38
The Company’s consolidated
stockholders’ equity was $75.2 million and $76.5 million as of June 30, 2024
and December
31, 2023, respectively. The decrease
from December 31, 2023 was primarily driven by an other comprehensive loss due
to
the change in unrealized gains/losses on securities available-for-sale,
net of tax of $2.2 million, cash dividends of $1.9
million, and the cumulative effect of adopting NMTC accounting
standard of $0.3
million, partially offset by net earnings
of $3.1 million.
Total unrealized losses, net of tax,
on available-for-sale securities increased
from $29.0 million on
December 31, 2023 to $31.2 million June 30, 2024.
These unrealized losses do not affect the Bank’s
capital for regulatory
The Company paid cash dividends of $0.54 per share for both the first six months
of 2024 and first six months of 2023.
On January 1, 2015, the Company and Bank became subject to the rules of the Basel III regulatory
capital framework and
related Dodd-Frank Wall
Street Reform and Consumer Protection Act changes.
The rules included the implementation of a
capital conservation buffer that is added to the minimum requirements
for capital adequacy purposes.
The capital
conservation buffer was subject to a three-year phase-in period that began on January 1,
2016 and was fully phased-in on
January 1, 2019 at 2.5%.
A banking organization with a conservation buffer of less than the
required amount will be
subject to limitations on capital distributions, including dividend payments and certain discretionary
bonus payments to
executive officers.
At June 30, 2024, the Bank’s ratio
was sufficient to meet the fully phased-in conservation buffer,
and
did not limit capital distributions or discretionary bonuses.
On August 26, 2020, the Federal Reserve and the other federal banking regulators adopted
a final rule that amended the
capital conservation buffer.
The new rule revises the definition of “eligible retained income”
for purposes of the maximum
payout ratio to allow banking organizations to more freely use their capital buffers
to promote lending and other financial
intermediation activities, by making the limitations on capital distributions
more gradual.
The eligible retained income is
now the greater of (i) net income for the four preceding quarters, net of distributions and associated
tax effects not reflected
in net income; and (ii) the average of all net income over the preceding four quarters.
This rule only affects the capital
buffers, and banking organizations were encouraged
to make prudent capital distribution decisions.
The Federal Reserve has treated us as a “small bank holding company’ under the Federal
Reserve’s Small Bank Holding
Company Policy.
Accordingly, our capital adequacy is evaluated
at the Bank level, and not for the Company and its
consolidated subsidiaries.
The Bank’s tier 1 leverage ratio
was 10.39%, CET1 risk-based capital ratio was 14.47%, tier 1
risk-based capital ratio was 14.47%, and total risk-based capital ratio
was 15.49% at June 30, 2024. These ratios exceed the
minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5%
for CET1 risk-based capital ratio, 8.0% for
tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio
to be considered “well capitalized.”
The Bank’s
capital conservation buffer was 7.49% at June 30, 2024.
On July 27, 2023, the Federal Reserve, the Comptroller of the Currency and the FDIC issued
a joint notice of proposed
rulemaking to implement the Basel III endgame components.
The proposal which is subject to public comment and change
only applies to banks and holding companies with $100 billion or more of assets.
The proposal includes provisions dealing
with:
●
Credit risk, which arises from the risk that an obligor fails to perform on an obligation;
●
Market risk, which results from changes in the value of trading positions;
●
Operational risk, which is the risk of losses resulting from inadequate or
failed internal process, people, and
systems, or from external events; and
●
Credit valuation adjustment risk, which results from the risk of losses on certain derivative
contracts.
The Basel III endgame regulatory proposals are not applicable to the Company or the Bank
.
The Federal Reserve has
indicated that it is revising and expects to re-propose these rules applicable to larger
organizations than the Company.
MARKET AND LIQUIDITY RISK MANAGEMENT
Management’s objective is to manage assets and
liabilities to provide a satisfactory,
consistent level of profitability within
the framework of established liquidity,
loan, investment, borrowing, and capital policies. The Bank’s
Asset Liability
Management Committee (“ALCO”) is charged with the responsibility
of monitoring these policies, which are designed to
ensure an acceptable asset/liability composition. Two
critical areas of focus for ALCO are interest rate risk and liquidity
