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Regulatory Matters

12 Months Ended

Dec. 31, 2023

Note 16: Regulatory Matters

The Company, Merchants Bank, and FMBI (prior to the January 26, 2024 sale of its branches and the merger of its remaining charter into Merchants Bank) are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by federal and state banking regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company, Merchants Bank, and FMBI must meet specific capital guidelines that involve quantitative measures of the Company’s, Merchants Bank’s, and FMBI’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s, Merchants Bank’s, and FMBI’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, and other factors. Furthermore, the Company’s, Merchants Bank’s, and FMBI’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company, Merchants Bank, and FMBI to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of December 31, 2023 and December 31, 2022, that the Company, Merchants Bank, and FMBI met all capital adequacy requirements.

As of December 31, 2023 and December 31, 2022, the most recent notifications from the Board of Governors of the Federal Reserve System (“Federal Reserve”) categorized the Company as well capitalized and most recent notifications from the Federal Deposit Insurance Corporation (“FDIC”) categorized Merchants Bank and FMBI as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s, Merchants Bank’s, or FMBI’s category.

The Company’s, Merchants Bank’s, and FMBI’s actual capital amounts and ratios are presented in the following tables.


					Minimum
					Amount to be Well				Minimum Amount
					Capitalized with				To Be Well
	Actual				Basel III Buffer⁽¹⁾				Capitalized⁽¹⁾
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
December 31, 2023
Total capital⁽¹⁾ (to risk-weighted assets)
Company	$	1,772,195	11.6	%	$	1,598,260	10.5	%	$	—	N/A	%
Merchants Bank		1,724,505	11.5	%		1,577,434	10.5	%		1,502,318	10.0	%
FMBI		40,613	21.1	%		20,209	10.5	%		19,247	10.0	%
Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		1,686,202	11.1	%		1,293,830	8.5	%		—	N/A	%
Merchants Bank		1,639,171	10.9	%		1,276,970	8.5	%		1,201,854	8.0	%
FMBI		39,953	20.8	%		16,360	8.5	%		15,398	8.0	%
Common Equity Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		1,186,594	7.8	%		1,065,507	7.0	%		—	N/A	%
Merchants Bank		1,639,171	10.9	%		1,051,623	7.0	%		976,507	6.5	%
FMBI		39,953	20.8	%		13,473	7.0	%		12,511	6.5	%
Tier I capital⁽¹⁾ (to average assets)
Company		1,686,202	10.1	%		832,706	5.0	%		—	N/A	%
Merchants Bank		1,639,171	10.1	%		815,191	5.0	%		815,191	5.0	%
FMBI		39,953	11.5	%		17,391	5.0	%		17,391	5.0	%

(1)

As defined by regulatory agencies.


					Minimum
					Amount to be Well				Minimum Amount
					Capitalized with				To Be Well
	Actual				Basel III Buffer⁽¹⁾				Capitalized⁽¹⁾
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
December 31, 2022
Total capital⁽¹⁾ (to risk-weighted assets)
Company	$	1,507,968	12.2	%	$	992,883	10.5	%	$	—	N/A	%
Merchants Bank		1,427,738	11.7	%		975,853	10.5	%		1,219,817	10.0	%
FMBI		34,769	11.3	%		24,703	10.5	%		30,878	10.0	%
Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		1,452,456	11.7	%		744,662	8.5	%		—	N/A	%
Merchants Bank		1,372,941	11.3	%		731,890	8.5	%		975,853	8.0	%
FMBI		34,054	11.0	%		18,527	8.5	%		24,703	8.0	%
Common Equity Tier I capital⁽¹⁾ (to risk-weighted assets)
Company		952,848	7.7	%		558,497	7.0	%		—	N/A	%
Merchants Bank		1,372,941	11.3	%		548,917	7.0	%		792,881	6.5	%
FMBI		34,054	11.0	%		13,895	7.0	%		20,071	6.5	%
Tier I capital⁽¹⁾ (to average assets)
Company		1,452,456	11.7	%		497,604	5.0	%		—	N/A	%
Merchants Bank		1,372,941	11.3	%		487,511	5.0	%		609,389	5.0	%
FMBI		34,054	10.7	%		12,702	5.0	%		15,878	5.0	%

(1)

As defined by regulatory agencies.

The Company’s principal source of funds for dividend payments to shareholders is dividends received from Merchants Bank and FMBI (prior to the January 26, 2024 sale of its branches and the merger of its remaining charter

into Merchants Bank). Banking statutes and regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under Indiana law, Merchants Bank may not pay a dividend if such dividend would be greater than retained net income (as defined) for the current year plus those for the previous two years, subject to the capital requirements described above. Under Illinois law, FMBI may not pay dividends in an amount greater than its current net profits after deducting losses and bad debts out of undivided profits provided that its surplus equals or exceeds its capital. At December 31, 2023, the amount available, without prior regulatory approval, for dividends which could be paid by Merchants Bank to the Company was $601.4 million.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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