Note 10 - Regulatory Matters

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

10. Regulatory Matters

Restrictions on Dividends, Loans and Advances

The Bank is subject to a regulatory dividend restriction that generally limits the amount of dividends that can be paid by the Bank to the Corporation. Prior regulatory approval is required if the total of all dividends declared in any calendar year exceeds net profits (as defined in the regulations) for the year combined with net retained earnings (as defined) for the

two

preceding calendar years. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. As of

December 

31,

2018,

$3.9

 million of undistributed earnings of the Bank was available for distribution of dividends without prior regulatory approval.

Loans or advances from the Bank to the Corporation are limited to

10%

of the Bank’s capital stock and surplus on a secured basis. Funds available for loans or advances by the Bank to the Corporation amounted to approximately

$6.0

 million. During

2018,

the Corporation paid off a 

$2.2

million commercial line of credit available at the Bank for the primary purpose of purchasing qualified equity investments. At

December 

31,

2017,

the Corporation had an outstanding balance on this line of

$1.0

million.

Minimum Regulatory Capital Requirements

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 accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

In

2018,

the Board of Governors of the Federal Reserve System amended its Small Bank Holding Company Policy Statement by increasing the policy’s consolidated assets threshold from

$1

 billion to

$3

 billion. The primary benefit of being deemed a "small bank holding company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level.

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

2018

was 

1.875%

and was

1.25%

for

2017.

Amounts recorded to accumulated other comprehensive income are

not

included in computing regulatory capital. Management believes as of

December 

31,

2018,

the 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 year-end

2018

 and

2017,

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 following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented. The capital adequacy ratios disclosed below are exclusive of the capital conservation buffer. 

(Dollar amounts in thousands)	December 31, 2018					December 31, 2017
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	76,344		12.93	%	$	64,221		12.96	%
For capital adequacy purposes		47,252		8.00	%		39,630		8.00	%
To be well capitalized		59,065		10.00	%		49,537		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	69,836		11.82	%	$	58,088		11.73	%
For capital adequacy purposes		35,439		6.00	%		29,722		6.00	%
To be well capitalized		47,252		8.00	%		39,630		8.00	%
Common equity Tier 1 capital to risk-weighted assets:
Actual	$	69,836		11.82	%	$	58,088		11.73	%
For capital adequacy purposes		26,579		4.50	%		22,292		4.50	%
To be well capitalized		38,393		6.50	%		32,199		6.50	%
Tier 1 capital to average assets:
Actual	$	69,836		7.95	%	$	58,088		7.71	%
For capital adequacy purposes		35,126		4.00	%		30,117		4.00	%
To be well capitalized		43,908		5.00	%		37,647		5.00	%