Note 18 - Regulatory Capital

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE

18.

REGULATORY CAPITAL

The Holding Company and the Bank 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 our Consolidated Financial Statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

On

July 2, 2013,

the federal banking agencies substantially amended the regulatory risk-based capital rules applicable to the Holding Company and the Bank. Effective

January 1, 2015

the new rules created “Common equity tier

1,”

a new measure of regulatory capital closer to pure tangible common equity than the present Tier

1

definition; The required minimum risk-based capital ratio for Common equity tier

1

is

4.5

percent and with a

2.5

percent capital conservation buffer. The capital conservation buffer of

2.5

percent was phased in between

2016

and

2019.

The new capital rules required the Bank to meet the capital conservation buffer requirement by

2019

in order to avoid constraints on capital distributions, such as dividends and equity repurchases, and certain bonus compensation for executive officers. These new capital rules also change the risk-weights of certain assets for purposes of the risk-based capital ratios and phase out certain instruments as qualifying capital.

The capital amounts and the Bank’s prompt corrective action classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are

not

applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy, require the Company and the Bank to maintain minimum amounts and ratios set forth in the following table as defined in the regulations. Management believes as of

December 31, 2018

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

The Crapo Bill, signed into law in

May 2018,

simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than

$10

billion and instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between

8%

and

10%.

On

November 21, 2018,

the FDIC published a proposed Community Bank Leverage Ratio of

9%.

Any qualifying depository institution or its holding company that exceeds the Community Bank Leverage Ratio will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and considered to be “well capitalized” under the prompt corrective action rules discussed above. It is difficult at this time to predict when or how the new standards under the Crapo Bill will ultimately be applied to us or what specific impact the Crapo Bill (and any implementing rules and regulations) will have on community banks.

As of

December 31, 2018,

the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, an institution must maintain minimum ratios as set forth in the following table. There are

no

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

The Holding Company’s and the Bank’s actual capital amounts and ratios as of

December 31, 2018

and

2017

are presented in the following table.

						Well					Minimum					Applicable			Minimum Capital
						Capitalized					Capital					Capital			Ratio plus Capital
	Capital		Actual			Requirement					Requirement					Conservation			Conservation Buffer
(Amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Buffer			Amount		Ratio
At December 31, 2018:
Company
Common equity tier 1 capital ratio	$	139,488		12.79	%		n/a		n/a		$	49,072		4.50	%		1.875	%	$	69,519		6.375	%
Tier 1 capital ratio	$	149,488		13.71	%		n/a		n/a		$	65,429		6.00	%		1.875	%	$	85,876		7.875	%
Total capital ratio	$	172,475		15.82	%		n/a		n/a		$	87,239		8.00	%		1.875	%	$	107,686		9.875	%
Tier 1 leverage ratio	$	149,488		11.21	%		n/a		n/a		$	53,079		4.00	%		n/a		$	53,079		4.000	%
Bank
Common equity tier 1 capital ratio	$	144,245		13.23	%	$	70,856		6.50	%	$	49,054		4.50	%		1.875	%	$	69,493		6.375	%
Tier 1 capital ratio	$	144,245		13.23	%	$	87,207		8.00	%	$	65,405		6.00	%		1.875	%	$	85,844		7.875	%
Total capital ratio	$	157,232		14.42	%	$	109,009		10.00	%	$	87,207		8.00	%		1.875	%	$	107,646		9.875	%
Tier 1 leverage ratio	$	144,245		10.81	%	$	66,712		5.00	%	$	53,369		4.00	%		n/a		$	53,369		4.000	%
At December 31, 2017:
Company
Common equity tier 1 capital ratio	$	125,745		12.26	%		n/a		n/a		$	46,169		4.50	%		1.25	%	$	58,994		5.750	%
Tier 1 capital ratio	$	135,745		13.23	%		n/a		n/a		$	61,559		6.00	%		1.25	%	$	74,384		7.250	%
Total capital ratio	$	158,365		15.44	%		n/a		n/a		$	82,079		8.00	%		1.25	%	$	94,903		9.250	%
Tier 1 leverage ratio	$	135,745		10.86	%		n/a		n/a		$	50,008		4.00	%		n/a		$	50,008		4.000	%
Bank
Common equity tier 1 capital ratio	$	129,139		12.58	%	$	66,703		6.50	%	$	46,179		4.50	%		1.25	%	$	59,006		5.750	%
Tier 1 capital ratio	$	129,139		12.58	%	$	82,096		8.00	%	$	61,572		6.00	%		1.25	%	$	74,399		7.250	%
Total capital ratio	$	141,760		13.81	%	$	102,620		10.00	%	$	82,096		8.00	%		1.25	%	$	94,923		9.250	%
Tier 1 leverage ratio	$	129,139		10.33	%	$	62,486		5.00	%	$	49,989		4.00	%		n/a		$	49,989		4.000	%

Our principal source of cash is dividends received from the Bank, which are subject to government regulation and limitations on the Bank’s ability to pay dividends. We also have trust preferred securities, senior debt and subordinated debt agreements with provisions that

may

impact our ability to pay dividends on our common stock to our common shareholders.