Shareholders' Equity and Regulatory Matters

12 Months Ended

Dec. 31, 2021

Shareholders' Equity and Regulatory Matters

Shareholders' Equity and Regulatory Matters

Note 13. Shareholders’ Equity and Regulatory Matters

Accumulated Other Comprehensive Income (Loss)

The following table presents the cumulative balances of the components of accumulated other comprehensive income, net of deferred taxes (benefit) of $(198,000) and $114,000 as of December 31, 2021 and 2020, respectively (in thousands):

	Year Ended December 31,
	2021		2020
Net unrealized gains (losses) on securities	$	(717)	$	466
Net unrecognized losses on defined benefit plan		(27)		(36)
Total accumulated other comprehensive income (loss)	$	(744)	$	430

Regulatory Matters

The Company meets the eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s (the “Federal Reserve”) Small Bank Holding Company Policy Statement (the “SBHC

Policy Statement”). Under the SBHC Policy Statement, qualifying bank holding companies, with total consolidated assets of less than $3 billion such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III capital framework as outlined by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the “Basel III Capital Rules”).  The SBHC Policy Statement does not apply to the Bank and the Bank must comply with the Basel III Capital Rules.

The Bank is required to comply with the capital adequacy standards established by the Federal Deposit Insurance Corporation (“FDIC”).  The FDIC has adopted rules to implement the Basel III Capital Rules. The Basel III Capital Rules establish minimum capital ratios and risk weightings that are applied to many classes of assets held by community banks, including applying higher risk weightings to certain commercial real estate loans.

The Basel III Capital Rules require banks to comply with the following minimum capital ratios: (1) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (2) 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%); (3) 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 (4) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the minimum plus conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of December 31, 2021, the Bank exceeded the minimum ratios under the Basel III Capital Rules.

The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act of 1950. To be well capitalized under these regulations, a bank must have the following minimum capital ratios: (1) a common equity Tier 1 capital ratio of at least 6.5%; (2) a Tier 1 risk-based capital ratio of at least 8.0%; (3) a total risk-based capital ratio of at least 10.0%; and (4) a leverage ratio of at least 5.0%. As of December 31, 2021, the Bank exceeded the minimum ratios to be classified as well capitalized.

On September 17, 2019, the federal bank regulators issued a final rule required by the Economic Growth, Regulatory, Relief, and Consumer Protection Act of 2018 that permits qualifying banks and bank holding companies that have less than $10 billion of assets, like the Company and the Bank, to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community bank leverage ratio or “CBLR”). Under the rule, which became effective January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% would not be subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. In April 2020, as required by the Coronavirus Aid, Relief, and Economic Security Act, which was passed in response to the COVID-19 pandemic, federal bank regulators issued two interim final rules related to the CBLR framework.  One interim final rule provided that, as of the second quarter of 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework.  It also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provided a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement.  It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintained a two-quarter grace period for qualifying community banking organizations whose

leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.  The Bank elected not to opt into the CBLR framework as of December 31, 2021, and 2020.

The capital amounts and ratios at December 31, 2021 and 2020 for the Bank are presented in the table below (dollars in thousands):

					For Capital
					Requirements
	Actual				Including Conservation Buffer (1)				To be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2021
Total capital (to risk- weighted assets) Village Bank	$	77,547	14.66	%	$	55,558	10.50	%	$	52,912	10.00	%
Tier 1 capital (to risk- weighted assets) Village Bank		74,124	14.01	%		44,975	8.50	%		42,330	8.00	%
Leverage ratio (Tier 1 capital to average assets) Village Bank		74,124	9.86	%		30,068	4.00	%		37,585	5.00	%
Common equity tier 1 (to risk- weighted assets) Village Bank		74,124	14.01	%		37,038	7.00	%		34,393	6.50	%
December 31, 2020
Total capital (to risk- weighted assets) Village Bank	$	65,723	14.20	%	$	45,582	10.50	%	$	46,269	10.00	%
Tier 1 capital (to risk- weighted assets) Village Bank		61,753	13.35	%		39,329	8.50	%		37,015	8.00	%
Leverage ratio (Tier 1 capital to average assets) Village Bank		61,753	9.28	%		26,607	4.00	%		33,259	5.00	%
Common equity tier 1 (to risk- weighted assets) Village Bank		61,753	13.35	%		32,388	7.00	%		30,075	6.50	%
(1) Basel III Capital Rules require banking organizations to maintain a minimum CETI ratio of 4.5%, plus a 2.5% capital conservation buffer; a minimum Tier 1 capital ratio of 6%, plus a 2.5% capital conservation buffer; a minimum, total risk-based capital ratio of 8%, plus a 2.5% conservation buffer; and a minimum Tier leverage ratio of 4.0%