Regulatory Matters

12 Months Ended

Dec. 31, 2022

Banking and Thrift, Other Disclosure [Abstract]

Regulatory Matters

Regulatory Matters

Capital Adequacy

The Company and Bank are subject to various regulatory capital requirements adopted by the Board of Governors of the Federal Reserve System and the FDIC. Failure to meet minimum capital requirements can initiate certain mandates and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework, the consolidated Company and 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. Prompt corrective action provisions are not applicable to bank holding companies.

The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, includes quantitative measures designed to ensure capital adequacy. The Basel III Rules require the Company and the Bank to maintain (i) a minimum common equity Tier 1 ratio minimum of 4.50 percent plus a 2.50 percent “capital conservation buffer” , (ii) Tier 1 risk-based capital minimum of 6.00 percent plus the capital conservation buffer, (iii) total risk-based capital ratio minimum of 8.00 percent plus the capital conservation buffer and (iv) Tier 1 leverage capital ratio minimum of 4.00 percent. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements.

The federal banking agencies published a final rule on November 13, 2019, that provided a simplified measure of capital adequacy for qualifying community banking organizations. A qualifying community banking organization that opts into the community bank leverage ratio framework and maintains a leverage ratio greater than 9 percent will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject. A qualifying community banking organization with a leverage ratio of greater than 9 percent may opt into the community bank leverage ratio framework if it has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5 percent or less of total consolidated assets. Further, the bank must not be an advance approaches banking organization.

The final rule became effective January 1, 2020 and banks that meet the qualifying criteria can elect to use the community bank leverage framework starting with the quarter ended March 31, 2020. The Company and the Bank meet the qualifying criteria and adopted the community bank leverage ratio framework in the third quarter 2020. The CARES Act reduced the required

community bank leverage ratio to 8% until December 31, 2020 and 8.5% through December 31, 2021. As of December 31, 2022 and December 31, 2021, the Company and Bank met all capital adequacy requirements to which they were subject.

The following table shows the Company’s and the Bank’s regulatory capital and regulatory capital ratios at December 31, 2022 and 2021 as compared to the applicable capital adequacy guidelines:

	Actual		Minimum requirement for Community Bank Leverage Ratio (1) (2)
(In thousands)	Amount	Ratio	Amount	Ratio
As of December 31, 2022 (Company):
Tier 1 Leverage (to Average Assets)	$135,889	10.10%	$121,064	9.00%
As of December 31, 2022 (Bank):
Tier 1 Leverage (to Average Assets)	135,930	10.11%	$120,968	9.00%
As of December 31, 2021 (Company):
Tier 1 Leverage (to Average Assets)	127,618	9.79%	$110,748	8.50%
As of December 31, 2021 (Bank):
Tier 1 Leverage (to Average Assets)	125,416	9.64%	$110,624	8.50%

(1) The minimum required Community Bank Leverage Ratio is 9.00%, but the CARES Act temporarily lowered the minimum to 8.5% through December 31, 2021.

(2) If the subsidiary bank’s Leverage Ratio exceeds the minimum ratio under the Community Bank Leverage Ratio Framework, it is deemed to be “well capitalized” under all other regulatory capital requirements. The Company may revert back to the regulatory framework for Prompt Corrective Action if the subsidiary bank’s Leverage Ratio falls below the minimum under the Community Bank Leverage Ratio Framework