Note 19 – Regulatory Matters

Coastal Carolina National Bank is subject to various 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 Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting principles. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weighting, 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 total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The Bank had not received notification from the OCC categorizing it under the regulatory framework for prompt corrective action; however, management believes, as of December 31, 2011 and 2010, that the Bank meets all capital adequacy requirements to which it is subject.

The Company’s and the Bank’s actual capital amounts (in thousands) and ratios as of December 31, 2011 and 2010, are presented in the following table:

December 31, 2011

Actual

For Capital

Adequacy Purposes

To be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Leverage ⁽¹⁾

Coastal Carolina Bancshares, Inc.

13,945

14.87%

3,750

4.0%

N/A

Coastal Carolina National Bank

13,135

14.14%

3,717

4.0%

4,646

5.0%

Tier I Risk-based Capital ⁽²⁾

Coastal Carolina Bancshares, Inc.

13,945

26.16%

2,133

4.0%

N/A

Coastal Carolina National Bank

13,135

24.64%

2,133

4.0%

3,199

6.0%

Total Risk-based Capital ⁽³⁾

Coastal Carolina Bancshares, Inc.

14,616

27.42%

4,265

8.0%

N/A

Coastal Carolina National Bank

13,805

25.89%

4,265

8.0%

5,331

10.0%

December 31, 2010

Leverage ⁽¹⁾

Coastal Carolina Bancshares, Inc.

14,896

21.33%

2,794

4.0%

N/A

Coastal Carolina National Bank

14,033

20.34%

2,759

4.0%

3,449

5.0%

Tier I Risk-based Capital ⁽²⁾

Coastal Carolina Bancshares, Inc.

14,896

54.38%

1,096

4.0%

N/A

Coastal Carolina National Bank

14,033

51.23%

1,096

4.0%

1,644

6.0%

Total Risk-based Capital ⁽³⁾

Coastal Carolina Bancshares, Inc.

15,239

55.64%

2,191

8.0%

N/A

Coastal Carolina National Bank

14,376

52.49%

2,191

8.0%

2,739

10.0%

(1)

The leverage ratio reflects Tier I capital divided by average total assets for the period. Average assets used in the calculation exclude certain intangible and servicing assets.

(2)

Tier 1 capital consists of total equity plus qualifying capital securities and minority interests, less unrealized gains and losses accumulated in other comprehensive income, certain intangible assets, and adjustments related to the valuation of servicing assets and certain equity investments in nonfinancial companies (principal investments).

(3)

Total risk-based capital is comprised of Tier I capital plus qualifying subordinated debt and allowance for loan losses and a portion of unrealized gains on available-for-sale equity securities.

Both the Tier I and the total risk-based capital ratios are computed by dividing the respective capital amounts by risk-weighted assets, as defined.