Regulatory Matters

3 Months Ended

Sep. 30, 2011

Regulatory Matters [Abstract]

Regulatory Matters

NOTE 10 — REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements, which are now administered by the OCC. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by banking regulators that, if undertaken, could have a direct material effect on the Company'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 the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Prompt corrective action regulations provide five classifications: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year end 2011 and 2010, the most recent regulatory notifications categorized the Bank as adequately capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

Federal regulations require savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At September 30, 2011, the adjusted total minimum regulatory capital regulations require institutions to have a minimum tangible capital to adjusted total assets ratio of 1.5%; a minimum leverage ratio of core (Tier 1) capital to adjusted total assets of 4.0%; a minimum ratio of core (Tier 1) capital to risk-weighted assets of 4.0%; and a minimum ratio of total capital to risk-weighted assets of 8.0%. At September 30, 2011 and 2010, respectively, the Bank exceeded all of the aforementioned regulatory capital requirements. For more information, please see Item 1, Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

On October 19, 2009, the Company and the Bank each entered into a Stipulation and Consent to the Issuance of Order to Cease and Desist with the Office of Thrift Supervision (the "OTS"), whereby the Company and the Bank each consented to the issuance of a Order to Cease and Desist (the "Company Order" and the "Bank Order") without admitting or denying that grounds existed for the OTS to initiate an administrative proceeding against the Company or the Bank.

The Bank Order requires the Bank to take several actions, including but not limited to: (i) by December 31, 2009, meet and maintain (1) a Tier 1 (core) capital ratio of at least 8.0% and (2) a total risk-based capital ratio of at least 12.0% after the funding of an adequate allowance for loan and lease losses and submit a detailed plan to accomplish this; (ii) if the Bank fails to meet these capital requirements at any time after December 31, 2009, within 15 days thereafter, prepare a written contingency plan detailing actions to be taken, with specific time frames, providing for (a) a merger with another federally insured depository institution or holding company thereof, or (b) voluntary liquidation; (iii) adopt revisions to the Bank's liquidity policy to, among other things, increase the Bank's minimum liquidity ratio; (iv) reduce the level of adversely classified assets to no more than 50% of core capital plus allowance for loan and lease losses by December 31, 2010 and to reduce the level of adversely classified assets and assets designated as special mention to no more than 65% of core capital plus allowance for loan and lease losses by December 31, 2010; (v) submit for OTS approval a new business plan that includes the requirements contained in the Bank Order and that also includes well supported and realistic strategies to achieve consistent profitability by September 30, 2010; (vi) restrict quarterly asset growth to an amount not to exceed net interest credited on deposit liabilities until the OTS approves of the new business plan; (vii) cease to accept, renew or roll over any brokered deposit or act as a deposit broker, without the prior written waiver of the FDIC and (viii) not declare or pay dividends or make any other capital distributions from the Bank without receiving prior OTS approval

The Company Order requires the Company to take several actions, including, but not limited to: (i) submit a capital plan that includes, among other things, (1) the establishment of a minimum tangible capital ratio of tangible equity capital to total tangible assets commensurate with the Company's consolidated risk profile, and (2) specific plans to reduce the risks to the Company from its current debt levels and debt servicing requirements; (ii) not declare, make or pay any cash dividends or other capital distributions or purchase, repurchase or redeem or commit to purchase, repurchase or redeem Company equity stock without the prior non-objection of the OTS, except that this provision does not apply to immaterial capital stock redemptions that arise in the normal course of the Company's business in connection with its stock-based compensation plans; and (iii) not incur, issue, renew, roll over or increase any debt or commit to do so without the prior non-objection of the OTS (debt includes loans, bonds, cumulative preferred stock, hybrid capital instruments such as subordinated debt or trust preferred securities, and guarantees of debt).

The Bank Order and the Company Order also impose certain on-going reporting obligations and additional restrictions on severance and indemnification payments, changes in directors and management, employment agreements and compensation arrangements that the Company and the Bank may enter into, third-party service contracts and transactions with affiliates.

At September 30, 2011, Company and the Bank believe they are in compliance with all requirements of the Bank Order and the Company Order that are required to date, with the exception of the level of adversely classified assets and achieving the return to profitability. At September 30, 2011, the Bank's level of adversely classified assets to core capital plus the allowance for loan and lease losses was 65.7%, and its level of adversely classified assets and assets designated as special mention was 84.8%. The requirements under the Bank Order are 50% and 65%, respectively. Although the Bank did not meet the reduced adversely classified asset levels required by September 30, 2011, and has not yet returned to profitability, it will continue to work to comply with all such requirements in the future.

The Bank Order and the Company Order will remain in effect until terminated, modified, or suspended in writing. Effective July 21, 2011, the OCC and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") succeeded to all powers, authorities, rights, and duties of the OTS relating to the enforcement of the Bank and Company Orders, respectively, as a result of the regulatory transition under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").

Regulations limit capital distributions by savings institutions. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At September 30, 2011, the Bank was not allowed to make any capital distributions without regulatory approval.

At September 30, 2011 the Bank was in compliance with regulatory capital requirements as set forth below (dollars in thousands):

	Actual				Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations					Required Under Regulatory Bank Order
	Amount		Ratio		Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2011
Total Capital to risk weighted assets	$	75,474		12.95	$	46,615		8.00	%	$	58,269		10.00	%	$	69,922		12.00	%
Tier 1 (Core) Capital to risk weighted assets		68,083		11.68		23,307		4.00	%		34,961		6.00	%		*		*
Tier 1 (Core) Capital to adjusted total assets		68,083		8.62		31,575		4.00	%		39,469		5.00	%		63,150		8.00	%
Tangible Capital to adjusted total assets		68,083		8.62		11,841		1.50	%		N/A		N/A			*		*

At June 30, 2011 the Bank was in compliance with regulatory capital requirements as set forth below (dollars in thousands):

	Actual					Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations					Required Under Regulatory Bank Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2011
Total Capital to risk weighted assets	$	76,475		12.87	%	$	47,548		8.00	%	$	59,435		10.00	%	$	71,322		12.00	%
Tier 1 (Core) Capital to risk weighted assets		68,928		11.60	%		23,774		4.00	%		35,661		6.00	%		*		*
Tier 1 (Core) Capital to adjusted total assets		68,928		8.63	%		31,958		4.00	%		39,947		5.00	%		63,916		8.00	%
Tangible Capital to adjusted total assets		68,928		8.63	%		11,984		1.50	%		N/A		N/A			*		*

* Target levels for these categories are not specified within the Bank Order.

Until the Bank Order is terminated, the Bank cannot be classified as well capitalized under prompt corrective action provisions.