REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

REGULATORY MATTERS

REGULATORY MATTERS

NOTE 16 – REGULATORY MATTERS

Banks and bank holding companies 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 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 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 by January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2019 and 2018 was  2.50% and 1.875%, respectively. The net unrealized gain or loss on available for sale securities, if any, is not included in computing regulatory capital. Management believes as of December 31, 2019, the Company and Bank meets all capital adequacy requirements to which they are 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. At December 31, 2019 and 2018, 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 actual capital amounts (in thousands) and ratios of the Company and Bank are presented in the following table:

									To Be Well Capitalized
					For Capital				Under Prompt Corrective
(Dollars in thousands)	Actual				Adequacy Purposes:				Action Provisions:
	Amount		Ratio		Amount ≥		Ratio ≥		Amount ≥	Ratio ≥
As of December 31, 2019
Total Capital (to Risk Weighted Assets)
Consolidated	$	215,377	22.01	%	N/A	*	N/A	*	N/A	N/A
Bank		199,539	20.40	%	78,251		8.0	%	97,814	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		208,538	21.31	%	N/A	*	N/A	*	N/A	N/A
Bank		192,700	19.70	%	58,688		6.0	%	78,251	8.0	%
Common Tier 1 (CET1)
Consolidated		208,538	21.31	%	N/A	*	N/A	*	N/A	N/A
Bank		192,700	19.70	%	44,016		4.5	%	63,579	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		208,538	12.70	%	N/A	*	N/A	*	N/A	N/A
Bank		192,700	11.74	%	65,655		4.0	%	82,069	5.0	%
As of December 31, 2018
Total Capital (to Risk Weighted Assets)
Consolidated	$	166,851	18.16	%	N/A	*	N/A	*	N/A	N/A
Bank		163,339	17.80	%	73,392		8.0	%	91,740	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		160,207	17.44	%	N/A	*	N/A	*	N/A	N/A
Bank		156,696	17.08	%	55,044		6.0	%	73,392	8.0	%
Common Tier 1 (CET1)
Consolidated		160,207	17.44	%	N/A	*	N/A	*	N/A	N/A
Bank		156,696	17.08	%	41,283		4.5	%	59,631	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		160,207	11.14	%	N/A	*	N/A	*	N/A	N/A
Bank		156,696	10.91	%	57,455		4.0	%	71,819	5.0	%

*  The Board of Governors of the Federal Reserve raised the threshold for determining applicable of the Small Bank Holding Company and Savings and Loan Company Policy Statement in August 2018 from $1 Billion to $3 Billion in consolidated total assets to provide regulatory burden relief, therefore, the Company is no longer subject to the minimum capital requirements.

The sole source of funds available to pay stockholder dividends is from the Company’s earnings. Bank regulatory authorities impose restrictions on the amount of dividends that may be declared by the Company. Further restrictions could result from a review by regulatory authorities of the Company’s capital adequacy. For the years ended December 31, 2019, 2018 and 2017, $10.4 million, $9.3 million and $5.4 million in common dividends were declared and paid, respectively. During 2019, the Bank could without prior approval, declare dividends of approximately $22.4. million.