NOTE 13 — Capital

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and additionally for banks, 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 judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules of implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available-for-sale securities and certain deferred tax assets are not included in computing regulatory capital. Management believes as of December 31, 2019, the Bank met all capital adequacy requirements to which it is subject.

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.

As of December 31, 2019, the most recent notification from the Federal Deposit Insurance Corporation 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 1 risk-based and Tier 1 leverage ratios as set forth in the table below. Since that notification, there are no conditions or events that management believes have changed the institution’s category.


									For Capital				To be Well
					Required				Adequacy Purposes				Capitalized Under
					For Capital				Including Capital				Prompt Corrective
	Actual				Adequacy Purposes*				Conservation Buffer				Action Regulations*
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019
Total capital to risk weighted assets	$	107,738	17.83	%	$	48,335	8.00	%	$	63,439	10.50	%	$	60,418	10.00	%
Tier 1 (core) capital to risk weighted assets		100,748	16.68			36,251	6.00			51,356	8.50			48,335	8.00
Tier 1 (common) capital to risk weighted assets		100,748	16.68			27,188	4.50			42,293	7.00			39,272	6.50
Tier 1 (core) capital to adjusted total assets		100,748	13.50			29,841	4.00			29,841	4.00			37,301	5.00

December 31, 2018
Total capital to risk weighted assets	$	90,958	18.70	%	$	38,920	8.00	%	$	48,042	9.88	%	$	48,650	10.00	%
Tier 1 (core) capital to risk weighted assets		85,328	17.54			29,190	6.00			38,312	7.88			38,920	8.00
Tier 1 (common) capital to risk weighted assets		85,328	17.54			21,893	4.50			31,014	6.38			31,623	6.50
Tier 1 (core) capital to adjusted total assets		85,328	13.26			25,733	4.00			25,733	4.00			32,166	5.00

*BASEL III revised the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015 for the Bank.