Stock dividends

The Ames-based Ames National Corp. has watched its profits shrink over the past two years amid increased funding costs and stiff competition for deposits.

Toronto-Dominion Bank Chief Executive Bharat Masrani said additional share repurchases would be a possible use of the lender’s excess capital if it doesn’t deploy those funds in a major acquisition.

Nine of the 12 largest banking companies in the U.S. proposed higher quarterly payouts to shareholders. In announcing the actions, the banks touted their strength after more than a year of economic dislocation.

Some of the 23 large banks that participated in last week’s stress tests will be better positioned to reward shareholders than others, since they padded their capital amid the pandemic. Still, all are expected to tread cautiously amid ongoing economic uncertainty.

The Federal Reserve found that under its harshest stress-test scenario, bank capital ratios would decline to 10.6% on average — well above the 4.5% minimum requirement. Restrictions imposed on dividend payments and share repurchases during the economic crisis last year will be lifted after June 30.

The biggest U.S. banks, led by JPMorgan Chase and Bank of America, are expected to pay out $142 billion in capital to shareholders after clearing this year’s stress tests.

For banks that pass this year’s stress tests, the Federal Reserve said it will eliminate the restrictions on dividends and share buybacks while subjecting those institutions instead to the stress capital buffer.

Federal Reserve Chair Jerome Powell said the central bank will consider the pace of coronavirus vaccinations and other factors to determine if restrictions on dividends and share repurchases will continue.

The Federal Reserve's “midcycle” assessment — conducted in light of the COVID-19 pandemic — said the path of the economic recovery is still uncertain even though the banks that were evaluated maintained adequate capital levels under hypothetical scenarios.

As with most things related to 2020, COVID-19 will be a deciding factor as the Federal Reserve considers whether banks are able to increase their dividends or resume share buybacks.