Regulatory Matters

12 Months Ended

Dec. 31, 2011

Regulatory Matters [Abstract]

Regulatory Matters

15. REGULATORY MATTERS

The Company (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 Company's and the 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 I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 2011, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

Based on the most recent notification from the FDIC, the Bank is 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 I risk-based, and Tier I 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 Bank's actual capital amounts, in thousands, and ratios are presented in the following table:

	Actual					For Capital Adequacy Purposes			To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Ratio			Ratio
As of December 31, 2011:
Total Capital (to Risk Weighted Assets)	$	83,209		13.85	%	³	8.00	%	³	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		75,642		12.59		³	4.00		³	6.00
Tier 1 Capital (to Average Assets)		75,642		8.25		³	4.00		³	5.00
As of December 31, 2010:
Total Capital (to Risk Weighted Assets)	$	88,578		13.34	%	³	8.00	%	³	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		80,217		12.08		³	4.00		³	6.00
Tier 1 Capital (to Average Assets)		80,217		8.66		³	4.00		³	5.00

The following table lists Bancorp's actual capital amounts, in thousands, and ratios:

	Actual					For Capital Adequacy Purposes			To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Ratio			Ratio
As of December 31, 2011:
Total Capital (to Risk Weighted Assets)	$	83,209		13.85	%	³	8.00	%	³	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		75,642		12.59		³	4.00		³	6.00
Tier 1 Capital (to Average Assets)		75,642		8.25		³	3.00		³	5.00
As of December 31, 2010:
Total Capital (to Risk Weighted Assets)	$	88,578		13.34	%	³	8.00	%	³	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		80,217		12.08		³	4.00		³	6.00
Tier 1 Capital (to Average Assets)		80,217		8.66		³	3.00		³	5.00

During April 2011, the Bank's Board of Directors adopted a resolution at the request of the Federal Deposit Insurance Corporation to the effect that the Bank, through its management, will take various actions designed to address issues related to the Bank's operations. The Resolution provides that, among other things, the Bank will (1) establish and continue to maintain an adequate reserve for loan losses, and review the adequacy of the reserve with the Board prior to each quarter-end and make appropriate provisions to the reserve; (2) in order to maintain sufficient capital levels, establish and document a prudent policy regarding cash dividends the Bank pays to Bancorp, document an analysis of amounts to be paid by each quarter-end prior to payment, and not pay any cash dividend to Bancorp without seeking the prior approval of the FDIC and N.C. Commissioner of Banks; (3) implement various recommendations regarding risk management policies and practices for the Bank's funds management and investment functions; (4) provide for the internal audit program to include a review and coverage of activities sufficient to determine compliance with the Bank's policies, applicable laws and regulations and sound banking principles, and identification of audit personnel who periodically report directly to the Board; (5) correct or eliminate various credit administration weaknesses and establish an effective credit administration function, and ascertain that all necessary supporting documentation is obtained and evaluated before loans are extended; and (6) correct violations of and ensure further compliance with applicable laws, rules and regulations.

The Bank has complied with the necessary actions in all aspects of the board resolution as of December 31, 2011.

Dividends

The Company's dividend payments are typically made from dividends received from the Bank. The Bank, as a North Carolina banking corporation, may pay dividends only out of undivided profits (retained earnings) as determined pursuant to North Carolina General Statutes Section 53-87. However, regulatory authorities may limit payment of dividends by any bank when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the Bank. As noted above, in accordance with the Board Resolution, the Bank must seek approval from the FDIC and the NC Commissioner of Banks prior to paying dividends to Bancorp.