Regulatory Capital

9 Months Ended

Sep. 30, 2020

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

Regulatory Capital

NOTE 13. Regulatory Capital

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. The new rule was effective beginning January 1, 2020, and qualifying community banking organizations may elect to opt into the new community bank leverage ratio (“CBLR”) in their call report beginning in 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.

On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, which modified the CBLR framework so that: (i) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%. Under the interim rules, the minimum CBLR will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. 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 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 September 30, 2020, the Bank’s CBLR was 9.62%, and the Company’s CBLR was 9.95%.

The following table shows the CBLR ratio for the Company and the Bank for the period ended September 30, 2020, and the capital ratios for the Company and the Bank under Basel III requirements at December 31, 2019:

	Company		Bank		Required for capital adequacy purposes (1)		To be well-capitalized under prompt corrective action regulations
At September 30, 2020:
CBLR	9.95	%	9.62	%	8.00	%	8.00	%
At December 31, 2019:
Leverage ratio	10.59	%	10.15	%	4.00	%	5.00	%
CET1	11.59	%	11.81	%	4.50	%	6.50	%
Tier I risk-based capital ratio	12.32	%	11.81	%	6.00	%	8.00	%
Total risk-based capital ratio	13.06	%	12.58	%	8.00	%	10.00	%
(1) Excludes capital conservation buffer at December 31, 2019.