Regulatory Matters

6 Months Ended

Jun. 30, 2016

Regulatory Matters

Regulatory Matters

(9)	Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory 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 and Bank’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 its 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.
	Effective January 1, 2015, the Bank, became subject to the new Basel III capital level threshold requirements under the Prompt Corrective Action regulations with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. These new regulations were designed to ensure that banks maintain strong capital positions even in the event of severe economic downturns or unforeseen losses.
	Changes that could affect the Bank going forward include additional constraints on the inclusion of deferred tax assets in capital and increased risk weightings for nonperforming loans and acquisition/development loans in regulatory capital. Under the new regulations in the first quarter of 2015, the Bank elected an irreversible one-time opt-out to exclude accumulated other comprehensive income (loss) from regulatory capital.
	As of June 30, 2016, the Bank is subject to a Consent Order issued by the Federal Deposit Insurance Corporation and the State of Florida Office of Financial Regulation (“OFR”), and accordingly is deemed to be “adequately capitalized” even if its capital ratios were to exceed those generally required to be a “well capitalized” bank. An institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. The Bank’s actual capital amounts and percentages are also presented in the table (dollars in thousands): The following table shows the Bank’s capital amounts and ratios and regulatory thresholds at June 30, 2016 and December 31, 2015 (dollars in thousands):

	Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions					Requirements of Consent Order
	Amount		%			Amount		%			Amount		%			Amount		%
As of June 30, 2016:
Total Capital to Risk-Weighted Assets	$	10,438		12.14	%	$	6,881		8.0	%	$	8,601		10.0	%	$	10,321		12.0	%
Tier I Capital to Risk-Weighted Assets		9,324		10.84			5,161		6.0			6,881		8.0			N/A		N/A
Common equity Tier I capital to Risk-Weighted Assets		9,324		10.84			3,870		4.5			5,591		6.5			N/A		N/A
Tier I Capital to Total Assets		9,324		7.54			4,949		4.0			6,186		5.0			9,898		8.0
As of December 31, 2015:
Total Capital to Risk-Weighted Assets	$	10,319		11.40	%	$	7,240		8.0	%	$	9,050		10.0	%	$	10,860		12.0	%
Tier I Capital to Risk-Weighted Assets		9,173		10.14			5,430		6.0			7,240		8.0			N/A		N/A
Common equity Tier I capital to Risk-Weighted Assets		9,173		10.14			4,073		4.5			5,883		6.5			N/A		N/A
Tier I Capital to Total Assets		9,173		7.59			4,836		4.0			6,045		5.0			9,672		8.0

Regulatory Enforecment Actions

Bank Consent Order. On April 16, 2010, the Bank agreed to the issuance of the Consent Order by the FDIC and the OFR (the “Consent Order”), which was amended on February 28, 2014. Under the Consent Order, the Bank is required to take certain measures to improve its capital position, reduce its level of problem assets, reduce its loan concentrations in certain portfolios, improve management practices and board supervision and assure that its reserve for loan losses is maintained at an appropriate level. The Consent Order requires the Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12%. At June 30, 2016, the Bank had a Tier 1 leverage ratio of 7.54%, and a total risk-based capital ratio of 12.14%.

See Footnote 13 to the Consolidated Financial Statements included in the Company’s 2015 Form 10-K for additional information concerning the requirements of the Consent Order.

During the second quarter of 2016, the Bank was notified by the FDIC and the OFR that the Bank had not complied with certain of the terms of the Consent Order, and that the Bank continues to exhibit weaknesses in its level of capital, loan quality, earnings, liquidity and sensitivity to market risks. The FDIC and OFR also noted issues related to the management of the Bank, including issues with capital adequacy, risk management, loan concentrations, operating deficits, compliance with the Consent Order, weaknesses in the Bank’s customer related due diligence, insider conflicts of interest and regulatory compliance. As a result, the FDIC and the OFR have indicated that they intend to pursue the implementation of a new consent order to address these issues. 

Management believes that the Bank has made substantial progress in improving its financial condition through a significant reduction in non-performing assets and the receipt of capital increases from investors since the date of the original Consent Order. The Bank is also seeking to address the other issues raised by the FDIC and the OFR, although the Bank has been hampered by difficulties in raising capital due to the default under the Debenture and the limits placed on the Company and the Bank under the Consent Order and the Written Agreement. Management intends to continue its efforts to meet all of the conditions of the Consent Order, the Written Agreement and any amended Consent Order that may become effective in the future.

Company Written Agreement with Reserve Bank. On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company The Written Agreement prohibits, without the prior approval of the Reserve Bank, the payment of dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities (including the Debenture), incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer. Management believes that the Company is in substantial compliance with the requirements of the Written Agreement.