NOTE 17 — REGULATORY CAPITAL

The Company and Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. At December 31, 2019 and 2018, the Company and the Bank met all applicable regulatory capital requirements to be considered “well capitalized” under regulatory guidelines. The Company and Bank manage their capital to comply with their internal planning targets and regulatory capital standards administered by federal banking agencies. The Company and Bank review capital levels on a monthly basis.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being fully phased in on January 1, 2019. The capital conservation buffer was 2.50% at December 31, 2019 and 1.88% at December 31, 2018. The capital conservation buffer requirement was being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing by 0.625% each subsequent January 1, until it reached 2.5% on January 1, 2019. The net unrealized gain or loss on AFS securities is not included in the computation of the regulatory capital. The Company and the Bank meet all capital adequacy requirements, to which they are subject, as of December 31, 2019 and 2018.

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 adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2019 and 2018, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.

The following is a summary of actual capital amounts and ratios as of December 31, 2019 and 2018, for the Company and the Bank compared to the requirements for minimum capital adequacy and classification as well capitalized. Actual and required capital amounts and ratios are presented below at year end (dollars in thousands):


										To be Well Capitalized
					For Capital Adequacy					under Prompt Corrective
	Actual				Purposes					Action Regulations
	Amount		Ratio		Amount			Ratio		Amount			Ratio
At December 31, 2019
Total capital (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	350,403	12.5	%	$	223,973	≥	8.0	%	$	N/A	≥	N/A	%
Metropolitan Commercial Bank	$	356,353	12.7	%	$	223,858	≥	8.0	%	$	279,823	≥	10.0%	%
Tier 1 common equity (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	282,646	10.1	%	$	125,985	≥	4.5	%	$	N/A	≥	N/A	%
Metropolitan Commercial Bank	$	329,905	11.8	%	$	125,920	≥	4.5	%	$	181,885	≥	6.5%	%
Tier 1 capital (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	308,769	11.0	%	$	167,980	≥	6.0	%	$	N/A	≥	N/A	%
Metropolitan Commercial Bank	$	329,905	11.8	%	$	167,894	≥	6.0	%	$	223,858	≥	8.0%	%
Tier 1 capital (to average assets)
Metropolitan Bank Holding Corp.	$	308,769	9.4	%	$	131,087	≥	4.0	%	$	N/A	≥	N/A	%
Metropolitan Commercial Bank	$	329,905	10.1	%	$	131,000	≥	4.0	%	$	163,750	≥	5.0%	%

At December 31, 2018
Total capital (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	319,053	16.9	%	$	151,053	≥	8.0	%		N/A		N/A	%
Metropolitan Commercial Bank	$	314,226	16.7	%	$	150,900	≥	8.0	%	$	188,625	≥	10.0	%
Tier 1 common equity (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	249,655	13.2	%	$	84,968	≥	4.5	%		N/A		N/A	%
Metropolitan Commercial Bank	$	294,880	15.6	%	$	84,881	≥	4.5	%	$	122,606	≥	6.5	%
Tier 1 capital (to risk-weighted assets)
Metropolitan Bank Holding Corp.	$	275,158	14.6	%	$	113,290	≥	6.0	%		N/A		N/A	%
Metropolitan Commercial Bank	$	294,880	15.6	%	$	113,175	≥	6.0	%	$	150,900	≥	8.0	%
Tier 1 capital (to average assets)
Metropolitan Bank Holding Corp.	$	275,158	13.7	%	$	80,244	≥	4.0	%		N/A		N/A	%
Metropolitan Commercial Bank	$	294,880	14.7	%	$	80,050	≥	4.0	%	$	100,063	≥	5.0	%

As a result of the recently enacted Economic Growth Act (the “Act”), banking regulatory agencies adopted a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a “Qualifying Community Bank”). The new definition expanded the ways that a Qualifying Community Bank may meet its capital requirements and be deemed “well capitalized.” The new rule establishes a community bank leverage ratio (“CBLR”) equal to the tangible equity capital divided by the average total consolidated assets. Regulators have established the CBLR to be set at 9%, effective January 1, 2020.

A Qualifying Community Bank that maintains a leverage ratio greater than 9% is considered to be well capitalized and to have met generally applicable leverage capital requirements, generally applicable risk-based capital requirements, and any other capital or leverage requirements to which such financial institution or holding company is subject.

The Bank intends to continue to measure capital adequacy using the ratios in the table above.