Regulatory Matters

9 Months Ended

Sep. 30, 2011

Deposits, Federal Home Loan Bank Advances and Regulatory Matters [Abstract]

REGULATORY MATTERS

12. REGULATORY MATTERS

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. At September 30, 2011 and December 31, 2010, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since September 30, 2011 that we believe have changed our bank’s categorization.

Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2011
Total capital (to risk weighted assets)
Consolidated	$	179,348		14.5	%	$	98,850		8.0	%	$	NA		NA
Bank		178,991		14.5			98,767		8.0			123,458		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		163,608		13.2			49,425		4.0			NA		NA
Bank		163,263		13.2			49,384		4.0			74,075		6.0
Tier 1 capital (to average assets)
Consolidated		163,608		10.9			60,186		4.0			NA		NA
Bank		163,263		10.9			60,146		4.0			75,182		5.0

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2010
Total capital (to risk weighted assets)
Consolidated	$	175,029		12.5	%	$	112,480		8.0	%	$	NA		NA
Bank		175,122		12.5			112,398		8.0			140,497		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		157,111		11.2			56,240		4.0			NA		NA
Bank		157,217		11.2			56,199		4.0			84,299		6.0
Tier 1 capital (to average assets)
Consolidated		157,111		9.1			69,135		4.0			NA		NA
Bank		157,217		9.1			69,112		4.0			86,389		5.0

Our consolidated capital levels as of September 30, 2011 and December 31, 2010 include $32.0 million of trust preferred securities issued by the trust in September 2004 and December 2004 subject to certain limitations. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009 were less than $15.0 billion. As of September 30, 2011 and December 31, 2010, all $32.0 million of the trust preferred securities were included in our consolidated Tier 1 capital.

On July 9, 2010, we announced via a Form 8-K filed with the SEC that we were deferring regularly scheduled quarterly interest payments on our subordinated debentures beginning with the quarterly interest payment scheduled to be paid on July 18, 2010. The deferral of interest payments on the subordinated debentures resulted in the deferral of distributions on our trust preferred securities. We also announced that we were deferring regularly scheduled quarterly dividend payments on our preferred stock beginning with the quarterly dividend payment scheduled to be paid on August 15, 2010. On October 18, 2011, we paid and brought current all accrued and unpaid interest on our subordinated debentures, and on October 19, 2011, we paid and brought current all accrued and unpaid dividends on our preferred stock.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. In April 2010, we suspended future payments of cash dividends on our common stock until economic conditions and our financial performance improve. In addition, during the period of July 9, 2010 through October 19, 2011, we were precluded from paying dividends on our common stock and preferred stock because, under the terms of our subordinated debentures, we could not pay dividends during periods when we had deferred the payment of interest on our subordinated debentures; and, as indicated above in this Note 12, we had been deferring such interest payments. Also, pursuant to our Articles of Incorporation, we were precluded from paying dividends on our common stock while any dividends accrued on our preferred stock had not been declared and paid. Because, as indicated above in this Note 12, we had suspended the payment of dividends on our preferred stock, we were precluded from paying dividends on our common stock. These restrictions are no longer in place as of October 19, 2011.