NOTE 9-Regulatory Matters

 

The Corporation is subject to restrictions on the payment of dividends to its shareholders pursuant to the Pennsylvania Business Corporation Law of 1988, as amended (“BCL”).  The BCL prohibits dividend payments if such payment would render the Corporation insolvent or result in negative net worth.  Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by PeoplesBank to the Corporation.  The amount of total dividends, which may be paid at any date, is generally limited to the retained earnings of PeoplesBank.  Furthermore, dividend payments would be prohibited if the effect thereof would cause PeoplesBank’s capital to be reduced below applicable minimum capital requirements as discussed below. Loans and advances by PeoplesBank to affiliates, including the Corporation, are limited to 10 percent of PeoplesBank’s capital stock and contributed capital on a secured basis.  

 

The Corporation and PeoplesBank are subject to various regulatory capital requirements.  Failure to meet minimum capital requirements can result in certain mandatory and possible additional discretionary actions by regulators that, if imposed, could have a material effect on the Corporation’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and PeoplesBank 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.

 

Quantitative measures established by regulators to ensure capital adequacy require the Corporation and PeoplesBank to maintain minimum ratios, as set forth below, to total and Tier 1 capital as a percentage of risk-weighted assets, and of Tier 1 capital to quarter-to-date average assets (leverage ratio).  In December 2014, PeoplesBank received the most recent notification from the Federal Deposit Insurance Corporation, which categorized PeoplesBank as “well capitalized”, as of September 30, 2014, under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes would change PeoplesBank’s well capitalized category.  As of December 31, 2013, PeoplesBank was also categorized as “well capitalized”.