Shareholders' Equity and Regulatory Capital

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure

SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

Office of the Comptroller of the Currency (OCC) regulations impose limitations upon all capital distributions by a savings association. Capital distributions include cash dividends, payments to repurchase or otherwise acquire the association’s own stock, payments to shareholders of another institution in a cash-out merger, and other distributions charged against capital. The regulations provide that an association must submit an application to the OCC to receive approval of the capital distributions if the association (i) is not eligible for expedited treatment; (ii) proposes capital distributions for the applicable calendar year that exceed in the aggregate its net income for that year to date period plus its retained income for the preceding two years; (iii) would not be at least adequately capitalized following the distribution; or (iv) would violate a prohibition contained in a statute, regulation, or agreement between the association and the OCC by performing the capital distribution. Under any other circumstances, the association is required to provide a written notice (rather than an application) to the OCC prior to the capital distribution. In connection with its last exam, the OCC has notified the Bank that it is not eligible for expedited treatment. As such, the Bank is currently restricted from making any capital distributions without prior written approval from the OCC. During 2012 and 2011, the Bank did not pay dividends to the Company.

The principal sources of cash flow for the Company are dividends from the Bank. Various federal banking regulations and capital guidelines limit the amount of dividends that may be paid to the Company by the Bank. Future payments of dividends by the Bank are largely dependent upon individual regulatory capital requirements and levels of profitability.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum requirements can initiate certain mandatory and possible additional discretionary actions by 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to quantitative judgments by the regulators about components, risk weightings, and other factors. 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as set forth in the below table of the total risk-based, tangible, and core capital, as defined in the regulations. In accordance with its most recent examination, the OCC established higher individual minimum capital ratios for the Bank. Specifically, the Bank must maintain a Tier 1 capital to adjusted total assets ratio of at least 8% and a total risk-based capital to risk-weighted assets ratio of at least 12%. At December 31, 2012, the Bank was deemed to be “well-capitalized” and in excess of the regulatory requirements set by the OCC.

The total amount of deferred tax assets not included for regulatory capital purposes was $9.0 million and $8.6 million, respectively, at December 31, 2012 and 2011. Determining the amount of deferred tax assets included or excluded in periodic regulatory capital calculations requires significant judgment when assessing a number of factors. In assessing the amount of the deferred tax assets includable in capital, management considers a number of relevant factors including the amount of deferred tax assets dependent on future taxable income, the amount of taxes that could be recovered through loss carrybacks, the reversal of temporary book tax differences, projected future taxable income within one year, tax planning strategies, and OCC limitations. Using all information available to management at each statement of condition date, these factors are reviewed and can and do vary from period to period.

The current regulatory capital requirements and the actual capital levels of the Bank at December 31, 2012 and 2011 are provided below. There are no conditions or events since December 31, 2012 that management believes have changed the Bank’s category. At December 31, 2012, the Bank’s adjusted total assets were $1.1 billion and its risk-weighted assets were $775.2 million.

	Actual				For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2012:
Tangible capital to adjusted total assets	$	99,279	8.81	%	$	16,896	>=	1.5	%	$	22,527	>=	2.0	%
Tier 1 (core) capital to adjusted total assets	99,279		8.81		45,055		>=	4.0		56,319		>=	5.0
Tier 1 (core) capital to risk-weighted assets	99,279		12.81		31,008		>=	4.0		46,512		>=	6.0
Total capital to risk-weighted assets	109,000		14.06		62,016		>=	8.0		77,520		>=	10.0
As of December 31, 2011:
Tangible capital to adjusted total assets	$	94,502	8.26	%	$	17,151	>=	1.5	%	$	22,868	>=	2.0	%
Tier 1 (core) capital to adjusted total assets	94,502		8.26		45,737		>=	4.0		$	57,171	>=	5.0
Tier 1 (core) capital to risk-weighted assets	94,502		11.40		33,168		>=	4.0		$	49,752	>=	6.0
Total capital to risk-weighted assets	104,892		12.65		66,336		>=	8.0		$	82,920	>=	10.0

The following table reflects the adjustments required to reconcile the Bank’s shareholders’ equity to the Bank’s regulatory capital at December 31, 2012:

	Tangible			Tier 1 (Core)			Risk-Based
	(Dollars in thousands)
Shareholders’ equity of the Bank	$	111,201		$	111,201		$	111,201
Disallowed deferred tax asset	(8,975		)	(8,975		)	(8,975		)
Adjustment for unrealized gains on certain available-for-sale securities	(2,112		)	(2,112		)	(2,112		)
Other	(835		)	(835		)	(835		)
General allowance for loan losses	—			—			9,721
Regulatory capital of the Bank	$	99,279		$	99,279		$	109,000
Total adjusted assets for Tangible and Tier 1 (Core) capital purposes	$	1,126,370		$	1,126,370
Total risk-weighted assets for risk-based capital purposes							$	775,198