REGULATORY MATTERS

12 Months Ended

Dec. 31, 2011

REGULATORY MATTERS AND RESTRICTIONS [Abstract]

Regulatory Capital Requirements under Banking Regulations

REGULATORY MATTERS AND RESTRICTIONS

On April 27, 2010, the Bank entered into a memorandum of understanding with the Federal Deposit Insurance Commission and the North Carolina Commissioner of Banks. The informal agreement requires the Bank take certain actions to enhance its management of adversely classified assets, remain well-capitalized and maintain adequate liquidity. It also restricts dividends that can’t be paid to the holding company without prior approval and requires reporting of progress of implementing additional management improvement plans. On August 19, 2010, the Company entered into a memorandum of understanding with the Federal Reserve Bank of Richmond. The informal agreement requires the Company to receive prior approval for payment of any dividends, to repurchase stock, or to receive any dividends from the Bank.

Participation in the Community Development Capital Initiative ("CDCI") places restrictions on the Company’s ability to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its capital stock, including restrictions against the Company (i) increasing

dividends payable on its common stock from the last quarterly cash dividend per share declared on the common stock prior to November 17, 2008; (ii) increasing its aggregate per share dividends and distributions above the aggregate dividends and distributions paid for the immediately prior fiscal year; and (iii) declaring or paying dividends or distributions on, or repurchasing, redeeming or otherwise acquiring for consideration, shares of its capital stock in the event that the Company fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on the Series B Preferred Stock. These restrictions will continue until all of the Series B Preferred Stock has been redeemed in full.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements may initiate certain mandatory, and the possibility of additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company 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 classification are subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require 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 Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2011 and December 31, 2010, that the Company and the Bank met all capital adequacy requirements to which they are subject. 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.

	December 31, 2011
(Dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Company	$	36,476	18.86	%	$	15,469	8.00	%	$	19,336	10.00	%
Bank	34,282		17.96		15,269		8.00		19,086		10.00
Tier 1 (to risk weighted assets)
Company	$	34,047	17.61	%	$	7,735	4.00	%	$	11,602	6.00	%
Bank	31,884		16.71		7,635		4.00		11,452		6.00
Tier 1 (to average total assets)
Company	$	34,047	11.21	%	$	12,151	4.00	%	$	15,189	5.00	%
Bank	31,884		10.64		11,992		4.00		14,990		5.00
	December 31, 2010
(Dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Company	$	36,461	18.19	%	$	16,037	8.00	%	$	20,046	10.00	%
Bank	33,733		16.84		16,023		8.00		20,028		10.00
Tier 1 (to risk weighted assets)
Company	$	33,939	16.93	%	$	8,019	4.00	%	$	12,028	6.00	%
Bank	31,214		15.59		8,011		4.00		12,017		6.00
Tier 1 (to average total assets)
Company	$	33,939	11.77	%	$	11,534	4.00	%	$	14,418	5.00	%
Bank	31,214		10.42		11,979		4.00		14,973		5.00