Average Assets)	$	95,532	8.8%	$	43,667	> 4.0%		N/A	N/A
As of December 31, 2017
Total capital (to Risk- Weighted Assets)	$	94,354	11.3%	$	77,119	> 9.25%		N/A	N/A
Tier I capital (to Risk- Weighted Assets)	$	85,883	10.3%	$	60,445	> 7.25%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	85,883	10.3%	$	47,939	> 5.75%		N/A	N/A
Tier I capital (to Average Assets)	$	85,883	8.4%	$	40,823	> 4.0%		N/A	N/A

(

1

)       The adequately capitalized thresholds in the table above, includes the capital conservation buffers of

1.875%

in

2018

and

1.25%

in

2017,

that became effective

January 1, 2016.

These ratios are

not

reflected on a fully phased-in basis, which occured in

January 2019.

In

July 2013,

the U.S. banking agencies approved the U.S. version of Basel III. The federal bank regulatory agencies adopted version of Basel III revises the risk-based and leverage capital requirements and the method for calculating risk-weighted assets to make them consistent with Basel III and to meet the requirements of the Dodd-Frank Act. Although many of the rules contained in these final regulations are applicable only to large, internationally active banks, some of them will apply on a phased in basis to all banking organizations, including the Company and the Bank. Among other things, the rules establish a new minimum common equity Tier

1

ratio (

4.5%

of risk-weighted assets), a higher minimum Tier

1

risk-based capital requirement (

6.0%

of risk-weighted assets) and a minimum non-risk-based leverage ratio (

4.00%

eliminating a

3.00%

exception for higher rated banks). The new additional capital conservation buffer of

2.5%

of risk weighted assets over each of the required capital ratios will be phased in from

2016

to

2019

and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. The additional “countercyclical capital buffer” is also required for larger and more complex institutions. The new rules assign higher risk weighting to exposures that are more than

90

days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rules also change the permitted composition of Tier

1

capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets and include unrealized gains and losses on available for sale debt and equity securities (with a

one

-time opt out option for Standardized Banks (banks with less than

$250

billion of total consolidated assets and less than

$10

billion of foreign exposures)). The rules, including alternative requirements for smaller community financial institutions like the Company, would be phased in through

2019.

The implementation of the Basel III framework for the Company and the Bank commenced on

January 1, 2015.

In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier

1

capital to total average assets, referred to as the leverage ratio. Banks that have received the highest rating of the

five

categories used by regulators to rate banks and are

not

anticipating or experiencing any significant growth must maintain a ratio of Tier

1

capital (net of all intangibles) to adjusted total assets, or “Leverage Capital Ratio”, of at least

3%.

All other institutions are required to maintain a leverage ratio of at least

100

to

200

basis points above the

3%

minimum, for a minimum of

4%

to

5%.

Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans.