"Clearly, our greatest challenge continues to be in the area of credit quality, as indicated by an increase in our non-performing loans to $38.0 million at June 30, 2011, from $30.5 million at the end of the first quarter," Frankland continued. "This increase was a direct reflection of the economy and a recovery that has stagnated, as well as the growing extension of time involved in the foreclosure process in Florida. Clearly, there is simply too much real estate supply in our market area compared to demand. We continue to explore different ways to deal with these issues and feel that while we are at the bottom of our credit quality problems, improvement will be choppy as the macroeconomic issues play out."
Continuing, Frankland stated, "Opportunity for improvement still exists in the evolution of our mortgage banking platform. Changes implemented within the Company's leadership and infrastructure during the second quarter have been effective at reducing our operating costs. However, certain matters cause us to be cautious about near-term expectations, namely the uncertainty surrounding the role of government agencies in mortgage lending, unfolding mortgage banking regulations, industry forecasted declines in 2011 originations, and the pace at which residential real estate recovers. Still, we resolutely believe that our position as community bank lender, operating under a federal thrift charter, puts us in good position to grow this business meaningfully in the future when there is greater certainty around these issues."
Concluding, Frankland added, "We continue to make steady progress in rehabilitating our bank in 2011. We are focused on our strategic initiatives, including expansion of revenue sources and opportunities for expense and efficiency improvements."
Capital PositionThe Bank's Tier 1 leverage ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio were 6.30%, 10.02%, and 11.28% at June 30, 2011, respectively. As such, they continued to exceed the required minimums of 5%, 6%, and 10%, respectively, necessary to be deemed a well-capitalized institution and were in compliance with the Individual Minimum Capital Requirement (IMCR) agreed to by the Bank with the Office of Thrift Supervision on May 13, 2011. Under the IMCR, the Bank agreed to achieve Tier 1 leverage ratios of 6.25% as of June 30, 2011, and 7.0% as of September 30, 2011. In addition, stockholders' equity represented 6.75% of total assets at June 30, 2011.