The Bank 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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.

In 2019, the federal banking agencies jointly issued a final rule that provided for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (CBLR), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020. The CBLR removed the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying banking organizations that elect to use the CBLR and that maintain a leverage ratio of greater than the required minimum will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the regulatory capital rules, an institution electing to use the CBLR must maintain a minimum leverage ratio of 9%. Qualifying institutions are allowed a two-quarter grace period to correct a ratio that falls below the required amount, provided the institution maintains a ratio of more than 8%. At December 31, 2022, the Bank was a qualifying institution and elected to utilize the CBLR to measure capital adequacy. As such, the related amounts and ratios for December 31, 2022, are presented below using the CLBR. The Bank entered the CLBR two-quarter grace period on June 30, 2023, having fallen below the minimum ratio of 9%, and at December 31, 2023 its leverage ratio was 8.48%. Therefore, the amounts and ratios at December 31, 2023 are presented using the risk-based capital framework and not the CLBR.

At December 31, 2023, and 2022, management believes the Bank met all capital adequacy requirements to which it was subject. Additionally, at December 31, 2023, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The following table presents the Bank’s actual capital amounts and ratios at December 31, 2023 and 2022:


	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
December 31, 2023
Common Equity Tier 1 Capital to Risk Weighted Assets	$	155,453		10.27	%	$	68,121		4.50	%	$	98,397		6.50	%
Total Capital to Risk Weighted Assets		168,925		11.16	%		121,104		8.00	%		151,380		10.00	%
Tier 1 Capital to Risk Weighted Assets		155,453		10.27	%		90,828		6.00	%		121,104		8.00	%
Tier 1 Capital to Average Assets		155,453		8.48	%		73,367		4.00	%		91,709		5.00	%

December 31, 2022
Tier 1 Capital to Average Assets		142,530		9.15	%	n/a		n/a				140,210		9.00	%

In addition to the minimum regulatory capital required for capital adequacy purposes under the risk-based capital framework, financial institutions also required to maintain a minimum capital conservation buffer of greater than 2.5% in order to avoid restrictions on capital distributions and other payments. At December 31, 2023, the Bank's capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer. Under CLBR, the Bank was not subject to the capital conservation buffer.