REGULATORY MATTERS

3 Months Ended

Mar. 31, 2013

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

8. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company's and the Bank's assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and the Bank's classification are 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 Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of Tier 1 capital to adjusted average assets (leverage). Management believes, as of March 31, 2013, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

The Bank's capital amounts and ratios were as follows (dollars in thousands):

						Minimum					Minimum to be "Well
						for capital					Capitalized" under prompt
	Actual capital ratios					adequacy					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Total capital to risk-weighted assets	$	165,759		17.53	%	$	75,625		8.00	%	$	94,531		10.00	%
Tier 1 capital to risk-weighted assets		153,865		16.28	%		37,812		4.00	%		56,719		6.00	%
Tier 1 capital to adjusted average assets (leverage)		153,865		9.77	%		62,997		4.00	%		78,746		5.00	%
As of December 31, 2012
Total capital to risk-weighted assets	$	162,458		18.05	%	$	72,020		8.00	%	$	90,025		10.00	%
Tier 1 capital to risk-weighted assets		151,121		16.79	%		36,010		4.00	%		54,015		6.00	%
Tier 1 capital to adjusted average assets (leverage)		151,121		9.74	%		62,092		4.00	%		77,615		5.00	%

The Company's Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.83%, 16.37% and 17.63%, respectively, at March 31, 2013.

On October 25, 2010, the Bank, following discussion with the OCC entered into the Agreement. The Agreement requires the Bank to take certain actions to address issues identified by the OCC. As of March 31, 2013, management believes it has taken significant steps to satisfy the requirements of the Agreement.

Under the Agreement, the Bank is subject to individual minimum capital ratios ("IMCRs") established by the OCC requiring Tier 1 leverage capital equal to at least 8.00% of adjusted average assets, Tier 1 risk-based capital equal to at least 10.50% of risk-weighted assets and total risk-based capital equal to at least 12.00% of risk-weighted assets. Management believes the Bank met all three IMCRs at March 31, 2013. 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 Bank's financial statements.

While subject to the Agreement, the Company expects that its and the Bank's management and Board of Directors will be required to focus a substantial amount of time on complying with its terms.  There is no guarantee that the Bank will be able to fully comply with the Agreement. If the Bank fails to comply with the terms of the Agreement, it could be subject to further regulatory enforcement actions.

The ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to fund the retirement of any preferred stock, of which the Bank had none as of March 31, 2013. In addition, a national bank may not pay any dividends in an amount greater than its undivided profits and a national bank may not declare any dividends if such declaration would leave the Bank inadequately capitalized. Therefore, the ability of the Bank to declare dividends will depend on its future net income and capital requirements. In addition, under the Agreement the Bank is required to establish a dividend policy that will permit the declaration of a dividend only when the Bank is in compliance with its capital program and with the prior written determination of no supervisory objection by the OCC.