The company and the bank must submit plans showing how they will sustain sufficient capital, improve the bank's earnings, strengthen board oversight of management and operations, and reduce problem assets and exposure to commercial real estate. The company also can't declare dividends or borrow any money without regulators' approval.
Patapsco Bank, with four branches, had $248.7 million in assets at the end of September, down $5.7 million from three months earlier.
Michael J. Dee, Patapsco's president and CEO, said the bank's troubles in recent years stem from business and commercial real estate loans that soured during the weak economy.
"We believe we are turning the corner," he added.
The company released its first quarter earnings on Wednesday, posting a profit of $365,000 or 18 cents per share, in the quarter ending Sept. 30. A year earlier, Patapsco earned $128,000, or 7 cents per share. Patapsco credited its improved performance to a reduction in the amount needed to set aside for potential loan losses in the quarter.
Nonperforming assets — bad loans and foreclosed real estate — amounted to 3.49 percent of total assets in the quarter, compared with 4.62 percent a year earlier.
For the fiscal year, Patapsco lost $2 million, or $1.02 a share, on top of a previous year's loss of $3.27 million. The company said those results were significantly affected by $3.1 million set aside for potential loan losses.
Banking analyst Bert Ely said that by regulatory standards, Patapsco was well capitalized. The written agreement between the company and regulators is not unusual, but is a sign that regulators want to see more improvement than there has been, Ely said.
Patapsco's stock closed at $1 a share on Tuesday, unchanged for the day.
"The combination of the stock market and the Fed agreement suggests there is a lot of work to do at the bank," Ely said. "Things haven't turned around."