Note 10. Regulatory Matters

The Company and the 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 regulators that, if undertaken, could have a direct material effect on the liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company will be subject to the capital guidelines when its assets exceed $500 million, it engages in certain highly leveraged activities or it has publicly issued debt. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Company and the Bank must maintain minimum capital and other requirements of regulatory authorities when declaring and paying dividends. The Company and the Bank are in compliance with such capital requirements. Banking regulations limit the amount of dividends that may be paid to the Company without prior approval of the Bank’s regulatory agencies. Regulatory approval is required to pay dividends that exceed the Bank’s net profits for the current year plus its retained net profits for the preceding two years.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulation) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 2011, that the Company and the Bank meet capital adequacy requirements to which they are subject. As of December 31, 2011, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must meet minimum total risk-based, Tier I risk-based and Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed the Company’s and the Bank’s category.

Actual capital amounts and ratios are presented in the table below:


						For Capital						To be “Well Capitalized
						Adequacy						For Purposes of Prompt
In thousands	Actual					Purposes						Corrective Action
December 31, 2011	Amount		Ratio			Amount			Ratio			Amount			Ratio
Total Capital (1):
Company	$	26,560		14.0	%	$	15,178	>		8.0	%		N/A
Bank		25,297		13.3	%		15,178	>		8.0	%	$	18,973	>		10.0	%
Tier I Capital (1):
Company		24,180		12.7	%		7,589	>		4.0	%		N/A
Bank		22,917		12.1	%		7,589	>		4.0	%		11,384	>		6.0	%
Tier I Capital (2):
Company		24,180		11.5	%		8,402	>		4.0	%		N/A
Bank		22,917		10.9	%		8,401	>		4.0	%		10,501	>		5.0	%

December 31, 2010	Amount		Ratio			Amount			Ratio			Amount			Ratio
Total Capital (1):
Company	$	24,745		13.1	%	$	15,162	>		8.0	%		N/A
Bank		23,337		12.3	%		15,162	>		8.0	%	$	18,952	>		10.0	%
Tier I Capital (1):
Company		22,365		11.8	%		7,581	>		4.0	%		N/A
Bank		20,957		11.1	%		7,581	>		4.0	%		11,371	>		6.0	%
Tier I Capital (2):
Company		22,365		11.0	%		8,110	>		4.0	%		N/A
Bank		20,957		10.3	%		8,110	>		4.0	%		10,138	>		5.0	%


(1)		to risk weighted assets

(2)		to average assets