Regulatory Capital

3 Months Ended

Mar. 31, 2020

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

Regulatory Capital

Regulatory Capital

A significant measure of the strength of a financial institution is its capital base. Federal regulators have classified and defined capital into the following components: (1) tier 1 capital, which includes tangible shareholders' equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (2) tier 2 capital, which includes a portion of the allowance for loan losses, subject to limitations, certain qualifying long-term debt, preferred stock and hybrid instruments, which do not qualify for tier 1 capital. The Bank is currently subject to various regulatory capital requirements administered by the FDIC.

On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets, implementing provisions of The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). Under the proposal, a qualifying community banking organization would be eligible to elect the community bank leverage ratio framework, or continue to measure capital under the existing Basel III requirements set forth in the New Rules. The new rule takes effect January 1, 2020, and qualifying community banking organizations may elect to opt into the new community bank leverage ratio (“CBLR”) in their call report for the first quarter of 2020.

A qualifying community banking organization (“QCBO”) is defined as a bank, a savings association, a bank holding company or a savings and loan holding company with:

• A leverage capital ratio of greater than 9.0%;

• Total consolidated assets of less than $10.0 billion;

• Total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets; and

• Total trading assets and trading liabilities of 5% or less of total consolidated assets.

A QCBO opting into the CBLR must maintain a CBLR of 9.0%, subject to a two quarter grace period to come back into compliance, provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period. A QCBO failing to satisfy these requirements must comply with the existing Basel III requirements as implemented by the banking regulators.

The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital.

The Bank has opted into the CBLR, and will therefore not be required to comply with the Basel III capital requirements. As of March 31, 2020, the Bank’s CBLR was 10.16%, and the Company’s CBLR was 10.56%.

For comparison purposes only, we set forth below what the capital ratios for the Bank and the Company were, and would have been, under the Basel III requirements:

	At March 31, 2020				Required for capital adequacy purposes effective				To be well-capitalized under prompt corrective action regulations
	Company		Bank		January 1, 2019				Bank
Leverage ratio	10.56	%	10.16	%	4.00	%			5.00	%
CET1	11.67	%	11.91	%	7.00	%	(1	)	6.50	%
Tier I risk-based capital ratio	12.39	%	11.91	%	8.50	%	(1	)	8.00	%
Total risk-based capital ratio	13.15	%	12.70	%	10.50	%	(1	)	10.00	%

	At December 31, 2019				Required for capital adequacy purposes effective				To be well-capitalized under prompt corrective action regulations
	Company		Bank		January 1, 2019				Bank
Leverage ratio	10.59	%	10.15	%	4.000	%			5.00	%
CET1	11.59	%	11.81	%	7.000	%	(1	)	6.50	%
Tier I risk-based capital ratio	12.32	%	11.81	%	8.500	%	(1	)	8.00	%
Total risk-based capital ratio	13.06	%	12.58	%	10.500	%	(1	)	10.00	%
(1) Includes 2.5% capital conservation buffer.