Regulatory Capital

9 Months Ended

Sep. 30, 2023

Regulatory Capital

Regulatory Capital

Note 11— Regulatory Capital

The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”). As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory capital requirements.

The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision. Failure to meet minimum capital requirements can initiate certain mandatory – possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines, the Bank must meet specific capital guidelines that involve quantitative measures of 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. Management believes that the Bank met all capital adequacy requirements to which it was subject as of September 30, 2023 and December 31, 2022.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, common equity Tier 1 to risk-weighted assets, and Tier 1 capital to average assets.

In addition to the minimum regulatory capital required for capital adequacy purposes, the Bank is required to maintain a minimum capital conservation buffer above those minimums in the form of common equity. The capital conservation buffer, which was phased in ratably over a four year period beginning January 1, 2016, is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and discretionary compensation paid to certain officers, based on the amount of the

shortfall. The capital conservation buffer was 2.5% at September 30, 2023, and is applicable for the common equity Tier 1, Tier 1, and total capital ratios.

On January 1, 2023, the Company adopted ASC 326, which replaced the incurred loss methodology with the CECL methodology for estimating credit losses and generally applies to financial assets measured at amortized cost. The Federal Reserve and FDIC have adopted rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over a three-year transition period ending January 1, 2026 the day-one impact on regulatory capital that may result from the adoption of the CECL model. The Company implemented the CECL model on January 1, 2023 and elected to apply the provisions of the CECL deferral transition in the determination of its risk based capital ratios. The impact of the application of this deferral transition on the ratios was not significant.

As of September 30, 2023, the most recent notification from the Reserve Bank categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the institution must maintain minimum total risk-based, common equity Tier 1, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The table below provides a summary of the Bank’s capital ratios as of September 30, 2023 and December 31, 2022.

									Minimum To Be Well Capitalized
	Actual				Minimum Capital Requirement(1)				Under Prompt Corrective Action
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2023
Total capital (to risk weighted assets)	$	280,891	15.7	%	$	188,433	10.5	%	$	179,460	10.0	%
Tier 1 capital (to risk weighted assets)		261,666	14.6	%		152,541	8.5	%		143,568	8.0	%
Common equity tier 1 capital (to risk weighted assets)		261,666	14.6	%		125,622	7.0	%		116,649	6.5	%
Tier 1 capital (to average assets)		261,666	11.3	%		92,625	4.0	%		115,781	5.0	%
As of December 31, 2022
Total capital (to risk weighted assets)	$	283,471	15.6	%	$	190,798	10.5	%	$	181,712	10.0	%
Tier 1 capital (to risk weighted assets)		262,960	14.4	%		155,219	8.5	%		146,089	8.0	%
Common equity tier 1 capital (to risk weighted assets)		262,960	14.4	%		127,828	7.0	%		118,697	6.5	%
Tier 1 capital (to average assets)		262,960	11.3	%		93,083	4.0	%		116,354	5.0	%

(1)Including capital conservation buffer.