Note 17 - Shareholders' Equity

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

17. SHAREHOLDERS ’ EQUITY

Dividends are paid at the discretion of the Company

’s Board of Directors, based on the Company’s operating performance and financial position, including earnings, capital and liquidity. Dividends from the Bank are the Company’s primary source of funds for the payment of dividends to shareholders. In addition, federal and state regulatory agencies have the authority to prevent the Company from paying a dividend to shareholders. During each of the years ended

December 31, 2018

and

2017,

the Company declared dividends of

$0.5

million, or

$0.08

per share.

Regulatory Capital

As of

January 1, 2015,

the Bank was subject to revised capital requirements as described in the section captioned “

Supervision and Regulation – Capital Adequacy” included in Part I, Item I of this report.  Under the revised requirements, the Bank is subject to minimum risk-based capital and leverage capital requirements, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments.  Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Bank and Bancshares, and could impact Bancshares’ ability to pay dividends. Effective

January 1, 2018,

the Bank’s minimum risk-based capital requirements include the year

three

phased-in capital conservation buffer of

1.875%.

Effective

January 1, 2017,

the Bank’s minimum risk-based capital requirements include the year

two

phased-in capital conservation buffer of

1.25%.

As of

December 31, 2018,

the Bank exceeded all applicable minimum capital standards. In addition, the Bank met applicable regulatory guidelines to be considered well-capitalized as of

December 31, 2018.  

To be categorized in this manner, the Bank maintained common equity Tier

1

risk-based capital, Tier

1

risk-based capital, total risk-based capital and Tier

1

leverage ratios as set forth in the table below. In addition, the Bank was

not

subject to any written agreement, order, capital directive or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific level for any capital measures.  

The following table provides the Bank

’s actual regulatory capital amounts and ratios under regulatory capital standards in effect (Basel III) at

December 31, 2018

and

December 31, 2017:

	2018
	Actual Regulatory Capital
	Amount		Ratio			Minimum Requirement			To Be Well Capitalized
	(Dollars in Thousands)
Common equity Tier 1 capital (to risk-weighted assets)	$	70,177		12.62	%		6.375	%		6.50	%
Tier 1 capital (to risk-weighted assets)		70,177		12.62	%		7.875	%		8.00	%
Total capital (to risk-weighted assets)		75,232		13.53	%		9.875	%		10.00	%
Tier 1 leverage (to average assets)		70,177		8.96	%		4.00	%		5.00	%

	2017
	Actual Regulatory Capital
	Amount		Ratio			Minimum Requirement			To Be Well Capitalized
	(Dollars in Thousands)
Common equity Tier 1 capital (to risk-weighted assets)	$	74,383		18.41	%		5.750	%		6.50	%
Tier 1 capital (to risk-weighted assets)		74,383		18.41	%		7.250	%		8.00	%
Total capital (to risk-weighted assets)		79,157		19.60	%		9.250	%		10.00	%
Tier 1 leverage (to average assets)		74,383		11.89	%		4.00	%		5.00	%

No

significant conditions or events have occurred since

December 31, 2018

that management believes have affected the Bank

’s classification as “well capitalized.” Because of the size of the Company’s balance sheet, there is currently

no

requirement for separate reporting of capital amounts and ratios for Bancshares. Accordingly, such amounts and ratios are

not

included herein.

Under the FDIC

’

s final rule establishing

the methodology for calculating deposit insurance assessments for banks with less than

$10

billion in assets, the rate is determined based on a

number of factors, including the bank

’s CAMELS ratings, leverage ratio, net income, non-performing loan ratios, OREO ratios, core deposit ratios,

one

-year organic asset growth and a loan mix index. The CAMELS rating system is a supervisory rating system developed to classify a bank’s overall condition by taking into account capital adequacy, assets, management capability, earnings, liquidity and sensitivity to market and interest rate risk. The loan mix index component of the assessment model requires banks to calculate each of their loan categories as a percentage of assets and then multiply each category by a standardized historical charge-off rate percentage provided by the FDIC, with a higher index leading to a higher assessment rate. The rule implements maximum assessment rates for institutions with a composite CAMELS rating of

1

or

2

and minimum rates for institutions with a rating of

3,

4

or

5.

Dividend R

estrictions

Under Delaware law, dividends

may

be paid only out of “

surplus,” defined as an amount equal to the present fair value of the total assets of the corporation, minus the present fair value of the total liabilities of the corporation, minus the capital of the corporation. In the event that there is

no

surplus, dividends

may

be paid out of the net profits of the corporation for the fiscal year in which the dividend is declared and/or the immediately preceding fiscal year. Dividends

may

not

be paid, however, out of net profits of the corporation if the capital represented by the issued and outstanding stock of all classes having a preference on the distribution of assets is impaired. Further, the Federal Reserve permits bank holding companies to pay dividends only out of current earnings and only if future retained earnings would be consistent with the company’s capital, asset quality and financial condition.

Since it has

no

significant independent sources of income, Bancshares

’ ability to pay dividends depends on its ability to receive dividends from the Bank. Under Alabama law, a state-chartered bank must annually transfer to surplus at least

10%

of its “net earnings” (defined as the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, less all current operating expenses, actual losses, accrued dividends on preferred stock and all federal, state and local taxes) until the bank’s surplus is at least

20%

of its capital. Until the bank’s surplus reaches this level, a bank

may

not

declare a dividend in excess of

90%

of its net earnings. Once a bank’s surplus equals or exceeds

20%

of its capital, if the total of all dividends declared by the bank in a calendar year will exceed the sum of its net earnings for that year and its retained net earnings for the preceding

two

years (less any required transfers to surplus), then the bank must obtain prior written approval from the Superintendent of the Alabama State Banking Department. The bank

may

not

pay any dividends or make any withdrawals or transfers from surplus without the prior written approval of the Superintendent. The FDIC prohibits the payment of cash dividends if (

1

) as a result of such payment, the bank would be undercapitalized or (

2

) the bank is in default with respect to any assessment due to the FDIC, including a deposit insurance assessment. These restrictions could materially influence the Bank’s, and therefore Bancshares’, ability to pay dividends.