Regulatory Capital

12 Months Ended

Dec. 31, 2022

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Capital

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. 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 adverse effect on our business, results of operations, and financial position. Under the FDIC’s regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors.

The Bank is subject to the following minimum capital ratios under U.S. Basel III: a Common Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers. Including the buffer, the Bank is required to maintain the following capital ratios under U.S. Basel III in order to avoid such restrictions: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0 percent, a Tier 1 risk-based capital ratio of greater than 8.5 percent, and a Total risk-based capital ratio of greater than 10.5 percent.

To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, the Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent.

Under regulations issued by the FDIC and other federal banking agencies, banking organizations that adopted CECL during the 2020 calendar year, including the Bank, could elect to delay for two years, and then phase in over the following three years, the effects on regulatory capital of CECL relative to the incurred loss methodology. The Bank elected to use this option. Therefore, the regulatory capital impact of the Bank’s transition adjustments recorded on January 1, 2020 from the adoption of CECL, and 25 percent of the ongoing impact of CECL on the Bank’s allowance for credit losses, retained earnings, and average total consolidated assets, each as reported for regulatory capital purposes (collectively, the “adjusted transition amounts”), were deferred for the two-year period ending January 1, 2022. On January 1, 2022, 25 percent of the adjusted transition amounts were phased in for regulatory capital purposes. On January 1 of each year from 2023 to 2025, the adjusted transition amounts will continue to be phased in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year. The Bank’s January 1, 2020 CECL transition amounts increased our allowance for credit losses by $1.1 billion, increased the liability representing our off-balance sheet exposure for unfunded commitments by $116 million, and increased our deferred tax asset by $306 million, resulting in a cumulative effect adjustment that reduced retained earnings by $953 million. This transition adjustment was inclusive of qualitative adjustments incorporated into our CECL allowance as necessary, to address any limitations in the models used.

At December 31, 2022, the adjusted transition amounts that were deferred and are being phased in for regulatory capital purposes are as follows:

	Transition Amounts		Adjustments for the Year Ended		Adjustments for the Year Ended		Phase-In Amounts for the Year Ended		Remaining Adjusted Transition Amounts to be Phased-In
(Dollars in thousands)	January 1, 2020		December 31, 2020		December 31, 2021		December 31, 2022		December 31, 2022
Retained earnings	$	952,639	$	(57,859)	$	(58,429)	$	(209,088)	$	627,263
Allowance for credit losses	1,143,053		(55,811)		(49,097)		(259,536)		778,609
Liability for unfunded commitments	115,758		(2,048)		(9,333)		(26,094)		78,283
Deferred tax asset	306,171		—		—		(76,542)		229,629

The Bank’s required and actual regulatory capital amounts and ratios under U.S. Basel III are shown in the following table. The following capital amounts and ratios are based upon the Bank’s average assets and risk-weighted assets, as indicated.

(Dollars in thousands)	Actual				U.S. Basel III Minimum Requirements Plus Buffer(1)(2)
	Amount		Ratio		Amount			Ratio
As of December 31, 2022(3):
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	3,040,662	12.9	%	$	1,645,807	>	7.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	3,040,662	12.9	%	$	1,998,480	>	8.5	%
Total Capital (to Risk-Weighted Assets)	$	3,338,645	14.2	%	$	2,468,711	>	10.5	%
Tier 1 Capital (to Average Assets)	$	3,040,662	10.3	%	$	1,185,280	>	4.0	%
As of December 31, 2021:
Common Equity Tier 1 Capital (to Risk-Weighted Assets)	$	3,314,657	14.1	%	$	1,643,132	>	7.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	3,314,657	14.1	%	$	1,995,232	>	8.5	%
Total Capital (to Risk-Weighted Assets)	$	3,410,183	14.5	%	$	2,464,699	>	10.5	%
Tier 1 Capital (to Average Assets)	$	3,314,657	11.1	%	$	1,198,808	>	4.0	%

(1) Reflects the U.S. Basel III minimum required ratio plus the applicable capital conservation buffer.

(2) The Bank’s regulatory capital ratios also exceeded all applicable standards for the Bank to qualify as “well capitalized” under the prompt corrective action framework.

(3) For December 31, 2022, the actual amounts and the actual ratios include the adjusted transition amounts discussed above that were phased in at the beginning of 2022.

Bank Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank declared $700 million, $1.4 billion, and $579 million in dividends to the Company for the years ended December 31, 2022, 2021, and 2020, respectively, with the proceeds primarily used to fund the 2022, 2021, and 2020 Share Repurchase Programs and stock dividends. In the future, we expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under its repurchase programs.