STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

9 Months Ended

Sep. 30, 2020

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS [Abstract]

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

NOTE 4 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below.  During 2020 the Banks could, without prior approval, declare dividends to the Company of approximately $11.4 million plus any 2020 net profits retained to the date of the dividend declaration.

The Company and the subsidiary Banks are subject to various regulatory capital requirements administered by the 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 the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

In 2020, the Company elected to adopt regulatory capital simplification rules permitting bank holding companies of Premier’s size to utilize one measure of regulatory capital, the community bank leverage ratio (also known as the “CBLR”), to determine regulatory capital adequacy.  The community bank leverage ratio requires a higher amount of Tier 1 capital to average assets than the standard leverage ratio to be considered well capitalized.  However, meeting this higher standard eliminates the need to compute and monitor the Tier 1 risk-based capital ratio, the Common Equity Tier 1 risk-based capital ratio and the total risk-based capital ratio as well as maintain the 2.50% regulatory capital buffer necessary to avoid limitations on equity distributions and discretionary bonus payments.  Other criteria required to be able to utilize the CBLR as the sole measure of capital adequacy include 1.) total assets less than $10.0 billion, 2.) trading assets and liabilities equal to less than 5.0% of total assets and 3.) off-balance sheet exposures, such as the unused portion of conditionally cancellable lines of credit, equal to less than 25% of total assets.  Premier and its subsidiary banks meet all three of these criteria and have elected to utilize the CBLR as their measure of regulatory capital adequacy.

Under interim guidance issued in June 2020, a community bank leverage ratio of Total Tier 1 capital to quarterly average assets must be at least 8.00% to be considered well capitalized.  Premier’s Tier 1 capital totaled $203.8 million at September 30, 2020, which represents a community bank leverage ratio of 11.0%.  Premier’s wholly owned subsidiary Citizens Deposit Bank  adopted the CBLR simplification standard during the second quarter of 2020 and maintained a CBLR of 8.5% at September 30, 2020.  Premier’s other wholly owned subsidiary bank, Premier Bank, Inc., adopted the regulatory capital simplification rules in the first quarter and maintained a CBLR of 10.8% at September 30, 2020, well in excess of the 8.00% required to be considered well capitalized under the prompt corrective action framework.

Shown below is a summary of regulatory capital ratios for the Company:

	September 30, 2020			December 31, 2019			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier 1 Capital to average assets (CBLR):		11.0	%		11.3	%		8.0	%		8.0	%