Regulatory Restrictions

6 Months Ended

Jun. 30, 2020

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

Regulatory Restrictions

Regulatory Restrictions

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. 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 the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III regulatory capital framework (the "Basel III Capital Rules") adopted by U.S. federal regulatory authorities, among other things, (i) establishes the capital measure called "Common Equity Tier 1" ("CET1"), (ii) specifies that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital" instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that we maintain a 2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we have elected to utilize the five-year CECL transition.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of June 30, 2020, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized or adequately capitalized based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of June 30, 2020 and December 31, 2019. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such change could reduce one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material adverse effect on our financial condition and results of operations.

Because our Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, we are allowed to continue to classify our trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.

The table below summarizes our actual and required capital ratios under the Basel III Capital Rules. The ratios presented below include the effects of our election to utilize the five-year CECL transition described above.

	Actual				For Capital Adequacy Purposes				Required to be Considered Well Capitalized
(dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount	Ratio
June 30, 2020
CET1
Company	$	2,588,325	8.88	%	$	2,040,935	7.00	%	N/A	N/A
Bank	2,619,361		9.00	%	2,037,171		7.00	%	1,891,659	6.50	%
Total capital (to risk-weighted assets)
Company	3,383,499		11.60	%	3,061,403		10.50	%	N/A	N/A
Bank	3,255,770		11.19	%	3,055,757		10.50	%	2,910,244	10.00	%
Tier 1 capital (to risk-weighted assets)
Company	2,849,387		9.77	%	2,478,278		8.50	%	N/A	N/A
Bank	2,780,423		9.55	%	2,473,708		8.50	%	2,328,196	8.00	%
Tier 1 capital (to average assets)(1)
Company	2,849,387		7.52	%	1,516,474		4.00	%	N/A	N/A
Bank	2,780,423		7.34	%	1,516,023		4.00	%	1,895,028	5.00	%
December 31, 2019
CET1
Company	$	2,653,999	8.88	%	$	2,091,591	7.00	%	N/A	N/A
Bank	2,676,513		8.96	%	2,090,870		7.00	%	1,941,522	6.50	%
Total capital (to risk-weighted assets)
Company	3,398,345		11.37	%	3,137,926		10.50	%	N/A	N/A
Bank	3,262,144		10.92	%	3,136,305		10.50	%	2,986,957	10.00	%
Tier 1 capital (to risk-weighted assets)
Company	2,912,529		9.75	%	2,540,226		8.50	%	N/A	N/A
Bank	2,835,043		9.49	%	2,538,913		8.50	%	2,389,565	8.00	%
Tier 1 capital (to average assets)(1)
Company	2,912,529		8.42	%	1,383,640		4.00	%	N/A	N/A
Bank	2,835,043		8.20	%	1,383,190		4.00	%	1,728,988	5.00	%

(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

Our mortgage finance loan volumes can increase significantly at month-end, causing a meaningful difference between ending balance and average balance for any period. At June 30, 2020, our mortgage finance loans were $9.0 billion compared to the average for the quarter ended June 30, 2020 of $8.7 billion. As CET1, Tier 1 and total capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted (excluding MCA mortgage loans held for sale, which receive lower risk weights), the period-end fluctuation in these balances can significantly impact our reported ratios. Due to the actual risk profile and liquidity of this asset class, we manage capital allocated to mortgage finance loans based on changing trends in average balances and do not believe that the period-end balance is representative of risk characteristics that would justify higher allocations. However, we monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels.

Dividends that may be paid by banks are routinely restricted by various regulatory authorities. The amount that can be paid in any calendar year without prior approval of our Bank’s regulatory agencies cannot exceed the lesser of the net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings. The Basel III Capital Rules further limit the amount of dividends that may be paid by our Bank. No dividends were declared or paid on our common stock during the six months ended June 30, 2020, or 2019.