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Regulatory Capital Requirements
 6 Months Ended
Jun. 30, 2023
Regulatory Capital Requirements

13. Regulatory Capital Requirements

 

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believed that as of June 30, 2023, the Company and the Bank met all capital adequacy requirements to which they were subject at that time.

 

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. The Company and the Bank are subject to the Basel III Rule, which is applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally, non-public bank holding companies with consolidated assets of less than $3.0 billion).

 

The Basel III Rule includes a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, equal to 2.5% of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements for the common equity Tier 1 capital ratio, and Tier 1 capital and total risk based capital ratios.

 

As of June 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action then in effect. There are no conditions or events since that notification that management believes have changed the institution’s category.

 

 

The following is a comparison of the Company’s regulatory capital to minimum capital requirements at June 30, 2023 and December 31, 2022.

 

         For capital
   Actual  adequacy purposes
(Dollars in thousands)  Amount  Ratio  Amount  Ratio (1)
As of June 30, 2023                    
Leverage  $126,939    8.39%  $60,513    4.0%
Common Equity Tier 1 Capital   105,939    10.42%   71,149    7.0%
Tier 1 Capital   126,939    12.49%   86,396    8.5%
Total Risk Based Capital   136,776    13.46%   106,724    10.5%
                     
As of December 31, 2022                    
Leverage  $122,275    8.14%  $60,100    4.0%
Common Equity Tier 1 Capital   101,275    10.37%   68,352    7.0%
Tier 1 Capital   122,275    12.52%   82,999    8.5%
Total Risk Based Capital   131,236    13.44%   102,528    10.5%

 

(1)The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%.

 

The following is a comparison of the Bank’s regulatory capital to minimum capital requirements at June 30, 2023 and December 31, 2022:

 

       To be well-capitalized 
       under prompt 
      For capital   corrective 
   Actual   adequacy purposes   action provisions 
(Dollars in thousands)  Amount   Ratio   Amount   Ratio (1)   Amount   Ratio 
As of June 30, 2023                        
Leverage  $131,737    8.73%  $60,341    4.0%  $75,426    5.0%
Common Equity Tier 1 Capital   131,737    12.97%   71,082    7.0%   66,005    6.5%
Tier 1 Capital   131,737    12.97%   86,314    8.5%   81,237    8.0%
Total Risk Based Capital   141,574    13.94%   106,623    10.5%   101,546    10.0%
                               
As of December 31, 2022                              
Leverage  $128,643    8.59%  $59,933    4.0%  $74,917    5.0%
Common Equity Tier 1 Capital   128,643    13.18%   68,309    7.0%   63,430    6.5%
Tier 1 Capital   128,643    13.18%   82,947    8.5%   78,068    8.0%
Total Risk Based Capital   137,604    14.10%   102,464    10.5%   97,585    10.0%

 

(1)The required ratios for capital adequacy purposes include a capital conservation buffer of 2.5%.