For the third consecutive quarter, more banks were in the framework for the community bank leverage ratio sequentially.

In the second quarter, 1,696 US banks with less than $10 billion in total assets qualified for and opted into community bank leverage ratio (CBLR) reporting, according to S&P Global Market Intelligence data. In the previous three quarters, the totals were 1,681, 1,669 and 1,653, respectively.

National Exchange Bank and Trust was the largest of the 57 second-quarter CBLR entries. The Fond du Lac, Wis.-based bank had $2.73 billion in total assets at June 30. National Exchange was one of the banks with the largest restatement for uninsured deposits for the first quarter.

In the second quarter, 42 banks pulled out of the streamlined regulatory reporting system. Eight of those companies now are historical. Another six reported greater than $1 billion in total assets as of June 30. San Antonio-based Broadway National Bank was the largest in the group at $5.34 billion. Also notable was York, Neb.-based Cornerstone Bank, with $2.47 billion in assets; it was a forced exit as it failed to bring up its leverage ratio above 9% for the third quarter in a row.

The community bank leverage ratio framework, which debuted in the first quarter of 2020, is a simpler way of regulatory reporting permitted for well-capitalized community banks so that they are freed from the burden of calculating their risk-weighted assets.

Except for companies in a grace period, qualifying criteria in the second quarter of 2023 were total consolidated assets less than $10 billion, a leverage ratio greater than 9%, being a non-advanced approaches institution, trading assets plus trading liabilities representing 5% or less of total consolidated assets, and off-balance sheet exposures comprising 25% or less of total consolidated assets.

Companies that previously qualified for and opted into the CBLR are offered a two-quarter grace period for all of the qualifying criteria as long as their leverage ratio is no more than 1 percentage point below the requirement.

First-time entries

Of the 57 CBLR entries, 21 were first-timers. Two of the banks in that group — Luana, Iowa-based Luana Savings Bank and Talladega, Ala.-based First Bank of Alabama — reported greater than $1 billion in assets at June 30. Another two banks — Weatherford, Texas-based First National Bank and Trust Co. of Weatherford and Timber Lake, SD-based Western Dakota Bank — had a leverage ratio under 9% as of March 31. And Irvine, Calif.-based Beach Cities Commercial Bank is the most recent de novo bank in the US, established June 12.

Banks in grace period

Due to deficient leverage ratios, 25 banks were in a grace period within the framework. Four of them, including Gorham, Maine-based Gorham Savings Bank, also had been in a grace period in the first quarter. Gorham Savings, which held $1.64 billion in assets at June 30, is in a mutual holding company-nonstock ownership structure.

Camp Grove State Bank's 8.09% leverage ratio, down 174 basis points sequentially, was the lowest in the group. The Camp Grove, Ill.-based bank has lost money for the last 13 quarters.

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Bayonne, NJ-based BCB Community Bank's leverage ratio declined 38 basis points to 8.88%. Its parent company, BCB Bancorp Inc., was one of the lowest-valued US banks by price-to-adjusted tangible book value at the end of July.

Five other banks were in a grace period because of off-balance sheet exposure. Ravenna, Neb.-based Town & Country Bank has had a total off-balance sheet exposure/total assets ratio greater than 25% for the last two quarters.

Industry breakdown

About 63% of community banks are not in the CBLR framework. More than 2,000 of those banks reported a leverage ratio in excess of 9% at June 30.