22.

Regulatory Capital Requirements and Dividend Restrictions

Capital Requirements

The following table summarizes the Company's and the Bank's actual and required capital ratios at the dates indicated (dollars in thousands). The Company and the Bank were classified in the well-capitalized category at December 31, 2011 and December 31, 2010. In connection with the Consent Order, the Bank is subject to a minimum Tier 1 leverage ratio of 8.00%, which is higher than the statutory well-capitalized minimum ratio of 5.00%.

Since December 31, 2011, no conditions or events have occurred, of which the Company is aware, that have resulted in a material change in the Company's or the Bank's risk category other than as reported in this Annual Report on Form 10-K.


	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective action provisions
	amount		ratio			amount		ratio			amount		ratio
At December 31, 2011
Total capital to risk-weighted assets
Company	$	116,864		13.49	%	$	69,280		8.00	%		n/a		n/a
Bank		115,985		13.39			69,285		8.00		$	86,607		10.00	%
Tier 1 capital to risk-weighted assets
Company		105,852		12.22			34,640		4.00			n/a		n/a
Bank		104,972		12.12			34,643		4.00			51,964		6.00
Tier 1 leverage ratio
Company		105,852		8.59			49,270		4.00			n/a		n/a
Bank		104,972		8.52			49,271		4.00			61,589		5.00

At December 31, 2010
Total capital to risk-weighted assets
Company	$	132,118		14.43	%	$	73,261		8.00	%		n/a		n/a
Bank		130,632		14.25			73,339		8.00		$	91,674		10.00	%
Tier 1 capital to risk-weighted assets
Company		120,478		13.16			36,631		4.00			n/a		n/a
Bank		118,981		12.98			36,669		4.00			55,004		6.00
Tier 1 leverage ratio
Company		120,478		8.22			58,634		4.00			n/a		n/a
Bank		118,981		8.12			58,624		4.00			73,280		5.00

Recent Regulatory Developments

The Company and the Bank are subject to periodic examination by various regulatory agencies. In November 2009, the FDIC and the State Board (collectively, the "Supervisory Authorities") conducted their annual joint examination of the Bank (and have since conducted their subsequent annual examination as of September 30, 2010 and are currently conducting an examination as of September 30, 2011). Beginning in October 2009, the Company's Board of Directors and the Regulatory Oversight and Risk Management Committee of the Board of Directors met periodically with the FDIC to receive status reports on their examination, and the Board received the final report of examination in April 2010. Effective June 10, 2010, the Bank agreed to the issuance of a Consent Order. The Consent Order includes requirements regarding the Bank's capital position and other requirements, including that the Bank:

•

Achieve and maintain, within 120 days from the effective date of the Consent Order, Total Risk-Based capital at least equal to 10% of risk-weighted assets and Tier 1 capital at least equal to 8% of total assets;

•

Determine, within 30 days of the last day of the calendar quarter, its capital ratios. If any capital measure falls below the established minimum, within 30 days provide a written plan to the Supervisory Authorities describing the means and timing by which the Bank shall increase such ratios to or in excess of the established minimums;

•

Establish, within 30 days from the effective date of the Consent Order, a plan to monitor compliance with the Consent Order, which shall be monitored by the Bank's Board of Directors;

•

Develop, within 60 days from the effective date of the Consent Order, a written analysis and assessment of the Bank's management and staffing needs;

•

Notify the Supervisory Authorities in writing of the resignation or termination of any of the Bank's directors or senior executive officers;

•

Eliminate, within 10 days from the effective date of the Consent Order, by charge-off or collection, all assets or portions of assets classified "Loss" and 50% of those assets classified "Doubtful";

•

Review and update, within 60 days from the effective date of the Consent Order, its policy to ensure the adequacy of the Bank's allowance for loan and lease losses, which must provide for a review of the Bank's allowance for loan and lease losses at least once each calendar quarter;

•

Submit, within 60 days from the effective date of the Consent Order, a written plan to reduce classified assets by certain specific percentages by defined dates and a reduction of the Bank's risk exposure in relationships with assets in excess of $1,000,000 which are criticized as "Substandard," "Doubtful," or "Special Mention";

•

Revise, within 60 days from the effective date of the Consent Order, its policies and procedures for managing the Bank's Adversely Classified Other Real Estate Owned;

•

Not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been charged-off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. In addition, the Bank may not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been criticized, in whole or in part, "Substandard" or "Special Mention" and is uncollected unless the Bank's board of directors determines that failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank;

•

Perform, within 90 days from the effective date of the Consent Order, a risk segmentation analysis with respect to the Bank's Concentrations of Credit and develop a written plan to systematically reduce any segment of the portfolio that is an undue concentration of credit;

•

Review, within 60 days from the effective date of the Consent Order and annually thereafter, the Bank's loan policies and procedures for adequacy and, based upon this review, make all appropriate revisions to the policies and procedures necessary to enhance the Bank's lending functions and ensure their implementation;

•

Adopt, within 60 days from the effective date of the Consent Order, an effective internal loan review and grading system to provide for the periodic review of the Bank's loan portfolio in order to identify and categorize the Bank's loans, and other extensions of credit which are carried on the Bank's books as loans, on the basis of credit quality;

•

Review and update, within 60 days from the effective date of the Consent Order, its written profit plan to ensure the Bank has a realistic, comprehensive budget for all categories of income and expense, which must address, at minimum, goals and strategies for improving and sustaining the earnings of the Bank, the major areas in and means by which the Bank will seek to improve the Bank's operating performance, realistic and comprehensive budgets, a budget review process to monitor income and expenses of the Bank to compare actual figure with budgetary projections, the operating assumptions that form the basis for and adequately support major projected income and expense components of the plan, and coordination of the Bank's loan, investment, and operating policies and budget and profit planning with the funds management policy;

•

Review and update, within 60 days from the effective date of the Consent Order, its written plan addressing liquidity, contingent funding, and asset liability management;

•

Eliminate, within 30 days from the effective date of the Consent Order, all violations of law and regulation or contraventions of policy set forth in the FDIC's safety and soundness examination of the Bank in November 2009;

•

Not accept, renew, or rollover any brokered deposits unless it is in compliance with the requirements of 12 C.F.R. § 337.6(b);

•

Limit asset growth to 10% per annum;

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Not declare or pay any dividends or bonuses or make any distributions of interest, principal, or other sums on subordinated debentures without the prior approval of the Supervisory Authorities;

•

Not offer an effective yield on deposits of more than 75 basis points over the national rates published by the FDIC weekly on its website unless otherwise specifically permitted by the FDIC. On April 1, 2010 the Bank was notified by the FDIC that it had determined that the geographic areas in which it operates were considered high-rate areas. Accordingly, the Bank is able to offer interest rates on deposits up to 75 basis points over the prevailing interest rates in its geographic areas; and

•

Furnish, by within 30 days from the effective date of the Consent Order and within 30 days of the end of each quarter thereafter, written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with the Consent Order.

We intend to take all actions necessary to enable the Bank to comply with the requirements of the Consent Order, and as of the date hereof we have submitted all documentation required as of this date to the Supervisory Authorities. There can be no assurance that the Bank will be able to comply fully with the provisions of the Consent Order, and the determination of our compliance will be made by the Supervisory Authorities. However, we believe we are currently in compliance with all provisions of the Consent Order except for the requirement to reduce the total amount of our classified assets at September 30, 2009 by a total of 75% by May 30, 2012. The Consent Order requires a reduction in classified assets by specified percentages by certain dates, with the most recent date being December 2, 2011 when a 65% ($140.5 million) reduction in classified assets was required from the September 30, 2009 balances. As of December 2, 2011, the Bank had reduced its classified assets by $151.7 million, which was more than the amount necessary to meet the December 2, 2011 deadline. The next and final deadline under the Consent Order is May 30, 2012, when a cumulative 75% ($162.1 million) reduction in classified assets from the September 30, 2009 balances is required. As of February 24, 2012, the Bank has reduced its classified assets by 74.2% ($160.4 million). Failure to meet the requirements of the Consent Order could result in additional regulatory requirements, which could have a material effect on the Company's financial condition. In addition, the Supervisory Authorities may amend the Consent Order based on the results of their ongoing examinations.