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acquisition of other companies and businesses, permissible activities for us
to engage in, maintenance of adequate capital levels, dividend
payments and other aspects of our operations. Bank regulators possess broad authority
to prevent or remedy unsafe or unsound practices or
violations of law. If, as a result of an examination, a banking agency determines
that an aspect of our operations were unsatisfactory, or that
we were, or our management was, in violation of any law or regulation, they may take
a number of different remedial actions as they deem
appropriate. These actions include the power to enjoin ‘‘unsafe or unsound’’ practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order that
can be judicially enforced, to direct an increase in our capital, to
restrict our growth, to assess civil money penalties against us, our officers
or directors, to fine or remove officers and directors and, if it is
concluded that such conditions cannot be corrected or there is an imminent
risk of loss to depositors, to terminate the Bank’s FDIC deposit
insurance and place the Bank into receivership or conservatorship. Any regulatory action against us could
have a material adverse effect on
our business, financial condition and results of operations.
Government policy, legislation and regulation, particularly monetary
policy from the Federal Reserve, significantly affect economic
growth and financial operations, including our distribution of credit, bank
loans, investments, deposits, product offerings and disclosures,
interest rates and bankruptcy proceedings for consumer residential real
estate mortgages. The laws and regulations applicable to the banking
industry could change at any time and we cannot predict the effects of these changes
on our business, profitability or growth strategy.
Increased regulation could increase our cost of compliance, adversely
affect profitability and inhibit our ability to conduct business consistent
with historical performance. If we do not comply with governmental regulations,
we may be subject to fines, penalties, lawsuits or material
restrictions on our businesses and growth that may damage our reputation
and adversely affect our business operations. Proposed legislative
and regulatory actions may not occur within expected time frames, or at all, which
creates additional uncertainty for our business and
industry.
Accordingly, legislative and regulatory actions taken now or in the future could
have a material adverse impact our business,
financial condition and results of operation.
Many of our expansion and growth plans require regulatory approvals,
and failure to obtain them may restrict our growth.
As part of our growth strategy, we may expand our business by pursuing
strategic acquisitions of financial institutions, adding
branches and other complementary businesses. Generally, we must receive
federal and state regulatory approval before we can acquire an
FDIC-insured depository institution or related business. In determining
whether to approve a proposed acquisition, federal and state banking
regulators will consider, among other factors, the effect of the acquisition
on competition, our financial condition, our future prospects and
the impact of the proposal on U.S. financial stability. The regulators also review current
and projected capital ratios, the competence,
experience and integrity of management and its record of compliance with laws and
regulations, the convenience and needs of the
communities to be served and the effectiveness of the acquiring institution
in combating money laundering activities.
The Federal Reserve may require the Company to commit capital resources
to support the Bank.
As a matter of policy, the Federal Reserve expects a bank holding company to act as a source
of financial and managerial strength to
its subsidiary banks.
The Federal Reserve may charge the bank holding company with engaging
in unsafe and unsound practices for failure
to adequately commit resources to a subsidiary bank. Accordingly, we may be required to make capital injections into
a troubled subsidiary
bank, even if such contribution creates a detriment to the Company or its stockholders.
If we do not have sufficient resources on hand to fund
the capital injection, we may be required borrow funds or raise capital.
Any such loans are subordinate in right of payment to deposits and
to
certain indebtedness of the subsidiary bank. In the event of bankruptcy of
the bank holding company, claims based upon any commitments to
fund capital injections are entitled to a priority of payment over claims made
by general unsecured creditors, including holders of
indebtedness. Thus, any borrowing incurred by the Company to make required capital
injections to the Bank are difficult and expensive, and
will adversely impact our financial condition, results of operations and future
prospects. Additionally, under the Financial Institutions Reform
Recovery and Enforcement Act of 1989 (“FIRREA”), losses caused by a failing bank subsidiary might be charged
to the capital of an affiliate
bank. Moreover, any bank operating under the Company’s common control
may also be required to contribute capital to a failing affiliate
bank within the Company’s control group. This is known as FIRREA’s “cross-guarantee”
provision. The Company currently has one bank
subsidiary.
The Company and the Bank are subject to stringent capital requirements
that may limit our operations and potential growth.
The Company and the Bank are subject to various regulatory capital requirements.
Failure to meet minimum capital requirements will
result in certain mandatory and discretionary actions by regulators that, if undertaken,
could have a direct material effect on our financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the
Bank must
meet specific capital guidelines that involve quantitative measures of our
assets, liabilities and certain off-balance sheet commitments as
calculated under these regulations. In order to be a “well-capitalized” depository
institution under prompt corrective action standards (but
without taking into account the capital conservation buffer requirement described
below), a bank must maintain a CET1 risk-based capital
ratio of 6.5% or more, a tier 1 risk-based capital ratio of 8.0% or more, a total
risk-based capital ratio of 10.0% or more and a leverage ratio
of 5.0% or more (and is not subject to any order or written directive specifying
any higher capital ratio). The failure to meet the established
capital requirements under the prompt corrective action framework could result
in one or more of our regulators placing limitations or
conditions on our activities, including our growth initiatives, or restricting
the commencement of new activities, and such failure could
subject us to a variety of enforcement remedies available to the federal
regulatory authorities, including limiting our ability to pay dividends,