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Regulatory Capital
 12 Months Ended
Dec. 31, 2018
Banking and Thrift [Abstract]  
Regulatory Capital

Note 20 – Regulatory Capital

 

ChoiceOne and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include:  prohibiting the acceptance of brokered deposits; requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. At year-end 2018 and 2017, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action.

 

Actual capital levels and minimum required levels for ChoiceOne and the Bank were as follows:

 

                            Minimum Required  
                            to be Well  
                Minimum Required     Capitalized Under  
                for Capital     Prompt Corrective  
(Dollars in thousands)   Actual     Adequacy Purposes     Action Regulations  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
December 31, 2018                                    
ChoiceOne Financial Services Inc.                                                
Total capital (to risk weighted assets)   $ 72,148       13.8 %   $ 41,811       8.0 %     N/A       N/A  
Common equity Tier 1 capital (to risk weighted assets)     67,481       12.9       23,519       4.5       N/A       N/A  
Tier 1 capital (to risk weighted assets)     67,481       12.9       31,359       6.0       N/A       N/A  
Tier 1 capital (to average assets)     67,481       10.5       25,658       4.0       N/A       N/A  
                                                 
ChoiceOne Bank                                                
Total capital (to risk weighted assets)   $ 66,976       12.9 %   $ 41,599       8.0 %   $ 51,999       10.0 %
Common equity Tier 1 capital (to risk weighted assets)     62,309       12.0       23,399       4.5       33,799       6.5  
Tier 1 capital (to risk weighted assets)     62,309       12.0       31,199       6.0       41,599       8.0  
Tier 1 capital (to average assets)     62,309       9.8       25,512       4.0       31,890       5.0  
                                                 
December 31, 2017                                                
ChoiceOne Financial Services Inc.                                                
Total capital (to risk weighted assets)   $ 67,155       13.9 %   $ 38,761       8.0 %     N/A       N/A  
Common equity Tier 1 capital (to risk weighted assets)     62,584       12.9       21,803       4.5       N/A       N/A  
Tier 1 capital (to risk weighted assets)     62,584       12.9       29,071       6.0       N/A       N/A  
Tier 1 capital (to average assets)     62,584       9.9       25,301       4.0       N/A       N/A  
                                                 
ChoiceOne Bank                                                
Total capital (to risk weighted assets)   $ 62,393       12.9 %   $ 38,555       8.0 %   $ 48,194       10.0 %
Common equity Tier 1 capital (to risk weighted assets)     57,822       12.0       21,687       4.5       31,326       6.5  
Tier 1 capital (to risk weighted assets)     57,822       12.0       28,917       6.0       38,555       8.0  
Tier 1 capital (to average assets)     57,822       9.2       25,156       4.0       31,445       5.0  

 

Banking regulations limit capital distributions by state-chartered banks. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At December 31, 2018, approximately $10.5 million was available for ChoiceOne Bank to pay dividends to ChoiceOne. ChoiceOne’s ability to pay dividends to shareholders is dependent on the payment of dividends from the Bank, which is restricted by state law and regulations.

 

On July 3, 2013, the FDIC Board of Directors approved the Regulatory Capital Interim Final Rule, implementing Basel III.  This rule redefines Tier 1 capital as two components (Common Equity Tier 1 and Additional Tier 1), creates a new capital ratio (Common Equity Tier 1 Risk-based Capital Ratio) and implements a capital conservation buffer.  It also revises the prompt corrective action thresholds and makes changes to risk weights for certain assets and off-balance-sheet exposures.  Banks were required to transition into the new rule beginning on January 1, 2015.