Regulatory Requirements and Restrictions

12 Months Ended

Dec. 31, 2012

Regulatory Requirements and Restrictions [Abstract]

Regulatory Requirements and Restrictions

NOTE 14: Regulatory Requirements and Restrictions

The Corporation (on a consolidated basis) 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 Corporation's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation's and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's and the Bank's capital amounts and classification are subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets (all as defined in the regulations). For both the Corporation and the Bank, Tier 1 capital consists of shareholders' equity excluding any net unrealized gain (loss) on securities available for sale, amounts resulting from changes in the funded status of the pension plan and goodwill net of any related deferred tax liability, and total capital consists of Tier 1 capital and a portion of the allowance for loan losses. For the Corporation only, Tier 1 and total capital also include trust preferred securities and exclude the unrealized loss on cash flow hedging instruments. Risk-weighted assets for the Corporation and the Bank were $715.20 million and $712.13 million, respectively, at December 31, 2012 and $690.07 million and $687.49 million, respectively, at December 31, 2011. Management believes that, as of December 31, 2012, the Corporation and the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2012, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) 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 below. There are no conditions or events since that notification that management believes have changed the Bank's category.

The Corporation's and the Bank's actual capital amounts and ratios are presented in the following table:

	Actual				Minimum Capital Requirements				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2012:
Total Capital (to Risk-Weighted Assets)
Corporation	$	118,824	16.6	%	$	57,216	8.0	%	N/A		N/A
Bank	115,892		16.3		56,970		8.0		$	71,213	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation	109,552		15.3		28,608		4.0		N/A		N/A
Bank	106,657		15.0		28,485		4.0		42,728		6.0
Tier 1 Capital (to Average Tangible Assets)
Corporation	109,552		11.5		38,205		4.0		N/A		N/A
Bank	106,657		11.2		38,091		4.0		47,613		5.0
As of December 31, 2011:
Total Capital (to Risk-Weighted Assets)
Corporation	$	113,427	16.4	%	$	55,205	8.0	%	N/A		N/A
Bank	111,029		16.2		54,999		8.0		$	68,749	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation	104,492		15.1		27,603		4.0		N/A		N/A
Bank	102,126		14.9		27,500		4.0		41,249		6.0
Tier 1 Capital (to Average Tangible Assets)
Corporation	104,492		11.5		36,362		4.0		N/A		N/A
Bank	102,126		11.3		36,252		4.0		45,315		5.0

On January 9, 2009, as part of the Capital Purchase Program, the Corporation issued and sold to Treasury 20,000 shares of the Corporation's Series A Preferred Stock having a liquidation preference of $1,000 per share and a Warrant for the purchase of up to 167,504 shares of the Corporation's Common Stock, for a total price of $20.0 million. On July 27, 2011, the Corporation redeemed $10.00 million, or 50 percent, of the $20.00 million of Series A Preferred Stock.  The Corporation paid $10.10 million to redeem the preferred stock, consisting of $10.00 million in liquidation value and $100,000 of accrued and unpaid dividends associated with the preferred stock. On April 11, 2012, the Corporation redeemed the remaining 10,000 shares of its Preferred Stock issued to Treasury in January 2009 under the CPP. The redemption consisted of $10.0 million in liquidation value and $78,000 of accrued and unpaid dividends associated with the Preferred Stock. The funds for both redemptions were provided by existing financial resources of the Corporation and no new capital was issued. As of December 31, 2012, the Warrant remains outstanding. The outstanding Series A Preferred Stock (including the Warrant) was treated as Tier 1 capital at December 31, 2011.

On December 14, 2007, the Corporation issued $10.00 million of trust preferred securities through a statutory business trust for general corporate purposes including the refinancing of existing debt. On July 21, 2005, the Corporation issued $10.00 million of trust preferred securities through a statutory business trust to partially fund the purchase of 427,186 shares of the Corporation's common stock at $41 per share on July 27, 2005. Based on the Corporation's Tier 1 capital, the entire $20.00 million of trust preferred securities was eligible for inclusion in Tier 1 capital for both 2012 and 2011.

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Corporation. The total amount of dividends that may be paid at any date is generally limited to the retained earnings of the Bank, and loans or advances are limited to 10 percent of the Bank's capital stock and surplus on a secured basis.