Note 18 - Regulatory Restrictions

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

 

Note

18.

Regulatory Restrictions

Dividends

The Company, as a Virginia banking corporation,

may

pay dividends only out of its retained earnings. However, regulatory authorities

may

limit payment of dividends by any company when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the Company. At

December 31, 2018,

there was

$7.0

million in retained earnings available from which to pay dividends to common stockholders. On

May 15, 2018

at the annual shareholders meeting the Board of Directors declared the Company’s

first

cash dividend.  The cash dividend of

$0.04

per common share was paid on

June 15, 2018

to shareholders of record on

May 31, 2018

.

The Board declared cash dividends of

$0.04

per common share for each of the

three

subsequent quarters.

No

cash dividends were paid to common stockholders in

2017.

A stock dividend was distributed in

2016

and is discussed in Note

20

Capital Transactions.

Capital Requirements

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on

January 1, 2015

with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in

January 1, 2019.

As part of the new requirements, the Common Equity Tier

1

Capital is calculated and utilized in the assessment of capital for all institutions. The net unrealized gain or loss on available for sale securities is

not

included in computing regulatory capital.

Prompt corrective action regulations provide

five

classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are

not

used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year end

2018

and

2017,

the most recent regulatory notifications categorized the bank as well capitalized under the regulatory framework for prompt corrective action. There are

no

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

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 2015,

and is

no

longer obligated to report consolidated regulatory capital. In

July 2013,

the Federal Reserve Bank issued revised final rules that make technical changes to its market risk capital rules to align it with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act.

The new rules introduced the requirement of a new

2.5%

capital conservation buffer, to be phased in beginning on

January 1, 2016,

and ending on

January 1, 2019.

Banking organizations without other supervisory issues that wish to distribute capital freely, such as in the payment of dividends for example, must maintain the new capital conservation buffer. The final new capital rules required the Bank to comply with the following new minimum capital ratios (including the capital conservation buffer), effective

January 1, 2018

and

2017,

respectively: (

1

) a new common equity Tier

1

capital ratio of

6.375%

and

5.75%

of risk-weighted assets; (

2

) a Tier

1

capital ratio of

7.875%

and

7.25%

of risk-weighted assets; (

3

) a total capital ratio of

9.875%

and

9.25%

of risk-weighted assets; and (

4

) a leverage ratio of

4%

of total assets. 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I common equity, and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as all those terms are defined in the applicable regulations. As of

December 31, 2018,

management believes the Bank met all capital adequacy requirements to which it was subject.

The Bank’s actual capital amounts and ratios are also presented in the following tables:

HomeTown Bank December 31, 2018	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(in thousands except for percentages)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)	$	65,297		12.49	%	$	51,626		9.875	%	$	52,280		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)		61,303		11.72	%		33,346		6.375	%		33,999		6.50	%
Tier I Capital (to Risk-Weighted Assets)		61,305		11.72	%		41,193		7.875	%		41,847		8.00	%
Tier I Capital (to Average Assets)		61,305		10.79	%		22,727		4.00	%		28,408		5.00	%

HomeTown Bank December 31, 2017	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(in thousands except for percentages)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk-Weighted Assets)	$	61,257		12.48	%	$	45,403		9.25	%	$	49,084		10.00	%
Tier I Common Equity (to Risk-Weighted Assets)		57,474		11.71	%		28,222		5.75	%		31,903		6.50	%
Tier I Capital (to Risk-Weighted Assets)		57,499		11.72	%		35,569		7.25	%		39,248		8.00	%
Tier I Capital (to Average Assets)		57,499		10.39	%		22,136		4.00	%		27,670		5.00	%