REGULATORY MATTERS

12 Months Ended

Dec. 31, 2018

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, 2018, the Bank had positive undivided profits of $25.6 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 December 31, 2018 and 2017, 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 1.875% and 1.25% added to the minimum ratio for adequately capitalized institutions for 2018 and 2017, respectively and 2.5% will be added in 2019 when fully phased in. 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 at December 31 follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
2018
Total capital to risk-weighted assets
Consolidated	$	371,603		14.25	%	$	208,572		8.00	%	NA		NA
Independent Bank		337,227		12.94			208,456		8.00		$	260,569		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	345,419		13.25	%	$	156,429		6.00	%	NA		NA
Independent Bank		311,043		11.94			156,342		6.00		$	208,456		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	307,255		11.79	%	$	117,322		4.50	%	NA		NA
Independent Bank		311,043		11.94			117,256		4.50		$	169,370		6.50	%
Tier 1 capital to average assets
Consolidated	$	345,419		10.47	%	$	131,930		4.00	%	NA		NA
Independent Bank		311,043		9.44			131,778		4.00		$	164,723		5.00	%
2017
Total capital to risk-weighted assets
Consolidated	$	312,163		15.16	%	$	164,782		8.00	%	NA		NA
Independent Bank		290,188		14.10			164,675		8.00		$	205,843		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	288,451		14.00	%	$	123,586		6.00	%	NA		NA
Independent Bank		266,476		12.95			123,506		6.00		$	164,675		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	255,934		12.43	%	$	92,690		4.50	%	NA		NA
Independent Bank		266,476		12.95			92,630		4.50		$	133,798		6.50	%
Tier 1 capital to average assets
Consolidated	$	288,451		10.57	%	$	109,209		4.00	%	NA		NA
Independent Bank		266,476		9.78			109,041		4.00		$	136,301		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2018			2017			2018			2017
	(In thousands)
Total shareholders’ equity	$	338,994		$	264,933		$	341,496		$	269,481
Add (deduct)
Accumulated other comprehensive loss for regulatory purposes		4,311			201			4,311			201
Goodwill and other intangibles		(34,715	)		(1,269	)		(34,715	)		(1,269	)
Disallowed deferred tax assets		(1,335	)		(7,931	)		(49	)		(1,937	)
Common equity tier 1 capital		307,255			255,934			311,043			266,476
Qualifying trust preferred securities		38,164			34,500			-			-
Disallowed deferred tax assets		-			(1,983	)		-			-
Tier 1 capital		345,419			288,451			311,043			266,476
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		26,184			23,712			26,184			23,712
Total risk-based capital	$	371,603		$	312,163		$	337,227		$	290,188