REGULATORY MATTERS

12 Months Ended

Dec. 31, 2021

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

NOTE 20 – 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 December 31, 2021, the Bank had positive undivided profits of $100.1 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 or that would not be 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. In addition, capital adequacy rules include a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions. To avoid limits on capital distributions and certain discretionary bonus payments we must meet the minimum ratio for adequately capitalized institutions plus the buffer. 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 December 31, 2021 and 2020, 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.

Our actual capital amounts and ratios at December 31 follow⁽¹⁾:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
2021
Total capital to risk-weighted assets
Consolidated	$	488,495		14.53	%	$	268,991		8.00	%	NA		NA
Independent Bank		438,352		13.05			268,808		8.00		$	336,011		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	406,645		12.09	%	$	201,743		6.00	%	NA		NA
Independent Bank		396,351		11.80			201,606		6.00		$	268,808		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	368,277		10.95	%	$	151,307		4.50	%	NA		NA
Independent Bank		396,351		11.80			151,205		4.50		$	218,407		6.50	%
Tier 1 capital to average assets
Consolidated	$	406,645		8.79	%	$	185,034		4.00	%	NA		NA
Independent Bank		396,351		8.57			185,077		4.00		$	231,347		5.00	%
2020
Total capital to risk-weighted assets
Consolidated	$	455,072		15.95	%	$	228,214		8.00	%	NA		NA
Independent Bank		401,005		14.06			228,111		8.00		$	285,139		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	379,395		13.30	%	$	171,161		6.00	%	NA		NA
Independent Bank		365,343		12.81			171,083		6.00		$	228,111		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	341,095		11.96	%	$	128,370		4.50	%	NA		NA
Independent Bank		365,343		12.81			128,312		4.50		$	185,340		6.50	%
Tier 1 capital to average assets
Consolidated	$	379,395		9.15	%	$	165,825		4.00	%	NA		NA
Independent Bank		365,343		8.81			165,828		4.00		$	207,285		5.00	%

(1) These ratios do not reflect a capital conservation buffer of 2.50% at December 31, 2021 and 2020.

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2021			2020			2021			2020
	(In thousands)
Total shareholders’ equity	$	398,484		$	389,522		$	426,558		$	413,770
Add (deduct)
Accumulated other comprehensive loss for regulatory purposes		(6,298	)		(15,821	)		(6,298	)		(15,821	)
Goodwill and other intangibles		(31,636	)		(32,606	)		(31,636	)		(32,606	)
CECL (1)		7,727			-			7,727			-
Common equity tier 1 capital		368,277			341,095			396,351			365,343
Qualifying trust preferred securities		38,368			38,300			-			-
Tier 1 capital		406,645			379,395			396,351			365,343
Subordinated debt		40,000			40,000			-			-
Allowance for credit losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets (2)		41,850			35,677			42,001			35,662
Total risk-based capital	$	488,495		$	455,072		$	438,352		$	401,005

(1) We elected the three year CECL transition method for regulatory purposes.

(2) Beginning January 1, 2021, calculation of allowances are based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology.