Attached files
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EX-32.1 - Manasota Group, Inc. | v181277_ex32-1.htm |
EX-31.1 - Manasota Group, Inc. | v181277_ex31-1.htm |
EX-31.2 - Manasota Group, Inc. | v181277_ex31-2.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
|
Annual
Report Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For the Fiscal Year Ended
December 31, 2009
Commission
File Number 333-71773
HORIZON
BANCORPORATION, INC.
a Florida
corporation
(IRS
Employer Identification No. 65-0840565)
900
53rd
Avenue East
Bradenton,
Florida 34203
(941)
753-2265
Securities
Registered Pursuant to Section 12(b)
of the
Exchange Act:
None
Securities
Registered Pursuant to Section 12(g)
of the
Exchange Act:
Common
Stock, $.01 par value
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 has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
twelve 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained here, 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
amendments 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 12-2 of the Exchange
Act (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do
not check if smaller reporting company)
|
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 the common stock of the registrant held by
non-affiliates of the registrant on the last business day of the registrant’s
most recently completed second fiscal quarter, was $8,850,695. Such
value was computed by reference to the closing price of the common stock on such
date on the Over-the-Counter Bulletin Board inter-dealer trading system
("OTCBB"), of $5.00. For purposes of this determination, directors,
executive officers and holders of 10% or more of the registrant's common stock
were considered the affiliates of the registrant at that date.
The
number of shares outstanding of the registrant's common stock as of March 19,
2010: 1,770,139 shares of common stock, par value $.01 per share (the "Common
Stock").
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant's definitive Proxy Statement to be filed with the Securities
and Exchange Commission (the "Commission") pursuant to Regulation 14A in
connection with the 2010 Annual Meeting of Shareholders are incorporated herein
by reference into Part III of this report.
Certain
statements set forth in this Report or incorporated herein by reference,
including, without limitation, matters discussed under the caption “Management's Discussion and Analysis
of Financial Condition and Results of Operations” are “forward-looking
statements” within the meaning of the federal securities laws, including,
without limitation, statements regarding our outlook on earnings, stock
performance, asset quality, economic conditions, real estate markets and
projected growth, and are based upon management’s beliefs as well as assumptions
made based on data currently available to management. In this Report,
the terms “the Company”, “we”, “us”, or “our” refer to Horizon Bancorporation,
Inc. When words like “anticipate”, “believe”, “intend”, “plan”,
“may”, “continue”, “project”, “would”, “expect”, “estimate”, “could”, “should”,
“will”, and similar expressions are used, you should consider them as
identifying forward-looking statements. These forward-looking
statements are not guarantees of future performance, and a variety of factors
could cause our actual results to differ materially from the anticipated or
expected results expressed in these forward-looking statements. Many
of these factors are beyond our ability to control or predict, and readers are
cautioned not to put undue reliance on such forward-looking
statements. The following list, which is not intended to be an
all-encompassing list of risks and uncertainties affecting us, summarizes
several factors that could cause our actual results to differ materially from
those anticipated or expected in these forward-looking statements: (1)
competitive pressures among depository and other financial institutions may
increase significantly; (2) changes in the interest rate environment may reduce
margins or the volumes or values of loans made by us; (3) general economic
conditions (both generally and in our markets) may continue to be less favorable
than expected, resulting in, among other things, a further deterioration in
credit quality and/or a reduction in demand for credit; (4) continued weakness
in the real estate market has adversely affected us and may continue to
adversely affect us; (5) legislative or regulatory changes, including changes in
accounting standards and compliance requirements, may adversely affect the
businesses in which we are engaged; (6) competitors may have greater financial
resources and develop products that enable such competitors to compete more
successfully than we can; (7) our ability to attract and retain key personnel
can be affected by the increased competition for experienced employees in the
banking industry; (8) adverse changes may occur in the bond and equity markets;
(9) our ability to raise capital to protect against further deterioration in our
loan portfolio may be limited due to unfavorable conditions in the equity
markets; (10) war or terrorist activities may cause further deterioration in the
economy or cause instability in credit markets; (11) restrictions or conditions
imposed by our regulators on our operations may make it more difficult for us to
achieve our goals; (12) economic, governmental or other factors may prevent the
projected population and commercial growth in the markets in which we operate;
and (13) the risk factors discussed from time to time in the Company’s periodic
reports filed with the Securities and Exchange Commission (the “SEC”), including
but not limited to, this Annual Report on Form 10-K (the
“Report”). We undertake no obligation to, and we do not intend to,
update or revise these statements following the date of this filing, whether as
a result of new information, future events or otherwise, except as may be
required by law.
2
PART
I
Item
1.
|
Description of
Business.
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A.
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Business
Development.
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Horizon
Bancorporation, Inc. (hereinafter, the "Company" or the "Registrant") was
incorporated in the State of Florida on May 27, 1998, under the name of Manasota
Group, Inc., for the purpose of becoming a bank holding company owning all of
the outstanding capital stock of Horizon Bank, a commercial bank chartered under
the laws of Florida (the "Bank"). In anticipation of the filing for
regulatory approval for the Bank, the Company amended its Articles of
Incorporation on October 2, 1998, changing its name to Horizon Bancorporation,
Inc., authorizing additional capital stock and adopting anti-takeover provisions
typical of a bank holding company for a community bank. All of the
regulatory approvals necessary for the operation of the Company and the Bank
were granted as of October 25, 1999.
The
Company began its initial public offering of the Common Stock at $5.50 per share
on February 9, 1999, and completed its minimum offering of 1,023,638 shares on
October 13, 1999. Of the total proceeds of $5,630,009, the Company used
$5,280,000 to capitalize the Bank, which opened for business on October 25,
1999. The Company raised an additional $673,414.50 as of December 31,
1999, when the offering closed, with a total of 1,146,077 shares of Common Stock
sold for the aggregate amount of $6,303,423.50 (the "Initial
Offering").
To
satisfy its needs for additional capital, in April 2003, the Company conducted a
public offering solely to its existing shareholders (the "Rights Offering"),
whereby each shareholder could purchase one unit for each 3.333 shares of the
Company's common stock already owned. Each unit consisted of one
share of the Company's common stock and one warrant (expiring on July 6, 2005)
to purchase one share of the Company's common stock for $7.00 per share, subject
to certain limitations. The Company sold 246,038 units for $6.00 per
unit. In an unrelated private placement, also during 2003, the
Company sold 100,000 units, each consisting of one share of common stock and one
warrant (expiring on August 12, 2005) to purchase one-half of one share of the
Company's common stock at $3.50 (or $7.00 per share), for $6.00 per
unit. Total proceeds to the Company from the Rights Offering and the
private placement, amounted to $2,043,012, net of direct selling
expenses.
On
or about July 6, 2005, all of the warrants issued in the Rights Offering and the
private placement were either exercised or expired. Total proceeds from such
exercise amounted to $1,941,793.
On
May 10, 2004, the Company registered, by filing an SEC Form 8A, the Common Stock
under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange
Act"). Subsequently, in November 2004, the Common Stock began trading
in the OTCBB under the Symbol "HZNB".
Our
internet address is www.horizonbankfl.com. We make available free of
charge on www.horizonbankfl.com our annual report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission
("SEC").
3
The
information on the website listed above, is not and should not be considered
part of this Annual Report on Form 10-K and is not incorporated by reference in
this document. This website is and is only intended to be an inactive
textual reference.
The
Company maintains its corporate offices and main banking center at 900 53rd Avenue
East, Bradenton, Florida 34203. On June 25, 2001, the Bank opened a
branch facility located at 2102 59th Street
West, Bradenton, Florida. On October 31, 2005, the Bank opened a
branch facility located at 501 8th Avenue
West, Palmetto, Florida. A branch at 1525 E. Brandon Boulevard,
Brandon, Florida was opened in March, 2009.
|
B.
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Recent
Developments.
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1. The
May 2009 Examination of the Bank and its Aftermath.
Similar
to other financial institutions, our business, financial condition, credit
performance from loans and operating results have been and continue to be
adversely affected by dramatic declines in the real estate and capital markets
in Manatee County. In order to adequately reflect such negative
credit performance, and in response to the findings in the May 25, 2009
examination (the “May 2009 Examination”) of the Bank by the Federal Reserve Bank
of Atlanta (the “Atlanta Fed”) and the Florida Office of Financial Regulation
(the “OFR”), which findings were set forth in the official report delivered to
the Bank in October 2009. During the second quarter of 2009, the Bank
charged off a significant amount of commercial and real estate loans, placed
additional loans into non-accrual, reclassified certain other loans, wrote down
certain investment securities and increased its reserves for loan
losses. As a result of these actions, the Bank’s Total Risk-Based
Capital fell to 6.6%, which is below the required minimum for adequately
capitalized banks of 8%. On August 5, 2009, the Bank received a
letter from the Atlanta Fed in which the Bank was declared to be
undercapitalized and was required to submit a capital restoration plan under
which it can be shown that the Bank will become and maintain for four
consecutive quarters the status of an adequately capitalized
bank. The letter also prohibited, without prior written approval of
the Atlanta Fed: (a) the Bank’s payment of dividends and any other capital
distributions; (b) growth of the Bank’s total assets; and (c) the Bank’s
expansion through acquisition, branching or new lines of
business. Previously, by letter dated May 28, 2009, the Atlanta Fed
also prohibited, without prior approval, the incurring by the Company of any
indebtedness, the purchasing or redeeming by the Company of any stock and the
taking by the Company of any payment from the Bank representing a reduction in
the Bank’s capital.
From
the outset we disagreed with the Atlanta Fed’s opinion that the Bank methodology
used for computing the appropriate level in arriving at the addition of the
Bank’s Allowance for Loan and Lease Losses (“ALLL”) was flawed. We
contended, and continue to contend, that the methodology used by the Atlanta Fed
was not consistent with the relevant accounting rules and was based on data
relating to financial institutions not comparable to the Bank. As a
result of this disagreement, the Bank’s levels of ALLL, as of each of June 30,
2009, September 30, 2009 and as of December 31, 2009, have been in the range of
$2.0 to $3.0 million lower than the level claimed by the Atlanta Fed
(the “Disputed ALLL Addition”).
4
On
August 20, 2009, we submitted a capital restoration plan to the Atlanta
Fed. That plan was deemed by the Atlanta Fed not be acceptable by
letter dated September 28, 2009. On October 9, 2009, we submitted a
revised capital restoration plan. The revised plan was also deemed by
the Atlanta Fed not to be acceptable by letter dated January 27,
2010. In the wake of the January 27, 2010 letter, the Board of
Governors of the Federal Reserve System (the “Board of Governors”) issued to the
Bank, on March 4, 2010, a Prompt Corrective Action Directive Pursuant to Section
38 of the Federal Deposit Insurance Act, as Amended (the “PCA”). The
PCA directs that the Bank immediately take the following actions:
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·
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No
later than 45 days after the PCA, i.e. on or before April 19, 2010, (i)
increase the Bank’s equity through sale of shares or contributions to
surplus sufficient to make the Bank adequately capitalized, (ii) enter
into or close a contract whereby the Bank is acquired by another financial
institution or (iii) take other necessary measures to make the Bank
adequately capitalized;
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·
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Refrain
from making any capital distributions, including
dividends.
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·
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Refrain
from soliciting or accepting new deposits or renewing existing deposits
bearing an interest rate that exceeds the prevailing rates on deposits in
the Bank’s market area; and
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·
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Comply
with provisions of the FDI Act relating to transactions with affiliates,
restricting payment of bonuses to senior executive officers and
restricting asset growth, acquisitions branching and new lines of
business.
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On
March 22, 2010, the Bank filed an appeal of the PCA with the Board of
Governors. In the appeal, we contended that the revised capital
restoration plan should not have been deemed not to be acceptable because, among
other things, the Atlanta Fed’s refusal to resolve the Disputed ALLL Addition
has hindered the Company’s ability to complete the equity offering described
below. Given that the proceeds from the equity offering would have
been the main source for the additional capital required for the capital
restoration plan to be accepted, we requested in the appeal that the PCA be
suspended and that the Bank and the Atlanta Fed be given a new opportunity to
resolve the Disputed ALLL Addition.
Since
the filing of the appeal, the Atlanta Fed and the OFR conducted another
examination of the Bank (the “March 2010 Examination”). Based on the
preliminary results of the March 2010 Examination, the Bank has amended its
December 31, 2009 Call Report to further reduce its regulatory
capital. As a result, even without taking into account the Disputed
ALLL Addition, the Bank has been classified, as of December 31, 2009, as a
“significantly undercapitalized” financial institution.
2. Equity
Offering.
All
capital restoration plans submitted by us thus far have shown that, combined
with projected net earnings for the Bank and certain cost cutting measures and
not taking into
account the Disputed ALLL Addition, completing a $3.5 million offering of equity
securities would cause the Bank to be considered adequately
capitalized. On this basis, on October 23, 2009, the Company
commenced an offering of a minimum of $3.5 million and a maximum of $5.0 million
of shares of 7% Series A Cumulative Convertible Preferred Stock (the “Series A
Preferred Stock”). The shares of the Series A Preferred Stock, which
are being offered in a private placement to accredited investors only, have a
liquidation performance of $1,000, are entitled to cumulative dividends of 7%
per annum, accruing and payable semiannually, and are convertible into shares of
the Company’s common stock after the first anniversary of the issuance date at a
conversion price equal to the greater of (a) book value of the common stock at
the time of conversion or (b) the market price of the common stock on the date
of issuance of the shares of the Series A Preferred Stock.
5
Under
the terms of the offering, the proceeds may be released to the Company from
escrow only if the $3.5 million minimum is reached and the Atlanta Fed
approves a capital restoration plan for the Bank. This means that,
given the impact of the resolution of the Disputed ALLL Addition may have on
whether the $3.5 million minimum offering will cause the Bank to become
adequately capitalized and thus, in turn, whether the capital restoration plan
is accepted by the Atlanta Fed, the proceeds of the offering will not be
released to the Company and, accordingly, the purchasers in the offering will be
refunded their investment unless the Company and the Atlanta Fed are in accord
regarding the Disputed ALLL Addition and the Company’s plan to restore the
Bank’s capital. A copy of the Confidential Private Placement
Memorandum, dated September 30, 2009, as supplemented by Supplement No. 1, dated
October 23, 2009, Supplement No. 2, dated December 2, 2009 and Supplement No. 3,
dated February 26, 2010, describing the offering, is available at the Company’s
website at www.horizonbankfl.com.
As
of the date of this Report, the Company has received subscriptions in the
offering for approximately $1.1 million, with another $1.1 million to come from
a standby loan commitment undertaken by a group of investors, consisting mainly
of Company directors, who will use the loan proceeds to purchase Series A
Preferred Stock in the offering. The offering expires on April 30,
2010.
In
light of the recent reduction in the Bank’s regulatory capital in response to
the preliminary findings of the March 2010 Examination, raising the current $3.5
million minimum amount, or even the current $5.0 maximum amount, of the equity
offering will not be sufficient to allow the Bank to become adequately
capitalized. As of the date of this Report, we are in the process of
determining the new required minimum, which we believe would be in the range of
$7.0 - $8.5 million.
3. Written
Agreement.
On
November 4, 2009, the Bank entered into an agreement with the Atlanta Fed and
the OFR (the “Written Agreement”). Under the Written Agreement, among
other things, the Bank has agreed to:
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·
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Within
60 days of the date of the Written Agreement, submit a written plan to
strengthen the oversight by the Board of Directors of the management and
operations of the Bank;
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Within
60 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR to strengthen the Bank’s
management of commercial real estate concentration, including steps to
reduce the risk of concentration;
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Within
60 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR to strengthen risk management
practices;
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Within
60 days of the date of the Written Agreement, submit a written program
acceptable to the Atlanta Fed and the OFR for lending and credit
administration;
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6
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Within
10 days of the date of the Written Agreement, retain an independent
consultant acceptable to the Atlanta Fed and the OFR to conduct an
independent review of the portion of the Bank’s loan portfolio that was
not reviewed during the May 25, 2010
Examination;
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·
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Not
to extend or renew credit to or for the benefit of any borrower (a) with
respect to whose loans the Bank has charged off or classified a loss in
the report of the May 25, 2010 Examination or (b) whose loan(s) were
classified as “doubtful” or “substandard” in such
report;
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·
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Within
60 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR designed to improve the Bank’s
position with respect to any asset in excess of
$250,000;
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Within
60 days of the date of the Written Agreement, submit a report describing a
revised methodology for the determination and maintenance of an adequate
ALLL;
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Within
60 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR to maintain sufficient capital
at the Bank over a period, which, it is understood, is for a period beyond
the four consecutive quarters covered in the capital restoration plans
requested by the Atlanta Fed as described in C.1.
above;
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Within
90 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR to strengthen the oversight of
the Bank’s audit program by its audit
committee;
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·
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Within
60 days of the date of the Written Agreement, submit a written plan
acceptable to the Atlanta Fed and the OFR to improve management of the
Bank’s liquidity position and funds management
practices;
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Within
60 days of the date of the Written Agreement, submit written policies and
procedures to strengthen the management of the Bank’s investment
portfolio;
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Within
90 days of the date of the Written Agreement, submit to the Atlanta Fed
and the OFR a written business plan for 2010 to improve the Bank’s
earnings and overall condition; and
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Not
to declare or pay dividends without the prior written approval of the
Atlanta Fed and the OFR.
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As
of the date of this Report, the Company has complied with all of the provisions
of the Written Agreement. The capital plan submitted pursuant to the
Written Agreement is currently being reviewed by the Federal
Reserve.
7
4. The Company’s Loan From
1st Manatee
Bank.
As
previously reported, since March 4, 2010, the Company has been engaged in
discussions with 1st Manatee
Bank, Bradenton, Florida, regarding the notice given to the Company by 1st Manatee
Bank on March 4, 2010. In the notice, 1st Manatee
Bank informed the Company that the principal of the approximately $1.1 million
loan made to the Company by 1st Manatee
Bank on December 31, 2008, is due and that it intends to sell the collateral
pledged by the Company under the loan in a public sale. The
collateral consists of 1,536,000 shares of common stock of the Bank, i.e. all of
the outstanding capital stock of the Bank. On March 12, 2010, 1st Manatee
Bank and the Company entered into a forbearance agreement pursuant to which any
such public sale was cancelled, though 1st Manatee
has the right to reschedule a sale after March 26,
2010. Subsequently, on March 26, 2010, 1st Manatee
Bank and the Company entered into an amendment to the forbearance agreement
previously entered into on March 12, 2010. Pursuant to the
forebearance agreement as amended, in consideration of the payment of $104,000,
payable in two installments, $44,000 on March 29, 2010 and $60,000 on or before
April 19, 2010, the forebearance period with respect to the failure to pay off
the 1st Manatee
Loan at maturity has been extended to June 15, 2010. In addition, if
the Bank receives a directive, on or before June 15, 2010, from the Atlanta Fed
and the OFR requiring the Bank to raise additional capital, the forebearance
period will be automatically extended for a period of time the Bank is given to
raise the required capital.
5. Summary.
As
of the date of this Report the situation surrounding the Company and the Bank
may be summarized as follows:
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The
Bank is considered “significantly
undercapitalized.”
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In
the meantime, the appeal of the PCA is pending, the formal findings of the
March 2010 Examination have not yet been communicated to the Bank, no
resolution has been reached regarding the Disputed ALLL Addition and the
equity offering as currently structured, even if the current maximum of
$5.0 million is raised in the offering, will not be sufficient to restore
the Bank’s status as adequately
capitalized.
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·
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The
45-day deadline set forth in the PCA expires on April 19,
2010. Because the appeal had not stayed the effectiveness of
the directives contained in the PCA, any one of the following outcomes is
possible:
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·
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On
or immediately afterApril 19, 2010, the Federal Reserve may deny the
appeal, and the Atlanta Fed may then take the position that the Bank did
not comply with the directives set forth in the PCA. Depending
on the Atlanta Fed’s perception of the Bank’s financial position, the
Atlanta Fed may then take further actions, ranging from dismissing the
Bank’s directors and/or senior executive officers to the appointment of a
receiver; or
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·
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The
Atlanta Fed may grant the appeal or otherwise provide clear guidance as to
the additional capital required for the Bank to become adequately
capitalized and allow the Company and Bank additional time to raise such
capital.
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We
are currently actively engaged in disucssions with investors potentially willing
to acquire shares of the Series A preferred Stock in an amount enough to add up
to $10 million of capital to the Bank, which we believe would be sufficient to
allow the Bank to become, in the first instance, adequately
capitalized. These discussions could possibly lead to an investment
if and only if the Atlanta Fed does provide the clear guidance and aditional
time. In this connection, there is no assurance that the Atlanta Fed
will not choose to appoint a receiver, i.e. to allow the Bank to fail, causing
the existing shareholders to lose their entire investment in the
Company.
8
With
respect to the loan from 1st Manatee
Bank, at this time, under the PCA and the Written Agreement, the Bank may not
make any capital distributions, including dividends, to the Company without the
prior written consent of the Atlanta Fed. Such consent is unlikely to
be given and the Company may rely solely on an outside injection of capital as
the source for repayment of this loan. The Company is currently
engaged in discussions with an investor, as well as members of its Board of
Directors, regarding the purchase of the loan from 1st Manatee
and its subsequent contribution to the capital of the Company. There
is no assurance that these discussions will result in a satisfactory
arrangement. If the Bank does not obtain the clear guidance and
additional time described above, or even if it does but we are unable to raise
the required capital, then in the absence of a satisfactory arrangement with
1st
Manatee Bank, the common stock of the Bank would be sold in a public
sale. Were common stock of the Bank to be sold at a public sale, the
purchaser would, subject to approval by the Federal Reserve and the OFR, become
the sole shareholder of the Bank. If the purchase price paid by such purchaser
at the public sale were to exceed $1.1 million, the Company would recover such
excess. Otherwise, there would be no recovery and the existing
shareholders would lose their entire investment in the Company.
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C.
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Business.
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1. Services
Offered by the Bank.
The
Company's sole subsidiary, the Bank, conducts a commercial banking business in
its primary service area of Bradenton, Florida, the surrounding area of Manatee
County and with expansion into Eastern Hillsborough County. The Bank
offers a full range of commercial banking services to individual, professional
and business customers in its primary service area. These services
include personal and business checking accounts and savings and other time
certificates of deposit. The transaction accounts and time
certificates are at rates competitive with those offered in the primary service
area. Customer deposits with the Bank are insured to the maximum
extent provided by law through the FDIC. The Bank issues credit cards
and acts as a merchant depository for cardholder drafts under both Visa and
MasterCard. It offers night depository and bank-by-mail services and
sells travelers checks issued by an independent entity and cashiers
checks. The Bank does not offer trust and fiduciary services
presently and will rely on trust and fiduciary services offered by correspondent
banks until it determines that it is profitable to offer these services
directly. In 2005 the Bank began offering internet bank services to
its customers.
Lending
Activities
The
Bank seeks to attract deposits from the general public and uses those deposits,
together with borrowings and other sources of funds, to originate and purchase
loans. It offers a full range of short and medium-term commercial,
consumer and real estate loans. The Bank attempts to react to
prevailing market conditions and demands in its lending activities, while
avoiding excessive concentrations of any particular loan
category. The Bank has a loan approval process that provides for
various levels of officer lending authority. When a loan amount
exceeds an officer's lending authority, it is transferred to an officer with a
higher limit, with ultimate lending authority resting with the Loan Committee of
the Board of Directors.
The
risk of nonpayment of loans is inherent in making all loans. However,
management carefully evaluates all loan applicants and attempts to minimize its
credit risk exposure by use of thorough loan application and approval procedures
that are established for each category of loan prior to beginning
operation. In determining whether to make a loan, the Bank considers
the borrower's credit history, analyzes the borrower's income and ability to
service the loan and evaluates the need for collateral to secure recovery in the
event of default.
9
Under
Florida law, the Bank is limited in the amount it can loan to a single borrower
to no more than 15% of its statutory capital base, unless a loan that is greater
than 15% of the statutory capital base is approved by the Board of Directors and
unless the entire amount of the loan is secured. In no event,
however, may the loan be greater than 25% of a bank's statutory capital
base. The Bank's legal lending limit under Florida law for one
borrower, based upon its statutory capital base, is approximately $1,140,364 for
unsecured loans and $1,900,607 for fully secured loans.
The
Bank maintains an allowance for loan losses based upon management's assumptions
and judgments regarding the ultimate collectibility of loans in its portfolio
and based upon a percentage of the outstanding balances of specific loans when
their ultimate collectibility is considered questionable. Certain
risks with regard to specific categories of loans are described
below.
Commercial
Loans. Commercial lending activities are directed principally
toward businesses whose demand for funds will fall within the Bank's anticipated
lending limit. These businesses include small to medium-size
professional firms, retail and wholesale businesses, light industry and
manufacturing concerns operating in and around the primary service
area. The types of loans provided include principally term loans with
variable interest rates secured by equipment, inventory, receivables and real
estate, as well as secured and unsecured working capital lines of
credit. Repayment of these loans is dependent upon the financial
success of the business borrower. Personal guarantees are obtained
from the principals of business borrowers and/or third parties to further
support the borrower's ability to service the debt and reduce the risk of
nonpayment.
Real Estate
Loans. Commercial real estate lending is oriented toward
short-term interim loans and construction loans. The Bank also
originates variable-rate residential and other mortgage loans for its own
account and both variable and fixed-rate residential mortgage loans for
resale. The residential loans are secured by first mortgages on
one-to-four family residences in the primary service area. Loans
secured by second mortgages on a borrower's residence are also
made.
Consumer
Loans. Consumer lending is made on a secured or unsecured
basis and is oriented primarily to the requirements of the Bank's customers,
with an emphasis on automobile financing, home improvements, debt consolidation
and other personal needs. Consumer loans generally involve more risk
than first mortgage loans because the collateral for a defaulted loan may not
provide an adequate source of repayment of the principal due to damage to the
collateral or other loss of value while the remaining deficiency often does not
warrant further collection efforts. In addition, consumer loan
performance is dependent upon the borrower's continued financial stability and
are, therefore, more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, also limit the
amount that can be recovered.
10
Asset
and Liability Management
The
primary assets of the Bank consist of its loan portfolio and investment
accounts. Consistent with the requirements of prudent banking
necessary to maintain liquidity, the Bank seeks to match maturities and rates of
loans and the investment portfolio with those of deposits, although exact
matching is not always possible. The Bank seeks to invest the largest
portion of its assets in commercial, consumer and real estate
loans. Generally, loans are limited to less than 85% of deposits and
capital funds; however, this ratio may be exceeded as the Bank from time to time
will purchase government guaranteed loans that carry minimal
risk. The Bank's investment account consists primarily of
marketable securities of the United States government, Federal agencies, trust
preferred issues of sound financial institutions, agency and corporate mortgage
backed issues and bonds issued by various state and municipal governments,
generally with varied maturities.
The
Bank's investment policy provides for a portfolio divided among issues purchased
to meet one or more of the following objectives:
·
|
to
complement strategies developed in assets/liquidity management, including
desired liquidity levels;
|
·
|
to
maximize after-tax income from funds not needed for day-to-day operations
and loan demand; and
|
·
|
to
provide collateral necessary for acceptance of public
funds.
|
This
policy allows the Bank to deal with seasonal deposit fluctuations and to provide
for basic liquidity consistent with loan demand and, when possible, to match
maturities with anticipated liquidity demands. Longer term securities
are sometimes selected for a combination of yield and exemption from Federal
income taxation when appropriate. Deposit accounts represent the
majority of the liabilities of the Bank. These include savings
accounts, transaction accounts and time deposits.
The
Bank derives its income principally from interest charged on loans and, to a
lesser extent, from interest earned on investments, fees received in connection
with the origination of loans and miscellaneous fees and service
charges. Its principal expenses are interest expense on deposits and
operating expenses. The funds for these activities are provided
principally by operating revenues, deposit growth, purchase of Federal funds
from other banks, repayment of outstanding loans and sale of loans and
investment securities.
2. Market
Area and Competition.
The
Bank's primary service area has been Bradenton, Florida and the surrounding area
of Manatee County. Manatee County is situated in the Tampa Bay region, south of
Tampa and north of Sarasota. Bradenton is the county's largest city and the
county seat. The primary service area from which the Bank draws 75%
of its business is defined as the area bounded on the north by the
Hillsborough/Manatee County line, on the south by the Manatee County line, on
the east by Interstate 75 and on the West by Sarasota Bay/Palma Sola
Bay. The Bank's service area has been expanded into North Manatee
County (Manatee River to the North County Line) with the opening of the Palmetto
branch location.. The current population of Manatee County is
estimated at 323,400 and the median age is estimated at 43.
Service
and retail industries employ more than half of the workforce
(estimated at 156,000 in 2007) in Manatee County. Manatee County has
an estimated median income of $43,000.
11
The
Bank has recently expanded its service area to include parts of eastern Tampa
and eastern Hillsborough County to include the areas known as Brandon, Plant
City, Riverview and Gibsonton. This coincides with the new branch
which opened in Brandon in March of 2009.
The
Bank has substantial competition for accounts, commercial, consumer and real
estate loans and for the provision of other services in the primary service
area. The leading factors in competing for bank accounts are interest
rates, the range of financial services offered, convenience of office locations
and flexible office hours. Direct competition for bank accounts comes
from other commercial banks, savings institutions, credit unions, brokerage
firms and money market funds. The leading factors in competing for
loans are interest rates, loan origination fees and the range of lending
services offered. Competition for origination of loans normally comes
from other commercial banks, savings institutions, credit unions and mortgage
banking firms. These entities may have competitive advantages as a
result of greater resources and higher lending limits by virtue of their greater
capitalization. These competitors also may offer their customers
certain services that the Bank does not provide directly but might offer
indirectly through correspondent institutions.
3. Distribution
of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest
Differential.
The
following is a presentation of the average consolidated balance sheet of the
Company for the year ended December 31, 2008. This presentation
includes all major categories of interest-earning assets and interest-bearing
liabilities (in thousands):
AVERAGE
CONSOLIDATED ASSETS
Year Ended
December 31, 2009
|
Year Ended
December 31, 2008
|
|||||||
Cash
and due from banks
|
$ | 7,463 | $ | 2,174 | ||||
Taxable/Nontaxable
securities
|
$ | 31,404 | $ | 31,887 | ||||
Federal
funds sold
|
1,224 | 1,119 | ||||||
Net
Loans
|
165,284 | 162,671 | ||||||
Total
earning assets
|
$ | 197,912 | $ | 195,677 | ||||
Other
assets
|
7,851 | 5,325 | ||||||
Total
assets
|
$ | 213,226 | $ | 203,176 |
AVERAGE
CONSOLIDATED
LIABILITIES
AND STOCKHOLDERS' EQUITY
Year Ended
December 31, 2009
|
Year Ended
December 31, 2008
|
|||||||
Non
interest bearing-deposits
|
$ | 9,269 | $ | 9,478 | ||||
NOW
and money market deposits
|
24,890 | 24,924 | ||||||
Savings
Deposits
|
15,148 | 15,409 | ||||||
Time
Deposits
|
126,764 | 113,768 | ||||||
Borrowings
|
26,721 | 26,500 | ||||||
Other
liabilities
|
394 | 24 | ||||||
Total
liabilities
|
$ | 203,186 | $ | 190,103 | ||||
Common
Stock
|
$ | 18 | $ | 18 | ||||
Paid-in
Capital
|
9,259 | 10,323 | ||||||
Retained
earnings
|
763 | 2,732 | ||||||
Total
stockholders' equity
|
$ | 10,040 | $ | 13,073 | ||||
Total
liabilities and stockholders' equity
|
$ | 213,226 | $ | 203,176 |
12
The
following is a presentation of an analysis of the net interest earnings of the
Company for the period indicated with respect to each major category of
interest-earning asset and each major category of interest-bearing liability
(dollars in thousands):
Year Ended December 31, 2009
|
||||||||||||
|
Average
Amount
|
Interest
|
Average
Yield/
Rate
|
|||||||||
Assets | ||||||||||||
Taxable/Nontaxable
securities
|
$ | 31,404 | $ | 1,455 | 4.63 | % | ||||||
Federal
funds sold
|
1,224 | 4 | 0.33 | % | ||||||||
Net
loans
|
165,284 | 10,296 | 6.23 | % | ||||||||
Total
earning assets
|
$ | 197,912 | $ | 11,755 | 5.94 | % | ||||||
Liabilities
|
||||||||||||
NOW
and money market deposits
|
$ | 24,890 | $ | 306 | 1.23 | % | ||||||
Savings
deposits
|
15,148 | 248 | 1.64 | % | ||||||||
Time
deposits
|
126,764 | 4,067 | 3.21 | % | ||||||||
Borrowings
|
26,721 | 1,169 | 4.37 | % | ||||||||
Total
interest bearing liabilities
|
$ | 193,523 | $ | 5,790 | 2.99 | % | ||||||
Interest
spread
|
2.95 | % | ||||||||||
Net
interest income
|
$ | 5,965 | ||||||||||
Net
yield on interest earning assets
|
3.01 | % |
Year Ended December 31, 2008
|
||||||||||||
|
Average
Amount
|
Interest
|
Average
Yield/
Rate
|
|||||||||
Assets | ||||||||||||
Taxable/Nontaxable
securities
|
$ | 31,887 | $ | 1,837 | 5.76 | % | ||||||
Federal
funds sold
|
1,119 | 32 | 2.86 | % | ||||||||
Net
loans
|
162,671 | 11,260 | 6.92 | % | ||||||||
Total
earning assets
|
$ | 195,677 | $ | 13,129 | 6.71 | % | ||||||
Liabilities
|
||||||||||||
NOW
and money market deposits
|
$ | 24,924 | $ | 485 | 1.95 | % | ||||||
Savings
deposits
|
15,409 | 438 | 2.84 | % | ||||||||
Time
deposits
|
113,768 | 5,001 | 4.40 | % | ||||||||
Borrowings
|
26,500 | 1,092 | 4.12 | % | ||||||||
Total
interest bearing liabilities
|
$ | 180,601 | $ | 7,016 | 3.88 | % | ||||||
Interest
spread
|
2.83 | % | ||||||||||
Net
interest income
|
$ | 6,113 | ||||||||||
Net
yield on interest earning assets
|
3.12 | % |
13
4. Rate/Volume
Analysis of Net Interest Income.
The
effect on interest income, interest expenses and net interest income during the
periods indicated from changes in average balances and rates from the
corresponding prior period, is shown below. The effect of a change in
average balance has been determined by applying the average rate in the earlier
period to the change in the average balance in the later
period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in
interest income or expense and net interest income has been attributed to a
change in average rate:
Year Ended December 31, 2009
Compared with
Year Ended December 31, 2008
|
||||||||||||
Increase (decrease) due to:
|
||||||||||||
|
Volume
|
Rate
|
Total
|
|||||||||
Interest earned on: | ||||||||||||
Taxable/Nontaxable
securities
|
(27 | ) | (355 | ) | (382 | ) | ||||||
Federal
funds sold
|
3 | (31 | ) | (28 | ) | |||||||
Net
loans
|
184 | (1,148 | ) | (964 | ) | |||||||
Total
Interest Income
|
160 | (1,534 | ) | (1,374 | ) | |||||||
Interest paid on:
|
||||||||||||
NOW
deposits and money market deposits
|
(1 | ) | (178 | ) | (179 | ) | ||||||
Savings
deposits
|
(7 | ) | (183 | ) | (190 | ) | ||||||
Time
deposits
|
684 | (1,618 | ) | (934 | ) | |||||||
Other
borrowings
|
9 | 68 | 77 | |||||||||
Total
interest Expense
|
685 | (1,911 | ) | (1,226 | ) | |||||||
Change
in net interest income
|
$ | (525 | ) | $ | 377 | $ | (148 | ) |
Year
Ended December 31, 2008
Compared
with
Year Ended December 31,
2007
|
||||||||||||
Increase
(decrease) due to:
|
||||||||||||
|
Volume
|
Rate
|
Total
|
|||||||||
Interest earned on: | ||||||||||||
Taxable/Nontaxable
securities
|
127 | (8 | ) | 119 | ||||||||
Federal
funds sold
|
82 | (97 | ) | (15 | ) | |||||||
Net
loans
|
92 | (81 | ) | 11 | ||||||||
Total
Interest Income
|
301 | (186 | ) | 115 | ||||||||
Interest paid on:
|
||||||||||||
NOW
deposits and money market deposits
|
(173 | ) | (349 | ) | (522 | ) | ||||||
Savings
deposits
|
210 | (295 | ) | (85 | ) | |||||||
Time
deposits
|
850 | (453 | ) | 397 | ||||||||
Other
borrowings
|
170 | 31 | 201 | |||||||||
Total
interest Expense
|
1,057 | (1,066 | ) | (9 | ) | |||||||
Change
in net interest income
|
$ | (756 | ) | $ | 880 | $ | 124 |
14
5. Deposits
Analysis.
The
Bank offers a full range of interest-bearing and non-interest bearing accounts,
including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit with a range of
maturity date options. The sources of deposits are residents,
businesses and employees of businesses within the Bank's market
area. Customers are obtained through personal solicitation, direct
mail solicitation and advertisements published in the local media.
The
Bank pays competitive interest rates on time and savings deposits up to the
maximum permitted by law or regulation. In addition, the Bank has
implemented a service charge fee schedule competitive with other financial
institutions, covering such matters as maintenance fees on checking accounts,
per item processing fees on checking accounts, returned check charges and the
like.
The
following table presents, for the periods indicated, the average amount of and
average rate paid on each of the indicated deposit categories (dollars in
thousands):
Year Ended December 31, 2009
|
||||||||
Deposit Category
|
Average Amount
|
Average Rate Paid
|
||||||
Non
interest bearing demand deposits
|
$ | 9,269 | ||||||
NOW
and money market deposits
|
24,890 | 1.23 | % | |||||
Savings
deposits
|
15,148 | 1.64 | % | |||||
Time
deposits
|
126,764 | 3.21 | % | |||||
Total
|
$ | 176,071 | 2.77 | % |
Time Certificates of Deposit with balance of $100,000 and above. | ||||
3
months or less
|
$ | 6,748 | ||
3-6
months
|
3,971 | |||
6-12
months
|
11,023 | |||
over
twelve months
|
4,165 | |||
Total
|
$ | 25,907 |
15
Year Ended December 31, 2008
|
||||||||
Deposit Category
|
Average Amount
|
Average Rate Paid
|
||||||
Non
interest bearing demand deposits
|
$ | 9,478 | ||||||
NOW
and money market deposits
|
24,924 | 1.95 | % | |||||
Savings
deposits
|
15,409 | 2.84 | % | |||||
Time
deposits
|
113,768 | 4.40 | % | |||||
Total
|
$ | 163,579 | 3.84 | % |
Time Certificates of Deposit with balance of $100,000 and above. | ||||
3
months or less
|
$ | 5,841 | ||
3-6
months
|
8,135 | |||
6-12
months
|
11,658 | |||
over
twelve months
|
2,550 | |||
Total
|
$ | 28,184 |
6. Loan Portfolio
Analysis.
The
Bank engages in a full complement of lending activities, including commercial,
consumer installment and real estate loans.
Commercial
lending is directed principally towards businesses whose demands for funds fall
within the Company's legal lending limits and which are potential deposit
customers of the Bank. These loans include loans obtained for a
variety of business purposes, and are made to individual, partnership or
corporate borrowers. The Bank places particular emphasis on loans to
small and medium-sized businesses.
The
Bank's consumer loans consist primarily of installment loans to individuals for
personal, family and household purposes, including automobile loans and
pre-approved lines of credit to individuals. This category of loans
includes lines of credit and term loans secured by second mortgages on
residences for a variety of purposes, including home improvements, education and
other personal expenditures.
The
Bank's real estate loans consist of residential and commercial first and second
mortgages.
The
following table presents various categories of loans contained in the Bank's
loan portfolio as of December 31, 2009 and 2008 and the total amount of all
loans for such periods (in thousands):
As of December 31
|
||||||||
Type of Loan
|
2009
|
2008
|
||||||
Commercial
real estate
|
$ | 97,783 | $ | 95,871 | ||||
Residential
real estate
|
37,439 | 34,663 | ||||||
Construction
loans
|
1,370 | 4,379 | ||||||
Commercial
loans
|
17,218 | 30,036 | ||||||
Consumer
loans
|
2,049 | 2,581 | ||||||
Subtotal
|
155,859 | 167,530 | ||||||
Allowance
for loan losses
|
(4,731 | ) | (1,503 | ) | ||||
Total
(net of allowance)
|
$ | 151,128 | $ | 166,027 |
16
The
following is a presentation of an analysis of maturities and/or repricing of
loans as of December 31, 2009 (in thousands):
Type of Loan
|
Due in 1
Year or Less
|
Due in 1
To 5 Years
|
Due After
5 Years
|
Total
|
||||||||||||
Commercial
Real Estate
|
$ | 28,915 | $ | 12,537 | $ | 56,331 | $ | 97,783 | ||||||||
Residential
Real Estate
|
$ | 15,738 | $ | 15,949 | $ | 5,752 | $ | 37,439 | ||||||||
Construction
Loans
|
$ | 1,370 | — 0 — | — 0 — | $ | 1,370 | ||||||||||
Commercial
Loans
|
$ | 6,845 | $ | 2,415 | $ | 7,958 | $ | 17,218 | ||||||||
Consumer
Loans
|
$ | 943 | $ | 662 | $ | 444 | $ | 2,049 | ||||||||
Total
|
$ | 53,811 | $ | 31,563 | $ | 70,485 | $ | 155,859 |
Experience
of the Bank has shown that some receivables will be paid prior to contractual
maturity and others will be converted, extended or
renewed. Therefore, the tabulation of contractual payments should not
be regarded as a forecast of future cash collections.
The
following is a presentation of an analysis of sensitivity of loans, excluding
installment and other loans to individuals, to changes in interest rates as of
December 31, 2009 (in thousands):
Type of Loan
|
Due in 1
Year or Less
|
Due in 1
to 5 Years
|
Due After
5 Years
|
Total
|
||||||||||||
Fixed
rate loans
|
$ | 14,274 | $ | 5,519 | $ | 13,837 | $ | 33,630 | ||||||||
Variable
rate loans
|
39,537 | 26,044 | 56,648 | 122,229 | ||||||||||||
Total
|
$ | 53,811 | $ | 31,563 | $ | 70,485 | $ | 155,859 |
17
The
following table presents information regarding non-accrual, past due and
restructured loans as of December 31, 2009 and 2008 (dollars in
thousands):
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Loans
accounted for on a non-accrual basis:
|
||||||||
Number:
|
Thirty-three
|
Twenty-four
|
||||||
Amount:
|
$ | 15,685 | $ | 7,289 | ||||
Accruing
loans which are contractually past due 90 days or more as to principal and
interest payments:
|
||||||||
Number:
|
None
|
Two
|
||||||
Amount:
|
$ | 0 | $ | 84 | ||||
Loans
which were renegotiated to provide a reduction or deferral of interest or
principal because of deterioration in the financial position of the
borrower:
|
||||||||
Number:
|
None
|
One
|
||||||
Amount:
|
$ | 0 | $ | 479 | ||||
Loans
for which there are serious doubts as to the borrower's ability to comply
with existing terms:
|
||||||||
Number:
|
Forty-four
|
Twenty
|
||||||
Amount:
|
$ | 24,210 | $ | 12,458 |
As
of December 31, 2009, there were no loans classified for regulatory purposes as
doubtful, substandard or special mention that have not been disclosed in the
above table, which (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (ii) 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.
Loans
are classified as non-accruing when the probability of collection of either
principal or interest becomes doubtful. The balance classified as
non-accruing represents the net realizable value of the account, which is the
most realistic estimate of the amount the Company expects to collect in final
settlement. If the account balance exceeds the estimated net
realizable value, the excess is written off at the time this determination is
made.
At
December 31, 2009, 33 loans with an aggregate balance of $15,685,437 were not
accruing interest. There are no other loans which are not disclosed
above where known information about possible credit problems of borrowers causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
7. Summary
of Loan Loss Experience.
An
analysis of the Company's loan loss experience is furnished in the following
table for the years ended December 31, 2009 and 2008, as well as a breakdown of
the allowance for possible loan losses (dollars in thousands):
18
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Balance
at beginning of period
|
$ | 1,503 | $ | 1,403 | ||||
Charge-offs
(commercial loans)
|
(6,623 | ) | (66 | ) | ||||
Charge-offs
(residential loans)
|
(1,496 | ) | (269 | ) | ||||
Charge-offs
(consumer loans)
|
(86 | ) | (24 | ) | ||||
Recoveries
|
236 | 14 | ||||||
Provision
charged to Operations
|
11,197 | 445 | ||||||
Balance
at end of period
|
$ | 4,731 | $ | 1,503 | ||||
Ratio
of allowance for loan losses to total loans outstanding during the
period
|
3.03 | % | .90 | % | ||||
Net
charge-offs/(recoveries) to average loans
|
4.73 | % | .21 | % |
As
of December 31, 2009, the allowance for possible losses was allocated as follows
(dollars in thousands):
Loans
|
Amount
|
Percent of Loan
in Each Category
to Total Loans
|
||||||
Commercial real estate & construction
|
$ | 532 | 63.6 | % | ||||
Residential
real estate
|
1,441 | 24.0 | % | |||||
Commercial
loans
|
42 | 11.1 | % | |||||
Consumer
loans
|
—0— | 1.3 | % | |||||
Unallocated
|
2,716 | N/A | ||||||
Total
|
$ | 4,731 | 100.0 | % |
As
of December 31, 2008, the allowance for possible losses was allocated as follows
(dollars in thousands):
Loans
|
Amount
|
Percent of Loan
in Each Category
to Total Loans
|
||||||
Commercial
real estate & construction
|
$ | 685 | 59.1 | % | ||||
Residential
real estate
|
415 | 20.5 | % | |||||
Commercial
loans
|
364 | 18.9 | % | |||||
Consumer
loans
|
19 | 1.5 | % | |||||
Unallocated
|
20 | N/A | ||||||
Total
|
$ | 1,503 | 100.0 | % |
8. Loan
Loss Reserve.
In
considering the adequacy of the Company's allowance for possible loan losses,
management has focused on the fact that as of December 31, 2009, 75% of
outstanding loans were in the category of commercial
loans. Management generally regards these loans as riskier than other
categories of loans in the Company's loan portfolio. However the
majority of the loans in this category at December 31, 2009, were made on a
secured basis, such collateral consisting primarily of real estate and
equipment. Management believes that the secured condition of the
preponderant portion of its commercial loan portfolio greatly reduces any risk
of loss inherently present in these loans.
19
The
Company's consumer loan portfolio is also secured. At December 31,
2009, the majority of the Company's consumer loans were secured by collateral
primarily consisting of automobiles, boats and second mortgages on real
estate. Management believes that these loans involve less risk than
other categories of loans.
Residential
real estate mortgage loans constitute 24% of outstanding
loans. Management considers these loans to have minimal risk due to
the fact that these loans represent conventional residential real estate
mortgages where the amount of the original loan does not exceed 80% of the
appraised value of the collateral.
The
allowance for loan losses reflects an amount which, in management's judgment, is
adequate to provide for potential loan losses. Management's
determination of the proper level of the allowance for loan losses is based on
the ongoing analysis of the credit quality and loss potential of the portfolio,
actual loan loss experience relative to the size and characteristics of the
portfolio, changes in composition and risk characteristics of the portfolio and
anticipated impacts of national and regional economic policies and
conditions. Senior management and the Board of Directors of the Bank
review the adequacy of the allowance for loan losses on a monthly
basis.
Management
considers the year-end allowance appropriate and adequate to cover possible
losses in the loan portfolio; however, management's judgment is based upon a
number of assumptions about future events, which are believed to be reasonable,
but which may or may not prove valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the loan loss allowance will not be
required.
9. Investments.
As
of December 31, 2009, the securities portfolio comprised approximately 12.3% of
the Company's assets, while loans comprised approximately 75.8% of the Company's
assets. The Bank invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States and
other taxable securities. In addition, the Bank enters into Federal
Funds transactions with its principal correspondent banks, and acts as a net
seller of such funds. The sale of Federal Funds amounts to a
short-term loan from the Bank to another bank.
The
following table presents, for the years ended December 31, 2009 and 2008, the
approximate market value of the Company's investments, classified by category
and by whether they are considered available-for-sale or held-to-maturity (in
thousands):
20
Investment Category
|
December 31
|
|||||||
2009
|
2008
|
|||||||
Available-for-Sale:
|
||||||||
U.S.
Agency Bonds
|
$ | 2,457 | $ | 1,014 | ||||
Collateralized
mortgage obligations
|
1,644 | 4,708 | ||||||
Mortgage-backed
securities
|
228 | 2,668 | ||||||
Trust
Preferred & Other Corporate Securities
|
6,893 | 7,467 | ||||||
Equity
securities
|
1,859 | 2,108 | ||||||
Total
Available-for-Sale Securities
|
$ | 13,081 | $ | 17,965 | ||||
Held-to-Maturity
Securities:
|
||||||||
Corporate
Securities
|
$ | 775 | $ | 550 | ||||
General
obligation bonds of municipalities
|
5,595 | 6,450 | ||||||
Revenue
bonds of municipalities
|
4,147 | 4,451 | ||||||
Total
Held-to-Maturity Securities
|
$ | 10,517 | $ | 11,451 | ||||
Total Portfolio
|
$ | 23,598 | $ | 29,416 |
The
following table indicates, for the year ended December 31, 2009, the amount of
investments, appropriately classified, due in (i) one year or less, (ii) one to
five years, (iii) five to ten years, and (iv) over ten years (dollars in
thousands):
|
Amount
|
Average
Weighted Yield
|
||||||
Available-for-Sale: | ||||||||
Other
Securities after 10 years
|
$ | 1,859 | 0.74 | % | ||||
Obligations
of U.S. Agency after 10 years
|
2,457 | 4.46 | % | |||||
Collateralized
Mortgage Obligations after 10 years
|
1,644 | 6.11 | % | |||||
Mortgage-backed
securities after 10 years
|
228 | 4.97 | % | |||||
Trust
Preferred & Corporate Securities after 10 years
|
6,893 | 5.56 | % | |||||
Total
Available-for-Sale
|
$ | 13,081 | 4.79 | % | ||||
Held-to-Maturity
|
||||||||
Corporate
Securities after 10 years
|
$ | 775 | 6.45 | % | ||||
General
obligation Bonds after 10 years
|
5,595 | 4.29 | % | |||||
Revenue
bonds after 10 years
|
4,147 | 4.31 | % | |||||
Total
Held-to-Maturity
|
$ | 10,517 | 4.49 | % | ||||
Total
|
$ | 23,598 | 4.65 | % |
21
10. Return
on Equity and Assets
Returns
on average consolidated assets and average consolidated equity for the year
ended December 31, 2009 and 2008 are as follows:
2009
|
2008
|
|||||||
Return
on average assets
|
(3.81 | )% | .29 | % | ||||
Return
on average equity
|
(80.95 | )% | 4.50 | % | ||||
Equity
to assets ratio
|
4.71 | % | 6.43 | % | ||||
Dividend
payout ratio
|
N/A | 33.86 | % |
11. Asset/Liability
Management
The
Bank seeks 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 its officers
are responsible for monitoring policies and procedures that are designed to
ensure acceptable composition of the asset/liability mix, stability and leverage
of all sources of funds while adhering to prudent banking
practices. It is the overall philosophy of management to support
asset growth primarily through growth of core deposits of all categories made by
individuals, partnerships and corporations. The management of the
Bank seeks to invest the largest portion of their assets in commercial, consumer
and real estate loans.
The
asset/liability mix of the Bank is monitored on a daily basis by its
management. A quarterly report reflecting interest-sensitive assets
and interest-sensitive liabilities is prepared and presented to its Board of
Directors. The objective of this policy is to control
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on their respective
earnings.
12. Employees.
As
of March 17, 2010, the Bank employed 45 full-time equivalent
employees. Management of the Bank believes that its employee
relations are good. There are no collective bargaining agreements
covering any of the Bank's employees.
13. Supervision
and Regulation.
Supervision
and Regulation of the Company.
The
Company is a bank holding company within the meaning of the Federal Bank Holding
Company Act of 1956. As a bank holding company, the Company is
required to file with the Board of Governors of the Federal Reserve System (the
"Federal Reserve") annual and semi-annual reports and information regarding its
business operations and those of the Bank. The Company is also
examined by the Federal Reserve.
22
A
bank holding company is required by the Federal Bank Holding Company Act to
obtain approval from the Federal Reserve prior to acquiring control of any bank
that it does not already own or engaging in any business other than banking or
managing, controlling or furnishing services to banks and other subsidiaries
authorized by the statute. The Federal Reserve would approve the
ownership of shares by a bank holding company in any company the activities of
which it has determined by order or regulation to be so closely related to
banking or to managing or controlling banks as to be a proper incident
thereto. In other words, the Company would require Federal Reserve
approval if we were to engage in any of the foregoing activities.
The
Company is compelled by the Federal Reserve to invest additional capital in the
event the Bank experiences either significant loan losses or rapid growth of
loans or deposits. The Federal Reserve requires a bank holding
company to act as a source of financial strength and to take measures to
preserve and protect its bank subsidiaries
As
a bank holding company, the Company operates under the capital adequacy
guidelines established by the Federal Reserve. Under the Federal
Reserve's current risk-based capital guidelines for bank holding companies, the
minimum required ratio for total capital to risk weighted assets we will be
required to maintain is 8%, with at least 4% consisting of Tier 1
capital. Tier 1 capital consists of common and qualifying preferred
stock and minority interests in equity accounts of consolidated subsidiaries,
less goodwill and other intangible assets. Because the Company is a
bank holding company with less than $500 million in total consolidated assets,
these guidelines apply on a Bank-only basis. These risk-based capital
guidelines establish minimum standards and bank holding companies generally are
expected to operate well above the minimum standards.
The
Company also is subject to requirements to file annual, quarterly and certain
other reports with the SEC applicable under the Securities Exchange Act of
1934.
In
addition, the Federal Reserve, through guidance reissued on February 24, 2009,
also maintains supervisory policies that:
|
·
|
may
restrict the ability of a bank from paying dividends on any class of
capital stock or any other Tier 1 capital instrument if the holding
company is not deemed to have a strong capital
position.
|
|
·
|
states
that a holding company should reduce or eliminate dividends
when
|
|
·
|
the
holding company’s net income available to shareholders for the past four
quarters, net of dividends previously paid during that period, is not
sufficient to fully fund the
dividends;
|
|
·
|
the
holding company’s prospective rate of earnings retention is not consistent
with the holding company’s capital needs and overall current and
prospective financial condition;
or
|
23
|
·
|
the
holding company will not meet, or is in danger of not meeting, its minimum
regulatory capital adequacy ratios.
|
|
·
|
requires
that a holding company must inform the Federal Reserve in advance of
declaring or paying a dividend that exceeds earnings for the period (e.g.,
quarter) for which the dividend is being paid or that could result in a
material adverse change to the organization’s capital structure. Declaring
or paying a dividend in either circumstance could raise supervisory
concerns.
|
In
the current financial and economic environment, the Federal Reserve has
indicated that bank holding companies should carefully review their dividend
policy and has discouraged payment ratios that are at maximum allowable levels
unless both asset quality and capital are very strong.
The
Company also is subject to requirements to file annual, quarterly and certain
other reports with the SEC applicable under the Securities Exchange Act of
1934.
Supervision
and Regulation of the Bank.
The
Bank is examined and regulated by the Florida Office of Financial Regulation
(the "Florida Department") and, as a member of the Federal Reserve Bank System,
the Federal Reserve Bank of Atlanta. Under Florida law and Florida
Department's regulations, the Bank may pay cash dividends only up to the sum
of:
·
|
current
period net profits; plus
|
·
|
80%
of its cumulative retained net profits for the preceding two years or,
with the approval of the Florida Department, 80% of its cumulative
retained net profits for a period longer than two
years.
|
Also, no
dividend may be paid by the Bank if
·
|
the
sum of the amounts equal to the remaining 20% of the retained net profits
for the periods from which the 80% is used to pay the dividends is less
than the Bank's book value of its common and preferred stock;
or
|
|
·
|
the
sum of the current period net profits plus the
retained net profits for the preceding two years is less than
zero.
|
Until
December 31, 2013, the Bank's deposits are insured by the FDIC for a maximum of
$250,000 per depositor. For this protection, the Bank pays quarterly
statutory assessments and will have to comply with the rules and regulations of
the FDIC. Due to the increased number of bank failures that occurred
during 2008 and 2009, the FDIC has increased the Bank’s risk-based deposit
assessment beginning with the first quarter of 2009 to twelve cents for each
$100 of risk-based deposits held by the Bank. These assessments are
likely to increase further during 2010.
Effective
November 21, 2008 and until December 31, 2009, the FDIC expanded deposit
insurance limits for certain accounts under the Temporary Liquidity Guarantee
Program (“TLGP”). Provided an institution has not opted out of TLGP, the FDIC
will fully guarantee funds deposited in non-interest bearing transaction
accounts, including (1) interest on Lawyer Trust Accounts and (2) negotiable
order of withdrawal accounts with rates no higher than 0.50 percent if the
institution has committed to maintain the interest rate at or below that rate.
In conjunction with the increased deposit insurance coverage, insurance
assessments also increase for participating institutions. As
previously reported, the Bank has not opted out of TLGP.
24
In
case of member banks like the Bank, the Federal Reserve has the authority to
prevent the continuance or development of unsound and unsafe banking practices
and to approve conversions, mergers and consolidations. As a member
of the Federal Reserve, the Bank also has to comply with rules that restrict
preferential loans by the bank to "insiders," require the Bank to keep
information on loans to principal shareholders and executive officers, and
prohibit certain director and officer interlocks between financial
institutions. Also, under the Federal Reserve's current risk-based
capital guidelines for member banks, the Bank will be required to maintain a
minimum ratio of total capital to risk weighted assets of 8%, with at least 4%
consisting of Tier 1 capital.
In
addition, the Federal Reserve requires its member banks to maintain a minimum
ratio of Tier 1 capital to total assets. This capital measure is
generally referred to as the leverage capital ratio. The minimum
required leverage capital ratio is 4 percent if the Federal Reserve determines
that the institution is not anticipating or experiencing significant growth and
has well-diversified risks — including no undue interest rate exposure,
excellent asset quality, high liquidity and good earnings — and, in general, is
considered a strong banking organization and rated Composite 1 under the Uniform
Financial Institutions Rating Systems. If the Bank does not satisfy
any of these criteria it may be required to maintain a ratio of total capital to
risk-based assets of 10% and a ratio of Tier 1 capital to risk-based assets of
at least 6%. The Bank would then be required to maintain a 5%
leverage capital ratio.
Significant
Legislation.
Under
Florida law, which is designed to implement the Interstate Banking Act, a
non-Florida bank may not open new branches in Florida but may, beginning May 31,
1997, acquire by merger a Florida bank and operate its branches after the
merger, provided that the Florida bank is at least three years
old. Also, since May 31, 1997, Florida law has prohibited the
establishment in Florida of new banks by non-Florida bank holding
companies. A non-Florida bank holding company may, however, acquire a
Florida bank or bank holding company, provided that the Florida bank involved is
at least three years old. These interstate acquisitions are
prohibited if they result in the control of more than 30% of the total amount of
insured deposits in Florida, except where the acquisition is an initial entry
into Florida by the out-of-state bank holding company. This
legislation has had and continues to have the potential of increasing the
competitive forces to which we would be subject.
Under
the Gramm-Leach-Bliley Act, enacted in 1999 (the GLB Act”), which essentially
repealed the Glass-Steagall Act of 1933, a bank holding company that elects to
become a financial holding company may engage in any activity that the Federal
Reserve, in consultation with the Secretary of the Treasury, determines by
regulation or order is: (1) financial in nature; (2) incidental to any such
financial activity; or (3) complementary to any such financial activity and does
not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. The GLB Act specifies
certain activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve under Section 4(c)(8) of the Bank Holding Company Act. The
GLB Act does not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well-capitalized, well-managed and have
at least a satisfactory rating under the Community Reinvestment
Act. Because of the GLB Act, the Company has been placed in more
direct competition with other financial institutions including mutual funds,
securities brokerage firms, insurance companies and investment banking
firms.
25
Proposed
Legislation and Regulatory Action.
New
regulations and statutes are regularly proposed that contain wide-ranging
proposals for altering the structure, competitive relationships and the
regulatory framework in which we and the Bank operate. For example,
under the Emergency Economic Stabilization Act of 2008 (“EESA”), Congress has
the ability to impose “after-the-fact” terms and conditions on participants in
the Capital Purchase Program administered under the Troubled Asset Relief
Program (“TARP”). As previously reported, we have applied for
participation in the Capital Purchase Program and, if we were approved for such
participation and actually participated in it, we could be subject to any such
retroactive legislation. On February 10, 2009, the Treasury announced the
Financial Stability Plan under the EESA (the “Financial Stability Plan”) which
is intended to further stabilize financial institutions and stimulate lending
across a broad range of economic sectors. On February 18, 2009, President Obama
signed the America Recovery and Reinvestment Act (“ARRA”), a broad economic
stimulus package that included additional restrictions on, and potential
additional regulation of, financial institutions. Additional regulations adopted
as part of the EESA, the Financial Stability Plan, the ARRA, or other
legislation may subject us to additional regulatory requirements. We
cannot predict whether or in what form any proposed regulation or statute will
be adopted or the extent to which our business may be affected by any new
regulation or statute.
The
earnings and growth of the Bank are also affected by the monetary and fiscal
policies of the federal government, particularly the Federal
Reserve. The Federal Reserve implements national monetary policy by
its open market operations in United States government securities, adjustments
in the amount of industry reserves that banks and other financial institutions
are required to maintain and adjustments to the discount rates applicable to
borrowings by banks from the Federal Reserve. The actions of the
Federal Reserve in these areas influence the growth of bank loans, investments
and deposits and also affect interest rates charged on loans and paid on
deposits. We cannot predict the nature and impact of any future
changes in monetary policies.
Item
2.
|
Description of
Property.
|
In
August 2000, the Company and the Bank moved their operations into a new
one-story building located at 900 53rd Avenue
East, in Bradenton. The new facility, after the addition of almost
2,000 square feet of interior space in August, 2004, consists of approximately
7,000 square feet of interior space, four interior teller windows, four exterior
drive-through teller stations and 36 parking spaces. The interior
includes executive offices, work stations for support staff and safe deposit box
storage areas. The original total cost of for the new facility,
including the costs of construction, landscaping, and furniture and equipment,
was approximately $1.7 million. The 2004 addition cost the Company approximately
$260,000, and the Company spent another approximately $40,000 to furnish the
additional space with furniture and equipment.
26
On
June 25, 2001, the Bank opened a new branch facility located at 2102 59th Street
West, Bradenton, Florida (the "Blake Hospital Branch"). The Blake Hospital
Branch was built by a Florida limited liability partnership composed of four of
the Company's directors and a relative of one of the Company's
directors. The Bank leased 3,812 square feet of the facility from the
partnership on a ten year lease, at a rate of $23.50/square foot, with 3% annual
increases and two five-year options.
On
October 31, 2005, the Bank opened a new branch facility at 501 8th Avenue
West, Palmetto, Florida (the "Palmetto Branch"). The Palmetto Branch
was built by a Florida limited liability partnership composed of five of the
Company's directors. The Bank leased 3,731 square feet of the
facility from the partnership on a ten year lease, at the rate of $28.50/square
foot, with 3% annual increases and two five-year options.
In
April of 2009, the Bank opened a new branch facility at 1525 East Brandon
Boulevard, Brandon, Florida (the "Brandon Branch"). The Brandon
Branch was built by a Florida limited liability partnership composed of four of
the Company's directors and a relative of one of the Company's
directors. The Bank leased 3,550 square feet of the facility from the
partnership on a ten year lease, at a rate of $50.50/square foot, with 3% annual
increases and two five-year options.
On
December 30, 2009, the Bank purchased a 26,000 square foot historic building in
downtown Bradenton for $1.5 million. This building will be used to
consolidate Holding Company and Bank accounting and bookkeeping
functions. It will also provide space for future
growth. It is anticipated the Bank will lease out a portion of the
building.
Item
3.
|
Legal
Proceedings.
|
Neither
the Company nor the Bank is a party to, nor is any of their property the subject
of, any material pending legal proceeding that is not routine litigation that is
incidental to the business or any other material legal proceeding.
PART
II
Item 4.
|
Market
for Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
|
Market for Common Stock and Dividend
Policy.
Our
Amended and Restated Articles of Incorporation authorize us to issue up to
25,000,000 shares of the Common Stock and 1,000,000 shares of preferred
stock. As of March 17, 2010, 1,809,912 shares of the Common Stock
were issued, and 1,770,139 were outstanding and held by 586 holders of
record. No shares of preferred stock were then issued and
outstanding.
Since
November 2004, the Common Stock has been trading on the OTCBB under the symbol
"HZNB". The following table sets forth the range of high and low bid
information for the four quarters of 2009, as reported by
Bloomberg.com:
Quarter ended
|
High
|
Low
|
||||||
March
31
|
7.75 | 6.00 | ||||||
June
30
|
9.25 | 3.10 | ||||||
September
30
|
5.00 | 3.90 | ||||||
December
31
|
4.95 | 1.60 |
27
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
The
following table sets forth the range of high and low bid information for the
four quarters of 2008, as reported by Bloomberg.com:
Quarter ended
|
High
|
Low
|
||||||
March
31
|
14.00 | 10.10 | ||||||
June
30
|
12.50 | 10.10 | ||||||
September
30
|
11.30 | 8.25 | ||||||
December
31
|
8.50 | 6.50 |
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
For 2008 we
paid $.11 per share in dividends. We were restricted by the FRB from
paying any dividends in 2009. The declaration of future dividends is within the
discretion of the Board of Directors and will depend, among other things, upon
business conditions, earnings, the financial condition of the Bank and the
Company, and regulatory requirements.
Equity
Compensation Plan Information.
The
following chart sets forth information relating to the Company's stock option
plans.
Number of
Securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluded
securities reflected
in column (a))
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
90,320 | $ | 11.10 | 37,887 | ||||||||
Equity
compensation plans not approved by security holders
|
34,380 |
(1)
|
$ | 5.50 | -0- | |||||||
Total
|
124,700 | 37,887 |
28
(1) These
ten-year options were granted to Charles S. Conoley, the President and Chief
Executive Officer, under an individual compensation arrangement on October 28,
1998. The expiration date of these options was extended to December 31, 2012
pursuant to Mr. Conoley's employment agreement effective January 1,
2008.
Item 5.
|
Selected
Financial Data.
|
Not
Applicable.
Item 6.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Discussion
of the financial condition and results of operations of the Company should be
read in conjunction with the Company's consolidated financial statements and
related notes which are included under Item 7 below.
Critical
Accounting Policies
Critical
accounting policies are defined as those that were reflective of significant
judgments and uncertainties and could potentially result in materially different
results under different assumptions and conditions. Management
believes that the most critical accounting policies upon which its financial
condition depends, and which involve the most complex or subjective decisions or
assessments are as follows:
Allowance for Loan
Losses: Arriving at an appropriate level of allowance for loan
losses involves a high degree of judgment. The Company's allowance
for loan losses provides for probable losses based upon evaluations of known and
inherent risks in the loan portfolio. Management uses historical
information to assess the adequacy of the allowance for loan losses as well as
the prevailing business environment as it is affected by changing economic
conditions and various external factors, which may impact the portfolio in ways
currently unforeseen. The allowance is increased by provisions for
loan losses and by recoveries of loans previously charged-off and reduced by
loans charged-off. For an additional discussion of the Company's
methodology of assessing the adequacy of the allowance for loan losses, see Note
1 in the Company's consolidated financial statements for years ended December
31, 2009 and 2008.
Income Taxes: The
Company estimates income tax expense based on the amount it expects to owe
various tax authorities. Income taxes are discussed in more detail in
Note 14 of the consolidated financial statements. Accrued taxes
represent the net estimated amount due to or to be received from taxing
authorities. In estimating accrued taxes, management assesses the
relative merits and risks of the appropriate tax treatments taking into account
statutory, judicial and regulatory guidance in the context of its tax
position. Although the Company uses available information to record
accrued income taxes, underlying estimates and assumptions can change over time
as a result of unanticipated events or circumstances, such as changes in tax
laws influencing the Company's overall tax position. Refer to Note 1
in the Company’s consolidated financial statements for years ended December 31,
2009 and 2008 for a more detailed discussion.
29
Overview
The
Company's results of operations are largely dependent on interest income, which
is the difference between the interest earned on loans and securities and
interest paid on deposits and borrowings. The results of operations
are also affected by the level of income/fees from loans, deposits, borrowings,
as well as operating expenses, the provision for loan losses, the impact of
federal and state income taxes, and the relative levels of interest rates and
economic activity.
In
its projections for fiscal 2009, the Company anticipated increased net interest
income as the Bank continued to expand its base of earning
assets. The actual results for the year ended December 31,
2009 show that, in spite of decreasing interest rates on both the
earning asset and interest bearing liabilities sides of the balance sheet the
rate and volume decreases on the asset side outpaced those on the
liability side resulting in a slight decrease of $148,000 in net
interest income for the year ended December 31, 2009.
Looking
ahead to 2010, the Company expects general rates to remain steady throughout the
year which will decrease cost of funds slightly while the yield on earning
assets will remain constant. The strategy for 2010 is to increase the
net yield approximately .20%. In addition, expense control and growth
in non-interest income will also be main objectives for 2010. Large
increases in FDIC charges will have a significant negative impact on 2010
earnings. The Bank has budgeted $420,000 for the loan loss provision
for fiscal year 2010, but expects this number to be higher to satisfy the bank
regulators' drive for "cushion capital" in the loan loss reserve.
As
discussed under “Future Prospects” below, of much greater concern is the fact
that for the last two quarters the Bank has been significantly undercapitalized
under the applicable capital ratios. The Atlanta Fed is not likely to
allow this condition to continue for another full fiscal quarter and, unless,
with the Atlanta Fed’s cooperation, the Company engineers a major infusion of
capital into the Bank in the next 30-45 days, the Bank is likely to be placed
under a receivership and the Company will go out of business.
A.
|
Results
of Operations.
|
Year Ended December 31, 2009
as Compared to Year Ended December 31, 2008.
For
the years ended December 31, 2009 and 2008, net income/(loss) amounted to
$(8,127,338) and $587,970 respectively. For 2009, basic and diluted
income/(loss) per share of Common Stock was $(4.59). For 2008, basic
and diluted income per share of Common Stock was $.33 and $.32,
respectively. Because of the existence of warrants and stock options,
the Company has a complex capital structure, necessitating the disclosure of
basic and dilutive income per share. While none of the warrants/options were
dilutive in 2009, a portion of the warrants/options were dilutive during
calendar year 2008.
In
general terms, the Company's results of operations are determined by its ability
to manage effectively interest income and expense, to minimize loan and
investment losses, to generate non-interest income and to control non-interest
expense. Since interest rates are determined by market forces and
economic conditions beyond the control of the Company, the ability to generate
net interest income is dependent upon the Company's ability to maintain an
adequate spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities, such as deposits and borrowings. Thus, net
interest income is the key performance measure of income.
30
Following
is a comparison of the Company's performance during calendar year 2009 and
2008.
Average
earning assets increased from $195.7 million at
December 31, 2008, to $197.9 million at December 31, 2009, representing an
increase of $2.2
million, or 1%. Below are the various components of average earning
assets for the periods indicated (in thousands):
December 31
|
||||||||
2009
|
2008
|
|||||||
Federal
funds sold
|
$ | 1,224 | $ | 1,119 | ||||
Taxable/nontaxable
securities
|
31,404 | 31,887 | ||||||
Loans
|
165,284 | 162,671 | ||||||
Total
earning assets
|
$ | 197,912 | $ | 195,677 |
Net
interest income decreased, from $6,113,313 for the year ended December 31, 2008,
to $5,964,885 for the year ended December 31, 2009. Below are the
various components of interest income and expense, as well as their yield/cost
for the periods indicated:
Years Ended:
|
December 31, 2009
|
December 31, 2008
|
||||||||||||||
Interest Income
/Expense
|
Yield
/Cost
|
Interest Income
/Expense
|
Yield
/Cost
|
|||||||||||||
|
($
in 000's)
|
|||||||||||||||
Interest income:
|
||||||||||||||||
Federal
funds sold
|
$ | 4 | .33 | % | $ | 32 | 2.86 | % | ||||||||
Taxable/nontaxable
securities
|
1,455 | 4.63 | % | 1,837 | 5.76 | % | ||||||||||
Loans
|
10,296 | 6.23 | % | 11,260 | 6.92 | % | ||||||||||
Total
|
$ | 11,755 | 5.94 | % | $ | 13,129 | 6.71 | % | ||||||||
Interest expense:
|
||||||||||||||||
NOW
and money market deposits
|
$ | 306 | 1.23 | % | $ | 485 | 1.95 | % | ||||||||
Savings
deposits
|
248 | 1.64 | % | 438 | 2.84 | % | ||||||||||
Time
deposits
|
4,067 | 3.21 | % | 5,001 | 4.40 | % | ||||||||||
Other
borrowings
|
1,169 | 4.37 | % | 1,092 | 4.12 | % | ||||||||||
Total
|
$ | 5,790 | 2.99 | % | $ | 7,016 | 3.88 | % | ||||||||
Net
interest income
|
$ | 5,965 | $ | 6,113 | ||||||||||||
Net
yield on earning assets
|
3.01 | % | 3.12 | % |
The
above table indicates that the net yield on earning assets decreased from 3.12%
for the year ended December 31, 2008, to 3.01% for the year ended December 31,
2009. As shown in the table, the decrease in net yield occurred
because the decreased yield on loans and securities were not sufficient to
offset the decrease in rates the Bank had to pay on deposits in a competitive
local market environment. For further explanation see the discussion under Rate/Volume Analysis of Net Interest
Income beginning on page 15 above.
31
Non-interest
Income
Non-interest
income as a percentage of average total assets declined from (.16%) for calendar
year 2008 to (.41%) for calendar year 2009. In terms of dollars, the
decline amounted to approximately $540,000.
Components
of non-interest income for calendar years 2009 and 2008 are as
follows:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Gain
on sale of loans and servicing assets
|
$ | 927,494 | $ | 433,034 | ||||
Impairment
(loss) on security
|
(2,213,807 | ) | (1,166,136 | ) | ||||
Impairment
(loss), OREO
|
(515,773 | ) | —0— | |||||
Gain
on sale of assets
|
1,299 | 168,085 | ||||||
Service
fees on deposit accounts
|
76,284 | 91,381 | ||||||
Loan
servicing income
|
508,340 | —0— | ||||||
Gain
on sale of securities
|
118,756 | —0— | ||||||
Miscellaneous
other
|
230,670 | 151,396 | ||||||
Total
|
$ | (866,737 | ) | $ | (322,240 | ) |
Non-Interest
Expense
Non-interest
expense as a percentage of average total assets for years ended December 31,
2009 and 2008, respectively, was 2.64% and 2.24%,
respectively.
Components
of non-interest expense for calendar years 2009 and 2008 are as
follows:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Salaries
and benefits
|
$ | 2,386,675 | $ | 2,344,286 | ||||
Building
and equipment expense
|
916,857 | 703,815 | ||||||
Professional
fees
|
296,825 | 226,296 | ||||||
FDIC
insurance expense
|
521,639 | 124,129 | ||||||
Data
processing and software expense
|
348,531 | 344,301 | ||||||
Other
operating expenses
|
1,169,029 | 811,495 | ||||||
Total
|
$ | 5,639,556 | $ | 4,554,322 |
During
calendar year 2009, the allowance for loan losses increased from $1,502,823 to
$4,731,280. The allowance for loan losses, as a percentage of gross
loans, increased from .90% for December 31, 2008 and 3.03% for December 31,
2009. As a result of the severe economic downturn in 2008, and
especially in 2009, real estate values plummeted and the rate of unemployment
increased dramatically. These two factors combined had a significant
impact on the Bank’s loan portfolio. Specifically, loan quality
declined drastically, necessitating very significant provisions to the allowance
for loan losses. For the years ended December 31, 2009 and 2008, provisions for
loan losses amounted to $11.2 million and $.4 million,
respectively.
32
As
of December 31, 2009, management considers the allowance for loan losses to be
adequate to absorb possible future losses. However, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional provisions to the allowance will not be
required.
Liquidity and Interest Rate
Sensitivity
Net
interest income, the Company's primary source of earnings, fluctuates with
significant interest rate movements. To lessen the impact of these
margin swings, the balance sheet should be structured so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.
Interest
rate sensitivity refers to the responsiveness of interest-bearing assets and
liabilities to changes in market interest rates. The rate sensitive
position, or gap, is the difference in the volume of rate sensitive assets and
liabilities, at a given time interval. The general objective of gap
management is to manage actively rate sensitive assets and liabilities so as to
reduce the impact of interest rate fluctuations on the net interest
margin. Management generally attempts to maintain a balance between
rate sensitive assets and liabilities as the exposure period is lengthened to
minimize the Company's overall interest rate risks. The asset mix of
the balance sheet is continually evaluated in terms of several
variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance
sheet focuses on expanding the various funding sources. The interest
rate sensitivity position at year-end 2009 is presented below. Since
all interest rates and yields do not adjust at the same velocity, the gap is
only a general indicator of rate sensitivity (dollars in
thousands):
Within
three
months
|
After
three
months
but
within
six
months
|
After
six
months
but
within
one year
|
After
one year
but
within
five
years
|
After
five
years
|
Total
|
|||||||||||||||||||
EARNING ASSETS
|
||||||||||||||||||||||||
Loans
|
50,946 | 15,432 | 15,233 | 56,584 | 17,664 | 155,859 | ||||||||||||||||||
Securities
|
58 | 2,649 | 275 | 2,256 | 19,309 | 24,547 | ||||||||||||||||||
Federal
funds sold
|
— 0 — | — 0 — | — 0 — | — 0 — | — 0 — | — 0 — | ||||||||||||||||||
Total
earning assets
|
51,004 | 18,081 | 15,508 | 58,840 | 36,973 | 180,406 | ||||||||||||||||||
SUPPORTING
SOURCES OF FUNDS
|
||||||||||||||||||||||||
Interest-bearing
demand deposits and savings
|
41,597 | — 0 — | — 0 — | — 0 — | — 0 — | 41,597 | ||||||||||||||||||
Certificates,
Less than $100M
|
16,863 | 13,979 | 35,182 | 31,362 | — 0 — | 97,386 | ||||||||||||||||||
Certificates,
$100M and over
|
6,748 | 3,971 | 11,946 | 3,242 | — 0 — | 25,907 | ||||||||||||||||||
Borrowings
|
1,065 | — 0 — | — 0 — | 13,000 | 5,000 | 19,065 | ||||||||||||||||||
Total
interest-bearing liabilities
|
66,273 | 17,950 | 47,128 | 47,604 | 5,000 | 183,955 | ||||||||||||||||||
Interest
rate sensitivity gap
|
(15,269 | ) | 131 | (31,620 | ) | 11,236 | 31,973 | (3,549 | ) | |||||||||||||||
Cumulative
gap
|
(15,269 | ) | (15,138 | ) | (46,758 | ) | (35,522 | ) | (3,549 | ) | — | |||||||||||||
Interest
rate sensitivity gap ratio
|
0.77 | 1.01 | 0.33 | 1.24 | 7.39 | .98 | ||||||||||||||||||
Cumulative
interest rate sensitivity gap ratio
|
0.77 | 0.82 | 0.64 | 0.80 | .98 | — |
33
As
evidenced by the table above, the Company is liability sensitive from zero to
within three months and six months to within one year. It is asset
sensitive after three months to within six months and after one
year. On a cumulative basis, however, the Company is liability
sensitive throughout all time spans.
In
a declining interest rate environment, a liability sensitive position (a gap
ratio of less than 1.0) is generally more advantageous since liabilities are
repriced sooner than assets. Conversely, in a rising interest rate
environment, an asset sensitive position (a gap ratio over 1.0) is generally
more advantageous, as earning assets are repriced sooner than
liabilities. With respect to the Company, an increase in interest
rates would reduce income for all time periods up to one
year. Conversely, a decline in interest rates would increase income
for all time periods up to one year. This, however, assumes that all
other factors affecting income remain constant.
As
the Company continues to grow, management will continuously structure its rate
sensitivity position to best hedge against rapidly rising or falling interest
rates. The Bank's Asset/Liability Committee meets on a quarterly basis and
develops management's strategy for the upcoming period. Such strategy
includes anticipations of future interest rate movements. Interest
rate risk will, nonetheless, fall within previously adopted policy parameters to
contain any risk.
Liquidity
represents the ability to provide steady sources of funds for loan commitments
and investment activities and to maintain sufficient funds to cover deposit
withdrawals and payment of debt and operating obligations. These
funds can be obtained by converting assets to cash or by attracting new
deposits. The Company's primary source of liquidity comes from its
ability to maintain and increase deposits through the Bank. Below are pertinent
liquidity balances and ratios for the years ended December 31, 2009 and 2008
(dollars in thousands):
2009
|
2008
|
|||||||
Cash
and cash equivalents
|
9,720 | 2,384 | ||||||
CDs,
over $100,000 to total deposits (ratio)
|
14.8 | % | 17.0 | % | ||||
Loan
to deposit ratio
|
86.6 | % | 101.1 | % | ||||
Securities
to total assets ratio
|
12.3 | % | 14.8 | % | ||||
Brokered
deposits
|
11,647 | 26,543 |
As
the above balances and ratios indicate, management believes that the Company's
2009 liquidity position is satisfactory. Management is unaware of any
trends, demands, commitments, events or uncertainties that will result in or are
reasonably likely to result in the Company's liquidity increasing or decreasing
in any material way. The Bank has certain deposit pricing directives
that could adversely affect the Bank's ability to attract and/or retain deposits
in the future.
Capital
Adequacy
There
are two primary measures of capital adequacy for banks and bank holding
companies: (i) risk-based capital guidelines; and (ii) the leverage
ratio.
34
The
risk-based capital guidelines measure the amount of a bank's required capital in
relation to the degree of risk perceived in its assets and its off-balance sheet
items. For example, cash and Treasury Securities are placed under a
zero percent risk category while commercial loans are placed under the one
hundred percent risk category. Banks are required to maintain a
minimum risk-based capital ratio of 8%, with at least 4% consisting of Tier 1
capital. Under the risk-based capital guidelines, there are two
"tiers" of capital. Tier 1 capital consists of common shareholders'
equity, non-cumulative and cumulative (bank holding companies only) perpetual
preferred stock and minority interests. Goodwill is subtracted from
the total. Tier 2 capital consists of the allowance for loan losses,
hybrid capital instruments, term subordinated debt and intermediate term
preferred stock.
The
second measure of capital adequacy relates to the leverage ratio. The
Federal Reserve has established a 3% minimum leverage ratio
requirement. Note that the leverage ratio is computed by dividing
Tier 1 capital into total assets. Banks that are not rated CAMEL 1 by
their primary regulator should maintain a minimum leverage ratio of 3% plus an
additional cushion of at least 1% - 2%, depending upon risk profiles and other
factors.
Since
1996, the Federal Reserve, the OCC and the FDIC consider interest rate risk in
the determination of supervisory capital adequacy. In their joint
policy statement, the agencies emphasize the necessity of adequate oversight by
a bank's board of directors and senior management and of a comprehensive risk
management process. The policy statement also describes the critical
factors affecting the agencies' evaluations of a bank's interest rate risk when
making a determination of capital adequacy. The agencies' risk
assessment approach used to evaluate a bank's capital adequacy for interest rate
risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or
weak management practices will be directed by the agencies to take corrective
action.
The
table below illustrates the Bank's and Company's regulatory capital ratios at
December 31, 2009 and 2008:
Bank
|
2009
|
2008
|
Minimum
Regulatory
Requirement
|
|||||||||
Tier
1 Capital
|
3.6 | % | 9.3 | % | 4.0 | % | ||||||
Tier
2 Capital
|
1.3 | % | .9 | % | N/A | |||||||
Total
risk-based capital ratio
|
4.9 | % | 10.2 | % | 8.0 | % | ||||||
Leverage
ratio
|
2.6 | % | 7.2 | % | 3.0 | % |
35
Company - Consolidated
|
2009
|
2008
|
Minimum
Regulatory
Requirement
|
|||||||||
Tier
1 Capital
|
2.9 | % | 8.8 | % | 4.0 | % | ||||||
Tier
2 Capital
|
1.3 | % | .8 | % | N/A | |||||||
Total
risk-based capital ratio
|
4.2 | % | 9.6 | % | 8.0 | % | ||||||
Leverage
ratio
|
2.1 | % | 6.8 | % | 3.0 | % |
B.
|
Future
Prospects.
|
As
set forth under “Description of the Business - Recent Developments” above, the
severe downturn in the general economy and the dramatic fall in real estate
prices and economic activity within the Bank’s market area, in particular, have
caused the Bank, to become significantly
undercapitalized. Specifically, as of December 31, 2009, the Bank’s
Tier I capital ratio of 3.6% fell below the 4.0% minimum regulatory requirement,
its total-risk-based capital ratio of 4.9% fell bellow the 8% regulatory minimum
and its leverage ratio of 2.6% fell below the 3.0% regulatory
minimum. As of the date of this Report, these three ratios have not
improved.
We
have attempted to comply with the various regulatory directives that have been
issued in reaction to the Bank’s deteriorating capital position by commencing,
in the Fall of 2009, the offering of the Series A Preferred
Stock. However, both lack of clear guidance from the Atlanta Fed
regarding the minium required additional capital, as well as the fact that
additional writedowns of loans and additions to the ALLL have made the exact
amount of additional capital a moving target, have made the size parameters of
the offering obsolete.
As
of the date of this Report, the Bank’s, and thus the Company’s, future prospects
are unclear. Based on the official results of the March 2010
Examination, the Atlanta Fed may finally give us both (a) clear guidance as to
the amount of additional capital needed for the Bank to return to adequately
capitalized status and (b) a reasonable period of time to raise such
capital. If this were to happen, we intend to modify the current
equity offering accordingly and would do our utmost to meet the regulatory
capital requirements, and pay off the 1st Manatee
loan. There is, of course, no assurance that we will be able to
conduct a successful equity offering. On the other hand, the Atlanta
Fed may decide not to provide clear guidance and take additional enforcement
measures, including placing the Bank in receivership, i.e. cause the Bank to
fail.
The
fate of the Bank and thus of the Company is likely to be decided before the end
of the second quarter of 2010. In the meantime, our registered
independent auditors included an explanatory paragraph in their report on the
accompanying financial statements regarding concerns about our ability to
continue as a going concern. Our financial statements contain additional note
disclosures describing the circumstances that lead to this disclosure by our
registered independent auditors. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
Item
6A.
|
Quantitative and
Qualitative Disclosures About Market
Risk.
|
Not
applicable
36
Item 7.
|
Financial
Statements and Supplementary Data.
|
The
following financial statements are contained in this Item 7:
|
Independent
Auditors' Report
|
|
Consolidated
Balance Sheets as of December 31, 2009 and
2008
|
|
Consolidated
Statements of Income for the years ended December 31, 2009 and
2008
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December
31, 2009 and 2008
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
|
Notes
to Consolidated Financial
Statements
|
37
HORIZON
BANCORPORATION, INC.
BRADENTON,
FLORIDA
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2009 AND 2008
F-i
TABLE OF
CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Operations
|
F-3
|
Consolidated
Statements of Changes in Shareholders' Equity
|
F-4
|
Consolidated
Statements of Cash Flows
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
|
F-ii
Report of Independent
Registered Public Accounting Firm
Board of
Directors and Shareholders
Horizon
Bancorporation, Inc.
Bradenton,
Florida
We
have audited the accompanying consolidated balance sheets of Horizon
Bancorporation, Inc., Bradenton, Florida and subsidiary (the "Company") as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, comprehensive income (loss), changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31,
2009. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial position of Horizon
Bancorporation, Inc., and subsidiary at December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed under Note 2 to the
financial statements, the Company has suffered heavy losses in calendar year
2009, reducing its capital accounts significantly. Due to the 2009
losses, the significant decline in capital ratios, regulatory concerns over the
adequacy of the allowance for loan and lease losses, as well as other concerns,
a formal supervisory agreement was imposed by Federal and State
regulators. Failure to fully comply with the requirements of the
above agreement may lead to additional regulatory actions such as prompt
corrective action directive (imposed in 2010) or even placing the Company into
receivership/conservatorship. In addition, the Company has not been
able to pay off a loan that matured on December 31, 2009. The loan,
in the amount of $1.1 million, is secured by 100% of the subsidiary Bank’s
common stock. On March 26, 2010, the lending institution and the
Company have entered into an agreement to extend the maturity date of the loan
to June 15, 2010 in consideration of a $104,000 payment by the
Company. The payment is payable in two installments, $44,000 on March
29, 2010, and $60,000 on or before April 19, 2010. The Company’s
ability to resolve all of the above concerns in a timely manner raises
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are described
under Note 2. The accompanying financial statements do not include
any adjustments that would be necessary should the Company be unable to continue
as a going concern.
/S/ Francis & Co., CPA's,
|
Atlanta,
Georgia
|
April 13, 2010
|
F-1
HORIZON
BANCORPORATION, INC.
BRADENTON,
FLORIDA
Consolidated
Balance Sheets
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Cash
and due from banks
|
$ | 9,719,612 | $ | 2,236,783 | ||||
Federal
funds sold
|
—0— | 147,000 | ||||||
Total
cash and cash equivalents
|
$ | 9,719,612 | $ | 2,383,783 | ||||
Securities:
|
||||||||
Held
to maturity, at amortized cost
|
11,462,744 | 13,086,900 | ||||||
Available-for-sale
at fair value
|
13,080,811 | 17,965,410 | ||||||
Loans
held for sale
|
1,262,199 | 2,000,000 | ||||||
Loans,
net
|
151,127,759 | 166,027,061 | ||||||
Property
and equipment, net
|
3,698,502 | 2,029,877 | ||||||
Other
real estate owned, net
|
2,579,138 | 2,815,386 | ||||||
Other
assets
|
6,568,241 | 2,989,837 | ||||||
Total
Assets
|
$ | 199,499,006 | $ | 209,298,254 | ||||
LIABILITIES & SHAREHOLDERS'
EQUITY
|
||||||||
Liabilities:
|
||||||||
Deposits:
|
||||||||
Non-interest
bearing deposits
|
$ | 9,686,614 | $ | 8,572,582 | ||||
Interest
bearing deposits
|
164,889,658 | 157,705,963 | ||||||
Total
deposits
|
$ | 174,576,272 | $ | 166,278,545 | ||||
Federal
Home Loan Bank borrowings
|
18,000,000 | 29,000,000 | ||||||
Notes
payable
|
1,065,205 | 805,764 | ||||||
Dividends
payable
|
—0— | 199,090 | ||||||
Other
liabilities
|
190,368 | 220,325 | ||||||
Total
Liabilities
|
$ | 193,831,845 | $ | 196,503,724 | ||||
Shareholders' Equity:
|
||||||||
Preferred
stock, $.01 par value, 1.0 million shares authorized; zero shares
issued and outstanding
|
$ | — | $ | — | ||||
Treasury
Stock: 39,773 shares
|
(479,393 | ) | (479,393 | ) | ||||
Common
stock, $.01 par value, 25,000,000 shares authorized; 1,809,912 issued and
1,770,139 outstanding(2009) and 1,808,219 issued and 1,768,446
outstanding(2008)
|
18,099 | 18,082 | ||||||
Paid-in-capital
|
10,428,214 | 10,358,919 | ||||||
Retained
earnings/(loss)
|
(4,006,176 | ) | 4,116,602 | |||||
Accumulated
other comprehensive income/(loss), net of tax
|
(293,583 | ) | (1,219,680 | ) | ||||
Total
Shareholders' Equity
|
$ | 5,667,161 | $ | 12,794,530 | ||||
Total
Liabilities and Shareholders' Equity
|
$ | 199,499,006 | $ | 209,298,254 |
Refer to
notes to the consolidated financial statements.
F-2
HORIZON
BANCORPORATION, INC.
BRADENTON,
FLORIDA
Consolidated
Statements of Operations
Year Ended December 31,
|
||||||||
|
2009
|
2008
|
||||||
Interest Income:
|
||||||||
Interest
and fees on loans
|
$ | 10,296,308 | $ | 11,260,054 | ||||
Interest
on investment securities
|
1,455,223 | 1,837,125 | ||||||
Interest
on federal funds sold
|
3,842 | 32,041 | ||||||
Total
interest income
|
$ | 11,755,373 | $ | 13,129,220 | ||||
Interest Expense:
|
||||||||
Interest
on deposits
|
4,621,957 | 5,924,002 | ||||||
Interest
on borrowings
|
1,168,531 | 1,091,905 | ||||||
Total
interest expense
|
5,790,488 | 7,015,907 | ||||||
Net
interest income
|
5,964,885 | 6,113,313 | ||||||
Provision
for possible loan losses
|
11,196,661 | 445,000 | ||||||
Net
interest income after PLL
|
$ | (5,231,776 | ) | $ | 5,668,313 | |||
Other Income:
|
||||||||
Gain
on sale of loans
|
$ | 727,102 | $ | 56,667 | ||||
Impairment
loss, other real estate owned
|
(515,773 | ) | —0— | |||||
Impairment
loss, securities
|
(2,213,806 | ) | (1,166,136 | ) | ||||
Gain
on sale of servicing assets
|
200,392 | 376,367 | ||||||
Gain
on sale of other assets
|
1,299 | 168,085 | ||||||
Gain
on sale of securities
|
118,756 | —0— | ||||||
Service
fees on deposit accounts
|
76,284 | 91,381 | ||||||
Loan
servicing income
|
508,340 | —0— | ||||||
Miscellaneous,
other
|
230,670 | 151,396 | ||||||
Total
other income
|
$ | (866,736 | ) | $ | (322,240 | ) | ||
Other Expenses:
|
||||||||
Salaries
and benefits
|
$ | 2,386,675 | $ | 2,344,286 | ||||
Building
and equipment expense
|
916,857 | 703,815 | ||||||
Professional
fees
|
296,825 | 226,296 | ||||||
FDIC
insurance expense
|
521,639 | 124,129 | ||||||
Data
processing and software expense
|
348,531 | 344,301 | ||||||
Other
operating expenses
|
1,169,029 | 811,495 | ||||||
Total
other expenses
|
$ | 5,639,556 | $ | 4,554,322 | ||||
Income/(loss)
before income tax
|
$ | (11,738,068 | ) | $ | 791,751 | |||
Income
tax expense/(benefit)
|
(3,610,730 | ) | 203,781 | |||||
Net
income/(loss)
|
$ | (8,127,338 | ) | $ | 587,970 | |||
Basic
income/(loss) per share
|
$ | (4.59 | ) | $ | .33 | |||
Diluted
income/(loss) per share
|
$ | (4.59 | ) | $ | .32 | |||
Weighted
average number of shares outstanding:
|
||||||||
Basic
|
1,770,116 | 1,769,375 | ||||||
Diluted
|
1,770,116 | 1,833,193 |
Refer to
notes to the consolidated financial statements
F-3
HORIZON
BANCORPORATION, INC.
BRADENTON,
FLORIDA
Consolidated
Statements of Changes in Shareholders' Equity
For
the years ended December 31, 2009 and 2008
Accumulated
|
||||||||||||||||||||||||||||
Other
|
||||||||||||||||||||||||||||
Common
Stock
|
Treasury
|
Paid
in
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||
Shares
|
Par
Value
|
Stock
|
Capital
|
Earnings
|
Income
|
Total
|
||||||||||||||||||||||
Balance
December 31 , 2007
|
1,788,446 | $ | 18,082 | $ | (232,393 | ) | $ | 10,288,581 | $ | 3,727,722 | $ | (648,467 | ) | $ | 13,153,525 | |||||||||||||
Comprehensive
Income:
|
||||||||||||||||||||||||||||
Net
income, twelve-month period ended December 31, 2008
|
$ | 587,970 | $ | 587,970 | ||||||||||||||||||||||||
Net
unrealized loss on securities, twelve-month period ended December 31,
2008
|
(571,213 | ) | (571,213 | ) | ||||||||||||||||||||||||
Total
comprehensive income/(loss),net of tax
|
16,757 | |||||||||||||||||||||||||||
Dividends
Payable
|
(199,090 | ) | (199,090 | ) | ||||||||||||||||||||||||
Repurchase
of common stock
|
(20,000 | ) | $ | (247,000 | ) | (247,000 | ) | |||||||||||||||||||||
Stock
Options Expense
|
$ | 70,338 | 70,338 | |||||||||||||||||||||||||
Balance
December 31 , 2008
|
1,768,446 | $ | 18,082 | $ | (479,393 | ) | $ | 10,358,919 | $ | 4,116,602 | $ | (1,219,680 | ) | $ | 12,794,530 | |||||||||||||
Prior
period adjustment
|
$ | 4,560 | $ | 4,560 | ||||||||||||||||||||||||
Comprehensive
Income:
|
||||||||||||||||||||||||||||
Net
income/(loss), twelve-month period ended December 31, 2009
|
$ | (8,127,338 | ) | $ | (8,127,338 | ) | ||||||||||||||||||||||
Net
unrealized income on securities, twelve-month period ended December 31,
2009
|
926,097 | $ | 926,097 | |||||||||||||||||||||||||
Total
comprehensive income/(loss),net of tax
|
(7,201,241 | ) | ||||||||||||||||||||||||||
Exercise
of stock options/warrants
|
163 | $ | 17 | $ | 9,295 | $ | 9,312 | |||||||||||||||||||||
Stock
Options Expense
|
$ | 60,000 | 60,000 | |||||||||||||||||||||||||
Balance
December 31 , 2009
|
1,770,139 | $ | 18,099 | $ | (479,393 | ) | $ | 10,428,214 | $ | (4,006,176 | ) | $ | (293,583 | ) | $ | 5,667,161 |
Refer to
notes to the consolidated financial statements.
F-4
HORIZON
BANCORPORATION, INC.
BRADENTON,
FLORIDA
Consolidated
Statements of Cash Flows
Year
ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash flows from operating
activities
|
||||||||
Net
income
|
$ | (8,127,338 | ) | $ | 587,970 | |||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
276,122 | 258,454 | ||||||
Amortization/(accretion)
of securities
|
88,786 | 34,932 | ||||||
Provision
for loan losses
|
11,196,661 | 445,000 | ||||||
Stock
based compensation
|
60,000 | 70,338 | ||||||
Loss
on foreclosed assets
|
515,773 | —0— | ||||||
(Gain)
on sale of securities
|
(118,756 | ) | —0— | |||||
(Gain)/loss
on sale of other assets
|
(1,299 | ) | (168,085 | ) | ||||
Gain
on sale of servicing assets
|
(200,392 | ) | (376,367 | ) | ||||
Gain
on sale of loans
|
(727,102 | ) | (56,667 | ) | ||||
Impairment
loss on securities
|
2,213,806 | 1,166,136 | ||||||
Changes
in assets and liabilities that (used) provided cash:
|
||||||||
Accounts
receivables and other assets
|
(2,341,707 | ) | (747,790 | ) | ||||
Payables
and other liabilities
|
(229,049 | ) | 273,122 | |||||
Net
cash provided by operating activities
|
$ | 2,605,505 | $ | 1,487,043 | ||||
Cash flows from investing
activities
|
||||||||
Proceeds
from sale of other assets
|
$ | 343,025 | $ | 190,000 | ||||
Proceeds
from sale of loans
|
22,431,377 | 7,230,051 | ||||||
Purchase
of securities, held-to-maturity
|
(1,019,875 | ) | —0— | |||||
Purchase
of securities, AFS
|
(3,500,000 | ) | (4,661,436 | ) | ||||
Proceeds
from sale of securities
|
6,343,893 | —0— | ||||||
Proceeds
from maturity and pay-downs of securities, AFS
|
3,264,498 | 4,516,676 | ||||||
Repayment/(Purchase)
of Federal Bank Stock
|
162,500 | (82,212 | ) | |||||
Increase
in other real estate owned
|
(279,525 | ) | (1,695,975 | ) | ||||
Loans
held for sale originations
|
(20,766,082 | ) | (8,797,017 | ) | ||||
Loan
paydowns, net
|
2,128,780 | (12,957,868 | ) | |||||
Property
and equipment expenditures, net
|
(1,944,747 | ) | (209,531 | ) | ||||
Net
cash provided/(used) by investing activities
|
$ | 7,163,844 | $ | (16,467,312 | ) | |||
Cash
flows from financing activities:
|
||||||||
Exercise
of warrants and options
|
$ | 9,312 | $ | —0— | ||||
Increase
in deposits
|
8,297,727 | 19,723,177 | ||||||
Increase/(decrease)
in fed funds purchased
|
—0— | (5,028,000 | ) | |||||
Increase/(decrease)
in borrowings, net
|
(11,000,000 | ) | (700,000 | ) | ||||
Notes
Payable
|
259,441 | 805,764 | ||||||
Purchase
of treasury stock
|
—0— | (247,000 | ) | |||||
Cash
dividend
|
—0— | (199,090 | ) | |||||
Net
cash provided by financing activities
|
(2,433,520 | ) | 14,354,851 | |||||
Net
increase/(decrease) in cash and cash equivalents
|
$ | 7,335,829 | $ | (625,418 | ) | |||
Cash
and cash equivalents, beginning of period
|
2,383,783 | 3,009,201 | ||||||
Cash
and cash equivalents, end period
|
$ | 9,719,612 | $ | 2,383,783 | ||||
Supplemental
Information:
|
||||||||
Income
taxes paid
|
$ | 10,000 | $ | 490,986 | ||||
Interest
paid
|
$ | 5,885,509 | $ | 7,019,064 |
Refer to
notes to the consolidated financial statements
F-5
Financial
Statements
December
31, 2009 and 2008
Note
1 - Organization and Summary of Significant Accounting Policies
Horizon
Bancorporation, Inc., Bradenton, Florida (the "Company") is a one-bank holding
company with respect to Horizon Bank, Bradenton, Florida (the
"Bank"). The Company commenced banking operations on October 25, 1999
when the Bank opened for business. The Bank is primarily engaged in
the business of obtaining deposits and providing commercial, consumer, and real
estate loans to the general public. Bank deposits are each insured up
to $250,000 by the Federal Deposit Insurance Corporation (the "FDIC") subject to
certain limitations imposed by the FDIC. The $250,000 deposit
insurance limit will expire on December 31, 2013 and revert back to $100,000 on
January 1, 2014. Certain retirement accounts limits will remain at
$250,000 permanently.
The
Company is authorized to issue up to 25.0 million shares of its $.01 par value
per share common stock. Each share is entitled to one vote and
shareholders have no preemptive or conversion rights. As of December
31, 2009 there were 1,809,912 shares issued and 1,770,139 shares of the
Company's common stock outstanding. As of December 31, 2008
there were 1,808,219 shares issued and 1,768,446 shares of the Company's common
stock outstanding. As of December 31, 2009 the Company held 39,773
shares of treasury stock. Additionally, the Company has authorized
the issuance of up to 1.0 million shares of its $.01 par value per share
preferred stock. The Company's Board of Directors may, without further action by
the shareholders, direct the issuance of preferred stock for any proper
corporate purpose with preferences, voting powers, conversion rights,
qualifications, special or relative rights and privileges which could adversely
affect the voting power or other rights of shareholders of common
stock. As of December 31, 2009, there were no shares of the Company's
preferred stock issued or outstanding.
Basis of Presentation and
Reclassification. The consolidated financial statements
include the accounts of the Company and its subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year's amounts have been reclassified to
conform to the current year presentation; such reclassifications had no impact
on net income or shareholders' equity.
Uses of
Estimates. The accounting and reporting policies of the
Company conform to U.S. generally accepted accounting principles and to general
practices within the banking industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for possible loan losses, the valuation of foreclosed real
estate, the fair value of financial instruments, other than temporary
impairment analysis, and the realization of deferred tax
assets.
F-6
Financial
Statements
December
31, 2009 and 2008
Cash and Cash
Equivalents. Cash and cash equivalents include cash, demand
balances due from banks, federal funds sold, and interest bearing deposits due
from other banks, all of which mature within 90 days.
Securities. Securities
that the Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity and are reported at amortized
cost. Securities held for current resale are classified as trading
securities and are reported at fair value, with unrealized gains and losses
included in earnings. Securities to be held for indefinite periods of
time are classified as available-for-sale and carried at fair value with the
unrealized holding gains/losses reported as a component of other comprehensive
income, net of tax. Generally, in the available-for-sale category are
securities that are held to meet investment objectives such as interest rate
risk, liquidity management and asset-liability management strategies among
others. The classification of investment securities as
held-to-maturity, trading or available-for-sale is determined at the date of
purchase. The Company does not have trading securities at December
31, 2009 and 2008. Securities with limited marketability, such as
stock in the Federal Reserve Bank and the Federal Home Loan Bank, are classified
as available for sale and recorded at cost.
The
amortization of premiums and accretion of discounts are recognized in interest
income using methods approximating the interest method over the life of the
securities. Realized gains and losses, determined on the basis of the
cost of specific securities sold, are included in earnings on the settlement
date. Declines in the fair value of specific securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses.
Management
evaluates investment securities for other-than-temporary impairment on an annual
basis. A decline in the market value of any investment below cost
that is deemed other-than-temporary is charged to earnings if the decline in
value is deemed to be credit related. The decline in value attributed
to non-credit related factors is recognized in other comprehensive income and/or
new cost basis in the security is established. Premiums and discounts
are amortized or accreted over the life of the related security as an adjustment
to the yield. Realized gains and losses for securities classified as
available for sale and held to maturity are included in net income and derived
using the specific identification method for determining the cost of the
securities sold.
Loans Held For
Sale. Loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a
valuation allowance by charges to income. In estimating fair value,
consideration is given to commitments from investors and prevailing market
prices
Loans. Loans
that management have the intent and ability to hold for the foreseeable future
or until maturity or pay-off are generally reported at their outstanding unpaid
principal balances adjusted for charge-offs, the allowance for loan losses, and
any deferred fees or origination costs. Interest income is accrued on
the outstanding principal balance. Loan origination fees, net of
certain direct origination costs are deferred and recognized as an adjustment of
the related loan yield on a straight line basis, which approximates the interest
method.
F-7
Financial
Statements
December
31, 2009 and 2008
The
accrual of interest on loans is discontinued when, in management’s opinion, the
borrower may be unable to meet payments as they become due, unless the loan is
well-secured. Past due status is based on contractual terms of the
loan. In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered
doubtful. All interest accrued but not collected for loans that are
placed on nonaccrual or charged off is reversed against interest income, unless
management believes that the accrued interest is recoverable through the
liquidation of collateral. Interest income on nonaccrual loans is
recognized on the cash-basis or cost-recovery method until the loans are
returned to accrual status. Loans are returned to accrual status when
all the principal and interest amounts are brought current and future payments
are reasonably assured.
A loan is
considered impaired when it is probable, based on current information and
events, the Company will be unable to collect all principal and interest
payments due in accordance with 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. Impaired loans are measured 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. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses. Interest on accruing impaired loans is recognized as
long as such loans do not meet the criteria for nonaccrual
status. Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment.
Allowance for Loan
Losses. The allowance for loan losses is established through a
provision for loan losses charged to expense. Loan losses are charged
against the allowance when management believes the collectability of the
principal is unlikely. Subsequent recoveries, if any, are credited to
the allowance.
The
allowance is an amount that management believes will be adequate to absorb
estimated losses relating to specifically identified loans, as well as probable
credit losses inherent in the balance of the loan portfolio, based on an
evaluation of the collectability of existing loans and prior loss experience.
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 loans in
light of historical experience, the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, current economic
conditions that may affect the borrower's ability to pay, 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
evaluation does not include the effects of expected losses on specific loans or
groups of loans that are related to future events or expected changes in
economic conditions. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Bank’s allowance for loan losses, and may require the
Bank to make additions to the allowance based on their judgment about
information available to them at the time of their
examinations.
F-8
Financial
Statements
December
31, 2009 and 2008
The
allowance consists of specific, general and unallocated
components. The specific component relates to loans that are
classified as either doubtful, substandard or special mention. For
such loans that are also classified as impaired, 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 non-classified loans and is based
on historical loss experience adjusted for qualitative factors. An
unallocated component is maintained to cover uncertainties that could affect
management’s estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses
in the portfolio.
Concentration of Credit
Risk. The company makes loans to individuals as well as to
small and medium-sized enterprises located mainly in the Florida counties of
Manatee and Sarasota. While the loan portfolio is generally
diversified, a large portion of the Company’s loans are secured by real estate
located in the above counties. As a result, significant decreases in
real estate values in the Company’s geographical market could increase loan
losses and have an adverse effect on future earnings.
Property and
Equipment. Building, leasehold improvements, furniture, and
equipment are stated at cost, net of accumulated depreciation. Land
is carried at cost. Depreciation is computed principally by the
straight-line method based on the estimated useful lives of the related
assets. Maintenance and repairs are charged to operations, while
major improvements are capitalized. Upon retirement, sale or other
disposition of property and equipment, the cost and accumulated depreciation are
eliminated from the accounts, and gain or loss is included in
operations. The Company had no capitalized lease obligations at
December 31, 2009 and 2008.
Other Real Estate
Owned. Other real estate owned represents property acquired by
the Company in satisfaction of a loan. Other real estate owned is
carried at the lower of: (i) cost or (ii) fair value less estimated
selling costs. Fair value is determined on the basis of current
appraisals, comparable sales and other estimates of value obtained principally
from independent sources. Any excess of the loan balance at the time
of foreclosure over the fair value of the real estate held as collateral is
treated as a loan loss and charged against the allowance for loan
losses. Gain or loss on the sale of the property and any subsequent
adjustments to reflect changes in fair value of the property are reflected in
the income statement. Recoverable costs relating to the development
and improvement of the property are capitalized whereas routine holding costs
are charged to expense.
Income
Taxes. The income tax accounting guidance results in two
components of income tax expense: current and
deferred. Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues. The
Company determines deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of
assets and liabilities, and enacted changes in tax rates and laws are recognized
in the period in which they occur.
F-9
Financial
Statements
December
31, 2009 and 2008
Deferred
income tax expense results 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 may be reduced
by deferred tax liabilities and 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.
On
January 1, 2009, the Company adopted the recent accounting guidance related to
accounting for uncertainty in income taxes, which sets out a consistent
framework to determine the appropriate level of tax reserves to maintain for
uncertain tax positions.
Stock-Based
Compensation. Accounting principles require that
the compensation cost relating to share-based payment transaction be recognized
in the financial statements. That cost will be measured based on the
grant date fair value of the equity or liability instruments
issued. Accounting guidance requires that compensation cost for all
stock awards be calculated and recognized over the employees’ service period,
generally defined as the vesting period. The Company used the
Black-Scholes Option-Pricing model to estimate the fair value of stock options
and stock warrants. No stock options or stock warrants were granted
during calendar year 2009. For the year ended December 31, 2008,
20,200 options were granted.
Earnings Per
Share. Basic earnings per share are determined by dividing net
income by the weighted-average number of common shares
outstanding. Diluted income per share is determined by dividing net
income by the weighted average number of common shares outstanding increased by
the number of common shares that would be issued assuming exercise of stock
options. This also assumes that only options with an exercise price
below the existing market price will be exercised. In computing net
income per share, the Company uses the treasury stock method.
Comprehensive
Income. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are reported as a
separate component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive
income. Comprehensive income for calendar years 2009 and 2008 are
shown in the consolidated statements of changes in shareholders'
equity.
F-10
Financial
Statements
December
31, 2009 and 2008
Recent Accounting
Pronouncements.
Effective
July 1, 2009, the Company adopted a new accounting guidance related to U.S. GAAP
[FASB Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting
Principles]. This guidance establishes FASB ASC as the source
of authoritative U.S. GAAP recognized by FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. FASB ASC
supersedes all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature
not included in the ASC has become non-authoritative. FASB will no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASU”), which will serve to update the ASC, provide
background information about the guidance, and provide the basis for conclusions
on the changes to the ASC. The ASC is not intended to change U.S.
GAAP or any requirements of the SEC. This guidance is effective for
the Company as of December 31, 2009.
In April
2009, the FASB issued the following three FASB Staff Position (“FSPs”) intended
to provide additional application guidance and enhance disclosures regarding
fair value measurements and impairments of securities.
1) FSP
SFAS No. 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and identifying Transactions That Are Not Orderly,”
codification standard ASC 820-10-65-4 (“ASC 820”), transition related to FSP
SFAS No. 157-4, provides additional guidance for estimating fair value in
accordance with ASC 820 when the volume and level of activity for the asset or
liability have decreased significantly. This ASC also provides
guidance on identifying circumstances that indicate a transaction is not
orderly. The provisions of this ASC are effective for the Company’s
interim period ending on June 30, 2009. The adoption of ASC 820 at
June 30, 2009 did not have a material impact on this Company’s financial
condition or results of operations.
2) FSP
SFAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair
Value of Financial Instruments,” codification standard ASC 825-10-65-1,
transition related to FSP SFAS No. 107-1 and APB 28-1, requires disclosures
about fair value of financial instruments in interim reporting periods of
publicly traded companies that were previously only required to be
disclosed in annual financial statements. The provisions of this ASC
are effective for the Company’s interim period ending on June 30, 2009, and only
amend the disclosure requirements about fair value of financial instruments in
interim periods.
3) FSP
SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” codification standard ASC 320-10-65-1,
transition related to FSP SFAS No 115-2 and SFAS No. 124-2, amends current
other-than-temporary impairment guidance in GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This ASC does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The provisions of this ASC are effective for the
Company’s interim period ending on June 30, 2009. Adoption of this
provision had a material impact on the Company’s financial condition or results
of operations.
F-11
Financial
Statements
December
31, 2009 and 2008
In May
2009, the FASB issued SFAS no. 165, “Subsequent Events,”
codification standard ASC 855. ASC 855 establishes general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. In particular, this statement sets forth: (1) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. The Company adopted this standard effective for
the quarterly period ended June 30, 2009, and its adoption had no material
impact on the Company’s financial condition or results of
operations.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurements and
Disclosures,” codification standard ASC 820. This ASU provides
amendments for fair value measurements of liabilities. It provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more techniques. ASU 2009-05 also
clarifies that when estimating a fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. ASU 2009-05 is effective for the first reporting period
(including interim periods) beginning after issuance of fourth quarter 2009
financial statement information. The Company is assessing the impact
of ASU 2009-05 on its financial condition, results of operations, and
disclosures.
Other
accounting standards that have been issued or proposed by the FASB or other
standard-setting bodies are not expected to have a material impact on the
Company’s financial statements.
Note
2 – Regulatory Matters, Company Loan, Going Concern Consideration and Equity
Offering
Regulatory
Matters
(a) Written
Agreement
On
November 10, 2009, the Federal Reserve Bank of Atlanta (the “FRB”), the State of
Florida Office of Financial Regulation (the “OFR”) and the Bank have mutually
agreed to enter into a Written Agreement (“the Agreement”). The
Agreement contains a list of strict requirements with which the Bank must
comply. A summary of the Agreement is as follows:
F-12
Financial
Statements
December
31, 2009 and 2008
|
·
|
Submit
a written plan to strengthen Board oversight of the management and
operations of the Bank.
|
|
·
|
Submit
a written plan to strengthen the Bank’s management of commercial real
estate concentrations, including steps to reduce the risk of
concentrations.
|
|
·
|
Submit
a written plan to strengthen credit risk management
practices.
|
|
·
|
Submit
a written plan to strengthen lending and credit administration policies,
procedures, and practices.
|
|
·
|
Retain
an independent and acceptable (to FRB, OFR) consultant to assess the level
of risk or exposure in the portion of the Bank’s loan portfolio not
reviewed at the most recent regulatory
examination.
|
|
·
|
Submit
a written plan to provide for the ongoing review and grading of the Bank’s
loan portfolio by a qualified independent
party.
|
|
·
|
The
Bank shall not, directly or indirectly, extend or renew any credit to or
for the benefit of any borrower, including related interest of the
borrower, who is obligated to the Bank on any extension of credit that
have been charged off by the Bank, or classified “loss” in the most recent
report of examination or in any subsequent report of examination so long
as such credit remains uncollected.
|
|
·
|
The
Bank shall not, directly or indirectly, extend or renew any credit to or
for the benefit of any borrower, including related interest of the
borrower, whose extension of credit has been classified as “doubtful” or
“substandard” in the most recent report of examination or in any
subsequent report of examination without the prior approval of the Bank’s
Board of Directors.
|
|
·
|
Submit
a written plan for each problem loan and for other real estate exceeding
$250,000 that is designed to improve the Bank’s position with respect to
the above assets.
|
|
·
|
Provide
a written report after each calendar quarter updating each asset
improvement plan; in addition, provide the problem loan list, a listing of
past due/non-accrual loans, and a list of all loan renewals and extensions
for which the Bank did not collect the full
interest.
|
|
·
|
Eliminate
from the Bank’s balance sheet all assets or portions of assets classified
“loss” in the most recent report of examination as well as in future
reports of examination.
|
|
·
|
Review
and revise the methodology used to construct the allowance for loan and
lease losses (“the ALLL”). Upon completion, submit the ALLL
methodology to the regulators for their
review.
|
|
·
|
Submit
a written plan for the maintenance of an adequate ALLL, with periodic
updates incorporating all changes.
|
|
·
|
Submit
a written plan for maintaining sufficient capital at the Bank, including
an analysis of current and future capital needs as well as compliance with
capital adequacy guidelines and ratios. In measuring capital
adequacy, consideration of the volume and severity of classified credits,
portfolio concentration, adequacy of the ALLL, projected growth in assets
and earnings, among others, should be taken into
account.
|
|
·
|
Notify
the regulators, in writing, shortly after the end of each calendar quarter
if any of the Bank’s capital ratios (total risk-based, Tier 1, or
Leverage) had fallen below the approved capital plan’s minimum
ratios. Contemporaneously, provide a plan that details steps to
be taken by the Bank to increase the affected capital ratios to or above
the approved capital plan’s
minimums.
|
F-13
Financial
Statements
December
31, 2009 and 2008
|
·
|
Provide
a written plan to strengthen the oversight of the Bank’s audit program by
the Audit Committee.
|
|
·
|
Submit
a written plan to improve management of the Bank’s liquidity position and
funds management practices. A contingency funding plan should
be provided as well.
|
|
·
|
Submit
written policies and procedures to strengthen the management of the Bank’s
investment portfolio.
|
|
·
|
Submit
a business plan for calendar year 2010 to improve the Bank’s earnings and
overall condition. The plan shall include a realistic and
comprehensive operational budget and balance sheet
projections.
|
|
·
|
The
Bank shall not declare or pay dividends without the prior approval of FRB
and OFR.
|
|
·
|
Ascertain
full compliance with respect to appointments of new directors, and new
executive officers, including the assumption of new responsibilities by an
existing executive officer. Also, ascertain compliance with
restrictions on indemnification and severance
payments.
|
|
·
|
Form
a new Board Committee, the Compliance Committee, to monitor and coordinate
the Bank’s compliance with the provisions of the Agreement. The
Compliance Committee shall include a majority of outside directors who are
not executive officers or principal shareholders. Shortly after
the end of each calendar quarter, the Bank shall submit a written progress
report detailing the form and manner of all actions taken to secure
compliance with the Agreement.
|
|
·
|
All
written plans, programs, policies and procedures that are submitted by the
Bank, shall be acceptable to FRB and OFR, and within the prescribed time
period. Once approved by the regulators, the Bank shall adopt
the approved plans, programs, policies and procedures within ten days and
implement them promptly.
|
As of the
date of this report, management believes that the Bank is in compliance with
most of the items in the Agreement. The two items that are yet to be
resolved have to do with (a) determining an appropriate level of the ALLL so as
to render it adequate, and (b) increasing the capital accounts, primarily
through a capital injection from the Parent Company, to an acceptable
level.
(b) Prompt
Corrective Action Directive
On March
9, 2010, the Board of Governors of the Federal Reserve System (the ”Board of
Governors”) delivered to Horizon Bank, the Company’s wholly-owned subsidiary
(the “Bank”), a Prompt Corrective Action Directive Issued Pursuant to Section 38
of the Federal Deposit Insurance (“FDI”) Act, As Amended (the “PCA
Directive”). The PCA Directive, which was dated March 4, 2010, states
that the Bank has been undercapitalized and has not filed an acceptable capital
restoration plan. Accordingly, the PCA Directive directs the Bank,
the Company and the Bank’s Board of Directors to:
|
·
|
Not
later than 45 days from March 4, 2010, increase the Bank’s equity through
the sale of shares or contribution to surplus sufficient to make the Bank
adequately capitalized, enter into and close a contract to be acquired or
combine with another depository institution, or take other necessary
measures to make the Bank adequately
capitalized.
|
F-14
Financial
Statements
December
31, 2009 and 2008
|
·
|
Comply
fully with the provisions of Section 38 of the FDI Act restricting the
Bank from making any capital
distributions.
|
|
·
|
Refrain,
without prior written approval of the FRB, from soliciting, accepting or
renewing time deposits bearing an interest rate exceeding the prevailing
interest rates in the Bank’s market area, and, within 30 days, submit an
acceptable plan and timetable to the FRB for conforming such interest
rates to the prevailing interest
rates.
|
|
·
|
Comply
with the provisions of Section 38 of the FDI Act requiring that all
transactions between the Bank and any affiliate comply with Section 23A of
the Federal Reserve Act.
|
|
·
|
Comply
with the provisions of Section 38 of the FDI Act restricting the payment
of bonuses to senior executive officers and increases in compensation of
such officers, and
|
|
·
|
Comply
with the provisions of Section 38 of the FDI Act restricting asset growth,
acquisitions, branching and new lines of
business.
|
In the
past few months, three capital plans were submitted by the Bank for the approval
of the FRB. The first two plans were deemed unacceptable, while the
third plan still awaits the FRB’s determination. It appears that the
first two plans were deemed unacceptable because, according to the FRB, an
additional provision of approximately $5.0 million to the ALLL is required in
order to attain an adequate level. The higher the provision to the
ALLL, the higher the amount of capital needed to attain the “adequately
capitalized” category. After the first two plans were deemed
unacceptable, a third plan, together with an independent third party study and
opinion with respect to the adequacy of the ALLL was forwarded to the
FRB. The evaluation conducted by the independent party found that
approximately $.5 million in additional provision to the ALLL is required, far
below the amount that FRB is requiring. As of the date of this
report, the Bank has not received a response from the FRB with regard to the
most recent capital plan.
The Board
of Governors may withdraw the PCA Directive, extend the 45-day deadline within
which the Bank shall attain the “adequately capitalized” category, accelerate
the 45-day deadline, or take no action. By withdrawing or extending
the 45-day deadline the Bank will have additional time to increase
capital. By accelerating the deadline or taking no action, the
deadline will eventually be violated. If and when the deadline is
violated, the Board of Governors/FRB/OFR may take other actions.
Any
material failure to comply with the provisions of the Agreement or PCA Directive
could result in further enforcement actions by the regulators. Such
additional enforcement actions may include the placement of the Bank into
receivership/conservatorship.
F-15
Financial
Statements
December
31, 2009 and 2008
Company
Loan
The
Company has been unable to pay back a $1.1 million loan secured by 1,536,000 of
the Bank’s shares of common stock. The loan matured on December 31,
2009, but was eventually extended. The most recent extension, as of
March 26, 2010, extended the maturity date to June 15, 2010 upon receipt of two
payments to be made by the Company, $44,000 on March 29, 2010 and $60,000 on or
before April 19, 2010. As of the date of this report, the second
payment was not made yet.
At this
time, under the PCA Directive and the Written Agreement entered into by the Bank
with FRB and OFR on November 10, 2009, the Bank may not make any capital
distributions, including dividends, to the Company without the prior written
consent of the Board of Governors. Such consent is unlikely to be
given and the Company may rely solely on an outside injection of capital as the
source for repayment of this loan. The company is currently engaged
in discussions with an investor, as well as with certain members of its Board of
Directors, regarding the purchase of the loan from the lending
institution. There is no assurance that these discussions will result
in a satisfactory arrangement.
In the
event the common stock of the Bank is sold at a public sale, the purchaser
would, subject to approval by the banking regulators, become the sole
shareholder of the Bank.
Going
Concern
As
previously mentioned, the Company faces a number of challenges that may be
difficult to correct in a timely manner. These challenges include,
but are not limited to, the achievement of full compliance with the requirements
of the Written Agreement and the PCA Directive, as well as the payment or
extension of the Company’s $1.1 million loan secured by 100% of the subsidiary
Bank’s common stock. To achieve the above requirements, and assuming
the ALLL will be deemed acceptable by the FRB, a minimum of approximately $5.0
million in additional capital will be necessary
The
Company’s ability to raise additional capital will depend on conditions in the
capital markets at that time, which are outside the Company’s control, and on
the Company’s financial performance. Accordingly, the Company cannot
be certain of its ability to raise additional capital if needed or on terms
acceptable to the Company. Inability to raise additional capital when
needed or comply with the terms of the loan agreement, the Written Agreement and
the PCA Directive raise substantial doubt about the Company’s ability to
continue as a going concern.
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future, and do
not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets, and the amounts of classification of
liabilities that may result from the outcome of any regulatory action including
being placed into receivership or conservatorship.
F-16
Financial
Statements
December
31, 2009 and 2008
Equity
Offering
On
October 23, 2009 the Company commenced an equity offering of shares of 7% Series
A Cumulative Convertible Preferred Stock (the “Series A Preferred
Stock”). The minimum and maximum offering of $3.5 million and $5.0
million, respectively, are being offered in a private placement to accredited
investors only. The Series A Preferred Stock have a liquidation
performance of $1,000, are entitled to cumulative dividends of 7% per annum
(accruing and payable semiannually), and are convertible into shares of the
Company’s common stock after the first anniversary of the issuance
date. The conversion price will be the greater of: (a)
book value of the Company’s common stock at the time of conversion or (b) the
market price of the Company’s common stock on the date of issuance of the
Company’s shares of Series A Preferred stock. Under the terms of the
offering, proceeds from the sale of the above shares can only be released if
both items below are satisfied: (i) the minimum offering of $3.5
million is sold and, (ii) the FRB approves the Bank’s capital restoration
plan. Note that in the event the minimum offering is not sold, all
proceeds collected in the above offering will be returned to the
investors. As of the date of this report, the required minimum of
$3.5 million has not yet been attained.
Note
3 - Federal Funds Sold & Purchased
The Bank
is required to maintain legal cash reserves computed by applying prescribed
percentages to its various types of deposits. When the Bank's cash
reserves are in excess of the required amount, the Bank may lend the excess to
other banks on a daily basis. At December 31, 2009 and 2008, federal
funds sold were $0 and $147,000, respectively. Federal funds
purchased represent unsecured borrowing form other financial institutions and
generally mature daily. At December 31, 2009 and 2008 the bank had no
Federal funds purchased.
Note
4 - Securities Held-to-Maturity
The
amortized costs and estimated market values of securities held-to-maturity as of
December 31, 2009 follow:
Gross
|
||||||||||||||||
Amortized
|
Unrealized
|
Estimated
|
||||||||||||||
Description
|
Costs
|
Gains
|
Losses
|
Market Values
|
||||||||||||
State,
County and Municipalities
|
$ | 10,532,744 | $ | 33,222 | $ | (823,808 | ) | $ | 9,742,158 | |||||||
Corporate
Securities
|
930,000 | —0— | (154,800 | ) | 775,200 | |||||||||||
Total
Securities
|
$ | 11,462,744 | $ | 33,222 | $ | (978,608 | ) | $ | 10,517,358 |
The
amortized costs and estimated market values of securities held-to-maturity as of
December 31, 2008 follow:
Gross
|
||||||||||||||||
Amortized
|
Unrealized
|
Estimated
|
||||||||||||||
Description
|
Costs
|
Gains
|
Losses
|
Market Values
|
||||||||||||
State,
County and Municipalities
|
$ | 12,086,900 | $ | 4,168 | $ | (1,189,449 | ) | $ | 10,901,619 | |||||||
Corporate
Securities
|
1,000,000 | —0— | (450,400 | ) | 549,600 | |||||||||||
Total
Securities
|
$ | 13,086,900 | $ | 4,168 | $ | (1,639,849 | ) | $ | 11,451,219 |
F-17
Financial
Statements
December
31, 2009 and 2008
The
amortized costs and estimated market values of securities held-to-maturity at
December 31, 2009 by contractual maturity are shown in the following
chart. Expected maturities may differ from contractual maturities
because issuers may have the right to call or repay obligations with or without
call or prepayment penalties.
Amortized
Costs
|
Estimated
Market Values
|
|||||||
Due
after ten years
|
$ | 11,462,744 | $ | 10,517,358 | ||||
Total
securities
|
$ | 11,462,744 | $ | 10,517,358 |
At
December 31, 2009 and 2008, none of the securities were pledged to secure public
funds, repurchase agreements, and for other purposes required or permitted by
law. Due to circumstances, the Company changed its intent to hold
certain securities to maturity without calling into question the intent to hold
other debt securities to maturity in the future. Proceeds from sales
of securities held-to-maturity for the years ended December 31, 2009 and 2008
were $2,586,770 and $0, respectively; net gains on the above sales were $16,895
and $0, respectively. For the years ended December 31, 2009 and 2008,
impairment charges were $70,000 and $0 respectively.
Information
pertaining to securities with gross unrealized losses at December 31, 2009 and
2008, aggregated by investment category and further segregated by length of time
(less than or over twelve months) that the securities have been in a continuous
loss position follows:
F-18
Financial
Statements
December
31, 2009 and 2008
December
31, 2009
Less Than
|
Over
|
|||||||||||||||||||||||
Twelve Months
|
Twelve Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||||
State,
County and
Municipal
|
$ | 1,509,541 | $ | (42,542 | ) | $ | 5,230,215 | $ | (781,266 | ) | $ | 6,739,756 | $ | (823,808 | ) | |||||||||
Corporate
Securities
|
—0— | —0— | 775,200 | (154,800 | ) | 775,200 | (154,800 | ) | ||||||||||||||||
Total
|
$ | 1,509,541 | $ | (42,542 | ) | $ | 6,005,415 | $ | (936,066 | ) | $ | 7,514,956 | $ | (978,608 | ) |
December
31, 2008
Less Than
|
Over
|
|||||||||||||||||||||||
Twelve Months
|
Twelve Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||||
State,
County and Municipal
|
$ | 7,704,023 | $ | (545,570 | ) | $ | 2,846,290 | $ | (643,879 | ) | $ | 10,550,313 | $ | (1,189,449 | ) | |||||||||
Corporate
Securities
|
—0— | —0— | 549,600 | (450,400 | ) | 549,600 | (450,400 | ) | ||||||||||||||||
Total
|
$ | 7,704,023 | $ | (545,570 | ) | $ | 3,395,890 | $ | (1,094,279 | ) | $ | 11,099,913 | $ | (1,639,849 | ) |
Unrealized
losses on held-to-maturity securities amounted to $978,608 (2009) and $1,639,849
(2008) representing 8.54% (2009) and 12.53% (2008) of the total held to maturity
securities portfolio. Management evaluates securities for
other-than-temporary impairment on a quarterly basis, or more frequently when
economic or market concerns warrant such evaluation. In analyzing an
issuer's financial condition, management considers whether the securities are
issued by the federal government or its agencies, whether downgrades by bond
rating entities have occurred, the severity and duration of the impairment and
the volatility of the security's fair value. As management has the
intent and ability to hold the securities for a period of time sufficient to
allow for any anticipated recovery in fair value and due to the fact that the
decline in fair value is attributable to changes in interest rates and not
credit quality, these investments are not considered other-than-temporarily
impaired.
Note
5 - Securities Available-for-Sale
The
amortized costs and estimated market values of securities available-for-sale as
of December 31, 2009 follow:
Amortized
|
Gross Unrealized
|
Estimated
|
||||||||||||||
Description
|
Costs
|
Gains
|
Losses
|
Market Values
|
||||||||||||
U.S.
Agency
|
$ | 2,493,024 | $ | 445 | $ | (36,394 | ) | $ | 2,457,075 | |||||||
Collateralized
Mortgage Obligations
|
1,787,927 | 18,298 | (162,136 | ) | 1,644,088 | |||||||||||
Mortgage
Backed Securities
|
220,723 | 7,041 | —0— | 227,764 | ||||||||||||
Corporate
Securities
|
7,165,270 | 129,480 | (401,556 | ) | 6,893,194 | |||||||||||
Other
Securities
|
1,858,689 | — | — | 1,858,689 | ||||||||||||
Total
Securities
|
$ | 13,525,633 | $ | 155,264 | $ | (600,086 | ) | $ | 13,080,810 |
F-19
Financial
Statements
December
31, 2009 and 2008
Other
securities include equity investments in FRB, FHLB, and one other bank whose
owners are other financial institutions. These restricted equity
securities are recorded at cost because of the lack of a readily determinable
fair value.
The
amortized costs and estimated market values of securities available-for-sale as
of December 31, 2008 follow:
Amortized
|
Gross Unrealized
|
Estimated
|
||||||||||||||
Description
|
Costs
|
Gains
|
Losses
|
Market Values
|
||||||||||||
U.S.
Agency
|
$ | 992,668 | $ | 20,912 | $ | — | $ | 1,013,580 | ||||||||
Collateralized
Mortgage Obligations
|
4,966,463 | 44,846 | (302,840 | ) | 4,708,469 | |||||||||||
Mortgage
Backed Securities
|
3,541,375 | 123,207 | (996,111 | ) | 2,668,471 | |||||||||||
Trust-Preferred
Securities
|
8,204,525 | 5,569 | (743,254 | ) | 7,466,840 | |||||||||||
Other
Securities
|
2,108,050 | — | — | 2,108,050 | ||||||||||||
Total
Securities
|
$ | 19,813,081 | $ | 194,534 | $ | (2,042,205 | ) | $ | 17,965,410 |
The
amortized costs and estimated market values of securities available-for-sale at
December 31, 2009 by contractual maturity are shown in the following chart.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Amortized
Costs
|
Estimated
Market Values
|
|||||||
Due
after ten years
|
$ | 11,666,944 | $ | 11,222,121 | ||||
No
maturity (equity securities)
|
1,858,689 | 1,858,689 | ||||||
Total
securities
|
$ | 13,525,633 | $ | 13,080,810 |
At
December 31, 2009 and 2008, respectively, $2,998,000 and $6,797,000 agency
securities were pledged to secure public funds, repurchase agreements, and for
other purposes required or permitted by law. Proceeds from sales of
securities, available-for-sale, for the years ended December 31, 2009 and 2008
were $3,757,123 and $0 respectively; net gains on the above sales were $101,861
and $0 respectively.
Information
pertaining to securities with gross unrealized losses at December 31, 2009 and
2008, aggregated by investment category and further segregated by the length of
time (less than or over twelve months) that the securities have been in a
continuous loss position follows:
F-20
Financial
Statements
December
31, 2009 and 2008
December 31, 2009
|
||||||||||||||||||||||||
Less than
Twelve Months
|
Over
Twelve Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||||
U.S.
Agency
|
$ | 989,980 | $ | (10,020 | ) | $ | 966,650 | $ | (26,374 | ) | $ | 1,956,630 | $ | (36,394 | ) | |||||||||
Collateralized
Mortgage obligations
|
—0— | —0— | —0— | —0— | —0— | —0— | ||||||||||||||||||
Mortgage
backed securities
|
—0— | —0— | 760,885 | (162,136 | ) | 760,885 | (162,136 | ) | ||||||||||||||||
Trust
preferred securities & other corporate notes
|
—0— | —0— | 1,111,194 | (401,556 | ) | 1,111,194 | (401,556 | ) | ||||||||||||||||
Total
|
$ | 989,980 | $ | (10,020 | ) | $ | 2,838,729 | $ | (590,066 | ) | $ | 3,828,709 | $ | (600,086 | ) |
December 31, 2008
|
||||||||||||||||||||||||
Less
than
Twelve Months
|
Over
Twelve Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||||
U.S.
Agency
|
$ | —0— | $ | —0— | $ | —0— | $ | —0— | $ | —0— | $ | —0— | ||||||||||||
Collateralized
Mortgage obligations
|
809,819 | (16,666 | ) | 583,273 | (4,769 | ) | 1,393,092 | (21,435 | ) | |||||||||||||||
Mortgage
backed securities
|
1,209,759 | (174,919 | ) | 63,960 | (1,102,926 | ) | 1,273,719 | (1,277,845 | ) | |||||||||||||||
Trust
preferred securities & other corporate notes
|
937,696 | (200,054 | ) | 1,970,750 | (543,200 | ) | 2,908,446 | (743,254 | ) | |||||||||||||||
Total
|
$ | 2,957,274 | $ | (391,639 | ) | $ | 2,617,983 | $ | (1,650,895 | ) | $ | 5,575,257 | $ | (2,042,534 | ) |
Unrealized
losses in the securities available for sale portfolio amounted to $600,086
(2009) and $2,042,534 (2008) representing 4.59% (2009) and 10.32% (2008) of the
total available-for-sale portfolio.
Management
evaluates securities for other-than-temporary impairment on a quarterly basis,
or more frequently when economic or market concerns warrant such
evaluation. As mentioned above in 2009 management did mark two
securities down permanently due these evaluations. In analyzing an issuer's
financial condition, management considers whether the securities are issued by
the federal government or its agencies, whether downgrades by bond rating
entities have occurred, the severity and duration of the impairment and the
volatility of the security's fair value. As management has the intent
and ability to hold the securities for a period of time sufficient to allow for
any anticipated recovery in fair value and due to the fact that the decline in
fair value is attributable to changes in interest rates and not to credit
quality, these investments are not considered other-than-temporarily
impaired.
During
calendar year 2009 and 2008, a decline in the fair value of certain securities
was deemed to be other-than-temporarily impaired. The impairments in
fair value resulted from the decline in the credit quality of the issuer and not
from fluctuations in interest rates. Consequently, losses related to
the above impairments in the amount of $2,213,807 and $1,166,136 were realized
by the Company for the years ended December 31, 2009 and 2008,
respectively.
F-21
Financial
Statements
December
31, 2009 and 2008
Note
6 - Loans
The
composition of net loans by major loan category, as of December 31, 2009 and
2008, follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Real
estate - commercial
|
$ | 97,783,166 | $ | 95,871,496 | ||||
Real
estate - construction
|
1,369,987 | 4,378,504 | ||||||
Real
estate - residential
|
37,438,678 | 34,662,690 | ||||||
Commercial
|
17,217,611 | 30,036,270 | ||||||
Consumer
|
2,049,597 | 2,580,924 | ||||||
Loans,
gross
|
$ | 155,859,039 | $ | 167,529,884 | ||||
Deduct:
|
||||||||
Allowance
for loan losses
|
(4,731,280 | ) | (1,502,823 | ) | ||||
Loans,
net
|
$ | 151,127,759 | $ | 166,027,061 |
A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due from the
borrower in accordance with the contractual term of the
loan. Impaired loans include loans modified in troubled debt
restructurings where concessions have been granted to borrowers experiencing
financial difficulties. These concessions could include a reduction
in the interest rate on the loan, payment extensions, forgiveness of principal,
forbearance or other actions intended to maximize collection.
The
following is a summary of information pertaining to impaired
loans:
As of and for the Years Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Impaired
loans without a valuation allowance
|
$ | 15,413,831 | $ | 9,904,182 | ||||
Impaired
loans with a valuation allowance
|
8,796,449 | 2,554,014 | ||||||
Total
impaired loans
|
$ | 24,210,280 | $ | 12,458,196 | ||||
Valuation
allowance related to impaired loans
|
$ | 2,043,000 | $ | 385,000 | ||||
Average
investment in impaired loans
|
$ | 18,334,238 | $ | 11,956,337 | ||||
Interest
recognized on impaired loans
|
$ | 886,693 | $ | 726,241 |
Loans on
non-accrual status amounted to $15,685,437 at December 31, 2009 and to
$7,288,982 at December 31, 2008. Interest recognized on non-accruing
loans at December 31, 2009 and 2008 was $318,562 and $111,667,
respectively. Loans past due ninety days or more and still accruing
interest amounted to $0 and $83,734 at December 31, 2009 and 2008,
respectively.
Note
7 - Allowance for Possible Loan Losses
The
allowance for possible loan losses (the "Allowance") is a valuation reserve
available to absorb future loan charge-offs. The Allowance is
increased by provisions charged to operating expenses and by recoveries of loans
which were previously written-off. The Allowance is decreased by the
aggregate loan balances, if any, which were deemed uncollectible during the
year.
F-22
Financial
Statements
December
31, 2009 and 2008
Individual
consumer loans are predominantly under secured, and the allowance for possible
losses associated with these loans has been established
accordingly. Real estate, receivables, inventory, machinery,
equipment, or financial instruments generally secure the majority of the
non-consumer loan categories. The amount of collateral obtained is
based upon management's evaluation of the borrower.
Activity
within the Allowance accounts for the years ended December 31, 2009 and 2008
follows:
December 31
|
||||||||
2009
|
2008
|
|||||||
Balance,
beginning of year
|
$ | 1,502,823 | $ | 1,402,843 | ||||
Add: Provision
for loan losses
|
11,196,661 | 445,000 | ||||||
Add: Recoveries
of previously charged off amounts
|
236,274 | 13,031 | ||||||
Total
|
$ | 12,935,578 | $ | 1,860,874 | ||||
Deduct: Amount
charged off
|
(8,204,478 | ) | (358,051 | ) | ||||
Balance,
end of year
|
$ | 4,731,280 | $ | 1,502,823 |
Note
8 - Property and Equipment
Building,
furniture, equipment, and land improvements are stated at cost less accumulated
depreciation. Land is stated at cost. Components of
property and equipment included in the consolidated balance sheets at December
31, 2009 and 2008 follow:
December 31
|
||||||||
2009
|
2008
|
|||||||
Land
|
$ | 597,747 | $ | 410,078 | ||||
Land
Improvements
|
48,399 | 48,399 | ||||||
Building
|
1,067,276 | 1,069,656 | ||||||
Leasehold
improvements
|
104,549 | 95,504 | ||||||
Construction
in process
|
1,500,045 | —0— | ||||||
Furniture
and equipment
|
1,455,638 | 1,430,510 | ||||||
Property
and equipment, gross
|
$ | 4,773,654 | $ | 3,054,147 | ||||
Deduct:
|
||||||||
Accumulated
depreciation
|
(1,075,152 | (1,024,270 | ||||||
Property
and Equipment, net
|
$ | 3,698,502 | $ | 2,029,877 |
Depreciation
expense for the years ended December 31, 2009 and 2008 amounted to $204,731 and
$210,398, respectively. Depreciation is charged to operations over
the estimated useful lives of the assets. The estimated useful lives
and methods of depreciation for the principal items follow:
F-23
Financial
Statements
December
31, 2009 and 2008
Type of Asset
|
Life in Years
|
Depreciation method
|
|||
Furniture
and equipment
|
3
to 20
|
Straight-line
|
|||
Leasehold
improvements
|
5
to 10
|
Straight-line
|
|||
Building
|
40
|
Straight-line
|
Note
9 - Commitments and Contingencies
In the
normal course of business, there are various outstanding commitments to extend
credit in the form of unused loan commitments and standby letters of credit that
are not reflected in the consolidated financial statements. Since
commitments may expire without being exercised, these amounts do not necessarily
represent future funding requirements. The Company uses the same
credit and collateral policies in making commitments as those it uses in making
loans.
At
December 31, 2009 and 2008, the Company had unused loan commitments of
approximately $4.8 million and $6.5 million,
respectively. Additionally, there were $0 and $133,000 in commitments
under standby letters of credit at December 31, 2009 and 2008,
respectively. Various assets collateralize the majority of the loan
commitments. No material losses are anticipated as a result of these
transactions.
On June
30, 1999, the Bank entered into a seven-year contractual agreement (the
"Agreement") with a data processing provider. That Agreement was
renegotiated on May 11, 2001, with the new owner of the data processing
company. The Agreement was extended to August, 2008, with a renewal
feature for an additional seven-year period. In March, 2008 the
contract was renegotiated with an expiration date of March, 2011. The
monthly service fee varies according to the services used and the number and
type of transactions processed. Expenses associated with the above
and predecessor agreements associated with data processing services amounted to
$240,349 and $224,349 respectively, for the years ended December 31, 2009 and
2008.
The
Company and its subsidiary are subject to claims and lawsuits that arise
primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company and its subsidiary.
Please
refer to Note 15 concerning leases for branch offices from a
partnership.
Please
refer to Note 15 concerning warrants and options earned by directors and
employees of the Bank.
Note
10 - Deposits
The
following details deposit accounts at December 31, 2009 and
2008:
F-24
December 31,
|
||||||||
2009
|
2008
|
|||||||
Non-interest
bearing deposits
|
$ | 9,686,614 | $ | 8,572,582 | ||||
Interest
bearing deposits:
|
||||||||
NOW
accounts
|
7,494,022 | 7,424,222 | ||||||
Money
market
|
18,364,649 | 16,652,336 | ||||||
Savings
|
15,738,487 | 13,388,469 | ||||||
Time,
less than $100,000
|
97,385,541 | 92,056,263 | ||||||
Time,
$100,000 and over
|
25,906,959 | 28,184,673 | ||||||
Total
deposits
|
$ | 174,576,272 | $ | 166,278,545 |
At
December 31, 2009, the scheduled maturities of all certificates of deposit were
as follows:
Year Ending
December 31,
|
Amount
|
|||
2010
|
$ | 88,624,901 | ||
2011
|
23,358,457 | |||
2012
|
7,163,116 | |||
2013
|
1,873,059 | |||
2014
|
2,272,967 | |||
Total
|
$ | 123,292,500 |
At
December 31, 2009 and 2008, the Company held brokered time deposits in the
amount of $11,647,000 and $26,543,000, respectively. At December 31,
2009 and 2008, overdraft deposit accounts reclassified to loans aggregated
$43,175 and $23,160, respectively.
Note
11 - Borrowings
During
calendar year 2008, the Company obtained a $1.1 million line of credit (the
“LOC”), of which $1,065,205 and $805,764 were outstanding at December 31, 2009
and 2008, respectively. The above LOC is secured by all of the Bank's
issued and outstanding common stock; it carries a rate of published "Wall Street
Journal" prime rate plus 1.00% with a floor of 6.00%. The LOC
provides for interest-only monthly payments until December 31, 2009, when
principal and accrued interest became due. Upon maturity, the
LOC was subsequently extended for two additional weeks. At the end of
the expiration period, the LOC remained unpaid and is therefore in
default.
During
calendar years 2009 and 2008, the Bank obtained several funding advances from
the Federal Home Loan Bank (the "FHLB"). The above advances are
secured by a blanket lien on all real estate mortgages held by the
Bank. The outstanding balance on the above funding advances amounted
to $18,000,000 and $29,000,000, respectively, at December 31, 2009 and
2008. Additional information concerning these advances
follow. Note that all interest rates are fixed:
F-25
Financial
Statements
December
31, 2009 and 2008
Amounts
|
|||||||||||||||
December
31,
2009
|
December
31,
2008
|
Interest
Rate
|
Date
of
Maturity
|
||||||||||||
—0— | 3,000,000 | .46 | % |
08-27-2009
|
|||||||||||
5,000,000 | 5,000,000 | 4.32 | % |
03-05-2012
|
|||||||||||
—0— | 3,000,000 | 4.84 | % |
05-14-2012
|
|||||||||||
3,000,000 | 3,000,000 | 4.48 | % |
05-18-2012
|
|||||||||||
5,000,000 | 5,000,000 | 4.76 | % |
06-22-2012
|
|||||||||||
—0— | 5,000,000 | 3.06 | % |
07-22-2015
|
|||||||||||
5,000,000 | 5,000,000 | 3.35 | % |
07-23-2018
|
|||||||||||
$ | 18,000,000 | $ | 29,000,000 | N/A |
N/A
|
During
calendar year 2009, a $3.0 million advance matured and was
paid-off. Two other advances, aggregating $8.0 million were paid-off
prior to maturity to improve the Bank’s liquidity position and reduce interest
expense. A penalty of approximately $413,000 was incurred by the Bank
during calendar year 2009 to compensate the FHLB for the early prepayments of
the advances.
Note
12 - Interest on Deposits and Borrowings
A summary
of interest expense for the years ended December 31, 2009 and 2008
follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Interest
on NOW accounts
|
$ | 19,281 | $ | 20,217 | ||||
Interest
on money market accounts
|
286,871 | 463,428 | ||||||
Interest
on savings accounts
|
247,591 | 437,751 | ||||||
Interest
on CDs under 100,000
|
3,139,675 | 3,789,294 | ||||||
Interest
on CDs $100,000 and over
|
928,539 | 1,213,312 | ||||||
Interest
on borrowings
|
1,168,531 | 1,091,905 | ||||||
Total
interest on deposits and borrowings
|
$ | 5,790,488 | $ | 7,015,907 |
Note
13 - Other Operating Expenses
A summary
of other operating expenses for the years ended December 31, 2009 and 2008
follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Postage
and courier
|
$ | 69,299 | $ | 68,358 | ||||
Advertising
and promotion
|
69,704 | 106,535 | ||||||
Taxes
and insurance
|
97,809 | 64,549 | ||||||
Telephone
|
32,748 | 29,528 | ||||||
Supplies
and printing
|
36,937 | 41,007 | ||||||
Meetings
and seminars
|
46,027 | 39,484 | ||||||
Correspondent
bank charges
|
36,849 | 57,830 | ||||||
Other
real estate expense
|
85,739 | 164,138 | ||||||
Directors'
fees
|
31,700 | 52,700 | ||||||
Investment
advisor expense
|
31,222 | 19,873 | ||||||
FHLB
prepayment penalties
|
413,168 | —0— | ||||||
Other
|
217,827 | 167,493 | ||||||
Total
other operating expenses
|
$ | 1,169,029 | $ | 811,495 |
F-26
Financial
Statements
December
31, 2009 and 2008
Note
14 - Income Taxes
As of
December 31, 2009 and 2008, the Company's provision for income taxes consisted
of the following:
2009
|
2008
|
|||||||
Current
|
$ | (1,880,281 | ) | $ | 310,845 | |||
Deferred
|
(1,730,449 | ) | (107,064 | ) | ||||
$ | (3,610,730 | ) | $ | 203,781 |
The
Company’s income tax expense differs from the amounts computed by applying the
federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
December
31,
|
||||||||
2009
|
2008
|
|||||||
Tax
provision at Federal statutory rate
|
$ | (3,990,943 | ) | $ | 269,195 | |||
Increase
in valuation allowance
|
367,081 | — 0 — | ||||||
Other
|
13,132 | (65,414 | ) | |||||
Income
tax expense/(benefit)
|
$ | (3,610,730 | ) | $ | 203,781 |
The
components of deferred income taxes are as follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Loan
loss reserves
|
$ | 1,608,635 | $ | 510,960 | ||||
Other
real estate owned (OREO)
|
156,736 | 125,540 | ||||||
Securities,
OTTI
|
191,853 | —0— | ||||||
Stock
options/warrants
|
66,980 | 57,980 | ||||||
Loss
carry forward
|
913,031 | —0— | ||||||
Unrealized
loss, AFS securities
|
150,083 | 628,320 | ||||||
Total
|
3,087,318 | 1,322,800 | ||||||
Deferred
tax liabilities:
|
||||||||
Depreciation
|
143,605 | 109,536 | ||||||
Total
|
143,605 | 109,536 | ||||||
Deferred
tax asset, net
|
$ | 2,943,713 | $ | 1,213,264 | ||||
Valuation
allowance
|
(367,081 | ) | —0— | |||||
Deferred
tax assets, net of valuation
|
$ | 2,576,632 | $ | 1,213,264 |
F-27
Financial
Statements
December
31, 2009 and 2008
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projection for future taxable income over the periods which the temporary
differences resulting in the deferred tax assets are deductible, management
believes it is more likely than not that deferred tax assets, net of the
valuation allowance, will be recognized in future years.
Note
15 - Related Party Transactions
Under the
terms of the existing Stock Option Plan (the "Plan"), options to purchase shares
of the Company's common stock may be granted to directors and employees at a
price that is not less than the fair market value of such stock at the date of
the grant. Options granted to employees under the Plan may be
designated as incentive stock options. All options, as well as
organizer warrants, expire no more than ten years from the date of the grant and
fully vest over a period of between three-to-five years.
No
options/warrants were granted during calendar year 2009. For the year
ended December 31, 2008, 20,200 options were granted to Bank employees with a
fair value of $2.87 per option. Below are the assumptions used to
determine the fair value of each option:
December
31,
|
||||
2008
|
||||
Risk-free
interest rate
|
2.25 | % | ||
Expected
life of the options
|
10
years
|
|||
Expected
dividends
|
1.25 | % | ||
Expected
volatility
|
20.0 | % |
In
connection with the initial offering of common stock, the Company granted
warrants to certain organizers to purchase 206,280 shares of the Company’s
common stock at an exercise price of $5.50 per share. These warrants,
which were fully vested as of December 31, 2002, have expired on October 25,
2009.
A summary
of the options/warrants activity for the years ended December 31, 2009 and 2008
is presented below.
F-28
Financial
Statements
December
31, 2009 and 2008
Number
of
Shares
|
Weighted-Average
Exercise Price
|
|||||||
Outstanding,
December 31, 2007
|
329,239 | $ | 6.69 | |||||
Granted
during 2008
|
20,200 | $ | 8.50 | |||||
Exercised
during 2008
|
-0- | |||||||
Forfeited
during 2008
|
(4,400 | ) | 11.43 | |||||
Outstanding,
December 31, 2008
|
345,039 | $ | 6.86 | |||||
Granted
during 2009
|
—0— | $ | —0— | |||||
Exercised
during 2009
|
(1,693 | ) | 5.50 | |||||
Forfeited
during 2009
|
(217,869 | ) | 5.51 | |||||
Outstanding,
December 31, 2009
|
125,477 | $ | 9.20 |
Lease of a Branch
Office. On February 9, 2001, the Bank entered into a lease
agreement with Horizon Partnership, LLP, (the "Horizon Partnership") to lease
approximately 3,800 square-feet of a new office building in Bradenton,
Florida. Four of the Company's board members are also the majority
owners of the Horizon Partnership. The lease, which commenced on June
1, 2001, is for a period of 10 years with two consecutive five-year
extensions. In addition to the monthly lease payment, the Bank is
required to pay pro-rata real-estate taxes and special assessments that may be
levied against the property. The total monthly payment approximates
$9,500, an amount that was paid beginning with the September 1, 2001
payment. The monthly lease payments increase by 3% on the date of
each anniversary. For the years ended December 31, 2009 and 2008,
expenses associated with this lease amounted to $120,074 and $117,911,
respectively.
On May
18, 2005, the Bank entered into a lease agreement with TCB,LLP, (the "TCB
Partnership") to lease approximately 3,800 square-feet of a new office building
in Palmetto, Florida. Five of the Company's board members are also
the majority owners of TCB, LLP. The lease, which commenced on
October 10, 2005, is for a period of 10 years with two consecutive five-year
extensions. In addition to the monthly lease payment, the Bank is
required to pay pro-rata real estate taxes and special assessments that may be
levied against the property. The total monthly payment approximates
$10,000, an amount that was paid beginning with the October 11, 2005
payment. The monthly lease payments increase by 3% on the date of
each anniversary. For the years ended December 31, 2009 and 2008,
expenses associated with this lease amounted to $124,797 and $120,142
respectively.
F-29
Financial
Statements
December
31, 2009 and 2008
On
February 8, 2008, the Bank entered into a lease agreement with Horizon
Partnership, LLP, (the "Horizon Partnership") to lease approximately 3,550
square-feet of a new office building in Brandon, Florida. Four of the
Company's board members are also the majority owners of the Horizon
Partnership. The lease, which commenced on March 19, 2009, is for a
period of 10 years with two consecutive five-year extensions. In
addition to the monthly lease payment, the Bank is required to pay pro-rata
real-estate taxes and special assessments that may be levied against the
property. The total monthly payment approximates $15,985, an amount
that was paid beginning with the March 19, 2009 payment. The monthly
lease payments increase by 3% on the date of each anniversary. For
the year ended December 31, 2009, expenses associated with this lease amounted
to $159,850.
As of
December 31, 2009, the future minimum lease commitments are as
follows:
Year
Ending
December 31,
|
Amount
|
|||
2010
|
$ | 447,453 | ||
2011
|
386,538 | |||
2012
|
344,816 | |||
2013
|
355,160 | |||
2014
|
365,815 | |||
Thereafter
|
1,132,349 | |||
Total
|
$ | 3,032,131 |
Payments to
Directors. One director received $27,230 and $19,114 for
products and services sold to the Company during the years ended December 31,
2009 and 2008, respectively. The aggregate fees to directors during
the years ended December 31, 2009 and 2008 amounted to $31,700 and $53,200,
respectively.
Borrowings and Deposits by
Directors and Executive Officers. Certain directors, principal
officers and companies with which they are affiliated are customers of and have
banking transactions with the Bank in the ordinary course of
business. As of December 31, 2009 and 2008, loans outstanding to
directors, their related interests and executive officers aggregated $7,935,266
and $8,109,442 respectively. These loans were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with unrelated parties. In
the opinion of management, loans to related parties did not involve more than
normal credit risk or present other unfavorable features.
A summary
of the related party loan transactions during the calendar years 2009 and 2008
follows:
Insider
Loan Transactions
|
||||||||
2009
|
2007
|
|||||||
Balance,
beginning of year
|
$ | 8,109,442 | $ | 7,595,980 | ||||
New
loans
|
245,000 | 1,109,082 | ||||||
Less:
Principal reductions
|
(419,176 | ) | (595,620 | ) | ||||
Balance,
end of year
|
$ | 7,935,266 | $ | 8,109,442 |
F-30
Financial
Statements
December
31, 2009 and 2008
Deposits
by directors, executive officers and their related interests, as of December 31,
2009 and 2008 approximated $1,559,642 and $3,077,357 respectively.
Note
16 - Concentrations of Credit
The
Company originates primarily commercial, residential, and consumer loans to
customers in Manatee County, Florida, and surrounding counties. The
ability of the majority of the Company's customers to honor their contractual
loan obligations is dependent on economic conditions prevailing at the time in
Manatee County and the surrounding counties.
Eighty-two
percent of the Company's loan portfolio is concentrated in loans secured by real
estate, of which a substantial portion is secured by real estate in the
Company's primary market area. Accordingly, the ultimate
collectability of the loan portfolio is susceptible to changes in market
conditions in the Company's primary market area. Another five percent
or $8,473,726 of the Company's loan portfolio is concentrated in loans
guaranteed by the United States Department of Agriculture. The
majority of these loans are secured by real estate and all are guaranteed with
the full faith and credit of the United States government. The other
significant concentrations of credit by type of loan are set forth under Note
6.
The
Company, as a matter of policy, does not generally extend credit to any single
borrower or group of related borrowers in excess of 25% of the Bank's statutory
capital, or approximately $1.9 million at December 31, 2009.
Note
17 - Regulatory Matters
The
Company is supervised and regulated by OFR and FRB. The Bank was
chartered by the State of Florida and is a member of the Federal Reserve
System. As such, the Bank too is supervised and regulated by OFR and
by the FRB.
Various
requirements and restrictions under federal and state laws regulate the
operations of the Company. These laws, among other things, require
the maintenance of reserves against deposits, impose certain restrictions on the
nature and terms of the loans, restrict investments and other activities, and
regulate mergers and the establishment of branches and related
operations. The ability of the parent company to pay cash dividends
to its shareholders and service debt may be dependent upon cash dividends from
its subsidiary bank. The Bank is subject to limitations under state
and federal laws in the amount of dividends it may declare. At
December 31, 2009, none of the Bank's retained earnings was available for
dividend declaration. During the year ended December 31, 2009 the
Bank paid no dividends to its parent company.
The
banking industry is also affected by the monetary and fiscal policies of
regulatory authorities, including the FRB. Through open market
securities transactions, variations in the discount rate, the establishment of
reserve requirements and the regulation of certain interest rates payable by
member banks, the FRB exerts considerable influence over the cost and
availability of funds obtained for lending and investing. Changes in
interest rates, deposit levels and loan demand are influenced by the changing
conditions in the national economy and in the money markets, as well as the
effect of actions by monetary and fiscal authorities. Pursuant to the
FRB's reserve requirements, the Bank was not required to maintain cash reserve
balances at December 31, 2009.
F-31
Financial
Statements
December
31, 2009 and 2008
The
Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements (see Note
2). Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of the company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weighting and other factors.
Qualitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to average assets (as
defined).
The
prompt corrective action regulations provide five capital categories, including
(in descending order) well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. These categories are not meant to represent overall
financial conditions. If adequately capitalized, regulatory approval
is required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and plans for
capital restoration are required.
Below are
the Bank’s and the Company’s three capital ratios, as of December 31, 2009, as
well as the standardized ratio metrics associated with certain capital
categories. Note that RWA denotes risk-weighted
assets.
F-32
Financial
Statements
December
31, 2009 and 2008
December 31, 2009
|
||||||||||||||||||||
Significantly
|
Adequately
|
|||||||||||||||||||
Bank
|
Company
|
Undercapitalized
|
Undercapitalized
|
Capitalized
|
||||||||||||||||
Tier
1 Leverage
|
2.6 | % | 2.1 | % | < 3.0 | % | < 4.0 | % | ≥ 4.0 | % | ||||||||||
Tier
1 to RWA
|
3.6 | % | 2.9 | % | < 3.0 | % | < 4.0 | % | ≥ 4.0 | % | ||||||||||
Total
capital to RWA
|
4.9 | % | 4.2 | % | < 6.0 | % | < 8.0 | % | ≥ 8.0 | % |
The Bank
is significantly undercapitalized based on two capital ratio standards, and
adequately capitalized based on one capital ratio standard. The
Company is significantly undercapitalized based on two capital ratio standards
and undercapitalized based on one capital ratio standard. Refer to
Note 2 for information concerning the Written Agreement and the PCA
Directive.
The
Company's and the Bank's actual capital amounts and ratios are presented in the
following table:
Minimum
Regulatory Capital Guidelines for Banks
|
||||||||||||||||||||||||||
Actual
|
Adequately
Capitalized
|
Well
Capitalized
|
||||||||||||||||||||||||
(Dollars
in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||||
As
of December 31, 2009:
|
||||||||||||||||||||||||||
Total
capital-risk-based
|
||||||||||||||||||||||||||
(to
risk-weighted assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 7,208 | 4.9 | % | $ | 11,755 |
>
|
8 | % | $ | 14,694 |
>
|
10 | % | ||||||||||||
Consolidated
|
6,169 | 4.2 | % | 11,755 |
>
|
8 | % | N/A |
>
|
N/A | ||||||||||||||||
Tier
1 capital-risk-based
|
||||||||||||||||||||||||||
(to
risk-weighted assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 5,335 | 3.6 | % | $ | 5,878 |
>
|
4 | % | $ | 8,816 |
>
|
6 | % | ||||||||||||
Consolidated
|
4,297 | 2.9 | % | 5,877 |
>
|
4 | % | N/A | N/A | |||||||||||||||||
Tier
1 capital-leverage
|
||||||||||||||||||||||||||
(to
average assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 5,335 | 2.6 | % | $ | 8,210 |
>
|
4 | % | $ | 10,262 |
>
|
5 | % | ||||||||||||
Consolidated
|
4,297 | 2.1 | % | 8,210 |
>
|
4 | % | N/A | N/A | |||||||||||||||||
Actual
|
Adequately
Capitalized
|
Well
Capitalized
|
||||||||||||||||||||||||
(Dollars
in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||||
As
of December 31, 2008:
|
||||||||||||||||||||||||||
Total
capital-risk-based
|
||||||||||||||||||||||||||
(to
risk-weighted assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 16,476 | 10.2 | % | $ | 12,888 |
>
|
8 | % | $ | 16,110 |
>
|
10 | % | ||||||||||||
Consolidated
|
15,716 | 9.6 | % | 12,890 |
>
|
8 | % | N/A |
>
|
N/A | ||||||||||||||||
Tier
1 capital-risk-based
|
||||||||||||||||||||||||||
(to
risk-weighted assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 14.973 | 9.3 | % | $ | 6,444 |
>
|
4 | % | $ | 9,666 |
>
|
6 | % | ||||||||||||
Consolidated
|
14,213 | 8.8 | % | 6,445 |
>
|
4 | % | N/A | N/A | |||||||||||||||||
Tier
1 capital-leverage
|
||||||||||||||||||||||||||
(to
average assets):
|
||||||||||||||||||||||||||
Bank
|
$ | 16,476 | 7.2 | % | $ | 8,380 |
>
|
4 | % | $ | 10,476 |
>
|
5 | % | ||||||||||||
Consolidated
|
15,716 | 6.8 | % | 8,380 |
>
|
4 | % | N/A | N/A |
F-33
Financial
Statements
December
31, 2009 and 2008
Note
18 - Fair Value of Financial Instruments
Determination
of Fair Value
The
Company uses fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures. In
accordance with the accounting standards for fair value measurements and
disclosure, the fair value of a financial instrument is the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair
value is best determined based upon quoted market prices. However, in
many instances, there are no quoted market prices for the Company’s 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.
The
recent fair value guidance provides a consistent definition of fair value, which
focuses on exit price in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. If there has been a significant
decrease in the volume and level of activity for the asset or liability, a
change in valuation technique or the use of multiple valuation techniques may be
appropriate. In such instances, determining the price at which
willing market participants would transact at the measurement date under current
market conditions depends on the facts and circumstances and requires the use of
significant judgment. The fair value is a reasonable point within the
range that is most representative of fair value under current market
conditions.
In
accordance with this guidance, the Company groups its financial assets and
financial liabilities generally measured at fair value in three levels, based on
the markets in which the assets and liabilities are traded and the reliability
of the assumptions used to determine fair value:
Level
1: Quoted prices (unadjusted) for identical assets or liabilities in
active markets that the entity has the ability to access as of the measurement
date.
Level
2: Significant other observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active, and other inputs that are observable or can be
corroborated by observable market data.
F-34
Financial
Statements
December
31, 2009 and 2008
Level
3: Significant unobservable inputs that are supported by little or no
market activity for the asset or liability: Level 3 assets and
liabilities include financial instruments whose value is determined using
pricing models discounted cash flow methodologies, or similar techniques, as
well as instruments for which determination of fair value requires significant
management judgment or estimation.
Recurring
Fair Value Changes
Following
is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance
sheet, as well as the general classifications of such instruments pursuant to
the valuation hierarchy.
Investment
securities: The fair values of securities available for sale
are determined by obtaining quoted prices on nationally recognized securities
exchanges or matrix pricing, which is a mathematical technique used widely in
the industry to value debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on the securities’
relationship to
other benchmark quoted
securities.
Assets
and liabilities measured at fair value on a recurring basis are summarized below
as of December 31:
Fair
Value Measurements at December 31,
|
||||||||||||||||
2009
Using
|
||||||||||||||||
Quoted
Prices
|
||||||||||||||||
In
Active
|
Significant
Other
|
Significant
|
||||||||||||||
Markets
for
|
Observable
|
Unobservable
|
||||||||||||||
Carrying
|
Identical
Assets
|
Inputs
|
Inputs
|
|||||||||||||
($
in thousands)
|
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
Investment
Securities
|
$ | 13,081 | $ | — | $ | 6,191 | $ | 6,890 | ||||||||
Loans
Held for Sale
|
$ | 1,262 | $ | — | $ | 1,262 | $ | — |
Fair Value Measurements at December
31,
|
||||||||||||||||
2008
Using
|
||||||||||||||||
Quoted
Prices
|
||||||||||||||||
In
Active
|
Significant
Other
|
Significant
|
||||||||||||||
Markets
for
|
Observable
|
Unobservable
|
||||||||||||||
Carrying
|
Identical
Assets
|
Inputs
|
Inputs
|
|||||||||||||
($
in thousands)
|
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
Investment
Securities
|
$ | 17,965 | $ | — | $ | 17,965 | $ | — | ||||||||
Loans
Held for Sale
|
$ | 2,000 | $ | — | $ | 2,000 | $ | — |
F-35
Financial
Statements
December
31, 2009 and 2008
Nonrecurring
Fair Value Changes
Certain
assets and liabilities are measured at fair value on a nonrecurring
basis. These instruments are not measured at fair value on an ongoing
basis, but subject to fair value in certain circumstances, such as when there is
evidence of impairment that may require write-downs. The write-downs
for the Company’s more significant assets or liabilities measured on a
nonrecurring basis are based on the lower of amortized or estimated fair
value.
Impaired loans and other real estate
owned (“OREO”): Impaired loans and OREO are evaluated and
valued at the time the loan or OREO is identified as impaired, at the lower of
cost or market value. Market value is measured based on the value of
the collateral securing these loans and is classified at a Level 3 in the fair
value hierarchy. Collateral for impaired loans may be real estate
and/or business assets, including equipment, inventory and/or accounts
receivable. Its fair value is generally determined based on real
estate appraisals or other independent evaluations by qualified
professionals. Impaired loans and OREO are reviewed and evaluated on
at least a quarterly basis for additional impairment and adjusted accordingly,
based on the same factors identified above. Impaired loans measured
on a nonrecurring basis do not include pools of impaired loans.
Assets
and liabilities with an impairment charge during the current year and measured
at fair value on a nonrecurring basis are summarized below as of December
31:
Carrying Values at December 31,
2009
|
||||||||||||||||||||
Total
|
||||||||||||||||||||
($
in thousands)
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Gain
(loss)
|
|||||||||||||||
Impaired
loans
|
$ | 22,167 | $ | $ | $ | 22,167 | $ | (2,043 | ) | |||||||||||
OREO
|
$ | 2,579 | $ | $ | $ | 2,579 | $ | (461 | ) |
Carrying Values at December 31,
2008
|
||||||||||||||||||||
Total
|
||||||||||||||||||||
($
in thousands)
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Gain
(loss)
|
|||||||||||||||
Impaired
loans
|
$ | 12,073 | $ | $ | $ | 12,073 | $ | (385 | ) | |||||||||||
OREO
|
$ | 2,815 | $ | $ | $ | 2,815 | $ | — |
Fair
Value Disclosures
Accounting
standards require the disclosure of the estimated fair value of financial
instruments including those financial instruments for which the Company did not
elect the fair value option. The fair value represents management’s
best estimates based on a range of methodologies and assumptions.
Cash and
due from banks, federal funds sold, loans held for sale, accrued interest
receivable, all non-maturity deposits, short-term borrowings, subordinated debt
and accrued interest payable have carrying amounts which approximate fair value
primarily because of the short repricing opportunities of those
instruments.
F-36
Financial
Statements
December
31, 2009 and 2008
Following
is a description of the methods and assumptions used by the Company to estimate
the fair value of its financial instruments:
Investment
securities: Fair value is based upon quoted market prices if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar
securities. Restricted equity securities are carried at cost because
no market value is available.
Loans: The fair
value is estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial,
mortgage, and consumer loans. The fair value of the loan portfolio is
calculated by discounting contractual cash flows using estimated market discount
rates which reflect the credit and interest rate risk inherent in the
loan. The estimated fair value of the Bank’s off-balance sheet
commitments is nominal since the committed rates approximate current rates
offered for commitments with similar rate and maturity characteristics and since
the estimated credit risk associated with such commitments is not
significant.
Deposit
liabilities: The fair value of time deposits is estimated
using the discounted value of contractual cash flows based on current rates
offered for deposits of similar remaining maturities.
FHLB advances – long
term: The fair value is estimated using the discounted value
of contractual cash flows based on current rates offered for debt of similar
remaining maturities and/or termination values provided by the
FHLB.
The
following table presents the carrying amounts and fair values of the specified
assets and liabilities held by the Company at December 31, 2009 and
2008. The information presented is based on pertinent information
available to management as of December 31, 2009 and 2008. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued since that time, and the current estimated fair value of these
financial instruments may have changed since that point in time.
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||
Financial
assets:
|
||||||||||||||||
Cash
and due from banks
|
$ | 9,719,612 | $ | 9,719,612 | $ | 2,236,783 | $ | 2,236,783 | ||||||||
Federal
funds sold
|
—0— | —0— | 147,000 | 147,000 | ||||||||||||
Securities
held-to-maturity
|
11,462,744 | 10,517,358 | 13,086,900 | 11,451,219 | ||||||||||||
Securities
available-for-sale
|
13,080,811 | 13,080,811 | 17,965,410 | 17,965,410 | ||||||||||||
Loans,
net
|
151,127,759 | 152,659,810 | 166,027,061 | 166,482,173 | ||||||||||||
Accrued
interest receivable
|
1,184,830 | 1,184,830 | 1,411,450 | 1,411,450 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Deposits
|
$ | 174,576,272 | $ | 172,678,983 | $ | 166,278,545 | $ | 165,617,772 | ||||||||
Borrowings
|
19,065,205 | 20,057,245 | 29,805,764 | 30,795,322 | ||||||||||||
Federal
funds purchased
|
——0—— | ——0—— | ——0—— | ——0—— | ||||||||||||
Accrued
Interest Payable
|
34,824 | 34,824 | 129,751 | 129,751 |
F-37
Financial
Statements
December
31, 2009 and 2008
Note
19 - Dividends
In
accordance with regulatory directives, the Bank is unable to pay dividends
unless it obtains prior approval from its banking regulators.
Note
20 - Parent Company Financial Information
This
information should be read in conjunction with the other notes to the
consolidated financial statements.
Parent Company Balance
Sheets
|
||||||||
December
31,
|
||||||||
|
2009
|
2008
|
||||||
Assets
|
||||||||
Cash
|
$ | 376 | $ | 9,302 | ||||
Investment
in Bank
|
6,705,535 | 13,753,020 | ||||||
Other
Assets
|
26,455 | 37,062 | ||||||
Total
Assets
|
$ | 6,732,366 | $ | 13,799,384 | ||||
Liabilities and Shareholders'
Equity:
|
||||||||
Dividends
payable
|
$ | —0— | $ | 199,090 | ||||
Notes
payable
|
1,065,205 | 805,764 | ||||||
Total
Liabilities
|
$ | 1,065,205 | $ | 1,004,854 | ||||
Treasury
stock
|
$ | (479,393 | ) | $ | (479,393 | ) | ||
Common
Stock
|
18,099 | 18,082 | ||||||
Paid-in-capital
|
10,428,214 | 10,358,919 | ||||||
Retained
earnings
|
(4,006,176 | ) | 4,116,602 | |||||
Accumulated
comprehensive income
|
(293,583 | ) | (1,219,680 | ) | ||||
Total
Shareholders' equity
|
$ | 5,667,161 | $ | 12,794,530 | ||||
Total
Liabilities and Shareholders' equity
|
$ | 6,732,366 | $ | 13,799,384 |
Parent Company Statements of
Operations
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Dividends
from subsidiary
|
$ | —0— | $ | —0— | ||||
Interest
income
|
(59,147 | ) | $ | (1,857 | ) | |||
Compensation
expense
|
(60,000 | ) | (70,338 | ) | ||||
Miscellaneous
expense
|
(63,009 | ) | (111,285 | ) | ||||
Income/(loss)
before income tax, and equity in
undistributed income of the Bank
|
$ | (182,156 | ) | $ | (183,480 | ) | ||
Income
tax expense/(benefit)
|
(28,401 | ) | (46,350 | ) | ||||
Income/(loss)
before equity in undistributed income of the Bank
|
$ | (153,755 | ) | $ | (137,130 | ) | ||
Equity
in undistributed income/(loss) of the Bank
|
(7,973,583 | ) | 725,100 | |||||
Net
income/(loss)
|
$ | (8,127,338 | ) | $ | 587,970 |
F-38
Financial
Statements
December
31, 2009 and 2008
Parent
Company Statements of Cash Flows
|
||||||||
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
||||||
Cash
flows from operating
activities:
|
||||||||
Net
income
|
$ | (8,127,338 | ) | $ | 587,970 | |||
Adjustments
to reconcile net income to net cash provided
by operating activities:
|
||||||||
Equity
in undistributed subsidiary income
|
7,973,583 | (725,100 | ) | |||||
Change
in other assets
|
10,607 | 59,609 | ||||||
Change
in other liabilities
|
(134,531 | ) | 73,805 | |||||
Net
cash provided by operating activities
|
$ | (277,679 | ) | $ | (3,716 | ) | ||
Cash
flows from investing activities:
|
||||||||
Net
cash provided/(used) by investing activities
|
$ | —0— | $ | —0— | ||||
Cash
flows from financing activities:
|
||||||||
Exercise
of warrants/options
|
$ | 9,312 | $ | —0— | ||||
Purchase
of treasury stock
|
—0— | (247,000 | ) | |||||
Increase
in note payable
|
259,441 | 805,764 | ||||||
Push
down capital to subsidiary bank
|
—0— | (800,000 | ) | |||||
Cash
dividend
|
—0— | (199,090 | ) | |||||
Net
cash provided/(used) by financing activities
|
$ | 268,753 | $ | (440,326 | ) | |||
Net
change in cash and cash equivalents
|
$ | (8,926 | ) | $ | (444,042 | ) | ||
Cash
and cash equivalents, beginning of year
|
9,302 | 453,344 | ||||||
Cash
and cash equivalents, end of year
|
$ | 376 | $ | 9,302 |
F-39
Item 8.
|
Changes
in and Disagreements With Accountants and Financial Disclosure.
|
The
registrant did not change accountants in 2009 and continues to engage the
independent accounting firm of Francis & Company, CPAs.
Item
8A(T).
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures.
As
of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, of the
Company's disclosure controls and procedures (as provided in Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information required to be included in periodic
filings with the Securities and Exchange Commission.
Management’s
Annual Report on Internal Control over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Chief
Executive Officer and the Chief Financial Officer and effected by our board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Our
evaluation of internal control over financial reporting as of December 31, 2009,
was conducted on the basis of framework in “Internal Control-Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management has concluded that
our internal control over financial reporting was effective as of December 31,
2009.
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 was not subject to attestation
requirements by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this Annual Report.
Changes
in Internal Control Over Financial Reporting.
There
has been no change in the Company's internal controls over financial reporting
during the quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
38
Item 8B.
|
Other
Information.
|
There
is no information that was required to be disclosed by the Company on Form 8-K
during the fourth quarter of 2009, that was not reported.
PART
III
Item 9.
|
Directors,
Executive Officers and Corporate Governance.
|
The
Company has adopted a Code of Conduct for directors and officers, including its
Principal Executive Officer, Principal Financial Officer and Principal
Accounting Officer. The Company will provide to shareholders and all
other persons a copy of the Company's Code of Conduct upon request and without
charge. This document may be requested by writing to Horizon
Bancorporation, Inc., 900 53rd Avenue
East, Bradenton, Florida 34203, Attention: Charles S. Conoley.
The
remaining information required by this Item is incorporated herein by reference
to the applicable information in the definitive proxy statement for the
Company's 2009 annual meeting, including the information set forth under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance."
Item
10.
|
Executive
Compensation.
|
The
information required by this Item is incorporated herein by reference to the
applicable information in the definitive proxy statement for the Company's 2010
annual meeting, including the information set forth under the caption "Executive
Compensation."
Item
11.
|
Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
|
The
information required by this Item is incorporated herein by reference to the
applicable information in the definitive proxy statement for the Company's 2010
annual meeting, including the information set forth under the captions
"Beneficial Ownership of the Company's Common Stock."
Item
12.
|
Certain Relationships
and Related Transactions and Director
Independence.
|
The
information required by this Item is incorporated herein by reference to the
applicable information in the definitive proxy statement for the Company's 2010
annual meeting, including the information set forth under the caption "Certain
Relationships and Related Transactions."
Item
13.
|
Principal Accountant
Fees and Services.
|
The
information required by this Item is incorporated herein by reference to the
applicable information in the definitive proxy statement for the Company's 2010
annual meeting, including the information set forth under the caption "Fees Paid
to Independent Auditors."
39
Item
14.
|
Exhibits and Financial Statement
Schedules.
|
|
Exhibit
Number
|
Sequential Description
|
|
3(i)
|
Amended
and Restated Articles of Incorporation of registrant dated October 2,
1998, incorporated by reference to Exhibit 2.1 of Registration Statement
on Form SB-1, File No. 333-71773, filed on February 9,
1999.
|
|
3(ii)
|
Amended
and Restated Bylaws of registrant, incorporated by reference to Exhibit
2.2 of Registration Statement on Form SB-1, File No. 333-71773, filed on
February 9, 1999.
|
|
21
|
Subsidiaries
of registrant
|
|
31.1
|
Certification
of Chief Executive Officer
|
|
31.2
|
Certification
of Chief Financial Officer
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section
1350
|
40
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.
HORIZON
BANCORPORATION, INC.
(Registrant)
BY:
|
/S/ Charles S. Conoley
|
|
Charles
S. Conoley, President and Chief Executive Officer
|
||
(Principal
Executive Officer)
|
||
/S/ Kathleen M. Jepson
|
||
Kathleen
M. Jepson, Senior Vice President and Chief
|
||
Financial
Officer
|
||
(Principal
Financial Officer and Principal Accounting Officer)
|
Date: April
15, 2010
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 and on the dates indicated:
Signature
|
Title
|
Date
|
||
/S/ Charles S. Conoley
|
President,
Chief Executive Officer and Director
|
April
15, 2010
|
||
Charles
S. Conoley
|
||||
/S/ Michael Shannon Glasgow
|
Director
|
April
15, 2010
|
||
Michael
Shannon Glasgow
|
||||
/S/ Barclay Kirkland,
D.D.S.
|
Director
|
April
15, 2010
|
||
Barclay
Kirkland, D.D.S.
|
||||
/S/ C. Donald Miller, Jr.
|
Director
|
April
15, 2010
|
||
C.
Donald Miller, Jr.
|
||||
/S/ David K. Scherer
|
Director
|
April
15, 2010
|
||
David
K. Scherer
|
||||
/S/ Bruce E. Shackelford
|
Director
|
April
15, 2010
|
||
Bruce
E. Shackelford
|
||||
/S/ Elizabeth Thomason,
D.M.D.
|
Director
|
April
15, 2010
|
||
Elizabeth
Thomason, D.M.D.
|
||||
/S/ Mary Ann P. Turner
|
Chairman
of the Board of Directors
|
April
15, 2010
|
||
Mary
Ann P. Turner
|
||||
/S/ Clarence R. Urban
|
|
Director
|
|
April
15, 2010
|
Clarence
R. Urban
|
41