CAPITAL ADEQUACY

9 Months Ended

Sep. 30, 2014

CAPITAL ADEQUACY [Abstract]

CAPITAL ADEQUACY

NOTE 11 – CAPITAL ADEQUACY

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.

Bank

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal banking agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements.  FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

The “prompt corrective action” rules provide that a bank will be: (i) “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage capital ratio of 5% or greater and is not subject to certain written agreements, orders, capital directives or prompt corrective action directives by a federal bank regulatory agency to maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally has a leverage capital ratio of 4% or greater; (iii) “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4% or generally has a leverage capital ratio of less than 4%; (iv) “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a leverage capital ratio of less than 3%; or (v) “critically undercapitalized” if its tangible equity is equal to or less than 2% to total assets.  The federal bank regulatory agencies have authority to require additional capital.

The Bank was well capitalized as of September 30, 2014 and December 31, 2013, respectively.  Depository institutions that are no longer “well capitalized” for bank regulatory purposes must receive a waiver from the Federal Deposit Insurance Corporation (“FDIC”) prior to accepting or renewing brokered deposits.  FDICIA generally prohibits a depository institution from making any capital distribution (including paying dividends) or paying any management fee to its holding company, if the depository institution would thereafter be undercapitalized.

The Bank had a Memorandum of Understanding (“MoU”) with the FDIC and the Florida Office of Financial Regulation (“OFR”) that was entered into in 2008 (the “2008 MoU”), which required the Bank to have a total risk-based capital of at least 10% and a Tier 1 leverage capital ratio of at least 8%.  On July 13, 2012, the 2008 MoU was replaced by a new MoU  (the “2012 MoU”), which, among other things, requires the Bank to have a total risk-based capital of at least 12% and a Tier 1 leverage capital ratio of at least 8%.   The Bank met the minimum capital requirements of the 2012 MoU as of September 30, 2014 and December 31, 2013, when the Bank had total risk-based capital of 15.07% and 14.11%, respectively, and Tier 1 leverage capital of 10.14% and 9.33% as of the same dates.

Bancorp

The Federal Reserve requires bank holding companies, including Bancorp, to act as a source of financial strength for their depository institution subsidiaries.

The Federal Reserve has a minimum guideline for bank holding companies of Tier 1 capital to adjusted average quarterly assets (“leverage ratio”) equal to at least 4.00%, and total capital to risk-weighted assets of at least 8.00%, at least half of which must be Tier 1 capital.  As of September 30, 2014 and December 31, 2013, the Company met these requirements.

The following table presents the capital ratios and related information for the Company and the Bank as of September 30, 2014 and December 31, 2013:

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					Minimum To Be Well  Capitalized Under  Prompt Corrective Action Provisions
September 30, 2014	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Consolidated	$	57,093		15.56	%	$	29,360		8	%		N/A		N/A
Bank		55,246		15.07	%		29,336		8		$	36,670		10.00	%
Tier 1 (Core) capital to risk-weighted assets:
Consolidated		48,442		13.20	%		14,680		4			N/A		N/A
Bank		50,532		13.78	%		14,668		4			22,002		6.00
Tier 1 (Core) capital to average assets:
Consolidated		48,442		9.71	%		19,963		4			N/A		N/A
Bank		50,532		10.14	%		19,933		4			24,916		5.00

	Actual					For Capital Adequacy Purposes					Minimum To Be Well  Capitalized Under Prompt Corrective Action Provisions
December 31, 2013	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Consolidated	$	55,515		14.91	%	$	29,779		8.00	%		N/A		N/A
Bank		52,488		14.11			29,754		8.00		$	37,192		10.00	%
Tier 1 (Core) capital to risk-weighted assets:
Consolidated		46,378		12.46			14,889		4.00			N/A		N/A
Bank		47,702		12.83			14,887		4.00			22,315		6.00
Tier 1 (Core) capital to average assets:
Consolidated		46,378		9.05			20,491		4.00			N/A		N/A
Bank		47,702		9.33			20,443		4.00			25,553		5.00

Dividends and Distributions

Prior to October 2009, dividends received from the Bank were Bancorp’s principal source of funds to pay its expenses and interest on and principal of Bancorp’s debt.  Banking regulations and enforcement actions require the maintenance of certain capital levels and restrict the payment of dividends by the Bank to Bancorp or by Bancorp to its shareholders.  Commercial banks generally may only pay dividends without prior regulatory approval out of the total of current net profits plus retained net profits of the preceding two years, and banks and bank holding companies are generally expected to pay dividends from current earnings.  Banks may not pay a dividend if the dividend would result in the bank being “undercapitalized” for prompt corrective action purposes, or would violate any minimum capital requirement specified by law or the Bank’s regulators.  The Bank has not paid dividends since October 2009 and cannot currently pay dividends.  Bancorp cannot currently pay dividends on its capital stock under applicable Federal Reserve policies and enforcement actions.  Bancorp has relied upon revolving loan agreements with certain of its directors and other related parties to pay its expenses during such time.  As of September 30, 2014 and December 31, 2013, remaining funds available under the Revolvers were $2,200.

During the second quarter of 2013, participants in the Private Placement who purchased shares of Series A Preferred Stock through the cancellation of debt under their Revolvers, were given the option and thereby elected to reduce the amount of their loan commitments under the Revolvers resulting in a reduction of the maximum borrowings available to the Company from $4,000 as of December 31, 2012 to $2,200 effective July 1, 2013.  Please refer to Note 5 – Loans from Related Parties for additional information related to the Revolvers.