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Regulatory & Capital Matters
 9 Months Ended
Sep. 30, 2016
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, 2016, the Bank exceeded those thresholds.

 

At September 30, 2016, the Bank’s Tier 1 capital leverage ratio was 10.65%, an increase of 71 basis points from December 31, 2015, and well above the 8.00% objective.  The Bank’s total capital ratio was 16.24%, an increase of 101 basis points from December 31, 2015, 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, 2016, and December 31, 2015.

 

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, 2015, under the heading “Supervision and Regulation.”

 

At September 30, 2016, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “adequately capitalized” under current regulatory defined capital ratios.

 

Capital levels and industry defined regulatory minimum required levels are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

To Be Well Capitalized Under

 

 

 

 

 

 

 

 

 

Adequacy with Capital

 

Prompt Corrective

 

 

 

Actual

 

Conservation Buffer if applicable1

 

Action Provisions2

 

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$
157,172

 
10.68

%

 

$
75,422

 
5.125

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 
223,359

 
15.22

 

 

 
75,211

 
5.125

 

 

$
95,390

 
6.50

%

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
226,785

 
15.42

 

 

 
126,850

 
8.625

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
238,337

 
16.24

 

 

 
126,580

 
8.625

 

 

 
146,759

 
10.00

 

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
194,910

 
13.25

 

 

 
97,455

 
6.625

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
223,359

 
15.22

 

 

 
97,224

 
6.625

 

 

 
117,403

 
8.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
194,910

 
9.32

 

 

 
83,652

 
4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
223,359

 
10.65

 

 

 
83,891

 
4.00

 

 

 
104,863

 
5.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$
151,410

 
10.55

%

 

$
64,582

 
4.50

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 
202,158

 
14.10

 

 

 
64,519

 
4.50

 

 

$
93,193

 
6.50

%

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
223,311

 
15.56

 

 

 
114,813

 
8.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
218,375

 
15.23

 

 

 
114,708

 
8.00

 

 

 
143,385

 
10.00

 

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
176,625

 
12.30

 

 

 
86,159

 
6.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
202,158

 
14.10

 

 

 
86,025

 
6.00

 

 

 
114,700

 
8.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 
176,625

 
8.69

 

 

 
81,300

 
4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 
202,158

 
9.94

 

 

 
81,351

 
4.00

 

 

 
101,689

 
5.00

 

 

1  As of September 30, 2016, amounts are shown inclusive of a capital conservation buffer of 0.625%

2 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.