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Note 16 - Regulatory Matters

12 Months Ended

Dec. 31, 2020

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note 16. Regulatory Matters

The Company and the 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 possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks 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. Regulators also have the ability to impose higher limits than those specified by capital adequacy guidelines if they so deem necessary.

On March 31, 2020, the Banks qualified for the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. The CARES ACT lowered the CBLR to 8% beginning in the second quarter of 2020 through the end of the year. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year and will increase to 9% beginning January 1, 2022. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital.

Prior to 2020, the Company and each subsidiary bank were subject to final rules issued by the Federal Reserve Board and the FDIC implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revised minimum capital requirements and adjust prompt corrective action thresholds. The final rules revised the regulatory capital elements, added a new common equity Tier I capital ratio, increased the minimum Tier 1 capital ratio requirements and implemented a new capital conservation buffer. On August 28, 2018, the Board of Governors of the Federal Reserve System issued an interim rule revising the Small Bank Holding Company Policy Statement (the “Policy Statement”) that, among other things, raised from $1 billion to $3 billion the asset threshold to qualify for the Policy Statement. The Company qualifies for treatment under the Policy Statement and is no longer subject to consolidated capital rules.

Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased-in on January 1, 2019 at 2.5 percent. A banking organization with a conservation buffer of less than 2.5 percent (or the required phase-in amount in years prior to 2019) was subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of December 31, 2019, the ratios for the Banks were sufficient to meet the fully phased-in conservation buffer.

Management believes, as of December 31, 2020 and 2019, that the Company and each subsidiary bank met all capital adequacy requirements to which they are subject. As of December 31, 2020, the most recent notification from the federal banking regulators categorized the Banks are well capitalized under the CBLR regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum Community Bank Leverage Ratios as set forth in the following table. Management believes there are no conditions or events since that notification that have changed the institution’s category. The Company’s and each of the subsidiary bank’s actual capital amounts and ratios as of December 31, 2020 and 2019 are also presented in the tables. (dollars in thousands)

						To Be Well
						Capitalized Under
						Prompt Corrective
	Actual					Action Provisions
	Amount		Ratio			Amount		Ratio

As of December 31, 2020:
Community Bank Leverage Ratio:
(Tier 1 capital to average assets)
Boone Bank & Trust	$	13,967		9.2	%	$	12,170		8.0	%
First National Bank		86,071		8.6			80,393		8.0
Iowa State Savings Bank		21,610		9.4			18,321		8.0
Reliance State Bank		23,278		9.4			19,741		8.0
State Bank & Trust		16,564		8.5			15,657		8.0
United Bank & Trust		10,539		9.2			9,180		8.0

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes *					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2019:
Total capital (to risk-weighted assets):
Consolidated	$	180,834		14.3	%	$	132,878		10.50	%		N/A		N/A
Boone Bank & Trust		14,205		14.1			10,610		10.50		$	10,105		10.0	%
First National Bank		87,375		13.9			66,180		10.50			63,028		10.0
Iowa State Savings Bank		20,495		14.2			15,200		10.50			14,476		10.0
Reliance State Bank		24,487		13.0			19,778		10.50			18,836		10.0
State Bank & Trust		16,800		13.5			13,115		10.50			12,490		10.0
United Bank & Trust		10,775		14.3			7,910		10.50			7,534		10.0

Tier 1 capital (to risk-weighted assets):
Consolidated	$	167,514		13.2	%	$	107,568		8.50	%		N/A		N/A
Boone Bank & Trust		13,274		13.1			8,589		8.50		$	8,084		8.0	%
First National Bank		80,665		12.8			53,574		8.50			50,423		8.0
Iowa State Savings Bank		20,151		13.9			12,305		8.50			11,581		8.0
Reliance State Bank		22,166		11.8			16,010		8.50			15,069		8.0
State Bank & Trust		15,233		12.2			10,617		8.50			9,992		8.0
United Bank & Trust		9,955		13.2			6,403		8.50			6,027		8.0

Tier 1 capital (to average-assets):
Consolidated	$	167,544		10.1	%	$	66,234		4.00	%		N/A		N/A
Boone Bank & Trust		13,274		9.5			5,604		4.00		$	7,005		5.0	%
First National Bank		80,665		9.3			34,702		4.00			43,378		5.0
Iowa State Savings Bank		20,151		9.5			8,621		4.00			10,776		5.0
Reliance State Bank		22,166		10.0			8,886		4.00			11,108		5.0
State Bank & Trust		15,233		9.5			6,384		4.00			7,980		5.0
United Bank & Trust		9,955		9.8			4,073		4.00			5,091		5.0

Common equity tier 1 capital (to risk-weighted assets):
Consolidated	$	167,544		13.2	%	$	88,585		7.00	%		N/A		N/A
Boone Bank & Trust		13,274		13.1			7,074		7.00		$	6,568		6.5	%
First National Bank		80,665		12.8			44,120		7.00			40,968		6.5
Iowa State Savings Bank		20,151		13.9			10,133		7.00			9,410		6.5
Reliance State Bank		22,166		11.8			13,185		7.00			12,243		6.5
State Bank & Trust		15,233		12.2			8,743		7.00			8,119		6.5
United Bank & Trust		9,955		13.2			5,273		7.00			4,897		6.5

* These ratios for December 31, 2019 include a capital conservation buffer of 2.50%, except for the Tier 1 capital to average assets ratios.

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Banks to the Company. Dividends paid by each Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. Management believes that these restrictions currently do not have a significant impact on the Company.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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