Junior Subordinated Debentures and Senior Debt	6 Months Ended
Jun. 30, 2014
Junior Subordinated Debentures and Senior Debt
Junior Subordinated Debentures and Senior Debt	NOTE (5) – Junior Subordinated Debentures and Senior Debt On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.77% at June 30, 2014. The Company stopped paying interest on the Debentures in September 2010 and was not able to pay the principal or accrued interest on the Debentures at their March 17, 2014 maturity date. The accrued interest on the Debentures was $750 thousand as of June 30, 2014. Under the Cease and Desist Order applicable to the Company, the Company is not permitted to make payments on its debt without prior notice to and receipt of written notice of non-objection from the Board of Governors of the Federal Reserve System (“FRB”). In addition, under the terms of the Debentures, the Company is not allowed to make payments on the Debentures if the Company is in default on any of its senior indebtedness, which term includes the senior debt described below. In January 2014, the Company submitted a proposal to the trustee for the trust that holds the Debentures to extend the maturity of the Debentures to March 17, 2024 in return for paying all accrued interest on the Debentures and $900 thousand, or 15%, of the principal amount of the Debentures. This proposal was approved by the requisite holders of senior securities of the trust on February 28, 2014, subject to several conditions, including approval by the Company’s regulators and senior lender, raising at least $6.0 million of additional equity capital that will be used in part to make the proposed payments of accrued interest and principal and preparation of a suitable supplemental indenture providing for the modifications to the terms of the Debentures and other applicable documentation. The Company has obtained the approval of its senior lender for the proposed payments of accrued interest and principal on the Debentures and has submitted an application to the FRB seeking written approval or non-objection to the Company’s proposed payments on the Debentures and modifications of the terms of the remaining Debentures. In addition, the Company has obtained indications of interest from various investors for potential private sales of common stock in an aggregate amount greater than the $6.0 million minimum capital raise required to complete the extension of the maturity of the Debentures. The Company has filed a proxy statement with the Securities and Exchange Commission (the “SEC”) to seek stockholder approval of this private placement of common stock and related matters at its annual meeting of stockholders to be held in September of this year. There is no assurance that the Company will be successful in raising the necessary additional capital, obtaining approvals from its regulators and satisfying the other conditions to completion of the proposal. On August 22, 2013, the Company completed a series of transactions to recapitalize its balance sheet (the “Recapitalization”). As part of the Recapitalization, the Company exchanged shares of common stock in settlement of $2.6 million of the principal amount of its $5.0 million senior debt. The modified terms for the remaining $2.4 million principal amount of the senior debt include, among others items, an extension of the maturity of the senior debt to February 22, 2019. In addition, the interest rate on the remaining loan has been increased to the Wall Street Journal Prime Rate plus 2%, with a floor (minimum) rate of 6%, from the original loan interest rate of the Wall Street Journal Prime Rate plus 1%, with a floor rate of 6%. The repayment schedule specifies six quarterly payments of interest only beginning three months following the closing of the Recapitalization, followed by 48 monthly payments of principal and interest on the loan beginning 19 months after the closing of the Recapitalization; provided, that each payment on the loan must receive prior approval from the FRB. Failure to make such any payment due to an inability to obtain such approval despite the exercise by the Company of required efforts to obtain such approval will not constitute an additional event of default under the revised loan terms. The Company obtained approval from the FRB and paid the interest payments due in November 2013, February 2014 and May 2014.

NOTE (5) – Junior Subordinated Debentures and Senior Debt

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.77% at June 30, 2014. The Company stopped paying interest on the Debentures in September 2010 and was not able to pay the principal or accrued interest on the Debentures at their March 17, 2014 maturity date. The accrued interest on the Debentures was $750 thousand as of June 30, 2014. Under the Cease and Desist Order applicable to the Company, the Company is not permitted to make payments on its debt without prior notice to and receipt of written notice of non-objection from the Board of Governors of the Federal Reserve System (“FRB”). In addition, under the terms of the Debentures, the Company is not allowed to make payments on the Debentures if the Company is in default on any of its senior indebtedness, which term includes the senior debt described below. In January 2014, the Company submitted a proposal to the trustee for the trust that holds the Debentures to extend the maturity of the Debentures to March 17, 2024 in return for paying all accrued interest on the Debentures and $900 thousand, or 15%, of the principal amount of the Debentures. This proposal was approved by the requisite holders of senior securities of the trust on February 28, 2014, subject to several conditions, including approval by the Company’s regulators and senior lender, raising at least $6.0 million of additional equity capital that will be used in part to make the proposed payments of accrued interest and principal and preparation of a suitable supplemental indenture providing for the modifications to the terms of the Debentures and other applicable documentation. The Company has obtained the approval of its senior lender for the proposed payments of accrued interest and principal on the Debentures and has submitted an application to the FRB seeking written approval or non-objection to the Company’s proposed payments on the Debentures and modifications of the terms of the remaining Debentures. In addition, the Company has obtained indications of interest from various investors for potential private sales of common stock in an aggregate amount greater than the $6.0 million minimum capital raise required to complete the extension of the maturity of the Debentures. The Company has filed a proxy statement with the Securities and Exchange Commission (the “SEC”) to seek stockholder approval of this private placement of common stock and related matters at its annual meeting of stockholders to be held in September of this year. There is no assurance that the Company will be successful in raising the necessary additional capital, obtaining approvals from its regulators and satisfying the other conditions to completion of the proposal.

On August 22, 2013, the Company completed a series of transactions to recapitalize its balance sheet (the “Recapitalization”). As part of the Recapitalization, the Company exchanged shares of common stock in settlement of $2.6 million of the principal amount of its $5.0 million senior debt. The modified terms for the remaining $2.4 million principal amount of the senior debt include, among others items, an extension of the maturity of the senior debt to February 22, 2019. In addition, the interest rate on the remaining loan has been increased to the Wall Street Journal Prime Rate plus 2%, with a floor (minimum) rate of 6%, from the original loan interest rate of the Wall Street Journal Prime Rate plus 1%, with a floor rate of 6%. The repayment schedule specifies six quarterly payments of interest only beginning three months following the closing of the Recapitalization, followed by 48 monthly payments of principal and interest on the loan beginning 19 months after the closing of the Recapitalization; provided, that each payment on the loan must receive prior approval from the FRB. Failure to make such any payment due to an inability to obtain such approval despite the exercise by the Company of required efforts to obtain such approval will not constitute an additional event of default under the revised loan terms. The Company obtained approval from the FRB and paid the interest payments due in November 2013, February 2014 and May 2014.