REGULATORY MATTERS

12 Months Ended

Dec. 31, 2022

REGULATORY MATTERS

REGULATORY MATTERS

NOTE 13 — REGULATORY MATTERS

Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2022, $24,319,000 of retained earnings were available for dividends without prior regulatory approval, subject to the regulatory capital requirements discussed below. Regulations also limit the amount of loans and advances from the Bank to the Corporation to 10% of consolidated net assets.

The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes, as of December 31, 2022 and 2021, that the Corporation and the Bank met all capital adequacy requirements to which they are subject.

On July 2, 2013, the Board of Governors of the Federal Reserve System finalized its rule implementing the Basel III regulatory capital framework, which the FDIC adopted on July 9, 2013. Under the rule, minimum requirements increased both the quantity and quality of capital held by banking organizations. Consistent with the Basel III framework, the rule included a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent, and a common equity tier 1 conservation buffer of 2.5 percent of risk-weighted assets, that applies to all supervised financial institutions, which was phased in over a three year period beginning January 1, 2016, with the full 2.5 percent required as of January 1, 2019. The rule also raised the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent, and includes a minimum leverage ratio of 4 percent for all banking organizations.

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 capital, tier I capital and common equity tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of tier I capital (as defined) to average assets (as defined).

As of December 31, 2022 the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as Well Capitalized under the regulatory framework for prompt corrective action. To be categorized as Well Capitalized, the Bank must maintain minimum total risk-based, tier 1 risk-based, common equity tier 1 risk-based and tier 1 leverage ratios as set forth in the table. There are no conditions or events since the notification that management believes have changed the Bank’s category.

(Dollars in thousands)					For Capital				Minimum Capital				To Be Well Capitalized
					Adequacy				Adequacy with				Under Prompt Corrective
	Actual				Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2022:
Total Capital (to Risk-Weighted Assets)	$	148,223	16.15	%	$	73,429	8.00	%	$	96,375	10.50	%	$	91,786	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	$	139,881	15.24	%	$	55,071	6.00	%	$	78,018	8.50	%	$	73,429	8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	139,881	15.24	%	$	41,304	4.50	%	$	64,250	7.00	%	$	59,661	6.50	%
Tier 1 Capital (to Average Assets)	$	139,881	10.38	%	$	53,908	4.00	%	$	53,908	4.00	%	$	67,385	5.00	%

(Dollars in thousands)					For Capital				Minimum Capital				To Be Well Capitalized
					Adequacy				Adequacy with				Under Prompt Corrective
	Actual				Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2021:
Total Capital (to Risk-Weighted Assets)	$	139,811	16.57	%	$	67,484	8.00	%	$	88,572	10.50	%	$	84,355	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	$	130,954	15.52	%	$	50,613	6.00	%	$	71,701	8.50	%	$	67,484	8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	130,954	15.52	%	$	37,960	4.50	%	$	59,048	7.00	%	$	54,831	6.50	%
Tier 1 Capital (to Average Assets)	$	130,954	10.14	%	$	51,638	4.00	%	$	51,638	4.00	%	$	64,548	5.00	%

The capital conservation buffer phase-in began January 1, 2016. The capital conservation buffer of 2.50% was fully phased in effective January 1, 2019.

The Corporation’s capital ratios are not materially different from those of the Bank.