Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2013

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements

NOTE 18: REGULATORY CAPITAL REQUIREMENTS

We are subject to various regulatory capital requirements administered by federal 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 financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. It is the policy of the FRB that banks and bank holding companies, respectively, should pay dividends only out of current earnings and only if, after paying such dividends, the bank or bank holding company would remain adequately capitalized. We are also subject to the regulatory framework for prompt corrective action that requires it to meet specific capital guidelines to be considered well capitalized. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2013, that Merchants met all capital adequacy requirements to which it is subject.

As of December 31, 2013, the most recent notification from the FDIC categorized Merchants 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 Merchants Bank’s category. To be considered well capitalized under the regulatory framework for prompt corrective action, Merchants Bank must maintain minimum Tier 1 Leverage, Tier 1 Risk-Based, and Total Risk-Based Capital ratios. Set forth in the table below are those ratios as well as those for Merchants Bancshares, Inc.

It is the policy of the FRB that bank holding companies should pay dividends only out of current earnings and only if, after paying such dividends, the bank holding company would remain adequately capitalized. The FRB has the authority to prohibit a bank holding company, such as us, from paying dividends if it deems such payment to be an unsafe or unsound practice. The FDIC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis.

									To Be Well-
									Capitalized Under
					For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(In thousands)	Amount		Percent		Amount		Percent		Amount		Percent
As of December 31, 2013
Merchants Bancshares, Inc.:
Tier 1 Leverage Capital	$	142,036	8.44	%	$	67,344	4.00	%		N/A	N/A
Tier 1 Risk-Based Capital		142,036	14.87	%		38,216	4.00	%		N/A	N/A
Total Risk-Based Capital		153,999	16.12	%		76,433	8.00	%		N/A	N/A
Merchants Bank:
Tier 1 Leverage Capital	$	139,144	8.24	%	$	67,530	4.00	%	$	84,413	5.00	%
Tier 1 Risk-Based Capital		139,144	14.47	%		38,470	4.00	%		57,705	6.00	%
Total Risk-Based Capital		151,176	15.72	%		76,940	8.00	%		96,175	10.00	%
As of December 31, 2012
Merchants Bancshares, Inc.:
Tier 1 Leverage Capital	$	136,004	8.08	%	$	67,307	4.00	%		N/A	N/A
Tier 1 Risk-Based Capital		136,004	14.75	%		36,887	4.00	%		N/A	N/A
Total Risk-Based Capital		147,505	16.00	%		73,753	8.00	%		N/A	N/A
Merchants Bank:
Tier 1 Leverage Capital	$	131,850	7.81	%	$	67,494	4.00	%	$	84,367	5.00	%
Tier 1 Risk-Based Capital		131,850	14.21	%		37,123	4.00	%		55,684	6.00	%
Total Risk-Based Capital		143,422	15.45	%		74,245	8.00	%		92,806	10.00	%

Capital amounts for Merchants Bancshares, Inc. include $20 million in trust preferred securities issued in December 2004. These hybrid securities qualify as regulatory capital up to certain regulatory limits.