Regulatory Matters

12 Months Ended

Dec. 31, 2014

Regulatory Matters [Abstract]

Regulatory Matters

Note 13- Regulatory Matters

As of December 31, 2014, Bancorp’s reservable liability was below the threshold established by the Federal Reserve Bank and therefore, Bancorp was not required to maintain reserves (in the form of deposits with the Federal Reserve Bank or a correspondent bank on behalf of the Federal Reserve Bank.)

The Bank is subject to variousregulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Bancorp’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 the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications 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 table below) 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, 2014, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios are also presented in the table.

The following table presents the Bank's actual capital amounts and ratios at December 31, 2014 and 2013:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		%			Amount		%			Amount		%
	(dollars in thousands)
December 31, 2014
Tangible (1)	$	106,916		13.8	%	$	11,590		1.50	%		N/A		N/A
Tier 1 capital (2)		106,916		19.4	%		N/A		N/A		$	33,081		6.00	%
Core (1)		106,916		13.8	%		30,906		4.00	%		38,633		5.00	%
Total (2)		113,848		20.6	%		44,108		8.00	%		55,135		10.00	%
December 31, 2013
Tangible (1)	$	102,790		12.9	%	$	11,924		1.50	%		N/A		N/A
Tier 1 capital (2)		102,790		18.6	%		N/A		N/A		$	33,114		6.00	%
Core (1)		102,790		12.9	%		31,797		4.00	%		39,747		5.00	%
Total (2)		109,055		19.8	%		44,153		8.00	%		55,191		10.00	%

(1) To adjusted total assets.

(2) To risk-weighted assets.

On April 23, 2013, the Bank was notified by the OCC that the OCC established minimum ratios for the Bank requiring it to immediately maintain a Tier 1 Leverage Capital Ratio to Adjusted Total Assets of at least 10% and a Total Risk-Based Capital to Risk-Weighted Assets ratio of at least 15%.  The Bank was in compliance with these requirements as of December 31, 2014 and December 31, 2013.

Bancorp is currently under a supervisory agreement, originally entered into with the OTS on November 23, 2009.  Due to the passage of the Dodd-Frank Act, effective July 21, 2011, the supervision of Bancorp was transferred to the FRB and, as a result, the supervisory agreement is now enforced by the FRB. The supervisory agreement provides, among other things, that

· Bancorp will not make any dividends or capital distributions, and Bancorp will not redeem any Bancorp common  stock, without the prior approval of the Federal Reserve;

· Bancorp will not, and will not permit its subsidiaries to, incur, issue, renew or rollover any debt or debt securities, increase any current lines of credit, guarantee the debt of any entity, or otherwise incur any additional debt, without the prior written non-objection of the Federal Reserve;

· Bancorp will submit to the Federal Reserve a business plan designed to, among other things, improve operations, earnings and profitability and reduce Bancorp debt and, after the Federal Reserve’s approval, implement such plan and review such plan quarterly; and

· Bancorp will make various periodic reports to the Federal Reserve and their board of directors.

In a separate matter, on April 23, 2013, the Bank entered into a formal agreement with the OCC, which agreement primarily addressed issues identified in the OCC’s report of examination of the Bank’s operations and financial condition in 2012.    The formal agreement supersedes and terminates the supervisory agreement entered into between the OTS and the Bank on November 23, 2009.  The formal agreement provides, among other things, that

· The Bank’s Board will appoint a Compliance Committee of at least three directors, which will be responsible for monitoring and coordinating the Bank’s adherence to the provisions of the Agreement and submitting progress reports to the Board;

· The Bank’s Board will assess the qualifications of each senior executive officer and director and ensure that the Bank has competent management in place on a full-time basis in all senior executive officer positions and a competent Board of Directors;

· The Bank’s Board will adopt, implement, and thereafter ensure its adherence to an independent, internal audit program, directed by and reporting to the Board, sufficient to detect and report on irregularities and weak practices in the Bank’s operations and report on the Bank’s compliance with applicable laws, rules and regulations;

· The Bank will take immediate and continuing action to reduce the level of criticized assets in the OCC’s report of examination and to develop and adhere to a written program designed to eliminate the basis of criticism of those assets or other subsequently criticized;

· The Bank’s Board will establish credit risk management practices that ensure effective credit administration, portfolio management and monitoring, and risk mitigation, including a written credit policy and portfolio stress testing;

· The Bank’s Board will review the adequacy of the Bank’s allowance for loan and lease losses and will establish a program for the maintenance of an adequate allowance;

· The Bank’s Board will ensure the implementation of appraisal policies and controls to ensure full compliance with all regulatory requirements;

· The Bank’s Board will develop, implement, and thereafter ensure Bank’s adherence to a written three-year business plan;

· The Bank’s Board will submit to the OCC a revised, written capital plan for the Bank, consistent with the Bank’s business plan, covering at least a three-year period; and

· The Bank’s Board will review and revise as necessary, and thereafter maintain a comprehensive liquidity risk management program and a contingency funding plan consistent with regulatory guidance.

The terms of the agreement with Bancorp and the agreement with the Bank will remain in effect until terminated, modified or suspended by the FRB and OCC, respectively. The foregoing summaries are qualified by reference to (i) the supervisory agreement, a copy of which is filed as an exhibit to Bancorp’s Annual Report on Form 10-K for fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission on March 15, 2010 and (ii) the formal agreement, a copy of which is filed as an exhibit to Bancorp’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the Securities and Exchange Commission on May 8, 2013.