NOTE 20 Capital Requirements

PSB and the Bank are subject to various regulatory capital requirements administered by the federal and state 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 PSB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, PSB and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require PSB and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2014, PSB and the Bank meet all capital adequacy requirements.

As of December 31, 2014, the most recent regulatory financial report 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 I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

Notes to Consolidated Financial Statements (dollars in thousands except per share data)

PSB’s and the Bank’s actual and regulatory capital amounts and ratios are as follows:

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2014:
Total capital (to risk weighted assets):
Consolidated	$	74,370		14.24	%	$	41,781		8.00	%		N/A		N/A
Peoples State Bank	$	75,373		14.45	%	$	41,729		8.00	%	$	52,161		10.00	%

Tier I capital (to risk weighted assets):
Consolidated	$	67,876		12.99	%	$	20,901		4.00	%		N/A		N/A
Peoples State Bank	$	68,879		13.20	%	$	20,872		4.00	%	$	31,309		6.00	%

Tier I capital (to average assets):
Consolidated	$	67,876		9.30	%	$	29,194		4.00	%		N/A		N/A
Peoples State Bank	$	68,879		9.44	%	$	29,186		4.00	%	$	36,483		5.00	%

As of December 31, 2013:
Total capital (to risk weighted assets):
Consolidated	$	70,048		13.88	%	$	40,365		8.00	%		N/A		N/A
Peoples State Bank	$	72,321		14.35	%	$	40,312		8.00	%	$	50,390		10.00	%

Tier I capital (to risk weighted assets):
Consolidated	$	63,734		12.63	%	$	20,182		4.00	%		N/A		N/A
Peoples State Bank	$	66,015		13.10	%	$	20,156		4.00	%	$	30,234		6.00	%

Tier I capital (to average assets):
Consolidated	$	63,734		9.06	%	$	28,130		4.00	%		N/A		N/A
Peoples State Bank	$	66,015		9.39	%	$	28,130		4.00	%	$	35,163		5.00	%