Shareholders' Equity and Regulatory Matters

6 Months Ended

Jun. 30, 2022

Shareholders' Equity and Regulatory Matters

Shareholders' Equity and Regulatory Matters

Note 13 – Shareholders’ Equity and Regulatory Matters

Accumulated Other Comprehensive Loss

The following table presents the cumulative balances of the components of accumulated other comprehensive income (loss), net of deferred tax benefits of $2,094,000 and $198,000 as of June 30, 2022 and December 31, 2021, respectively (in thousands):

	June 30,		December 31,
	2022		2021
Net unrealized losses on securities	$	(7,856)	$	(717)
Net unrecognized losses on defined benefit plan		(23)		(27)
Total accumulated other comprehensive loss	$	(7,879)	$	(744)

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 (“Federal Reserve”) Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”). On August 28, 2018, the Federal Reserve issued an interim final rule required by the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, which was signed into law on May 24, 2018 (the “EGRRCPA”), that expands the applicability of the SBHC Policy Statement to bank holding companies with total consolidated assets of less than $3 billion (up from the prior $1 billion threshold).  Under the SBHC Policy Statement, qualifying bank holding companies, 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 phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. 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 conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.  As of June 30, 2022, 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 June 30, 2022, 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 EGRRCPA 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”). The Bank elected not to opt into the CBLR framework as of June 30, 2022 and December 31, 2021.

The capital amounts and ratios at June 30, 2022 and December 31, 2021 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
June 30, 2022
Total capital (to risk- weighted assets) Village Bank	$	81,128	14.52	%	$	58,666	10.50	%	$	55,873	10.00	%
Tier 1 capital (to risk- weighted assets) Village Bank		77,705	13.91	%		47,492	8.50	%		58,666	8.00	%
Leverage ratio (Tier 1 capital to average assets) Village Bank		77,705	10.22	%		30,426	4.00	%		38,032	5.00	%
Common equity tier 1 (to risk- weighted assets) Village Bank		77,705	13.91	%		39,111	7.00	%		36,317	6.50	%
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	%
(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 6.0%, plus a 2.5% capital conservation buffer; a minimum, total risk-based capital ratio of 8.0%, plus a 2.5% conservation buffer; and a minimum Tier leverage ratio of 4.0%