Note 25 - Regulatory Matters

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

(25) Regulatory Matters

Bancorp and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. 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 Bancorp’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Holding Company and the Bank must meet specific capital guidelines that involve quantitative measures of Bancorp’s 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 regarding components, risk weightings and other factors.

Banking regulators have categorized the Bank as well-capitalized. To meet the definition of well-capitalized, a bank must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0% Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0% Tier 1 Leverage ratio.

Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be considered adequately-capitalized. At December 31, 2024, the adequately-capitalized minimums, including the capital conservation buffer, were a 7.0% Common Equity Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5% Total Risk-Based Capital ratio.

As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp’s consolidated financial statements. The subordinated notes are currently redeemable at Bancorp’s option on a quarterly basis. As of December 31, 2024, subordinated notes added through the CB acquisition totaled $27 million.

Bancorp continues to exceed the regulatory requirements for all calculations. Bancorp and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the capital conservation buffer.

The following table sets forth consolidated Bancorp’s and the Bank’s risk based capital amounts and ratios:

(dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
December 31, 2024	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (1)
Consolidated	$	943,723		12.73	%	$	593,201		8.00	%	NA		NA
Bank		918,210		12.39			593,002		8.00		$	741,252		10.00
Common equity tier 1 risk-based capital (1)
Consolidated		828,386		11.17			333,676		4.50		NA		NA
Bank		828,873		11.18			333,564		4.50			481,814		6.50
Tier 1 risk-based capital (1)
Consolidated		854,386		11.52			444,901		6.00		NA		NA
Bank		828,873		11.18			444,751		6.00			593,002		8.00
Leverage
Consolidated		854,386		9.94			343,886		4.00		NA		NA
Bank		828,873		9.65			343,624		4.00			429,530		5.00

(dollars in thousands)	Actual					Minimum for adequately capitalized					Minimum for well capitalized
December 31, 2023	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (1)
Consolidated	$	849,836		12.56	%	$	541,370		8.00	%	NA		NA
Bank		823,275		12.21			539,609		8.00		$	674,511		10.00	%
Common equity tier 1 risk-based capital (1)
Consolidated		747,376		11.04			304,521		4.50		NA		NA
Bank		746,815		11.07			303,530		4.50			438,432		6.50
Tier 1 risk-based capital (1)
Consolidated		773,376		11.43			406,027		6.00		NA		NA
Bank		746,815		11.07			404,707		6.00			539,609		8.00
Leverage
Consolidated		773,376		9.62			321,713		4.00		NA		NA
Bank		746,815		9.30			321,323		4.00			401,654		5.00

(1) Ratio is computed in relation to risk-weighted assets.

NA – Regulatory framework does not define “well-capitalized” for holding companies.