Attached files
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EX-32 - EX-32 - FGBC Bancshares, Inc. | g21303exv32.htm |
EX-31.2 - EX-31.2 - FGBC Bancshares, Inc. | g21303exv31w2.htm |
EX-31.1 - EX-31.1 - FGBC Bancshares, Inc. | g21303exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended: September 30, 2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission File Number: 000-51957
FGBC BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Georgia | 20 - 02743161 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
101 Main Street, Franklin, Georgia 30217
(Address of principal executive office)
(678) 839-4510 (Issuers telephone number)
N/A (Former name, former address and former fiscal year, if changed since last report)
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 þ No o
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 (Section 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 o No o
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.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
There were 13,974,090 shares of common stock outstanding as of November 1, 2009.
INDEX
Table of Contents
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this Report) contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act)
and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These
forward-looking statements include or relate to our future results, including certain projections
and business trends. Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict accurately and many of
which are beyond our control. When used in this Report, the words estimate, project, intend,
believe and expect and similar expressions identify forward-looking statements. Although we
believe that assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate, and we may not realize the results contemplated by the
forward-looking statement. Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business developments, the
impact of which may cause us to alter our business strategy that may, in turn, affect our results
of operations. In light of the significant uncertainties inherent in the forward-looking
information included in this Report, you should not regard the inclusion of this information as our
representation that we will achieve any strategy, objectives or other plans. The forward-looking
statements contained in this Report speak only as of the date of the Report and we undertake no
obligation to update or revise any of these forward-looking statements.
The forward-looking statements that we make in this Report, as well as other statements that
are not historical facts, are based largely on managements current expectations and assumptions
and are subject to a number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by forward-looking statements. These risks and uncertainties
include, among other things, the risks and uncertainties described in Item 1A of our Annual Report
on Form 10-K filed with the Securities and Exchange Commission on April 2, 2009 and in Item 1A of
Part II to this Quarterly Report on Form 10-Q.
3
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FGBC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | (audited) | |||||||
Assets |
||||||||
Cash and due from banks |
$ | 12,772,301 | $ | 8,858,796 | ||||
Interest-bearing deposits in banks |
31,686,020 | 11,042,345 | ||||||
Federal funds sold |
| 722,000 | ||||||
Securities available-for-sale, at fair value |
48,955,117 | 71,764,629 | ||||||
Restricted equity securities, at cost |
2,694,000 | 2,053,400 | ||||||
Loans |
634,853,596 | 683,177,685 | ||||||
Less allowance for loan losses |
15,230,085 | 11,013,996 | ||||||
Loans, net |
619,623,511 | 672,163,689 | ||||||
Premises and equipment |
37,517,639 | 37,898,122 | ||||||
Foreclosed assets |
14,714,558 | 6,041,163 | ||||||
Deferred tax asset, net |
8,157,055 | 4,441,757 | ||||||
Accrued interest receivable |
3,391,107 | 3,880,284 | ||||||
Other assets |
1,720,243 | 2,519,436 | ||||||
Total assets |
$ | 781,231,551 | $ | 821,385,621 | ||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 43,396,896 | $ | 34,959,706 | ||||
Interest-bearing |
674,224,830 | 702,131,988 | ||||||
Total deposits |
717,621,726 | 737,091,694 | ||||||
Other borrowings |
4,000,000 | 16,750,000 | ||||||
Accrued interest payable |
588,285 | 953,088 | ||||||
Other liabilities |
1,682,548 | 777,044 | ||||||
Total liabilities |
723,892,559 | 755,571,826 | ||||||
Stockholders equity |
||||||||
Preferred stock, par value $0; 10,000,000 shares authorized;
0 shares issued and outstanding |
| | ||||||
Common stock, par value $0; 100,000,000 shares authorized;
13,974,090 and 12,492,206 shares issued and outstanding,
respectively |
77,338,707 | 71,907,920 | ||||||
Accumulated deficit |
(20,348,720 | ) | (5,692,364 | ) | ||||
Accumulated other comprehensive income (loss) |
349,005 | (401,761 | ) | |||||
Total stockholders equity |
57,338,992 | 65,813,795 | ||||||
Total liabilities and stockholders equity |
$ | 781,231,551 | $ | 821,385,621 | ||||
See Notes to Consolidated Financial Statements.
4
Table of Contents
FGBC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Interest income: |
||||||||||||||||
Loans, including fees |
$ | 9,205,976 | $ | 10,586,518 | $ | 28,022,612 | $ | 31,134,079 | ||||||||
Taxable securities |
415,401 | 752,249 | 1,491,470 | 2,394,566 | ||||||||||||
Nontaxable securities |
139,889 | 151,873 | 428,591 | 466,499 | ||||||||||||
Federal funds sold |
5,990 | 26,288 | 19,821 | 104,910 | ||||||||||||
Other interest income |
58,539 | 14,645 | 153,255 | 60,917 | ||||||||||||
Total interest income |
9,825,795 | 11,531,573 | 30,115,749 | 34,160,971 | ||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
3,936,107 | 5,878,593 | 14,078,986 | 17,704,580 | ||||||||||||
Other borrowings |
11,015 | 161,836 | 448,779 | 324,102 | ||||||||||||
Total interest expense |
3,947,122 | 6,040,429 | 14,527,765 | 18,028,682 | ||||||||||||
Net interest income |
5,878,673 | 5,491,144 | 15,587,984 | 16,132,289 | ||||||||||||
Provision for loan losses |
11,796,831 | 2,151,138 | 18,048,008 | 4,576,217 | ||||||||||||
Net interest income (expense) after
provision for loan losses |
(5,918,158 | ) | 3,340,006 | (2,460,024 | ) | 11,556,072 | ||||||||||
Other income: |
||||||||||||||||
Service charges on deposit accounts |
538,105 | 582,466 | 1,530,876 | 1,669,434 | ||||||||||||
Mortgage origination fees |
212,108 | 281,633 | 848,691 | 1,000,737 | ||||||||||||
Net gain on sale of securities available
for sale |
1,896 | | 723,227 | 629,987 | ||||||||||||
Net gain on sale of premises and equipment |
| 12,167 | | 182,305 | ||||||||||||
Other operating income |
62,206 | 45,392 | 207,008 | 180,648 | ||||||||||||
Total other income |
814,315 | 921,658 | 3,309,802 | 3,663,111 | ||||||||||||
Other expenses: |
||||||||||||||||
Salaries and employee benefits |
2,785,035 | 3,201,367 | 8,812,187 | 10,159,410 | ||||||||||||
Equipment and occupancy expenses |
846,834 | 888,266 | 2,533,235 | 2,529,068 | ||||||||||||
Net loss on sale of foreclosed assets |
474,261 | 145,217 | 813,873 | 320,958 | ||||||||||||
Write down of foreclosed assets |
549,613 | | 1,106,859 | | ||||||||||||
Foreclosed asset expenses |
822,634 | 42,006 | 1,410,107 | 120,366 | ||||||||||||
FDIC insurance premiums |
445,409 | 128,520 | 1,613,626 | 351,159 | ||||||||||||
Other operating expenses |
1,365,445 | 1,374,975 | 3,941,814 | 4,106,321 | ||||||||||||
Total other expenses |
7,289,231 | 5,780,351 | 20,231,701 | 17,587,282 | ||||||||||||
Loss before income taxes |
(12,393,074 | ) | (1,518,687 | ) | (19,381,923 | ) | (2,368,099 | ) | ||||||||
Income tax benefit |
(2,068,347 | ) | (591,070 | ) | (4,725,565 | ) | (966,671 | ) | ||||||||
Net loss |
(10,324,727 | ) | (927,617 | ) | (14,656,358 | ) | (1,401,428 | ) | ||||||||
Basic losses per share |
$ | (0.76 | ) | $ | (0.08 | ) | $ | (1.14 | ) | $ | (0.11 | ) | ||||
Diluted losses per share |
$ | (0.76 | ) | $ | (0.08 | ) | $ | (1.14 | ) | $ | (0.11 | ) | ||||
Cash dividends per share |
$ | | $ | | $ | | $ | | ||||||||
See Notes to Consolidated Financial Statements.
5
Table of Contents
FGBC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss |
$ | (10,324,727 | ) | $ | (927,617 | ) | $ | (14,656,358 | ) | $ | (1,401,428 | ) | ||||
Other comprehensive loss: |
||||||||||||||||
Reclassification adjustment for net losses on sales of securities
included in net income, net of tax of $720 and $0 for
(three months) and $274,826 and $239,394 for (nine months) |
(1,175 | ) | | (448,401 | ) | (390,593 | ) | |||||||||
Net unrealized holding gains (losses) on securities available for sale
arising during period, net of tax benefit of $890,196 and
$536,529
for (three months) and $734,974 and $36,673 for (nine months) |
1,452,424 | 875,388 | 1,199,167 | 59,836 | ||||||||||||
Other comprehensive gain (loss) |
1,451,249 | 875,388 | 750,766 | (330,757 | ) | |||||||||||
Comprehensive loss |
$ | (8,873,478 | ) | $ | (52,229 | ) | $ | (13,905,592 | ) | $ | (1,732,185 | ) | ||||
See Notes to Consolidated Financial Statements.
6
Table of Contents
FGBC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
2009 | 2008 | |||||||
OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (14,656,358 | ) | $ | (1,401,428 | ) | ||
Adjustments to reconcile net loss to net cash
provided by operating activities: |
||||||||
Depreciation |
1,463,020 | 1,461,562 | ||||||
Amortization and accretion of securities |
142,593 | 18,571 | ||||||
Provision for loan losses |
18,048,008 | 4,576,217 | ||||||
Writedown of foreclosed assets |
1,106,859 | | ||||||
Stock compensation expense |
232,107 | 269,095 | ||||||
Deferred taxes |
(3,715,298 | ) | (1,410,066 | ) | ||||
Net gain on sale of securities available for sale |
(723,227 | ) | (629,987 | ) | ||||
Net loss on sale of foreclosed assets |
813,873 | 320,958 | ||||||
Net gain on sale of premises and equipment |
| (182,305 | ) | |||||
Increase (decrease) in income taxes payable |
857,613 | (117,397 | ) | |||||
Decrease in interest receivable |
489,177 | 532,067 | ||||||
Decrease in interest payable |
(364,803 | ) | (68,212 | ) | ||||
Net other operating activities |
387,022 | (568,194 | ) | |||||
Net cash provided by operating activities |
4,080,586 | 2,800,881 | ||||||
INVESTING ACTIVITIES |
||||||||
Increase in interest bearing deposits in banks |
(20,643,675 | ) | (6,151 | ) | ||||
Purchases of securities available for sale |
(28,253,010 | ) | (42,954,149 | ) | ||||
Proceeds from maturities of securities available for sale |
14,567,298 | 9,224,781 | ||||||
Proceeds from sales of securities available for sale |
38,286,770 | 42,197,663 | ||||||
Purchases of restricted equity securities |
(640,600 | ) | (944,100 | ) | ||||
Decrease in federal funds sold |
722,000 | 2,582,000 | ||||||
Net (increase) decrease in loans |
17,198,676 | (156,925,283 | ) | |||||
Purchase of premises and equipment |
(1,082,537 | ) | (5,632,963 | ) | ||||
Proceeds from sale of foreclosed assets |
6,870,083 | 1,262,293 | ||||||
Proceeds from sale of premises and equipment |
| 1,018,997 | ||||||
Additions to other real estate owned |
(170,798 | ) | (270,549 | ) | ||||
Net cash provided by (used in) investing activities |
26,854,207 | (150,447,461 | ) | |||||
FINANCING ACTIVITIES |
||||||||
Net increase (decrease) in deposits |
(19,469,968 | ) | 128,978,973 | |||||
Net increase in (repayments of) other borrowings |
(12,750,000 | ) | 16,750,000 | |||||
Proceeds from sale of common stock |
5,056,667 | 3,601,650 | ||||||
Proceeds from exercise of stock options |
142,013 | 182,953 | ||||||
Purchase of fractional shares of common stock |
| (7,944 | ) | |||||
Net cash provided by (used in) financing activities |
(27,021,288 | ) | 149,505,632 | |||||
Net increase in cash and due from banks |
3,913,505 | 1,859,052 | ||||||
Cash and due from banks, beginning of period |
8,858,796 | 6,112,287 | ||||||
Cash and due from banks, end of period |
$ | 12,772,301 | $ | 7,971,339 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||
Cash paid during period for: |
||||||||
Interest |
$ | 14,545,691 | $ | 18,167,101 | ||||
Income taxes |
$ | | $ | 336,000 | ||||
NONCASH TRANSACTIONS |
||||||||
Financed sales of foreclosed assets |
$ | 4,331,163 | $ | | ||||
Loans transferred to foreclosed assets |
$ | 21,624,657 | $ | 4,413,848 |
See Notes to Consolidated Financial Statements.
7
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FGBC BANCSHARES, INC.
AND SUBSIDIARY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
September 30, 2009
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The financial information contained herein is unaudited. Accordingly, the information does not
include all the information and footnotes required by generally accepted accounting principles for
complete financial statements, however, such information reflects all adjustments (consisting
solely of normal recurring adjustments), which are, in the opinion of management, necessary for a
fair statement of results for the interim periods
Operating results for the three and nine-month periods ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2009. These
statements should be read in conjunction with the financial statements and footnotes thereto
included in the Companys annual report on Form 10-K for the year ended December 31, 2008.
NOTE 2. LOSSES PER COMMON SHARE
The Company is required to report earnings (losses) per common share with and without the dilutive
effects of potential common stock issuances from instruments such as options, convertible
securities and warrants on the face of the statements of operations. Earnings (losses) per common
share are based on the weighted average number of common shares outstanding during the period while
the effects of potential common shares outstanding during the period are included in diluted
earnings (losses) per share. Presented below is a summary of the components used to calculate
basic and diluted earnings (losses) per common share.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Basic earnings (losses) per share: |
||||||||||||||||
Weighted average common shares outstanding |
13,575,392 | 12,326,820 | 12,876,424 | 12,238,873 | ||||||||||||
Net income (loss) |
$ | (10,324,727 | ) | $ | (927,617 | ) | $ | (14,656,358 | ) | $ | (1,401,428 | ) | ||||
Basic earnings (losses) per share |
$ | (0.76 | ) | $ | (0.08 | ) | $ | (1.14 | ) | $ | (0.11 | ) | ||||
Diluted earnings (losses) per share: |
||||||||||||||||
Weighted average common shares outstanding |
13,575,392 | 12,326,820 | 12,876,424 | 12,238,873 | ||||||||||||
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year |
| | | | ||||||||||||
Total weighted average common shares and
common stock equivalents outstanding |
13,575,392 | 12,326,820 | 12,876,424 | 12,238,873 | ||||||||||||
Net income (loss) |
$ | (10,324,727 | ) | $ | (927,617 | ) | $ | (14,656,358 | ) | $ | (1,401,428 | ) | ||||
Diluted earnings (losses) per share |
$ | (0.76 | ) | $ | (0.08 | ) | $ | (1.14 | ) | $ | (0.11 | ) | ||||
Potential common shares totaling 1,309,066 and 1,099,319 for the three and nine-months ended
September 30, 2009 respectively were anti-dilutive and not included in the computation of diluted
earnings per share.
8
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NOTE 3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In April 2009, the FASB issued three related accounting pronouncements to provide further
application guidance and enhanced disclosures of fair value measurements and impairments of
securities. These pronouncements provide guidance for making fair value measurements more
consistent with existing accounting principles when the volume and level of activity for the asset
or liability have significantly decreased. The pronouncements also enhance consistency in
reporting by increasing the frequency of fair value disclosures and modifies existing general
accounting standards for and disclosure of other-than-temporary impairment (OTTI) losses for
impaired debt securities.
The fair value measurement guidance of these pronouncements reaffirms the need for entities to use
judgment in determining if a formerly active market has become inactive and in determining fair
values when markets have become inactive. Prior to these pronouncements, fair value disclosures
for instruments covered by the pronouncements were required for annual statements only. These
disclosures are now required in interim financial statements. The general standards of accounting
for OTTI losses were changed to require the recognition of an OTTI loss in earnings only when an
entity (1) intends to sell the debt security; (2) more likely than not will be required to sell the
security before recovery of its amortized cost basis; or (3) does not expect to recover the entire
amortized cost basis of the security. When an entity intends to sell or more likely than not will
be required to sell a security, the entire OTTI loss must be recognized in earnings. In all other
situations, only the portion of the OTTI losses representing the credit loss must be recognized in
earnings, with the remaining portion being recognized in other comprehensive income, net of
deferred taxes.
All three pronouncements were effective for interim and annual reports ending after June 15, 2009.
Early adoption was permitted for interim and annual periods ending after March 15, 2009, but
concurrent adoption of all three was required. The Company adopted the provisions of these
pronouncements for the quarter ending June 30, 2009. The adoption of these provisions did not have
an impact on the consolidated financial statements.
In May 2009, the FASB issued an accounting pronouncement establishing general standards of
accounting for and disclosure of subsequent events. The pronouncement defines recognized
subsequent events as those that give evidence of conditions that existed at the balance-sheet date
and non-recognized subsequent events as those that provide evidence about conditions that arose
after the balance-sheet date but prior to the issuance of the financial statements. Entities must
recognize in the financial statements the effect of recognized subsequent events, but cannot
recognize the effects in the financial statements of non-recognized subsequent events. This
pronouncement also requires entities to disclose the date through which subsequent events have been
evaluated. This pronouncement was effective for interim and annual periods ending after June 30,
2009. The Company adopted this pronouncement for the quarter ended June 30, 2009, and adoption did
not have an impact on the consolidated financial statements.
In June 2009, the FASB issued an accounting pronouncement establishing the FASB Accounting
Standards CodificationTM (the ASC) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities. This pronouncement
was effective for financial statements issued for interim and annual periods ending after September
30, 2009. On the effective date, this pronouncement superseded all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative. The Company adopted this new accounting
pronouncement effective September 30, 2009. There was no impact on the consolidated financial
statements from the adoption of this pronouncement.
NOTE 4. FAIR VALUE MEASUREMENT
Measurement of fair value under United States generally accepted accounting principles (US GAAP)
establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair
value, as of the measurement date, into three broad levels, which are described below:
Level 1: | Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. | |
Level 2: | Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. | |
Level 3: | Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible, as well as
considers counterparty credit risk in its assessment of fair value.
Securities Where quoted prices are available in an active market, securities are classified
within level 1 of the hierarchy. Level 1 securities include highly liquid government securities
such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary
markets for which quoted market prices are not available, the Company generally relies on prices
obtained from independent vendors. Securities measured with these techniques are
9
Table of Contents
classified within Level 2 of the hierarchy and often involve using quoted market prices for similar
securities, pricing models or discounted cash flow calculations using inputs observable in the
market where available. Examples include U.S. government agency securities, mortgage-backed
securities, obligations of states and political subdivisions, and certain corporate, asset-backed
and other securities. In certain cases where Level 1 or Level 2 inputs are not available,
securities are classified in Level 3 of the hierarchy.
Impaired Loans Impaired loans are measured and reported at fair value when full payment under
the loan terms is not expected. Impaired loans are carried at the present value of estimated
future cash flows using the loans existing rate or the fair value of the collateral if the loan is
collateral-dependent. Impaired loans are subject to nonrecurring fair value adjustment. A portion
of the allowance for loan losses is allocated to impaired loans if the value of such loans is
deemed to be less than the unpaid balance. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the impaired loan as
nonrecurring Level 2. When an appraised value is not available or management determines the fair
value of the collateral is further impaired below the appraised value and there is no observable
market price, the Company records the impaired loan as nonrecurring Level 3.
Foreclosed Assets Foreclosed assets are adjusted to fair value upon transfer of the loans to
foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or
fair value. Fair value is based upon independent market prices, appraised values of the collateral
or managements estimation of the value of the collateral. When the fair value of the collateral
is based on an observable market price, the Company records the foreclosed asset as nonrecurring
Level 2. When an appraised value is not available or management determines the fair value of the
collateral is further impaired below the appraised value and there is no observable market price,
the Company records the foreclosed asset as nonrecurring Level 3.
The following table presents the fair value hierarchy of the Companys financial assets and
financial liabilities measured at fair value as of September 30, 2009:
(In Thousands) | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets measured on a recurring basis: |
||||||||||||||||
Available for sale securities |
$ | | $ | 48,955 | $ | | $ | 48,955 | ||||||||
Total assets at fair value |
$ | | $ | 48,955 | $ | | $ | 48,955 | ||||||||
Assets measured on a nonrecurring
basis: |
||||||||||||||||
Impaired loans |
$ | | $ | 15,107 | $ | 10,904 | $ | 26,011 | ||||||||
Foreclosed assets |
| 6,651 | 8,063 | 14,714 | ||||||||||||
Total assets at fair value |
$ | | $ | 21,758 | $ | 18,967 | $ | 40,725 | ||||||||
The fair value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best determined based
upon quoted market prices. However, in many instances, there are no quoted market prices for the
Companys various financial instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. Current US GAAP excludes certain financial instruments and
all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the underlying fair value of
the Company.
The carrying amount and estimated fair value of the Companys financial instruments, including
those that are not measured and reported at fair value on a recurring basis or non-recurring basis,
at September 30, 2009 and December 31, 2008 were as follows:
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September 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||
Financial Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 44,458 | $ | 44,458 | $ | 20,623 | $ | 20,623 | ||||||||
Securities available-for-sale |
48,955 | 48,955 | 71,764 | 71,764 | ||||||||||||
Restricted equity securities |
2,694 | 2,694 | 2,053 | 2,053 | ||||||||||||
Loans, net |
619,624 | 615,957 | 672,164 | 667,130 | ||||||||||||
Accrued interest receivable |
3,391 | 3,391 | 3,880 | 3,880 | ||||||||||||
Financial Liabilities: |
||||||||||||||||
Deposits |
$ | 717,622 | $ | 722,553 | $ | 737,092 | $ | 741,079 | ||||||||
Other borrowings |
4,000 | 4,000 | 16,750 | 17,010 | ||||||||||||
Accrued interest payable |
588 | 588 | 953 | 953 |
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statements of financial condition
for cash and cash equivalents approximate those assets fair values.
Securities available-for-sale: Fair values for investment securities are based on quoted market
prices.
Restricted Equity Securities: The carrying value of restricted equity securities with no readily
determinable fair value approximates fair value.
Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant
change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated
based on discounted contractual cash flows, using interest rates currently being offered for loans
with similar terms to borrowers with similar credit quality. The fair value of impaired loans is
estimated based on discounted contractual cash flows or underlying collateral values, where
applicable.
Deposits: The carrying amount of demand deposits, savings deposits, and variable-rate certificates
of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is
estimated based on discounted contractual cash flows using interest rates currently being offered
for certificates of similar maturities.
Other Borrowings: Other borrowings are daily rate credits, which reprice daily and are carried on
the statements of financial condition at fair value.
Accrued Interest: The carrying amount of accrued interest approximates fair value.
NOTE 5. SECURITIES AVAILABLE-FOR-SALE
The amortized cost and fair value of securities available-for-sale with gross unrealized gains and
losses are summarized on the following page:
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Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
September 30, 2009: |
||||||||||||||||
U.S. Government sponsored
agency securities |
$ | 11,342,824 | $ | 75,372 | $ | (15,031 | ) | $ | 11,403,165 | |||||||
Mortgage-backed securities |
21,658,449 | 426,387 | (32,285 | ) | 22,052,551 | |||||||||||
State, county and municipals |
12,847,708 | 398,272 | (122,666 | ) | 13,123,314 | |||||||||||
Corporate securities |
2,543,224 | | (167,137 | ) | 2,376,087 | |||||||||||
$ | 48,392,205 | $ | 900,031 | $ | (337,119 | ) | $ | 48,955,117 | ||||||||
December 31, 2008: |
||||||||||||||||
U.S. Government sponsored
agency securities |
$ | 20,478,647 | $ | 647,993 | $ | | $ | 21,126,640 | ||||||||
Mortgage-backed securities |
34,199,020 | 696,568 | (76,228 | ) | 34,819,360 | |||||||||||
State, county and municipals |
15,187,226 | 2,170 | (1,648,137 | ) | 13,541,259 | |||||||||||
Corporate securities |
2,547,738 | 7,500 | (277,868 | ) | 2,277,370 | |||||||||||
$ | 72,412,631 | $ | 1,354,231 | $ | (2,002,233 | ) | $ | 71,764,629 | ||||||||
Securities with a carrying value of $7,026,256 and $20,744,709 as of September 30, 2009 and
December 31, 2008, respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.
The tables below show the gross unrealized losses and fair value of securities, aggregated by
category and length of time that securities have been in a continuous unrealized loss position.
Less Than Twelve Months | Twelve Months or More | |||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
Fair Value | Losses | Fair Value | Losses | |||||||||||||
(In Thousands) | ||||||||||||||||
September 30, 2009: |
||||||||||||||||
U.S. Government sponsored agencies |
$ | 11,403,165 | $ | (15,031 | ) | $ | | $ | | |||||||
Mortgage-backed securities |
22,052,551 | (32,285 | ) | | | |||||||||||
State, county and municipal securities |
11,608,606 | (104,075 | ) | 1,514,708 | (18,591 | ) | ||||||||||
Corporate securities |
930,000 | (70,000 | ) | 1,446,087 | (97,137 | ) | ||||||||||
$ | 45,994,322 | $ | (221,391 | ) | $ | 2,690,795 | $ | (115,728 | ) | |||||||
December 31, 2008: |
||||||||||||||||
U.S. Government sponsored agencies |
$ | | $ | | $ | | $ | | ||||||||
Mortgage-backed securities |
6,336,827 | (73,011 | ) | 971,055 | (3,217 | ) | ||||||||||
State, county and municipal securities |
12,365,148 | (1,492,817 | ) | 888,316 | (155,320 | ) | ||||||||||
Corporate securities |
1,269,870 | (277,868 | ) | | | |||||||||||
$ | 19,981,845 | $ | (1,843,696 | ) | $ | 1,859,371 | $ | (158,537 | ) | |||||||
Unrealized gains and losses within the investment portfolio are determined to be temporary.
The Company has performed an evaluation of its investments at September 30, 2009 and no other than
temporary impairment was identified. Our corporate securities consist solely of two trust
preferred securities of financial institution holding companies who continue to make their
contractual interest payments. Management has no specific intent to sell any securities and it is
more likely than not that the Company will not have to sell any security before recovery of its
cost basis.
The amortized cost and fair value of debt securities as of September 30, 2009 by contractual
maturity are shown on the following page. Actual maturities may differ from contractual maturities
of mortgage-backed securities because the mortgages underlying the securities may be called or
repaid without penalty. Therefore, these securities are not included in the maturity categories in
the following summary.
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Amortized | Fair | |||||||
Cost | Value | |||||||
Due from one to five years |
$ | 285,534 | $ | 305,115 | ||||
Due from five to ten years |
4,622,742 | 4,682,210 | ||||||
After ten years |
21,825,480 | 21,915,241 | ||||||
Mortgage-backed securities |
21,658,449 | 22,052,551 | ||||||
$ | 48,392,205 | $ | 48,955,117 | |||||
The gross gains and losses realized by the Company from sales of available-for-sale
securities for the three and nine months ended September 30, 2009 and 2008 respectively were as
follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Gross gains realized |
$ | 1,896 | $ | | $ | 723,227 | $ | 655,643 | ||||||||
Gross losses realized |
| | | (25,656 | ) | |||||||||||
Net realized gains |
$ | 1,896 | $ | | $ | 723,227 | $ | 629,987 | ||||||||
NOTE 6. SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through November 23, 2009, the filing date of this
Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q includes
appropriate disclosure of events both recognized in the financial statements as of September 30,
2009, and events which occurred subsequent to September 30, 2009 but were not recognized in the
financial statements. As of November 23, 2009, there were no subsequent events which required
recognition or disclosure.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following is managements discussion and analysis of certain significant factors which have
affected our financial position and operating results during the periods included in the
accompanying consolidated financial statements.
Overview
We experienced a net loss for the nine months ended September 30, 2009 of $14.7 million, an
increase in loss of $13.3 million as compared with the $1.4 million net loss we experienced in the
corresponding period in 2008. The net loss for the three months ended September 30, 2009 was $10.3
million compared to a net loss of $928,000 for the same period in 2008, which is an increase of
$9.4 million. Our net losses per diluted share for the third quarter and first nine months of 2009
were $(0.76) and $(1.14), respectively, which compares to net losses per diluted share of $(0.08)
and $(0.11) for the corresponding periods in 2008. The net loss for the third quarter and first
nine months of 2009 is primarily attributable to continued asset quality deterioration in our loan
portfolio. The weak economy, and particularly the weak real estate markets, have led to increased
delinquencies, charge-offs and foreclosed property. Additionally, due to our recent significant
losses, we are unable to conclude that we will generate sufficient net income in the near term to
realize the full value of our deferred tax assets. Therefore, we established a $2.5 million
deferred tax asset valuation allowance in the third quarter of 2009 as a part of our quarterly
review of the need for such an allowance. As a result, any further losses will not have an
associated tax benefit until we can show that it is more likely than not that we will realize those
tax benefits. Moreover, unless we generate sufficient future taxable income we may need to
increase the valuation allowance in future periods. As of September 30, 2009 we have deferred
taxes of $8.2 million, which is net of the $2.5 million valuation allowance.
On June 25, 2009, we began a campaign to raise capital by issuing common stock through a private
placement offering to a limited group of selected accredited individuals. Through November 23, 2009
we sold 1,485,905 shares of common stock for aggregate proceeds of $5,106,167.50 and issued
warrants to purchase an additional 364,700 shares for $3.50 per share. Even so, as a result of the
unprecedented and prolonged difficult economic environment, the regulatory capital levels of our
bank and holding company have decreased. We intentionally decreased our asset size by
approximately $40 million since December 31, 2008 in an effort to positively impact our capital
ratios. With our lowered capital levels our funding sources have diminished and thus we have
increased our cash and due from banks (both interest bearing and non-
13
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interest bearing) balances by
$24.6 million and have increased our liquidity and contingency funding monitoring frequency.
We expect that our loan portfolio size will stabilize or slightly contract for the remainder of
2009. Management has shifted its focus towards attracting loans that are collateralized by assets
other than commercial real estate in an effort to lessen our current concentration of this
collateral type. Earlier in the year we saw some evidence that real estate markets may have been
improving. However, the third quarter did not show the anticipated improvement. Instead, demand
for property declined as consumers and investors anticipated further declines in real estate values
due to continued foreclosures and the tax credit for first time home buyers was nearing expiration.
We are hopeful that the demand for residential real estate will increase in light of the extension
of the first time home-buyer tax credit and the relaxation of criteria for those who qualify.
Additionally, current economic forecasts indicate a weak recovery for fourth quarter of 2009 and
for 2010.
Foreclosed assets increased from $6,041,163 at December 31, 2008 to $14,714,558 at September 30,
2009, which is a result of moving loans from non-performing to actual foreclosure. Related to this
increase, foreclosed asset expense increased by $780,628 and $1,289,741 for the third quarter and
first nine months of 2009 as compared to the corresponding periods of 2008 as we incurred expenses
for the upkeep of properties, legal fees, taxes and other holding costs. Additionally,
write-downs of foreclosed properties totaled $1,106,859 for the nine months ended September 30,
2009 with no expense for the same period in 2008. For the nine months ended September 30, 2009, we
sold $11,201,246 of foreclosed property at a loss of $813,873. At September 30, 2009 we had 15
properties under contract to sell for an aggregate agreed upon price of $1,914,272.
Non-performing loans also negatively impacted our net interest income as accrued interest is backed
out of income when loans become non-accrual. Our non-accrual loans increased from $12,776,980 at
September 30, 2008 to $22,377,626 at September 30, 2009. A majority of our non-accrual loans are
real estate loans.
As previously reported, to help reduce the effects of the net loss, management has made a conscious
effort to aggressively identify and reduce or eliminate any non-essential expenses such as
directors fees, social club dues, marketing, salaries, employee benefits, bonuses and other
employee-related expenses. During the fourth quarter of 2008 and again in the first quarter of
2009, the bank conducted a reduction-in-force eliminating a total of 24 positions across the
company and reducing salaries for several other positions. An additional reduction-in-force is
anticipated before December 31, 2009. Salaries and employee benefits have decreased $1,347,223 for
the nine months ended September 30, 2009 as compared to the same period in 2008. We suspended our
incentive program during 2008 (for which bonuses would have been paid in the first quarter of 2009)
and the program remains suspended for 2009 and 2010. Additionally, the board of directors voted to
significantly reduce board fees early in 2009 and eliminated entirely effective December 1, 2009.
We expect to see the effect of all these efforts more fully as the year continues.
Our reductions in non-interest expense have been masked by increases in foreclosed asset expenses and by the rising cost of deposit insurance. Our deposit
insurance expense for the nine months ended September 30, 2009 was $1,613,626, which reflects an
increase of $1,262,467 compared to the same period in 2008. Included in our 2009 expense is a
special assessment of $367,050 that was required by the FDIC to assist in rebuilding the fund.
Critical Accounting Policies
The accounting and financial policies of the Company conform to accounting principles generally
accepted in the United States and to general practices within the banking industry. To prepare
consolidated financial statements in conformity with accounting principles generally accepted in
the United States, management makes estimates and assumptions based on available information. These
estimates and assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan losses, valuation of
foreclosed real estate and fair value of financial instruments are particularly significant to us
and particularly subject to change. Information concerning our accounting policies with respect to
these items is available in Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008 as filed with the SEC on April 2, 2009.
Liquidity and Capital Resources
We consider our liquidity to be adequate to meet operating and loan funding requirements at
September 30, 2009. Our banks liquidity ratio at September 30, 2009 (i.e. cash, short-term
assets, marketable assets and available lines of credit divided by deposits and other borrowings)
was approximately 13% and the loan to deposit ratio was approximately 88%. We manage our liquidity
to ensure adequate cash for deposit withdrawals, credit commitments and repayments of borrowed
funds. Liquidity needs are met through loan repayments, cash flows received from pay downs on
mortgage-backed securities, net interest and fee income and the sale or maturity of existing
assets. In addition, liquidity is
14
Table of Contents
continuously provided through the acquisition of new deposits,
the renewal of maturing deposits and external borrowings. Management regularly monitors deposit
flow and evaluates alternate pricing structures to retain and grow deposits as
needed. Historically, to the extent needed, traditional local deposit funding sources were
supplemented by the use of FHLB borrowings, brokered deposits and other wholesale deposit sources
outside our immediate market area. The Banks ability to use brokered deposits, however, is
currently restricted due to our less than well-capitalized position. We consider management of
liquidity important during this time of uncertainty in terms of forward earnings and capital
levels. We maintain a liquid position that is adequate to meet the needs of our customer base. A
Contingency Funding Team comprised of independent directors and executive management meets
frequently to measure our liquidity position and make adjustments as deemed necessary.
Requirements by banking regulators include the monitoring of risk-based capital guidelines for
banks and holding companies that are designed to make capital requirements more sensitive to
differences in risk profiles and account for off-balance sheet items. The Company and the Bank
must meet minimum risk-based capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Under certain circumstances,
the regulators may impose higher minimum capital levels or otherwise adjust an institutions
capital category based on market conditions. Banks that are not well capitalized can be subject
to higher rates for FDIC insurance and other restrictions and limitations. Management monitors
these ratios on a continuous basis.
In accordance with U.S. GAAP, we evaluate our deferred income taxes quarterly to determine if a
valuation allowance is required or should be adjusted. U.S. GAAP requires that companies assess
whether valuation allowances should be established against their deferred tax assets based on all
available evidence, both positive and negative, using a more likely than not standard. This
assessment considers, among other matters, the nature, frequency and severity of recent losses,
forecasts of future profitability, the duration of statutory carry-back and carry-forward periods,
the Companys experience with tax attributes expiring unused and tax planning alternatives.
A valuation allowance of $2,477,501 has been established based on the more likely than not
threshold for the Companys net deferred income tax asset. Our ability to realize our deferred tax
asset depends on our ability to generate sufficient taxable income within the carry-back or
carry-forward period provided for in the tax law. We have considered the following possible
sources of taxable income when assessing the realization of our deferred tax assets:
| Future reversals of existing taxable temporary differences; | ||
| Future taxable income exclusive of reversing temporary differences and carry-forwards; | ||
| Taxable income in prior carry-back years; and | ||
| Tax planning strategies. |
As of September 30, 2009, we disallowed approximately $5,677,000 of deferred tax assets for
our regulatory capital computations. The standard minimum capital requirements and the actual
capital ratios on a consolidated and bank-only basis as of September 30, 2009 were as follows:
Regulatory | ||||||||||||||||
Minimum | ||||||||||||||||
Regulatory | Requirement for | |||||||||||||||
Actual | Minimum | Well Capitalized | ||||||||||||||
Consolidated | Bank | Requirement | Status | |||||||||||||
Leverage capital ratio |
6.58 | % | 6.50 | % | 4.00 | % | 5.00 | % | ||||||||
Risk-based capital ratios: |
||||||||||||||||
Tier I capital |
8.31 | % | 8.21 | % | 4.00 | % | 6.00 | % | ||||||||
Total capital |
9.57 | % | 9.48 | % | 8.00 | % | 10.00 | % |
We continually monitor our regulatory capital position and intend to focus on achieving and
maintaining our ratios above the minimums for well capitalized status. On June 25, 2009, we
began a campaign to raise capital by issuing common stock through a private placement offering to a
limited group of selected accredited investors. Through November 23, 2009 we sold 1,458,905 shares
of common stock for aggregate proceeds of $5,106,167.50 and issued warrants to purchase an
additional 364,700 shares for $3.50 per share. Unfortunately, our losses have more than offset
this additional capital. One impact of not being well capitalized is that it could limit our
banks ability to acquire needed funding through sources such as brokered deposits, FHLB advances
and unsecured federal funds credit lines and could further impact liquidity through damages to our
reputation in our market areas.
15
Table of Contents
Off-Balance Sheet Risk
We are a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of our customers. These financial instruments include
commitments to extend credit and standby letters of credit. Such commitments involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the
balance sheets.
Our exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit is represented by the
contractual amount of those instruments. We use the same credit policies in making commitments and
conditional obligations as we do for on-balance sheet instruments. A summary of our commitments is
as follows:
September 30, 2009 | ||||
(Dollars in Thousands) | ||||
Commitments to extend credit |
$ | 43,928 | ||
Letters of credit |
822 | |||
$ | 44,750 | |||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of
a customer to a third party. Those letters of credit are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. Collateral is required in
instances which we deem necessary.
Financial Condition
The following is a summary of our balance sheets at the dates indicated:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in Thousands) | ||||||||
Cash and due from banks |
$ | 12,772 | $ | 8,859 | ||||
Interest-bearing deposits in banks |
31,686 | 11,042 | ||||||
Federal funds sold |
| 722 | ||||||
Securities |
51,649 | 73,818 | ||||||
Loans, net |
619,624 | 672,164 | ||||||
Premises and equipment |
37,518 | 37,898 | ||||||
Foreclosed assets |
14,715 | 6,041 | ||||||
Deferred tax asset, net |
8,157 | 4,020 | ||||||
Accrued interest receivable |
3,391 | 3,880 | ||||||
Other assets |
1,720 | 2,942 | ||||||
$ | 781,232 | $ | 821,386 | |||||
Deposits |
$ | 717,622 | $ | 737,092 | ||||
Other borrowings |
4,000 | 16,750 | ||||||
Accrued interest payable |
588 | 953 | ||||||
Other liabilities |
1,683 | 777 | ||||||
Stockholders equity |
57,339 | 65,814 | ||||||
$ | 781,232 | $ | 821,386 | |||||
Our total assets decreased by $40,154,070, or 4.89%, to $781,231,551 for the first nine months of
2009, which is due to a combination of a decrease in gross loans of $48,324,089, securities
available for sale of $22,168,912, other assets of $1,221,300 and federal funds sold of $722,000.
These declines were partially offset by increases of interest-bearing deposits in other banks of
$20,643,675, foreclosed assets of $8,673,395, net deferred tax assets of $4,137,405 and cash and
due from banks of $3,913,505, as compared to December 31, 2008. These changes reflect managements
intent to reduce the banks asset size in order to improve its capital ratios and increase
liquidity during challenging economic times. Changes to premises and equipment and accrued
interest receivable were not significant for these same periods. For the first nine months of 2009
as compared to December 31, 2008, total liabilities decreased by $31,679,267 and deposits
16
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decreased by $19,469,968. Additionally, at September 30, 2009 we borrowed $4,000,000 of daily rate
credit funds with a cost of 36 basis points after prepaying $16,750,000 of fixed-rate FHLB
borrowings with an average cost of 348 basis points, an average maturity of 57 months, and a
$324,300 prepayment penalty during the first quarter. Changes to other liabilities and accrued
interest payable were not significant. Stockholders equity decreased by $8,474,803 due to our
loss of $14,656,358 for the first nine months of 2009, an increase in other comprehensive income of
$750,766 and an increase to common stock from common stock sold of $5,106,667. Additionally, we
recognized $232,107 of stock compensation expense and $140,013 for stock options exercised and a
tax refund related to stock options for these same periods. On September 30, 2009 we had no
contractual purchase obligations for premises and equipment. Our loan to deposit ratio decreased
to 88% at September 30, 2009 from 93% at December 31, 2008.
Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
The following is a summary of our operations for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest income |
$ | 9,826 | $ | 11,531 | $ | 30,116 | $ | 34,161 | ||||||||
Interest expense |
(3,947 | ) | (6,040 | ) | (14,528 | ) | (18,029 | ) | ||||||||
Net interest income |
5,879 | 5,491 | 15,588 | 16,132 | ||||||||||||
Provision for loan losses |
(11,797 | ) | (2,151 | ) | (18,048 | ) | (4,576 | ) | ||||||||
Other income |
814 | 921 | 3,310 | 3,663 | ||||||||||||
Other expense |
(7,289 | ) | (5,780 | ) | (20,232 | ) | (17,587 | ) | ||||||||
Pretax income (loss) |
(12,393 | ) | (1,519 | ) | (19,382 | ) | (2,368 | ) | ||||||||
Income tax expense
(benefit) |
(2,068 | ) | (591 | ) | (4,726 | ) | (967 | ) | ||||||||
Net income (loss) |
$ | (10,325 | ) | $ | (928 | ) | $ | (14,656 | ) | $ | (1,401 | ) | ||||
Our net interest income for the three months ended September 30, 2009 was $5,878,673, which
is an increase of $387,529 as compared to the same period for 2008. Between the fourth quarter of
2007 and the first quarter of 2009 we experienced compression in our net interest margin due to a
falling interest rate environment and stiff competition for deposits. Since the first quarter of
2009, however, we have seen some improvement in our net interest margin, due to a combination of
our loan yields increasing and deposits repricing to lower rates. Our quarterly net interest
margins for the last two years are as follows:
Net interest | ||||
Period | margin | |||
September, 2009
|
2.83 | % | ||
June, 2009
|
2.61 | % | ||
March, 2009
|
2.32 | % | ||
December, 2008
|
2.88 | % | ||
September, 2008
|
3.08 | % | ||
June, 2008
|
3.17 | % | ||
March, 2008
|
3.32 | % | ||
December, 2007
|
3.69 | % |
Our net interest income for the nine months ended September 30, 2009 was $15,587,984, which
represented a decrease of $544,305 as compared to the same period in 2008. The decrease in net
interest income for the nine months ended September 30, 2009 versus the same period in 2008 is due
to a combination of a declining rate environment and an increase in non-performing loans, which
negatively impact our net interest income. Our non-accrual loans increased from $12,776,980 at
September 30, 2008 to $22,377,626 at September 30, 2009.
Provision and Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings in the form of a provision
for loan losses. Increases and decreases in the allowance due to changes in the measurement of the
impaired loans are included in the provision for loan losses. Once a loan is classified as
impaired, it continues to be classified as impaired unless it is brought fully current and the
collection of scheduled interest and principal is considered probable. When a loan or portion of a
loan is determined to be uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
Management determines the allowance for loan loss by first dividing the loan portfolio into
two major categories: (1) satisfactory and past due loans, and (2) impaired loans. For purposes of
evaluation, satisfactory and past due
loans are further segmented into the following categories: commercial and government guaranteed
loans, commercial 1-4 family
17
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construction and acquisition and development projects, consumer residential real estate and other
consumer loans. Management uses an annualized eight-quarter moving average net loan
charge-off/recovery experience rate (net charge-off percentage of total loans.) Loan loss reserves
are calculated primarily based upon this historical loss experience by segment and adjusted for
qualitative factors including changes in the nature and volume of the loan portfolio, overall
portfolio quality, changes in levels of non-performing loans, significant shifts in real estate
values, changes in levels of collateralization, trends in staff lending experience and turnover,
loan concentrations and current economic conditions that may affect the borrowers ability to pay.
A loan is generally classified as impaired, based on current information and events, if it is
probable that we will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Impaired loans are measured by either
the present value of expected future cash flows discounted at the loans effective interest rate,
the loans obtainable market price, or the fair value of the collateral if the loan is collateral
dependent. A large portion of our impaired loans are collateral dependent, which has caused larger
amounts to be included in our allowance for loan losses due to recent declines in real estate
values. Impaired loans with balances in excess of $50,000 are evaluated individually, while
impaired loans with balances of $50,000 or less are evaluated as a group. No additional funds are
committed to be advanced in connection with impaired loans.
The allocation of the allowance to the respective loan categories is an approximation and not
necessarily indicative of future losses. The entire allowance is available to absorb losses
occurring in the loan portfolio. Management regularly monitors trends with respect to non-accrual,
restructured and potential problems loans. Subsequent negative changes in these loans have led
management to increase its qualitative adjustment in the allowance for loan loss to accommodate
these trends. In managements opinion, the loan loss allowance is considered adequate at September
30, 2009.
The following table summarizes the allocation of the allowance for loan losses to types of loans as
of the indicated dates. The allowance for loan loss allocation is based on a subjective judgment
and estimates and therefore is not necessarily indicative of the specific amounts or loan
categories in which charge-offs may ultimately occur. In addition, there will be allowance amounts
that are allocated based on evaluation of individual loans considered to be impaired by management.
September 30, 2009 | December 31, 2008 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
of loans in | of loans in | |||||||||||||||
each | each | |||||||||||||||
Amount | category | Amount | category | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Commercial and industrial |
$ | 871 | 6.78 | % | $ | 632 | 7.26 | % | ||||||||
Real estate construction |
5,583 | 23.90 | % | 5,452 | 29.64 | % | ||||||||||
Real estate mortgage |
8,056 | 65.54 | % | 4,578 | 58.95 | % | ||||||||||
Installment loans to individuals |
720 | 3.78 | % | 351 | 4.15 | % | ||||||||||
$ | 15,230 | 100 | % | $ | 11,013 | 100 | % | |||||||||
Information with respect to non-accrual, past due and restructured loans at September 30, 2009 and
2008 is as follows:
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September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in Thousands) | ||||||||
Non-accrual loans: |
||||||||
Commercial and industrial |
$ | 506 | $ | 1,048 | ||||
Real estate construction |
10,302 | 23,858 | ||||||
Real estate mortgage |
11,390 | 11,632 | ||||||
Installment loans to individuals |
180 | 323 | ||||||
Total non-accrual loans |
$ | 22,378 | $ | 36,861 | ||||
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing |
$ | | $ | | ||||
Restructured loans in compliance with terms: |
||||||||
Commercial and industrial |
$ | 3,756 | $ | | ||||
Real estate construction |
4,082 | 4,640 | ||||||
Real estate mortgage |
1,409 | 215 | ||||||
Installment loans to individuals |
| | ||||||
Total restructured loans in compliance with terms |
$ | 9,247 | $ | 4,855 | ||||
Potential problem loans: |
||||||||
Commercial and industrial |
$ | 324 | $ | | ||||
Real estate construction |
745 | | ||||||
Real estate mortgage |
1,952 | | ||||||
Installment loans to individuals |
800 | | ||||||
Total potential problem loans |
$ | 3,821 | $ | | ||||
Interest income that would have been recorded on non-accrual
loans under original terms |
$ | 2,626 | ||||||
Interest income that was recorded on non-accrual loans |
(2,098 | ) | ||||||
Reduction in interest income |
$ | 528 | ||||||
Our levels of non-performing loans have increased due to a combination of the declining real estate
market and increased unemployment in our market areas. The declining real estate market primarily
affects two segments of borrowers: 1) builders and acquisition/development customers who are not
able to sell their inventory and thus cannot generate cash flow and make loan payments; and 2)
consumers who have lost equity in their residences related to foreclosures and are unable to access
this liquidity source or refinance into lower rate mortgages. Increased unemployment rates in our
market areas have increased our non-performing loans because borrowers no longer have the necessary
cash flow to pay their loan obligations. Additionally, the economic downturn and increased
unemployment rates has made an impact on retail and other commercial businesses, which may affect
their ability to perform on obligations. The downturn may be exacerbated if energy and food prices
increase, equity markets decrease or credit tightens. Current economic forecasts indicate a weak
recovery for fourth quarter of 2009 and for 2010.
Loans greater than 90 days past due are automatically placed on non-accrual status. Additionally,
we may place loans that are not greater than 90 days past due on non-accrual status if we determine
that the full collection of principal and interest comes into doubt. In making that determination
we consider all of the relevant facts and circumstances and take into consideration the judgment of
responsible lending officers, our loan committee and the regulatory agencies that review the loans
as part of their regular examination process. If we determine that a larger allowance to loan
losses is necessary then we will make an increase to the allowance through a provision.
At September 30, 2009, we had $22,377,626 of non-accrual loans, which is a decrease of $14,483,733
from December 31, 2008. The decrease is primarily the result of real estate construction loans
being charged-off or collateral related to these loans being foreclosed upon and moving into other
real estate. This process caused the level of our non-accrual real estate construction loans to
decrease by $13.6 million. Additionally, the level of our non-accrual commercial, real estate
mortgage and installment loans decreased by approximately $542,000, $242,000 and $143,000
respectively during the first nine months of 2009. At September 30, 2009, no accrued interest on
non-accrual loans had been recognized.
In the opinion of management, any loans classified by regulatory authorities as doubtful,
substandard or special mention that have not been disclosed above do not (1) represent or result
from trends or uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (2) represent material credits about which
management is aware of any information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms. In the event of non-performance
by the borrower,
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these loans have collateral pledged which we believe would prevent the recognition of substantial
losses. Any loans classified by regulatory authorities as loss have been charged off.
Restructured loans are loans for which the terms have been negotiated to provide a reduction or
deferral of interest or principal because of deterioration in the financial position of the
borrower. Restructured loans identified in the table above consist of four loan relationships that
we are actively managing.
Potential problem loans are defined as loans about which we have serious doubts as to the ability
of the borrower to comply with the present loan repayment terms and which may cause the loan to be
placed on non-accrual status, to become past due more than ninety days, or to be restructured.
Information regarding certain loans and allowance for loan loss data through September 30, 2009 and
2008 is as follows:
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(Dollars in Thousands) | ||||||||
Average amount of loans outstanding |
$ | 657,497 | $ | 613,487 | ||||
Balance of allowance for loan losses at beginning of period |
$ | 11,013 | $ | 6,267 | ||||
Loans charged off |
||||||||
Commercial and industrial |
(952 | ) | (475 | ) | ||||
Real estate construction |
(6,464 | ) | (253 | ) | ||||
Real estate mortgage |
(5,872 | ) | (287 | ) | ||||
Installment loans to individuals |
(604 | ) | (281 | ) | ||||
(13,892 | ) | (1,296 | ) | |||||
Loans recovered |
||||||||
Commercial and industrial |
5 | 13 | ||||||
Real estate construction |
5 | | ||||||
Real estate mortgage |
33 | 4 | ||||||
Installment loans to individuals |
18 | 42 | ||||||
61 | 59 | |||||||
Net charge-offs |
(13,831 | ) | (1,237 | ) | ||||
Additions to allowance charged to operating expense during period |
18,048 | 4,567 | ||||||
Balance of allowance for loan losses at end of period |
$ | 15,230 | $ | 9,606 | ||||
Ratio of net loans charged off during the period to
average loans outstanding |
2.10 | % | .20 | % | ||||
We anticipate the level of charge-offs to decline in the fourth quarter and for the coming year as
forecasts indicate a weak recovery for fourth quarter of 2009 and for 2010.
Other Income and Expenses
Other income decreased by $107,343 and $353,309 during the third quarter and first nine months of
2009 as compared to the corresponding period in 2008. We experienced a $44,361 and $138,558
decrease in service charges on deposits accounts, primarily from a reduction in the quantity of NSF
fees as it appears consumers are more carefully monitoring their account balances due to the
tightening economy for the third quarter and first nine months of 2009 as compared to the same
periods for 2008. We also had a $69,525 and $152,046 decrease in secondary-market mortgage
origination fees due to the slowing real estate market for the third quarter and first nine months
of 2009 as compared to the same periods in 2008. We had a $1,896 and $93,240 increase in the net
gain on the sale of securities available for sale when compared to the same periods in 2008, which
resulted from managements desire to improve liquidity and restructure maturities. Our other
operating income modestly increased by $16,814 and $26,360 during the third quarter and first nine
months of 2009 when compared to the corresponding periods in 2008 primarily from rental income on
our foreclosed assets. Lastly we had a decrease in net gain on the sale of premises and equipment
of $12,167 and $182,305 for the third quarter and first nine months of 2009 as compared to the
corresponding periods in 2008 because there were no sales during 2009.
Other expenses increased by $1,508,880 and $2,644,419 during the third quarter and first nine
months of 2009 as compared to the corresponding periods in 2008. Foreclosed asset expenses
increased by $780,628 and $1,289,741 for the third quarter and first nine months of 2009 as
compared to the corresponding periods in 2008 and include expenses such as property taxes,
maintenance, insurance, utilities and environmental protection paid for all foreclosed assets.
Write downs
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on foreclosed assets increased by $549,613 and $1,106,859 for the third quarter and first nine
months of 2009 as compared to the same periods in 2008. Net loss on the sale of foreclosed assets
increased by $329,044 and $492,915 for the third quarter and first nine months as compared to the
same periods in 2008. FDIC insurance premiums increased $316,889 and $1,262,467 for the third
quarter and first nine months of 2009 compared to the same periods of 2008. We expect to continue
incurring large levels of FDIC insurance premiums resulting from the need to replenish the
insurance fund due to recent economic events. Salaries and employee benefits have decreased by
$416,332 and $1,347,223 for the third quarter and first nine months of 2009 as compared to the same
periods in 2008 due to the previously mentioned reduction-in-force and managements decision to
eliminate the employee bonus program for 2009 and 2010 as a result of worsening economic
conditions. We expect to see a continued decrease in our employee-related expenses for 2010 as the
full effect our position reductions is realized. Occupancy and equipment expenses decreased by
$41,432 for the third quarter of 2009 as compared to the comparable period in 2008 but had a
negligible increase of $4,167 for the first nine months of 2009 as compared to the same period in
2008. Other operating expenses decreased by $9,530 and $164,507 for the third quarter and first
nine months of 2009 as compared to the corresponding periods in 2008.
We recorded income tax benefits of $2,068,347 and $4,725,565 during the third quarter and first
nine months of 2009 as compared to tax benefits of $591,070 and $966,671 for the comparable periods
in 2008. As of September 30, 2009 after a management evaluation of future taxable income we
recorded a $2,477,501 valuation allowance against our deferred tax asset.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
It is our objective to manage assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment, borrowing, and capital
policies. Certain of our officers are charged with the responsibility for monitoring policies and
procedures that are designed to ensure acceptable composition of the asset/liability mix.
Our asset/liability mix is monitored on a regular basis with a report reflecting the interest rate
sensitive assets and interest rate sensitive liabilities being prepared and presented to the board
of directors and managements asset/liability committee on a quarterly basis. The objective is to
monitor interest rate sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings. An asset or liability is considered to be interest rate
sensitive if it will reprice or mature within the time period analyzed, usually one year or less.
The interest rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the interest rate sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest income, while a positive
gap would tend to result in an increase in net interest income. Conversely, during a period of
falling interest rates, a negative gap would tend to result in an increase in net interest income,
while a positive gap would tend to adversely affect net interest income. If our assets and
liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in
interest rates on net interest income would be minimal.
A simple interest rate gap analysis by itself may not be an accurate indicator of how net
interest income will be affected by changes in interest rates. Accordingly, we also evaluate how
the repayment of particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with interest-bearing
liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude
and duration of changes in interest rates may have a significant impact on net interest income.
For example, although certain assets and liabilities may have similar maturities or periods of
repricing, they may react in different degrees to changes in market interest rates. Interest rates
on certain types of assets and liabilities fluctuate in advance of changes in general market rates,
while interest rates on other types may lag behind changes in general market rates. Prepayment and
early withdrawal levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may decrease in the
event of an interest rate increase.
The table that follows summarizes our interest sensitive assets and liabilities as of September 30,
2009. Adjustable rate loans are included in the period in which their interest rates are scheduled
to adjust. Fixed rate loans are included in the periods in which they are anticipated to be repaid
based on scheduled maturities and anticipated prepayments. Investment securities are included in
their period of maturity while mortgage backed securities are included according to expected
repayment. Certificates of deposit are presented according to contractual maturity.
21
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Analysis of Interest Sensitivity
As of September 30, 2009
(Dollars in Thousands)
As of September 30, 2009
(Dollars in Thousands)
0-3 | 3-12 | Over 1 | ||||||||||||||
Months | Months | Year | Total | |||||||||||||
Interest-earning assets: |
||||||||||||||||
Interest-bearing deposits in banks |
31,686 | | | 31,686 | ||||||||||||
Securities |
| | 48,955 | 48,955 | ||||||||||||
Restricted equity securities (1) |
2,694 | | | 2,694 | ||||||||||||
Federal funds sold |
| | | | ||||||||||||
Loans (2) |
189,521 | 141,971 | 281,128 | 612,620 | ||||||||||||
Total interest-earning assets |
223,901 | 141,971 | 330,083 | 695,955 | ||||||||||||
Interest-bearing liabilities: |
||||||||||||||||
Interest-bearing demand deposits |
85,436 | | | 85,436 | ||||||||||||
Savings and money markets |
189,325 | | | 189,325 | ||||||||||||
Time deposits |
94,570 | 248,136 | 56,758 | 399,464 | ||||||||||||
Federal Home loan Bank borrowings |
4,000 | | | 4,000 | ||||||||||||
Total interest-bearing liabilities |
373,331 | 248,136 | 56,758 | 678,225 | ||||||||||||
Interest rate sensitivity gap |
(149,430 | ) | (106,165 | ) | 273,325 | 17,730 | ||||||||||
Cumulative interest rate sensitivity gap |
(149,430 | ) | (255,595 | ) | 17,730 | |||||||||||
Interest rate sensitivity gap ratio |
.60 | 0.57 | 5.82 | |||||||||||||
Cumulative interest rate sensitivity gap ratio |
.60 | 0.59 | 1.03 | |||||||||||||
(1) | Restricted equity securities did not pay dividends during the first two quarters of 2009. | |
(2) | Excludes non-accrual loans totaling approximately $22,378,000 and deferred fees of approximately $145,000. |
At September 30, 2009 our cumulative one-year interest rate sensitivity gap ratio was .59. Our
targeted ratio is 0.8 to 1.2. This indicates that the interest-earning assets will reprice during
this period at a rate slower than the interest-bearing liabilities. Our experience, however, has
been that not all liabilities shown as being subject to repricing will in fact reprice with changes
in market rates. We have a base of core deposits consisting of interest-bearing checking accounts
and savings accounts whose average balances and rates paid thereon will not fluctuate with changes
in the levels of market interest rates.
Item 4. Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the quarterly period
covered by this Form 10-Q and based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures were effective. There
were no changes in our internal control over financial reporting during the third quarter of 2009
that have materially affected, or that are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings other than ordinary routine litigation that is
incidental to our business.
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Item 1A. Risk Factors
Our business involves a high degree of risk. The following paragraphs set forth certain risk
factors that should be read together with and in addition to the risk factors set forth in Item 1A
to Part I of our Annual Report on Form 10-K, which are incorporated herein by reference.
We may face liquidity constraints and experience higher costs of funding if we are unable to regain
and thereafter maintain a well-capitalized regulatory status.
During the third quarter of 2009 our banks capital ratios declined significantly as a result of
the loan losses we sustained and significant additional provisions to our allowance for loan
losses. While our banks ratios were still above levels required to be considered adequately
capitalized at September 30, 2009, it was not considered well-capitalized under regulatory
guidelines. The impact of not maintaining a well-capitalized status is of concern in that it
could jeopardize our banks ability to acquire needed funding through sources such as brokered
deposits, Federal Home Loan Bank advances or unsecured federal funds credit lines, and could
tighten our liquidity through damages to our reputation in our deposit service areas. This could
also lead to increased scrutiny by regulatory agencies and possible sanctions. In response to our
declining capital position, we could improve our capital position with additional issuances of
equity securities. We may also limit or postpone future asset growth, or even shrink our assets in
order to maintain appropriate regulatory capital levels. These efforts, however, may not be
successful.
Current and future restrictions on the conduct of our business could adversely impact our ability
to attract deposits.
Because our bank is no longer considered well capitalized for regulatory purposes, it is, among
other restrictions, prohibited from paying rates in excess of 75 basis points above the local
market average on deposits of comparable maturity. Effective January 1, 2010, financial
institutions that are not well capitalized will be prohibited from paying yields for deposits in
excess of 75 basis points above a new national average rate for deposits of comparable maturity, as
calculated by the FDIC, except in very limited circumstances where the FDIC permits use of a higher
local market rate. The national rate may be lower than the prevailing rates in our local markets,
and our bank (if it is unable to regain well capitalized status) may not be able to secure the
permission of the FDIC to use a local market rate. If restrictions on the rates our bank is able
to pay on deposit accounts negatively impacts its ability to compete for deposits in our market
area, our bank may be unable to attract or maintain core deposits, and its liquidity and ability to
support demand for loans could be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company commenced a private placement offering on June 25, 2009. Please refer to Item 3.02 of
the Companys Current Report on Form 8-K filed with the Commission on June 30, 2009, which is
incorporated herein by reference. In the third quarter of 2009 the Board voted to increase the
size of the offering from $5,000,002 to $7,500,003. Through November 23, 2009 the Company had sold
1,458,905 shares of common stock for aggregate proceeds of $5,106,167.50 and issued warrants to
purchase an additional 364,700 shares for $3.50 per share.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are included with this report:
31.1 | Certificate of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certificate of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32 | Certificate of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
23
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FGBC BANCSHARES, INC. |
||||
Date: November 23, 2009 | /s/ Jackie L. Reed | |||
Jackie L. Reed | ||||
President and CEO | ||||
Date: November 23, 2009 | /s/ Teresa L. Martin | |||
Teresa L. Martin | ||||
Chief Financial Officer | ||||
24