Note 15 - Regulatory Matters

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

15. REGULATORY MATTERS

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and 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. Prompt corrective action provisions are not applicable to bank holding companies.

Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%. A capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements of 2.50%. As of December 31, 2022 and 2021, the Company and the Bank exceeded all capital adequacy requirements to which it was subject.

The following table reflects the actual and required capital and the related capital ratios as of the periods indicated. No amounts were deducted from capital for interest-rate risk in either 2022 or 2021.

													For capital adequacy					To be well capitalized
						For capital							purposes with capital					under prompt corrective
	Actual					adequacy purposes							conservation buffer*					action provisions
(dollars in thousands)	Amount		Ratio			Amount			Ratio				Amount		Ratio			Amount			Ratio
As of December 31, 2022
Total capital (to risk-weighted assets)
Consolidated	$	230,133		14.4	%	≥	$	128,325		8.0	%	≥	$	168,427		10.5	%			N/A		N/A
Bank	$	229,803		14.3	%	≥	$	128,308		8.0	%	≥	$	168,405		10.5	%	≥	$	160,385		10.0	%
Tier 1 common equity (to risk-weighted assets)
Consolidated	$	212,935		13.3	%	≥	$	72,183		4.5	%	≥	$	112,285		7.0	%			N/A		N/A
Bank	$	212,605		13.3	%	≥	$	72,173		4.5	%	≥	$	112,270		7.0	%	≥	$	104,251		6.5	%
Tier I capital (to risk-weighted assets)
Consolidated	$	212,935		13.3	%	≥	$	96,244		6.0	%	≥	$	136,346		8.5	%			N/A		N/A
Bank	$	212,605		13.3	%	≥	$	96,231		6.0	%	≥	$	136,328		8.5	%	≥	$	128,308		8.0	%
Tier I capital (to average assets)
Consolidated	$	212,935		8.7	%	≥	$	97,960		4.0	%	≥	$	97,960		4.0	%			N/A		N/A
Bank	$	212,605		8.7	%	≥	$	97,951		4.0	%	≥	$	97,951		4.0	%	≥	$	122,439		5.0	%

As of December 31, 2021
Total capital (to risk-weighted assets)
Consolidated	$	205,667	14.5	%	≥	$	113,421	8.0	%	≥	$	148,866	10.5	%			N/A	N/A
Bank	$	205,726	14.5	%	≥	$	113,406	8.0	%	≥	$	148,845	10.5	%	≥	$	141,757	10.0	%
Tier 1 common equity (to risk-weighted assets)
Consolidated	$	189,980	13.4	%	≥	$	63,800	4.5	%	≥	$	99,244	7.0	%			N/A	N/A
Bank	$	190,039	13.4	%	≥	$	63,791	4.5	%	≥	$	99,230	7.0	%	≥	$	92,142	6.5	%
Tier I capital (to risk-weighted assets)
Consolidated	$	189,980	13.4	%	≥	$	85,066	6.0	%	≥	$	120,510	8.5	%			N/A	N/A
Bank	$	190,039	13.4	%	≥	$	85,054	6.0	%	≥	$	120,493	8.5	%	≥	$	113,406	8.0	%
Tier I capital (to average assets)
Consolidated	$	189,980	7.9	%	≥	$	95,688	4.0	%	≥	$	95,688	4.0	%			N/A	N/A
Bank	$	190,039	7.9	%	≥	$	95,680	4.0	%	≥	$	95,680	4.0	%	≥	$	119,600	5.0	%

^* The minimums under Basel III increased to include the capital conservation buffer of 2.50%.

The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations and Pennsylvania law limit the amount of dividends that may be paid from the Bank to the Company without prior approval of regulatory agencies. Accordingly, at December 31, 2022, approximately $136.7 million was available for dividend distribution from the Bank to the Company in 2022.