Note 8 - Regulatory Matters

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

8. Regulatory Matters

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.

To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3 billion or less.  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, becoming 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 September 30, 2022, the Bank met all capital adequacy requirements to which it was 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 September 30, 2022, 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)	September 30, 2022					December 31, 2021
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	91,347		12.76	%	$	92,495		13.11	%
For capital adequacy purposes		57,279		8.00	%		56,448		8.00	%
To be well capitalized		71,599		10.00	%		70,559		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	82,377		11.51	%	$	83,656		11.86	%
For capital adequacy purposes		42,959		6.00	%		42,336		6.00	%
To be well capitalized		57,279		8.00	%		56,448		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	82,377		11.51	%	$	83,656		11.86	%
For capital adequacy purposes		32,219		4.50	%		31,752		4.50	%
To be well capitalized		46,539		6.50	%		45,864		6.50	%
Tier 1 capital to average assets:
Actual	$	82,377		7.86	%	$	83,656		7.98	%
For capital adequacy purposes		41,931		4.00	%		41,926		4.00	%
To be well capitalized		52,413		5.00	%		52,407		5.00	%