STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

12 Months Ended

Dec. 31, 2012

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

12. STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

We are insured by the FDIC through its Deposit Insurance Fund (DIF) and regulated by the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  As a condition of maintaining the insurance of accounts, we are required to maintain certain minimum regulatory capital in accordance with a formula provided in FDIC regulations.  We may not pay dividends on our stock unless all such capital requirements are met.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our 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 qualitative 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 (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted assets (as defined), and of total capital (as defined) to risk-weighted assets (as defined).  Management believes, as of December 31, 2012, that the Bank meets all capital adequacy requirements to which it is subject.

Our management believes that, under current regulations, and eliminating the assets of WSB, the Bank remains well capitalized and will continue to meet its minimum capital requirements in the foreseeable future.  However, events beyond the our control, such as a shift in interest rates or a further, unexpected downturn in the economy in areas where we extend credit, could adversely affect future earnings and, consequently, our ability to meet our future minimum capital requirements.

As of December 31, 2012, the Bank remains well capitalized under the regulatory framework for prompt corrective action.  To be categorized as “well-capitalized,” the Bank must maintain minimum core, tier 1 risk-based and total risk-based ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2012 and 2011 are presented in the following tables:

	Actual				Adequacy Purposes				Corrective Action
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At December 31, 2012:
Tangible (to Tangible Assets)	$	45,503,884	13.04	%	$	5,233,240	1.50	%	N/A		N/A
Core (leverage) (to Adjusted Tangible Assets)	45,503,884		13.04	%	13,955,308		4.00	%	$	17,444,135	5.00	%
Tier 1 capital (to Risk Weighted Assets)	45,503,884		22.64	%	N/A		N/A		12,059,739		6.00	%
Total capital (to Risk Weighted Assets)	47,461,707		23.61	%	16,079,652		8.00	%	20,099,565		10.00	%
At December 31, 2011:
Tangible (to Tangible Assets)	$	43,584,440	11.61	%	$	5,633,409	1.50	%	N/A		N/A
Core (leverage) (to Adjusted Tangible Assets)	43,584,440		11.61	%	15,022,424		4.00	%	$	18,778,030	5.00	%
Tier 1 capital (to Risk Weighted Assets)	43,584,440		19.64	%	N/A		N/A		13,317,186		6.00	%
Total capital (to Risk Weighted Assets)	46,360,354		20.89	%	17,756,248		8.00	%	22,195,310		10.00	%

The following table summarizes the reconciliation of stockholders’ equity of the Bank to regulatory capital.

	December 31, 2012
	Tangible			Core			Total
	Capital			Capital			Capital
Total stockholders’ equity- Bank only	$	52,735,685		$	52,735,685		$	52,735,685
Nonallowable assets:
Unrealized depreciation on available for sale securities, net of taxes	(861,828		)	(861,828		)	(861,828		)
Disallowed deferred tax asset	(6,369,973		)	(6,369,973		)	(6,369,973		)
Additional item:
Low level recourse							(562,512		)
Allowance for loan losses	—			—			2,520,335
Total regulatory capital	$	45,503,884		$	45,503,884		$	47,461,707

	December 31, 2011
	Tangible			Core			Total
	Capital			Capital			Capital
Total stockholders’ equity- Bank only	$	51,425,694		$	51,425,694		$	51,425,694
Nonallowable assets:
Unrealized depreciation on available for sale securities, net of taxes	(935,577		)	(935,577		)	(935,577		)
Disallowed deferred tax asset	(6,905,677		)	(6,905,677		)	(6,905,677		)
Additional item:
Low level recourse							(3,621		)
Allowance for loan losses	—			—			2,779,535
Total regulatory capital	$	43,584,440		$	43,584,440		$	46,360,354

At December 31, 2012 and December 31, 2011, tangible assets used in computing regulatory capital were $348,882,700 and $375,560,600, respectively, and total risk-weighted assets used in the computation were $200,995,655 and $221,953,097, respectively.