CASH 2018 Annual Report

44 Undercapitalized banks may not accept, renew or roll over brokered deposits, and are subject to restrictions on the soliciting of deposits over prevailing rates. In addition, undercapitalized banks are subject to certain regulatory restrictions. These restrictions include, among others, that such a bank generally may not make any capital distributions, must submit an acceptable capital restoration plan to the FDIC, may not increase its average total assets during a calendar quarter in excess of its average total assets during the preceding calendar quarter unless any increase in total assets is consistent with a capital restoration plan approved by the FDIC and the bank’s ratio of equity to total assets increases during the calendar quarter at a rate sufficient to enable the bank to become adequately capitalized within a reasonable time. In addition, such banks may not acquire a business, establish or acquire a branch office or engage in a new line of business without regulatory approval. Further, as part of a capital restoration plan, the bank’s holding company must generally guarantee that the bank will return to adequately capitalized status and provide appropriate assurances of performance of that guarantee. If a capital restoration plan is not approved, or if the bank fails to implement the plan in any material respect, the bank would be treated as if it were “significantly undercapitalized,” which would result in the imposition of a number of additional requirements and restrictions. FDIC-insured institutions are also subject to changes in their FDIC insurance assessment rates in accordance with their perceived risks to the DIF. Finally, bank regulatory agencies have the ability to seek to impose higher than normal capital requirements known as individual minimum capital requirements (“IMCR”) for institutions with higher risk profiles. If the Bank’s capital status - well-capitalized - changes as a result of future operations or regulatory order, or if it becomes subject to an IMCR, the Company’s financial condition or results of operations could be adversely affected. Any institution that fails to comply with its capital plan or is “significantly undercapitalized” ( i.e. , Tier 1 risk-based ratio of less than 4% or CET1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) will become subject to one or more additional specified actions and operating restrictions mandated by the Federal Deposit Insurance Corporation Improvement Act of 1991. These actions and restrictions include requiring the issuance of additional voting securities; limitations on asset growth; mandated asset reduction; changes in senior management; divestiture, merger or acquisition of the association; restrictions on executive compensation; and any other action the OCC deems appropriate. An institution that becomes “critically undercapitalized” is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized associations. In addition, the appropriate banking regulator must appoint a receiver (or conservator with the FDIC’s concurrence) for an institution, with certain limited exceptions, within 90 days after a bank becomes critically undercapitalized. Any undercapitalized institution is also subject to other possible enforcement actions, including the appointment of a receiver or conservator. The appropriate regulator is also generally authorized to reclassify an institution into a lower capital category and impose restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition of any of these measures on the Bank may have a substantial adverse effect on it and on the Company’s operations and profitability. The Company's stockholders are not entitled to preemptive rights and, therefore, if the Company is directed by its regulators to issue additional shares of common stock, such issuance may result in dilution to the Company's existing stockholders. Institutions in Troubled Condition Certain events, including entering into a formal written agreement with a bank’s regulator that requires action to improve the bank’s financial condition, or being informed by the regulator that the bank is in troubled condition, will automatically result in limitations on so-called “golden parachute” agreements pursuant to Section 18(K) of the FDIA. In addition, organizations that are not in compliance with minimum capital requirements, or are otherwise in a troubled condition, must give 90 days’ written notice to the OCC before appointing a Director or Senior Executive Officer, pursuant to the OCC’s regulations. Branching by Federal Savings Associations Subject to certain limitations, the HOLA and the OCC regulations permit federally chartered savings associations to establish branches in any state of the United States. Although there is no geographic restriction on interstate branching by federal savings associations, federal law requires that no federal savings association my establish, retain, or operate a branch outside of its home state unless (i) it retains its status as a qualified thrift lender or a domestic building and loan association, and (ii) the total assets of the federal savings association attributable to all of the federal savings associations' branches in the state would qualify the branches as a whole as a qualified thrift lender or a domestic building and loan association. In certain limited instances, this prohibition would not apply and the OCC is also vested with the discretion to allow a federal savings association, for good cause, up to two years to comply with this provision. Additionally, federal savings associations are prohibited from branching outside of their home states if doing so would result in their holding company being deemed a multiple savings and loan holding company; however, federal law includes certain exceptions.