Regulatory Matters

12 Months Ended

Dec. 31, 2013

Regulatory Matters [Abstract]

Regulatory Matters

Note 2.  Regulatory Matters

The Bank is limited as to the amount it may lend to the Corporation, unless such loans are collateralized by specific obligations. State regulations also limit the amount of dividends the Bank can pay to the Corporation and are generally limited to the Bank’s accumulated net earnings, which were $68.7 million at December 31, 2013.  In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.  The Corporation and the Bank are subject to various regulatory capital requirements administered by 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 Corporation’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation 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).  Although not adopted in regulation form, the Pennsylvania Department of Banking utilizes capital standards requiring a minimum leverage capital ratio of 6% and a risk-based capital ratio of 10%, defined substantially the same as those by the FDIC.  Management believes, as of December 31, 2013, that the Corporation and the Bank met all capital adequacy requirements to which it is subject. 

As of December 31, 2013, the most recent notification from the FDIC categorized the Bank as 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 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 institution’s category.

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for U.S, generally referred to as “Basel III.”  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place.  The capital ratios to be considered “well capitalized” under Basel III are: common equity of 6.5%, Tier 1 leverage of 5%, Tier 1 risk-based capital of 8%, and Total Risk-Based capital of 10%.  The common equity ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. In addition, a capital conservation buffer of 2.5% above the minimum capital ratios is required to avoid any capital distribution restrictions.  Certain components of the new capital requirements are effective January, 2015 with others being phased in through January 1, 2019.  As of December 31, 2013, the Management believes that the Bank would remain “well capitalized’ under the new rules.

The table that follows presents the total risk-based, Tier 1 risk-based and Tier 1 leverage requirements for the Corporation and the Bank as defined by the FDIC.  Actual capital amounts and ratios are also presented.

	As of December 31, 2013
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	99,598	14.24%	$	55,940	>	8.00%		N/A		N/A
Bank		95,942	13.78%		55,696	>	8.00%	$	69,620	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	90,659	12.97%	$	27,970	>	4.00%		N/A		N/A
Bank		87,146	12.52%		27,848	>	4.00%	$	41,772	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	90,659	9.14%	$	39,661	>	4.00%		N/A		N/A
Bank		87,146	8.81%		39,559	>	4.00%	$	49,448	>	5.00%

	As of December 31, 2012
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	95,268	12.60%	$	60,465	>	8.00%		N/A		N/A
Bank		92,056	12.22%		60,244	>	8.00%	$	75,305	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	85,843	11.36%	$	30,232	>	4.00%		N/A		N/A
Bank		82,631	10.97%		30,122	>	4.00%	$	45,183	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	85,843	8.29%	$	41,439	>	4.00%		N/A		N/A
Bank		82,631	7.99%		41,392	>	4.00%	$	51,740	>	5.00%