CAPITAL RATIOS AND SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2022

CAPITAL RATIOS AND SHAREHOLDERS' EQUITY

CAPITAL RATIOS AND SHAREHOLDERS' EQUITY

NOTE 6.           CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios are, as follows:

	June 30, 2022
					Regulatory Minimum to
	Actual				be "Well-Capitalized"
(in thousands, except ratios)	Amount		Ratio		Amount		Ratio
Company (consolidated)
Total capital to risk-weighted assets	$	395,301	13.76	%	$	287,216	10.00	%
Common equity tier 1 capital to risk-weighted assets		308,825	10.75			186,691	6.50
Tier 1 capital to risk-weighted assets		329,445	11.47			299,773	8.00
Tier 1 capital to average assets		329,445	9.16			179,785	5.00
Bank
Total capital to risk-weighted assets	$	389,279	13.57	%	$	286,882	10.00	%
Common equity tier 1 capital to risk-weighted assets		363,423	12.67			186,474	6.50
Tier 1 capital to risk-weighted assets		363,423	12.67			229,506	8.00
Tier 1 capital to average assets		363,423	10.12			179,637	5.00

	December 31, 2021
					Regulatory Minimum to
	Actual				be "Well-Capitalized"
(in thousands, except ratios)	Amount		Ratio		Amount		Ratio
Company (consolidated)
Total capital to risk-weighted assets	$	380,690	14.31	%	$	265,997	10.00	%
Common equity tier 1 capital to risk-weighted assets		295,635	11.11			172,898	6.50
Tier 1 capital to risk-weighted assets		316,255	11.89			212,798	8.00
Tier 1 capital to average assets		316,255	8.66			182,536	5.00
Bank
Total capital to risk-weighted assets	$	375,435	14.13	%	$	265,733	10.00	%
Common equity tier 1 capital to risk-weighted assets		351,000	13.21			172,726	6.50
Tier 1 capital to risk-weighted assets		351,000	13.21			212,586	8.00
Tier 1 capital to average assets		351,000	9.62			182,396	5.00

At each date shown, the Company and the Bank met the conditions to be classified as “well-capitalized” under the relevant regulatory framework. To be categorized as "well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

The Company and the Bank are subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk-weighted assets and the Company and the Bank each exceed the minimum to be "well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 6.5%, a minimum Tier 1 risk-based capital ratio of 8.0% and a minimum Total risk-based capital ratio of 10.0%.

Accumulated other comprehensive (loss) income

Components of accumulated other comprehensive income is, as follows:

(in thousands)	June 30, 2022		December 31, 2021
Accumulated other comprehensive income, before tax:
Net unrealized (loss) gain on AFS securities	$	(49,673)	$	2,580
Net unrealized (loss) gain on hedging derivatives		(2,748)		1,130
Net unrealized loss on post-retirement plans		(718)		(718)
Income taxes related to items of accumulated other comprehensive income:
Net unrealized loss (gain) on AFS securities		11,369		(595)
Net unrealized loss (gain) on hedging derivatives		633		(260)
Net unrealized loss on post-retirement plans		166		166
Accumulated other comprehensive (loss) income	$	(40,971)	$	2,303

The following table presents the components of other comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021:

	2022
(in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended June 30, 2022
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	(23,409)	$	5,330	$	(18,079)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on AFS securities		(23,409)		5,330		(18,079)
Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period		(1,997)		460		(1,537)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives		(1,997)		460		(1,537)
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		—		—		—
Other comprehensive loss	$	(25,406)	$	5,790	$	(19,616)
Three Months Ended June 30, 2021
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	3,607	$	(842)	$	2,765
Less: reclassification adjustment for gains (losses) realized in net income		50		(12)		38
Net unrealized gain on AFS securities		3,557		(830)		2,727
Net unrealized gain on derivative hedgess:
Net unrealized gain arising during the period		120		(28)		92
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on cash flow derivative hedges		120		(28)		92
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		—		—		—
Other comprehensive income	$	3,677	$	(858)	$	2,819

(in thousands)	Before Tax		Tax Effect		Net of Tax
Six Months Ended June 30, 2022
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	(52,244)	$	11,962	$	(40,282)
Less: reclassification adjustment for gains (losses) realized in net income		9		(2)		7
Net unrealized loss on AFS securities		(52,253)		11,964		(40,289)
Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period		(3,878)		893		(2,985)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on hedging derivatives		(3,878)		893		(2,985)
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		—		—		—
Other comprehensive loss	$	(56,131)	$	12,857	$	(43,274)
Six Months Ended June 30, 2021
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	(3,578)	$	830	$	(2,748)
Less: reclassification adjustment for gains realized in net income		50		(12)		38
Net unrealized loss on AFS securities		(3,628)		842		(2,786)
Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period		2,516		(588)		1,928
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on cash flow hedging derivatives		2,516		(588)		1,928
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		—		—		—
Other comprehensive income	$	(1,112)	$	254	$	(858)

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and six months ended June 30, 2022 and 2021:

	2022
	Net unrealized		Net gain (loss) on		Net unrealized
	gain (loss)		effective cash		loss
	on AFS		flow hedging		on pension
(in thousands)	Securities		derivatives		plans		Total
Three Months Ended June 30, 2022
Balance at beginning of period	$	(20,225)	$	(578)	$	(552)	$	(21,355)
Other comprehensive loss before reclassifications		(18,079)		(1,537)		—		(19,616)
Less: amounts reclassified from accumulated other comprehensive income		—		—		—		—
Total other comprehensive income		(18,079)		(1,537)		—		(19,616)
Balance at end of period	$	(38,304)	$	(2,115)	$	(552)	$	(40,971)
Three Months Ended June 30, 2021
Balance at beginning of period	$	4,510	$	(30)	$	(1,418)	$	3,062
Other comprehensive gain before reclassifications		2,765		92		—		2,857
Less: amounts reclassified from accumulated other comprehensive income		38		—		—		38
Total other comprehensive income		2,727		92		—		2,819
Balance at end of period	$	7,237	$	62	$	(1,418)	$	5,881
Six Months Ended June 30, 2022
Balance at beginning of period	$	1,985	$	870	$	(552)	$	2,303
Other comprehensive loss before reclassifications		(40,282)		(2,985)		—		(43,267)
Less: amounts reclassified from accumulated other comprehensive income		7		—		—		7
Total other comprehensive loss		(40,289)		(2,985)		—		(43,274)
Balance at end of period	$	(38,304)	$	(2,115)	$	(552)	$	(40,971)
Six Months Ended June 30, 2021
Balance at beginning of period	$	10,023	$	(1,866)	$	(1,418)	$	6,739
Other comprehensive (loss) gain before reclassifications		(2,748)		1,928		—		(820)
Less: amounts reclassified from accumulated other comprehensive income		38		—		—		38
Total other comprehensive loss		(2,786)		1,928		—		(858)
Balance at end of period	$	7,237	$	62	$	(1,418)	$	5,881

The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income for three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item where
(in thousands)	2022		2021		2022		2021		Net Income is Presented
Net realized gains on AFS securities:
Before tax (1)	$	—	$	50	$	9	$	50	Non-interest income
Tax effect		—		(12)		(2)		(12)	Tax expense
Total reclassifications for the period	$	—	$	38	$	7	$	38
	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item where
(in thousands)	2022		2021		2022		2021		Net Income is Presented
Net realized loss on hedging derivatives:
Before tax	$	—	$	—	$	4,852	$	1,486	Non-interest income
Tax effect		—		—		(917)		(355)	Tax expense
Total reclassifications for the period	$	—	$	—	$	3,935	$	1,131

(1) There were no net realized gains or losses for the three months ended June 30, 2021. Net realized gains before tax include $9 thousand realized gains for the six months ended June 30, 2022 and no gross realized losses.