REGULATORY CAPITAL

12 Months Ended

Dec. 31, 2022

REGULATORY CAPITAL

REGULATORY CAPITAL

NOTE 17 — REGULATORY CAPITAL

The Company and Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At December 31, 2022 and 2021, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and Bank review capital levels on a monthly basis.

The Company and the Bank are subject to the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules). The minimum required capital conservation buffer was 2.50% at December 31, 2022 and December 31, 2021. As of December 31, 2022 and 2021, the capital conservation buffer for the Company was 5.4% and 8.1%, respectively. As of December 31, 2022 and 2021, the capital conservation buffer for the Bank was 5.1% and 7.3%, respectively. The net unrealized gain or loss on AFS securities is not included in the computation of the regulatory capital. The Company and the Bank meet all capital adequacy requirements, to which they are subject, as of December 31, 2022 and 2021.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2022 and 2021, the most recent regulatory notifications categorized the Bank and the Company as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The following is a summary of actual capital amounts and ratios for the Company and the Bank compared to the requirements for minimum capital adequacy and classification as well capitalized. Actual and required capital amounts and ratios are presented below at year end (dollars in thousands):

					For				To be Well				Minimum
					Capital				Capitalized under				Capital
					Adequacy				Prompt Corrective				Conservation
	Actual				Purposes				Action Regulations				Buffer
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Ratio
At December 31, 2022
The Company
Tier 1 leverage ratio (Tier 1 capital to average assets)	$	641,082	10.2	%	$	250,963	4.0	%	$	N/A	N/A		—	%
Tier 1 common equity (to risk-weighted assets)	$	620,462	12.1	%	$	230,879	4.5	%	$	N/A	N/A		2.5	%
Tier 1 capital (to risk-weighted assets)	$	641,082	12.5	%	$	307,838	6.0	%	$	N/A	N/A		2.5	%
Total capital (to risk-weighted assets)	$	686,139	13.4	%	$	410,451	8.0	%	$	N/A	N/A		2.5	%
The Bank
Tier 1 leverage ratio (Tier 1 capital to average assets)	$	628,825	10.0	%	$	250,920	4.0	%	$	313,650	5.0	%	—	%
Tier 1 common equity (to risk-weighted assets)	$	628,825	12.3	%	$	230,815	4.5	%	$	333,399	6.5	%	2.5	%
Tier 1 capital (to risk-weighted assets)	$	628,825	12.3	%	$	307,753	6.0	%	$	410,337	8.0	%	2.5	%
Total capital (to risk-weighted assets)	$	673,876	13.1	%	$	410,337	8.0	%	$	512,922	10.0	%	2.5	%
At December 31, 2021
The Company
Tier 1 leverage ratio (Tier 1 capital to average assets)	$	575,380	8.5	%	$	270,863	4.0	%	$	N/A	N/A		—	%
Tier 1 common equity (to risk-weighted assets)	$	554,760	14.1	%	$	177,646	4.5	%	$	N/A	N/A		2.5	%
Tier 1 capital (to risk-weighted assets)	$	575,380	14.6	%	$	236,861	6.0	%	$	N/A	N/A		2.5	%
Total capital (to risk-weighted assets)	$	635,002	16.1	%	$	315,815	8.0	%	$	N/A	N/A		2.5	%
The Bank
Tier 1 leverage ratio (Tier 1 capital to average assets)	$	566,835	8.4	%	$	270,800	4.0	%	$	338,499	5.0	%	—	%
Tier 1 common equity (to risk-weighted assets)	$	566,835	14.4	%	$	177,582	4.5	%	$	256,508	6.5	%	2.5	%
Tier 1 capital (to risk-weighted assets)	$	566,835	14.4	%	$	236,777	6.0	%	$	315,702	8.0	%	2.5	%
Total capital (to risk-weighted assets)	$	601,740	15.2	%	$	315,702	8.0	%	$	394,628	10.0	%	2.5	%

As a result of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10.0 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a “Qualifying Community Bank”). The definition expanded the ways that a Qualifying Community Bank may meet its capital requirements and be deemed “well capitalized.” The rule established a community bank leverage ratio (“CBLR”) equal to the tangible equity capital divided by the average total consolidated assets. Regulators established the CBLR at 8.5% through calendar year 2021 and 9% thereafter. The CARES Act temporarily reduced the CBLR to 8%.

A Qualifying Community Bank that maintains a leverage ratio greater than 9% is considered to be well capitalized and to have met generally applicable leverage capital requirements, generally applicable risk-based capital requirements, and any other capital or leverage requirements to which such financial institution or holding company is subject. The Company and Bank intend to continue to measure capital adequacy using the ratios in the table above.