Regulatory Matters

9 Months Ended

Sep. 30, 2016

Regulatory Matters [Abstract]

Regulatory Matters

11. Regulatory Matters

Capital guidelines adopted by federal and state regulatory agencies and restrictions imposed by law limit the amount of cash dividends our Bank can pay to us. Under these guidelines, the amount of dividends that may be paid in any calendar year is limited to the Bank’s current year net profits, combined with the retained net profits of the preceding two years. Further, the Bank cannot pay a dividend at any time that it has negative undivided profits.  As of September 30, 2016, the Bank had positive undivided profits of $8.7 million.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarters of 2016 and 2015, we requested regulatory approval for returns of capital from the Bank to the parent company of  $18.0 million and $18.5 million, respectively.  These return of capital requests were approved by our banking regulators on February 24, 2016 and February 13, 2015, respectively and the Bank returned these amounts to the parent company on February 25, 2016 and February 17, 2015, respectively.  It is not our intent to have dividends paid in amounts that would reduce the capital of our Bank to levels below those which we consider prudent and in accordance with guidelines of regulatory authorities.

We are also subject to various regulatory capital requirements. The prompt corrective action regulations establish quantitative measures to ensure capital adequacy and require minimum amounts and ratios of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can result in certain mandatory, and possibly discretionary, actions by regulators that could have a material effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital requirements that involve quantitative measures as well as qualitative judgments by the regulators. The most recent regulatory filings as of September 30, 2016 and December 31, 2015, categorized our Bank as well capitalized. Management is not aware of any conditions or events that would have changed the most recent Federal Deposit Insurance Corporation (“FDIC”) categorization.

On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.  In general, under the New Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the New Capital Rules include a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions.  The capital conservation buffer began to phase in on January 1, 2016 with 0.625% added to the minimum ratio for adequately capitalized institutions for 2016.  To avoid limits on capital distributions and certain discretionary bonus payments we must meet the minimum ratio for adequately capitalized institutions plus the phased in buffer.  The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.  As to the quality of capital, the New Capital Rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implement strict eligibility criteria for regulatory capital instruments. The New Capital Rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity.  The New Capital Rules became effective for us on January 1, 2015.

Our actual capital amounts and ratios follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2016
Total capital to risk-weighted assets
Consolidated	$	281,310		16.05	%	$	140,243		8.00	%	NA		NA
Independent Bank		269,578		15.39			140,116		8.00			175,145		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	259,279		14.79	%	$	105,182		6.00	%	NA		NA
Independent Bank		247,615		14.14			105,087		6.00			140,116		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	233,631		13.33	%	$	78,886		4.50	%	NA		NA
Independent Bank		247,615		14.14			78,815		4.50			113,844		6.50	%
Tier 1 capital to average assets
Consolidated	$	259,279		10.56	%	$	98,174		4.00	%	NA		NA
Independent Bank		247,615		10.09			98,116		4.00			122,645		5.00	%
December 31, 2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	September 30, 2016			December 31, 2015			September 30, 2016			December 31, 2015
	(In thousands)
Total shareholders' equity	$	250,902		$	251,092		$	263,762		$	259,947
Add (deduct)
Accumulated other comprehensive (income) loss for regulatory purposes		(2,783	)		238			(2,782	)		238
Intangible assets		(1,211	)		(912	)		(1,211	)		(912	)
Disallowed deferred tax assets		(13,277	)		(11,147	)		(12,154	)		(18,406	)
Common equity tier 1 capital		233,631			239,271			247,615			240,867
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(8,852	)		(16,721	)		-			-
Tier 1 capital		259,279			257,050			247,615			240,867
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		22,031			21,120			21,963			21,027
Total risk-based capital	$	281,310		$	278,170		$	269,578		$	261,894