REGULATORY MATTERS

9 Months Ended

Sep. 30, 2014

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

15. REGULATORY MATTERS

Banks are subject to regulatory capital requirements administered by the federal banking agencies. Since the Company is a one bank holding company with consolidated assets less than $500 million, regulatory minimum capital ratios are applied only to the Bank. 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. Failure to meet various capital requirements can initiate regulatory action.

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 a bank is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, a bank may not make a capital distribution if, after making the distribution, it would be undercapitalized. If a bank is undercapitalized, it is subject to being closely monitored by its principal federal regulator, its asset growth and expansion are restricted, acquisitions, new activities, new branches, payment of dividends or management fees are prohibited and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the Bank at the discretion of the federal regulator.

The Bank was in the adequately capitalized category at both September 30, 2014 and December 31, 2013.

Actual capital amounts and ratios for the Bank and required capital amounts and ratios for the Bank to be adequately capitalized and to be at the level mandated by the Consent Order at September 30, 2014 and December 31, 2013 were:

						Minimum Required					Minimum Required
						For Capital					Under
	Actual					Adequacy Purposes					Consent Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2014
Total Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank	$	11,888,348		8.91	%	$	10,676,266		8.00	%	$	14,679,866		11.00	%
Tier 1 (Core) Capital to risk-weighted assets of the Bank		10,216,366		7.66			5,338,133		4.00			N/A		N/A
Tier 1 (Core) Capital to average assets of the Bank		10,216,366		5.22			7,823,512		4.00			16,624,964		8.50

						Minimum Required					Minimum Required
						For Capital					Under
	Actual					Adequacy Purposes					Consent Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2013
Total Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank	$	11,420,073		8.48	%	$	10,769,246		8.00	%	$	14,807,713		11.00	%
Tier 1 (Core) Capital to risk-weighted assets of the Bank		9,723,466		7.22			5,384,623		4.00			N/A		N/A
Tier 1 (Core) Capital to average assets of the Bank		9,723,466		5.24			7,423,426		4.00			15,774,781		8.50

Federal Reserve guidelines limit the amount of allowance for loan losses that can be included in Tier 2 capital. In general only 1.25% of net risk-weighted assets are allowed to be included. At September 30, 2014, only $1,671,982 was counted as Tier 2 capital and $305,250 was disallowed. At December 31, 2013, $1,696,607 was counted as Tier 2 capital and $1,113,035 was disallowed.

The Bank’s Consent Order with the FDIC and the DIFS, its primary banking regulators, became effective on September 2, 2010. The Bank agreed to the terms of the Consent Order without admitting or denying any charge of unsafe or unsound banking practices relating to capital, asset quality, or earnings. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and DIFS.

The Consent Order required the Bank to implement a written profit plan, a written contingency funding plan, a written plan to reduce the Bank's reliance on brokered deposits, a comprehensive strategic plan; to develop an analysis and assessment of the Bank's management needs and action plans for classified loans. All of these required items were completed. The only outstanding directive under the Consent Order is attaining the requested capital levels.

Under the Consent Order, the Bank was required, within 90 days of September 2, 2010, to have and maintain its level of tier one capital, as a percentage of its total assets, at a minimum of 8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The Bank was not in compliance with this requirement at September 30, 2014 or December 31, 2010, 2011, 2012 or 2013. Management continues to explore options to raise the capital required for full compliance. At September 30, 2014, a capital contribution of $6,409,000 would have been needed to meet the capital ratios specified in the Consent Order.

The Bank continues to work in cooperation with its regulators; however the ability to fully comply with the specified capital levels, is not entirely within the Company’s control, and is not assured due to the availability of capital or other funds and actions taken by regulators. Failure to comply with provisions of the Consent Order may result in further regulatory action that could have a material adverse effect on the Company and its shareholders, as well as the Bank. As long as the Consent Order remains, the Bank is restricted from declaring or paying dividends without prior written authorization of the FDIC. The Bank is in full compliance with this restriction.