Note 17 - Regulatory Capital

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE

17

Regulatory Capital

Effective

January

1,

2015

the capital requirements of the Company and the Bank were changed to implement the

regulatory requirements of the Basel III capital reforms. The Basel III requirements, among other things, (i) apply a strengthened set of capital requirements to the Bank (the Company is exempt, pursuant to the Small Bank Holding Company Policy Statement (Policy Statement) described below), including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum tier

1

capital requirement, and (iii) revise the rules for calculating risk-weighted assets for purposes of such requirements. The rules made corresponding revisions to the prompt corrective action framework and include the new capital ratios and buffer requirements which will be phased in incrementally, with full implementation scheduled for

January

1,

2019.

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 Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The FRB amended its Policy Statemen

t, to exempt small bank holding companies from the above capital requirements, by raising the asset size threshold for determining applicability from

$500

million to

$1

billion. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement

’

s qualitative requirements for exemption. The Company met the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.

Quantitative measures established by regulations to

ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table and defined in the regulation) of Common Equity Tier

1

capital to risk weighted assets, Tier

1

capital to adjusted total assets, Tier

1

capital to risk weighted assets, and total capital to risk weighted assets.

At

December

31,

2016

and

2015,

the Bank's capital amounts and ratios are presented for actual capital, required capital and excess capital including amounts and ratios in order to

qualify as being well capitalized under the prompt corrective action regulations:

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Assets (1)			Amount		Percent of Assets (1)			Amount		Percent of Assets (1)			Amount		Percent of Assets (1)
December 31, 2016
Common equity tier 1 capital	$	77,634		13.42	%	$	26,032		4.50	%	$	51,602		8.92	%	$	37,601		6.50	%
Tier 1 leverage		77,634		11.55			26,876		4.00			50,758		7.55			33,595		5.00
Tier 1 risk-based capital		77,634		13.42			34,709		6.00			42,925		7.42			46,278		8.00
Total risk-based capital		84,900		14.68			46,278		8.00			38,622		6.68			57,848		10.00
December 31, 2015
Common equity tier 1 capital	$	71,520		14.08	%	$	22,854		4.50	%	$	48,666		9.58	%	$	33,012		6.50	%
Tier 1 leverage		71,520		11.46			24,971		4.00			46,549		7.46			31,213		5.00
Tier 1 risk-based capital		71,520		14.08			30,473		6.00			41,047		8.08			40,630		8.00
Total risk-based capital		77,934		15.35			40,630		8.00			37,304		7.35			50,788		10.00

(1)

Based upon the Bank's adjusted total assets for the purpose of the Tier

1

leverage capital ratio and risk-weighted assets for the purpose of the risk-based capital ratios.

Beginning in

2016,

the Bank must maintain a capital conservation buffer composed of common equity tier

1

capital above its minimum

risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. For

2016,

the capital conservation buffer is

0.625%.

The buffer amount will increase incrementally each year until

2019

when the entire

2.50%

capital conservation buffer will be fully phased in.

Management believes that, as of

December

31,

2016,

the Bank’

s capital ratios were in excess of those quantitative capital ratio standards applicable on that date, set forth under the prompt corrective action regulations, including the capital conservation buffer described above. However, there can be no assurance that the Bank will continue to maintain such status in the future. The Office of the Comptroller of the Currency has extensive discretion in its supervisory and enforcement activities, and can further adjust the requirement to be well-capitalized in the future.