REGULATORY MATTERS

3 Months Ended

Mar. 31, 2015

Banking and Thrift [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 2 – REGULATORY MATTERS

Effective January 17, 2012, the Bank entered into a written Formal Agreement (the “Agreement”) with the Office of the Comptroller of the Currency (the “OCC”). The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain operational areas of the Bank, including the following:

· Restricts the Bank from declaring or paying any dividends or other capital distributions to the Company without prior written regulatory approval. This provision relates to upstreaming intercompany dividends or other capital distributions from the Bank to the Company.

· Provide prior written notice to the OCC before appointing an individual to serve as a senior executive officer or as a director of the Bank.

· Restricts the Bank from entering into, renewing, extending or revising any contractual arrangement relating to the compensation or benefits for any senior executive officer of the Bank, unless the Bank provides the OCC with prior written notice of the proposed transaction.

· Subjects the Bank to six month financial and operational examination review. The most recent examination occurred in the first quarter of 2015 and the examination report has not yet been received.

The Agreement and each of its provisions will remain in effect until these provisions are amended in writing by mutual consent or waived in writing by the OCC or terminated in writing by the OCC.

The OCC regulations require savings institutions to maintain minimum levels of regulatory capital. Effective June 4, 2013, the OCC imposed individual minimum capital requirements (“IMCRs”) on the Bank. The IMCRs require the Bank to maintain a Tier 1 leverage capital to adjusted total assets ratio of at least 9.00% and a total risk-based capital to risk-weighted assets ratio of at least 13.00%. Before the establishment of the IMCRs, the Bank had been operating under these capital parameters by self-imposing these capital levels as part of the capital plan the Bank was required to implement under the terms of the Agreement. The Bank exceeded the IMCRs at March 31, 2015, with a Tier 1 leverage ratio of 11.18% and a total risk-based capital ratio of 17.64%.

As a source of strength to its subsidiary bank, the Company had liquid assets of approximately $3.3 million at March 31, 2015, which the Company could contribute to the Bank if needed, to enhance the Bank’s capital levels. If the Company had contributed those assets to the Bank as of March 31, 2015, the Bank would have had a Tier 1 leverage ratio of approximately 11.86%.

On May 21, 2013, the Company entered into a Memorandum of Understanding (“MOU”) with the Federal Reserve Bank of Boston. Among other things, the MOU prohibits the Company from paying dividends, repurchasing its stock or making other capital distributions without prior written approval of the Federal Reserve Bank of Boston.

As a savings and loan holding company with consolidated assets of less than $1.0 billion the Company is not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. There is a five- year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements apply to savings and loan holding companies.

Effective January 1, 2015, Basel III implementation date for community banks, the applicable capital regulations have been revised to:

· Establish a new common equity Tier 1 minimum capital requirement (at 4.5% of risk-weighted assets);

· Increase the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets);

· Change what constitutes regulatory capital including the phasing out of certain components over a transition period;

· Amends the risk-weights of certain assets to better reflect credit risk and other risk exposures; and

· Phase in a “capital conservation buffer” requirement beginning January 1, 2016 at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on January 1, 2019. If a depository institution does not maintain the applicable “capital conservation buffer” in addition to its minimum risk-based capital requirements, the Basel III capital regulation may limit capital distributions and certain discretionary bonus payments.

For the Bank, the new common equity Tier 1 capital ratio is the same as its Tier 1 risk-based capital ratio because the Bank’s Tier 1 capital consists only of common equity. Furthermore, as of March 31, 2015, the Bank elected to exclude its accumulated other comprehensive income (which, for the Bank, primarily consists of unrealized gains and losses on available for sale investment securities) from its Tier 1 capital. This is consistent with its previous treatment of this item.

The following tables are summaries of the Company’s consolidated capital amounts and ratios and the Bank’s actual capital amounts and ratios as computed under the standards established by the Federal Deposit Insurance Act at March 31, 2015 and December 31, 2014.

At March 31, 2015	Adequately Capitalized Requirements				Individual Minimum Capital Requirements (3)				Actual
(Dollars in thousands)	$		%		$		%		$		%
The Company Consolidated
Tier 1 Leverage Capital (1)		N/A	N/A			N/A	N/A		$	59,899	12.13	%
Tier 1 Risk-Based Capital (2)		N/A	N/A			N/A	N/A			59,899	17.71	%
Total Risk-Based Capital (2)		N/A	N/A			N/A	N/A			64,148	18.97	%
The Bank
Tier 1 Leverage Capital (1)	$	19,826	4.00	%	$	44,609	9.00	%	$	55,415	11.18	%
Common Equity Tier 1 (CET1) (2) (4)		15,217	4.50	%		N/A	N/A			55,415	16.39	%
Tier 1 Risk-Based Capital (2)		20,290	6.00	%		N/A	N/A			55,415	16.39	%
Total Risk-Based Capital (2)		27,053	8.00	%		43,961	13.00	%		59,663	17.64	%

(1) Tier 1 capital to total assets.

(2) Tier 1 or total risk-based capital to risk-weighted assets.

(3) Effective June 4, 2013.

(4) New capital requirement under Basel III effective January 1, 2015.

At December 31, 2014	Adequately Capitalized Requirements				Individual Minimum Capital Requirements (3)				Actual
(Dollars in thousands)	$		%		$		%		$		%
The Company Consolidated
Tier 1 Leverage Capital (1)		N/A	N/A			N/A	N/A		$	59,611	12.09	%
Tier 1 Risk-Based Capital (2)		N/A	N/A			N/A	N/A			59,611	18.94	%
Total Risk-Based Capital (2)		N/A	N/A			N/A	N/A			63,571	20.20	%
The Bank
Tier 1 Leverage Capital (1)	$	19,796	4.00	%	$	44,541	9.00	%	$	55,090	11.13	%
Tier 1 Risk-Based Capital (2)		12,658	4.00	%		N/A	N/A			55,090	17.41	%
Total Risk-Based Capital (2)		25,317	8.00	%		41,139	13.00	%		59,071	18.67	%

(1) Tier 1 capital to total assets.

(2) Tier 1 or total risk-based capital to risk-weighted assets.

(3) Effective June 4, 2013.                        

As of March 31, 2015, the most recent regulatory notifications categorized the Bank as adequately capitalized under the regulatory framework for prompt corrective action.

Subsequent Events

The Board of Directors of the Bank was notified in writing, by a letter dated May 4, 2015, that the OCC terminated its written Formal Agreement with the Bank. In addition to the termination of the Agreement, the OCC notified the Bank that it no longer requires the Bank to maintain the IMCRs.