CAPITAL

12 Months Ended

Dec. 31, 2023

Capital

CAPITAL

NOTE 22 CAPITAL

Capital Requirements and Ratios

The Company meets eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital.

The Bank is subject to various capital requirements administered by 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 Bank’s 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 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.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets, Tier 1 capital to average assets, and Common Equity Tier 1 capital to risk-weighted assets. As of December 31, 2023, the Bank meets all capital adequacy requirements to which it is subject.

The Bank’s actual capital amounts and ratios are presented in the following table as of December 31, 2023 and 2022, respectively.

Schedule of capital requirements 

		Actual		Minimum Capital Requirement			Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)	Amount		Ratio	Amount	Ratio		Amount	Ratio
December 31, 2023:
Total Capital to Risk Weighted Assets	$	99,246	16.58%	$47,873	8.00%	$	59,842	10.00%
Tier 1 Capital to Risk Weighted Assets		91,765	15.33%	35,905	6.00%		47,873	8.00%
Tier 1 Capital to Average Assets		91,765	11.11%	33,040	4.00%		41,300	5.00%
Common Equity Tier 1 Capital
to Risk Weighted Assets		91,765	15.33%	26,929	4.50%		38,897	6.50%
December 31, 2022:
Total Capital to Risk Weighted Assets	$	93,028	16.50%	$45,106	8.00%	$	56,382	10.00%
Tier 1 Capital to Risk Weighted Assets		86,301	15.31%	33,829	6.00%		45,106	8.00%
Tier 1 Capital to Average Assets		86,301	10.40%	33,206	4.00%		41,508	5.00%
Common Equity Tier 1 Capital
to Risk Weighted Assets		86,301	15.31%	25,372	4.50%		36,648	6.50%

Accordingly, as of December 31, 2023 and 2022, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since such dates that management believes have changed the Bank’s category.

The Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The final rules require the Bank to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The Bank’s capital conservation buffer was 8.58% at December 31, 2023. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of both December 31, 2023 and 2022, the Common Equity Tier 1 Capital to Risk-weighted Assets ratio, the Tier 1 Capital to Risk-weighted Assets ratio, the Total Capital to Risk-weighted Assets ratio, and the Tier 1 Capital to Average Assets ratio of the Bank, all exceeded the minimum requirements.

NOTE 23 FAIR VALUES

The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are valued using other financial instruments, the parameters of which can be directly observed.

Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy are as follows:

Investment Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $89.8 million and $96.1 million as of December 31, 2023 and 2022, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

Collateral Dependent Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

Other Real Estate Owned – Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other real estate owned.  These assets are carried at the lower of their carrying value or fair value.  Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third-party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. The aggregate carrying amounts of foreclosed assets were approximately $157,000 and $261,000 as of December 31, 2023 and 2022, respectively.

Assets and liabilities measured at fair value are as follows as of December 31, 2023:

Schedule of summary of assets and liabilities measured at fair valueSchedule of summary of assets and liabilities measured at fair value

(Dollars are in thousands)		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Treasuries	$	-	$	10,985	$
U.S. Government Agencies		-		8,811		-
Taxable municipals		-		17,859		-
Corporate bonds		-		2,688		-
Mortgage backed securities		-		49,462		-
(On a non-recurring basis) Other real estate owned		-		-		157
Collateral dependent loans with ACL:
Commercial real estate		-		-		204
Total	$	-	$	89,805	$	361

Assets and liabilities measured at fair value are as follows as of December 31, 2022 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Treasuries	$	-	$	11,685	$
U.S. Government Agencies		-		9,399		-
Taxable municipals		-		16,815		-
Corporate bonds		-		3,136		-
Mortgage backed securities		-		55,041		-
(On a non-recurring basis) Other real estate owned		-		-		261
Impaired loans:
Real estate secured:
Commercial		-		-		205
Residential 1-4 family		-		-		8
Total	$	-	$	96,076	$	474

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of December 31, 2023 and 2022, the significant unobservable inputs used in the fair value measurements were as follows:

Schedule of significant unobservable inputs In level 3 assets 

(Dollars in thousands)		Fair Value at December 31, 2023		Fair Value at December 31, 2022	Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Collateral dependent loans with ACL:
Commercial real estate	$	204	$	205	Appraised Value	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0 – 18%
Residential 1-4 family		-		8
Other Real Estate Owned	$	157	$	261	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell	0 – 18%

Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows:

 Schedule of estimated fair value of financial instruments

						Fair Value Measurements
(Dollars are in thousands)		Carrying Amount		Fair Value		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2023
Financial instruments – assets
Net loans	$	630,855	$	604,736	$	-	$	-	$	604,736
Financial instruments – liabilities
Time deposits		252,316		249,941		-		249,941		-
Borrowed funds		36,186		34,046		-		34,046		-
December 31, 2022
Financial instruments – assets
Net loans	$	577,886	$	552,675	$	-	$	-	$	552,675
Financial instruments – liabilities
Time deposits		188,233		187,179		-		187,179		-
Borrowed funds		16,496		14,825		-		14,825		-

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments.

The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits with other banks, deposits with no stated maturities and accrued interest approximates fair value and is excluded from the table above.

The methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.