Regulatory & Capital Matters

12 Months Ended

Dec. 31, 2016

Regulatory & Capital Matters

Regulatory & Capital Matters

Note 16: 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%).  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, 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 under the heading “Supervision and Regulation.”

At December 31, 2016 and 2015, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.

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:

					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
2016
Common equity tier 1 capital to risk weighted assets
Consolidated	$	154,537	8.76	%	$	90,411	5.125	%		N/A	N/A
Old Second Bank		221,153	12.53			90,456	5.125		$	114,724	6.50	%
Total capital to risk weighted assets
Consolidated		216,769	12.29			152,126	8.625			N/A	N/A
Old Second Bank		237,306	13.45			152,176	8.625			176,436	10.00
Tier 1 capital to risk weighted assets
Consolidated		191,988	10.88			116,904	6.625			N/A	N/A
Old Second Bank		221,153	12.53			116,930	6.625			141,199	8.00
Tier 1 capital to average assets
Consolidated		191,988	8.90			86,287	4.00			N/A	N/A
Old Second Bank		221,153	10.24			86,388	4.00			107,985	5.00
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 December 31, 2016, amounts shown are 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 and Deferrals

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% in 2016, 1.25% in 2017, 1.875% in 2018, and 2.5% in 2019 and thereafter of minimum capital requirements in order to avoid additional limitations on capital distributions.