CASH 2018 Annual Report

43 Additionally, the Regulatory Relief Act provides banks with less than $10 billion in assets, like the Bank, relief from certain Basel III Capital Rules and the Volcker Rule. The Regulatory Relief Act requires that the federal banking regulators establish a simplified leverage capital framework for these smaller banks. The new regulations are expected to specify a minimum community bank leverage ratio that would deem a qualifying bank to be well capitalized for prompt corrective action purposes. If a smaller bank maintains this ratio, it will be automatically deemed to be in compliance with capital and leverage requirements, thereby simplifying the capital regime to which it is currently subject. As of the date of this Annual Report on Form 10-K, rules implementing this provision of the Regulatory Relief Act have not been proposed. On November 21, 2018, the FDIC, the OCC and the Federal Reserve jointly issued a proposed rule required by the Regulatory Relief Act that would permit qualifying banks that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (referred to as the “community bank leverage ratio” or “CBLR”). Under the proposed rule, banks that opt into the CBLR framework and maintain a CBLR of greater than 9% would not be subject to other risk-based and leverage capital requirements and would be deemed to have met the well capitalized ratio requirements. As of the date of this Annual Report on Form 10- K, the rule is in proposed form so the content and scope of the final rule, and its impact on the Bank (if any), cannot be determined. Prompt Corrective Action ("PCA") Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their minimum capital requirements expressed in terms of a total risk-based capital ratio, a Tier 1 risk-based capital ratio, a common equity Tier 1 ratio, and a leverage ratio (as identified in the tables above). In certain situations, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with supervisory actions as if the institution were in the next lower category (except the requirement to file a capital restoration plan). If and when a bank’s PCA capital category designation is changed, it will receive notice of such change in designation. Moreover, if a bank becomes aware of a material event between Reports of Condition and Income (or Call Report) periods that would cause the bank to be placed in a lower capital level category, the bank is required to notify the OCC that its PCA capital category may have changed. The federal banking agencies are generally required to take action to restrict the activities of an “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” bank. Any such bank must submit a capital restoration plan that is guaranteed by the parent holding company, and such holding company must provide appropriate assurances of performance. Until such plan is approved, the bank may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The banking regulators are authorized to impose additional restrictions, discussed below, that are applicable to significantly undercapitalized institutions. Adequately capitalized banks, in general, cannot pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC. The FDIC has defined the “national rate” for all interest-bearing deposits held by less- than-well-capitalized institutions as “a simple average of rates paid by all insured depository institutions and branches for which data are available” and has stated that its presumption is that this national rate is the prevailing rate in any market. As such, less-than-well-capitalized institutions that are permitted to accept, renew or roll over brokered deposits via FDIC waiver generally may not pay an interest rate in excess of the national rate plus 75 basis points on such brokered deposits.