Regulatory Matters

12 Months Ended

Dec. 31, 2011

Regulatory Matters

Regulatory Matters

(18)     Regulatory Matters

Capital

Bancshares and the Bank are subject to the various regulatory capital requirements administered by federal banking agencies.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancshares and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 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 financial statements of the Company.

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 1 capital (as defined in the regulation) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that as of December 31, 2011 and 2010, the Company and the Bank met all capital adequacy requirements to which they are subject.

At December 31, 2011, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The Company’s and the Bank’s capital ratios as of December 31, 2011 and 2010 are presented in the table below:

	Company				Bank				For Capital Adequacy Purposes				For the Bank to be Well Capitalized Under Prompt Corrective Measures
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2011:
Total Risk-Based Capital Ratio	$	46,777	17.91	%	$	45,258	17.32	%	$	20,899	8.00	%	$	26,123	10.00	%
Tier 1 Risk-Based Capital Ratio	$	43,484	16.64	%	$	41,965	16.06	%	$	10,450	4.00	%	$	15,674	6.00	%
Tier 1 Leverage Ratio	$	43,484	10.92	%	$	41,965	10.54	%	$	15,935	4.00	%	$	19,914	5.00	%
December 31, 2010:
Total Risk-Based Capital Ratio	$	46,197	21.69	%	$	42,959	20.16	%	$	17,039	8.00	%	$	21,307	10.00	%
Tier 1 Risk-Based Capital Ratio	$	43,500	20.42	%	$	40,260	18.90	%	$	8,519	4.00	%	$	12,784	6.00	%
Tier 1 Leverage Ratio	$	43,500	13.93	%	$	40,260	12.88	%	$	12,488	4.00	%	$	15,634	5.00	%

Dividends

In the ordinary course of business, Bancshares is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.  Currently, the Bank is prohibited from paying dividends to Bancshares until such time as the accumulated deficit is eliminated.

To date, Bancshares has not paid any cash dividends.  Payment of stock or cash dividends in the future will depend upon earnings and financial condition and other factors deemed relevant by Bancshares’ Board of Directors, as well as Bancshares’ legal ability to pay dividends.  Accordingly, no assurance can be given that any cash dividends will be declared in the foreseeable future.