Regulatory Requirements and Restrictions

12 Months Ended

Dec. 31, 2023

Regulatory Requirements and Restrictions

Regulatory Requirements and Restrictions

NOTE 17: Regulatory Requirements and Restrictions

The Bank is subject to various regulatory capital requirements administered by the 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 Corporation’s and 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 the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Federal banking regulations also impose regulatory capital requirements on bank holding companies. Under the small bank holding company policy statement of the FRB, which applies to certain bank holding companies with consolidated total assets of less than $3 billion, the Corporation is not subject to regulatory capital requirements.

As of December 31, 2023, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized under regulations applicable at December 31, 2023, the Bank was required to maintain minimum total risk-based, Tier 1 risk-based, CET1 risk-based and Tier 1 leverage ratios as set forth in the tables below. The total capital ratio, Tier 1 capital ratio and CET1 ratio are calculated as a percentage of risk-weighted assets.  The Tier 1 leverage ratio is calculated as a percentage of average tangible assets.

The Corporation’s and the Bank’s actual capital amounts and ratios as of December 31, 2023 and 2022 are presented in the following tables along with regulatory requirements for the Bank and requirements that apply to bank holding companies that are subject to regulatory capital requirements for bank holding companies. The Corporation’s consolidated capital is determined under regulations that apply to bank holding companies that are not small bank holding companies.  Although the minimum regulatory capital requirements are not applicable to the Corporation, the Corporation calculates these ratios for its own planning and monitoring purposes. Total risk-weighted assets at December 31, 2023 for the Corporation were $1.95 billion and for the Bank were $1.92 billion.  Total risk-weighted assets at December 31, 2022 for the Corporation were $1.82 billion and for the Bank were $1.80 billion. Management believes that, as of December 31, 2023, the Bank met all capital adequacy requirements to which it is subject.

	December 31, 2023
					Minimum Capital				Well Capitalized
	Actual				Requirements				Requirements
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
The Corporation
Total risk-based capital ratio	$	289,396	14.8	%	$	155,927	8.0	%	$	N/A	N/A	%
Tier 1 risk-based capital ratio		244,830	12.6			116,945	6.0			N/A	N/A
Common Equity Tier 1 capital ratio		219,830	11.3			87,709	4.5			N/A	N/A
Tier 1 leverage ratio		244,830	10.1			97,449	4.0			N/A	N/A
The Bank
Total risk-based capital ratio	$	271,952	14.1	%	$	153,816	8.0	%	$	192,270	10.0	%
Tier 1 risk-based capital ratio		247,712	12.9			115,362	6.0			153,816	8.0
Common Equity Tier 1 capital ratio		247,712	12.9			86,522	4.5			124,976	6.5
Tier 1 leverage ratio		247,712	10.3			96,655	4.0			120,819	5.0

	December 31, 2022
					Minimum Capital				Well Capitalized
	Actual				Requirements				Requirements
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
The Corporation
Total risk-based capital ratio	$	280,606	15.4	%	$	145,958	8.0	%	$	N/A	N/A	%
Tier 1 risk-based capital ratio		233,581	12.8			109,468	6.0			N/A	N/A
Common Equity Tier 1 capital ratio		208,581	11.4			82,101	4.5			N/A	N/A
Tier 1 leverage ratio		233,581	9.9			94,562	4.0			N/A	N/A
The Bank
Total risk-based capital ratio	$	255,719	14.2	%	$	144,074	8.0	%	$	180,093	10.0	%
Tier 1 risk-based capital ratio		232,985	12.9			108,056	6.0			144,074	8.0
Common Equity Tier 1 capital ratio		232,985	12.9			81,042	4.5			117,060	6.5
Tier 1 leverage ratio		232,985	9.9			93,856	4.0			117,320	5.0

The Basel III rules established a “capital conservation buffer” of additional capital of 2.5 percent above the regulatory minimum risk-based capital ratios, which is not included in the tables above.  Including the capital conservation buffer, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0 percent, a Tier 1 risk-based capital ratio of 8.5 percent and a total risk-based capital ratio of 10.5 percent.  The Corporation and the Bank exceeded these ratios at December 31, 2023 and 2022.  

Between 2003 and 2007, the Corporation’s statutory business trusts issued $25.00 million of aggregate trust preferred securities. Based on the Corporation’s Tier 1 capital levels, the entire $25.00 million of trust preferred securities was included in the Corporation’s Tier 1 capital as of December 31, 2023 and 2022. The Corporation’s 2030 Subordinated Notes, issued in 2020, qualifies for inclusion in Tier 2 capital of the Corporation as of December 31, 2023. The Corporation’s 2028 Subordinated Notes, assumed upon the acquisition of Peoples in 2020, and the Corporation’s 2030 Subordinated Notes each qualified for inclusion in Tier 2 capital of the Corporation as of December 31, 2022. The Corporation repaid the $4.0 million 2028 Subordinated Notes during the second quarter of 2023. In each case, the amount included in regulatory capital with respect to trust preferred securities or subordinated notes may be reduced as those instruments near maturity.

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by C&F Bank to the Corporation. The total amount of dividends that may be paid at any date by C&F Bank is generally limited to the retained earnings of C&F Bank, while other measures of capital adequacy may also restrict the Bank’s ability to declare dividends.