Shareholders' Equity and Regulatory Matters

9 Months Ended

Sep. 30, 2024

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 change in accumulated other comprehensive loss for the nine months ended September 30, 2024 and year ended December 31, 2023 and is summarized as follows, net of tax (dollars in thousands):


	Unrealized		Defined
	Losses on AFS		Benefit
	Securities		Plan		Total

Accumulated other comprehensive loss December 31, 2023	$	(5,604)	$	(9)	$	(5,613)
Other comprehensive income
Other comprehensive income before reclassification		1,574		-		1,574
Net current period other comprehensive income		1,574		-		1,574
Accumulated other comprehensive loss September 30, 2024	$	(4,030)	$	(9)	$	(4,039)


	Unrealized		Defined
	Losses on AFS		Benefit
	Securities		Plan		Total

Accumulated other comprehensive loss December 31, 2022	$	(10,863)	$	(18)	$	(10,881)
Other comprehensive income
Other comprehensive income before reclassification		1,320		9		1,329
Amounts reclassified from AOCI into earnings		3,939		-		3,939
Net current period other comprehensive income		5,259		9		5,268
Accumulated other comprehensive loss December 31, 2023	$	(5,604)	$	(9)	$	(5,613)

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”). 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 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 September 30, 2024, 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 September 30, 2024, the Bank exceeded the minimum ratios to be classified as well capitalized.

The capital amounts and ratios at September 30, 2024 and December 31, 2023 for the Bank are presented in the table below (dollars in thousands):


					Minimum Capital
					Requirements
	Actual				Including Conservation Buffer ⁽¹⁾				To be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio

September 30, 2024
Total capital (to risk- weighted assets) Village Bank	$	91,886	14.16	%	$	68,124	10.50	%	$	64,880	10.00	%

Tier 1 capital (to risk- weighted assets) Village Bank		87,858	13.54	%		55,148	8.50	%		51,904	8.00	%

Leverage ratio (Tier 1 capital to average assets) Village Bank		87,858	11.57	%		30,385	4.00	%		37,981	5.00	%

Common equity tier 1 (to risk- weighted assets) Village Bank		87,858	13.54	%		45,416	7.00	%		42,172	6.50	%

December 31, 2023
Total capital (to risk- weighted assets) Village Bank	$	86,493	14.49	%	$	62,679	10.50	%	$	59,695	10.00	%

Tier 1 capital (to risk- weighted assets) Village Bank		82,764	13.86	%		50,740	8.50	%		47,756	8.00	%

Leverage ratio (Tier 1 capital to average assets) Village Bank		82,764	11.14	%		29,706	4.00	%		37,133	5.00	%

Common equity tier 1 (to risk- weighted assets) Village Bank		82,764	13.86	%		41,786	7.00	%		38,801	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% capital conservation buffer; and a minimum Tier leverage ratio of 4.0%.

Village Bank & Trust Financial Corp. 10-Q