Minimum Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2012

Minimum Regulatory Capital Requirements [Abstract]

Note 16 – Minimum Regulatory Capital Requirements

The Bank is subject to minimum capital requirements imposed by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's financial statements. Under capital adequacy guidelines, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about risk components, asset risk weighting and other factors.

Based on its capital levels at December 31, 2012, Sound Community Bank exceeded these regulatory requirements as of that date and continues to exceed them as of the date of this filing. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a "well-capitalized" status under the regulatory capital categories of the federal banking agencies. Management monitors the capital levels of the Bank to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations) and Tier 1 capital to average assets (as defined in the regulations). Management believes that, as of December 31, 2012 and 2011, the Bank meets all capital adequacy requirements to which it is subject.

The Bank's actual capital amounts (in thousands) and ratios as of December 31, 2012 and 2011 are presented in the following table:

												To Be Well Capitalized
						For Capital						Under Prompt Corrective
	Actual					Adequacy Purposes						Action Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
As of December 31, 2012
Tier 1 Capital to total adjusted assets⁽¹⁾	$	38,556		10.12	%	$	15,243	>		4.0	%	$	19,054	>		5.0	%
Tier 1 Capital to risk-weighted assets⁽²⁾	$	38,556		13.35	%	$	11,553	>		4.0	%	$	17,329	>		6.0	%
Total Capital to risk-weighted assets⁽²⁾	$	42,175		14.60	%	$	23,106	>		8.0	%	$	28,882	>		10.0	%
As of December 31, 2011
Tier 1 Capital to total adjusted assets⁽³⁾	$	28,283		8.33	%	$	13,588	>		4.0	%	$	16,985	>		5.0	%
Tier 1 Capital to risk-weighted assets⁽⁴⁾	$	28,283		10.78	%	$	10,498	>		4.0	%	$	15,747	>		6.0	%
Total Capital to risk-weighted assets⁽⁴⁾	$	31,564		12.03	%	$	20,995	>		8.0	%	$	26,244	>		10.0	%

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(1) Based on total adjusted assets of $381,083 at December 31, 2012.

(2) Based on risk-weighted assets of $288,821 at December 31, 2012.

(3) Based on total adjusted assets of $339,691 at December 31, 2011.

(4) Based on risk-weighted assets of $262,443 at December 31, 2011.

Regulatory capital levels reported above differ from the Bank's total capital, computed in accordance with accounting principles generally accepted in the United States as follows:

	2012			2011
	(in thousands)
Equity	$	38,813		$	28,237
Accumulated other comprehensive loss		496			659
Core deposit intangible		(753	)		(613	)
Total Tier 1 capital	$	38,556		$	28,283

Allowance for loan and lease losses,limited to 1.25% of risk-weighted assets		3,619			3,281
Total capital	$	42,175		$	31,564

The Company is a registered financial holding company under the Gramm-Leach-Bliley Act of 1999, subject to the supervision of, and regulation by, the Federal Reserve. The Bank is a Washington state chartered commercial bank with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"), and is subject to the supervision and regulation of the Washington Department of Financial Institutions and the FDIC. As of December 31, 2012, the most recent notification from the FDIC categorized the Bank as "well-capitalized" under the regulatory framework for prompt corrective action. The Company is not subject to the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's regulatory capital category.

- Definition

The entire disclosure for a mortgage banking entity related to capital requirements imposed by secondary market investors or state imposed regulatory mandates. The disclosure may include: (1) a description of the minimum net worth requirements related to (a) secondary market investors and (b) state-imposed regulatory mandates; (2) actual or possible material effects of noncompliance; (3) whether the entity is in compliance with the regulatory capital requirements, including (a) the entity's required and actual net worth amounts, (b) factors that may significantly affect adequacy of net worth such as potentially volatile components of capital, qualitative factors, or regulatory mandates; and (4) possible affects of noncompliance on amounts and disclosures in the notes to the financial statements. Servicers with net worth requirements from multiple sources may disclose (1) significant servicing covenants with secondary market investors with commonly defined servicing requirements (2) any other secondary market investor where violation of the requirement would have a significant adverse effect and (3) the most restrictive third party agreement, if not included above. The disclosure may also include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

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