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Regulatory & Capital Matters
 9 Months Ended
Sep. 30, 2019
Regulatory & Capital Matters  
Regulatory & Capital Matters

Note 12 – 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 risk-based capital regulatory guidelines, the Bank’s Board of Directors has established an internal guideline requiring the Bank to 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, 2019, the Bank exceeded those thresholds.

 

At September 30, 2019, the Bank’s Tier 1 capital leverage ratio was 12.68%, an increase of 132 basis points from December 31, 2018, and is well above the 8.00% objective.  The Bank’s total capital ratio was 15.72%, an increase of 158 basis points from December 31, 2018, and also well above the objective of 12.00%.

 

Bank holding companies are generally 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, 2019 and December 31, 2018.

 

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. The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” generally holding companies with consolidated assets of less than $3 billion. The Company is currently considered a “small bank holding company.” 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, 2018, under the heading “Supervision and Regulation.”

 

At September 30, 2019, and December 31, 2018, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

Well Capitalized

 

 

 

 

 

 

 

 

 

Adequacy with Capital

 

Under Prompt Corrective

 

 

 

Actual

 

Conservation Buffer, if applicable1

 

Action Provisions2

 

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

240,643

 

10.89

%

 

$

154,683

 

7.000

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 

325,983

 

14.83

 

 

 

153,869

 

7.000

 

 

$

153,869

 

6.50

%

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

316,914

 

14.34

 

 

 

232,050

 

10.500

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

345,629

 

15.72

 

 

 

230,859

 

10.500

 

 

 

230,859

 

10.00

 

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

297,268

 

13.45

 

 

 

187,865

 

8.500

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

325,983

 

14.83

 

 

 

186,841

 

8.500

 

 

 

186,841

 

8.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

297,268

 

11.54

 

 

 

103,039

 

4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

325,983

 

12.68

 

 

 

102,834

 

4.00

 

 

 

128,542

 

5.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

207,597

 

9.29

%

 

$

142,444

 

6.375

%

 

 

N/A

 

N/A

 

Old Second Bank

 

 

295,599

 

13.29

 

 

 

141,791

 

6.375

 

 

$

144,571

 

6.50

%

Total capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

282,126

 

12.63

 

 

 

220,648

 

9.875

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

314,600

 

14.14

 

 

 

219,637

 

9.875

 

 

 

222,417

 

10.00

 

Tier 1 capital to risk weighted assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

263,125

 

11.78

 

 

 

175,960

 

7.875

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

295,599

 

13.29

 

 

 

175,153

 

7.875

 

 

 

177,934

 

8.00

 

Tier 1 capital to average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

263,125

 

10.08

 

 

 

104,415

 

4.00

 

 

 

N/A

 

N/A

 

Old Second Bank

 

 

295,599

 

11.36

 

 

 

104,084

 

4.00

 

 

 

130,105

 

5.00

 

 

1  As of September 30, 2019, amounts are shown inclusive of a capital conservation buffer of 2.50%; as compared to 1.875% at December 31, 2018. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.

2 The prompt corrective action provisions are only applicable at the Bank level. 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 and were fully phased in as of January 1, 2019, the Bank must keep a capital conservation buffer of 2.50% above the new regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.