Note 16: Regulatory Matters

The Company and State 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 the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and State 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. Furthermore, the Company’s and State Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

On September 7, 2014, the Company redeemed its fixed rate trust preferred securities (see Note 14) via a term note and accumulated cash balance. The term note was paid in full with the net proceeds of the Company’s capital raise completed in the fourth quarter, which added $14.0 million to Tier 1 capital through the public offering of depository shares, each representing a 1/100^thinterest in the Company’s 6.50 percent Noncumulative Convertible Preferred Shares, Series A.

Quantitative measures established by regulation to ensure capital adequacy require the Company and State 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 (as defined) to average assets (as defined). Management believes, as of December 31, 2014, that the Company and State Bank exceeded all capital adequacy requirements to which they were subject.

The Company and State Bank’s actual capital amounts and ratios are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2014
Total Capital
(to Risk-Weighted Assets)
Consolidated	$	74,220		14.0	%	$	42,366		8.0	%	$	-		N/A
State Bank		63,664		12.0	%		42,506		8.0	%		53,132		10.0	%

Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated		67,598		12.8	%		21,183		4.0	%		-		N/A
State Bank		57,521		10.7	%		21,253		4.0	%		31,879		6.0	%

Tier 1 Capital
(to Average Assets)
Consolidated		67,598		10.1	%		26,819		4.0	%		-		N/A
State Bank		57,521		8.6	%		27,354		4.0	%		34,193		5.0	%

As of December 31, 2013
Total Capital
(to Risk-Weighted Assets)
Consolidated	$	64,872		13.4	%	$	38,763		8.0	%	$	-		N/A
State Bank		60,843		12.5	%		38,930		8.0	%		48,662		10.0	%

Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated		52,332		10.8	%		19,382		4.0	%		-		N/A
State Bank		54,749		11.3	%		19,465		4.0	%		29,197		6.0	%

Tier 1 Capital
(to Average Assets)
Consolidated		52,332		8.3	%		25,105		4.0	%		-		N/A
State Bank		54,749		8.8	%		24,899		4.0	%		31,124		5.0	%