Stockholders' Equity and Regulatory Capital

12 Months Ended

Jun. 30, 2024

Stockholders' Equity and Regulatory Capital

Stockholders' Equity and Regulatory Capital

NOTE 11: Stockholders’ Equity and Regulatory Capital

The Company and Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The Company and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the Company and Bank’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital (as defined), and common equity Tier 1 capital (as defined) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average total assets (as defined). Additionally, to make distributions or discretionary bonus payments, the Company and Bank must maintain a capital conservation buffer of 2.5% of risk-weighted assets. Management believes, as of June 30, 2024 and 2023, that the Company and the Bank met all capital adequacy requirements to which they are subject.

In August 2020, the Federal banking agencies adopted a final rule updating a December 2018 rule regarding the impact on regulatory capital of adoption of the CECL standard. The rule now allows institutions that adopt the CECL standard in 2020 a five-year transition period to recognize the estimated impact of adoption on regulatory capital. The Company and the Bank elected to exercise the option to recognize the impact of adoption over the five-year period.

As of June 30, 2024, the most recent notification from the Federal banking agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The tables below summarize the Company and Bank’s actual and required regulatory capital:

									To Be Well Capitalized Under
									Prompt Corrective Action
	Actual				For Capital Adequacy Purposes				Provisions
As of June 30, 2024	Amount		Ratio		Amount		Ratio		Amount		Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets)
Consolidated	$	524,023	13.23	%	$	316,979	8.00	%	$	n/a	n/a
Southern Bank		496,105	12.68	%		312,877	8.00	%		391,097	10.00	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		467,027	11.79	%		237,734	6.00	%		n/a	n/a
Southern Bank		447,192	11.43	%		234,658	6.00	%		312,877	8.00	%
Tier I Capital (to Average Assets)
Consolidated		467,027	10.19	%		183,262	4.00	%		n/a	n/a
Southern Bank		447,192	9.79	%		182,723	4.00	%		228,403	5.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		451,474	11.39	%		178,300	4.50	%		n/a	n/a
Southern Bank		447,192	11.43	%		175,993	4.50	%		254,213	6.50	%

									To Be Well Capitalized Under
									Prompt Corrective Action
	Actual				For Capital Adequacy Purposes				Provisions
As of June 30, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio
(dollars in thousands)
Total Capital (to Risk-Weighted Assets)
Consolidated	$	481,236	12.52	%	$	307,528	8.00	%	$	n/a	n/a
Southern Bank		454,699	11.77	%		308,932	8.00	%		386,166	10.00	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		426,644	11.10	%		230,646	6.00	%		n/a	n/a
Southern Bank		407,764	10.56	%		231,699	6.00	%		308,932	8.00	%
Tier I Capital (to Average Assets)
Consolidated		426,644	9.95	%		171,470	4.00	%		n/a	n/a
Southern Bank		407,764	9.54	%		170,942	4.00	%		213,677	5.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		411,196	10.70	%		172,985	4.50	%		n/a	n/a
Southern Bank		407,764	10.56	%		173,774	4.50	%		251,008	6.50	%

The Bank’s ability to pay dividends on its common stock to the Company is restricted to maintain adequate capital as shown in the above tables. Additionally, prior regulatory approval is required for the declaration of any dividends generally in excess of the sum of net income for that calendar year and retained net income for the preceding two calendar years. At June 30, 2024, approximately $30.2 million of the equity of the Bank was available for distribution as dividends to the Company without prior regulatory approval.