Regulatory Requirements and Restrictions

12 Months Ended

Dec. 31, 2013

Regulatory Requirements and Restrictions

Note 16. Regulatory Requirements and Restrictions

One source of funds available to the Company is the payment of dividends by the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank’s regulators.

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the Commonwealth of Virginia and 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 and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also 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 Company and 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). Management believes that as of December 31, 2013 and 2012 the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2013, the most recent notification from the Federal Reserve categorized the Bank as well capitalized under the 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 table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2013 and 2012, are presented in the following tables:

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2013:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	39,322		16.38	%	$	19,211		8.00	%		N/A		N/A
Bank of Lancaster	$	33,419		14.01	%	$	19,089		8.00	%	$	23,861		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	36,397		15.16	%	$	9,605		4.00	%		N/A		N/A
Bank of Lancaster	$	30,494		12.78	%	$	9,545		4.00	%	$	14,317		6	%
Tier 1 Capital (to Average Assets)
Consolidated	$	36,397		10.93	%	$	13,319		4.00	%		N/A		N/A
Bank of Lancaster	$	30,494		9.20	%	$	13,259		4.00	%	$	16,573		5	%

	Actual					Minimum Capital Requirement					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 Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	37,787		17.09	%	$	17,689		8.00	%		N/A		N/A
Bank of Lancaster	$	31,514		14.08	%	$	17,900		8.00	%	$	22,374		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	35,019		15.84	%	$	8,845		4.00	%		N/A		N/A
Bank of Lancaster	$	28,714		12.83	%	$	8,950		4.00	%	$	13,425		6	%
Tier 1 Capital (to Average Assets)
Consolidated	$	35,019		10.93	%	$	12,812		4.00	%		N/A		N/A
Bank of Lancaster	$	28,714		9.00	%	$	12,763		4.00	%	$	15,954		5	%