Note 18 - Regulatory Capital Requirements and Restrictions on Dividends

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Regulatory Capital Requirements and Restrictions on Dividends

Note 18. Regulatory Capital Requirements and Restrictions on Dividends

The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and subsidiary banks’ financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of total common equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined by regulation. Management believes, as of December 31, 2023 and 2022, that the Company and the subsidiary banks met all capital adequacy requirements to which they are subject.

Under the regulatory framework for prompt corrective action, to be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and common equity Tier 1 ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of December 31, 2023 and 2022 are also presented in the following table (dollars in thousands). As of December 31, 2023 and 2022, the subsidiary banks met the requirements to be “well capitalized”.

										For Capital					To Be Well
										Adequacy Purposes					Capitalized Under
					For Capital					With Capital					Prompt Corrective
	Actual				Adequacy Purposes					Conservation Buffer					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio
	( dollars in thousands)
As of December 31, 2023:
Company:
Total risk-based capital	$	1,171,047	14.29	%	$	655,461	>	8.00	%	$	860,293	>	10.50	%	$	819,327	>	10.00	%
Tier 1 risk-based capital		841,052	10.27			491,596	>	6.00			696,428	>	8.50			655,461	>	8.00
Tier 1 leverage		841,052	10.03			335,420	>	4.00			335,420	>	4.00			419,275	>	5.00
Common equity Tier 1		792,321	9.67			368,697	>	4.50			573,529	>	7.00			532,562	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$	300,413	12.67	%	$	189,707	>	8.00	%	$	248,990	>	10.50	%	$	237,133	>	10.00	%
Tier 1 risk-based capital		270,744	11.42			142,280	>	6.00			201,563	>	8.50			189,707	>	8.00
Tier 1 leverage		270,744	11.23			96,425	>	4.00			96,425	>	4.00			120,531	>	5.00
Common equity Tier 1		270,744	11.42			106,710	>	4.50			165,993	>	7.00			154,137	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$	381,514	15.60	%	$	195,687	>	8.00	%	$	256,840	>	10.50	%	$	244,609	>	10.00	%
Tier 1 risk-based capital		354,940	14.51			146,766	>	6.00			207,918	>	8.50			195,687	>	8.00
Tier 1 leverage		354,940	14.77			96,093	>	4.00			96,093	>	4.00			120,116	>	5.00
Common equity Tier 1		354,940	14.51			110,074	>	4.50			171,227	>	7.00			158,996	>	6.50
Community State Bank:
Total risk-based capital	$	171,747	13.22	%	$	103,903	>	8.00	%	$	136,372	>	10.50	%	$	129,878	>	10.00	%
Tier 1 risk-based capital		156,629	12.06			77,927	>	6.00			110,397	>	8.50			103,903	>	8.00
Tier 1 leverage		156,629	11.19			56,005	>	4.00			56,005	>	4.00			70,007	>	5.00
Common equity Tier 1		156,629	12.06			58,445	>	4.50			90,915	>	7.00			84,421	>	6.50
Guaranty Bank:
Total risk-based capital	$	267,822	12.68	%	$	168,967	>	8.00	%	$	221,770	>	10.50	%	$	211,209	>	10.00	%
Tier 1 risk-based capital		244,506	11.58			126,726	>	6.00			179,528	>	8.50			168,967	>	8.00
Tier 1 leverage		244,506	11.41			85,688	>	4.00			85,688	>	4.00			107,110	>	5.00
Common equity Tier 1		244,506	11.58			95,044	>	4.50			147,847	>	7.00			137,286	>	6.50

Note 18. Regulatory Capital Requirements and Restrictions on Dividends (continued)

										For Capital					To Be Well
										Adequacy Purposes					Capitalized Under
					For Capital					With Capital					Prompt Corrective
	Actual				Adequacy Purposes					Conservation Buffer					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount			Ratio
	( dollars in thousands)
As of December 31, 2022:
Company:
Total risk-based capital	$	1,055,177	14.28	%	$	591,132	>	8.00	%	$	775,861	>	10.50	%	$	738,915	>	10.00	%
Tier 1 risk-based capital		734,977	9.95			443,349	>	6.00			628,078	>	8.50			591,132	>	8.00
Tier 1 leverage		734,977	9.61			305,959	>	4.00			305,959	>	4.00			382,449	>	5.00
Common equity Tier 1		686,375	9.29			332,512	>	4.50			517,241	>	7.00			480,295	>	6.50
Quad City Bank & Trust:
Total risk-based capital	$	275,337	13.07	%	$	168,588	>	8.00	%	$	221,272	>	10.50	%	$	210,735	>	10.00	%
Tier 1 risk-based capital		248,978	11.81			126,441	>	6.00			179,125	>	8.50			168,588	>	8.00
Tier 1 leverage		248,978	11.01			90,419	>	4.00			90,419	>	4.00			133,023	>	5.00
Common equity Tier 1		248,978	11.81			94,831	>	4.50			147,514	>	7.00			136,978	>	6.50
Cedar Rapids Bank & Trust:
Total risk-based capital	$	308,153	14.84	%	$	166,168	>	8.00	%	$	218,096	>	10.50	%	$	207,711	>	10.00	%
Tier 1 risk-based capital		282,258	13.59			124,626	>	6.00			176,554	>	8.50			166,168	>	8.00
Tier 1 leverage		282,258	13.17			85,707	>	4.00			85,707	>	4.00			107,134	>	5.00
Common equity Tier 1		282,258	13.59			93,470	>	4.50			145,397	>	7.00			135,012	>	6.50
Community State Bank:
Total risk-based capital	$	142,974	12.04	%	$	94,981	>	8.00	%	$	124,662	>	10.50	%	$	118,726	>	10.00	%
Tier 1 risk-based capital		128,130	10.79			71,236	>	6.00			100,917	>	8.50			94,981	>	8.00
Tier 1 leverage		128,130	10.09			50,799	>	4.00			50,799	>	4.00			63,499	>	5.00
Common equity Tier 1		128,130	10.79			53,427	>	4.50			83,108	>	7.00			77,172	>	6.50
Guaranty Bank:
Total risk-based capital	$	243,106	12.24	%	$	158,903	>	8.00	%	$	208,560	>	10.50	%	$	198,629	>	10.00	%
Tier 1 risk-based capital		218,647	11.01			119,177	>	6.00			168,834	>	8.50			158,903	>	8.00
Tier 1 leverage		218,647	10.90			80,229	>	4.00			80,229	>	4.00			100,286	>	5.00
Common equity Tier 1		218,647	11.01			89,383	>	4.50			139,040	>	7.00			129,109	>	6.50

The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the subsidiary banks if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.

The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued junior subordinated debentures in four private placements and assumed four issues of junior subordinated debentures in connection with the acquisitions. Under the terms of the debentures, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. These circumstances did not exist at December 31, 2023 or 2022.

On February 13, 2020, the board of directors of the Company approved a share repurchase program under which the Company was authorized to repurchase, from time to time as the Company deemed appropriate, up to 800,000 shares of its outstanding common stock, or approximately 5% of the outstanding shares as of December 31, 2019.  On May 19, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company is authorized to repurchase, from time to time as the Company deems appropriate, up to an additional 1,500,000 shares of its outstanding common stock, or approximately 10% of the outstanding shares as of December 31, 2021. There were 175,000 and 970,000 shares of common stock purchased by the Company during the year ended December 31, 2023 and 2022, respectively.  There were 760,915 shares of common stock remaining for repurchase as of December 31, 2023.