Note 10 - Regulatory Matters

12 Months Ended

Dec. 31, 2021

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, 2021, $13.5 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. As of December 31, 2021 and 2020, the Corporation had no outstanding loans or advances from the Bank.

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.

The Small Bank Holding Company threshold for consolidated assets is $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 on  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 was phased in from 0.0% for 2015 to 2.50% in 2019 and subsequent periods.  Amounts recorded to accumulated other comprehensive income are not included in computing regulatory capital. Management believes as of December 31, 2021, 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 2021 and 2020, 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, 2021					December 31, 2020
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	92,495		13.11	%	$	84,583		12.71	%
For capital adequacy purposes		56,448		8.00	%		53,255		8.00	%
To be well capitalized		70,559		10.00	%		66,569		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	83,656		11.86	%	$	76,246		11.45	%
For capital adequacy purposes		42,336		6.00	%		39,941		6.00	%
To be well capitalized		56,448		8.00	%		53,255		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	83,656		11.86	%	$	76,246		11.45	%
For capital adequacy purposes		31,752		4.50	%		29,956		4.50	%
To be well capitalized		45,864		6.50	%		43,270		6.50	%
Tier 1 capital to average assets:
Actual	$	83,656		7.98	%	$	76,246		7.58	%
For capital adequacy purposes		41,926		4.00	%		40,213		4.00	%
To be well capitalized		52,407		5.00	%		50,267		5.00	%