As the uncertainty of 2021 lingers, a positive sign shines through in strong capital ratios.
Banks across the region have gotten stronger on average over the past year — based on how much capital institutions are holding to cover liabilities.
In order to gauge a bank’s ability to weather a downturn, regulators calculate several risk-based capital ratios for each bank that they monitor. The most broad of these is total risk-based capital ratio, calculated from total risk-based capital divided by risk-weighted assets. A bank’s Tier 1 ratio, meanwhile, focuses solely on what the Federal Reserve calls “core” capital. In general, regulators say a bank meets the minimum requirements of having enough capital when its total risk-based capital is over 8% and its Tier 1 risk-based capital ratio is at least 4%.
Also, in a twist, regulators recently eased capital reporting requirements for community banks — where executives nationwide have bemoaned an over-regulated environment for years. The change is called the Community Bank Leverage Ratio. It allows certain banks below $10 billion in total assets to report only one leverage ratio instead of the normal four capital ratios. “It reduces the burden of all the calculations you have to do,” says Sarasota-based Gulfside Bank President and CEO Dennis Murphy.
Gulfside is one of eight banks in the region that chose to utilize the Community Bank Leverage Ratio, an analysis of Federal Deposit Insurance Corp. data from the third quarter shows. Another 13 banks in the region that qualified for the CBLR declined to use it in third quarter. On a national scale, the regulatory relief has failed to gain traction, according to a report from S&P Global Market Intelligence. Factors, the report shows, include a lack of significant time savings, difficulty comparing performance with peers and an influx of both deposits and loans stressing leverage ratios. Nearly 100 banks exited the CBLR after adopting it in the first quarter, and more than 2,700 community banks that qualified as of June 30, based on asset and leverage requirements, declined to adopt it, the report adds.
On banks in the region that did report traditional capital ratios, all the institutions are adequately or well capitalized. (Members Trust Co., owned by credit unions and chartered and regulated by the Office of Comptroller of the Currency, does more wealth management than deposits and loans, making its capital ratios an outlier.)
Among the Gulf Coast’s traditional banks, Hillsboro Bank in Plant City had the highest Tier 1 risk-based capital ratio through the third quarter, at nearly 23%, down slightly from a year ago. Edison National Bank in Fort Myers and Tampa-based TCM Bank are more representative of the regional trend. Both banks saw substantial year-over-year increases in Tier 1 ratios over the past year, FDIC data shows, with Edison clearing 21% and TCM just above 20%. Both banks increased Tier 1 ratios by well over 2 percentage points, well ahead of the regional average, which was closer to 1 percentage point.
While each of the Gulf Coast banks that didn’t utilize the CBLR cleared the 10% mark, in addition to Hillsboro two other banks posted ratio decreases: St. Petersburg-based First Home Bank, which has issued a substantial amount of loans through the SBA’s Paycheck Protection Program, and Raymond James Bank, which saw only a slight decrease and is the largest bank based on assets in the region by far.