Action Item

  • New Illinois law will help facilitate dividend payments for otherwise healthy state-chartered banks with negative retained earnings.
  • National banks and banks in some other states already have this authority. We can help you determine your institution's eligibility and navigate the process.

Previous Dividend Impediment

The Illinois Banking Act allows state-chartered banks to pay dividends only if their cumulative profits exceed their cumulative losses. Over the last few years, some of our Illinois state-chartered bank clients have not been able to pay dividends because they experienced negative cumulative retained earnings, despite having significant "surplus" capital accounts. Until now, such banks had to undertake cumbersome maneuvers, such as charter amendments or corporate reorganizations, to restructure their capital accounts and pay any dividends.

Easier Quasi-Reorganizations

Working with the Illinois Bankers Association, the Barack Ferrazzano Financial Institutions Group identified this issue and helped draft legislation to address it. That legislation, which is expected to be enacted within 90 days, will allow healthy Illinois state-chartered banks, subject to regulatory approval, to engage in quasi-reorganizations in a similar manner as their national bank counterparts and banks in some other states. Under a quasi-reorganization, a bank may transfer funds from its capital and surplus accounts into its undivided profits account to remove any existing deficit. From then on, any future earnings could potentially be used for dividends, subject to safety and soundness concerns and any applicable regulatory restrictions.