NOTE 9 - PREFERRED STOCK

On February 13, 2009, the Company entered into a Letter Agreement (the “Purchase Agreement”) with the United States Department of Treasury (the “Treasury Department”) under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”), pursuant to which the Company issued 34,000 shares of Series A Non-Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) for a total price of $34 million. The Series A Preferred Stock is to pay cumulative dividends at an annual dividend rate of 5% for the first five years and thereafter at an annual dividend rate of 9%. No cash dividends can be paid to common stockholders unless all dividends on the Series A Preferred Stock have been declared and paid in full (or an amount sufficient for the payment of the dividends on the Series A Preferred Stock has been set aside for the payment of such dividends). Pursuant to the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the Company may redeem the Series A Preferred Stock at any time, subject to the approval of its primary federal regulator.

As part of its purchase of the Series A Preferred Stock, the Treasury Department received a warrant (the “Warrant”) to purchase 274,784 shares of the Company’s common stock at an initial per share exercise price of $18.56. The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions. The Warrant expires ten years from the issuance date.

Both the Series A Preferred Stock and the Warrant are accounted for as components of Tier 1 capital. The net proceeds received from the Treasury Department were allocated between the Series A Preferred Stock and Warrant based on relative fair value. The Series A Preferred Stock will be accreted to liquidation value over the expected life of the shares, with accretion charged to retained earnings.

On December 22, 2010, the Company repurchased $17 million of the outstanding $34 million of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued in February 2009 to the Treasury Department pursuant to the Troubled Asset Relief Program Capital Purchase Program.

On November 23, 2011, the Company repurchased the final $17 million of the original outstanding $34 million of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued in February 2009 to the Treasury Department pursuant to the Troubled Asset Relief Program Capital Purchase Program.

In the second quarter of 2013, the Company completed the repurchase of the Warrant from the Treasury Department issued on February 13, 2009, as part of the TARP Capital Purchase Program for an aggregate repurchase price of $2,151. Prior to the repurchase transaction, the Warrant permitted the Treasury Department to purchase 276,078.12 shares of the Company’s common stock at an exercise price of $18.473 per share. The Warrant originally had provided for the purchase of 274,784 shares of the Company’s common stock at an exercise price of $18.56 per share and was thereafter adjusted for certain cash dividends declared by the Company from time to time. The Warrant had been issued in connection with the Company’s sale to the Treasury Department of 34,000 shares of the Compnay’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) in 2009. As previously disclosed on the Company’s Current Report on Form 8-K filed Novemeber 23, 2011, the Company completed the repurchase of the remaining outstanding Preferred Stock from the Treasury Department on November 23, 2011. As a result of the Warrant repurchase, the Company has repurchased all securities issued to the Treasury Department under the TARP Capital Purchase Program. The repurchase of the Warrant was funded by a $2,000 note payable as described in Note 8.