Note 13 - Regulatory Capital and Oversight

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

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1

3

)

Regulatory Capital

and Oversight

The Company and the Bank are subject to the Basel III regulatory capital requirements. The Basel III requirements, among other things, (i) apply a 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) set forth rules for calculating risk-weighted assets for purposes of such requirements. The rules made corresponding revisions to the prompt corrective action framework and include capital ratios and buffer requirements which became fully phased in on

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 its 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 Board of Governors of the Federal Reserve System amended its Policy Statement, to exempt small bank holding companies with assets less than

$3

billion from the above capital requirements. 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 currently meets 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.

The Bank’s average total assets for the

first

quarter of

2020

were

$776.7

million, its adjusted total assets were

$775.8

million, and its risk-weighted assets were

$643.7

million. The following table presents the Bank’s capital amounts and ratios at

March 31, 2020

for actual capital, required capital and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective actions 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)
March 31, 2020
Common equity Tier 1 capital	$	85,074		13.22	%	$	28,967		4.50	%	$	56,107		8.72	%	$	41,841		6.50	%
Tier 1 leverage		85,074		10.97			31,033		4.00			54,041		6.97			38,791		5.00
Tier 1 risk-based capital		85,074		13.22			38,623		6.00			46,451		7.22			51,497		8.00
Total risk-based capital		93,132		14.47			51,497		8.00			41,635		6.47			64,371		10.00

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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.

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. On

January 1, 2019,

the capital conservation buffer amount increased to

2.50%

and is fully phased in. Management believes that, as of

March 31, 2020,

the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current 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 (OCC) has extensive discretion in its supervisory and enforcement activities, and can adjust the requirement to be “well-capitalized” in the future.