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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition period from to
Commission File Number 000-53813
FLORIDA BANK GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA | 20-8732828 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
201 N. Franklin Street, Suite 2800, Tampa, Florida 33602
(Address of principal executive offices) (Zip Code)
(813) 367-5270
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
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 definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Number of shares of Common Stock, $0.01 Par Value as of April 30, 2010:14,329,315.
Table of Contents
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2010
TABLE OF CONTENTS
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Item 1. | Financial Statements |
FLORIDA BANK GROUP, INC.
Condensed Consolidated Balance Sheets
($ in thousands, except share amounts)
March 31, 2010 |
December 31, 2009 |
|||||||
(unaudited) | ||||||||
Assets | ||||||||
Cash and due from banks |
$ | 5,727 | $ | 2,579 | ||||
Interest-bearing Deposits and Federal Funds Sold |
51,430 | 26,782 | ||||||
Cash and cash equivalents |
57,157 | 29,361 | ||||||
Securities available-for-sale |
95,143 | 99,776 | ||||||
Loans, net of allowance for loan losses of $23,491 in 2010 and 21,342 in 2009 |
615,528 | 624,651 | ||||||
Federal Reserve Bank stock, at cost |
2,641 | 3,000 | ||||||
Federal Home Loan Bank stock, at cost |
5,417 | 5,417 | ||||||
Accrued interest receivable |
2,483 | 2,429 | ||||||
Premises and equipment, net |
26,238 | 26,307 | ||||||
Deferred tax assets |
24,555 | 23,431 | ||||||
Foreclosed real estate |
6,817 | 8,761 | ||||||
Prepaid expenses and other assets |
6,951 | 7,211 | ||||||
Total assets |
$ | 842,930 | $ | 830,344 | ||||
Liabilities and Stockholders Equity | ||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Noninterest-bearing demand |
$ | 58,461 | $ | 55,279 | ||||
Interest-bearing demand |
61,315 | 70,581 | ||||||
Savings |
12,156 | 11,879 | ||||||
Money market |
155,564 | 148,905 | ||||||
Time |
362,337 | 343,759 | ||||||
Total deposits |
649,833 | 630,403 | ||||||
Accrued expenses and other liabilities |
4,179 | 4,882 | ||||||
Federal Home Loan Bank advances |
77,700 | 81,700 | ||||||
Total liabilities |
731,712 | 716,985 | ||||||
Stockholders equity: |
||||||||
Preferred Stock Series A, $.01 par value; $1,000 liquidation value; 20,471 shares outstanding |
20,471 | 20,471 | ||||||
Preferred Stock Series B, $.01 par value; $1,000 liquidation value; 1,024 shares outstanding |
1,024 | 1,024 | ||||||
Preferred Stock - Discount |
(883 | ) | (935 | ) | ||||
Common stock, $.01 par value, 50,000,000 shares authorized, 14,341,898 shares issued |
143 | 143 | ||||||
Additional paid-in capital |
150,817 | 150,817 | ||||||
Treasury stock (12,583 shares in 2010 and 2009), at cost |
(164 | ) | (164 | ) | ||||
Accumulated deficit |
(61,311 | ) | (58,415 | ) | ||||
Accumulated other comprehensive income |
1,121 | 418 | ||||||
Total stockholders equity |
111,218 | 113,359 | ||||||
$ | 842,930 | $ | 830,344 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)
($ in thousands, except per share amounts)
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Interest income: |
||||||||
Loans |
$ | 8,564 | $ | 9,344 | ||||
Securities available for sale |
959 | 875 | ||||||
Other interest-earning assets |
60 | 65 | ||||||
Total interest income |
9,583 | 10,284 | ||||||
Interest expense: |
||||||||
Deposits: |
||||||||
Demand |
163 | 133 | ||||||
Savings |
19 | 36 | ||||||
Money market |
531 | 677 | ||||||
Time |
2,628 | 4,234 | ||||||
Federal Home Loan Bank advances |
831 | 949 | ||||||
Total interest expense |
4,172 | 6,029 | ||||||
Net interest income before provision for loan losses |
5,411 | 4,255 | ||||||
Provision for loan losses |
3,441 | 1 | ||||||
Net interest income after provision for loan losses |
1,970 | 4,254 | ||||||
Noninterest income: |
||||||||
Service charges on deposit accounts |
220 | 245 | ||||||
Other service charges and fees |
122 | 79 | ||||||
Gain on sale of securities available for sale |
| 83 | ||||||
Gain on sale of foreclosed real estate |
| 7 | ||||||
Other |
242 | 60 | ||||||
Total noninterest income |
584 | 474 | ||||||
Noninterest expenses: |
||||||||
Salaries and employee benefits |
3,592 | 2,417 | ||||||
Occupancy |
1,351 | 1,390 | ||||||
Data processing |
289 | 372 | ||||||
Stationary, printing and supplies |
77 | 56 | ||||||
Business development |
93 | 56 | ||||||
Insurance, including deposit insurance premium |
491 | 397 | ||||||
Professional fees |
337 | 158 | ||||||
Marketing |
13 | 17 | ||||||
Federal Home Loan Bank advance prepayment penalties |
41 | 1,289 | ||||||
Write-down of foreclosed real estate |
42 | | ||||||
Foreclosed real estate expense |
52 | 24 | ||||||
Other |
290 | 241 | ||||||
Total noninterest expense |
6,668 | 6,417 | ||||||
Loss before income tax benefit |
(4,114 | ) | (1,689 | ) | ||||
Income tax benefit |
(1,548 | ) | (623 | ) | ||||
Net loss |
(2,566 | ) | (1,066 | ) | ||||
Preferred stock dividend requirements and discount accretion |
(330 | ) | | |||||
Net loss available to common stockholders |
(2,896 | ) | (1,066 | ) | ||||
Other comprehensive income (loss): |
||||||||
Change in unrealized holding gains (losses) on securities available for sale |
703 | (169 | ) | |||||
Comprehensive loss |
$ | (2,193 | ) | $ | (1,235 | ) | ||
Loss per common share: |
||||||||
Basic and Diluted |
$ | (0.20 | ) | $ | (0.11 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Condensed Consolidated Statements of Changes in Stockholders Equity (Unaudited)
For the Three Months Ended March 31, 2010 and 2009
($ in thousands, except share amounts)
Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||||||||
Series A | Series B | Paid-in | Treasury | Accumulated | Comprehensive | Stockholders | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Discount | Shares | Amount | Capital | Stock | Deficit | Income | Equity | |||||||||||||||||||||||||||
Balance, December 31, 2009 |
20,471 | $ | 20,471 | 1,024 | $ | 1,024 | $ | (935 | ) | 14,341,898 | $ | 143 | $ | 150,817 | $ | (164 | ) | $ | (58,415 | ) | $ | 418 | $ | 113,359 | ||||||||||||||
Net loss |
| | | | | | | | | (2,566 | ) | | (2,566 | ) | ||||||||||||||||||||||||
Net Change in Unrealized Gain On Available-for-Sale Securities, net of income taxes |
| | | | | | | | | | 703 | 703 | ||||||||||||||||||||||||||
Preferred stock dividend requirements and discount accretion |
| | | | 52 | | | | | (330 | ) | | (278 | ) | ||||||||||||||||||||||||
Balance, March 31, 2010 |
20,471 | $ | 20,471 | 1,024 | $ | 1,024 | $ | (883 | ) | 14,341,898 | $ | 143 | $ | 150,817 | $ | (164 | ) | $ | (61,311 | ) | $ | 1,121 | $ | 111,218 | ||||||||||||||
Balance, December 31, 2008 |
| $ | | | $ | | $ | | 9,757,142 | $ | 98 | $ | 132,658 | $ | (164 | ) | $ | (35,739 | ) | $ | (163 | ) | $ | 96,690 | ||||||||||||||
Net loss |
| | | | | | | | | (1,066 | ) | | (1,066 | ) | ||||||||||||||||||||||||
Net Change in Unrealized Gain On Available-for-Sale Securities, net of income taxes |
| | | | | | | | | | (169 | ) | (169 | ) | ||||||||||||||||||||||||
Preferred stock dividend requirements and discount accretion |
| | | | | | | | | | | | ||||||||||||||||||||||||||
Balance, March 31, 2009 |
| $ | | | $ | | $ | | 9,757,142 | $ | 98 | $ | 132,658 | $ | (164 | ) | $ | (36,805 | ) | $ | (332 | ) | $ | 95,455 | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended March 31 | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (2,566 | ) | $ | (1,066 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
382 | 420 | ||||||
Amortization of intangible asset |
| 40 | ||||||
Amortization of deferred loan fees, net |
(40 | ) | (51 | ) | ||||
Amortization of premium and discounts on securities, net |
107 | (15 | ) | |||||
Provision for loan losses |
3,441 | 1 | ||||||
Deferred income taxes |
(1,549 | ) | (834 | ) | ||||
Gain on sale of securities available for sale |
| (83 | ) | |||||
Gain on sale of foreclosed real estate |
| (7 | ) | |||||
Write-down of foreclosed real estate |
42 | | ||||||
(Increase) decrease in accrued interest receivable |
(54 | ) | 1 | |||||
Decrease in prepaid expenses and other assets |
260 | 372 | ||||||
Decrease in accrued expenses and other liabilities |
(703 | ) | (1,724 | ) | ||||
Net cash used in operating activities |
(680 | ) | (2,946 | ) | ||||
Cash flows from investing activities: |
||||||||
Net decrease (increase) in loans |
3,868 | (4,246 | ) | |||||
Proceeds from maturities, calls, repayments and sale of securities available for sale |
5,654 | 12,011 | ||||||
Purchase of securities available for sale |
| (32,818 | ) | |||||
Proceeds from sale of foreclosed real estate |
3,756 | 86 | ||||||
Sale of Federal Reserve Bank stock |
359 | | ||||||
Sale of Federal Home Loan Bank stock |
| 812 | ||||||
Net acquisition of premises and equipment |
(313 | ) | (306 | ) | ||||
Net cash provided by (used in) investing activities |
13,324 | (24,461 | ) | |||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
19,430 | 34,199 | ||||||
Net decrease in Federal Home Loan Bank advances |
(4,000 | ) | (20,500 | ) | ||||
Net decrease in other borrowings |
| (822 | ) | |||||
Preferred stock dividend requirements |
(278 | ) | | |||||
Net cash provided by financing activities |
15,152 | 12,877 | ||||||
Net increase (decrease) in cash and cash equivalents |
27,796 | (14,530 | ) | |||||
Cash and cash equivalents at beginning of period |
29,361 | 81,796 | ||||||
Cash and cash equivalents at end of period |
$ | 57,157 | $ | 67,266 | ||||
(Continued)
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FLORIDA BANK GROUP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Three months ended March 31, | |||||||
2010 | 2009 | ||||||
Supplemental cash flow information: |
|||||||
Cash paid during the period for: |
|||||||
Interest |
$ | 4,446 | $ | 6,373 | |||
Noncash transactions: |
|||||||
Accumulated other comprehensive income (loss), change in unrealized gains on securities available for sale, net of income taxes |
$ | 703 | $ | (169 | ) | ||
Transfer of loans to foreclosed real estate |
$ | 1,854 | $ | 160 | |||
Transfer of foreclosed real estate to loans |
$ | | $ | 500 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements
(Dollars in thousands except per share data)
Note 1 Significant Accounting Policies
Basis of Presentation
Florida Bank Group, Inc. (the Holding Company) owns 100% of the outstanding common stock of Florida Bank (the Bank), and ACIC Properties, Inc. (collectively, the Company). The Holding Companys only significant business activity is the operation of the Bank. Florida Bank is a Florida state-chartered Federal Reserve member commercial bank. ACIC Properties, Inc. was established in 2007 to purchase assets, in the form of substandard loans and foreclosed real estate properties, from the Bank and hold or market these assets for resale.
The Bank offers a wide range of commercial and retail banking services to businesses and individuals. In addition to traditional products and services, the Bank offers other products and services, such as debit cards, internet banking, and electronic bill payment services. Consumer loan products offered by the Bank include home equity lines of credit, second mortgages, new and used auto loans, new and used boat loans, overdraft protection, and unsecured personal credit lines. Commercial loan products include commercial real estate construction and term loans, working capital loans and lines of credit, demand, term and time loans, and equipment, inventory and accounts receivable financing.
The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The Company follows GAAP and reporting practices applicable to the banking industry, which are described in Note 1 to the Consolidated Financial Statements included in the Companys 2009 Form 10-K.
In preparation of the condensed consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the value of the deferred tax assets and the value of foreclosed real estate.
In the opinion of management, the condensed consolidated financial statements contain all adjustments, which are those of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of March 31, 2010 and the results of operations and cash flows for the interim periods presented . The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the entire year or any other interim period.
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Note 2 Securities Available for Sale.
The amortized cost and related market value of investment securities available-for-sale were as follows:
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||
At March 31, 2010 | |||||||||||||
Mortgage-backed securities |
$ | 88,626 | $ | 2,281 | $ | (318 | ) | $ | 90,589 | ||||
Corporate bonds |
4,073 | 176 | | 4,249 | |||||||||
Asset-backed securities (1) |
646 | 53 | (394 | ) | 305 | ||||||||
Total |
$ | 93,345 | $ | 2,510 | $ | (712 | ) | $ | 95,143 | ||||
At December 31, 2009 | |||||||||||||
Mortgage-backed securities |
$ | 94,388 | $ | 1,680 | $ | (790 | ) | $ | 95,278 | ||||
Corporate bonds |
4,077 | 121 | (2 | ) | 4,196 | ||||||||
Asset-backed securities (1) |
641 | 67 | (406 | ) | 302 | ||||||||
Total |
$ | 99,106 | $ | 1,868 | $ | (1,198 | ) | $ | 99,776 | ||||
(1) | These securities are backed by subprime residential and home equity loans |
There were no sales of securities classified as available for sale during the quarter ended March 31, 2010. The scheduled maturities of securities available for sale at March 31, 2010 are summarized below. Expected maturities will differ from scheduled maturities because the issuers of the securities may have the right to call or prepay obligations with or without cost or prepayment penalties:
Amortized Cost | Fair Value | |||||
Due from one to five years |
$ | 4,073 | $ | 4,249 | ||
Mortgage-backed securities |
88,626 | 90,589 | ||||
Asset-backed securities |
646 | 305 | ||||
Total |
$ | 93,345 | $ | 95,143 | ||
The following tables classify those securities in an unrealized loss position at March 31, 2010, based upon length of time in a continuous loss position. The tables show the current fair value of the securities and the amount of unrealized loss for each category of investment:
As of March 31, 2010 | ||||||||||||
Less Than Twelve Months | Over Twelve Months | |||||||||||
Gross Unrealized Losses |
Fair Value | Gross Unrealized Losses |
Fair Value | |||||||||
Mortgage-backed securities |
$ | 90 | $ | 7,348 | $ | 228 | $ | 1,116 | ||||
Asset-backed securities |
| | 394 | 147 | ||||||||
$ | 90 | $ | 7,348 | $ | 622 | $ | 1,263 | |||||
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the
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length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the Companys intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If a security has a decline in fair value that is other than temporary, the security will be written down to its fair value by recording an OTTI loss in the condensed consolidated statement of operations. For a debt security that the Company does not intend to sell and it is not more likely than not that the Company will be required to sell before recovery of its amortized cost, only the credit loss component of the impairment is recorded in the condensed consolidated statement of operations, while the impairment related to all other factors is recorded in other comprehensive income.
The unrealized losses on investment securities available for sale were caused by market conditions. It is expected that the securities would not be settled at a price less than the par value of the investments. The Company plans to hold the securities for a period of time sufficient for the fair value of the securities to recover and it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The losses are therefore not considered other-than-temporary at March 31, 2010.
Note 3 Loans
The components of loans were as follows:
As of | ||||||||
March 31, 2010 |
December 31, 2009 |
|||||||
Commercial |
$ | 65,098 | $ | 63,439 | ||||
Commercial Real Estate |
344,491 | 343,028 | ||||||
Residential Real Estate |
220,323 | 220,854 | ||||||
Consumer and Other Loans |
9,518 | 19,027 | ||||||
639,430 | 646,348 | |||||||
Less: |
||||||||
Net deferred fees |
(411 | ) | (355 | ) | ||||
Allowance for loan losses |
(23,491 | ) | (21,342 | ) | ||||
Loans, Net |
$ | 615,528 | $ | 624,651 | ||||
An analysis of the changes in the allowance for loan losses for the three month periods ended March 31, 2010 and 2009 was as follows:
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Balance At Beginning Of Period |
$ | 21,342 | $ | 17,550 | ||||
Charge-Offs |
(1,319 | ) | (2,591 | ) | ||||
Recoveries |
27 | | ||||||
Provision For Loan Losses |
3,441 | 1 | ||||||
Balance At End Of Period |
$ | 23,491 | $ | 14,960 | ||||
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Loan Impairment and Credit Losses.
A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The following summarizes the amount of impaired loans:
At March 31, 2010 |
At December 31, 2009 |
|||||||
Collateral dependent loans identified as impaired: |
||||||||
Gross loans with no related allowance for losses (1) |
$ | 20,349 | $ | 22,386 | ||||
Gross loans with related allowance for losses recorded |
19,160 | 21,480 | ||||||
Less allowance on these loans |
(5,240 | ) | (5,401 | ) | ||||
Net loans with related allowances |
13,920 | 16,079 | ||||||
Net investment in collateral dependent impaired loans |
34,269 | 38,465 | ||||||
Noncollateral dependent loans identified as impaired: |
||||||||
Gross loans with no related allowance for losses |
3,392 | 5,220 | ||||||
Gross loans with related allowance for losses recorded |
21,502 | 18,103 | ||||||
Less allowance on these loans |
(5,168 | ) | (3,400 | ) | ||||
Net loans with related allowances |
16,334 | 14,703 | ||||||
Net investment in noncollateral dependent impaired loans |
19,726 | 19,923 | ||||||
Net investment in impaired loans |
$ | 53,995 | $ | 58,388 | ||||
(1) | Includes loans with partial charge-offs of $1,312 with net carrying values of $9,951 at March 31, 2010. |
Nonaccrual Loans
At March 31, 2010 and December 31, 2009, nonaccrual loans were as follows:
At March 31, 2010 | At December 31, 2009 | |||||
Nonaccrual loans |
$ | 46,826 | $ | 46,949 | ||
Past due ninety days or more, but still accruing |
10 | 10 | ||||
$ | 46,836 | $ | 46,959 | |||
Note 4 Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include unfunded loan commitments, unused lines of credit and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.
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The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instruments for unfunded loan commitments, standby letters of credit and unused lines of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Unfunded loan commitments and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on managements credit evaluation of the counterparty.
Standby letters-of-credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters-of-credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments.
A summary of the notional amounts of the Companys financial instruments at March 31, 2010, with off-balance-sheet risk was as follows:
Contract Amount | |||
Unfunded loan commitments |
$ | 100 | |
Unused lines of credit |
$ | 79,325 | |
Standby letters of credit |
$ | 1,131 | |
Note 5 Stock-Based Compensation Plan
Certain key employees and directors of the Company have options to purchase shares of the Companys common stock under its stock option plan. Under the plan, the total number of shares which may be issued shall not exceed 1,700,000 (amended). Stock options are issued at the fair value of the common stock on the date of grant and expire ten years from grant date. Stock options vest over a three year period. In 2008, the Company accelerated the vesting of all stock options and at December 31, 2008 all stock options became fully vested. At March 31, 2010, 788,803 shares remain available for grant. A summary of stock option transactions follows:
Number of Options |
Weighted Average Exercise Price |
Weighted
Average Remaining Contractual Term | ||||||
Outstanding at December 31, 2009 |
925,250 | $ | 15.12 | |||||
Options forfeited |
(188,000 | ) | $ | 14.82 | ||||
Outstanding and exercisable at March 31, 2010 |
737,250 | $ | 15.20 | 6.7 years | ||||
There were no options granted or exercised during the three months ended March 31, 2010 or 2009.
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Note 6 Fair Values of Financial Instruments
The estimated fair values of the Companys financial instruments were as follows:
At March 31, 2010 | At December 31, 2009 | |||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
Financial assets: |
||||||||||||
Cash and due from banks |
$ | 57,157 | $ | 57,157 | $ | 29,361 | $ | 29,361 | ||||
Available-for-sale securities |
95,143 | 95,143 | 99,776 | 99,776 | ||||||||
Loans, net |
615,528 | 615,670 | 624,651 | 620,524 | ||||||||
Federal Home Loan Bank Stock |
5,417 | 5,417 | 5,417 | 5,417 | ||||||||
Federal Reserve Bank Stock |
2,641 | 2,641 | 3,000 | 3,000 | ||||||||
Accrued interest receivable |
2,483 | 2,483 | 2,429 | 2,429 | ||||||||
Financial liabilities: |
||||||||||||
Deposits |
$ | 649,833 | $ | 658,256 | $ | 630,403 | $ | 639,177 | ||||
Federal Home Loan Bank Advances |
77,700 | 86,745 | 81,700 | 86,919 | ||||||||
Accrued interest payable |
970 | 970 | 1,244 | 1,244 |
Financial assets subject to fair value measurements on a recurring basis are as follows:
Fair Value Measurements at March 31, 2010 Using | ||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) | |||||||||
As of March 31, 2010: | ||||||||||||
Available for sale securities |
$ | 95,143 | $ | | $ | 95,143 | $ | | ||||
Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan. Foreclosed real estate is carried at the lower of cost or fair value less estimated selling costs. Those impaired collateral-dependent loans and foreclosed real estate which are measured at fair value on a nonrecurring basis are as follows:
Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded in Operations For the Quarter Ended March 31, 2010 | |||||||||||
As of March 31, 2010: | ||||||||||||||||
Impaired loans (1) |
$ | 23,871 | | | $ | 23,871 | $ | 6,552 | $ | 1,151 | ||||||
Foreclosed assets |
$ | 6,817 | | | $ | 6,817 | $ | 103 | $ | 42 | ||||||
(1) | Loans with a carrying value of $10.4 million were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value. |
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Note 7 Comprehensive Loss
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net operations. 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 condensed consolidated balance sheet, such items, along with net loss, are components of comprehensive loss. Comprehensive loss for the three months ended March 31, 2010 and 2009 was $2.2 million and $1.2 million, respectively.
Note 8 Regulatory Matters
Banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Holding Company. The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by regulatory banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and percentages (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of March 31, 2010, that the Company and the Bank met all capital adequacy requirements to which they were subject.
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As of March 31, 2010, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category. The Companys and the Banks actual capital amounts and percentages are also presented in the table:
Actual | For Capital
Adequacy Purposes |
For Well Capitalized Purposes |
||||||||||||||||
As of March 31, 2010: | Amount | % | Amount | % | Amount | % | ||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||
Consolidated |
$ | 93,812 | 14.51 | % | $ | 51,713 | 8.00 | % | N/A | N/A | ||||||||
Bank |
77,054 | 12.17 | % | 50,664 | 8.00 | % | $ | 63,330 | 10.00 | % | ||||||||
Tier One Capital to Risk-Weighted Assets |
||||||||||||||||||
Consolidated |
$ | 85,542 | 13.23 | % | $ | 25,856 | 4.00 | % | N/A | N/A | ||||||||
Bank |
68,953 | 10.89 | % | 25,332 | 4.00 | % | $ | 37,998 | 6.00 | % | ||||||||
Tier One Capital to Average Assets |
||||||||||||||||||
Consolidated |
$ | 85,542 | 10.66 | % | $ | 32,104 | 4.00 | % | N/A | N/A | ||||||||
Bank |
68,953 | 8.71 | % | 31,665 | 4.00 | % | $ | 39,581 | 5.00 | % | ||||||||
Actual | For Capital
Adequacy Purposes |
For Well Capitalized Purposes |
||||||||||||||||
As of December 31, 2009: | Amount | % | Amount | % | Amount | % | ||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||
Consolidated |
$ | 97,819 | 15.01 | % | $ | 52,120 | 8.00 | % | N/A | N/A | ||||||||
Bank |
79,274 | 12.34 | % | 51,394 | 8.00 | % | $ | 64,243 | 10.00 | % | ||||||||
Tier One Capital to Risk-Weighted Assets |
||||||||||||||||||
Consolidated |
$ | 89,510 | 13.74 | % | $ | 26,050 | 4.00 | % | N/A | N/A | ||||||||
Bank |
71,087 | 11.07 | % | 25,697 | 4.00 | % | $ | 38,546 | 6.00 | % | ||||||||
Tier One Capital to Average Assets |
||||||||||||||||||
Consolidated |
$ | 89,510 | 10.64 | % | $ | 33,647 | 4.00 | % | N/A | N/A | ||||||||
Bank |
71,087 | 8.57 | % | 33,178 | 4.00 | % | $ | 41,473 | 5.00 | % |
Note 9 Loss Per Common Share
Basic and diluted loss per share of common stock has been computed based on the weighted-average number of shares of common stock outstanding of 14,329 and 9,745 during the three months ended March 31, 2010 and 2009, respectively. Basic and diluted loss per share are the same for these interim periods because of the Companys net loss position.
Note 10 Recent Accounting Standards Update
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. The new guidance is effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The adoption of this guidance did not have any effect on the Companys financial statements.
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In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset de-recognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The adoption of this guidance had no material effect on the Companys financial statements.
In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements., which amends the fair value disclosure guidance. The amendments include new disclosures and changes to clarify existing disclosure requirements. The new guidance was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Companys financial statements.
In February 2010, the FASB issued ASU No. 2010-09 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 amends the subsequent events disclosure guidance. The amendments include a definition of an SEC filer, requires an SEC filer or conduit bond obligor to evaluate subsequent events through the date the financial statements are issued, and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective upon issuance except for the use of the issued date for conduit debt obligors. The adoption of this guidance did not have a material effect on the Companys financial statements.
In February 2010, the FASB issued ASU No. 2010-10 Consolidation (Topic 855) Amendments for Certain Investment Funds. The amendments to the consolidation requirements of Topic 810 resulting from the issuance of Statement 167 are deferred for a reporting entitys interest in an entity (1) that has all the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The deferral does not apply in situations in which a reporting entity has the explicit or implicit obligation to fund losses of an entity that could potentially be significant to the entity. The amendments in this Update are effective as of the beginning of a reporting entitys first annual period that begins after November 15, 2009, and for interim periods within that first annual reporting period. The adoption of this guidance did not have any effect on the Companys financial statements.
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Review by Independent Registered Public Accounting Firm
Hacker, Johnson & Smith, PA., the Companys independent registered public accounting firm, has made a limited review of the financial data as of March 31, 2010, and for the three month periods ended March 31, 2010 and 2009 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.
The report of Hacker, Johnson & Smith, PA., furnished pursuant to Article 10 of Regulation S-X, is included on the following page herein.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Florida Bank Group, Inc.
Tampa, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of Florida Bank Group, Inc. (the Company) as of March 31, 2010, the related condensed consolidated statements of operations and other comprehensive loss, changes in stockholders equity and cash flows for the three month periods ended March 31, 2010 and 2009. These interim condensed consolidated financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2009, and the related consolidated statements of operations and other comprehensive income (loss), changes in stockholders equity and cash flows for the year then ended (not presented herein); and in our report dated March 31, 2010, we, based on our audit expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Tampa, Florida
May 10, 2010
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words may, could, should, would, believe, anticipate, estimate, expect, intend, plan, target, goal, and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see Item 1A. Risk Factors of our 2009 Report on Form 10-K, and in our other filings made from time to time with the SEC after the date of this report.
However, other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.
Business Overview
We are a bank holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Tampa, Florida. We were incorporated on January 12, 2007, under the laws of the State of Florida. We are the sole shareholder of Florida Bank (the Bank), a Florida chartered commercial bank that provides a wide range of business and consumer financial services in its target marketplace. The Bank currently operates 16 banking offices located in Hillsborough, Pinellas, Duval, St. Johns, Sarasota, Manatee and Leon counties, Florida. We also own all of the outstanding shares of ACIC Properties, Inc., which, from time to time purchases assets, in the form of substandard loans and foreclosed real estate properties, from the Bank and holds or markets these assets for resale. As of March 31, 2010, we had $842.9 million in total assets, including $615.5 million in net loans, and $649.8 million in deposits.
Business Strategy
Our business strategy is to operate as a profitable banking organization, with an emphasis on relationship banking. Our lending strategy includes commercial business loans to small and medium-sized businesses, consumer lending, and select real estate loans. We emphasize comprehensive business products and responsiveness that reflects our knowledge of our local markets and customers. The Bank offers a wide range of commercial and retail banking and financial services to businesses and individuals.
Our marketing strategy is targeted to:
| Capitalize on our personal relationship approach, which we believe differentiates us from our larger competitors; |
| Provide customers with access to our local executives who make key credit and other decisions; |
| Pursue commercial lending opportunities with small to mid-sized businesses that are underserved by our larger competitors; and |
| Cross-sell our products and services to our existing customers to leverage our relationships. |
Growth Strategy
Our growth strategy is geared toward building a preeminent community bank in the state of Florida. The growth strategy includes having a significant market share (as defined by deposits), among community banks, in
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each of the markets in which we currently operate, and markets into which we may expand. We may expand into contiguous markets and new markets by de novo branching and/or acquisitions. We may evaluate the purchase of certain branch(es) from other institutions or whole bank acquisitions.
We will focus on increasing the number of customer relationships and, ultimately, deposits, loans and profitability. Organic strategies include taking advantage of customer dislocation in the market place created by other banks operating limitations and customer dissatisfaction. We also have retail strategies in place to drive more business through our branch infrastructure.
Performance Overview
For the three months ended March 31, 2010, we recorded a net loss available to common stockholders (net loss) of $2.9 million, or $0.20 per basic and diluted share, driven mostly by our provision for loan losses. These results compared with a net loss of $1.1 million, or $0.11 per basic and diluted share for 2009. The $1.1 million net loss for the three months ended March 31, 2009, was mostly driven by a $1.3 million Federal Home Loan Bank advance prepayment penalty.
As of March 31, 2010, total assets were $842.9 million compared to $830.3 million at December 31, 2009, an increase of $12.6 million or 1.5%. The increase primarily results from a $27.8 million increase in cash and cash equivalents, of which $24.6 million relates to interest-bearing deposits. This increase was offset in part by a $4.6 million decrease in investment securities, a $9.1 million decrease in net loans and a $1.9 million decrease in foreclosed real estate. The reduction in the net loan balance reflects a combination of decreased loan demand, loan payoffs, loan charge offs, additional allowance for loan losses and foreclosure of assets.
As of March 31, 2010 the allowance for loan losses totaled $23.5 million, or 3.68% of total loans compared to $21.3 million, or 3.30% of total loans as of December 31, 2009. The allowance represents 50.2% of non-performing loans at March 31, 2010 compared to 45.4% at December 31, 2009.
As of March 31, 2010, total deposits were $649.8 million, up $19.4 million or 3.1% compared to December 31, 2009. This increase was comprised of increases in time deposits of $18.6 million, money market deposits of $6.7 million and noninterest-bearing demand deposits of $3.2 million, offset in part by a $9.0 million decrease in interest-bearing demand and savings deposits.
Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advances, totaled $77.7 million at March 31, 2010, compared to $81.7 million at December 31, 2009, a decrease of $4.0 million or 4.9%.
At March 31, 2010 and December 31, 2009, our capital ratios all surpassed regulatory measures to be considered well capitalized.
RESULTS OF OPERATIONS
Net Loss
Net loss available to common stockholders totaled $2.9 million ($0.20 per diluted share) for the three months ended March 31, 2010 compared to a net loss of $1.1 million ($.11 per diluted share) for the three months ended March 31, 2009.
This increase in the net loss is mostly attributable to the following: a $3.4 million increase in provision for loan losses reflecting an increase in nonaccrual loans; a $1.2 million increase in salary and benefits, primarily due to increased compensation cost in the first quarter of 2010; a $0.7 million decrease in total interest income resulting from a decrease in interest rates; and $0.3 million of preferred stock dividend requirements and discount accretion, offset in part by a $1.9 million decrease in interest expense that was primarily related to a decrease in time deposits rates, a $1.2 million decrease in Federal Home Loan Bank advance prepayment penalties and $0.1 of other miscellaneous decreases.
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A condensed earnings summary and a more detailed discussion of each major component of our financial performance are provided below (in thousands):
For the Three Months Ended | ||||||||
March 31, 2010 | March 31, 2009 | |||||||
Interest Income |
$ | 9,583 | $ | 10,284 | ||||
Interest Expense |
4,172 | 6,029 | ||||||
Net Interest Income |
5,411 | 4,255 | ||||||
Provision for Loan Losses |
3,441 | 1 | ||||||
Noninterest income |
584 | 474 | ||||||
Noninterest expenses |
6,668 | 6,417 | ||||||
Loss before income tax benefit |
(4,114 | ) | (1,689 | ) | ||||
Income tax benefit |
(1,548 | ) | (623 | ) | ||||
Net Loss |
(2,566 | ) | (1,066 | ) | ||||
Preferred stock dividend and discount accretion |
(330 | ) | | |||||
Net loss available to common stockholders |
$ | (2,896 | ) | $ | (1,066 | ) | ||
Loss per common share - basic and diluted |
$ | (0.20 | ) | $ | (0.11 | ) | ||
Selected Operating Ratios: |
||||||||
Return on Average Assets |
-1.42 | % | -0.50 | % | ||||
Return on Average Equity |
-10.33 | % | -4.51 | % | ||||
Equity to Assets Ratio |
13.19 | % | 10.99 | % |
Net Interest Income
Net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities. Net interest income is the largest component of our income, and is affected by the interest rate environment and the volume and the composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, federal funds sold, interest-bearing deposits in other banks and investment securities. Our interest-bearing liabilities include deposits, federal funds purchased, advances from the FHLB and other short term borrowings.
Net interest income increased $1.1 million, or 27.2%, to $5.4 million for the three months ended March 31, 2010 from $4.3 million for the same period in 2009. This increase is the result of a $1.9 million decrease in interest expense offset in part by a $0.7 million decrease in interest income. Both interest income and interest expense were reduced during this period. The decrease in interest on loans was primarily the result of an increase in the non recognition of interest income on non accruing loans in addition to a reduction in our average loan balances. The balance in non accruing loans was $46.8 million at March 31, 2010, an increase of $19.1 million from the balance at March 31, 2009. Average loan balances were $644.9 million at March 31, 2010, a decreased of $24.6 million from the average loan balance at March 31, 2009. The decrease in interest expense is mostly the result of decreases in our deposit rates, primarily related to time deposits, as our time deposits maturing towards the end of 2009 and the first quarter of 2010 were generally re-priced into a much lower interest rate environment. Time deposits carry a fixed rate of interest to maturity and most of our borrowings provide for a fixed rate of interest until maturity or conversion date. We reduced our interest expense on borrowings through the early retirement of certain higher cost advances.
The following table reflects the components of net interest income, setting forth for the periods presented, (1) average assets, liabilities and shareholders equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets).
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($ in thousands)
March 31, 2010 |
March 31, 2009 | |||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||
ASSETS | ||||||||||||||||||||
Loans |
$ | 644,872 | $ | 8,564 | 5.39 | % | $ | 669,488 | $ | 9,344 | 5.66 | % | ||||||||
Securities available for sale |
97,771 | 959 | 3.98 | % | 74,866 | 875 | 4.74 | % | ||||||||||||
Other interest-earning assets |
26,805 | 60 | 0.91 | % | 68,382 | 65 | 0.39 | % | ||||||||||||
Total Earning Assets |
769,448 | 9,583 | 5.05 | % | 812,736 | 10,284 | 5.13 | % | ||||||||||||
Cash & Due from Banks |
8,922 | 8,883 | ||||||||||||||||||
Allowance For Loan Losses |
(21,214 | ) | (16,814 | ) | ||||||||||||||||
Other Assets |
71,293 | 62,562 | ||||||||||||||||||
Total Assets |
$ | 828,449 | $ | 867,367 | ||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Demand |
$ | 63,343 | $ | 163 | 1.04 | % | $ | 49,847 | $ | 133 | 1.08 | % | ||||||||
Savings |
11,779 | 19 | 0.65 | % | 10,812 | 36 | 1.35 | % | ||||||||||||
Money Market |
145,599 | 531 | 1.48 | % | 115,926 | 677 | 2.37 | % | ||||||||||||
Time |
349,644 | 2,628 | 3.05 | % | 444,122 | 4,234 | 3.87 | % | ||||||||||||
Total Interest Bearing Deposits |
570,365 | 3,341 | 2.38 | % | 620,707 | 5,080 | 3.32 | % | ||||||||||||
FHLB advances |
81,578 | 831 | 4.13 | % | 91,050 | 949 | 4.23 | % | ||||||||||||
Other borrowings |
61 | | 0.00 | % | 1,283 | | 0.00 | % | ||||||||||||
Total Interest Bearing Liabilities |
652,004 | 4,172 | 2.60 | % | 713,040 | 6,029 | 3.43 | % | ||||||||||||
Noninterest bearing Deposits |
58,619 | 46,352 | ||||||||||||||||||
Other Liabilities |
4,176 | 12,322 | ||||||||||||||||||
Total Liabilities |
714,799 | 771,714 | ||||||||||||||||||
Total Shareholders Equity |
113,650 | 95,653 | ||||||||||||||||||
Total Liabilities & Shareholders Equity |
$ | 828,449 | 867,367 | |||||||||||||||||
Interest Rate Spread |
2.45 | % | 1.70 | % | ||||||||||||||||
Net Interest Income |
$ | 5,411 | $ | 4,255 | ||||||||||||||||
Net Interest Margin |
2.85 | % | 2.12 | % | ||||||||||||||||
Going forward, we expect short-term market interest rates to remain low for a period of time. We expect deposit costs to continue to decline but they may decrease more slowly or to a lesser extent than loan and investment yields. If, however, there is strong demand in the financial markets and banking system for liquidity, then this may lead to elevated pricing competition for deposits.
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Provision for Loan Losses
The provision for loan losses for the quarter ended March 31, 2010 was $3.4 million compared to $1 thousand for the quarter ended March 31, 2009. The increase in the provision for loan losses reflects a continued contraction of commercial and residential real estate activity and the ripple effect on our local economies resulting in an increase in nonperforming loans, the continued erosion in the fair values of loan collateral and an increase in our loan loss factors. Our nonperforming loans were $46.8 million as of March 31, 2010 compared to $27.7 million as of March 31, 2009. Net charge-offs in the first quarter of 2010 totaled $1.3 million compared to $2.6 million in the same period in 2009. At March 31, 2010, the allowance for loan losses, at $23.5 million, was 3.68% of outstanding loans (net of overdrafts) and provided coverage of 50.2% of nonperforming loans. At March 31, 2009, the allowance for loan losses was $15.0 million, representing 2.23% of outstanding loans (net of overdrafts) and provided coverage of 54.1% of nonperforming loans.
The continued local economic contraction is evidenced by increased unemployment levels in the markets in which we operate and the impact of foreclosures and distressed sales continue to negatively impact the value of real estate. We will continuously monitor and actively manage the credit quality of the entire loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level. Due to the economic slowdown discussed above, both individual and business customers have exhibited increased difficulty in timely payment of their loan obligations. We believe that this trend may be nearing a plateau but we cannot be sure. Consequently, we may experience higher levels of delinquent and non-performing loans, which may require higher provisions for loan losses, higher charge-offs and higher collection related expenses in future periods.
Noninterest Income
Noninterest income on a recurring basis is derived principally from loan and deposit fees, securities gains or losses on securities held for sale and other miscellaneous sources. Noninterest income increased by $0.1 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009 primarily due an increase in miscellaneous income from foreclosed property and bank-owned insurance policies.
Noninterest Expense
Noninterest expense increased $0.3 million, or 3.9%, to $6.7 million for the first quarter ended March 31, 2010 from $6.4 million for the first quarter ended March 31, 2009. The increase was mostly due to higher salary and employee benefit expense of $1.2 million and an increase in professional fees of $0.2 million, offset in part by a decrease in Federal Home Loan Bank prepayment penalties of $1.2 million.
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The table below reflects the major components of noninterest expense (in thousands):
Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
Salaries and employee benefits |
$ | 3,592 | $ | 2,417 | ||
Occupancy |
1,351 | 1,390 | ||||
Data Processing |
289 | 372 | ||||
Stationary, printing and supplies |
77 | 56 | ||||
Business development |
93 | 56 | ||||
Insurance , including deposit insurance premium |
491 | 397 | ||||
Professional fees |
337 | 158 | ||||
Marketing |
13 | 17 | ||||
FHLB advance prepayment penalties |
41 | 1,289 | ||||
Write-down of foreclosed real estate |
42 | | ||||
Foreclosed real estate expense |
52 | 24 | ||||
Other |
290 | 241 | ||||
Total noninterest expenses |
$ | 6,668 | $ | 6,417 | ||
Preferred Stock Dividend Requirements
On July 24, 2009, the Company issued 20,471 shares of Series A preferred stock and warrants to purchase 1,024 shares of Series B preferred stock to the U.S. Treasury for proceeds of $20.5 million under the U.S. Treasurys Capital Purchase Program. The warrants were immediately exercised by the U.S. Treasury on July 24, 2009 for shares of Series B preferred stock. The terms of the Series A preferred stock require quarterly dividend payments of 5% of the outstanding principal during the first five years the issue is outstanding after which the dividend rate increases to 9%. The terms of the Series B preferred stock require quarterly dividend payments of 9% of the outstanding principal. Preferred stock dividend requirements and discount accretion for the quarter ended March 31, 2010 were $330,000.
FINANCIAL CONDITION
Total assets at March 31, 2010 were $842.9 million, an increase of $12.6 million or 1.5%, from total assets of $830.3 million at December 31, 2009. Total cash and cash equivalents increased $27.8 million to $57.2 million or 94.7% during the first three months of 2010. This increase mostly resulted from increases in our money market and time deposits. Our net loans decreased $9.1 million, or 1.5%, to $615.5 million during the first three months of 2010 from $624.7 million at December 31, 2009. Also, investment securities decreased $4.6 million, or 4.6%, during the first three months of 2010, mostly due to repayments on mortgage-backed securities. Foreclosed real estate decreased $1.9 million or 22.2% during the first three months of 2010 compared to year end 2009 primarily as a result of $1.9 million of sales of certain foreclosed properties during the first quarter of 2010.
Total liabilities at March 31, 2010 increased $14.7 million to $731.7 from $717.0 million at December 31, 2009. The change reflects an increase in total deposits of $19.4 million offset in part by a $4.0 million decrease in Federal Home Loan Bank advances. The increases in deposits are attributable to increases of $18.6 in time deposits, $6.7 million in money market accounts, $3.2 million in noninterest-bearing demand deposits, offset in part by a $9.0 million decrease in interest-bearing demand and savings deposits.
Total stockholders equity decreased $2.2 million to $111.2 million at March 31, 2010 from $113.4 million at December 31, 2009. The decrease reflects a net loss of $2.6 million, preferred stock dividends and discount accretion of $0.3 million, offset by a change in unrealized holding gains on available-for-sale securities of $0.7 million and preferred stock discount of $0.1 million.
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Loans and Non-Performing Assets
Loan Portfolio.
Our loan portfolio consists principally of loans to individuals and small and medium-sized businesses within our primary market areas of greater Tampa Bay, Jacksonville and Tallahassee, Florida. The table below shows our loan portfolio composition for the periods presented:
($ in Thousands)
As of | ||||||||
March 31, 2010 |
December 31, 2009 |
|||||||
Commercial |
$ | 65,098 | $ | 63,439 | ||||
Commercial Real Estate |
344,491 | 343,028 | ||||||
Residential Real Estate |
220,323 | 220,854 | ||||||
Consumer and Other Loans |
9,518 | 19,027 | ||||||
639,430 | 646,348 | |||||||
Less: |
||||||||
Net deferred fees |
(411 | ) | (355 | ) | ||||
Allowance for loan losses |
(23,491 | ) | (21,342 | ) | ||||
Loans, Net |
$ | 615,528 | $ | 624,651 | ||||
The decrease in gross loans was mostly the result of a $9.5 million decrease in consumer and other loans, primarily due to a reclassification. Other than the decrease in consumer loans, our loan composition remains relatively consistent at March 31, 2010 compared to December 31, 2009, with commercial and commercial real estate loans showing modest increases.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance established to absorb probable incurred credit losses associated with loans in the loan portfolio. The allowance is recorded through a provision for loan losses charged to operations. Loan losses are charged against the allowance when managements belief that the loan is uncollectible is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.
As of March 31, 2010, we held an allowance for loan losses of $23.5 million or 3.68% of total loans compared to the allowance for loan losses of $21.3 million or 3.30% at December 31, 2009. Based on an analysis performed by management, as of March 31, 2010 management considers the allowance for loan losses to be adequate to cover probable incurred credit losses in the portfolio as of that date. However, managements judgment is based upon a number of assumptions, 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 significant additional increases in the allowance for loan losses will not be required. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. As a direct result of these factors and the analyses performed in conjunction with the
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sustained weakness in asset values, particularly real estate, we recorded a loan loss provision of $3.4 million during the first quarter of 2010 which, when offset by charge-offs of $1.3 million in the same period, resulted in a $2.2 million increase in allowance for loan losses. We established specific reserves for impaired loans and general reserves for the remainder of the portfolio as follows (in thousands):
March 31, 2010 | December 31, 2009 | |||||||
Specific Reserves: |
||||||||
Impaired loans with no specific reserves |
$ | 23,741 | $ | 27,606 | ||||
Impaired loans with specific reserves |
40,662 | 39,583 | ||||||
Total impaired loans |
$ | 64,403 | $ | 67,189 | ||||
Reserve |
$ | 10,408 | $ | 8,801 | ||||
Reserve % of impaired loans |
16.16 | % | 13.10 | % | ||||
General Reserves |
||||||||
Loans subject to general reserve |
$ | 575,027 | $ | 579,159 | ||||
Reserve |
$ | 13,083 | $ | 12,541 | ||||
Reserve % of loans |
2.28 | % | 2.17 | % |
During the first quarter ended March 31, 2010 and 2009, the activity in our loan loss allowance was as follows (in thousands):
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Balance At Beginning Of Period |
$ | 21,342 | $ | 17,550 | ||||
Charge-Offs |
(1,319 | ) | (2,591 | ) | ||||
Recoveries |
27 | | ||||||
Provision For Loan Losses |
3,441 | 1 | ||||||
Balance At End Of Period |
$ | 23,491 | $ | 14,960 | ||||
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Charge-Offs: |
||||||||
Commercial |
$ | (17 | ) | $ | (203 | ) | ||
Commercial Real Estate |
(1,085 | ) | (294 | ) | ||||
Residential Mortgage |
(195 | ) | (2,033 | ) | ||||
Consumer and Other Loans |
(22 | ) | (61 | ) | ||||
$ | (1,319 | ) | $ | (2,591 | ) | |||
Three Months Ended March 31, | ||||||||
2010 | 2010 | |||||||
Recoveries: |
||||||||
Commercial |
$ | 11 | $ | | ||||
Commercial Real Estate |
| | ||||||
Residential Mortgage |
16 | | ||||||
Consumer and Other Loans |
| | ||||||
$ | 27 | $ | | |||||
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The following table reflects the allowance allocation per loan category and percent of dollar value of loans in each category to total dollar value of loans for the periods indicated (in thousands):
March 31, 2010 | December 31, 2009 | |||||||||||
Amount | % | Amount | % | |||||||||
Commercial |
$ | 1,956 | 10.18 | % | $ | 2,136 | 9.81 | % | ||||
Commercial Real Estate |
14,454 | 53.87 | % | 13,081 | 53.07 | % | ||||||
Residential Mortgage |
6,635 | 34.46 | % | 5,393 | 34.17 | % | ||||||
Consumer and Other Loans |
446 | 1.49 | % | 732 | 2.95 | % | ||||||
Total allowance |
$ | 23,491 | 100 | % | $ | 21,342 | 100 | % | ||||
Management continuously monitors and actively manages the credit quality of the loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level. Due to the economic slowdown discussed above, some of our customers are exhibiting increasing difficulty in timely payment of their loan obligations. We believe that this trend will continue in the near term. Consequently, we may experience higher levels of delinquent and nonperforming loans, which may require higher provisions for loan losses, higher charge-offs and higher collection related expenses in future periods.
Non-Performing Assets
Non-performing assets include non-accrual loans and foreclosed real estate. Non-accrual loans represent loans on which interest accruals have been discontinued. Foreclosed real estate is comprised principally of real estate properties obtained in partial or total loan satisfactions and is included in other assets at its estimated fair value less selling costs. During the three months ended March 31, 2010, foreclosed real estate decreased $1.9 million due to sales of such properties.
We discontinue interest accruals when principal or interest is due and has remained unpaid for 90 days or sooner if current information indicates the borrowers inability to pay, depending on the loan type, unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, all unpaid interest and fees are reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the borrower has demonstrated the willingness and ability to make timely payments.
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Non-performing loans, or non-accrual loans, are closely monitored on an ongoing basis as part of our loan review and work-out process. In addition, these loans are evaluated by comparing the recorded loan amount to the fair value of any underlying collateral or the present value of projected future cash flows. The results of this evaluation are used as part of the determination of the appropriate allowance and provision for loan losses and charge-offs, when appropriate. The following is a summary of non-performing assets as of the periods presented (in thousands):
Balance as of | ||||||||
March 31, 2010 | December 31, 2009 | |||||||
Non-Accrual |
$ | 46,826 | $ | 46,949 | ||||
Restructured Loans |
| | ||||||
Total Non-Performing Loans |
46,826 | 46,949 | ||||||
Other Real Estate Owned |
6,817 | 8,761 | ||||||
Total Non-Performing Assets |
$ | 53,643 | $ | 55,710 | ||||
Non-Performing Loans as a Percentage of Total Loans, net of Deferred Fees |
7.33 | % | 7.27 | % | ||||
Non-Performing Assets as a Percentage of Total Assets |
6.36 | % | 6.61 | % | ||||
Past Due 90 or more days and still accruing |
$ | 10 | $ | 10 | ||||
As March 31, 2010, we had $23.7 million in restructured loans that are in compliance with their modified terms. The criteria for a restructured loan to be considered performing is as follows: (1) none of its principal and interest is due and unpaid, and we expect repayment of the remaining contractual principal and interest, or (2) when the loan otherwise becomes well secured and in the process of collection. Since these loans have met the criteria, management does not consider these loans to be non-performing and have not included them in the table above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity is the ability to provide for the cash flow requirements of deposit withdrawals, funding requirements of our borrowers, debt maturities, operating cash flows and off balance sheet obligations such as customer lines of credit.
Our primary sources of liquidity are deposits provided by commercial and retail customers. The Bank attracts these deposits by offering an array of products designed to match customer needs at rates acceptable to the Bank. Deposits can be very price sensitive; we therefore monitor the Banks offering rates relative to our competition and adjust our offering rates accordingly to generate larger or smaller flows of deposit funds.
In addition to local market deposits, the Bank has access to national brokered certificates of deposit markets as well as deposit subscription services. The Bank uses these alternative sources of deposits to supplement deposits particularly when these sources of deposits are less costly than the local market or in order to obtain specific funding amounts and terms that might not otherwise be available locally. These sources of deposits tend to be more price and credit sensitive and therefore the Bank has established policies to limit the amount of these types of funding sources.
As a member of the Federal Home Loan Bank of Atlanta (FHLB), the Bank has access to a secured borrowing facility. Loans meeting certain criteria may be pledged as collateral and are subject to advance rates established by the FHLB. Alternatively, FHLB borrowings may be secured by marketable securities, which are generally afforded higher advance rates relative to the value of the pledged collateral. FHLB advances are a useful source of funding as they offer a broad variety of terms allowing the Bank to position its funding with greater flexibility. FHLB funding is also credit sensitive and therefore the Bank has established policies to limit the amount of its utilization of this funding source.
Other sources of liquidity include balances of cash and due from banks, short-term investments such as federal funds sold, and our investment portfolio, which can either be liquidated or used as collateral for borrowings. Additionally, our correspondent banks provide unsecured federal funds lines of credit, which may be used to access short term funds.
The Bank has established contingency plans in the event of extraordinary fluctuations in cash resources as described below.
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Major sources of increases and decreases in cash and cash equivalents were as follows for the three months ending March 31, 2010 and 2009:
(Dollars in thousands) | March 31, 2010 |
March 31, 2009 |
||||||
Used in operating activities |
$ | (680 | ) | $ | (2,946 | ) | ||
Provided by (used in) investing activities |
13,324 | (24,461 | ) | |||||
Provided by financing activities |
15,152 | 12,877 | ||||||
Net increase (decrease) in cash and cash equivalents |
$ | 27,796 | $ | (14,530 | ) | |||
As March 31, 2010 we had unfunded loan commitments of $0.1 million and unused lines and letters of credit totaling approximately $80.5 million. We believe the likelihood of these commitments either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, the Bank has available borrowing capacity from various sources as discussed below.
The Bank has unsecured overnight federal funds purchased accommodation up to a maximum of $17.8 million from our principal correspondent bank. Further, the Bank has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is based on the amount of collateral pledged and limited by a percentage of the Banks total assets as reported on the most recent quarterly financial information submitted to the regulators. As of March 31, 2010 we had $77.7 million of FHLB advances outstanding and $28.8 million of letters of credit used in lieu of pledging securities to the State of Florida. Our unused borrowing capacity as of March 31, 2010 was approximately $39.4 million.
As of March 31, 2010 our gross loan to deposit ratio was 98.3% compared to 102.4% at December 31, 2009. Management monitors and assesses the adequacy of our liquidity position on a daily and monthly basis to ensure that sufficient sources of liquidity are maintained and available.
Investment Securities
Investment activities serve to enhance our liquidity position and interest rate sensitivity, while also providing a yield on interest earning assets. Securities purchased with the intent and ability to hold until maturity are categorized as securities held to maturity and carried at amortized cost. All other securities are categorized as securities available for sale and are recorded at fair value. Securities, like loans, are subject to similar interest rate and credit risk. In addition, by their nature, securities classified as available for sale are also subject to market value risks that could negatively affect the level of liquidity available to us, as well as stockholders equity. A change in the value of securities held to maturity could also negatively affect the level of stockholders equity if there was a decline in the underlying creditworthiness of the issuers, other-than-temporary impairment is deemed or there is a change in our intent and ability to hold the securities to maturity.
As of March 31, 2010, our securities portfolio totaled $95.1 million compared to $99.8 million as of December 31, 2009, a decrease of $4.7 million. For both periods, all of our securities were classified as available for sale. The decrease in the investment portfolio during the first quarter of 2010 is primarily due to repayments on government sponsored mortgaged-backed securities. We do not actively trade securities and do not expect to do so in the future.
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The following table sets forth the carrying amount of our investment portfolio, as of the periods indicated:
($ in Thousands)
Balance as of | ||||||
March 31, 2010 | December 31, 2009 | |||||
Fair value of investment in: |
||||||
Mortgage backed securities |
$ | 90,589 | $ | 95,278 | ||
Corporate bonds |
4,249 | 4,196 | ||||
Asset backed securities |
305 | 302 | ||||
Total |
$ | 95,143 | $ | 99,776 | ||
Federal Reserve Bank stock |
$ | 2,641 | $ | 3,000 | ||
Federal Home Loan Bank stock |
$ | 5,417 | $ | 5,417 | ||
Please see Note 7 to our March 31, 2010 Condensed Consolidated Financial Statements for a discussion on Other Comprehensive Loss related to our securities classified as available-for-sale.
Deposits
The Banks primary source of funds is deposits. Those deposits are provided by businesses, municipalities, and individuals located within the markets served by our Bank.
For the three months ended March 31, 2010, total deposits increased $19.4 million to $649.8 million compared to $630.4 million as of December 31, 2009.
As of March 31, 2010 and December 31, 2009 the distribution by type of our deposit accounts was as follows (in thousands):
As of March 31, 2010 | As of March 31, 2009 | |||||||||||||
Average Balance | Average Rate |
Average Balance | Average Rate |
|||||||||||
Noninterest bearing accounts |
$ | 58,619 | 0.00 | % | $ | 46,352 | 0.00 | % | ||||||
Interest bearing accounts: |
||||||||||||||
Savings, Now and MMKT |
220,721 | 1.31 | % | 176,585 | 1.94 | % | ||||||||
CDs |
349,644 | 3.05 | % | 444,122 | 3.87 | % | ||||||||
Total Interest Bearing Deposits |
570,365 | 2.38 | % | 620,707 | 3.32 | % | ||||||||
Average Total Deposits |
$ | 628,984 | 2.15 | % | $ | 667,059 | 3.09 | % | ||||||
Brokered deposits included in total deposits |
$ | 71,773 | $ | 104,297 | ||||||||||
Brokered deposits as a percentage of total deposits |
11.41 | % | 15.64 | % | ||||||||||
Capital Resources
The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.
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As of March 31, 2010 and December 31, 2009, we exceeded the levels of capital required in order to be considered well capitalized by the regulatory authorities. The basic measures of capitalization applied by the regulatory authorities are provided below as of March 31, 2010 and December 31, 2009 for the Company and the Bank:
As of March 31, 2010 |
As of December 31, 2009 |
Minimum to be Well Capitalized |
|||||||
Total Risk Based Capital Ratio - Consolidated |
14.51 | % | 15.01 | % | N/A | ||||
Total Risk Based Capital Ratio - Bank |
12.17 | % | 12.34 | % | 10.00 | % | |||
Tier One Risk Based Capital Ratio - Consolidated |
13.23 | % | 13.74 | % | N/A | ||||
Tier One Risk Based Capital Ratio - Bank |
10.89 | % | 11.07 | % | 6.00 | % | |||
Tier One Leverage Ratio - Consolidated |
10.66 | % | 10.64 | % | N/A | ||||
Tier One Leverage Ratio - Bank |
8.71 | % | 8.57 | % | 5.00 | % |
Inflation.
The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment.
Assets and liabilities of financial institutions are virtually all monetary in nature, and therefore are primarily impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of our ability to react to changing interest rates and are discussed in further detail above.
Off-Balance Sheet Arrangements.
We do not currently have any off-balance sheet arrangements, other than approved and unfunded loans and letters of credit to our customers in the ordinary course of business.
Critical Accounting Policies.
Allowance for Loan Losses.
The allowance for loan losses is established to absorb probable incurred credit losses primarily resulting from loans outstanding as of the balance sheet date. Accordingly, all loan losses are charged to the allowance and all recoveries are credited to it. The provision for loan losses charged to operating expense is based on past credit loss experience and other factors which in managements judgment deserve current recognition in estimating probable credit losses. Such other factors include growth and composition of the loan portfolio, credit concentrations, trends in portfolio volume, maturities, delinquencies and non-accruals, information about specific borrower situations and estimated collateral values, historical loss trends and general economic conditions.
While management uses the best information available to base its estimates, future adjustments to the allowance may be necessary if economic conditions, particularly in the Banks market areas, differ substantially from the assumptions initially used. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The Bank applies a loan loss reserve methodology and documentation process which it believes is consistent with SEC, GAAP, and bank regulatory requirements. These accounting rules require specific identification of an allowance for loan loss for an impaired loan. The Bank applies a systematic methodology where the allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified
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loans and is based on historical loss experience adjusted for current factors. The following provides a summary of the Banks process for establishing specific reserves for impaired loans. Initially, loans are evaluated for impairment, meaning management believes it is probable that a borrower will not make payments of both principal and interest in accordance with the original loan agreement. If management deems a loan to be impaired the loan is further evaluated to determine whether it is solely collateral dependent or not. If the impaired loan is determined to be collateral dependent it is recorded at the fair value of the collateral less selling costs and the excess of the amounts due from the borrower over the fair market value are charged off. For impaired loans which are deemed to be not solely collateral dependent, a reserve for impairment is established equal to the excess of the loan balance and the valuation of the loan. In this circumstance, loans are valued by one of three methods: fair value of collateral, discounted expected future cash flows or observable market price of the note. Impaired loans with values in excess of the loan balance may have a reserve of zero. However, impaired loans with zero reserves may not be added back to the general reserve loan pool.
Income Taxes.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.
The realization of deferred tax assets associated with the net operating loss carry forward, which expires in the years 2027, 2028, and 2029, as well as other deductible temporary differences is dependent upon generating sufficient future taxable income.
Other Than Temporary Impairment
Impairment of investment securities results in a write-down that must be included in net income when a market decline below cost is other-than-temporary. We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity.
Recent Accounting Pronouncements.
The Financial Accounting Standards Board, the SEC, and other regulatory bodies have enacted new accounting pronouncements and standards that either has impacted our results in prior years presented, or may likely impact our results in 2010. Please refer to the footnote No. 10 in the Notes to our Condensed Consolidated Financial Statements for the period ended March 31, 2010.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not presented as the Company qualifies as a smaller reporting company as defined by Regulation S-K, Item 10 (f) of the Securities Act.
Item 4. | Controls and Procedures. |
Under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Item 1. | Legal Proceedings. |
We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to our business. Management does not believe that there is any pending or threatened proceeding against us that, if determined adversely, would have a material adverse effect on our financial position, liquidity, or results of operations.
Item 1a. | Risk Factors |
There has not been any material change in the risk factor disclosure from that contained in the Companys 2009 Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults Upon Senior Securities. |
None
Item 4. | (Removed and Reserved) |
Item 5. | Other Information. |
None
Item 6. | Exhibits |
Exhibit |
Description | |
10.1 | Florida Bank Group, Inc. 2010 Restricted Stock Plan. | |
10.2 | Florida Bank Group, Inc. Form of 2010 Restricted Stock Agreement. | |
31.1 | Certification of Chief Executive Officer pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 10th day of May, 2010.
FLORIDA BANK GROUP, INC. | ||||||
Date: May 10, 2010 | By: | /S/ ROBERT ROTHMAN | ||||
Robert Rothman Chairman and Chief Executive Officer | ||||||
By: | /S/ JOHN R. GARTHWAITE | |||||
John R. Garthwaite, Chief Financial Officer, Executive Vice President |
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