UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-53813

FLORIDA BANK GROUP, INC.

(Exact name of registrant as specified in its charter)


Florida		20-8732828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

201 N. Franklin Street, Suite 100, Tampa, FL		33602
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (813) 367-5270

Securities registered pursuant to Section 12(g) of the Act:


Title of each class		Name of exchange on which registered
Common Stock, par value $0.01		None

Securities registered pursuant to Section 12(b) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller
reporting company)

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of voting stock held by non-affiliates of the registrant, based on the price of the Common Stock on June 30, 2011, the registrant’s most recently completed second fiscal quarter based upon the tangible book value per share was approximately $13,319,150 in the aggregate.

The number of shares of common stock outstanding as of February 29, 2012 was: 20,229,315

Documents Incorporated by Reference

Applicable portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 25, 2012 are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS


		Page
	NONGAAP FINANCIAL INFORMATION		2

ITEM 1.	BUSINESS		2

ITEM 1A.	RISK FACTORS		16

ITEM 1B.	UNRESOLVED STAFF COMMENTS		28

ITEM 2.	PROPERTIES		28

ITEM 3.	LEGAL PROCEEDINGS		28

ITEM 4.	MINE SAFETY DISCLOSURES		28

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		29

ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA		31

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		32

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		54

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		54

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		54

ITEM 9A.	CONTROLS AND PROCEDURES		54

ITEM 9B.	OTHER INFORMATION		55

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		56

ITEM 11.	EXECUTIVE COMPENSATION		56

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		56

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		56

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		56

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		57

EXHIBIT INDEX

SIGNATURES			59

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Form 10-K contains “forward-looking statements”. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in the forward-looking statements. Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in the section captioned “Risk Factors” as well as the following factors:

•

the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

•

the loss of our key personnel;

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the accuracy of our financial statement estimates and assumptions, including our allowance for loan losses; deferred taxes and foreclosed real estate;

•

our need and our ability to incur additional debt or equity financing;

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our ability to execute our growth strategy;

•

inflation, interest rates, market and monetary fluctuations;

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the effects of our lack of a diversified loan portfolio, including the risk of geographic concentration;

•

the frequency and magnitude of foreclosure of our loans;

•

effect of changes in the stock market and other capital markets;

•

legislative or regulatory changes;

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the effects of harsh weather conditions, including hurricanes;

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our ability to comply with the extensive laws and regulations to which we are subject;

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changes in the securities and real estate markets;

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increased competition and its effect on pricing;

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technological changes;

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changes in monetary and fiscal policies of the U.S. Government;

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the effects of security breaches and computer viruses that may affect our computer systems;

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changes in consumer spending and saving habits;

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changes in accounting principles, policies, practices or guidelines;

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anti-takeover provisions under Federal and state law as well as our Articles of Incorporation and our bylaws; and

•

our ability to manage the risks involved in the foregoing.

However, other factors besides those listed above and in the section captioned “Risk Factors” or discussed elsewhere in this Form 10-K also could adversely affect our results, and you should not consider any such list of

factors to be a complete set of all potential risks or uncertainties. These forward-looking statements are not guarantees of future performance, but reflect the present expectations of future events by our management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Any forward-looking statements made by us speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.

NON-GAAP FINANCIAL INFORMATION

This report contains financial information determined by methods other than in accordance with United States generally accepted accounting principles (“GAAP”). This report discusses both GAAP net loss and core earnings (losses). Core earnings are a non-GAAP measure defined as, net loss, adjusted for certain noncore noninterest revenue, noncore noninterest expense, provision for loan losses and tax expense (benefit). Noncore noninterest revenues include: gain (loss) on the sale of securities available for sale and the other-than-temporary impairments (‘OTTI”) on securities available for sale and foreclosed real estate revenues. Noncore noninterest expenses include FHLB prepayment penalty and gain (loss) on expenses related to foreclosed real estate. We believe that such non-GAAP measures are useful because they proved additional insights into the performance of the Company that we believe are helpful to investors and they also reflect how management analyzes certain Company performances and compares those performances against other companies. Non-GAAP measures have inherent limitations as analytic tools, are not required to be uniformly applied and are not audited. To mitigate these factors, we have procedures in place to ensure that these non-GAAP measures are determined using the appropriate GAAP components and that these measures are properly reflected to facilitate consistent period-to-period comparisons. Although we believe these non-GAAP measures enhance investors’ and management’s ability to evaluate and compare our operating results from period-to-period, non-GAAP measures should not be considered in isolation or as an alternative to any measure of performance as promulgated under GAAP. For a reconciliation of our non-GAAP measures, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Performance Overview and Analysis of Financial Condition.

Item 1.

Business

General.

Florida Bank Group, Inc. (the “Holding Company”) is a bank holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Tampa, Florida and is the sole shareholder of Florida Bank (the “Bank”) (collectively, the “Company”). The Holding Company was incorporated on January 12, 2007, under the laws of the State of Florida. The Bank is a Florida chartered commercial bank which provides a wide range of business and consumer financial services in its target marketplace. The Bank currently operates 14 full service banking centers in the Florida counties of Hillsborough, Pinellas, Duval, Leon, Manatee and St. Johns. As of December 31, 2011, we had $729.4 million in total assets, including $460.4 million in net loans, and $610.3 million in deposits.

The Bank was acquired by Florida Bank Group, Inc., a Delaware corporation (which subsequently merged with the Company as a part of a reincorporation transaction) in January 2002. In December 2006, Bank of North Florida, which was owned 100% by the predecessor holding company, began banking operations. Florida Bank of Jacksonville was acquired in September 2007. On January 25, 2008, Florida Bank of Jacksonville acquired the assets and assumed the liabilities of Bank of North Florida. On January 25, 2008, Bank of North Florida changed its main office to an office in Sarasota, Florida and changed its name to Florida Bank of Sarasota. On December 5, 2008, Florida Bank of Sarasota was merged into the Bank. The Bank of Tallahassee was acquired in May 2007. On March 30, 2009, the Company merged Florida Bank of Jacksonville and The Bank of Tallahassee into the Bank.

On May 29, 2009 and June 15, 2009, we sold a combined total of 4,584,756 shares of our common stock in a private placement, through a rights offering to our existing shareholders, at a price of $4.00 per share, for

aggregate gross proceeds of $18,339,024. On July 24, 2009 we closed on the sale of Fixed Rate Cumulative Perpetual Preferred Stock, Series A and B (“Preferred Stock”) to the United States Treasury (“the Treasury”), as part of the Treasury’s Capital Purchase Program, for aggregate gross proceeds of $20,471,000. On June 30, 2011 we closed a private placement offering resulting in the issuance of 5,107 shares of our Non-Cumulative Perpetual Series C Preferred Stock (“Series C Preferred Stock”) to accredited investors for an aggregate purchase price of $5.1 million in cash consideration, or $1,000 per share. In addition, during the three months ended September 30, 2011, we sold an additional 150 shares of our Series C preferred Stock to accredited investors for an aggregate purchase price of $150,000 in cash consideration.

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. The operations of the Bank are subject to the supervision and regulation of the Board of Governors of the Federal Reserve (the “Federal Reserve”) and the Florida Office of Financial Regulation. The Holding Company is also subject to regulation by the Federal Reserve.

Unless otherwise indicated, the terms “us”, “we”, “our”, and the “Company” refer to Florida Bank Group, Inc. together with its consolidated subsidiaries. Any references to the “Bank” refers to Florida Bank.

Business Strategy and Focus.

Our business strategy is to operate as a profitable banking organization, with an emphasis on relationship banking. Our lending strategy includes commercial business loans to small and medium-sized businesses, consumer lending, and select real estate loans. We emphasize comprehensive business products and responsiveness that reflect our knowledge of our local markets and customers. We offer a wide range of commercial and retail banking and financial services to businesses and individuals.

Our marketing strategy is targeted to:

•

Capitalize on our personal relationship approach, which we believe differentiates us from our larger competitors;

•

Provide customers with access to our local executives who make key credit and other decisions;

•

Pursue commercial lending opportunities with small to mid-sized businesses that are underserved by our larger competitors;

•

Cross-sell our products and services to our existing customers to leverage our relationships, grow fee income and enhance profitability; and

•

Adhere to safe and sound credit standards.

Our long-term business strategy is geared toward building a premier community bank in the state of Florida. The business strategy includes having a significant market share (as defined by deposits), among community banks, in each of the markets in which we currently operate.

During the upcoming year, our focus will continue to be centered on five major priorities which are intended to restore the financial condition and regulatory position of the Bank. These priorities are: 1) Strengthening our capital position, 2) Improving asset quality, 3) Right-sizing our expense base, 4) Maintaining satisfactory regulatory relationships, and 5) Rebuilding our core franchise in commercial and retail banking so as to position ourselves for future growth. In addition, we will continue to focus on increasing the number of customer relationships and, ultimately, deposits, loans and profitability. For a further discussion of our business focus, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Performance Overview and Analysis of Financial Condition, below.

Organic strategies include taking advantage of customer dislocation in the market place created by other community banks operating limitations and large regional and money center banks’ customer dissatisfaction. We

are continuing to place increased focus on our retail operations. We have retail strategies in place to drive more business through our branch infrastructure.

Our Business.

Historically, the Bank’s market areas have been served both by large banks headquartered out of state as well as a number of community banks offering a high level of personal attention, recognition and service. The large banks have generally applied a transactional business approach, based upon volume considerations, to the market, while community banks have traditionally offered a more service relationship approach.

The Bank provides a range of consumer and commercial banking services to individuals and businesses. The basic services offered by the Bank include: demand interest bearing and noninterest bearing accounts, money market deposit accounts, NOW accounts, time deposits, safe deposit services, business credit cards, debit cards, direct deposits, notary services, money orders, night depository, travelers’ checks, cashier’s checks, domestic collections, savings bonds, bank drafts, automated teller services, drive-in tellers, banking by mail and the full range of consumer loans, both collateralized and uncollateralized. In addition, the Bank makes secured and unsecured commercial and real estate loans and issues stand-by letters of credit. The Bank provides automated teller machine (ATM) cards permitting our customers to utilize the convenience of the Bank’s ATM network nationwide and internationally. The Bank does not have trust powers and, accordingly, no trust services are provided.

The Bank’s target market is professionals, executives, and small to medium-sized businesses. The small to medium sized business customer (typically a commercial entity with annual sales of $30 million or less) has the opportunity to generate significant revenue for banks yet is generally underserved by large bank competitors.

The revenues of the Bank are primarily derived from interest on, and fees received in connection with, real estate and other loans, interest and dividends from investment securities, deposit fee income generated from demand accounts, ATM fees, and other services. More recently, we have enhanced our residential product offerings to include more loan portfolio options. In addition, we have made strides in growing our SBA program. The principal sources of funds for the Bank’s lending activities are deposits, borrowings from the Federal Home Loan Bank, loan repayments, and proceeds from investment securities. The principal expenses of the Bank are the interest paid on deposits and borrowings, and operating and general administrative expenses.

As is the case with banking institutions generally, the Bank’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Florida Office of Financial Regulations (the “OFR”), the Federal Reserve and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. The Bank faces strong competition in the attraction of deposits (the primary source of lendable funds) and in the origination of loans. See “Competition.”

The Company does not believe that it has any lending relationships upon which the Company is dependent. As of December 31, 2011, the largest lending relationship including affiliated entities of the borrower represented 1.65% of the assets of the Company.

Market Area.

Our current primary market area includes the areas surrounding the metropolitan markets of Tampa, St. Petersburg, Sarasota, Jacksonville and Tallahassee, Florida. This market area includes the following seven Florida counties: Hillsborough, Pinellas, Sarasota, Manatee, Duval, St. Johns and Leon.

Banking Services.

Commercial Banking.

The Bank focuses its commercial loan originations on small and mid-sized businesses (generally up to $30 million in annual sales) and such loans are usually accompanied by related deposits. Commercial underwriting is driven by historical and projected cash flow analysis supported by collateral analysis and review. Commercial loan products include small business loans, commercial real estate construction and term loans; working capital loans and lines of credit; demand, term and time loans; and equipment, inventory and accounts receivable financing. The Bank offers a range of cash management services and deposit products to commercial customers, including electronic banking.

Retail Banking.

The Bank’s retail banking activities emphasize consumer deposit and checking accounts. An extensive range of these services is offered by the Bank to meet the varied needs of its customers from young persons to senior citizens. In addition to traditional products and services, the Bank offers other products and services, such as debit cards, internet banking, and electronic bill payment services. Consumer loan products offered by the Bank include residential loans, home equity lines of credit, second mortgages, new and used auto loans, new and used boat loans, overdraft protection, and unsecured personal credit lines.

Lending Services.

Loan Portfolio Composition.

At December 31, 2011 and December 31, 2010, our net loan portfolio totaled $460.4 million and $572.0 million, respectively, representing approximately 63.12% and 68.23% of our total assets of $729.4 million and $838.4 million, respectively.

The composition of our loan portfolio at December 31, 2011 and December 31, 2010 is indicated below (in thousands):


	December 31, 2011						December 31, 2010
	Amount			% of Total			Amount			% of Total
Commercial	$	33,643			7.01	%	$	47,475			8.00	%
Commercial Real Estate		278,053			57.91	%		329,487			55.53	%
Residential Mortgage		160,870			33.51	%		203,488			34.30	%
Consumer and Other Loans		7,547			1.57	%		12,879			2.17	%

Total loans		480,113			100.00	%		593,329			100.00	%

Less: Net deferred fees		(228	)					(454	)
Less: Allowance for loan losses		(19,463	)					(20,830	)

Loans, Net	$	460,422					$	572,045

There were approximately $40.0 million and $57.1 million in non-accrual loans at December 31, 2011 and December 31, 2010, respectively.

Commercial Loans.

At December 31, 2011 and December 31, 2010, our commercial loan portfolio totaled $33.6 million and $47.5 million, respectively. Loans are made for acquisition, expansion, and working capital purposes and may be secured by real estate, accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of commercial borrowers are monitored by the submission of corporate financial statements, personal

financial statements and income tax returns. The frequency of submissions of required financial information depends on the size and complexity of the credit and the collateral that secures the loan. It is our general policy to obtain personal guarantees from the principals of commercial loan borrowers.

Commercial Real Estate Loans.

At December 31, 2011 and December 31, 2010, our commercial real estate loan portfolio totaled $278.1 million and $329.5 million, respectively. The following table provides the components of commercial real estate loans ($ in millions):


	December 31, 2011					December 31, 2010
	Amount		% of Total			Amount		% of Total
Non Farm, Non Residential Owner Occupied	$	112.3		40.38	%	$	127.2		38.60	%
Non Farm, Non Residential NonOwner Occupied		123.3		44.34	%		135.8		41.20	%
Other Construction and Land Loans		42.5		15.28	%		66.5		20.20	%

Total	$	278.1		100.00	%	$	329.5		100.00	%

Commercial real estate loans are primarily secured by retail office buildings, multi-family construction projects, land, and general purpose business space. For construction loans, we lend to credit worthy customers, which may include builders who generally have been in business for a minimum of five years.

We seek to reduce the risks associated with commercial mortgage lending by targeting our market area and underwriting the property and the sponsor. The Bank’s policy states that the maximum loan to value limits are as follows: raw land—65%, land development—75%, and all other commercial real estate—80%. Any exception to the foregoing limits requires the approval of certain officers and/or the Bank’s loan committee.

Appraisals on properties securing commercial real estate loans originated by us are performed by an independent appraiser at the time the loan is made. In addition, our underwriting procedures generally require verification of the borrower’s credit history, income and financial condition, banking relationships, references and income projections for the property. We generally obtain personal guarantees for our commercial real estate loans, and analyze the guarantor’s global cash flow, personal financial statement and contingent liabilities.

Residential Real Estate Loans.

At December 31, 2011 and December 31, 2010, our residential real estate loan portfolio totaled $160.9 million and $203.5 million, respectively. The following table provides the components of residential real estate loans ($ in millions):


	December 31, 2011					December 31, 2010
	Amount		% of Total			Amount		% of Total
I-4 Family Residential Construction	$	2.8		1.74	%	$	5.2		2.56	%
Revolving open-end loans (home equity loans)		62.3		38.72	%		78.1		38.38	%
Closed-end loans secured by first liens		73.9		45.93	%		94.8		46.58	%
Closed-end loans secured by junior liens		2.9		1.80	%		3.4		1.67	%
Closed-end loans secured by multi-family		19.0		11.81	%		22.0		10.81	%

Total	$	160.9		100.00	%	$	203.5		100.00	%

Loans to individuals for the construction of their primary or secondary residences are secured by the property under construction.

The loan to value ratio of construction loans is based on the lesser of the cost to construct or the appraised value of the completed home. Construction loans typically have a maturity of 12 months. These construction loans to individuals may be converted to permanent loans upon completion of construction.

We require that a survey be conducted and title insurance be obtained, insuring the priority of our mortgage lien. Typically, the loan to value limit for first mortgage lending on residential real estate is 80% of the lesser of the acquisition cost or the estimate of fair market value.

Home equity loans (revolving open-end loans) are typically made in an amount up to 80% of the appraised value of the property securing the loan, less the amount of any existing liens on the property. Home equity loans typically have an original maturity of 10 years. Closed-end loans are primarily secured by liens on the property and have fixed terms and maturity dates which can extend up to 15 years. The interest rates on both home equity loans and closed-end loans can be either fixed or variable.

When originating a real estate loan, we obtain a new appraisal of the property from an independent third party to determine the adequacy of the collateral, and the appraisal will be independently reviewed by our loan administrators. Borrowers are required to obtain casualty insurance and, if applicable, flood insurance in amounts at least equal to the outstanding loan balance or the maximum amount allowed by law.

Installment, Consumer and Other Loans

At December 31, 2011 and December 31, 2010, our installment and consumer loan portfolio totaled $7.5 million and $12.9 million, respectively. The Bank offers a variety of installment, consumer, and other loans. These loans are typically secured by residential real estate, securities, and Bank certificates of deposit, or personal property, including automobiles and boats. These loans also include unsecured personal loans. The majority of the terms range from 12 months to 60 months.

Credit Administration.

The Bank’s lending activities are subject to written policies approved by the Board of Directors to ensure proper management of credit risk. Loans are subject to a defined credit process that includes credit evaluation of borrowers, risk-rating of credit, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. Regular portfolio reviews are performed to identify potential underperforming credits, estimate loss exposure, and ascertain compliance with the Bank’s policies. Management review consists of evaluation of the financial strengths of the borrower and the guarantor, the related collateral and the effects of economic conditions.

The Bank generally does not make commercial or consumer loans outside its market areas unless the borrower has an established relationship with the Bank and conducts its principal business operations within the Bank’s market areas. Consequently, the Bank and its borrowers are primarily affected by the economic conditions prevailing in its market areas.

Investment Activity.

The primary objective of our investment portfolio is to provide a source of liquidity. Subject to our liquidity objective, we seek to earn an acceptable rate of return through investments with a mixture of maturities and compositions. We seek to mitigate interest rate sensitivity; however, we manage our investment portfolio in the context of the Bank’s overall interest rate sensitivity. We seek to accomplish this by matching, to the greatest extent possible, the maturity of assets with liabilities.

We invest primarily in U.S. government and agency obligations, guaranteed as to principal and interest, and to a lesser extent, other high credit quality securities. We enter into federal funds transactions with our principal correspondent banks directly or as an agent.

Competition.

We operate in a highly competitive environment competing for deposits and loans with commercial banks, thrifts and other financial institutions, many of which have greater financial resources than us. Many large financial institutions compete for business in our service area. Certain of these institutions have significantly higher lending limits than we do and provide services to their customers that we do not offer.

We believe we are able to compete favorably with our competitors because we provide responsive, personalized services through our knowledge and awareness of our service area, customers and business.

The following table displays data provided by the FDIC regarding our competition in Hillsborough, Pinellas, Sarasota, Manatee, Duval, St. Johns and Leon counties, Florida (our primary market areas), as of June 30, 2011, the latest date for which data was available:


County	Number of Insured Financial Institutions		Number of Retail Branches		Our Deposit Market Share
Hillsborough		55		319		1.23	%
Pinellas		38		311		0.77	%
Sarasota		42		180		0.38	%
Manatee		31		130		0.48	%
Duval		31		199		0.13	%
St. Johns		21		61		1.22	%
Leon		18		92		1.23	%

Interest rates, both on loans and deposits, and prices of fee-based services are significant competitive factors among financial institutions generally. Other important competitive factors include office location, office hours, the quality of customer service, community reputation, continuity of personnel and services, and, in the case of larger commercial customers, relative lending limits and the ability to offer sophisticated cash management and other commercial banking services. Many of our larger competitors have greater resources, broader geographic markets, more extensive branch networks, and higher lending limits than we do. They also can offer more products and services and can better afford and make more effective use of media advertising, support services and electronic technology than we can.

Our largest competitors in the market include: Bank of America, Wells Fargo, SunTrust, BB&T, Regions Financial, and Fifth Third. These institutions capture the majority of the deposits. We compete against these financial institutions by being convenient to do business with, by taking the time to listen and understand our clients’ needs. We believe that further consolidation in the banking industry is likely to create additional opportunities for community banks to capture deposits from affected customers who may become dissatisfied as their financial institutions grow larger.

Marketing and Distribution.

In order to market our deposit and loan products, we rely heavily on word of mouth and direct customer contact calling efforts. In addition, our Board of Directors and management team realize the importance of forging partnerships within the community as a method of expanding our customer base and serving the needs of our community. In this regard, we are an active participant in various community activities and organizations. Participation in such events and organizations allows management to determine what additional products and services are needed in our community as well as assisting in our efforts to determine credit needs in accordance with the Community Reinvestment Act.

In addition to our direct contact marketing methods, we use limited local print advertising, product brochures, and direct mail to build our customer base.

Employees.

As of December 31, 2011, we employed 135 full-time employees and 6 part-time employees. Our employees are not represented by a collective bargaining unit. We consider relations with our employees to be good.

Regulatory Considerations.

We must comply with state and federal banking laws and regulations that control virtually all aspects of our operations. These laws and regulations generally aim to protect our depositors, not our shareholders or our creditors. Any changes in applicable laws or regulations may materially affect our business and prospects. Such legislative or regulatory changes may also affect our operations. The following description summarizes some of the laws and regulations to which the Bank and we are subject.

The Company.

We are registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act of 1956, or BHCA. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the BHCA, and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crises.

As we discuss in the Management’s Discussion and Analysis section of this Form 10-K, the global and U.S. economies continue to experience significantly reduced business activity as a result of, among other factors, disruptions in the financial system in the past several years. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted into law. The Dodd-Frank Act will have a broad impact on the financial services industry, including potentially significant regulatory and compliance changes including, among other things, (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) potential changes to capital and liquidity requirements; (3) changes to regulatory examination fees; (4) changes to assessments to be paid to the FDIC for federal deposit insurance; and (5) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Board of Governors of the Federal Reserve System, or the Federal Reserve, the Office of the Comptroller of the Currency, or the OCC, and the FDIC. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations, or principles or changes thereto, may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors and shareholders.

The following items provide a brief description of the impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively.

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Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will be no lower than existing regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies. Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations. The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase the Company’s cost of operations.

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The Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent Consumer Financial Protection Bureau, or the Bureau, within the Federal Reserve. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. Generally, we will not be directly subject to the rules and regulations of the Bureau. However, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against certain state-chartered institutions. Any such new regulations could increase our cost of operations and, as a result, could limit our ability to expand into these products and services.

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Deposit Insurance. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the FDIC’s Deposit Insurance Fund, or the DIF, will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. Several of these provisions could increase the FDIC deposit insurance premiums paid by us. The Dodd-Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits.

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Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

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Transactions with Insiders. Insider transaction limitations are expanded through the strengthening on loan restrictions to insiders and the expansion of the types of transactions subject to the various limits.

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Restricts Lending Limits. The Dodd-Frank Act broadens the existing limits on a depository institution’s credit exposure to one borrower. Current banking law limits a depository institution’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

Permitted Activities.

In 1999, the Gramm-Leach-Bliley Act was enacted, which amended the BHCA by: (i) allowing bank holding companies that qualify as “financial holding companies” to engage in a broad range of financial and related activities; (ii) allowing insurers and other financial service companies to acquire banks; (iii) removing

restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies; and (iv) establishing the overall regulatory scheme applicable to bank holding companies that also engage in insurance and securities operations.

In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. As a bank holding company, these restrictions apply to us. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.

Capital; Dividends; Source of Strength.

The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “Capital Regulations.”

In accordance with Federal Reserve policy, we are expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which we might not otherwise do so. In furtherance of this policy, the Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

The Bank.

The Bank is a banking institution that is chartered by and headquartered in the State of Florida, and it is subject to supervision and regulation by the Florida Office of Financial Regulation and the Federal Reserve, and is subject to other laws and regulations applicable to banks. The Florida Office of Financial Regulation and the Federal Reserve supervise and regulate all areas of the Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of branches.

Dividends.

The Bank is subject to legal limitations on the frequency and amount of dividends that can be paid to us. The Federal Reserve has restricted the ability of the Bank to pay dividends. These regulations and restrictions may limit our ability to obtain funds from the Bank for our cash needs, including funds for the payment of dividends, interest, and operating expenses.

In addition, Florida law also places certain restrictions on the declaration of dividends from state chartered banks to their holding companies. Pursuant to the Florida Financial Institutions Code, the Board of Directors of state chartered banks, after charging off bad debts, depreciation and other worthless assets, if any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly, semi-annually or

annually declare a dividend of up to the aggregate net profits of that period combined with the bank’s retained net profits for the preceding two years and, with the approval of the Florida Office of Financial Regulation, declare a dividend from retained net profits that accrued prior to the preceding two years. Before declaring any dividends, 20% of the net profits for the preceding period as is covered by the dividend must be transferred to the surplus fund of the bank until this fund becomes equal to the amount of the bank’s common stock then issued and outstanding. The bank may not declare any dividend if (i) its net income from the current year combined with the retained net income for the preceding two years is a loss or (ii) the payment of a dividend would cause the capital account of the bank to fall below the minimum amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a federal regulatory agency.

The Company and the Bank have entered into a Regulatory Agreement in which, among other things, they have agreed not to pay any dividends without the prior approval of the Federal Reserve. See, “Description of Business—Regulatory Considerations—Regulatory Agreement.”

Community Reinvestment Act.

The Community Reinvestment Act and its corresponding regulations are intended to encourage banks to help meet the credit needs of their service area, including low and moderate income neighborhoods, consistent with the safe and sound operations of the banks. These regulations provide for regulatory assessment of a bank’s record in meeting the needs of its service area. Federal banking agencies are required to make public a rating of a bank’s performance under the Community Reinvestment Act. The FDIC considers a bank’s Community Reinvestment Act rating when the bank submits an application to establish branches, merge, or acquire the assets and assume the liabilities of another bank. In the case of a bank holding company, the Community Reinvestment Act performance record of all banks involved in the merger or acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other bank holding company. An unsatisfactory record can substantially delay or block the transaction. In its most recent CRA examination, the Bank received a CRA rating of “satisfactory.”

Capital Regulations.

The federal banking regulators, including the FDIC, have adopted risk-based capital adequacy guidelines for bank holding companies and their subsidiary state-chartered banks. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and financial holding companies, to account for off-balance sheet exposure, to minimize disincentives for holding liquid assets and to achieve greater consistency in evaluating the capital adequacy of major banks throughout the world. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with designated weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

Federal laws and regulations establish a capital-based regulatory scheme designed to promote early intervention for troubled banks and require the FDIC to choose the least expensive resolution of bank failures. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements, including “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized.” To qualify as a “well-capitalized” institution, a bank must have a leverage ratio of no less than 5%, a Tier I risk-based ratio of no less than 6%, and a total risk-based capital ratio of no less than 10%, and the bank must not be under any order or directive from the appropriate regulatory agency to meet and maintain a specific capital level. Generally, a financial institution must be “well capitalized” before the Federal Reserve will approve an application by a bank holding company to acquire or merge with a bank or bank holding company. At December 31 2011, The Bank’s Tier I capital and total capital ratios were 9.51% and 10.79%, respectively, and its leverage capital ratio was 6.21%.

Under the regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound

condition or is engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible activities of the institution will decrease, as it moves downward through the capital categories. Institutions that fall into one of the three undercapitalized categories may be required to (i) submit a capital restoration plan; (ii) raise additional capital; (iii) restrict their growth, deposit interest rates, and other activities; (iv) improve their management; (v) eliminate management fees; or (vi) divest themselves of all or a part of their operations. Bank holding companies controlling financial institutions can be called upon to boost the institutions’ capital and to partially guarantee the institutions’ performance under their capital restoration plans. The minimum ratios referred to above are merely guidelines and the bank regulators possess the discretionary authority to require higher ratios. For a discussion of the Bank’s capital requirements, see “Regulatory Considerations—Regulatory Memorandum.”

Bank Secrecy Act/ Anti-Money Laundering.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) was enacted in response to the terrorist attacks occurring on September 11, 2001. The USA PATRIOT Act is intended to strengthen the U.S. law enforcement and intelligence communities’ ability to work together to combat terrorism. Title III of the USA PATRIOT Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, amended the Bank Secrecy Act and adopted additional provisions that increased the obligations of financial institutions, including the Bank, to file reports and maintain records, to identify their customers, watch for and report upon suspicious transactions, respond to requests for information by federal banking and law enforcement agencies, and share information with other financial institutions. In addition, the collected customer identification information must be verified within a reasonable time after a new account is opened through documentary or non-documentary methods.

In 2007, the FDIC and the other federal financial regulatory agencies issued an interagency policy on the application of section 8(s) of the Federal Deposit Insurance Act. This provision generally requires each federal banking agency to issue an order to cease and desist when a bank is in violation of the requirement to establish and maintain a Bank Secrecy Act/anti-money laundering (BSA/AML) compliance program, or, in the alternative, the bank fails to correct a deficiency that has been previously cited by the federal banking agency with respect to the bank’s BSA/AML compliance program. The policy statement provides that, in addition to the circumstances where the agencies will issue a cease and desist order in compliance with section 8(s), they may take other actions as appropriate for other types of BSA/AML program concerns or for violations of other BSA requirements. The policy statement also does not address the independent authority of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network to take enforcement action for violations of the BSA.

Fair and Accurate Credit Transaction Act of 2003.

The Fair and Accurate Credit Transaction Act of 2003, which amended the Fair Credit Reporting Act, enhances consumers’ ability to combat identity theft, increases the accuracy of consumer reports, allows consumers to exercise greater control over the type and amount of marketing solicitations they receive, restricts the use and disclosure of sensitive medical information, and establishes uniform national standards in the regulation of consumer reporting.

In 2007, the Federal Reserve and the other federal financial regulatory agencies together with the U.S. Department of the Treasury and the Federal Trade Commission issued final regulations (Red Flag Regulations) enacting Sections 114 and 315 of the Fair and Accurate Credit Transaction Act of 2003. The Red Flag Regulations require banks to have identity theft policies and programs in place. The Red Flag Regulations require banks to develop and implement an identity theft protection program for combating identity theft in connection with new and existing consumer accounts and other accounts for which there is a reasonably foreseeable risk of identity theft.

Consumer Laws and Regulations.

The Bank is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in transactions with banks. While the following list is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, Check Clearing for the 21^st Century Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

Future Legislative Developments.

Various legislative acts from time to time are introduced in Congress and the Florida legislature. This legislation may change banking statutes and the environment in which we and the Bank operate in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would have upon our financial condition or results of operations or that of the Bank.

Effect of Governmental Monetary Policies.

The commercial banking business in which the Bank engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign branches and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. The monetary policies of the Federal Reserve are influenced by various factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings of the Bank cannot be predicted.

Income Taxes.

We are subject to income taxes at the federal level and subject to state taxation in Florida. We file consolidated federal and state tax returns with a fiscal year ending on December 31.

Regulatory Agreement.

During 2010, the Federal Reserve Bank of Atlanta (the “FRB”) conducted a periodic examination of the Bank and as a consequence of this examination, entered into a Written Agreement (the “Regulatory Agreement”) with the Company, effective March 1, 2011. The Regulatory Agreement, among other requirements, provides that the Company’s Board of Directors will take steps to ensure that the Bank complies with the agreement and will strengthen its oversight of the management and operations of the Bank. In addition, the Regulatory Agreement provides that the Bank:

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Will within 60 days of the Regulatory Agreement, submit to the FRB a written plan to strengthen Board oversight and also credit risk management practices;

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Will revise its lending and credit administration policies and procedures;

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Will submit to the FRB an acceptable written program to ensure the accurate grading of loans and to ensure independent loan portfolio reviews;

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Will not extend or renew credit to borrowers with criticized loans without the prior approval of the majority of the board of directors or a designated committee thereof;

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Will submit a revised business plan to improve its earnings and overall condition;

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Will not declare or pay any dividends or take any other form of payment representing a reduction in capital from the Bank without prior regulatory approval;

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Will not incur, increase or guarantee any debt or redeem any shares without prior regulatory approval;

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Will not appoint any new directors or senior executive officers without prior regulatory approval;

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Will review and revise its ALLL methodology consistent with relevant supervisory guidance, and;

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Will submit an acceptable enhanced written internal audit program that addresses a variety of internal risk assessment and audit program activities.

The Company and the Bank have agreed to submit an acceptable plan to maintain sufficient capital at the Bank as a separate legal entity on a stand-alone basis, not declare or pay any dividends without the prior approval of the Federal Reserve, comply with restrictions on indemnification and severance payments under applicable law, and seek the approval of the Federal Reserve before the appointment of any new director or executive officer. In addition, the Company has agreed that it:

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Will submit to the Federal Reserve an acceptable plan to maintain sufficient capital at the Company on a consolidated basis; and

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Will not incur or increase any debt, or purchase or redeem any of its shares without the prior approval of the Federal Reserve.

The Company took all the necessary actions to promptly address the requirements of the Regulatory Agreement and as of December 31, 2011, it was compliant with the requirements of the Regulatory Agreement.

Regulatory Memorandum

On January 26, 2012, the Board of Directors of the Bank approved a Memorandum of Understanding (the “Memorandum”) which represents an agreement between the Board and the Director of the Division of Financial Institutions of the OFR whereby the Bank agreed that it will move in good faith to comply with the requirements of the Memorandum. Nearly all of the provisions of the Memorandum have requirements that are not materially different from those in the Written Agreement. However, the individual provisions in the Memorandum and in the Written Agreement, which address a capital plan, differ in that the provision in the Written Agreement requires the Bank to submit a plan to maintain sufficient capital and be in compliance with Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure and Tier 1 Leverage Measures (but does not specify a specific Tier 1 Leverage or Total Risk Based Capital ratio). The capital provision in the Memorandum requires the Bank to submit a capital plan to the OFR that provides for raising and maintaining a Tier 1 Leverage Capital ratio of not less than 8% and a Total Risk Based Capital ratio of not less than 12%, or, submit a capital plan in accordance with the Written Agreement that is referenced above. At December 31, 2011, the Bank had a Tier 1 Leverage Capital Ratio of 6.21% and a Total Risk Based Capital Ratio of 10.79%.

Item 1A.

Risk Factors

We have identified risk factors described below, which should be viewed in conjunction with the other information contained in this document and information incorporated by reference, including our consolidated financial statements and related notes. If any of the following risks or other risks which have not been identified or which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results of operations could be harmed. As previously noted, this report contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions, and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in the forward-looking statements.

Risks Related to our Business.

Regulatory Risks

Difficult market conditions and economic trends have adversely affected our industry and our business and may lead to increased government regulation.

Dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in increased write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. During the past few years, financial institutions have experienced decreased access to deposits and borrowings.

The resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets may adversely affect our business, financial condition and results of operations.

Our ability to assess the creditworthiness of customers and to estimate the losses inherent in our credit exposure is made more complex by these difficult market and economic conditions. We also expect to face increased regulation and government oversight as a result of these downward trends. This increased government action may increase our costs and limit our ability to pursue certain business opportunities. We also may be required to pay even higher FDIC premiums than the recently increased level, because financial institution failures resulting from the depressed market conditions have depleted and may continue to deplete the deposit insurance fund and reduce its ratio of reserves to insured deposits.

We are not certain how much these difficult conditions will improve in the near future. A continuation or worsening of these conditions would likely exacerbate the adverse effects of these difficult economic conditions on us, our customers and the other financial institutions in our market. As a result, we may experience increases in foreclosures, delinquencies and customer bankruptcies, as well as more restricted access to funds.

Recent legislative and regulatory initiatives may not improve economic conditions.

The U.S. federal, state and foreign governments have taken extraordinary actions in an attempt to deal with the worldwide financial crisis and the severe decline in the global economy. To the extent adopted, many of these actions have been in effect for only a limited time, and have produced limited or no relief to the capital, credit and real estate markets. There is no assurance that these actions or other actions under consideration will ultimately be successful.

As discussed below, the Dodd-Frank Act was enacted in 2010 to address numerous issues in the financial services industry. There can be no assurance that these initiatives or any other legislative or regulatory initiatives

enacted or adopted in response to the ongoing economic crisis, will be effective at dealing with the ongoing economic crisis and improving economic conditions globally, nationally or in our markets or that the measures adopted will not have adverse consequences.

We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation, supervision, and legislation that govern almost all aspects of our operations. Intended to protect customers, depositors and deposit insurance funds, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, and limit the dividends or distributions that the Bank can pay to the Holding Company. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. Further, our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to additional restrictions on its business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted into law. The Dodd-Frank Act will have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, include, among others:

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a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;

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increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

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the limitation on our ability to raise capital through the use of trust preferred securities, as these securities may no longer be included as Tier 1 capital going forward; and

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the limitation on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations.

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

Our current operations and activities are subject to heightened regulatory oversight which may negatively impact our business and results of operations.

In March 2011, the Company and the Federal Reserve entered into a Regulatory Agreement and in January 2012, the Bank and the OFR entered into a Memorandum of Understanding. See, “Description of Business—Regulatory Considerations—Regulatory Agreement.”

As a result of the Regulatory Agreement and the Memorandum of Understanding, our operations, lending activities and capital levels are subject to heightened regulatory oversight, over and above the extensive regulation which normally applies to us under existing regulations, which could increase our expenses and could negatively impact our business. In addition, failure to comply with these heightened requirements could lead to additional regulatory actions, expenses and other restrictions.

We are subject to restrictions as a result of our participation in the U.S Treasury’s Capital Purchase Program.

We voluntarily participated in the TARP Capital Purchase Program and are subject to various restrictions as defined therein, including standards for executive compensation and corporate governance for as long as the Treasury holds our Series A and B Preferred Stock. These standards generally apply to our Chief Executive Officer, Chief Financial Officer and the three next most highly compensated senior executive officers. The standards include (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on making golden parachute payments to senior executives; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

Pursuant to the American Recovery and Reinvestment Act of 2009, further compensation restrictions, including significant limitations on incentive compensation and “golden parachute” payments, have been imposed on our most highly compensated employees, which may make it more difficult for us to retain and recruit qualified personnel, which could negatively impact our business, financial condition and results of operations.

Regulatory restrictions on hiring, compensating and indemnifying directors and senior executive officers may adversely affect us.

The Federal Reserve and Florida Office of Financial Regulation require us to seek approval before electing any new directors or senior executive officers. Such hiring restrictions and inability to indemnify, and to pay any such persons “golden parachute” payments upon the termination of their service, may adversely affect our ability to attract or retain the qualified persons we need to operate our business.

Other Business Risk

Changes in business and economic conditions, in particular those of the Florida markets in which we operate, could continue to lead to lower asset quality, and lower earnings.

Unlike larger national or regional banks that are more geographically diversified, our business and earnings are closely tied to more local business and economic conditions, particularly the economy of Florida. The Florida economy is heavily influenced by real estate and other service-based industries. Factors that could affect the local economy include a rise in unemployment, declines in tourism, higher energy costs, reduced consumer or corporate spending, natural disasters or adverse weather, the recent and possibly continuing significant decline in real estate values and the recent significant deterioration in general economic conditions. Evidence of the economic downturn in Florida is reflected in current unemployment statistics. The Florida unemployment rate at December 31, 2011 was 9.9%. The unemployment rate, as of December 31, 2011, for each of the counties in which we operate was as follows: Hillsborough—9.5%; Pinellas—9.8%; Manatee—9.8%; Duval—9.5%; St. Johns—8.3% and Leon—7.6%. A worsening of the economic conditions in Florida would likely exacerbate the adverse effects of these difficult market conditions on our customers, which may have a negative impact on our financial results. A sustained economic downturn could continue to adversely affect the quality of our assets, credit losses, and the demand for our products and services, which would lead to lower revenue and lower earnings. We monitor the value of collateral, such as real estate, that secures loans we have made. A decline in the value of collateral could also reduce a customer’s borrowing power.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption over the past several years. If current levels of market disruption and volatility continue or worsen, our ability to access capital and our business, financial condition and results of operations may be adversely affected.

The loss of key personnel may adversely affect us.

Our success is, and is expected to remain, highly dependent on our senior management team. . The loss of such employees could adversely affect our ability to successfully conduct our business, which could have an adverse effect on our financial results and the value of our common stock.

Our prospects are dependent upon the validity and implementation of our business plan.

Our future prospects will be dependent upon whether we realize the anticipated growth opportunities from the successful execution of our business plan. Even if the business plan can be implemented successfully, this may not result in the realization of the expected benefits. Even if these benefits are achieved, they may not be achieved within the near term. Failure to manage growth effectively in the future could have an adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy.

An inadequate allowance for loan losses would reduce our earnings.

Our success depends to a significant extent upon the quality of our assets, particularly loans. In originating loans, there is a substantial risk that credit losses will be experienced. The risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for the loan. Management maintains an allowance for loan losses based on, among other things, anticipated experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for probable incurred credit losses based upon recent loss history and for specific loans when their ultimate collectability is considered questionable.

As of December 31, 2011, our allowance for loan losses was $19.5 million, which represented approximately 4.1% of total loans. The allowance may not prove sufficient to cover future loan losses. Although management uses the information it has available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Accordingly, the allowance for loan losses may not be adequate to cover loan losses or significant increases to the allowance may be required in the future if economic conditions should worsen. Material additions to our allowances for loan losses would adversely impact our net income and capital.

Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition.

At December 31, 2011, our nonperforming assets (which include nonperforming loans of $40.0 million and foreclosed real estate of $6.7 million) were $46.7 million or 6.4% of total assets. In addition, we had approximately $2.6 million in accruing loans that were 30 to 89 days delinquent at December 31, 2011. Our non-performing assets adversely affect our net income in various ways. While economic and market conditions, such as local and state unemployment rates have slightly improved over the prior year, we still could incur additional losses relating to non-performing loans. We do not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting our income, and increasing our loan administration costs.

When we take collateral in foreclosures and similar proceedings, we are required to mark the collateral to its then fair value less expected selling costs, which, when compared to the principal amount of the loan, may result in a loss. These non-performing loans and other real estate owned also increase our risk profile and the capital our regulators believe is appropriate in light of such risks. The resolution of nonperforming assets requires significant commitments of time from management and our directors, which can be detrimental to the performance of their other responsibilities. There can be no assurance that we will not experience further increases in nonperforming loans in the future or that our nonperforming assets will not result in future losses. Management believes that loans in the residential, construction, land development and commercial real estate categories pose the greatest risks looking forward.

Some of our borrowers will not repay their loans, and losses from loan defaults may exceed the allowance we establish for that purpose, which may have an adverse effect on our business.

Some of our borrowers inevitably will not repay loans that we make to them. There was a significant rise in the number of foreclosures in Florida, particularly in our market areas, over the past several years. This risk is inherent in the banking business. If a significant number of loans are not repaid, it would have an adverse effect on our earnings and overall financial condition.

Our loan portfolio includes a substantial amount of commercial and commercial real estate loans that have higher risks.

Our commercial and commercial real estate loans at December 31, 2011 and December 31, 2010 were $311.7 million and $377.0 million, respectively, or 64.9% and 63.5% of total loans, respectively. Commercial and commercial real estate loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. As a result, banking regulators continue to give greater scrutiny to lenders with a high concentration of commercial real estate loans in their portfolios, and such lenders are expected to implement stricter underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher capital levels and loss allowances. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans.

During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”). The Guidance defines commercial real estate loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. This could include enhanced strategic planning, underwriting policies, risk management, internal controls, portfolio stress testing and risk exposure limits as well as appropriately designed compensation and incentive programs. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered when either:

•

total reported loans for construction, land development, and other land constitute 100% or more of a bank’s total risk based capital (at December 31, 2011 and December 31, 2010, the Bank had a ratio of 75.5% and 97.7%, respectively); or

•

total reported loans secured by multifamily and nonfarm nonresidential non-owner properties and loans for construction, land development, and other land constitute 300% or more of a bank’s total risk-based capital (at December 31, 2011 and December 31, 2010, the Bank had a ratio of 350.6% and 341.0%, respectively).

The Guidance applies to the lending activities of the Bank. Although our regulators have not required us to maintain elevated levels of liquidity due to our commercial real estate loan concentrations, they may do so in the future, especially if there is a further downturn in our local real estate markets.

In addition, when underwriting a commercial or industrial loan, the Bank may take a security interest in commercial real estate, and, in some instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to potential financial risks for us under applicable environmental laws. If hazardous substances were discovered on any of these properties, we may be liable to governmental agencies or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether the Bank knew of, or was responsible for, the contamination.

Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate or commercial project. If the cash flows from the project are reduced, a borrower’s ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, the Bank may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may, to a greater extent than residential loans, be subject to adverse conditions in the real estate market or economy.

We may need additional capital resources in the future and these capital resources may not be available when needed or at all. If we do raise additional capital, stockholders’ ownership could be diluted.

We may need to seek additional equity financing in the future to maintain our operations. Such financing may not be available to us on acceptable terms or at all. Further, our Articles of Incorporation do not provide shareholders with preemptive rights and such shares may be offered to investors other than shareholders at the discretion of the Board. If we do sell additional shares of common stock to raise capital, the sale could dilute stockholders’ ownership interest and such dilution could be substantial.

We may incur losses if we are unable to successfully manage interest rate risk.

Our profitability depends to a large extent on our net interest income, which is the difference between income on interest-earning assets such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and the Bank’s borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Our net interest income may be reduced if: (i) more interest-earning assets than interest-bearing liabilities re-price or mature during a time when interest rates are declining or (ii) more interest-bearing liabilities than interest-earning assets re-price or mature during a time when interest rates are rising.

Changes in the difference between short- and long-term interest rates may also harm our business. For example, short-term deposits may be used to fund longer-term loans. When differences between short-term and long-term interest rates shrink or disappear, as is possible in the current exceptionally low interest rate policy environment, the spread between rates paid on deposits and received on loans could narrow significantly, decreasing our net interest income.

If market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable rate loans, thereby reducing our net interest income.

Our loan portfolio includes loans with a higher risk of loss, particularly because our loan portfolio is heavily concentrated in loans secured by properties in Florida.

We originate commercial real estate loans, commercial loans, construction loans, consumer loans, and residential mortgage loans primarily within our market area. We believe that our commercial real estate,

including construction loans, commercial, and consumer loans present the largest risk to our loan portfolio. Commercial real estate, including construction, and commercial loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. These loans also have greater credit risk for the following reasons:

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Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on the borrower being able to either refinance the loan or timely sell the underlying property.

•

Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, illiquid, or fluctuate in value based on the success of the business.

•

Construction Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate, which is possible as real estate prices continue to decrease, or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral.

These risks inherent in our loan portfolio are exacerbated by the geographic concentration of our loan portfolio. Our interest-earning assets are heavily concentrated in loans secured by real estate, particularly real estate located in Florida. As of December 31, 2011, approximately 91.4% of our loans had real estate as a primary, secondary, or tertiary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower; however, the value of the collateral may decline during the time the credit is outstanding, and, therefore, the collateral may become insufficient to protect us from substantial losses. If we are required to liquidate the collateral securing a loan during a period of reduced real estate values, such as in today’s market, to satisfy the debt, our earnings and capital could be adversely affected.

Additionally, as of December 31, 2011 substantially all of our loans secured by real estate are secured by commercial and residential properties located in Hillsborough, Pinellas, Sarasota, Manatee, Duval, St. Johns and Leon counties, Florida. The concentration of our loans in these areas subjects us to the risk that a continued downturn in the economy in these areas, such as the one the areas are currently experiencing, could result in a decrease in loan originations and increases in delinquencies and foreclosures, which would more greatly affect us than if our lending were more geographically diversified. In addition, since a large portion of our portfolio is secured by properties located in Florida, the occurrence of a natural disaster, such as a hurricane, or oil spill, could result in a decline in loan originations, a decline in the value or destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer losses if there is a decline in the value of the properties underlying our mortgage loans, which would have an adverse impact on our operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could negatively impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, adverse regulatory action against us, and our inability to attract and retain deposits. Our ability to borrow could be impaired by factors that are not specific to us, such as a disruption

in the financial markets or negative views and expectations about the prospects for the financial services industry in light of recent turmoil faced by banking organizations and the unstable credit markets.

Concerns of customers over deposit insurance may cause a decrease in our deposits.

With increased concerns about bank failures, customers are increasingly concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits from the Bank in an effort to ensure that the amount that they have on deposit at the Bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income.

Future economic growth in our Florida market area is likely to be slower compared to previous years.

The State of Florida’s population growth historically exceeded national averages. Consequently, until several years ago, the state experienced substantial growth in population, new business formation and public works spending. Due to the recent economic recession and reduced migration into our market area and the downturn in the real estate market, management believes that growth in our market area will be restrained in the near term. We have experienced an overall slowdown in the origination of residential mortgage loans for sale recently due to the slowing in residential real estate sales activity in our markets. A decrease in existing and new home sales decreases lending opportunities and negatively affects our income. We do not anticipate that the housing market will improve in the near-term, and accordingly, this could lead to additional valuation adjustments on our loan portfolios.

The market value of our investments could decline.

Our investment securities portfolio as of December 31, 2011 has been designated as available-for-sale, which requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in shareholders’ equity as accumulated other comprehensive income. At December 31, 2011, we maintained $149.2 million or 100% of our total securities as available-for-sale. Shareholders’ equity will continue to reflect the unrealized gains and losses of these investments. The market value of our investment portfolio may decline, causing a corresponding decline in shareholders’ equity. Management believes that several factors will affect the market values of our investment portfolio. These include, but are not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between shorter-term and longer-term interest rates; a positively sloped yield curve means shorter-term rates are lower than longer-term rates). These and other factors may impact specific categories of the portfolio differently, and we cannot predict the effect these factors may have on any specific category.

The Bank and we are subject to extensive governmental regulation.

The Bank and we are subject to extensive governmental regulation that is intended primarily to protect depositors and the FDIC’s Deposit Insurance Fund, rather than our shareholders. We, as a bank holding company, are regulated primarily by the Federal Reserve. The Bank is a commercial bank chartered by the State of Florida and regulated by the Federal Reserve and the Florida Office of Financial Regulation. These federal and state bank regulators have the ability, should the situation require, to place significant regulatory and operational restrictions upon us and the Bank. The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. A significant claim against us under these laws could have a material adverse effect on our results.

The banking industry is very competitive.

The banking business is highly competitive and the Bank competes directly with financial institutions that are more established and have significantly greater resources and lending limits. As a result of those greater

resources, the larger financial institutions may be able to provide a broader range of products and services to their customers than us and may be able to afford newer and more sophisticated technology than us. Our long-term success will be dependent on the ability of the Bank to compete successfully with other financial institutions in their service areas.

Reputational risk and social factors may negatively impact us.

Our ability to attract and retain depositors and customers is highly dependent upon consumer and other external perceptions of either or both of our business practices and financial condition. Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining deposit accounts, accessing credit markets and increased regulatory scrutiny on our business. Borrower payment behaviors also affect us. To the extent that borrowers determine to stop paying on their loans where the financed properties’ market values are less than the amount of their loan, or otherwise, our costs and losses may increase. Adverse developments or perceptions regarding the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely impact our reputation.

In addition, adverse reputational impacts on third parties with whom we have important relationships may also adversely impact our reputation. All of the above factors may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we engage with our customers and the products we offer and may also increase our litigation risk. If these risks were to materialize they could negatively impact our business, financial condition and results of operations.

Florida financial institutions, such as the Bank, face a higher risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Since September 11, 2001, banking regulators have intensified their focus on anti-money laundering and Bank Secrecy Act compliance requirements, particularly the anti-money laundering provisions of the USA PATRIOT Act. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (“OFAC”). Since 2004, federal banking regulators and examiners have viewed Florida as a high risk market with respect to the institutions’ Bank Secrecy Act/Anti-Money Laundering compliance. Consequently, while numerous formal enforcement actions have been issued against Florida financial institutions, to date, none has been issued against the Bank relating to the Bank Secrecy Act.

In order to comply with regulations, guidelines and examination procedures in this area, the Bank has been required to adopt policies and procedures and to install systems. If the Bank’s policies, procedures and systems are deficient or the policies, procedures and systems of the financial institutions that we may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on the Bank’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. In addition, because the Bank operates in Florida, the Bank could face a higher risk of noncompliance and enforcement action with respect to the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Confidential customer information transmitted through the Bank’s online banking service is vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and adversely affect their reputation and ability to generate deposits.

The Bank provides its customers the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking. The Bank’s networks could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems. The Bank may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that the Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches

and viruses could expose the Bank to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

We cannot predict how changes in technology will impact our business.

We use various technologies in our business, including telecommunication, data processing, computers, automation, internet-based banking, and debit cards. Technology changes rapidly. Our ability to compete successfully with other banks and non-banks may depend on whether we can exploit technological changes. We may not be able to exploit technological changes, and any investment we do make may not make us more profitable.

Risks Related to an Investment in our Common Stock.

There is no established trading market for our common stock and shareholders may not be able to resell your shares.

The shares of our common stock are not currently traded on any securities exchange and do not have an established trading market. Although our shares are registered with the SEC under Section 12 of the Exchange Act, this does not mean that our common stock will be listed or traded on a securities exchange. We currently have no immediate plans to apply to list our common stock on any exchange and we do not expect our common stock to be quoted on an over-the-counter quotation system such as the “pink sheets.”

Our management holds a large portion of our common stock.

As of December 31, 2011, our directors and executive officers owned 9,006,882 shares of our common stock, or approximately 49.27% of our total outstanding shares, assuming all of their vested options are exercised. As a result, our directors and management, if acting together, may be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of extraordinary transactions. Management may also have interests that differ from other stockholders and may vote in a way that is adverse to other stockholders’ interests. The concentration of ownership may delay, prevent or deter a change-in-control, could deprive our shareholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

Articles of Incorporation, and certain laws and regulations may prevent or delay transactions you might favor, including our sale or merger.

We are registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Bank Holding Company Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Provisions of our Articles of Incorporation, certain laws and regulations and various other factors may make it more difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is possible, however, that other stockholders would want a takeover attempt to succeed because, for example, a potential buyer could offer a premium over the then prevailing price of our common stock.

For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareholder action. The ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer, merger, proxy contest or otherwise. We are also subject to certain provisions of the Florida Business Corporation Act and our Articles of Incorporation that relate to business combinations with interested shareholders.

We are subject to evolving and expensive corporate governance regulations and requirements. Our failure to adequately adhere to these requirements or the failure or circumvention of our controls and procedures could seriously harm our business.

We are subject to certain federal, state and other rules and regulations, including applicable requirements of the Sarbanes-Oxley Act of 2002. Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention, particularly with regard to disclosure controls and procedures and internal control over financial reporting. Although we have reviewed our disclosure and internal controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.

We have not paid cash dividends to our common shareholders and have no plans to pay future cash dividends to our common shareholders.

Since we have not generated net income over the past several years, we have no current plans to pay cash dividends to our common shareholders. In addition, the terms of our Preferred Stock, held by the Treasury, preclude us from paying cash dividends on our shares of common stock. Because we have not paid cash dividends, holders of our common stock will experience a gain on their investment in our common stock only in the case of an appreciation of value of our common stock. Stockholders may not experience an appreciation in value.

Our preferred shares, held by the Treasury, impact net income available to our common shareholders and our earnings per share

As long as there is Preferred Stock held by the Treasury outstanding, no dividends may be paid on our common stock unless all dividends on the preferred shares have been paid in full. The dividends declared on our Preferred Stock will reduce the net income available to common shareholders and our earnings per common share.

Holders of the Preferred Stock have certain voting rights that may adversely affect our common shareholders, and the holders of shares of our Preferred Stock may have different interests from, and vote their shares in a manner deemed adverse to, our common shareholders.

So long as shares of the Preferred Stock held by the Treasury are outstanding, in addition to any other vote or consent of shareholders required by law or our amended and restated charter, the vote or consent of holders owning at least 66 ^2/3% of the shares of Preferred Stock outstanding is required for:

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any authorization or issuance of shares ranking senior to the Preferred Stock;

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any amendment to the rights of the Preferred Stock so as to adversely affect the rights, preferences, privileges or voting power of the Preferred Stock; or

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consummation of any merger, share exchange or similar transaction unless the shares of Preferred Stock remain outstanding, or if we are not the surviving entity in such transaction, are converted into or exchanged for preference securities of the surviving entity and the shares of Preferred Stock remaining outstanding or such preference securities have such rights, preferences, privileges and voting power as are not materially less favorable to the holders than the rights, preferences, privileges and voting power of the shares of Preferred Stock. Holders of Preferred Stock could block the foregoing transaction, even where considered desirable by, or in the best interests of, holders of our common stock.

We are not paying dividends on our preferred stock and the failure to resume paying dividends on our preferred stock may adversely affect us.

At December 31, 2011, we had $1.5 million in unpaid dividends owing on our Preferred Stock held by the Treasury. As of February 29, 2012, we have missed six quarterly dividend payments, which gives the Treasury the right to appoint two directors and/or observers to our board of directors until all accrued but unpaid dividends have been paid. No new directors have been appointed by the Treasury as of the date of this filing.

Our shares of common stock are not an insured deposit.

Our shares of our common stock are not a bank deposit and are not insured or guaranteed by the FDIC or any other government agency.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

At December 31, 2011 and 2010, the total net book value of the premises and equipment owned was $25.0 million and $25.8 million, respectively. None of our owned properties are subject to mortgages or liens.

The Bank currently operates 14 full service banking centers in the markets in which it operates. The following table sets forth certain information for each of our offices:


Office Name	City	County	Leased/Owned	Purpose
Florida Bank & Corp Headquarters	Tampa	Hillsborough	Leased	Corp HQ and Branch
Bay Street Branch	Jacksonville	Duval	Leased	Branch
Ortega Branch	Jacksonville	Duval	Owned	Branch
East Lake Branch	Oldsmar	Pinellas	Leased	Branch
Ponte Vedra Beach Branch	Ponte Vedra Beach	St. Johns	Owned	Branch
3065 34th Street North Branch	St. Petersburg	Pinellas	Owned	Branch
Downtown St. Petersburg Office	St. Petersburg	Pinellas	Leased	Branch
Pasadena Avenue	St. Petersburg	Pinellas	Leased	Branch
University Parkway Branch	Sarasota	Manatee	Owned	Branch
Kerry Forest Branch	Tallahassee	Leon	Owned	Branch
Thomasville Rd. Branch	Tallahassee	Leon	Leased	Branch
Cove Bend Drive Office	Tampa	Hillsborough	Leased	Branch
Himes Avenue Branch	Tampa	Hillsborough	Owned	Branch
South Tampa Office	Tampa	Hillsborough	Leased	Branch

Item 3.

Legal Proceedings.

We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to our business. Management does not believe that there is any pending or threatened proceeding against us that, if determined adversely, would have a material adverse effect on our financial position, liquidity, or results of operations.

Item 4.

Mine Safety Disclosures.

Not applicable.

Part II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Absence of Public Market.

Our common stock has not traded on any exchange or over-the-counter market. There is no established public trading market for our securities. We currently have no plans to publicly offer any shares of our common stock.

Sale of Restricted Shares.

All our shares of Common Stock, and all shares subject to outstanding options, were issued and sold by us in private transactions and are eligible for public sale if registered under the Securities Act of 1933 or sold in accordance with Rule 144 or Rule 701 under the Securities Act of 1933. These shares are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933. As of December 31, 2011, a total of 9,744,559 shares of our common stock can be immediately sold pursuant to Rule 144 and we have not agreed to register any shares of our common stock under the Securities Act of 1933.

Number of Common Stock Shareholders.

As of December 31, 2011, we had 397 common stock shareholders of record.

Dividends.

Holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors out of funds legally available for that purpose. We do not currently pay dividends on our common stock, nor do we intend to pay dividends on our common stock in the near future. In the event that we decide to pay dividends, there are a number of restrictions on our ability to do so. We are precluded from paying common dividends while our shares of preferred stock are outstanding.

For a foreseeable period of time, our principal source of cash revenues will be dividends paid by the Bank with respect to its common stock. There are certain restrictions on the payment of these dividends imposed by federal banking laws, regulations and authorities. See “Item 1. Description of Business—Regulatory Considerations—Regulatory Agreement.”

The declaration and payment of dividends on our common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock, other factors deemed relevant by our Board of Directors and consent from regulatory authorities, under the Regulatory Agreement entered into during March 2011.

Equity Compensation Plan Information.

The Company has a non-qualified stock option plan for employees, directors and officers of the Company and the Bank. The Stock Option Plan, dated October 24, 2002, which was amended in 2007 (the “Stock Option Plan”), provides for the issuance of stock options to employees and/or directors who are contributing significantly to the management or operation of our business or that of its subsidiaries as determined by the committee administering the plan. The plan was approved by our shareholders. The plan provides for the grant of options at the discretion of the Board of Directors or a committee designated by our Board of Directors to administer the plan. The options will expire upon the first to occur of the following:

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Expiration of the term specifically in the option, which date may not exceed the tenth anniversary of the date the option is granted;

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The date that is 90 days from the date of the termination of an optionee’s employment or service for any reason except death or disability; and

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Twelve months from the date an optionee’s employment is terminated due to death or disability.

Under the Stock Option Plan, 1,700,000 shares have been reserved for issuance. As of December 31, 2011, a total of 173,947 options had been exercised and an aggregate of 460,250 stock options were outstanding. In 2008, the Company accelerated the vesting of all stock options and at December 31, 2011, all of the stock options are fully vested and currently exercisable. The weighted average exercise price of all outstanding options is $15.74 per Share.

Each stock option granted under the plan has a maximum term of 10 years, subject to earlier termination in the event the participant ceases to be an employee or serve on a board. The exercise price of an option granted under the plan may be established in the sole discretion of the board of directors. In general, options vest equally over a three year period from the date of the grant, except as otherwise determined by our board of directors. The purchase price of shares is payable in cash immediately upon the exercise of the option.

Each stock option granted under the Stock Option Plan is non-transferable and exercisable only during the holder’s lifetime. In the event that the holder dies prior to exercising an option, such option may be exercised by the personal representative of the estate of such holder for a period of one year after such representative’s appointment. In the event that the holder’s employment is terminated for any reason other than death, such option may be exercised at any time prior to the expiration date of the option or within three months after the date of such termination, or 12 months in the case of an employee who is totally disabled, whichever is earlier, but only to the extent such holder had the right to exercise such option at the date of such termination. If the holder’s employment is terminated as a result of deliberate, willful or gross misconduct including, among other things, disloyalty, fraud, embezzlement, theft, commission of a felony or proven dishonesty, all rights under the option shall terminate and expire upon such termination. If options granted under the Stock Option Plan expire or are terminated for any reason without being exercised, the shares underlying such grant will again be available for purposes of the Stock Option Plan. In the event of termination, we may call the options at any time during the option period and pay the optionee an amount determined by a formula established in the Option Agreement.

We may issue options to purchase shares to key employees of the Company and the Bank over the next several years. If issued, these options will be issued pursuant to such agreements as our Board of Directors may deem appropriate. We may or may not make such options subject to vesting schedules and other customary conditions.

The following provides additional information regarding securities authorized for issuance under our equity incentive plans:


As of December 31, 2011 Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity Compensation Plans Approved by Securities Holders		460,250	$	15.74		1,065,803
Equity Compensation Plans Not Approved by Securities Holders		0		N/A		N/A
Total		460,250	$	15.74		1,065,803

Restricted Stock Plan

During 2005, we adopted and the shareholders approved a Restricted Stock Plan (“RSP”) under which up to 250,000 shares (amended) of our stock could be awarded to directors and officers. These restricted shares were earned over five years at a rate of 33.3% each year of continued service to the Company after two years. The fair

value of all restricted stock issued was based on an independent appraisal which was being amortized over a five year period. In 2008, we accelerated the vesting of all restricted stock and at December 31, 2008 all restricted stock was fully vested. As of December 31, 2008, there were no restricted shares remaining to be granted or vested under the plan and at December 31, 2011, 64,650 shares with a Weighted-Average Grant-Date-Fair Value of $7.92 were outstanding and fully vested.

During 2010, we adopted a 2010 Restricted Stock Plan (the “Plan”). Under the Plan, we may issue a maximum 750,000 shares with a maximum of 75,000 shares that can be granted to independent Directors and a maximum of 350,000 shares to be granted in any one calendar year. No shares were issued under the Plan during 2011 or 2010.

Sales of Unregistered Securities

We continue to pursue efforts to increase our capital, and as part of these efforts, on June 30, 2011 we closed a private placement offering (the “offering”) resulting in the issuance of 5,107 shares of our Non-Cumulative Perpetual Series C Preferred Stock (“Series C Preferred Stock”) to accredited investors for an aggregate purchase price of $5.1 million in cash consideration, or $1,000 per share. Also, during the three months ended September 30, 2011, we sold an additional 150 shares of our Series C preferred Stock to accredited investors for an aggregate purchase price of $150,000 in cash considerations.

Please see Note 15 to our December 31, 2011 Condensed Consolidated Financial Statements below, for a detailed discussion of our sale of preferred stock and the stock purchase warrants that we issued in connection with such sale of preferred stock.

Item 6.

Selected Consolidated Financial Data

Not presented as specified by Item 301of Regulation S-K, as the Company qualifies as a smaller reporting company, as defined by Regulation S-K, Item10 (f) of the Securities Act. However, certain select consolidated information is presented by us for information purposes.

($ in thousands)


	At and for the years ended December 31,
	2011			2010			2009
STATEMENTS OF OPERATIONS
Interest income	$	32,701		$	37,976		$	40,598
Interest expense		12,118			15,840			21,306

Net interest income		20,583			22,136			19,292

Provision for loan losses		15,962			28,190			19,494
Noninterest income		2,409			4,695			458
Noninterest expenses		24,871			29,491			32,792

Loss before income tax (benefit) expense		(17,841	)		(30,850	)		(32,536	)
Income tax (benefit) expense		(690	)		23,683			(10,436	)

Net loss	$	(17,151	)	$	(54,533	)	$	(22,100	)

PERIOD-END BALANCES
Cash and cash equivalents	$	76,539		$	40,301		$	29,361
Securities available for sale		149,226			177,451			99,776
Loans, net of allowance for loan losses		460,422			572,045			624,651
Total deposits		610,309			712,334			630,403
FHLB advances		67,700			67,700			81,700
Shareholders’ equity		47,036			53,606			113,359

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes. The analysis is divided into subsections entitled “Performance Overview and Analysis of Financial Condition,” “Results of Operations,” “Market Risk,” “Liquidity,” “Capital Resources,” “Off-Balance Sheet Arrangements,” and “Critical Accounting Policies.” The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our current performance compares with prior periods.

This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including but not limited to those discussed in the section entitled “Risk Factors” and elsewhere in this Form 10-K.

As summarized below, our core earnings for the year ended December 31, 2011, which is a non-GAAP measure defined as, net loss adjusted for certain noninterest revenue, noninterest expense, provision for loan losses and tax expense (benefit), were positive for the first time in five years. These positive results are mostly due to our focus on our five major priorities as stated above.

Core earnings (losses) presented on an annual basis are as follows:

($ in thousands)


	For the Year Ended December 31,
	2011			2010			2009			2008			2007
Net loss as reported under GAAP	$	(17,151	)	$	(54,533	)	$	(22,100	)	$	(30,179	)	$	(3,163	)
Non-core revenue adjustments:
Gain on sale of securities available for sale		(85	)		(3,027	)		47			624			41
Gain (loss) on sale of other assets		8			67			45			—			—
Other-than-temporary impairment on securities available for sale		—			549			1,184			214			2,209
Foreclosed real estate revenues		(238	)		(244	)		(201	)

subtotal		(315	)		(2,655	)		1,075			838			2,250

Non-core noninterest expense adjustments:
FHLB prepayment penalty		2			751			1,296			1,184			—
Foreclosed real estate related expenses		3,367			2,185			2,806			—			—

subtotal		3,369			2,936			4,102			1,184			—
Less: Provision for loan losses		15,962			28,190			19,494			11,966			1,590
Less: Tax expense (benefit)		(690	)		23,683			(10,436	)		(874	)		(1,795	)

Core Earnings (losses)	$	1,175		$	(2,379	)	$	(7,865	)	$	(17,065	)	$	(1,118	)

Performance Overview and Analysis of Financial Condition.

We are a bank holding company and the parent company of Florida Bank. The period from 2008 through 2011 has been very challenging for us, the banking industry and the U.S. economy in general. In relation to the Company, the overall economic context for our financial condition and results of operations include the following:

•

Ongoing financial stress in the overall U.S. economy that generally started with an economic crisis in August 2008 and continued throughout 2011 for which the banking industry and the Company continue to be adversely impacted,

•

Significant stress on the banking industry resulting in governmental financial assistance to many financial institutions, extensive regulatory and congressional scrutiny and new comprehensive reform legislation including yet to be determined regulations which will be adopted as a result,

•

Uncertainty about the future and when the economy will return to “normal” and questions about what will be the “new normal,”

•

Low and uncertain interest rate environment particularly given government intervention in the financial markets and statements by the Federal Reserve that short-term rates may remain low through 2014.

We have experienced operating losses during recent reporting periods. Our loss in 2011 was attributable to our provision for loan losses and expenses related to our foreclosed real estate. Many of our borrowers continued to experience deterioration in the performance of their business and/or reductions in their liquidity position. As a consequence, the performance of our loan portfolio declined and we recorded in 2011, a provision for loan losses of $16.0 million, which is a $12.2 million decrease from 2010. A large portion of our loan portfolio was secured by real estate. The Florida real estate market has experienced particularly pronounced declines in value and although this trend somewhat moderated during 2011, we continued to experience declines in market value of our loan collateral and foreclosed assets, which impacted our results through our provision for loan losses, costs of collection and the net carrying costs of other real estate owned. Nevertheless, we saw other positive signs in 2011 as noted below.

Other highlights and analysis are as follows:

•

We had core earnings of $1.2 million for the year ended December 31, 2011 compared to core losses of $2.4 million for the same period in 2010 and core losses for the years ended 2009, 2008, and 2007. The most notable contributors to the positive changes in core earnings for the year ended December 31, 2011 versus December 31, 2010, were the decreases in: salaries and employee benefits, occupancy expenses, professional fees, and FHLB advance prepayment penalties, offset in part by a decrease in net interest income;

•

In an effort to strengthen our capital position, during 2011 we closed a private placement offering by issuing 5,257 shares of our Non-Cumulative Perpetual Series C Preferred Stock (“Series C Preferred Stock”) for an aggregate purchase price of $5.3 million in cash consideration;

•

We saw improvements in our asset quality as our net charge-offs for 2011 decreased $11.4 million from 2010; our nonperforming assets decreased $17.3 million from 2010, our past due 30-89 days loans were down $13.0 million from 2010; and our provision for loan losses, at $16.0 million for 2011, was down $12.2 million from 2010. All positive signs of improving asset quality;

•

Our noninterest expenses for the year ended December 31, 2011were down $4.6 million from the 2010 period, evidencing our continued efforts to right-size our expense base in light of our declining revenue base;

•

Our net interest income decreased $1.6 million for the year ended December 31, 2011 from the same period in 2010 primarily due to a decrease in interest on loans. This decrease in interest on loans was primarily the result of reductions on our average loan balance during 2011 due to loan payoffs and a decrease in loan demand, in addition to loans being placed on a nonaccrual status;

•

Our interest bearing deposits decreased $109.0 million from 2010 levels while our noninterest bearing deposits increased $7.0 million from 2010 levels. We believe that this will put us in a better position to provide higher liquidity and reduce non-core funding; and

•

We remain well-capitalized and have strengthened our liquidity position compared to 2010 with over $76.5 million in cash and cash equivalents.

Results of Operations

A summary of the Company’s results of operations for each of the last five years ended December 31 follows:

CONDENSED SUMMARY OF EARNINGS

($ in thousands, except per share amounts)


	For the Years Ended December 31,
	2011			2010			2009			2008			2007
Interest income	$	32,701		$	37,976		$	40,598		$	45,610		$	42,693
Interest expense		12,118			15,840			21,306			26,243			23,947

Net interest income		20,583			22,136			19,292			19,367			18,746
Provision for loan losses		15,962			28,190			19,494			11,966			1,590
Noninterest income		2,409			4,695			458			932			(752	)
Noninterest expenses		24,871			29,491			32,792			47,256			21,362

(Loss)/earnings before income tax benefit		(17,841	)		(30,850	)		(32,536	)		(38,923	)		(4,958	)
Income tax (benefit) expense		(690	)		23,683			(10,436	)		(8,744	)		(1,795	)

Net Profit (Loss)		(17,151	)		(54,533	)		(22,100	)		(30,179	)		(3,163	)
Preferred stock dividend and discount accretion		(2,610	)		(1,321	)		(576	)		—			—

Net loss available to common stockholders	$	(19,761	)	$	(55,854	)	$	(22,676	)	$	(30,179	)	$	(3,163	)

Loss per common share—basic and diluted ⁽¹⁾	$	(1.29	)	$	(3.90	)	$	(1.83	)	$	(3.11	)	$	(0.36	)

Dividends per common share		NA			NA			NA			NA			NA

Selected Operating Ratios:
Return on Average Assets		-2.52	%		-6.49	%		-2.62	%		-3.65	%		-0.48	%
Return on Average Equity		-40.19	%		-51.91	%		-20.01	%		-24.86	%		-2.94	%
Dividend Payout Ratio		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Equity to Assets Ratio		6.45	%		6.39	%		13.65	%		11.26	%		15.30	%

(1)	Diluted and basic EPS are the same for 2007 through 2011 due to the Company’s net loss position.

Net Interest Income.

Year ended December 31, 2011 compared with year ended December 31, 2010:

Net interest income represents our single largest source of earnings and is the largest component of our income. Net interest income is affected by the interest rate environment and the volume and the composition of interest-earning assets and interest-bearing liabilities and is the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities. Our interest-earning assets include loans, federal funds sold, interest-bearing deposits at the FRB and in other banks and investment securities. Our interest-bearing liabilities include customer deposit and advances from the FHLB.

The decrease in our net interest income was mostly due to a decrease in loan balances, primarily resulting from loan payoffs and a decrease in loan demand. The decrease in interest on loans was primarily the result a reduction in our average loan balances. Average loan balances were $543.3 million for the year ended December 31, 2011, a decrease of $88.0 million from the average loan balance for the year ended December 31, 2010. Of the $5.3 million decrease in interest income, $3.8 million was related to volume and $1.5 million was related to rates.

Partially offsetting the decrease in interest income was a decrease in our interest expense, which was mostly the result of decreases in our deposit balances and related rates, for time deposits, interest bearing-demand

deposits and money market instruments. Time deposits carry a fixed rate of interest to maturity and most of our borrowings provide for a fixed rate of interest until maturity. The average balance and interest rate paid on time deposits for the year ended December 31, 2011, was $342.1 million and 2.09% respectively, compared to an average balance and interest paid of $351.8 million and 2.79%, respectively, for the same period in 2010. Of the $3.7 million decrease in interest expense, $3.0 million was related to rates and $0.7 million was related to volume.

In the near term we expect our interest expense to continue its decline as we continue to increase our noninterest bearing demand deposits and decrease our noncore interest bearing deposits.

Year ended December 31, 2010 compared with year ended December 31, 2009:

Net interest income increased $2.8 million, or 14.7%, to $22.1 million for the year ended December 31, 2010 from $19.3 million for the year ended December 31, 2009. This increase was the result of a $5.4 million decrease in interest expense, offset in part by a $2.6 million decrease in interest income. The decrease in interest expense was mostly the result of decreases in our deposit rates, primarily related to time deposits, as our time deposits maturing towards the end of 2009 were generally re-priced into a lower interest rate environment. Time deposits carry a fixed rate of interest to maturity and most of our borrowings provide for a fixed rate of interest until maturity or conversion date. The average balance and interest rate paid on time deposits for the year ended December 31, 2010 was $351.8 million and 2.79% respectively, compared to an average balance and interest rate paid of $401.6 million and 3.60%, respectively, for the year ended December 31, 2009.

The decrease in interest on loans was primarily the result of a reduction in our average loan balances and an increase in the non recognition of interest income on non accruing loans. The balance in non accruing loans was $57.1 million at December 31, 2010, an increase of $10.1 million from the balance at December 31, 2009. Average loan balances were $631.3 million at December 31, 2010, a decrease of $23.5 million from the average loan balance at December 31, 2009

The following table reflects the components of net interest income, setting forth for the periods presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets).

($ in thousands)


	For the years ended December 31,
	2011								2010								2009
	Average Balance			Interest		Rate			Average Balance			Interest		Rate			Average Balance			Interest		Rate
ASSETS
Loans		543,276			28,540		5.25	%	$	631,340		$	33,619		5.33	%	$	654,750		$	36,514		5.58	%
Securities available for sale		164,192			3,905		2.38	%		134,527			4,084		3.04	%		88,499			3,767		4.26	%
Other interest-earning assets		46,078			256		0.56	%		40,526			273		0.67	%		69,242			317		0.46	%

Total Earning Assets		753,546			32,701		4.34	%		806,393			37,976		4.71	%		812,491			40,598		5.00	%
Cash & Due from Banks		12,432								9,637								4,855
Allowance For Loan Losses		(20,800	)							(23,190	)							(14,527	)
Other Assets		38,244								67,855								64,318

Total Assets		783,422							$	860,695							$	867,137

LIABILITIES
Demand		61,441			350		0.57	%	$	68,063		$	584		0.86	%	$	49,535		$	508		1.03	%
Savings		9,650			39		0.40	%		11,467			67		0.58	%		11,945			123		1.03	%
Money Market		167,386			1,683		1.01	%		174,516			2,232		1.28	%		145,838			2,687		1.84	%
Time		342,072			7,153		2.09	%		351,801			9,804		2.79	%		401,646			14,471		3.60	%

Total Interest Bearing Deposits		580,549			9,225		1.59	%		605,847			12,687		2.09	%		608,964			17,789		2.92	%
FHLB advances		71,306			2,893		4.06	%		78,412			3,153		4.02	%		84,451			3,517		4.16	%
Other borrowings		—			—		0.00	%		22			0		0.00	%		390			0		0.00	%

Total Interest Bearing Liabilities		651,855			12,118		1.86	%		684,281			15,840		2.31	%		693,805			21,306		3.07	%
Noninterest bearing Deposits		78,510								63,249								52,553
Other Liabilities		3,892								5,577								7,455

Total Liabilities		734,257								753,107								753,813
Total Shareholder’s Equity		49,165								107,588								113,324

Total Liabilities & Shareholder’s Equity		783,422							$	860,695							$	867,137


Interest Rate Spread							2.48	%							2.40	%							1.93	%


Net Interest Income					20,583							$	22,136							$	19,292


Net Interest Margin							2.73	%							2.75	%							2.37	%

The following table sets forth certain information regarding changes in our interest income and interest expense for the year ended December 31, 2011 compared to the year ended December 31, 2010 and for the year ended December 31, 2010, as compared to the year ended December 31, 2009. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on the proportionate absolute changes in each category.

($ in thousands)


	2011 Changes from 2010									2010 Changes from 2009
				Due to Average									Due to Average
	Total Change			Volume			Rate			Total Change			Volume			Rate
Interest Earning Assets
Loans, Net	$	(5,079	)	$	(4,736	)	$	(343	)	$	(2,895	)	$	(2,599	)	$	(296	)
Investment Securities		(179	)		911			(1,090	)		317			1,959			(1,642	)
Other		(17	)		35			(52	)		(44	)		(131	)		87

Total		(5,275	)		(3,790	)		(1,485	)		(2,622	)		(771	)		(1,851	)

Interest Bearing Liabilities
Demand		(234	)		(57	)		(177	)		76			190			(114	)
Savings		(28	)		(11	)		(17	)		(57	)		(5	)		(52	)
Money Market		(549	)		(91	)		(458	)		(455	)		528			(983	)
CDs		(2,651	)		(271	)		(2,380	)		(4,667	)		(1,796	)		(2,871	)
Short Term Borrowings		0			(0	)		0			(1	)		(1	)		0
FHLB advances		(260	)		(286	)		26			(362	)		(251	)		(111	)

Total		(3,722	)		(716	)		(3,006	)		(5,466	)		(1,335	)		(4,131	)

Cnanges in Net Interest Income	$	(1,553	)	$	(3,074	)	$	1,521		$	2,844		$	564		$	2,280

Noninterest Income.

NONINTEREST INCOME

($ in Thousands)


	Year Ended December 31,
	2011		2010		2009			2011 vs. 2010			2010 vs. 2009
Noninterest income:
Service charges on deposit accounts	$	892	$	940	$	915		$	(48	)	$	25
Other service charges and fees		610		581		342			29			239
Gain/(loss) on sale of securities and other-than-temporary impairment		85		2,478		(1,231	)		(2,393	)		3,709
Other		822		696		432			126			264

Total noninterest Income	$	2,409	$	4,695	$	458		$	(2,286	)	$	4,237

Noninterest income on a recurring basis is derived principally from loan and deposit fees. Securities gains or losses on securities available for sale are also included in noninterest income.

Year ended December 31, 2011 compared with year ended December 31, 2010:

Our noninterest income for the year ended December 31, 2011 reflects an unfavorable change of $2.3 million over the same period in 2010, primarily as a result of a $2.4 million net gain on the sale of securities available for sale recorded in 2010 which was not repeated in 2011.

Year ended December 31, 2010 compared with year ended December 31, 2009:

Non interest income increased by $4.2 million for the year ended December 31, 2010 compared to the year ended December 31, 2009. This increase primarily reflected a $3.0 million gain on the sale of securities available for sale in 2010 and an OTTI of securities of $0.5 million in 2010 compared to an OTTI on securities of $1.2 million and a $47 thousand loss on the sale of securities in 2009. See the expanded discussion below under the section titled “OTTI.”

Noninterest Expense.

NONINTEREST EXPENSE

($ in Thousands)


	Year Ended December 31,
	2011		2010		2009		2011 vs. 2010			2010 vs. 2009
Salaries and employee benefits	$	10,596	$	13,888	$	11,338	$	(3,292	)	$	2,550
Occupancy		4,620		5,544		5,625		(924	)		(81	)
Data Processing		1,375		1,206		1,480		169			(274	)
Stationary, printing and supplies		270		286		339		(16	)		(53	)
Business development		183		393		379		(210	)		14
Insurance , including deposit insurance premium		2,344		2,278		2,293		66			(15	)
Professional fees		984		1,739		1,044		(755	)		695
Marketing		56		71		119		(15	)		(48	)
Permanent impairment of goodwill		—		—		4,707		—			(4,707	)
FHLB advance prepayment penalties		2		751		1,296		(749	)		(545	)
Loss on sale of foreclosed real estate		137		372		723		(235	)		(351	)
Writedown of foreclosed real estate		2,618		1,260		940		1,358			320
Foreclosed real estate expense		612		553		1,143		59			(590	)
Other		1,074		1,150		1,366		(76	)		(216	)

Total noninterest expenses	$	24,871	$	29,491	$	32,792	$	(4,620	)	$	(3,301	)

Year ended December 31, 2011 compared with the year ended December 31, 2010:

The $4.6 million, or 15.7% decrease in noninterest expense for the year ended December 31, 2011 compared to the same period in 2010 is noted in the table above. Explanations for significant changes are as follows: (a) a $3.3 million decrease in salary and employee benefits resulting primarily from a reduction in work force towards the end of 2010 and employee attrition as our total full-time employees were 135 at December 31, 2011 compared to 146 at December 31, 2010, in addition to no contributions being made to our profit sharing plan in 2011 versus $175,000 of contributions in 2010; (b) a $0.9 million decrease in occupancy expenses primarily resulting from the closure of two branch locations and the sublease of excess office space in our downtown Jacksonville and Tampa, Florida locations, all in the second half of 2010; (c) a $0.8 million decrease in professional fees resulting from expenses related to merger activities in the second and third quarters of 2010 not being repeated in 2011; (d) a $0.7 million decrease in FHLB prepayment penalties, offset in part by, (e) a $1.1 million increase in expenses related to foreclosed real estate, which reflects the recent fair values of appraisals conducted in the third and fourth quarter of 2011.

Year ended December 31, 2010 compared with the year ended December 31, 2009:

The $3.3 million, or 10.1% decrease in noninterest expense for the year ended December 31, 2010 compared to the same period in 2009 was primarily due to the difference in recognizing a permanent impairment of goodwill of $4.7 million in 2009 and no impairment recognized in 2010. In addition, losses and expenses related to foreclosed real estate in 2010 was $0.6 million less than those recorded in 2009 and prepayment penalties for Federal Home Loan Bank loans were $0.5 million less than those incurred in 2009. Partially offsetting the decrease was a $2.6 million increase in salaries and employee benefits and a $0.7 million increase in professional fees. The increase in salary and benefit expense primarily resulted from the full-year effect of an increase in the number of employees in connection with the opening of two new branches towards the end of the second quarter of 2009 in addition to an increase in senior level employees during the end of 2009 and in the first three months of 2010, primarily in the credit administration and loan workout areas and in business development areas. The increase in professional fees was mostly related to a proposed merger and acquisition related activities; public company and capital raise expenses incurred during 2010. All merger and acquisition activities were suspended at the end of 2010.

Income Taxes.

We and our 100% owned subsidiaries file a consolidated income tax return (2006 to present) for federal and state purposes. Prior to 2006, we filed as a Subchapter S corporation. Our shareholders terminated the Subchapter S election effective at December 31, 2005. We have reported a cumulative tax loss for the period since our termination of our S election on December 31, 2005, through December 31, 2011. During the periods, through the year ending December 31, 2009, we recorded an accumulated net tax benefit and determined that no valuation allowance against our deferred tax asset was required. However, during 2010, based on our analysis, we determined that that a valuation allowance against our deferred tax asset was required and accordingly an allowance of $35.2 million was recorded. For the year ended 2011, we recorded a tax benefit of $690,000 which was primarily related to the income tax effect of unrealized gains on available for sale securities occurring in 2011. For the year ended December 31, 2010, we recognized an income tax expense of $23.7 million compared to an income tax benefit of $10.4 million for the year December 31, 2009. Please see Note 9 of our December 31, 2011 Consolidated Financial Statements for further information on income taxes.

Loan Portfolio.

Our loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market areas of greater Tampa Bay, Jacksonville and Tallahassee, Florida. The table below shows our loan portfolio composition for the periods presented.

($ in Thousands)


	At December 31,
	2011			2010			2009			2008			2007
Commercial	$	33,643		$	47,475		$	63,439		$	65,308		$	72,007
Commercial Real Estate		278,053			329,487			343,028			339,906			333,627
Residential Real Estate		160,870			203,488			220,854			242,023			196,925
Consumer Loans		7,547			12,879			19,027			20,573			19,972

Total loans		480,113			593,329			646,348			667,810			622,531
Less: Net deferred fees		(228	)		(454	)		(355	)		(349	)		(256	)
Less: Allowance for loan losses		(19,463	)		(20,830	)		(21,342	)		(17,550	)		(7,699	)

Loans, Net		460,422			572,045			624,651			649,911			614,576

Total gross loans decreased by $113.6 million or 19.1% during the year ended December 31, 2011 compared to December 31, 2010. The decrease is attributable to several factors including: loan payoffs as a result

of our borrowers’ deleveraging; reduced levels of new loan demand and in some cases loan charge offs. Our loan composition remains relatively consistent at December 31, 2011 compared to December 31, 2010.

Following is a summary of the repricing distribution of certain loan categories based on remaining scheduled repayments of principal as of December 31, 2011 (in thousands):


	Pricing Period
(Dollars in Thousands)	Within 1 Year		1 - 5 Years		Over 5 Years		Total
Commercial		22,116		11,271		256		33,643
Consumer Loans		5,323		1,998		226		7,547
Residential Real Estate		77,567		71,545		11,758		160,870
Commercial Real Estate		64,311		156,993		56,749		278,053

Total	$	169,317	$	241,807	$	68,989	$	480,113

Fixed/variable repricing of loans due after one year
Loans at fixed interest rates			$	171,932	$	57,108
Loans at floating or adjustable interest rates				69,875		11,881

Total			$	241,807	$	68,989

Allowance and Provision for Loan Losses.

The allowance for loan losses is a valuation allowance established and maintained at a level believed adequate by management to absorb probable incurred credit losses associated with loans in the loan portfolio. The allowance is recorded through a provision for loan losses charged to operations. Loan losses are charged against the allowance when in management’s judgment, the loan’s lack of collectability is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.

For quantitative loss factors, management has determined the historical loss rate for each group of loans with similar risk characteristics and has then considered the current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the group’s historical loss experience. The overall effect of these factors on each loan group has been reflected as an adjustment that, as appropriate, increases or decreases the historical loss rate applied to each loan group.

We segregate our portfolio of loans not deemed to be impaired by call report category for the purposes of calculating and applying historical loss factors, adjustment factors and total loss factors. Considerable judgment is necessary to establish adjustment factors.

The adjustment factors described below are deemed to be applied to pass credits. Through our reserve methodology, these factors are scaled higher if applied to weak pass, special mention or substandard credits.

The following current environmental factors, among others, have been taken into consideration in determining the adequacy of the Allowance for Loan and Lease Losses (“ALLL”):

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

Changes in international, national, regional and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

Changes in the nature and volume of the portfolio and in the terms of loans;

Changes in the experience, ability, and depth of the lending management and other relevant staff;

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

Changes in the quality of our loan review system;

Changes in the value of underlying collateral for collateral-dependent loans;

The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and

The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

The specific component of the allowance relates to loans that are impaired. A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

As of December 31, 2011, we held an allowance for loan losses of $19.5 million or 4.05% of total loans compared to the allowance for loan losses of $20.8 million or 3.51% at December 31, 2010. Based on an analysis performed by management as of December 31, 2011, management considers the allowance for loan losses to be adequate to cover probable incurred credit losses in the portfolio as of that date. Although we believe we use the best information available to make determinations with respect to the allowance for loan losses, future adjustments to the allowance may be necessary if facts and circumstances differ from those previously assumed in the determination of the allowance. For example, a continued downturn in real estate values and economic conditions could have an adverse impact on our asset quality and may result in an increase in future loan charge-offs and loan loss provisions, and may also result in the decrease in the estimated value of real estate we acquired through foreclosure.

As a result of these factors and analyses in conjunction with the sustained weakness in asset values, particularly real estate, we recorded a loan loss provision of $16.0 million for the year ended December 31, 2011, a decrease of $12.2 million compared to the provision recorded for the year ended December 31, 2010. The provision for loan losses is a charge to operations in the current period to replenish the allowance and maintain it at a level that management has determined to be adequate to absorb probable incurred credit losses in the loan

portfolio. The lower provision for loan losses in 2011 reflects an overall decrease in classified and criticized loans throughout 2011, a decrease in nonperforming loans, as well as a reduction in overall charge-offs during 2011.

We establish specific reserves for impaired loans and general reserves for the remainder of the portfolio as follows (in thousands):


	December 31, 2011			December 31, 2010
Specific Reserves :
Impaired loans with no specific reserves	$	19,694		$	34,028
Impaired loans with specific reserves		37,428			26,055

Total impaired loans	$	57,122		$	60,083
Reserve	$	9,408		$	9,890
Reserve % of impaired loans		16.47	%		16.46	%

General Reserves
Loans subject to general reserve	$	422,991		$	533,246
Reserve	$	10,055		$	10,940
Reserve % of loans		2.38	%		2.05	%

Our reserves for loans with specific reserves were approximately $9.4 million as of December 31, 2011 and approximately $9.8 million as of December 31, 2010, a decrease of $0.5 million. Total impaired loans decreased $3.0 million mostly due to transfers to foreclosed assets, payoffs and charge-offs. The December 31, 2011 balances include three large loan relationships totaling approximately $9.0 million that carried aggregate specific reserves of approximately 39% of the aggregate loan balances of these relationships.

Our general reserve for unimpaired loans was 2.38% of subject loans as of December 31, 2011 and 2.05% of subject loans as of December 31, 2010. For the year ended December 31, 2011, the loan portfolio subject to the general reserve decreased approximately $110.2 million, comprised of approximately $52.4 million of commercial real estate, $41.0 million of residential mortgage loans, $14.6 million of commercial non real estate loans, and $2.2 million of consumer loans. The decrease was a result of impairment, charge-offs, foreclosures, sales and/or payoffs. Management evaluates the reserves on a regular basis to assess adequacy.

As noted above, management continuously monitors and actively manages the credit quality of the loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level. We have seen signs of economic stabilization in our market which provides optimism for a continued increase in the quality of our loan portfolio. However, we cannot be certain how long this will continue. If this trend does not continue we may experience higher levels of delinquent and nonperforming loans, which may require higher provisions for loan losses, higher charge-offs and higher collection related expenses in future periods. The allowance is also subject to examination testing by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions, and other adequacy tests. In addition, such regulatory agencies could require us to adjust the allowance based on information available to us at the time of their examination.

During the years ended December 31, 2011, 2010, 2009, 2008 and 2007, the activity in our loan loss allowance was as follows:

($ in Thousands)


	Year Ended December 31,
	2011			2010			2009			2008			2007
Balance At Beginning Of Period	$	20,830		$	21,342		$	17,550		$	7,699		$	4,420
Charnge-Offs:		(20,178	)		(29,206	)		(15,731	)		(2,118	)		(14	)
Recoveries:		2,849			504			29			3			74
Provision For Loan Losses		15,962			28,190			19,494			11,966			1,590

Balance At End Of Period	$	19,463		$	20,830		$	21,342		$	17,550		$	6,070


	Year Ended December 31,
	2011			2010			2009			2008			2007
Charnge-Offs:
Commercial	$	(2,151	)	$	(4,563	)	$	(551	)	$	(764	)	$	(0	)
Commercial Real Estate		(9,084	)		(16,420	)		(7,505	)		(264	)		—
Residential Real Estate		(7,537	)		(6,965	)		(7,234	)		(1,083	)		—
Consumer Loans		(1,406	)		(1,258	)		(441	)		(7	)		(10	)

	$	(20,178	)	$	(29,206	)	$	(15,731	)	$	(2,118	)	$	(14	)


	Year Ended December 31,
	2011			2010			2009			2008			2007
Recoveries:
Commercial	$	305		$	365		$	2		$	2		$	74
Commercial Real Estate		584			6			—			—			—
Residential Real Estate		912			133			26			0			—
Consumer Loans		1,048			—			1			1			—

	$	2,849		$	504		$	29		$	3		$	74

The following table reflects the allowance allocation per loan category and percent of dollar value of loans in each category to total dollar value of loans for the periods indicated ($ in thousands):


	2011					2010					2009					2008					2007
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Commercial	$	1,436		7.01	%	$	868		8.00	%	$	2,136		9.82	%	$	1,310		9.78	%	$	466		11.57	%
Commercial Real Estate		11,686		57.91	%		15,518		55.53	%		13,081		53.07	%		12,512		50.90	%		5,889		53.59	%
Residential Real Estate		6,136		33.51	%		4,232		34.30	%		5,393		34.17	%		3,336		36.24	%		1,319		31.63	%
Consumer Loans		205		1.57	%		212		2.17	%		732		2.94	%		392		3.08	%		25		3.21	%

Total loans	$	19,463		100.00	%	$	20,830		100.00	%	$	21,342		100.00	%	$	17,550		100.00	%	$	7,699		100.00	%

Impaired Loans

Under generally accepted accounting principles, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence of loss exposure as described above.

The following is an analysis of impaired loans as of December 31, 2011:

($ in Thousands)


	At December 31, 2011						Full Year 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Received
With no related allowance recorded:
Commercial	$	700	$	5,815	$	—	$	674	$	262	$	8
Commercial Real Estate		12,009		16,818		—		11,558		702		385
Residential Real Estate		6,945		11,782		—		6,684		343		257
Consumer Loans		40		83		—		38		1		5

Total	$	19,694	$	34,498	$	—	$	18,954	$	1,308	$	655

With an allowance recorded:
Commercial	$	1,637	$	1,881	$	775	$	1,576	$	41	$	58
Commercial Real Estate		25,484		30,224		6,217		24,526		820		798
Residential Real Estate		10,235		12,604		2,363		9,850		521		346
Consumer Loans		72		79		53		69		—		4

Total	$	37,428	$	44,788	$	9,408	$	36,021	$	1,382	$	1,206

Total	$	57,122	$	79,286	$	9,408	$	54,975	$	2,690	$	1,861

The following is an analysis of impaired loans as of December 31, 2010:

($ in Thousands)


	At December 31, 2010						Full Year 2010
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Received
With no related allowance recorded:
Commercial	$	1,212	$	5,068	$	—	$	1,090	$	282	$	414
Commercial Real Estate		16,278		26,612		—		14,650		1,138		1,166
Residential Real Estate		13,506		19,185		—		12,155		584		524
Consumer Loans		3,032		4,032		—		2,729		156		7

Total	$	34,028	$	54,897	$	—	$	30,624	$	2,160	$	2,111

With an allowance recorded:
Commercial	$	362	$	368	$	225	$	326	$	17	$	34
Commercial Real Estate		20,190		23,502		7,870		18,171		359		756
Residential Real Estate		5,277		5,571		1,692		4,749		139		204
Consumer Loans		226		226		103		203		14		13

Total	$	26,055	$	29,667	$	9,890	$	23,449	$	529	$	1,007

Total	$	60,083	$	84,564	$	9,890	$	54,073	$	2,689	$	3,118

The following is an analysis of impaired loans as of December 31, 2009 (in thousands):


Impaired loans without a valuation allowance	$	27,606
Impaired loans with a valuation allowance		39,583
Valuation allowance related to impaired loans		(8,801	)

Net investment in impaired loans	$	58,388

Non-Performing Assets

Non-performing assets include non-accrual loans and foreclosed real estate. Non-accrual loans represent loans on which interest accruals have been discontinued. Foreclosed real estate is comprised principally of real estate properties obtained in partial or total loan satisfactions and is carried at the lower of its estimated fair value less selling costs or cost.

We place loans on nonaccrual status when principal or interest becomes 90 days or more past due unless the loan is well secured and in the process of collection. In addition, all previously accrued and uncollected interest and late charges are reversed through a charge to interest income. While loans are on nonaccrual status, interest income is normally recognized only to the extent cash is received until a return to accrual status is warranted. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid.

Non-performing loans, or non-accrual loans, are closely monitored on an ongoing basis as part of our loan review and work-out process. In addition, these loans are evaluated by comparing the recorded loan amount to the fair value of any underlying collateral or the present value of projected future cash flows. The results of this evaluation are used as part of the determination of the appropriate allowance and provision for loan losses and charge-offs, when appropriate.

Non Performing Assets

($ in thousands):


	As of December 31,
	2011			2010			2009
Non Performing Loans:
Commercial	$	1,839		$	1,573		$	11,322
Commercial Real Estate		27,274			33,907			17,792
Residential Real Estate		10,750			18,506			14,125
Consumer Loans		112			3,071			3,710

Total		39,975			57,057			46,949

Foreclosed Real Estate		6,770			7,018			8,761

Total Non-Performing Assets	$	46,745		$	64,075		$	55,710

Non-Performing Loans as a Percentage of Total Loans, net of Deferred Fees		8.33	%		9.62	%		7.27	%

Non-Performing Assets as a Percentage of Total Assets		6.41	%		6.81	%		5.65	%

Loans Past Due 90 or more days and still accruing		0			0			10

As of December 31, 2011, 2010 and 2009, we had $8.4 million, $1.5 million and $21.4 million, respectively, in restructured loans that are in compliance with their modified terms. The criteria for a restructured loan to be considered performing is as follows: (1) none of its principal and interest is due and unpaid, and we expect repayment of the remaining contractual principal and interest, or (2) when the loan otherwise becomes well secured and in the process of collection. Since these loans have met these criteria, management does not consider these loans to be non-performing and has not included them in the table above.

As of December 31, 2011 nonaccrual loans consisted of ($ in millions):


Loan Type	Amount		Number of Relationships
Hotels/Motels	$	8.1		6
Real Estate 1-4 Family Investment		7.4		24
Single Family Residential		2.4		23
Retail		2.1		4
Construction & Land Development-Residential		3.8		25
Office/Warehouse		5.8		19
Other		9.3		55
Accounts Receivable, Inventory, Equipment		1.1		13

	$	40.0		169

As of December 31, 2010 nonaccrual loans consisted of:

$ In millions


Loan Type	Amount		Number of Relationships
Hotels/Motels	$	13.4		7
Real Estate 1-4 Family Investment		9.3		22
Single Family Residential		7.1		24
Retail		2.1		2
Construction & Land Development-Residential		9.9		21
Office/Warehouse		6.3		17
Other		8.5		43
Accounts Receivable, Inventory, Equipment		0.5		7

	$	57.1		143

Total nonaccrual loans decreased $17.1 million due to transfers to foreclosed assets, payoffs, and charge-offs. In addition, one loan which was in a nonaccrual status and had a carrying value of $4.5 million at December 31, 2010 was restored to an accrual status as of December 31, 2011.

Market Risk.

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices. We are primarily exposed to interest rate risk inherent in our lending and deposit taking activities as a financial intermediary. To succeed in our capacity as a financial intermediary, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits while borrowers desire long-term loans. Changes in market interest rates may also result in changes in the fair value of our financial instruments, cash flows, and net interest income.

Interest rate risk is comprised of re-pricing risk, basis risk, yield curve risk, and options risk. Re-pricing risk arises from differences in the cash flow or re-pricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indexes, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their fixed rate loans when rates fall while certain depositors can redeem their certificates of deposit early when rates rise.

We have established an Asset/Liability Committee (ALCO) for the Bank, which is responsible for the oversight of the Bank’s interest rate risk management. We have engaged an independent third party firm to assist us in performing interest rate risk measurements. The primary interest rate risk measures used by us include earnings simulation. Following is a table showing our interest rate risk profile for the years ending December 31, 2011 and 2010:

Interest Rate Risk


	Changes in Current Interest Rates
Company Policy Limit	Flat Up 500BP			Up 400 BP			Up 200 BP			Down 100BP

-10% Change in Net Interest Income

Sensitivity at December 31, 2011		0.90	%		1.30	%		1.30	%		-1.30	%

Sensitivity at December 31, 2010		-1.20	%		-0.10	%		-0.10	%		-0.30	%

At this time, we do not use derivative financial instruments for market risk management purposes.

Liquidity.

Liquidity is the ability to provide for the cash flow requirements of deposit withdrawals, funding requirements of our borrowers, debt maturities, operating cash flows and off balance sheet obligations such as customer lines of credit.

Our primary sources of liquidity are deposits provided by commercial and retail customers. The Bank attracts these deposits by offering an array of products designed to match customer needs at rates acceptable to the Bank. Deposits can be very price sensitive; we therefore monitor the Bank’s offering rates relative to our competition and adjust our offering rates accordingly to generate larger or smaller flows of deposit funds.

In addition to local market deposits, the Bank has access to national brokered certificates of deposit markets as well as deposit subscription services. The Bank uses these alternative sources of deposits to supplement deposits particularly when these sources of deposits are less costly than the local market or in order to obtain specific funding amounts and terms that might not otherwise be available locally. These sources of deposits tend to be more price and credit sensitive and therefore the Bank has established policies to limit the amount of these types of funding sources.

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), the Bank has access to a secured borrowing facility. Loans meeting certain criteria may be pledged as collateral and are subject to advance rates established by the FHLB. Alternatively, FHLB borrowings may be secured by marketable securities, which are generally afforded higher advance rates relative to the value of the pledged collateral. FHLB advances are a useful source of funding as they offer a broad variety of terms allowing the Bank to position its funding with greater flexibility. FHLB funding is also credit sensitive and therefore the Bank has established policies to limit the amount of its utilization of this funding source.

Other sources of liquidity include balances of cash and due from banks, short-term investments such as federal funds sold, and our investment portfolio, which can either be liquidated or used as collateral for borrowings. Additionally, our correspondent banks provide federal funds lines of credit, which may be used to access short term funds.

The Bank has established contingency plans in the event of extraordinary fluctuations in cash resources as described below.

Major sources of increases and decreases in cash and cash equivalents are as follows for the years ending December 31, 2011, 2010 and 2009 (in thousands):


	December 31, 2011			December 31, 2010			December 31, 2009
Provided by (used in) operating activities	$	5,713		$	486		$	(11,664	)
Provided by (used in) investing activities		127,260			(56,782	)		(37,293	)
(Used in) provided by financing activities		(96,735	)		67,236			(3,478	)

Net increase (decrease) in cash and cash equivalents	$	36,238		$	10,940		$	(52,435	)

As of December 31, 2011 and 2010 the Bank had unfunded loan commitments and unused lines and letters of credit totaling approximately $31.6 million and $74.1 million, respectively. See Note 10 of our Consolidated Financial Statements for a detailed discussion. We believe the likelihood of these commitments either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, the Bank has available borrowing capacity from various sources as discussed below.

The Bank has unsecured overnight federal funds purchased accommodation up to a maximum of $4.5 million from a correspondent bank. Further, the Bank has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is based on the amount of collateral pledged and limited by a percentage of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators. As of December 31, 2011, we had $67.7 million of FHLB advances outstanding and $29.1 million of letters of credit used in lieu of pledging securities to the State of Florida. Our unused borrowing capacity as of December 31, 2011 was approximately $2.1 million. At December 31, 2010, there was $67.7 million in advances outstanding, in addition to $28.8 million in letters of credit used in lieu of pledging securities to the State of Florida. Borrowings are collateralized by the Bank’s qualifying one-to-four family residential mortgage, multi-family, home equity, second mortgage and certain commercial real estate loans. The amount of unused borrowing capacity at December 31, 2010 was $42.6 million

As of December 31, 2011 our gross loan to deposit ratio was 78.7% compared to 83.3% at December 31, 2010. Management monitors and assesses the adequacy of our liquidity position on a daily and monthly basis to ensure that sufficient sources of liquidity are maintained and available.

Investment Activity.

Investment activities serve to enhance our liquidity position and interest rate sensitivity, while also providing a yield on interest earning assets. We may classify our securities as either trading, held-to-maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those which we have the positive intent and ability to hold to maturity and are reported at amortized cost. Available for sale securities consist of securities not classified as trading securities or as held-to-maturity securities. Unrealized holding gains and losses on available for sale securities, net of tax are excluded from operations and reported in other comprehensive income (loss). Securities, like loans, are subject to similar interest rate and credit risk. In addition, by their nature, securities classified as available for sale are also subject to market value risks that could negatively affect the level of liquidity available to us, as well as shareholders’ equity. A change in the value of securities held to maturity could also negatively affect the level of shareholders’ equity if there was a decline in the underlying creditworthiness of the issuers, other-than-temporary impairment is deemed or there is a change in our intent and ability to hold the securities to maturity.

As of December 31, 2011, our securities portfolio totaled $149.2 million compared to $177.5 million as of December 31, 2010, a decrease of $28.2 million. For both periods, all of our securities were classified as

available for sale. The decrease in the investment portfolio during 2011 is primarily reflected in the principal pay downs of government sponsored mortgaged-backed securities. We do not actively trade securities and do not expect to do so in the future.

The following table sets forth the carrying amount of our investment portfolio, as of December 31, 2011, 2010, and 2009:

($ in Thousands)


	December 31,
	2011		2010		2009
Fair value of investment in:
Mutual funds	$	526	$	492	$	—
Asset backed securities		—		—		302
Corporate bonds		—		—		4,196
Mortgage backed securities		148,700		176,959		95,278

Total	$	149,226	$	177,451	$	99,776

Federal Reserve Bank stock	$	1,429	$	2,781	$	3,000

Federal Home Loan Bank stock	$	4,600	$	5,032	$	5,417

The following table indicates the respective maturities and weighted-average yields of our securities as of December 31, 2011 and December 31, 2010:

($ in Thousands)


	December 31, 2011											December 31, 2010
	1 Year		1-5 Years		5-10 Years		Over 10 Years		Yield to Maturity or Call			1 Year		1-5 Years		5-10 Years		Over 10 Years		Yield to Maturity or Call
Mortgage Backed Securities	$	2,149	$	123,781	$	15,620	$	7,150		1.99	%	$	—	$	86,487	$	78,843	$	11,629		2.40	%
Mutual Funds		526		—		—		—		2.73	%		492		—		—		—		3.01	%

Total	$	2,675	$	123,781	$	15,620	$	7,150		1.99	%	$	492	$	86,487	$	78,843	$	11,629		2.40	%

Please see Note 1 to our December 31, 2011 Consolidated Financial Statements for a discussion on Other Comprehensive Income (Loss) related to our securities classified as available-for-sale.

Securities of a single issuer that had book values in excess of 10% of our shareholders’ equity at December 31, 2011 included bonds issued by the Government National Mortgage Association (GNMA) and Federal National Mortgage Association (FNMA). This exposure includes mortgage pass through securities issued directly by these agencies as well as collateralized mortgage obligations, or CMOs, issued with GNMA or FNMA underlying securities. Mortgage backed securities tend to have final maturities which are often times, substantially longer than their average lives. As of December 31, 2011, our securities portfolio had an unrealized gain of approximately $1.9 million on a pretax basis.

OTTI

We utilize a discounted cash flow modeling valuation approach in order to evaluate our securities available for sale for other than temporary impairment of value. During 2010 and 2009 the estimated fair value of certain private label asset backed securities declined due to the occurrence of defaults by certain underlying issuers and changes in the cash flow and discount rate assumptions used to estimate the value of these securities. After we

determined that the declines in values were other than temporary under generally accepted accounting principles, we recorded $0.5 million and $1.2 million of other than temporary impairment loss, for the years ended December 31, 2010 and 2009, respectively. During 2010, we sold all of the securities that had an OTTI, except one, which is valued at zero.

Deposits

The Bank’s primary source of funds is deposits. Those deposits are provided by businesses, municipalities, and individuals located within the markets served by our bank.

For the year ended December 31, 2011, total deposits decreased $102.0 million to $610.3 million compared to $712.3 million as of December 31, 2010.

As of December 31, 2011, 2010 and 2009 the distribution by type of our deposit accounts was as follows:

($ in thousands)


	Dec 31, 2011						Dec 31, 2010						Dec 31, 2009
	Average Balance			Average Rate			Average Balance			Average Rate			Average Balance			Average Rate
Noninterest bearing accounts	$	78,510			0.00	%	$	63,249			0.00	%	$	52,553			0.00	%

Interest bearing accounts
Savings, Now and MMKT		238,477			0.87	%		254,046			1.14	%		207,318			1.60	%
CDs		342,072			2.09	%		351,801			2.79	%		401,646			3.60	%

Total Interest Bearing Deposits		580,549			1.59	%		605,847			2.09	%		608,964			2.92	%

Average Total Deposits	$	659,059			1.40	%	$	669,096			1.89	%	$	661,517			2.69	%

Brokered deposits included in total deposits	$	79,383					$	69,804					$	84,358
Brokered deposits as a percentage of total deposits		12.04	%					10.43	%					12.75	%

As of December 31, 2011 certificates of deposit of $100,000 or more mature as follows:


(Dollars in thousands)	Amount		Weighted Average Rate
Up to 3 months	$	18,952		1.70	%
3 to 6 months		13,262		1.75	%
6 to 12 months		18,744		2.03	%
Over 12 months		15,496		2.24	%

Total	$	66,454		1.93	%

As of December 31, 2010, certificates of deposit of $100,000 or more mature as follows:


(Dollars in thousands)	Amount		Weighted Average Rate
Up to 3 months	$	34,263		2.10	%
3 to 6 months		11,571		1.99	%
6 to 12 months		25,653		2.50	%
Over 12 months		37,522		2.58	%

Total	$	109,009		2.35	%

Maturity terms, service fees and withdrawal penalties are established by us on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations.

Capital Resources.

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth activities, to provide stability to current operations and to promote public confidence. As of December 31, 2011 and December 31, 2010, we exceeded the levels of capital required in order to be considered “well capitalized” by the regulatory authorities. The basic measures of capitalization applied by the regulatory authorities are provided below as of December 31, 2011 and December 31, 2010 for the Company:


	As of December 31, 2011			As of December 31, 2010
Total Risk Based Capital Ratio		10.85	%		11.06	%
Tier One Risk Based Capital Ratio		8.47	%		9.78	%
Tier One Leverage Ratio		5.53	%		6.46	%

In May and June of 2009, we sold 4,584,756 shares of common stock through a rights offering solely to existing shareholders for proceeds of $18.3 million.

On July 24, 2009, we sold 20,471 shares of Series A preferred stock, par value of $.01 per share, and 1,024 shares of Series B preferred stock, to the U.S. Treasury for proceeds of $20.5 million under the U.S. Treasury’s Capital Purchase Program. The terms of the Series A preferred stock require quarterly dividend payments (the “CPP Dividends”) of (i) 5% of the outstanding principal during the first five years the issue is outstanding after which the dividend rate increases to 9%, and (ii) 9% on the outstanding principal of the Series B payable quarterly. A discount was recorded on the preferred stock, which is being accreted over a five year period.

Prior to the payment of dividends on our preferred stock issued under the U.S. Treasury Department’s Capital Purchase Program (CPP Dividends), we must request and be granted approval by the FRB. We have not paid dividends on our preferred stock for the last five quarters as a result of our agreement with the FRB that we will not pay any cash dividends without prior approval from the FRB. At December 31, 2011, we had $1.5 million in unpaid dividends owing on our preferred stock. To date, we have deferred six quarterly dividend payments. Consequently, the U.S. Treasury has the right to appoint two directors and/or observers to our Board of Directors until all accrued and unpaid dividends have been paid. To date, no new directors have been appointed by the U.S. Treasury.

On June 30, 2011 we closed a private placement offering resulting in the issuance of 5,107 shares of our Non-Cumulative Perpetual Series C Preferred Stock (“Series C Preferred Stock”) to accredited investors for an aggregate purchase price of $5.1 million in cash consideration, or $1,000 per share. In addition, during the three months ended September 30, 2011, we sold an additional 150 shares of our Series C Preferred Stock to accredited investors for an aggregate purchase price of $150 in cash considerations.

The Series C Preferred Stock may be converted at the election of a holder at any time, into shares of Common Stock after June 30, 2012, unless we close, prior to that date, a Qualified Private Offering. If we close a Qualified Private Offering prior to July 1, 2012, then the holders of our Series C Preferred Stock would convert their shares at the price per share at which the shares of Common Stock were sold in the Qualified Private Offering.

The purchasers of the shares of Series C Preferred Stock also received a non-transferable stock purchase warrant (the “Warrant”) that is immediately exercisable for 1,250 shares of Company common stock at $0.01 per share for each share of Series C Preferred Stock purchased. The Warrant may be exercised at any time, and from

time to time, in whole or in part before March 31, 2012. Please see Note 15 to these Consolidated Financial Statements for a more detailed discussion of the sale of our Series C Preferred Stock.

We believe that we have sufficient cash to meet our operating needs in the near term. However, if we incur significant operating losses or we increase our assets faster than our current plans, we may need to obtain additional capital to support our business plans and operations.

Holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors out of funds legally available for that purpose. We currently do not intend to pay dividends on our common stock in the near future. In the event that we decide to pay dividends, there are a number of restrictions on our ability to do so. We are precluded from paying cash dividends on common stock while the preferred stock issue described above remains outstanding.

The declaration and payment of dividends on our common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock and other factors deemed relevant by our Board of Directors. Regulatory authorities in their discretion could impose administratively stricter limitations on the ability of the Bank to pay dividends to us if such limits were deemed appropriate to preserve certain capital adequacy requirements.

Inflation.

The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment.

Assets and liabilities of financial institutions are virtually all monetary in nature, and therefore are primarily impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of our ability to react to changing interest rates and are discussed in further detail above.

Off-Balance Sheet Arrangements.

We do not currently have any off-balance sheet arrangements, other than approved and unfunded loans and letters of credit to our customers in the ordinary course of business.

Critical Accounting Policies.

Allowance for Loan Losses.

The allowance for loan losses is established to absorb probable incurred credit losses primarily resulting from loans outstanding as of the statement of financial condition date. Accordingly, all loan losses are charged to the allowance and all recoveries are credited to it. The provision for loan losses charged to operating expense is based on past credit loss experience and other factors which in management’s judgment deserve current recognition in estimating probable credit losses. Such other factors include growth and composition of the loan portfolio, credit concentrations, trends in portfolio volume, maturities, delinquencies and non-accruals, information about specific borrower situations and estimated collateral values, historical loss trends and general economic conditions.

While management uses the best information available to base its estimates, future adjustments to the allowance may be necessary if economic conditions, particularly in the Bank’s market areas, differ substantially from the assumptions initially used. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The Bank applies a loan loss reserve methodology and documentation process which it believes is consistent with SEC, GAAP, and bank regulatory requirements. These accounting rules require specific identification of an allowance for loan loss for an impaired loan. The Bank applies a systematic methodology where the allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The following provides a summary of the Bank’s process for establishing specific reserves for impaired loans. Initially, loans are evaluated for “impairment”, meaning management believes it is probable that a borrower will not make payments of both principal and interest in accordance with the original loan agreement. If management deems a loan to be “impaired” the loan is further evaluated to determine whether it is solely collateral dependent or not. If the impaired loan is determined to be collateral dependent it is recorded at the fair value of the collateral less selling costs and the excess of the amounts due from the borrower over the fair market value are charged off. For impaired loans which are deemed to be not solely collateral dependent, a reserve for impairment is established equal to the excess of the loan balance and the valuation of the loan. In this circumstance, loans are valued by one of three methods: fair value of collateral, discounted expected future cash flows or observable market price of the note. Impaired loans with values in excess of the loan balance may have a reserve of zero. However, impaired loans with zero reserves may not be added back to the general reserve loan pool.

Income Taxes.

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income taxes result from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The realization of deferred tax assets associated with the net operating loss carry forward, which expires in the years 2027, 2028, and 2029, as well as other deductible temporary differences is dependent upon generating sufficient future taxable income. During the year ended December 31, 2010, management determined that was more likely than not that the deferred tax asset would not be realized. Accordingly, a valuation allowance of $35.2 million was recorded, reducing the net balance to zero. As of December 31, 2011, management has not changed this belief.

Other Than Temporary Impairment

Impairment of investment securities results in a write-down that must be included in net income when a market decline below cost is other-than-temporary. We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity.

Recent Accounting Pronouncements.

The Financial Accounting Standards Board, the SEC, and other regulatory bodies have enacted new accounting pronouncements and standards that either has impacted our results in prior years presented, or will likely impact our results in 2011. Please refer to the footnote No. 1 in the Notes to our Consolidated Financial Statements for the year ended December 31, 2011.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

See “Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference.

Item 8.

Financial Statements and Supplementary Data.

Financial Statements and Supplementary Data consist of the financial statements as indexed on page F-1 and unaudited financial information presented in Part II, Item 7 “Management’s Discussion and Analysis of Results of Operations and Financial Condition”.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.

Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Act”) was carried out as of December 31, 2011, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer), our Chief Financial Officer (our principal financial officer) and other members of senior management, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

There have been no changes in our internal controls over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s Management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Under the supervision and with the participation of Management, including the Chief Executive Officer and the Chief Financial Officer, the Company’s Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2011, based on the framework established in a report entitled “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission and the interpretive guidance issued by the Securities and Exchange Commission in Release No. 34-55929.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. Based on this assessment Management believes that as of December 31, 2011, the Company’s internal control over financial reporting was effective. There were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to the final ruling by the Securities and Exchange Commission that permit the Company to provide only Management’s report in its annual report.

The Audit Committee, composed entirely of independent directors, meets periodically with Management and Hacker Johnson and Smith, PA, to discuss audit, financial and related matters. Hacker Johnson and Smith, PA, have direct access to the Audit Committee.

Item 9B.

Other Information

None

Part III

Item 10.

Directors, Executive Officers, and Corporate Governance

Executive Officers of the Registrant

The Company has a Code of Ethics that applies to its principal executive officer and principal financial officer (who is its principal accounting officer), a copy of which is included on the Company’s website, www.flbank.com at Investor Relations/Governance Documents. The website also includes a copy of the Company’s Audit Committee Charter, Compensation Committee Charter and Nominating Committee Charter. The information contained under the sections captioned “Election of Directors—Director Nominees,” “Executive Officers,” “Audit Committee Report,” and “Section 16 (A) Beneficial Ownership Reporting Compliance,” in the issuer’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2012, to be filed with the SEC pursuant to Regulation 14A within 120 days of the issuer’s fiscal year end (the “Proxy Statement”), is incorporated herein by reference.

Item 11.

Executive Compensation

The information contained in the sections captioned “Election of Directors—Committees of the Board of Directors,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider participation” in the Proxy Statement, is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information contained in the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference, and the table captioned “Equity Compensation Plan Information” on page 29 of this Form 10-K is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information contained in the section captioned “Transactions with Management and Related Persons” and “Election of Directors—Director Independence” in the Proxy Statement is incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services

The information contained in the section captioned “Audit Fees and Related Matters” in the Proxy Statement is incorporated herein by reference.

Part IV

Item 15.

Exhibits and Financial Statement Schedules

(a) Financial Statements. Please see the following financial statements set forth below beginning on page F-1:


Page		Description
F-1 – F-37		Florida Bank Group, Inc. Consolidated Financial Statements as of December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010 and 2009

(b) Exhibits. The following exhibits are furnished as exhibits hereto:


Exhibit No.		Description
3.1		Articles of Incorporation of the Registrant*

3.2		Articles of Amendment to Articles of Incorporation of the Registrant dated April 30, 2007*

3.3		Articles of Amendment to Articles of Incorporation of the Registrant dated July 15, 2009*

3.4		Articles of Amendment to Articles of Incorporation of the Registrant dated July 15, 2009*

3.5		Articles of Amendment to Articles of Incorporation of the Registrant dated April 29, 2011

3.6		Articles of Amendment to Articles of Incorporation of the Registrant dated June 29, 2011++

3.7		Restated Bylaws—December, 2009 of the Registrant*

10.1		Stock Option Plan Amended April 2007/*

10.2		Restrictive Stock Plan /*

10.3		Form of Employment Compensation Amendment, pursuant to the U.S. Treasury TARP Capital Purchase Program, signed by Robert Rothman and John Garthwaite*

10.4		Form of Waiver, pursuant to the U.S. Treasury TARP Capital Purchase Program, signed by Robert Rothman and John Garthwaite*

10.5		Securities Purchase Agreement—Standard Terms for the U.S. Treasury TARP Capital Purchase Program between the Company and the U.S. Treasury*

14.1		Code of Ethics

21.1		Subsidiaries of the Registrant*

31.1		Certification of Chief Executive Officer pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Certification of Chief Executive Officer pursuant to the Emergency Economic Stability Act of 2008.


Exhibit No.		Description

99.2		Certification of Executive Vice President and Chief Financial Officer pursuant to the Emergency Economic Stability Act of 2008.

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail.+

*	Previously filed by the Company as an exhibit to Company’s Registration Statement (Registration No. 000-53813) and such document is incorporated herein by reference.

**	Represents a management contract or a compensation plan or arrangement required to be filed as an exhibit.

***	Previously filed by the Company as an exhibit to the Company’s Form 10-Q filed on May, 10, 2010 (Registration No. 000-53813) and such document is incorporated herein by reference.

+	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

++	Previously filed by the Company as an exhibit to the Company’s Form 8-K filed on June 29, 2011 (Registration No. 000-53813) and such document is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 22^nd day of March, 2012.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 22^nd day of March, 2012.


By:		/s/ SUSAN MARTINEZ
		Susan Martinez,
		Chief Executive Officer and Director (Principal Executive Officer)

By:		/s/ GARY J. WARD
		Gary J. Ward,
		Chief Financial Officer, Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

FLORIDA BANK GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm			F-2

Consolidated Balance Sheets, December 31, 2011 and 2010			F-3

Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Years Ended December 31, 2011, 2010 and 2009			F-4

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009			F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009			F-6-F-7

Notes to Consolidated Financial Statements, December 31, 2011 and 2010 and for Each of the Years in the Three-Year Period Ended December 31, 2011			F-8-F-35

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Florida Bank Group, Inc.

Tampa, Florida:

We have audited the accompanying consolidated balance sheets of Florida Bank Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and other comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ HACKER, JOHNSON & SMITH PA

HACKER, JOHNSON & SMITH PA

Tampa, Florida

March 22, 2012

F-2

FLORIDA BANK GROUP, INC.

Consolidated Balance Sheets

($ in thousands, except share amounts)


	At December 31,
	2011			2010
Assets
Cash and due from banks	$	8,375		$	4,618
Interest-bearing Deposits and Federal Funds Sold		68,164			35,683

Cash and cash equivalents		76,539			40,301
Securities available for sale		149,226			177,451
Loans, net of allowance for loan losses of $19,463 in 2011 and $20,830 in 2010		460,422			572,045
Federal Reserve Bank stock, at cost		1,429			2,781
Federal Home Loan Bank stock, at cost		4,600			5,032
Accrued interest receivable		1,831			2,475
Premises and equipment, net		24,977			25,815
Foreclosed real estate		6,770			7,018
Prepaid expenses and other assets		3,597			5,490

Total assets	$	729,391		$	838,408

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	75,157		$	68,168
Interest-bearing demand		53,926			72,247
Savings		9,954			10,043
Money market		165,776			201,718
Time		305,496			360,158

Total deposits		610,309			712,334
Accrued expenses and other liabilities		4,346			4,768
Federal Home Loan Bank advances		67,700			67,700

Total liabilities		682,355			784,802

Commitments and contingencies (Notes 4, 10, 13 and 18)

Stockholders’ equity:
Preferred Stock Series A, $.01 par value; $1,000 liquidation value; 20,471 shares outstanding		20,471			20,471
Preferred Stock Series B, $.01 par value; $1,000 liquidation value; 1,024 shares outstanding		1,024			1,024
Preferred Stock Series C, $.01 par value; $1,000 liquidation value; 5,257 shares outstanding in 2011		5,257			—
Preferred Stock—Discount		(525	)		(730	)
Common stock, $.01 par value, 250,000,000 and 50,000,000 shares authorized in 2011 and 2010, respectively, 18,279,398 and 14,341,898 shares issued in 2011 and 2010, respectively		183			143
Additional paid-in capital		152,099			150,817
Treasury stock (12,583 shares), at cost		(164	)		(164	)
Accumulated deficit		(132,493	)		(113,848	)
Accumulated other comprehensive income (loss)		1,184			(4,107	)

Total stockholders’ equity		47,036			53,606

	$	729,391		$	838,408

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FLORIDA BANK GROUP, INC.

Consolidated Statements of Operations and Other Comprehensive Income (Loss)

($ in thousands, except per share amounts)


	Year Ended December 31,
	2011			2010			2009
Interest income:
Loans	$	28,540		$	33,619		$	36,514
Securities available for sale		3,905			4,084			3,767
Other interest-earning assets		256			273			317

Total interest income		32,701			37,976			40,598

Interest expense:
Deposits :
Demand		350			584			508
Savings		39			67			123
Money market		1,683			2,232			2,687
Time		7,153			9,804			14,471
Federal Home Loan Bank advances		2,893			3,153			3,517

Total interest expense		12,118			15,840			21,306

Net interest income before provision for loan losses		20,583			22,136			19,292
Provision for loan losses		15,962			28,190			19,494

Net interest income (expense) after provision for loan losses		4,621			(6,054	)		(202	)

Non interest income:
Service charges on deposit accounts		892			940			915
Other service charges and fees		610			581			342
Gain (loss) on sale of securities available for sale		85			3,027			(47	)
Other-than temporary impairment of securities available for sale ⁽¹⁾		—			(549	)		(1,184	)
Other		822			696			432

Total non interest income		2,409			4,695			458

Non interest expenses:
Salaries and employee benefits		10,596			13,888			11,338
Occupancy		4,620			5,544			5,625
Data processing		1,375			1,206			1,480
Stationary, printing and supplies		270			286			339
Business development		183			393			379
Insurance, including deposit insurance premium		2,344			2,278			2,293
Professional fees		984			1,739			1,044
Marketing		56			71			119
Permanent impairment of goodwill		—			—			4,707
Federal Home Loan Bank advance prepayment penalties		2			751			1,296
Loss on sale of foreclosed real estate		137			372			723
Write-down of foreclosed real estate		2,618			1,260			940
Foreclosed real estate expense		612			553			1,143
Other		1,074			1,150			1,366

Total non interest expense		24,871			29,491			32,792

Loss before income tax benefit		(17,841	)		(30,850	)		(32,536	)
Income (benefit) tax expense		(690	)		23,683			(10,436	)

Net loss		(17,151	)		(54,533	)		(22,100	)
Preferred stock dividend requirements and discount accretion		(2,610	)		(1,321	)		(576	)

Net loss available to common stockholders		(19,761	)		(55,854	)		(22,676	)

Loss per common share:
Basic and Diluted	$	(1.29	)	$	(3.90	)	$	(1.83	)

Other comprehensive loss:
Net loss		(17,151	)		(54,533	)		(22,100	)
Change in unrealized holding gains (losses) on securities available for sale, net of tax		5,291			(4,525	)		581

Comprehensive loss	$	(11,860	)	$	(59,058	)	$	(21,519	)

(1)	Includes $1.5 million of total other than temporary impairment losses for 2009 , net of $354 non-credit related impairment losses recorded in other comprehensive income , before taxes. See note 2 to these consolidated financial statements. For 2011 and 2010 there was non on-credit component.

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FLORIDA BANK GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009

($ in thousands, except share amounts)


	Preferred Stock																	Common Stock													Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Series A				Series B							Series C										Additional Paid-in Capital			Treasury Stock			Accumulated Deficit
	Shares		Amount		Shares		Amount		Discount			Shares		Amount		Discount		Shares		Amount		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit
Balance, December 31, 2008		—		—		—		—		—			—		—		—		9,757,142		98		132,658			(164	)		(35,739	)		(163	)		96,690
Net loss		—		—		—		—		—			—		—				—		—		—			—			(22,100	)		—			(22,100	)
Other comprehensive income attributable to change in unrealized loss on available for sale securities, net of income taxes		—		—		—		—		—			—		—		—		—		—		—			—			—			581			581
Proceeds from sale of common stock, net of stock issuance costs of $(83)		—		—		—		—		—			—		—		—		4,584,756		45		18,212			—			—			—			18,257
Proceeds from issuance of 20,471 shares of Series A preferred stock to US Treasury		20,471	$	20,471		—		—		—			—		—		—		—		—		—			—			—			—			20,471
Preferred stock warrants exercised by US treasury		—		—		1,024	$	1,024	$	(1,024	)		—		—		—		—		—		—			—			—			—			—
Preferred stock dividend requirements and discount accretion		—		—		—		—		89			—		—		—		—		—		—			—			(576	)		—			(487	)
Preferred stock issuance costs		—		—		—		—		—			—		—		—		—		—		(53	)		—			—			—			(53	)

Balance, December 31, 2009		20,471		20,471		1,024		1,024		(935	)		—		—		—		14,341,898		143		150,817			(164	)		(58,415	)		418			113,359
Net loss		—		—		—		—		—			—		—		—		—		—		—			—			(54,533	)		—			(54,533	)
Other comprehensive income attributable to change in unrealized loss on available for sale securities, net of income taxes		—		—		—		—		—			—		—		—		—		—		—			—			—			(4,525	)		(4,525	)
Preferred stock dividend requirements and discount accretion

FLORIDA BANK GROUP, INC.

(Registrant)

Date: March 22, 2012

/s/ SUSAN MARTINEZ

Susan Martinez

Chief Executive Officer

Florida Bank Group, Inc. 10-K