14.    REGULATORY MATTERS

Cash and Due from Banks

Deposits with correspondent financial institutions are insured up to $250,000 per institution. The Company maintains cash and cash equivalents with certain correspondent financial institutions in excess of the insured amount.

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated 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 classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. The Company is exempt from consolidated capital requirements as those requirements do not apply to bank holding companies with consolidated assets under $3 billion.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank becomes undercapitalized, its regulator must take certain supervisory actions under prompt corrective action regulations, and such actions could have a direct material effect on the institution's financial statements. Generally, an institution is considered well capitalized if it has a leverage (Tier 1) ratio of 5.0% or greater, a common equity Tier 1 ratio of 6.5% or greater, a Tier 1 risk based capital ratio of 8.0% or greater, and a total risk-based capital ratio of 10.0% or greater.

The federal banking agencies have developed a minimum Community Bank Leverage Ratio ("CBLR") (which represents a bank's tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A “qualifying community bank” may elect to utilize the CBLR in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio, it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Basel III. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum CBLR at 9.00%. The Bank elected to be subject to the CBLR when it became effective on January 1, 2020, and has continued to use the Community Bank Leverage Ratio since that time.

Volatile earnings, along with other qualitative factors and changes to regulatory mandates, could significantly impact the Bank’s capital adequacy. The most recent notification from the FDIC categorized the Bank as “well capitalized” and there have been no conditions or events since that notification that management believes have changed the Bank’s categorization.

As of December 31, 2025 and 2024, the Bank's Community Bank Leverage Ratio was 8.56% and 9.67%, respectively, so it was deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. This is the first quarter that the Bank’s CBLR fell below the 9.00% minimum and thus is deemed to be in the CBLR grace period.

CBLR Grace Period

If an electing banking organization fails to satisfy one or more of the qualifying criteria but maintains a leverage ratio of greater than 8 percent, that banking organization would have a "grace period" of up to two quarters during which it could continue to use the community bank leverage ratio framework and be deemed to meet the "well capitalized" capital ratio requirements.  As long as the banking organization is able to return to compliance with all the qualifying criteria within two quarters, it continues to be deemed to meet the "well capitalized" ratio requirements and be in compliance with the generally applicable capital rule. 

A banking organization is required to comply with and report under the generally applicable capital rule and file the relevant regulatory reports if the banking organization (i) is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including reporting a leverage ratio greater than 9 percent), (ii) has a leverage ratio of 8 percent or less, or (iii) ceases to satisfy the qualifying criteria due to consummation of a merger transaction.   

The Bank's actual capital amounts and ratios are as follows as of  December 31, 2025 and  December 31, 2024 (dollar in thousands):

The Federal Reserve Bank has established capital guidelines for bank holding companies. These guidelines allow small bank holding companies, as defined, an exemption from regulatory capital requirements. The Bancorp meets the eligibility criteria and is exempt from regulatory capital requirements.

Dividends

Banking regulations limit the amount of dividends that may be paid by the Bank to the Company without prior regulatory approval and are subject to the minimum capital ratio requirements noted above.