The Bank is subject to a regulatory dividend restriction that generally limits the amount of dividends that can be paid by the Bank to the Corporation. Prior regulatory approval is required if the total of all dividends declared in any calendar year exceeds net profits (as defined in the regulations) for the year combined with net retained earnings (as defined) for the two preceding calendar years. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. As of December 31, 2011, $1.2 million of undistributed earnings of the Bank was available for distribution of dividends without prior regulatory approval.

Loans or advances from the Bank to the Corporation are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Funds available for loans or advances by the Bank to the Corporation amounted to approximately $3.3 million. The Corporation has a $2.2 million commercial line of credit available at the Bank for the primary purpose of purchasing qualified equity investments. At December 31, 2011, the Corporation had an outstanding balance on this line of $1.1 million.

Minimum Regulatory Capital Requirements

The Bank is 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 Corporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, 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 following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

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

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented:


	December 31, 2011					December 31, 2010
(Dollar amounts in thousands)	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	45,550		16.25	%	$	40,850		14.52	%
For capital adequacy purposes		22,422		8.00	%		22,504		8.00	%
To be well capitalized		28,027		10.00	%		28,130		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	42,046		15.00	%	$	37,326		13.27	%
For capital adequacy purposes		11,211		4.00	%		11,252		4.00	%
To be well capitalized		16,816		6.00	%		16,878		6.00	%
Tier 1 capital to average assets:
Actual	$	42,046		8.69	%	$	37,326		7.92	%
For capital adequacy purposes		19,347		4.00	%		18,858		4.00	%
To be well capitalized		24,183		5.00	%		23,572		5.00	%

12. Regulatory Matters

Restrictions on Dividends, Loans and Advances

Minimum Regulatory Capital Requirements