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Regulatory & Capital Matters
 9 Months Ended
Sep. 30, 2015
Regulatory & Capital Matters  
Regulatory & Capital Matters

Note 11 – Regulatory & Capital Matters

 

The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies.  In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital guidelines, the Bank’s board of directors has determined that the Bank should maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%).  At September 30, 2015, the Bank exceeded those thresholds.

 

At September 30, 2015, the Bank’s Tier 1 capital leverage ratio was 11.26%, down 76 basis points from December 31, 2014, and well above the 8.00% objective.  The Bank’s total capital ratio was 17.10%, down 163 basis points from December 31, 2014, and also well above the objective of 12.00%.

 

Bank holding companies are required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System.  The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of September 30, 2015, and December 31, 2014.

 

In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015.  A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2014, under the heading “Supervision and Regulation.”

 

At September 30, 2015, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “adequately capitalized” under current regulatory defined capital ratios.  For all periods prior to 2015, all capital ratios displayed were calculated without giving effect to the final Basel III capital rules.

 

Capital levels and industry defined regulatory minimum required levels:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Required

 

 

Minimum Required

 

 

 

 

 

 

 

 

 

for Capital

 

 

to be Well

 

 

 

Actual

 

Adequacy Purposes

 

Capitalized 1

 

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$
146,438

 
10.26

%

 

$
64,227

 
4.50

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 
227,335

 
15.94

 

 

 
64,179

 
4.50

 

 

$
92,702

 
6.50

%

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
219,255

 
15.36

 

 

 
114,195

 
8.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
243,942

 
17.10

 

 

 
114,125

 
8.00

 

 

 
142,656

 
10.00

 

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
170,697

 
11.96

 

 

 
85,634

 
6.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
227,335

 
15.94

 

 

 
85,572

 
6.00

 

 

 
114,095

 
8.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
170,697

 
8.46

 

 

 
80,708

 
4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
227,335

 
11.26

 

 

 
80,758

 
4.00

 

 

 
100,948

 
5.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$
240,566

 
17.68

%

 

$
108,853

 
8.00

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 
254,897

 
18.73

 

 

 
108,872

 
8.00

 

 

$
136,090

 
10.00

%

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
196,499

 
14.44

 

 

 
54,432

 
4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
237,828

 
17.47

 

 

 
54,454

 
4.00

 

 

 
81,681

 
6.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
196,499

 
9.93

 

 

 
79,154

 
4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
237,828

 
12.02

 

 

 
79,144

 
4.00

 

 

 
98,930

 
5.00

 

 

1 The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized”.

 

Dividend Restrictions

 

In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above.  Pursuant to the Basel III rules that came into effect January 1, 2015, the Bank must keep a buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of minimum capital requirements in order to avoid additional limitations on capital distributions.  The Bank has the ability and the authority to pay dividends to the Company for debt payment purposes.

 

As discussed in Note 8, as of September 30, 2015, the Company had $58.4 million of junior subordinated debentures held by two statutory business trusts that it controls.  The Company has the right to defer interest payments on the debentures for a period of up to 20 consecutive quarters, and elected to begin such a deferral in August 2010.  However, all deferred interest must be paid before the Company may pay dividends on its common stock.  In the second quarter of 2014, the Company terminated the deferral period and paid all accumulated and unpaid interest on the junior subordinated debentures which totaled $19.7 million.  The Company is currently paying interest as it comes due.