Regulatory Matters

6 Months Ended

Jun. 30, 2015

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’s 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, 2015, the Bank had negative undivided profits of $21.2 million.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarter of 2014, we requested regulatory approval for a $15.0 million return of capital from the Bank to the parent company.  This return of capital request was approved by our banking regulators on March 28, 2014 and the Bank returned $15.0 million of capital to the parent company on April 9, 2014.  During January of 2015, we requested regulatory approval for an additional $18.5 million return of capital from the Bank to the parent company.  This return of capital request was approved by our banking regulators on February 13, 2015, and the Bank returned $18.5 million of capital to the parent company on February 17, 2015.  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 (as of January 1, 2015) 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, 2015 and December 31, 2014, 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 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)
June 30, 2015
Total capital to risk-weighted assets
Consolidated	$	275,836		17.33	%	$	127,340		8.00	%		NA		NA
Independent Bank		245,543		15.45			127,178		8.00		$	158,972		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	255,639		16.06	%	$	95,505		6.00	%		NA		NA
Independent Bank		225,439		14.18			95,383		6.00		$	127,178		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	240,247		15.09	%	$	71,629		4.50	%		NA		NA
Independent Bank		225,439		14.18			71,538		4.50		$	103,332		6.50	%
Tier 1 capital to average assets
Consolidated	$	255,639		11.32	%	$	90,357		4.00	%		NA		NA
Independent Bank		225,439		9.99			90,283		4.00		$	112,853		5.00	%
December 31, 2014
Total capital to risk-weighted assets
Consolidated	$	265,163		18.06	%	$	117,427		8.00	%		NA		NA
Independent Bank		247,883		16.90			117,374		8.00		$	146,718		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	246,628		16.80	%	$	58,714		4.00	%		NA		NA
Independent Bank		229,361		15.63			58,687		4.00		$	88,031		6.00	%
Tier 1 capital to average assets
Consolidated	$	246,628		11.18	%	$	88,206		4.00	%		NA		NA
Independent Bank		229,361		10.46			87,687		4.00		$	109,609		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014
	(In thousands)
Total shareholders' equity	$	254,375		$	250,371		$	249,477		$	257,832
Add (deduct)
Accumulated other comprehensive (gain) loss for regulatory purposes		(408	)		5,636			(408	)		5,636
Intangible assets		(981	)		(2,627	)		(981	)		(2,627	)
Disallowed deferred tax assets		(12,739	)		(40,500	)		(22,649	)		(30,728	)
Disallowed capitalized mortgage loan servicing rights		-			(752	)		-			(752	)
Common equity tier 1 capital		240,247			212,128			225,439			229,361
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(19,108	)		-			-			-
Tier 1 capital		255,639			246,628			225,439			229,361
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		20,197			18,535			20,104			18,522
Total risk-based capital	$	275,836		$	265,163		$	245,543		$	247,883