Basel III Capital Planning Model
Your Bank
Quarter Ended
September 30, 2015
Basel III: A Primer
Capital Requirements & PCA
The new rule revises Prompt Corrective Action (PCA) capital category thresholds to reflect the new capital ratio requirements and introduces
CET1 as a PCA capital category threshold.
Previous Minimums
Basel III Minimums
Adequately
Capitalized
Well
Capitalized
Adequately
Capitalized
Well
Capitalized
4.00%
5.00%
4.00%
5.00%
6.50%
Leverage Ratio
Common Equity Tier 1 Ratio
NA
NA
4.50%
Tier 1 Capital Ratio
4.00%
6.00%
6.00%
8.00%
Total Capital Ratio
8.00%
10.00%
8.00%
10.00%
Capital Definitions for Community Banks
Common Equity Tier 1 ("CET1") Capital The sum of common stock instruments and related surplus net of treasury stock, retained earnings,
AOCI, and qualifying minority interests—less applicable regulatory adjustments and deductions that include AOCI (if one-time AOCI opt-out
is elected). Additionally, certain components, such as MSAs, deferred tax assets, and certain investments in financial institutions, are limited
in their inclusion in CET1 by threshold deductions.
Additional Tier 1 Capital Noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRuPS, and Troubled Asset Relief
Program instruments—less applicable regulatory adjustments and deductions.
Tier 2 Capital Subordinated debt and preferred stock, total capital minority interests not included in tier 1, allowance for loan and lease
losses not exceeding 1.25 percent of risk-weighted assets — less applicable regulatory adjustments and deductions
Accumulated Other Comprehensive Income (AOCI) Non-Advanced Approaches, community banks have a one-time irrevocable option to
opt-out most AOCI components from regulatory capital, comparable to the treatment under the prior rules. If an institution does not exercise
this option, AOCI will be incorporated into common equity tier 1 capital (CET1), including unrealized gains/losses on all AFS securities,
subject to the phase-in schedule below.
Transitional Schedule for Capital Components
2015
2016
2017
2018
2019
Phase-in of most deductions from CET1 (Including threshold items)
40%
60%
80%
100%
100%
Phase-out of AOCI Adjustments
60%
40%
20%
0%
0%
Unrealized gains in AFS securities includable in Tier 2
27%
18%
9%
0%
0%
Non-qualified instruments includable in Additional Tier 1 or Tier 2
70%
50%
60%
40%
30%
Capital Conservation Buffer
Beginning in 2016, the new rule requires banks to hold capital in excess of minimum risk-based capital ratios by at least 2.5% (phased-in
over a 4 year period ending in 2019) to avoid limits on capital distributions, such as dividend payments, discretionary payments on tier 1
instruments, share buybacks, and certain discretionary bonus payments to executive officers, including heads of major business lines and
similar employees (see detailed CCB transitional phase-in rules on page 5 for more details on payout limitations).
Capital Conservation Buffer
Minimum Ratio + CCB
Maximum Payout
(fully phase-in, as % of RWA)
(% of eligible income)
CET1
Tier 1
Total Capital
Greater than 2.5%
No payout limitation applies
7.00%
8.50%
10.50%
Less than or equal to 2.5% and greater than 1.875%
60%
6.375%
7.875%
9.875%
Less than or equal to 1.875% and greater than 1.25%
40%
5.75%
7.25%
9.25%
Less than or equal to 1.25% and greater than 0.625%
20%
5.125%
6.625%
8.625%
Less than or equal to 0.625%
0%
≤ 5.125%
≤ 6.625%
≤ 8.625%
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2
Model Inputs & Assumptions
HISTORICAL
2013
2014
2015
PROJECTED
2017
2016
2018
2019
Balance Sheet Items
Total Assets
$223,449
$272,776
$313,692
$345,062
$379,568
$417,525
$459,277
15.7%
22.1%
15.0%
10.0%
10.0%
10.0%
10.0%
$191,943
$237,916
$282,323
$310,555
$341,611
$375,772
$413,349
Total Loans / Assets
86%
87%
90%
90%
90%
90%
90%
Loan Loss Reserve
$2,597
$2,770
$3,247
$3,571
$3,929
$4,321
$4,754
Reserves / Total Loans
1.35%
1.16%
1.15%
1.15%
1.15%
1.15%
1.15%
Risk-Weighted Assets
$210,465
$236,141
$250,954
$276,050
$360,590
$396,649
$436,313
94%
87%
80%
80%
95%
95%
95%
Annual Asset Growth
Total Loans
RWA %
Other Important Regulatory Capital Assumptions
Intangible Assets (other than goodwill & MSAs)
$0
$175
$175
$175
$175
$175
$175
MSAs
$0
$0
$0
$0
$0
$0
$0
Net Income
$2,270
$833
$586
$659
$725
$797
$877
ROAA (%)
1.10%
0.34%
0.20%
0.20%
0.20%
0.20%
0.20%
Existing Common Dividends
$68
$146
$117
$132
$254
$279
$307
Common Dividend Payout Ratio
3%
18%
20%
20%
35%
35%
35%
$0
$0
$0
$0
$0
$0
$0
New Common Stock
$000s:
$0
$0
$2,500
$0
$0
New
$000s:
$0
$0
$0
$0
$0
Earnings & Profitability
Dividends on Existing Stock
Existing Preferred Dividends
Additional New Capital(a)
Non-Cumulative
Rate:
0%
0%
0%
0%
0%
Total Dividend:
$0
$0
$0
$0
$0
$000s:
$0
$0
$0
$3,000
$0
Rate:
0%
0%
0%
5%
0%
Total Dividend:
$0
$0
$0
$150
$150
$000s:
$0
$0
$0
$0
$0
Rate:
0%
0%
0%
0%
0%
Interest Expense:
$0
$0
$0
$0
$0
Preferred Stock (Tier 1)
New Cumulative
Preferred Stock (Tier 2)
New Debt
(Tier 2)
(a) Adding future capital raises does not alter baseline projections above
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3
Basel III Summary Projections
Summary Regulatory Capital Calculations
HISTORICAL(a)
2013
2014
2015
2016
PROJECTED(b)
2017
2018
2019
Common Equity Tier 1 Capital
NA
NA
$19,058
$19,345
$22,076
$22,204
$22,624
Additional Tier 1 Capital
NA
NA
$6,237
$6,237
$6,237
$6,237
$6,237
$19,558
$24,346
$25,295
$25,582
$28,313
$28,441
$28,861
$2,597
$2,770
$3,137
$3,451
$3,929
$7,321
$7,754
$22,155
$27,116
$28,432
$29,033
$32,242
$35,762
$36,615
Total Tier 1 Capital
Tier 2 Capital
Total Risk-Based Capital
(a) Calculated using the previous General risk-based regulatory capital rules
(b) Calculated using the new U.S. BASEL III revised regulatory capital rules
Capital Surplus/(Deficit) Analysis
CURRENT
09/30/2015
2015
PROJECTED
2017
2016
2018
2019
Leverage Ratio
BASEL III Calculation
8.61%
8.12%
7.46%
7.51%
6.86%
6.32%
vs. Adequately Capitalized Minimum (4%)
$13,965
$12,831
$11,873
$13,233
$11,852
$10,602
vs. Well Capitalized Minimum (5%)
$10,933
$9,715
$8,445
$9,463
$7,705
$6,038
7.32%
7.59%
7.01%
6.12%
5.60%
5.19%
vs. Adequately Capitalized Minimum (4.5%)
$7,651
$7,765
$6,923
$5,849
$4,355
$2,990
vs. Well Capitalized Minimum (6.5%)
$2,228
$2,746
$1,402
($1,362)
($3,578)
($5,736)
9.62%
10.08%
9.27%
7.85%
7.17%
6.61%
vs. Adequately Capitalized Minimum (6%)
$9,821
$10,238
$9,019
$6,678
$4,642
$2,682
vs. Well Capitalized Minimum (8%)
$4,397
$5,219
$3,498
($534)
($3,291)
($6,044)
10.83%
11.33%
10.52%
8.94%
9.02%
8.39%
vs. Adequately Capitalized Minimum (8%)
$7,684
$8,356
$6,949
$3,395
$4,030
$1,710
vs. Well Capitalized Minimum (10%)
$2,261
$3,337
$1,428
($3,817)
($3,903)
($7,016)
Tier 1 Capital Surplus/(Deficit):
Common Equity Tier 1 (CET1) Ratio
BASEL III Calculation
CET1 Capital Surplus/(Deficit):
Tier 1 Capital Ratio
BASEL III Calculation
Tier 1 Capital Surplus/(Deficit):
Total Capital Ratio
BASEL III Calculation
Total Capital Surplus/(Deficit):
Regulatory Capital Status
Well
Well
Well
Adequately
Adequately
Adequately
Capitalized
Capitalized
Capitalized
Capitalized
Capitalized
Capitalized
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4
Capital Conservation Buffers & Maximum Payouts
Capital Conservation Buffer ("CCB") Reference Table
2015
2016
PROJECTED
2017
2018
2019
Transitional Phase-in Rules for Capital Conservation Buffer & Payout Restrictions
No Limitation on Payouts of Eligible Retained Income
NA
CCB > 0.625%
CCB > 1.25%
CCB > 1.875%
CCB > 2.5%
60% Maximum Payout
NA
0.625 ≥ CCB > 0.469
1.25 ≥ CCB > 0.938
1.875 ≥ CCB > 1.406
2.5 ≥ CCB > 1.875
40% Maximum Payout
NA
0.469 ≥ CCB > 0.313
0.938 ≥ CCB > 0.625
1.406 ≥ CCB > 0.938
1.875 ≥ CCB > 1.25
20% Maximum Payout
NA
0.313 ≥ CCB > 0.156
0.625 ≥ CCB > 0.313
0.938 ≥ CCB > 0.469
1.25 ≥ CCB > 0.625
0% Maximum Payout
NA
0.156 ≥ CCB
0.313 ≥ CCB
0.469 ≥ CCB
0.625 ≥ CCB
2016
PROJECTED
2017
2018
2019
Capital Conservation Buffer Calculation
2015
Common Equity Tier 1 Ratio
7.59%
7.01%
6.12%
5.60%
5.19%
Less: Adequately Capitalized Minimum
4.50%
4.50%
4.50%
4.50%
4.50%
Capital Conservation Buffer
3.09%
2.51%
1.62%
1.10%
0.69%
Tier 1 Capital Ratio
10.08%
9.27%
7.85%
7.17%
6.61%
Less: Adequately Capitalized Minimum
6.00%
6.00%
6.00%
6.00%
6.00%
Capital Conservation Buffer
4.08%
3.27%
1.85%
1.17%
0.61%
Total Capital Ratio
11.33%
10.52%
8.94%
9.02%
8.39%
Less: Adequately Capitalized Minimum
8.00%
8.00%
8.00%
8.00%
8.00%
Capital Conservation Buffer
3.33%
2.52%
0.94%
1.02%
0.39%
NA
2.51%
0.94%
1.02%
0.39%
$586
$659
$725
$797
$877
Maximum Payout Ratio
NA
No Limit
60%
40%
0%
Resulting Maximum Payouts ($000s)
NA
NA
$435
$319
$0
Qualifying Capital Conservation Buffer (a)
Maximum Payout Calculation
Total Eligible Income (b)
(a) Limited to the minimum of the individual CCBs
(b) Last 12-months net income, net of any capital distribution not already reflected in net income
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5
Capital Surplus/Deficit for Unrestricted Payouts
2015
PROJECTED
2017
2016
2018
2019
Common Equity Tier 1 Capital
Adequately Capitalized Minimum Ratio
4.50%
4.50%
4.50%
4.50%
4.50%
PLUS: Minimum CCB for Unrestricted Payouts
NA
0.625%
1.250%
1.875%
2.500%
Minimum Ratio for Unrestricted Payouts
NA
5.125%
5.750%
6.375%
7.000%
Required CET1 Capital for Unrestricted Payouts
NA
$14,148
$20,734
$25,286
$30,542
$19,058
$19,345
$22,076
$22,204
$22,624
NA
$5,197
$1,342
($3,082)
($7,918)
6.00%
6.00%
6.00%
6.00%
6.00%
PLUS: Minimum CCB for Unrestricted Payouts
NA
0.625%
1.250%
1.875%
2.500%
Minimum Ratio for Unrestricted Payouts
NA
6.625%
7.250%
7.875%
8.500%
Required Tier 1 Capital for Unrestricted Payouts
NA
$18,288
$26,143
$31,236
$37,087
$25,295
$25,582
$28,313
$28,441
$28,861
NA
$7,294
$2,170
($2,795)
($8,226)
8.00%
8.00%
8.00%
8.00%
8.00%
PLUS: Minimum CCB for Unrestricted Payouts
NA
0.625%
1.250%
1.875%
2.500%
Minimum Ratio for Unrestricted Payouts
NA
8.625%
9.250%
9.875%
10.500%
Required Total Capital for Unrestricted Payouts
NA
$23,809
$33,355
$39,169
$45,813
$28,432
$29,033
$32,242
$35,762
$36,615
NA
$5,223
($1,113)
($3,407)
($9,198)
Projected CET1 Capital
CET1 Capital Surplus/(Deficit)
Tier 1 Capital
Adequately Capitalized Minimum Ratio
Projected Tier 1 Capital
Tier 1 Capital Surplus/(Deficit)
Total Capital
Adequately Capitalized Minimum Ratio
Projected Total Capital
Total Capital Surplus/(Deficit)
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6