XML 39 R22.htm IDEA: XBRL DOCUMENT

Regulatory & Capital Matters

12 Months Ended

Dec. 31, 2020

Note 14: 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’ guidelines are for 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%). The Bank currently exceeds those thresholds.

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 in force as of the periods reported are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of December 31, 2020, and December 31, 2019.

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 under the heading “Supervision and Regulation.”

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. The capital ratios below are calculated pursuant to the capital requirements in effect for the periods reported below.

Capital levels and industry defined regulatory minimum required levels at December 31, were 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
2020
Common equity tier 1 capital to risk weighted assets
Consolidated	$	277,199	11.94		$	162,512	7.000	%		N/A	N/A
Old Second Bank		318,466	13.75			162,128	7.000		$	150,548	6.50	%
Total capital to risk weighted assets
Consolidated		331,178	14.26			243,855	10.500			N/A	N/A
Old Second Bank		347,408	15.00			243,186	10.500			231,605	10.00
Tier 1 capital to risk weighted assets
Consolidated		302,199	13.01			197,440	8.500			N/A	N/A
Old Second Bank		318,466	13.75			196,870	8.500			185,289	8.00
Tier 1 capital to average assets
Consolidated		302,199	10.21			118,393	4.00			N/A	N/A
Old Second Bank		318,466	10.74			118,609	4.00			148,262	5.00

2019
Common equity tier 1 capital to risk weighted assets
Consolidated	$	251,477	11.14	%	$	158,020	7.000	%		N/A	N/A
Old Second Bank		322,496	14.35			157,315	7.000		$	146,078	6.50	%
Total capital to risk weighted assets
Consolidated		327,886	14.53			236,944	10.500			N/A	N/A
Old Second Bank		342,280	15.23			235,978	10.500			224,741	10.00
Tier 1 capital to risk weighted assets
Consolidated		308,102	13.65			191,858	8.500			N/A	N/A
Old Second Bank		322,496	14.35			191,026	8.500			179,789	8.00
Tier 1 capital to average assets
Consolidated		308,102	11.93			103,303	4.00			N/A	N/A
Old Second Bank		322,496	12.50			103,199	4.00			128,998	5.00

¹Amounts are shown inclusive of a capital conservation buffer of 2.50%. 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.”

As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we have elected to utilize the five-year CECL transition. The cumulative amount that is not recognized in regulatory capital, in addition to the $3.8 million Day 1 impact of CECL adoption, will be phased in at 25% per year beginning January 1, 2022. As of December 31, 2020, the capital measures of the Company exclude $5.7 million, which is the Day 1 impact to retained earnings and 25% of the $10.4 million increase in the allowance for credit losses during 2020, excluding PCD loans.

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 were fully phased-in at January 1, 2019, the Bank must keep a capital conservation buffer of 2.5% on all risk-based capital requirements in order to avoid additional limitations on capital distributions.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

+ References + Details