For the first time since the first quarter of 2022, more than 1,700 US banks qualified for and opted into the community bank leverage ratio framework.

In the third quarter, 1,707 eligible US banks with less than $10 billion in total assets adopted the streamlined reporting methodology. The tally ranged from 1,653 to 1,692, adjusted for restated call report data, in the previous five quarters.

Each quarter, some banks enter the framework while others exit. For the most recent quarter, there were 51 entries, including 17 first-timers, and 36 exits, including 10 historical companies.

The community bank leverage ratio (CBLR) 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 third 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

City Holding Co. unit City National Bank of West Virginia was by far the largest of the 17 first-time community bank leverage ratio (CBLR) entries. The Charleston, W.Va.-based bank had $6.05 billion in total assets as of Sept. 30. City Holding was one of the most expensive US banks by price to adjusted tangible book value at the end of October and by price to estimated earnings as of mid-November.

Peoples Financial Corp. unit Peoples Bank Biloxi Mississippi was the next-largest company debuting in the framework. Total assets at the Biloxi, Miss.-based bank were $810.0 million at the end of September. Its leverage ratio rose 130 basis points from June 30 to 11.99%.

Two banks that were established in the third quarter qualified for and adopted the CBLR reporting standard: Riverside, Calif.-based Icon Bancorp unit Icon Business Bank and Las Vegas-based Bessemer Trust Co. of Nevada NA, which is a nondepository trust unit of New York-based Bessemer Group Inc. Both newly formed institutions reported a leverage ratio greater than 77%.

Banks in grace period

Twenty-six banks were in a grace period in the third quarter because of inadequate leverage ratios. A dozen of those banks also had been in a grace period in the second quarter.

Little Rock, Ark.-based Encore Bank was an outlier in the group, with both the highest level of total assets and the lowest leverage ratio. Encore Bank had one of the highest cumulative deposit betas in the industry in the current tightening cycle from the fourth quarter of 2021 through the second quarter of 2023.

Among the 26 banks, Mansfield, Pa.-based Citizens Financial Services Inc. unit First Citizens Community Bank experienced the largest quarter-over-quarter decline in leverage ratio: down 106 basis points to 8.64%. Citizens Financial filed a mixed shelf offering earlier in November.

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Six other banks were in grace periods because of off-balance sheet exposure exceeding 25% of total consolidated assets. Two of those banks — Ogden, Utah-based Transportation Alliance Bank Inc. and Eugene, Ore.-based Summit Bank — held more than $1 billion in assets as of Sept. 30.

Industry breakdown

Roughly 62% of community banks are not in the CBLR framework, including more than 2,000 that reported a leverage ratio greater than 9% at Sept. 30.