Regulatory Matters

6 Months Ended

Jun. 30, 2017

Regulatory Matters [Abstract]

Regulatory Matters

10. 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 June 30, 2017, the Bank had positive undivided profits of $11.8 million.  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 June 30, 2017 and December 31, 2016, 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 1.25% and 0.625% added to the minimum ratio for adequately capitalized institutions for 2017 and 2016, respectively and 0.625% will be added each subsequent year until fully phased in during 2019.  This capital conservation buffer is not reflected in the table that follows.  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.

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)
June 30, 2017
Total capital to risk-weighted assets
Consolidated	$	298,454		15.45	%	$	154,583		8.00	%	NA		NA
Independent Bank		277,429		14.37			154,410		8.00		$	193,013		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	276,978		14.33	%	$	115,937		6.00	%	NA		NA
Independent Bank		255,953		13.26			115,808		6.00		$	154,410		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	245,795		12.72	%	$	86,953		4.50	%	NA		NA
Independent Bank		255,953		13.26			86,856		4.50		$	125,459		6.50	%
Tier 1 capital to average assets
Consolidated	$	276,978		10.74	%	$	103,173		4.00	%	NA		NA
Independent Bank		255,953		9.93			103,115		4.00		$	128,894		5.00	%
December 31, 2016
Total capital to risk-weighted assets
Consolidated	$	286,289		15.86	%	$	144,413		8.00	%	NA		NA
Independent Bank		270,855		15.02			144,223		8.00		$	180,279		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	265,405		14.70	%	$	108,309		6.00	%	NA		NA
Independent Bank		249,971		13.87			108,167		6.00		$	144,223		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	238,996		13.24	%	$	81,232		4.50	%	NA		NA
Independent Bank		249,971		13.87			81,126		4.50		$	117,181		6.50	%
Tier 1 capital to average assets
Consolidated	$	265,405		10.50	%	$	101,112		4.00	%	NA		NA
Independent Bank		249,971		9.90			101,019		4.00		$	126,274		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	June 30, 2017			December 31, 2016			June 30, 2017			December 31, 2016
	(In thousands)
Total shareholders’ equity	$	262,453		$	248,980		$	266,093		$	258,814
Add (deduct)
Accumulated other comprehensive (gain) loss for regulatory purposes		(1,985	)		3,310			(1,985	)		3,310
Intangible assets		(1,407	)		(1,159	)		(1,407	)		(1,159	)
Disallowed deferred tax assets		(13,266	)		(12,135	)		(6,748	)		(10,994	)
Common equity tier 1 capital		245,795			238,996			255,953			249,971
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(3,317	)		(8,091	)		-			-
Tier 1 capital		276,978			265,405			255,953			249,971
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,476			20,884			21,476			20,884
Total risk-based capital	$	298,454		$	286,289		$	277,429		$	270,855