Attached files
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1)
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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 July 31, 2010:14,329,315.
Table of Contents
FLORIDA BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q/A
FOR THE PERIOD ENDED JUNE 30, 2010
(Amendment No.1)
Page | ||||||
Item 1. |
||||||
1 | ||||||
2 | ||||||
3 | ||||||
4 | ||||||
Notes to Condensed Consolidated Financial Statements (as restated) (unaudited) |
6 | |||||
17 | ||||||
18 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations (as restated) | 19 | ||||
Item 3. |
Quantitative and Qualitative Disclosure About Market Risk | 33 | ||||
Item 4. |
Controls and Procedures | 34 | ||||
Item 1. |
Legal Proceedings | 34 | ||||
Item 1A. |
Risk Factors | 34 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 35 | ||||
Item 3. |
Defaults Upon Senior Securities | 35 | ||||
Item 4. |
(Removed and Reserved) | 35 | ||||
Item 5. |
Other Information | 35 | ||||
Item 6. |
Exhibits | 36 | ||||
37 | ||||||
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EXPLANATORY NOTE
Florida Bank Group, Inc., (the Company) is filing this Amendment No. 1 to its Quarterly Report on Form 10Q for the quarter ended June 30, 2010, originally filed with the Securities and Exchange Commission (the SEC) on August 13, 2010 (the Original Filing), to amend and restate the Companys unaudited consolidated financial statements as of and for the three and six months ended June 30, 2010.
As previously disclosed in a Form 8-K filing on January 14, 2011, on November 19, 2010 the Federal Reserve Bank of Atlanta (the FRB) issued a report at the conclusion of a regulatory examination of Florida Bank, the Companys wholly owned subsidiary (the Bank), which included financial data as of June 30, 2010. This regulatory examination was on-going at the time the Original Filing was filed with the SEC and the issues in the report were raised after the Bank had filed its call report for the quarter ending September 30, 2010 and after the Company had filed its Quarterly Report on Form 10Q for the third quarter period ended September 30, 2010. The Bank was instructed by the FRB to amend and resubmit its call report for the quarter ended June 30, 2010 to recognize a $6.0 million adjustment to the allowance for loan losses as of June 30, 2010, which it did. The majority of the adjustment related to the determination by the FRB that a small number of impaired loans were collateral dependent as of June 30, 2010, which management had judged to be other than collateral dependent as of June 30, 2010. As a result of information that subsequently became available to the Company regarding the Companys real estate loan portfolio and the valuation of the underlying collateral, it determined that these loans were collateral dependent as of June 30, 2010 and September 30, 2010. As a result of the Companys determination that these loans should be recognized as collateral dependent as of June 30, 2010, the Company also determined that the provision should be recognized in the June 30, 2010 period, resulting in a decision by the Companys management to restate the second and third quarter financial statements. This decision was approved by the Companys Board of Directors on January 12, 2011.
Prior to the issuance of the report by the FRB, the Company had recorded in its financial statements, as of and for the three and nine months ended September 30, 2010, a provision of $6.8 million, which included the $6.0 million amount relating to the loans identified by the FRB. Since the $6.0 million increase in the allowance for loan losses and provision for loan losses was already included in the provision recorded during the third quarter of 2010, the restatements represent a reallocation of the provision between the second and third quarter periods. Therefore, only the results for the three month periods ending June 30 and September 30, 2010, and the six month period ending June 30, 2010 will be affected by this restatement. Amounts as of and for the nine month period ending September 30, 2010 were not affected.
Although there was a slight decrease in the Banks June 30, 2010 capital ratios, it is still considered well capitalized by established regulatory standards.
In the Original Filing, the Company concluded that its disclosure controls and procedures were effective. Based on the determination to revise its financial statements for the three and six months ended June 30, 2010, the Company, with the assistance of an outside advisory firm, initiated a process to reassess the effectiveness of the design and operations of its internal controls over financial reporting. This process included, among other things, a thorough review and documentation of the Companys procedures and controls with respect to timing of the procurement of information relating to the review and analysis of its loan loss reserves. As a result of the review and the implementation of process enhancements recommended by its outside advisory firm, the Company believes that as of the date of filing of this Form10-Q/A, the consolidated financial statements included in this Form10-Q/A present fairly, in all material respects, the Companys financial position, results of operations, changes in stockholders equity and cash flows for the periods presented and that its disclosure controls and procedures are effective.
The information in this Amendment has been updated to give effect to the restatement. The Company has not modified nor updated the information in the Original Filing, except as necessary to reflect the effects of the restatement described above. This Amendment continues to speak as of the dates described herein, and the Company has not updated the disclosures contained in the Original Filing to reflect any events that occurred subsequent to such dates. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Companys subsequent filings with the SEC, as information in such filings may update or supersede certain information contained in this Amendment.
Based on the foregoing, only the following items have been amended:
| Part I Financial Information: |
| Item 1 Financial Statements |
| Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations |
| Item 4 Controls and Procedures |
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For the convenience of the reader, this Form 10Q/A sets forth the initial Form 10-Q in its entirety, although the Company is only amending those portions affected by the restatement described above.
In addition, as required by Rule 12b15 under the Securities Exchange Act of 1934, as amended, new, currently-dated certifications of our principal executive officer and principal financial officer are filed herewith as Exhibits 31.1, 31.2, and 32.
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Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
($ in thousands, except share amounts)
June 30, 2010 |
December 31, 2009 |
|||||||
(Unaudited) (As Restated) |
||||||||
Assets | ||||||||
Cash and due from banks |
$ | 6,342 | $ | 2,579 | ||||
Interest-bearing Deposits and Federal Funds Sold |
28,511 | 26,782 | ||||||
Cash and cash equivalents |
34,853 | 29,361 | ||||||
Securities available-for-sale |
146,584 | 99,776 | ||||||
Loans, net of allowance for loan losses of $25,545 in 2010 and 21,342 in 2009 |
607,677 | 624,651 | ||||||
Federal Reserve Bank stock, at cost |
2,579 | 3,000 | ||||||
Federal Home Loan Bank stock, at cost |
5,417 | 5,417 | ||||||
Accrued interest receivable |
2,555 | 2,429 | ||||||
Premises and equipment, net |
26,222 | 26,307 | ||||||
Deferred tax assets |
27,766 | 23,431 | ||||||
Foreclosed real estate |
3,497 | 8,761 | ||||||
Prepaid expenses and other assets |
6,671 | 7,211 | ||||||
Total assets |
$ | 863,821 | $ | 830,344 | ||||
Liabilities and Stockholders Equity | ||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Noninterest-bearing demand |
$ | 78,940 | $ | 55,279 | ||||
Interest-bearing demand |
68,005 | 70,581 | ||||||
Savings |
12,483 | 11,879 | ||||||
Money market |
168,755 | 148,905 | ||||||
Time |
341,966 | 343,759 | ||||||
Total deposits |
670,149 | 630,403 | ||||||
Accrued expenses and other liabilities |
10,417 | 4,882 | ||||||
Federal Home Loan Bank advances |
77,700 | 81,700 | ||||||
Total liabilities |
758,266 | 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 |
(832 | ) | (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 |
(68,421 | ) | (58,415 | ) | ||||
Accumulated other comprehensive income |
2,517 | 418 | ||||||
Total stockholders equity |
105,555 | 113,359 | ||||||
$ | 863,821 | $ | 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | 8,664 | $ | 9,332 | $ | 17,228 | $ | 18,675 | ||||||||
Securities available for sale |
1,114 | 926 | 2,073 | 1,801 | ||||||||||||
Other interest-earning assets |
65 | 96 | 126 | 162 | ||||||||||||
Total interest income |
9,843 | 10,354 | 19,427 | 20,638 | ||||||||||||
Interest expense: |
||||||||||||||||
Deposits: |
||||||||||||||||
Demand |
157 | 87 | 322 | 220 | ||||||||||||
Savings |
21 | 40 | 41 | 77 | ||||||||||||
Money market |
559 | 759 | 1,090 | 1,436 | ||||||||||||
Time |
2,547 | 3,841 | 5,174 | 8,075 | ||||||||||||
Federal Home Loan Bank advances |
793 | 866 | 1,623 | 1,815 | ||||||||||||
Total interest expense |
4,077 | 5,593 | 8,250 | 11,623 | ||||||||||||
Net interest income before provision for loan losses |
5,766 | 4,761 | 11,177 | 9,015 | ||||||||||||
Provision for loan losses |
8,500 | 1,331 | 11,941 | 1,331 | ||||||||||||
Net interest (loss) income after provision for loan losses |
(2,734 | ) | 3,430 | (764 | ) | 7,684 | ||||||||||
Noninterest (expense) income: |
||||||||||||||||
Service charges on deposit accounts |
245 | 231 | 465 | 476 | ||||||||||||
Other service charges and fees |
121 | 117 | 243 | 195 | ||||||||||||
(Loss) gain on sale of securities available for sale |
(38 | ) | 86 | (38 | ) | 169 | ||||||||||
Other-than-temporary impairment of securities available for sale |
(549 | ) | | (549 | ) | | ||||||||||
Other |
185 | 135 | 427 | 195 | ||||||||||||
Total noninterest (expense) income |
(36 | ) | 569 | 548 | 1,035 | |||||||||||
Noninterest expenses: |
||||||||||||||||
Salaries and employee benefits |
3,904 | 2,120 | 7,495 | 4,537 | ||||||||||||
Occupancy |
1,385 | 1,410 | 2,736 | 2,799 | ||||||||||||
Data processing |
309 | 450 | 599 | 822 | ||||||||||||
Stationary, printing and supplies |
82 | 84 | 159 | 140 | ||||||||||||
Business development |
109 | 97 | 202 | 152 | ||||||||||||
Insurance, including deposit insurance premium |
513 | 463 | 1,004 | 860 | ||||||||||||
Professional fees |
576 | 135 | 913 | 292 | ||||||||||||
Marketing |
23 | 37 | 37 | 55 | ||||||||||||
Federal Home Loan Bank advance prepayment penalties |
| 6 | 41 | 1,296 | ||||||||||||
Loss on sale of foreclosed real estate |
135 | | 135 | 44 | ||||||||||||
Write-down of foreclosed real estate |
600 | | 642 | | ||||||||||||
Foreclosed real estate expense |
134 | 184 | 186 | 208 | ||||||||||||
Other |
294 | 308 | 584 | 498 | ||||||||||||
Total noninterest expense |
8,064 | 5,294 | 14,733 | 11,703 | ||||||||||||
Loss before income tax benefit |
(10,834 | ) | (1,295 | ) | (14,949 | ) | (2,984 | ) | ||||||||
Income tax benefit |
(4,053 | ) | (500 | ) | (5,602 | ) | (1,123 | ) | ||||||||
Net loss |
(6,781 | ) | (795 | ) | (9,347 | ) | (1,861 | ) | ||||||||
Preferred stock dividend requirements and discount accretion |
(330 | ) | | (659 | ) | | ||||||||||
Net loss available to common stockholders |
(7,111 | ) | (795 | ) | (10,006 | ) | (1,861 | ) | ||||||||
Other comprehensive income (loss): |
||||||||||||||||
Change in unrealized holding gains (losses) on securities available for sale |
1,396 | (592 | ) | 2,099 | (770 | ) | ||||||||||
Comprehensive loss |
$ | (5,715 | ) | $ | (1,387 | ) | $ | (7,907 | ) | $ | (2,631 | ) | ||||
Loss per common share: |
||||||||||||||||
Basic and Diluted |
$ | (0.50 | ) | $ | (0.07 | ) | $ | (0.70 | ) | $ | (0.18 | ) | ||||
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 Six Months Ended June 30, 2010 (As Restated) and 2009
($ in thousands, except share amounts)
Preferred Stock | Common Stock | Treasury Stock |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders Equity |
|||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital |
||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Discount | ||||||||||||||||||||||||||||||||||||||||||||
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 |
| | | | | | | | | (9,347 | ) | | (9,347 | ) | ||||||||||||||||||||||||||||||||||
Net Change in Unrealized Gain On Available-for-Sale Securities, net of income taxes |
| | | | | | | | | | 2,099 | 2,099 | ||||||||||||||||||||||||||||||||||||
Preferred stock dividend requirements and discount accretion |
| | | | 103 | | | | | (659 | ) | | (556 | ) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2010 (as Restated) |
20,471 | $ | 20,471 | 1,024 | $ | 1,024 | $ | (832 | ) | 14,341,898 | $ | 143 | $ | 150,817 | $ | (164 | ) | $ | (68,421 | ) | $ | 2,517 | $ | 105,555 | ||||||||||||||||||||||||
Balance, December 31, 2008 |
| $ | | | $ | | $ | | 9,757,142 | $ | 98 | $ | 132,658 | $ | (164 | ) | $ | (35,739 | ) | $ | (163 | ) | $ | 96,690 | ||||||||||||||||||||||||
Net loss |
| | | | | | | | | (1,861 | ) | | (1,861 | ) | ||||||||||||||||||||||||||||||||||
Net Change in Unrealized Loss On Available-for-Sale Securities, net of income taxes |
| | | | | | | | | | (770 | ) | (770 | ) | ||||||||||||||||||||||||||||||||||
Proceeds from sale of common stock, net of stock issuance costs of $(83) |
| | | | | 4,584,756 | 45 | 18,220 | | | | 18,265 | ||||||||||||||||||||||||||||||||||||
Balance, June 30, 2009 |
| $ | | | $ | | $ | | 14,341,898 | $ | 143 | $ | 150,878 | $ | (164 | ) | $ | (37,600 | ) | $ | (933 | ) | $ | 112,324 | ||||||||||||||||||||||||
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)
Six months ended | ||||||||
2010 | 2009 | |||||||
(As Restated) | ||||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (9,347 | ) | $ | (1,861 | ) | ||
Adjustments to reconcile net loss to net cash (provided by) used in operating activities: |
||||||||
Depreciation and amortization |
752 | 837 | ||||||
Amortization of intangible asset |
| 80 | ||||||
Amortization of deferred loan fees, net |
(71 | ) | (77 | ) | ||||
Amortization of premium and discounts on securities, net |
303 | 40 | ||||||
Provision for loan losses |
11,941 | 1,331 | ||||||
Deferred income taxes |
(5,602 | ) | (1,334 | ) | ||||
Loss/(Gain) on sale of securities available for sale |
38 | (169 | ) | |||||
Loss on sale of foreclosed real estate |
135 | 44 | ||||||
Write-down of foreclosed real estate |
642 | | ||||||
Other-than-temporary impairment of securities available for sale |
549 | | ||||||
(Increase) decrease in accrued interest receivable |
(126 | ) | 189 | |||||
Decrease in prepaid expenses and other assets |
540 | 290 | ||||||
Increase (decrease) in accrued expenses and other liabilities |
5,553 | (2,273 | ) | |||||
Decrease in official checks |
(18 | ) | (717 | ) | ||||
Net cash provided by (used in) operating activities |
5,289 | (3,620 | ) | |||||
Cash flows from investing activities: |
||||||||
Net decrease in loans |
2,409 | 9,618 | ||||||
Proceeds from maturities, calls, repayments and sale of securities available for sale |
13,918 | 21,168 | ||||||
Purchase of securities available for sale |
(58,250 | ) | (37,329 | ) | ||||
Proceeds from sale of foreclosed real estate |
7,182 | 1,336 | ||||||
Sale (purchase) of Federal Reserve Bank stock |
421 | (717 | ) | |||||
Sale of Federal Home Loan Bank stock |
| 812 | ||||||
Net acquisition of premises and equipment |
(667 | ) | (131 | ) | ||||
Net cash used in investing activities |
(34,987 | ) | (5,243 | ) | ||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
39,746 | 8,242 | ||||||
Net decrease in Federal Home Loan Bank advances |
(4,000 | ) | (23,000 | ) | ||||
Net decrease in other borrowings |
| (1,858 | ) | |||||
Net proceeds from sale of common stock |
| 18,265 | ||||||
Preferred stock dividend requirements |
(556 | ) | | |||||
Net cash provided by financing activities |
35,190 | 1,649 | ||||||
Net increase (decrease) in cash and cash equivalents |
5,492 | (7,214 | ) | |||||
Cash and cash equivalents at beginning of period |
29,361 | 81,796 | ||||||
Cash and cash equivalents at end of period |
$ | 34,853 | $ | 74,582 | ||||
(Continued)
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FLORIDA BANK GROUP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Supplemental cash flow information: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 8,409 | $ | 11,824 | ||||
Noncash transactions: |
||||||||
Accumulated other comprehensive income (loss), change in unrealized gains (losses) on securities available for sale, net of income taxes |
$ | 2,099 | $ | (770 | ) | |||
Transfer of loans to foreclosed real estate |
$ | 5,575 | $ | 6,807 | ||||
Transfer of foreclosed real estate to loans |
$ | 2,880 | $ | 500 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements (As Restated) (Unaudited)
(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 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 June 30, 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.
Note 2 Restatement of Previously Issued Financial Statements
The Company has restated the accompanying unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2010. The allowance for loan losses and provision for loan losses were increased by $6.0 million from amounts previously reported to reflect a reallocation of amounts applied to the loans of certain specific customers as of June 30, 2010, which was subsequently applied as of September 30, 2010. The majority of the adjustment related to the determination by the FRB that a small number of impaired loans were collateral dependent as of June 30, 2010, which the Company had judged to be other than collateral dependent as of June 30, 2010. As a result of information that subsequently became available to the Company regarding the Companys real estate loan portfolio and the valuation of the underlying collateral, it determined that these loans were collateral dependent as of June 30, 2010 and September 30, 2010. As a result of the Companys determination that these loans should be recognized as collateral dependent as of June 30, 2010, the Company also determined that the provision should be recognized in June 30, 2010, which necessitated the restatement of its financial statements.
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The effect of the restatement is as follows (dollars in thousands):
Consolidated Balance Sheets as of June 30, 2010
As Reported | Adjustment | Restated | ||||||||||
Allowance for loan losses |
$ | (19,574 | ) | $ | (5,971 | ) | $ | (25,545 | ) | |||
Total net loans |
$ | 613,648 | $ | (5,971 | ) | $ | 607,677 | |||||
Deferred tax assets |
$ | 25,518 | $ | 2,248 | $ | 27,766 | ||||||
Total assets |
$ | 867,544 | $ | (3,723 | ) | $ | 863,821 | |||||
Accumulated deficit |
$ | (64,698 | ) | $ | (3,723 | ) | $ | (68,421 | ) | |||
Total shareholders equity |
$ | 109,278 | $ | (3,723 | ) | $ | 105,555 |
Consolidated Statements of Operations
For the three months ended June 30, 2010 | For the six months ended June 30, 2010 | |||||||||||||||||||||||
As Reported | Adjustment | Restated | As Reported | Adjustment | Restated | |||||||||||||||||||
Provision for loan losses |
$ | 2,529 | $ | 5,971 | $ | 8,500 | $ | 5,970 | $ | 5,971 | $ | 11,941 | ||||||||||||
Net interest income (loss) after provison for loan losses |
$ | 3,237 | $ | (5,971 | ) | $ | (2,734 | ) | $ | 5,207 | $ | (5,971 | ) | $ | (764 | ) | ||||||||
Loss before income tax benefit |
$ | (4,863 | ) | $ | (5,971 | ) | $ | (10,834 | ) | $ | (8,978 | ) | $ | (5,971 | ) | $ | (14,949 | ) | ||||||
Income tax benefit |
$ | (1,805 | ) | $ | (2,248 | ) | $ | (4,053 | ) | $ | (3,354 | ) | $ | (2,248 | ) | $ | (5,602 | ) | ||||||
Net loss |
$ | (3,058 | ) | $ | (3,723 | ) | $ | (6,781 | ) | $ | (5,624 | ) | $ | (3,723 | ) | $ | (9,347 | ) | ||||||
Comprehensive loss |
$ | (1,992 | ) | $ | (3,723 | ) | $ | (5,715 | ) | $ | (4,184 | ) | $ | (3,723 | ) | $ | (7,907 | ) | ||||||
Net loss per common share Basic and Diluted |
$ | (0.24 | ) | $ | (0.26 | ) | $ | (0.50 | ) | $ | (0.44 | ) | $ | (0.26 | ) | $ | (0.70 | ) |
Consolidated Statements of Cash Flows
For the six months ended June 30, 2010 | ||||||||||||
As Reported | Adjustment | Restated | ||||||||||
Net loss |
$ | (5,624 | ) | $ | (3,723 | ) | $ | (9,347 | ) | |||
Adjustment to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Provision for loan losses |
$ | 5,970 | $ | 5,971 | $ | 11,941 | ||||||
Deferred income taxes |
$ | (3,354 | ) | $ | (2,248 | ) | $ | (5,602 | ) | |||
Net cash provided by operating activities |
$ | 5,289 | $ | | $ | 5,289 |
Capital Ratios
As of June 30, 2010 | ||||||||||||||||||||||||
For
Well Capitalized Purposes |
||||||||||||||||||||||||
As Reported | As Restated | |||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
$ | 89,385 | 13.97 | % | $ | 83,414 | 13.16 | % | N/A | N/A | ||||||||||||||
Bank |
76,237 | 12.12 | % | 70,268 | 11.27 | % | $ | 62,327 | 10.00 | % | ||||||||||||||
Tier One Capital to Risk-Weighted Assets |
||||||||||||||||||||||||
Consolidated |
$ | 81,242 | 12.69 | % | $ | 75,271 | 11.87 | % | N/A | N/A | ||||||||||||||
Bank |
68,230 | 10.84 | % | 62,259 | 9.99 | % | $ | 37,396 | 6.00 | % | ||||||||||||||
Tier One Capital to Average Assets |
||||||||||||||||||||||||
Consolidated |
$ | 81,242 | 9.78 | % | $ | 75,271 | 9.08 | % | N/A | N/A | ||||||||||||||
Bank |
68,230 | 8.33 | % | 62,259 | 7.62 | % | $ | 40,847 | 5.00 | % |
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Certain amounts were also restated and additional disclosures are provided in the footnotes primarily in Note 4 Loans, Note 7 Fair Value of Financial Instruments, Note 8 Comprehensive Loss, and Note 9 Regulatory Matters.
Note 3 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 June 30, 2010 |
||||||||||||||||
Mortgage-backed securities |
$ | 138,424 | $ | 4,060 | $ | (234 | ) | $ | 142,250 | |||||||
Corporate bonds |
4,069 | 210 | | 4,279 | ||||||||||||
Asset-backed securities (1) |
55 | | | 55 | ||||||||||||
Total |
$ | 142,548 | $ | 4,270 | $ | (234 | ) | $ | 146,584 | |||||||
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 | |||||||||||
$ | 99,106 | $ | 1,868 | $ | (1,198 | ) | $ | 99,776 | ||||||||
(1) | These securities are backed by subprime residential and home equity loans. Gross proceeds from the sale of securities classified as available for sale was $2.2 million for the quarter and six months ended June 30, 2010, and resulted in gross gains of $85 and gross losses of $123. The scheduled maturities of securities available for sale at June 30, 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 |
$ | 4,069 | $ | 4,279 | ||||
Mortgage-backed securities |
138,424 | 142,250 | ||||||
Asset-backed securities |
55 | 55 | ||||||
Total |
$ | 142,548 | $ | 146,584 | ||||
The following tables classify those securities in an unrealized loss position at June 30, 2010 and December 31, 2009, 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 June 30, 2010 | ||||||||||||||||
Less Than Twelve Months | Over Twelve Months | |||||||||||||||
Gross Unrealized Losses |
Fair Value | Gross Unrealized Losses |
Fair Value | |||||||||||||
Mortgage-backed securities |
$ | 66 | $ | 11,012 | $ | 168 | $ | 428 | ||||||||
As of December 31, 2009 | ||||||||||||||||
Less Than Twelve Months | Over Twelve Months | |||||||||||||||
Gross Unrealized Losses |
Fair Value | Gross Unrealized Losses |
Fair Value | |||||||||||||
Mortgage-backed securities |
$ | 629 | $ | 46,316 | $ | 161 | $ | 589 | ||||||||
Corporate bonds |
2 | 1,009 | | | ||||||||||||
Asset-backed securities |
| | 406 | 135 | ||||||||||||
$ | 631 | $ | 47,325 | $ | 567 | $ | 724 | |||||||||
The unrealized losses on investment securities available for sale were caused by market conditions. It is expected that the securities will 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 securities before recovery of their amortized cost basis. The losses are therefore not considered other-than-temporary at June 30, 2010.
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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 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.
In evaluating mortgage backed and asset backed securities with significant unrealized losses greater than 12 months, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, Fair Isaac Corporation (FICO) score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then inputted to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.
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.
During the six months ended June 30, 2010, the Company recorded OTTI charges of $0.5 million to write down two asset-backed securities to their fair values. The Company intends to sell the related securities; as such, the entire OTTI loss was recorded in the condensed consolidated statement of operations.
The table below provides a cumulative roll forward of credit losses recognized in operations for the six months ended June 30, 2010 relating to the Companys available for sale debt securities:
Balance at, January 1, 2010 |
$ | 1,184 | ||
Additions for credit losses on securities not previously impaired |
549 | |||
Reduction for securities sold during the year |
(1,032 | ) | ||
Balance, at June 30, 2010 |
$ | 701 | ||
Note 4 Loans
The components of loans were as follows:
As of | ||||||||
June 30, 2010 | December 31, 2009 | |||||||
(As Restated) | ||||||||
Commercial |
$ | 59,995 | $ | 63,439 | ||||
Commercial Real Estate |
340,212 | 343,028 | ||||||
Residential Real Estate |
216,442 | 220,854 | ||||||
Consumer and Other Loans |
16,981 | 19,027 | ||||||
633,630 | 646,348 | |||||||
Less: |
||||||||
Net deferred fees |
(408 | ) | (355 | ) | ||||
Allowance for loan losses |
(25,545 | ) | (21,342 | ) | ||||
Loans, Net |
$ | 607,677 | $ | 624,651 | ||||
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An analysis of the changes in the allowance for loan losses for the three and six month periods ended June 30, 2010(as restated) and 2009 was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance At Beginning Of Period |
$ | 23,491 | $ | 14,960 | $ | 21,342 | $ | 17,550 | ||||||||
Charge-Offs |
(6,871 | ) | (2,977 | ) | (8,190 | ) | (5,567 | ) | ||||||||
Recoveries |
425 | 9 | 452 | 9 | ||||||||||||
Provision For Loan Losses |
8,500 | 1,331 | 11,941 | 1,331 | ||||||||||||
Balance At End Of Period |
$ | 25,545 | $ | 13,323 | $ | 25,545 | $ | 13,323 | ||||||||
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 June 30, 2010 |
At December 31, 2009 |
|||||||
(Restated) | ||||||||
Collateral dependent loans identified as impaired: |
||||||||
Gross loans with no related allowance for losses (1) |
$ | 19,080 | $ | 22,386 | ||||
Gross loans with related allowance for losses recorded |
24,971 | 21,480 | ||||||
Less allowance on these loans |
(7,231 | ) | (5,401 | ) | ||||
Net loans with related allowances |
17,740 | 16,079 | ||||||
Net investment in collateral dependent impaired loans |
36,820 | 38,465 | ||||||
Noncollateral dependent loans identified as impaired: |
||||||||
Gross loans with no related allowance for losses |
555 | 5,220 | ||||||
Gross loans with related allowance for losses recorded |
14,407 | 18,103 | ||||||
Less allowance on these loans |
(6,250 | ) | (3,400 | ) | ||||
Net loans with related allowances |
8,157 | 14,703 | ||||||
Net investment in noncollateral dependent impaired loans |
8,712 | 19,923 | ||||||
Net investment in impaired loans |
$ | 45,532 | $ | 58,388 | ||||
(1) | Includes loans with partial charge-offs of $4,912 with net carrying values of $15,987 at June 30, 2010. |
Nonaccrual Loans
At June 30, 2010 and December 31, 2009, nonaccrual loans were as follows:
At June 30, 2010 |
At December 31, 2009 |
|||||||
Nonaccrual loans |
$ | 44,051 | $ | 46,949 | ||||
Past due ninety days or more, but still accruing |
111 | 10 | ||||||
$ | 44,162 | $ | 46,959 | |||||
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Note 5 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.
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 June 30, 2010, with off-balance-sheet risk was as follows:
Contract Amount | ||||
Unfunded loan commitments |
$ | 3,952 | ||
Unused lines of credit |
$ | 77,838 | ||
Standby letters of credit |
$ | 1,215 | ||
Note 6 Stock-Based Compensation Plan
Certain key employees and directors of the Company have options to purchase shares of the Companys common stock under its 2005 Stock Option Plan (the Plan) as amended. Under the plan, the total number of shares which may be issued shall not exceed 1,700,000. 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 June 30, 2010, 796,803 shares remain available for grant under the plan. 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 |
(196,000 | ) | 14.87 | |||||||||
Outstanding and exercisable at June 30, 2010 |
729,250 | $ | 15.19 | 6.4 years | ||||||||
There was no intrinsic value of options exercised during the six months ended June 30, 2010 as there were no options granted or exercised during this period.
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Note 7 Fair Values of Financial Instruments
The estimated fair values of the Companys financial instruments were as follows:
At June 30, 2010 (As Restated) |
At December 31, 2009 | |||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 34,853 | $ | 34,853 | $ | 29,361 | $ | 29,361 | ||||||||
Available-for-sale securities |
146,584 | 146,584 | 99,776 | 99,776 | ||||||||||||
Loans, net |
607,677 | 617,934 | 624,651 | 620,524 | ||||||||||||
Federal Home Loan Bank Stock |
5,417 | 5,417 | 5,417 | 5,417 | ||||||||||||
Federal Reserve Bank Stock |
2,579 | 2,579 | 3,000 | 3,000 | ||||||||||||
Accrued interest receivable |
2,555 | 2,555 | 2,429 | 2,429 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 670,149 | $ | 667,624 | $ | 630,403 | $ | 639,177 | ||||||||
Federal Home Loan Bank Advances |
77,700 | 86,105 | 81,700 | 86,919 | ||||||||||||
Accrued interest payable |
1,085 | 1,085 | 1,244 | 1,244 |
Financial assets subject to fair value measurements on a recurring basis are as follows:
Fair Value Measurements at June 30, 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 June 30, 2010: |
||||||||||||||||
Available for sale securities |
$ | 146,584 | $ | | $ | 146,584 | $ | | ||||||||
Fair Value Measurements at December 31, 2009 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 December 31, 2009: |
||||||||||||||||
Available for sale securities |
$ | 99,776 | $ | | $ | 99,776 | $ | | ||||||||
12
Table of Contents
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 Six Months Ended June 30, 2010 |
|||||||||||||||||||
As of June 30, 2010: |
||||||||||||||||||||||||
Impaired loans (1) (Restated) |
$ | 33,727 | | | $ | 33,727 | $ | 15,281 | $ | 5,454 | ||||||||||||||
Foreclosed real estate |
$ | 3,497 | | | $ | 3,497 | $ | 703 | $ | 642 | ||||||||||||||
(1) | Loans with a carrying value of $3.1 million were measured for impairment using Level 3 inputs and had fair value in excess of carrying value. |
Note 8 Comprehensive Loss
FASB Topic ASC 220, Comprehensive Income (Formerly SFAS No. 130), requires that certain transactions and other economic events that bypass the income statement be displayed as other comprehensive income. Comprehensive loss totaled $5.7 million for the three months ended June 30, 2010, and $1.4 million for the comparable period in 2009. Comprehensive loss totaled $7.9 million for the six months ended June 30, 2010 and $2.6 million for the comparable period in 2009. The Companys comprehensive income consists of net loss and changes in unrealized gains and losses on securities available-for-sale (net of income taxes).
Note 9 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 June 30, 2010, that the Company and the Bank met all capital adequacy requirements to which they were subject.
13
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As of June 30, 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 following table:
Actual | For Capital Adequacy Purposes |
For Well Capitalized Purposes |
||||||||||||||||||||||
As of June 30, 2010 (As Restated): | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
$ | 83,414 | 13.16 | % | $ | 50,725 | 8.00 | % | N/A | N/A | ||||||||||||||
Bank |
70,268 | 11.27 | % | 49,862 | 8.00 | % | $ | 62,327 | 10.00 | % | ||||||||||||||
Tier One Capital to Risk-Weighted Assets |
||||||||||||||||||||||||
Consolidated |
$ | 75,271 | 11.87 | % | $ | 25,362 | 4.00 | % | N/A | N/A | ||||||||||||||
Bank |
62,259 | 9.99 | % | 24,931 | 4.00 | % | $ | 37,396 | 6.00 | % | ||||||||||||||
Tier One Capital to Average Assets |
||||||||||||||||||||||||
Consolidated |
$ | 75,271 | 9.08 | % | $ | 33,144 | 4.00 | % | N/A | N/A | ||||||||||||||
Bank |
62,259 | 7.62 | % | 32,678 | 4.00 | % | $ | 40,847 | 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 10 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 during the three and six months ended June 30, 2010 and 11,086 and 10,419 for the three and six month ended June 30, 2009, respectively. Basic and diluted loss per share is the same for these interim periods because of the Companys net loss position.
Note 11 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.
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
14
Table of Contents
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.
In March 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging (Topic 815) Amendments to Subtopic 815-15, Derivatives and Hedging-Embedded Derivatives. Subtopic 815-15 is amended to clarify that the only type of embedded credit derivative features related to the transfer of credit risk that is exempt from derivative bifurcation requirement is one that is in the form of subordination of one financial instrument to another. As such, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination will need to assess those embedded derivatives to determine if bifurcation and separate accounting as a derivative is required. The amendments in this Update are effective as of the beginning of a reporting entitys first interim reporting period beginning after June 15, 2010. The adoption of this guidance is not expected to have a material effect on the Companys financial statements.
In April 2010, the FASB issued ASU No 2010-13, Compensation Stock Compensation (Topic 718) Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update provides clarification that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entitys equity securities trade should not be considered to contain a condition that is not a market, performance or service condition. Therefore, the award would be classified as an equity award if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The Company does not expect this guidance to have any impact on its financial statements.
In April 2010, the FASB issued ASU No. 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset. This update provides clarification that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This guidance becomes effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period on or after July 15, 2010 with early application permitted. The adoption of this new authoritative guidance under ASC Topic 310 is not expected to have a material impact on the Companys consolidated financial statements, results of operations or liquidity.
Additional new authoritative accounting guidance, ASU No. 2010-20, under ASC Topic 310, Receivables, requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and non-accrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolios risk and performance. This ASU is effective for interim and annual reporting periods after December 15, 2010.
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Note 12 Subsequent Event
On July 14, 2010, the Company and Anderen Financial, Inc. (AFI), entered into a definitive merger agreement pursuant to which the Company will acquire AFI in an all-stock transaction, and AFIs wholly owned subsidiary, Anderen Bank, will be merged into the Companys wholly owned subsidiary, Florida Bank. Each AFI shareholder will receive 1.32 shares of the Companys common stock for each AFI share of common stock owned. The transaction, approved by the boards of directors of both companies, is subject to regulatory and AFI shareholder approval and certain other closing conditions. The transaction is expected to close in the fourth quarter of this year.
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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 June 30, 2010, and for the three and six month periods ended June 30, 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 June 30, 2010 (as restated), the related condensed consolidated statements of operations and other comprehensive loss for the three and six month periods ended June 30, 2010 (as restated) and 2009, and the related condensed consolidated statements of changes in stockholders equity and cash flows for the six month periods ended June 30, 2010 (as restated) 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.
As described in Note 2 to the interim condensed consolidated financial statements, the Company has restated its previously issued interim condensed consolidated financial statements as of June 30, 2010 and for the three- and six-month periods then ended.
/s/ Hacker, Johnson & Smith PA |
HACKER, JOHNSON & SMITH PA |
Tampa, Florida |
August 13, 2010, except for Notes 2, 4, 7, 8 and 9 as
to which the date is February 16, 2011
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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.
These forward-looking statements are made based on expectations and beliefs concerning future events affecting us, including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from our proposed acquisition of Anderen Financial, Inc. by merger of its wholly owned subsidiary, Anderen Bank, into our wholly owned subsidiary, Florida Bank, as well as other statements of expectation regarding the proposed merger and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. We caution you that results and events subject to forward-looking statements could differ materially due to the following risk factors, among others: the risk that our business and that of Anderen Financial, Inc. in connection with the proposed merger will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the proposed merger may not be fully realized or realized within the expected time frame; revenues following the proposed merger may be lower than expected; customer and employee relationships and business operations may be disrupted by the proposed merger; the ability to obtain required governmental and shareholder approvals, and the ability to complete the proposed merger on the expected timeframe; possible changes in economic and business conditions; the existence or exacerbation of general geopolitical and economic instability and uncertainty; possible changes in monetary and fiscal policies, and laws and regulations; the effects of recently proposed legislation in the U.S. Congress on financial services reform; the cost and other effects of legal and administrative cases; possible changes in the credit worthiness of customers and the possible impairment of collectability of loans; the effects of changes in interest rates and other risk and factors identified in this Quarterly Report on Form 10-Q and our other filings with the SEC.
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 Annual Report on Form 10-K for the year ended December 31, 2009 and in this Quarterly Report on Form 10-Q.
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.
In this Quarterly Report on Form 10-Q, we may refer to Florida Bank Group, Inc. as the Holding Company, and to Florida Bank as the Bank. Collectively, we may refer to the Holding Company, the Bank and ACIC Properties, Inc. as we, us, or our.
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, 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 June 30, 2010, we had $863.8 million in total assets, including $607.7 million in net loans, and $670.1 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. We offer a wide range of commercial and retail banking and financial services to businesses and individuals.
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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. Our goal is to have a significant market share (as defined by deposits) among community banks, in 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. As part of our growth strategy, we may evaluate the purchase of certain branches from other institutions or whole bank acquisitions. In keeping with this particular strategy, on July 14, 2010, we entered into a definitive merger agreement with Anderen Financial, Inc. (AFI), pursuant to which we agreed to acquire AFI in an all-stock transaction, pursuant to which AFIs wholly owned subsidiary, Anderen Bank, will be merged into our wholly owned subsidiary, Florida Bank. Each AFI shareholder will receive 1.32 shares of the Companys common stock for each AFI share of common stock owned. The transaction, approved by the boards of directors of both companies, is subject to regulatory and AFI shareholder approval and certain other closing conditions. On a pro forma basis, the combined entities will have total assets of over $1 billion. The proposed merger will offer our clients additional convenience and a broader array of products and services in addition to providing us with access to a broader customer base. We believe that the combined company will benefit from greater efficiencies and economies of scale, which will result in an improved earnings outlook. Please see Note 12 to our June 30, 2010 Condensed Consolidated Financial Statements for further discussion.
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. For example, we believe that we can provide a higher level of personalized service than the large regional and national banks and more service capabilities than most of the smaller community banks.
QUARTERLY PERFORMANCE OVERVIEW
A summary overview of our financial performance for the second quarter of 2010 versus the second quarter of 2009 is provided below:
| For the three months ended June 30, 2010, we recorded a net loss available to common stockholders (net loss) of $7.1 million, or $0.50 per basic and diluted share. These results compared with a net loss of $0.8 million, or $0.07 per basic and diluted share for the same period in 2009. The increase in net losses for the 2010 period as compared to the 2009 period was mostly driven by an increase in our provision for loan losses and salary and benefit expense, as described in further detail below. |
| The loan loss provisions were $8.5 million and $1.3 million for the quarter ended June 30, 2010 and 2009, respectively. The provision for the current quarter reflects required additions to reserves for collateral devaluation on existing impaired loans and for newly impaired loans. |
| Noninterest expense increased $2.8 million or 52.3% from the second quarter of 2009. Higher expenses for salary and employee benefits, write down of foreclosed real estate and professional fees drove the increase over the comparable prior year quarter. |
| As of June 30, 2010, total assets were $863.8 million compared to $830.3 million at December 31, 2009, an increase of $33.5 million or 4.0%. The increase primarily results from a $46.8 million increase in investment securities and a $5.5 million increase in cash and cash equivalents. Most of the increase relates to increases in noninterest-bearing demand deposits ($23.7 million) and money market deposits ($19.9 million). These increases were offset in part by an $17.0 million decrease in net loans and a $5.3 million decrease in foreclosed real estate. The reduction in the net loan balance reflects a combination of decreased loan demand, increase in allowance for loan losses, loan payoffs and loan charge offs. |
| As of June 30, 2010 the allowance for loan losses totaled $25.5 million, or 4.0% of total loans compared to $21.3 million, or 3.3% of total loans as of December 31, 2009. The allowance represents 58.0% of non-performing loans at June 30, 2010, compared to 45.4% at December 31, 2009. |
| As of June 30, 2010, total deposits were $670.1 million, up $39.7 million or 6.3% compared to December 31, 2009. This increase was comprised of increases in noninterest-bearing deposits of $23.7 million and money market deposits of $19.8 million, offset in part by a $2.0 million decrease in interest-bearing demand and savings deposits and a $1.8 million decrease in time deposits. |
| Borrowed funds, consisting of Federal Home Loan Bank of Atlanta (FHLB) advances, totaled $77.7 million at June 30, 2010, compared to $81.7 million at December 31, 2009, a decrease of $4.0 million or 4.9%. |
| At June 30, 2010 and December 31, 2009, our capital ratios all surpassed regulatory measures to be considered well capitalized. |
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RESULTS OF OPERATIONS
Summary of Results of Operation for the Three Months Ended June 30, 2010 and 2009
Following is a condensed earnings summary for the three months ended June 30, 2010 and 2009 (in thousands, except per share amounts):
For the Three Months Ended | ||||||||||||||||
June 30, 2010 | June 30, 2009 | 2010 vs. 2009 | Change % | |||||||||||||
(As Restated) | ||||||||||||||||
Interest Income |
$ | 9,843 | $ | 10,354 | $ | (511 | ) | -4.9 | % | |||||||
Interest Expense |
4,077 | 5,593 | (1,516 | ) | -27.1 | % | ||||||||||
Net Interest Income |
5,766 | 4,761 | 1,005 | 21.1 | % | |||||||||||
Provision for Loan Losses |
8,500 | 1,331 | 7,169 | 538.6 | % | |||||||||||
Noninterest (expense) income |
(36 | ) | 569 | (605 | ) | -106.3 | % | |||||||||
Noninterest expenses |
8,064 | 5,294 | 2,770 | 52.3 | % | |||||||||||
Loss before income tax benefit |
(10,834 | ) | (1,295 | ) | (9,539 | ) | 736.6 | % | ||||||||
Income tax benefit |
(4,053 | ) | (500 | ) | (3,553 | ) | 710.6 | % | ||||||||
Net Loss |
(6,781 | ) | (795 | ) | (5,986 | ) | 753.0 | % | ||||||||
Preferred stock dividend and discount accretion |
(330 | ) | | (330 | ) | 0.0 | % | |||||||||
Net loss available to common stockholders |
$ | (7,111 | ) | $ | (795 | ) | $ | (6,316 | ) | 794.5 | % | |||||
Loss per common share - basic and diluted |
$ | (0.50 | ) | $ | (0.07 | ) | $ | (0.43 | ) | 594.8 | % | |||||
Selected Operating Ratios: |
||||||||||||||||
Return on Average Assets |
-3.32 | % | -0.37 | % | ||||||||||||
Return on Average Equity |
-25.64 | % | -3.13 | % | ||||||||||||
Equity to Assets Ratio |
12.22 | % | 13.14 | % |
Net Loss
Net loss available to common stockholders totaled $7.1 million ($0.50 per diluted share) for the three months ended June 30, 2010 compared to a net loss available to common stockholders of $0.8 million ($0.07 per diluted share) for the three months ended June 30, 2009. The factors affecting the $6.3 million increase are displayed in the table above. A more detailed discussion of each major component of our financial performance is provided below.
Net Interest Income
Net interest income represents our single largest source of earnings and is 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.
The $1.0 million increase in net interest income for the second quarter of 2010 compared to the 2009 period is the result of a $1.5 million decrease in interest expense offset in part by a $0.5 million decrease in interest income. 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. The average balance and interest rate paid on time deposits for the three month period ended June 30, 2010 was $357.2 million and 2.86% respectively, compared to an average balance and interest paid of $413.7 million and 3.72%, respectively, for the same period in 2009. In addition, we reduced our interest expense on borrowings through the early retirement and restructuring of certain higher cost advances from the FHLB.
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 $44.1 million at June 30, 2010, an increase of $17.8 million from the balance at June 30, 2009. Average loan balances were $638.9 million at June 30, 2010, a decrease of $18.1 million from the average loan balance at June 30, 2009.
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The following table reflects the components of net interest income, setting forth for the three month periods presented, (1) average assets, liabilities and shareholders equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets):
($ in thousands)
($ in thousands) | ||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
(As Restated) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Loans |
$ | 638,928 | $ | 8,664 | 5.44 | % | $ | 657,007 | $ | 9,332 | 5.70 | % | ||||||||||||
Securities available for sale |
128,707 | 1,114 | 3.47 | % | 86,458 | 926 | 4.30 | % | ||||||||||||||||
Other interest-earning assets |
31,994 | 65 | 0.81 | % | 68,479 | 96 | 0.56 | % | ||||||||||||||||
Total Earning Assets |
799,629 | 9,843 | 4.94 | % | 811,944 | 10,354 | 5.11 | % | ||||||||||||||||
Cash & Due from Banks |
10,331 | 5,031 | ||||||||||||||||||||||
Allowance For Loan Losses |
(25,520 | ) | (13,991 | ) | ||||||||||||||||||||
Other Assets |
72,086 | 58,950 | ||||||||||||||||||||||
Total Assets |
$ | 858,526 | $ | 861,934 | ||||||||||||||||||||
LIABILITIES |
||||||||||||||||||||||||
Demand |
$ | 68,502 | $ | 157 | 0.92 | % | $ | 38,599 | $ | 87 | 0.90 | % | ||||||||||||
Savings |
12,862 | 21 | 0.65 | % | 12,084 | 40 | 1.33 | % | ||||||||||||||||
Money Market |
162,412 | 559 | 1.38 | % | 153,132 | 759 | 1.99 | % | ||||||||||||||||
Time |
357,165 | 2,547 | 2.86 | % | 413,722 | 3,841 | 3.72 | % | ||||||||||||||||
Total Interest Bearing Deposits |
600,941 | 3,284 | 2.19 | % | 617,537 | 4,727 | 3.07 | % | ||||||||||||||||
FHLB advances |
77,711 | 793 | 4.09 | % | 83,486 | 866 | 4.16 | % | ||||||||||||||||
Other borrowings |
11 | | 0.00 | % | 246 | | 0.00 | % | ||||||||||||||||
Total Interest Bearing Liabilities |
678,663 | 4,077 | 2.41 | % | 701,269 | 5,593 | 3.20 | % | ||||||||||||||||
Noninterest bearing Deposits |
62,989 | 56,323 | ||||||||||||||||||||||
Other Liabilities |
5,635 | 2,430 | ||||||||||||||||||||||
Total Liabilities |
747,287 | 760,022 | ||||||||||||||||||||||
Total Shareholders Equity |
111,239 | 101,912 | ||||||||||||||||||||||
Total Liabilities & Shareholders Equity |
$ | 858,526 | $ | 861,934 | ||||||||||||||||||||
Interest Rate Spread |
2.53 | % | 1.91 | % | ||||||||||||||||||||
Net Interest Income |
$ | 5,766 | $ | 4,761 | ||||||||||||||||||||
Net Interest Margin |
2.89 | % | 2.35 | % | ||||||||||||||||||||
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. We believe that our net interest margins will expand because our term deposits, mostly CDs, are being renewed at a lower interest rate, thereby reducing our interest expense. 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 June 30, 2010, was $8.5 million compared to $1.3 million for the quarter ended June 30, 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, a reduction in the fair values of loan collateral and an increase in our loan loss factors compared to the same period in 2009. Our nonperforming loans were $44.1 million as of June 30, 2010, compared to $26.3 million as of June 30, 2009. Charge-offs in the second quarter of 2010 totaled $6.9 million compared to $3.0 million in the same period in 2009. At June 30, 2010, the allowance for loan losses, at $25.5 million, was 4.0% of outstanding loans (net of overdrafts) and provided coverage of 58.0% of nonperforming loans. At June 30, 2009, the allowance for loan losses was $23.5 million, representing 3.6% of outstanding loans (net of overdrafts) and provided coverage of 81.2% of nonperforming loans.
The continued local economic contraction is evidenced by continued high unemployment levels in the markets in which we operate. Foreclosures and distressed sales continue to negatively impact the value of local 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 continued to exhibit difficulty in timely payment of their loan obligations. However, we believe that this trend may be nearing a plateau evidenced by the recent downward trend in state and local unemployment rates. In addition, recent studies have indicated that the state housing markets are making strides towards recovery from the sweeping downturn. We have also seen a slight decrease in our nonperforming loans compared to the first quarter of 2010. Notwithstanding these positive signals, we cannot be sure that this trend will continue. 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.
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 decreased from income of $0.6 million for the three months ended June 30, 2009, to a loss of $36 thousand for the three months ended June 30, 2010. The decrease is primarily due the recognition of an other-than- temporary impairment (OTTI) on securities available for sale of $0.5 million in addition to losses of $0.1 million on the sales of securities available for sale. See expanded discussion below under the section titled OTTI.
Noninterest Expense
The table below reflects the major components of noninterest expense (in thousands):
Three Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Salaries and employee benefits |
$ | 3,904 | $ | 2,120 | ||||
Occupancy |
1,385 | 1,410 | ||||||
Data Processing |
309 | 450 | ||||||
Stationary, printing and supplies |
82 | 84 | ||||||
Business development |
109 | 97 | ||||||
Insurance, including deposit insurance premium |
513 | 463 | ||||||
Professional fees |
576 | 135 | ||||||
Marketing |
23 | 37 | ||||||
FHLB advance prepayment penalties |
| 6 | ||||||
Loss on sale of foreclosed real estate |
135 | | ||||||
Write-down of foreclosed real estate |
600 | | ||||||
Foreclosed real estate expense |
134 | 184 | ||||||
Other |
294 | 308 | ||||||
Total noninterest expenses |
$ | 8,064 | $ | 5,294 | ||||
The $2.8 million, or 52.3%, increase in noninterest expense for the three months ended June 30, 2010, compared to the same period in 2009 was mostly due to higher salary and employee benefit expense of $1.8 million, which was primarily due to an increase in the number of employees resulting from the opening of two new branch locations towards the end of the second quarter of 2009, an increase in professional fees of $0.4 million mostly related to merger activities and a write down of foreclosed real estate of $0.6 million. These increases were offset, in part, by a $0.1 million decrease in data processing expenses.
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Preferred Stock Dividend Requirements
On July 24, 2009, the Holding 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% per annum of the outstanding principal during the first five years the issue is outstanding after which the dividend rate increases to 9% per annum. The terms of the Series B preferred stock require quarterly dividend payments of 9% per annum of the outstanding principal. Preferred stock dividend requirements and discount accretion for the quarter ended June 30, 2010 totaled $330,000.
Summary of Results of Operation for the Six Months Ended June 30, 2010 and 2009
Following is a condensed earnings summary for the six months ended June 30, 2010 and 2009 (in thousands, except per share amounts):
For the Six Months Ended | ||||||||||||||||
June 30, 2010 | June 30, 2009 | 2010 vs. 2009 | Change % | |||||||||||||
(As Restated) | ||||||||||||||||
Interest Income |
$ | 19,427 | $ | 20,638 | $ | (1,211 | ) | -5.9 | % | |||||||
Interest Expense |
8,250 | 11,623 | (3,373 | ) | -29.0 | % | ||||||||||
Net Interest Income |
11,177 | 9,015 | 2,162 | 24.0 | % | |||||||||||
Provision for Loan Losses |
11,941 | 1,331 | 10,610 | 797.1 | % | |||||||||||
Noninterest income |
548 | 1,035 | (487 | ) | -47.1 | % | ||||||||||
Noninterest expenses |
14,733 | 11,703 | 3,030 | 25.9 | % | |||||||||||
Loss before income tax benefit |
(14,949 | ) | (2,984 | ) | (11,965 | ) | 401.0 | % | ||||||||
Income tax benefit |
(5,602 | ) | (1,123 | ) | (4,479 | ) | 398.8 | % | ||||||||
Net Loss |
(9,347 | ) | (1,861 | ) | (7,486 | ) | 402.3 | % | ||||||||
Preferred stock dividend and discount accretion |
(659 | ) | | (659 | ) | 0.0 | % | |||||||||
Net loss available to common stockholders |
$ | (10,006 | ) | $ | (1,861 | ) | $ | (8,145 | ) | 437.7 | % | |||||
Loss per common share - basic and diluted |
$ | (0.70 | ) | $ | (0.18 | ) | $ | (0.52 | ) | 290.9 | % | |||||
Selected Operating Ratios: |
||||||||||||||||
Return on Average Assets |
-2.39 | % | -0.44 | % | ||||||||||||
Return on Average Equity |
-17.95 | % | -3.80 | % | ||||||||||||
Equity to Assets Ratio |
12.22 | % | 13.14 | % |
Net Loss
Net loss available to common stockholders totaled $10.0 million ($0.70 per diluted share) for the six months ended June 30, 2010 compared to a net loss available to common stockholders of $1.9 million ($0.18 per diluted share) for the six months ended June 30, 2009. The factors affecting the $8.1 million increase are displayed in the table above. A more detailed discussion of each major component of our financial performance is provided below.
Net Interest Income before Provision for Loan Losses
The $2.2 million increase in net interest income before provision for loan losses for the six months ended June 30, 2010, compared to the same period in 2009 is the result of a $3.4 million decrease in interest expense offset in part by a $1.2 million decrease in interest income. 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 half of 2010 were generally re-priced into a much lower interest rate environment. The average balance and interest rate paid on time deposits for the six month period ended June 30, 2010 was $353.4 million and 2.95%, respectively compared to an average balance and interest paid of $428.8 million and 3.80%, respectively, for the same period in 2009. In addition, we reduced our interest expense on borrowings through the early retirement and restructuring of certain higher cost advances from the FHLB.
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 $44.1 million at June 30,
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2010, an increase of $17.8 million from the balance at June 30, 2009. The average loan balance for the six month period ended June 30, 2010, was $641.9 million, a decrease of $21.3 million from the average loan balance for the six month period ended June 30, 2009.
The following table reflects the components of net interest income, setting forth for the six month periods presented, (1) average assets, liabilities and shareholders equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets):
($ in thousands) | ||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
(As Restated) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Loans |
$ | 641,884 | $ | 17,228 | 5.41 | % | $ | 663,213 | $ | 18,675 | 5.68 | % | ||||||||||||
Securities available for sale |
113,324 | 2,073 | 3.69 | % | 80,695 | 1,801 | 4.50 | % | ||||||||||||||||
Other interest-earning assets |
29,414 | 126 | 0.86 | % | 68,440 | 162 | 0.48 | % | ||||||||||||||||
Total Earning Assets |
784,622 | 19,427 | 4.99 | % | 812,348 | 20,638 | 5.12 | % | ||||||||||||||||
Cash & Due from Banks |
9,630 | 6,937 | ||||||||||||||||||||||
Allowance For Loan Losses |
(22,373 | ) | (15,395 | ) | ||||||||||||||||||||
Other Assets |
71,691 | 58,006 | ||||||||||||||||||||||
Total Assets |
$ | 843,570 | $ | 861,896 | ||||||||||||||||||||
LIABILITIES |
||||||||||||||||||||||||
Demand |
$ | 65,938 | $ | 322 | 0.98 | % | $ | 44,192 | $ | 220 | 1.00 | % | ||||||||||||
Savings |
12,323 | 41 | 0.67 | % | 11,452 | 77 | 1.36 | % | ||||||||||||||||
Money Market |
154,052 | 1,090 | 1.43 | % | 134,660 | 1,436 | 2.15 | % | ||||||||||||||||
Time |
353,426 | 5,174 | 2.95 | % | 428,838 | 8,075 | 3.80 | % | ||||||||||||||||
Total Interest Bearing Deposits |
585,739 | 6,627 | 2.28 | % | 619,142 | 9,808 | 3.19 | % | ||||||||||||||||
FHLB advances |
79,634 | 1,623 | 4.11 | % | 87,247 | 1,815 | 4.20 | % | ||||||||||||||||
Other borrowings |
36 | | 0.00 | % | 762 | | 0.00 | % | ||||||||||||||||
Total Interest Bearing Liabilities |
665,409 | 8,250 | 2.50 | % | 707,151 | 11,623 | 3.31 | % | ||||||||||||||||
Noninterest bearing Deposits |
60,817 | 51,365 | ||||||||||||||||||||||
Other Liabilities |
4,906 | 4,594 | ||||||||||||||||||||||
Total Liabilities |
731,132 | 763,110 | ||||||||||||||||||||||
Total Shareholders Equity |
112,438 | 98,786 | ||||||||||||||||||||||
Total Liabilities & Shareholders Equity |
$ | 843,570 | 861,896 | |||||||||||||||||||||
Interest Rate Spread |
2.49 | % | 1.81 | % | ||||||||||||||||||||
Net Interest Income |
$ | 11,177 | $ | 9,015 | ||||||||||||||||||||
Net Interest Margin |
2.87 | % | 2.24 | % | ||||||||||||||||||||
Provision for Loan Losses
The provision for loan losses for the six months ended June 30, 2010, was $11.9 million compared to $1.3 million for the six month period ended June 30, 2009. The increase in the provision for loan losses reflects a continued increase in nonperforming loans, the continued erosion in the fair values of loan collateral and an increase in our loan loss factors compared to the same period in 2009. Our nonperforming loans were $44.1 million as of June 30, 2010, compared to $26.3 million as of June 30, 2009. Net charge-offs during the six month period ended June 30, 2010 totaled $7.7 million compared to $5.6 million in the same period in 2009. See above for a discussion of allowance for loan losses coverage and a discussion of economic factors effect on our loan loss reserves.
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Noninterest Income
The decrease in noninterest income of $0.5 million for the six months ended June 30, 2010, compared to the six months ended June 30, 2009, was mostly due the recognition of an OTTI and the recognition of a loss on the sale of securities available for sale. These losses were offset, in part, by increases in bank fees. See the expanded discussion below under the section titled OTTI.
Noninterest Expense
The table below reflects the major components of noninterest expense (in thousands):
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Salaries and employee benefits |
$ | 7,495 | $ | 4,537 | ||||
Occupancy |
2,736 | 2,799 | ||||||
Data Processing |
599 | 822 | ||||||
Stationary, printing and supplies |
159 | 140 | ||||||
Business development |
202 | 152 | ||||||
Insurance, including deposit insurance premium |
1,004 | 860 | ||||||
Professional fees |
913 | 292 | ||||||
Marketing |
37 | 55 | ||||||
FHLB advance prepayment penalties |
41 | 1,296 | ||||||
Loss on sale of foreclosed real estate |
135 | 44 | ||||||
Write-down of foreclosed real estate |
642 | | ||||||
Foreclosed real estate expense |
186 | 208 | ||||||
Other |
584 | 498 | ||||||
Total noninterest expenses |
$ | 14,733 | $ | 11,703 | ||||
The $3.0 million, or 25.9% increase in noninterest expense for the six months ended June 30, 2010 compared to the same period in 2009 was primarily due to higher salary and employee benefit expense of $3.0 million, which primarily resulted due from an increase in the number of employees in connection with the opening of two new branch locations towards the end of the second quarter of 2009, an increase in professional fees of $0.6 million, mostly related to merger activities and public company related expenses, and a write down of foreclosed real estate of $0.6 million. These increases were offset in part by a decrease in FHLB prepayment penalties of $1.3 million.
FINANCIAL CONDITION
Total assets at June 30, 2010 were $863.8 million, an increase of $33.5 million or 4.0%, from total assets of $830.3 million at December 31, 2009. Total cash and cash equivalents at June 30, 2010 were $34.9 million, an increase of $5.5 million, or 18.7%, from cash and cash equivalents of $29.4 million at December 31, 2009. Investment securities available for sale increased $46.8 million, or 46.9%, to $146.6 million at June 30, 2010 from $99.8 million at December 31, 2009. The increases in cash and in investment securities available for sale mostly resulted from increases in our money market and time deposits. Our net loans decreased $17.0 million, or 2.7%, to $607.7 million at June 30, 2010 from $624.7 million at December 31, 2009. The decrease in net loans was primarily due to net charge-offs and additions to allowance for loan losses. Foreclosed real estate decreased $5.3 million or 60.1% at June 30, 2010, compared to December 31, 2009, primarily as a result of sales of certain foreclosed properties.
Total liabilities at June 30, 2010 increased $41.3 million to $758.3 million from $717.0 million at December 31, 2009. The change reflects an increase in total deposits of $39.7 million and an increase in accrued expenses of $5.5 million, offset in part by a $4.0 million decrease in FHLB advances. The increases in deposits are attributable to increases of $23.7 million in noninterest-bearing demand deposits and $19.9 million in money market deposits, offset in part by decreases in savings and time deposits.
Total stockholders equity decreased $7.8 million to $105.6 million at June 30, 2010 from $113.4 million at December 31, 2009. The decrease reflects a net loss of $9.3 million and preferred stock dividends and discount accretion of $0.6 million, offset by a change in unrealized holding gains on available-for-sale securities of $2.1 million.
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Loans and Non-Performing Assets
Loan Portfolio.
Our loan portfolio consists principally of loans to individuals and small and medium-sized businesses within our primary market areas of greater Tampa Bay, Jacksonville and Tallahassee, Florida. The table below shows our loan portfolio composition for the periods presented:
($ in Thousands)
As of | ||||||||
June 30, 2010 | December 31, 2009 | |||||||
(As Restated) | ||||||||
Commercial |
$ | 59,995 | $ | 63,439 | ||||
Commercial Real Estate (1) |
340,212 | 343,028 | ||||||
Residential Real Estate |
216,442 | 220,854 | ||||||
Consumer and Other Loans |
16,981 | 19,027 | ||||||
633,630 | 646,348 | |||||||
Less: |
||||||||
Net deferred fees |
(408 | ) | (355 | ) | ||||
Allowance for loan losses |
(25,545 | ) | (21,342 | ) | ||||
Loans, Net |
$ | 607,677 | $ | 624,651 | ||||
(1) | Includes $128.1 million and $132.7 million of owner-occupied nonresidential properties at June 30, 2010 and December 31, 2009, respectively. |
The overall decrease in gross loans was primarily the result of net charge-offs, additions to the allowance for loan losses and loan payoffs by customers.
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.
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As of June 30, 2010, we held an allowance for loan losses of $25.5 million or 4.0% of total loans compared to the allowance for loan losses of $21.3 million or 3.3% of total loans at December 31, 2009. Based on an analysis performed by management, as of June 30, 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 sustained weakness in asset values, particularly real estate, we recorded loan loss provisions totaling $11.9 million during the first six months of 2010 which, when offset by net charge-offs of $7.7 million in the same period, resulted in a $4.2 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):
June 30, 2010 | December 31, 2009 | |||||||
(As Restated) | ||||||||
Specific Reserves: |
||||||||
Impaired loans with no specific reserves |
$ | 19,635 | $ | 27,606 | ||||
Impaired loans with specific reserves |
39,378 | 39,583 | ||||||
Total impaired loans |
$ | 59,013 | $ | 67,189 | ||||
Reserve |
$ | 13,481 | $ | 8,801 | ||||
Reserve % of impaired loans |
22.84 | % | 13.10 | % | ||||
General Reserves |
||||||||
Loans subject to general reserve |
$ | 574,617 | $ | 579,159 | ||||
Reserve |
$ | 12,064 | $ | 12,542 | ||||
Reserve % of loans |
2.10 | % | 2.17 | % |
During the three and six months ended June 30, 2010 and 2009, the activity in our loan loss allowance was as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Balance At Beginning Of Period |
$ | 23,491 | $ | 14,960 | $ | 21,342 | $ | 17,550 | ||||||||
Charge-Offs |
(6,871 | ) | (2,977 | ) | (8,190 | ) | (5,567 | ) | ||||||||
Recoveries |
425 | 9 | 452 | 9 | ||||||||||||
Provision For Loan Losses |
8,500 | 1,331 | 11,941 | 1,331 | ||||||||||||
Balance At End Of Period |
$ | 25,545 | $ | 13,323 | $ | 25,545 | $ | 13,323 | ||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Charge-Offs: |
||||||||||||||||
Commercial |
$ | (104 | ) | $ | | $ | (121 | ) | $ | (202 | ) | |||||
Commercial Real Estate |
(3,874 | ) | (2,046 | ) | (4,959 | ) | (2,324 | ) | ||||||||
Residential Mortgage |
(2,509 | ) | (926 | ) | (2,704 | ) | (2,974 | ) | ||||||||
Consumer and Other Loans |
(384 | ) | (5 | ) | (406 | ) | (67 | ) | ||||||||
$ | (6,871 | ) | $ | (2,977 | ) | $ | (8,190 | ) | $ | (5,567 | ) | |||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Recoveries: |
||||||||||||||||
Commercial |
$ | 352 | $ | 1 | $ | 363 | $ | 1 | ||||||||
Commercial Real Estate |
4 | | 4 | | ||||||||||||
Residential Mortgage |
69 | 8 | 85 | 8 | ||||||||||||
Consumer and Other Loans |
| | | | ||||||||||||
$ | 425 | $ | 9 | $ | 452 | $ | 9 | |||||||||
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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):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
(As Restated) | ||||||||||||||||
Commercial |
$ | 3,350 | 9.47 | % | $ | 2,136 | 9.81 | % | ||||||||
Commercial Real Estate |
16,733 | 53.69 | % | 13,081 | 53.07 | % | ||||||||||
Residential Mortgage |
4,942 | 34.16 | % | 5,393 | 34.17 | % | ||||||||||
Consumer and Other Loans |
520 | 2.68 | % | 732 | 2.95 | % | ||||||||||
Total allowance |
$ | 25,545 | 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. During the economic slowdown discussed above, some of our customers have exhibited difficulty in timely payment of their loan obligations. We believe that this trend will reach a plateau in the near term, although we are not certain. 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 and six months ended June 30, 2010, foreclosed real estate decreased $3.3 million and $5.3 million, respectively, 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.
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 | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Non-Accrual |
$ | 44,051 | $ | 46,949 | ||||
Non-performing restructured Loans |
| | ||||||
Total Non-Performing Loans |
44,051 | 46,949 | ||||||
Foreclosed Real estate |
3,497 | 8,761 | ||||||
Total Non-Performing Assets |
$ | 47,548 | $ | 55,710 | ||||
Non-Performing Loans as a Percentage of Total Loans, net of Deferred Fees |
6.96 | % | 7.27 | % | ||||
Non-Performing Assets as a Percentage of Total Assets |
5.48 | % | 6.61 | % | ||||
Past Due 90 or more days and still accruing |
$ | 111 | $ | 10 | ||||
As of June 30, 2010, we had $15.0 million in restructured loans, or TDRs, that are in compliance with their modified terms. The criteria for a TDR 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 TDR 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.
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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 objective in managing our liquidity is to maintain our ability to meet all our cash flow requirements without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and monitored by our Asset Liability Committee (ALCO) and senior management, and which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness.
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, depending on our cash-flow requirements and other factors we consider.
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 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. All of these funding sources are part of the Banks contingency plans in the event of extraordinary fluctuations in cash resources.
The Bank has unsecured overnight federal funds purchased accommodation up to a maximum of $6.0 million from our correspondent banks. Further, the Bank has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank on these credit lines is based on the amount of collateral pledged and limited by a percentage of the Banks total assets as reported on its most recent quarterly financial information submitted to the regulators. As of June 30, 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 June 30, 2010 was approximately $46.5 million.
As of June 30, 2010, we had unfunded loan commitments of $4.0 million and unused lines and letters of credit totaling approximately $79.1 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 above.
As of June 30, 2010 our gross loan to deposit ratio was 94.5% 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. We believe that based on current forecasts operating cash flows and available sources of liquidity will be sufficient to meet all operating needs, including planned capital expenditures for the next 12 to 18 months.
Major sources of increases and decreases in cash and cash equivalents were as follows for the six months ending June 30, 2010 and 2009:
(Dollars in thousands) | June 30, 2010 |
June 30, 2009 |
||||||
Provided by (used in) operating activities |
$ | 5,289 | $ | (3,620 | ) | |||
Used in investing activities |
(34,987 | ) | (5,243 | ) | ||||
Provided by financing activities |
35,190 | 1,649 | ||||||
Net increase (decrease) in cash and cash equivalents |
$ | 5,492 | $ | (7,214 | ) | |||
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Operating Activities
Net cash provided by operating activities of continuing operations was $5.3 million for the six months ended June 30, 2010, compared to cash used by operating activities of $3.6 million for the same period in 2009. The $8.9 million improvement is mostly attributable to a $0.5 million increase in net income, adjusted for non-cash items, $0.7 million of increase from official checks and $7.8 million from an increase in accrued expenses and other liabilities, primarily resulting from escrowed funds.
Investment Activities
Cash flows used in investing activities was $35.0 million for the six months ended June 30, 2010, compared to $5.2 million for the six months ended June 30, 2009. Significant cash flows used in investment activities for the six months ended June 30, 2010, primarily related to $58.3 million for the purchase of securities available for sale, offset in part by $13.9 million provided from proceeds from the maturities, sales and repayments of securities available for sale, in addition to $7.2 million provided from proceeds from the sale of foreclosed real estate and $2.4 million provided by a decrease in loans. Significant cash flows used in investment activities for the six months ended June 30, 2009 included $37.3 million for purchases of securities available for sale, offset in part by $21.2 million provided from the proceeds from the maturities, sales and repayments of securities available for sale, in addition to $9.7 million provided by a decrease in loans.
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 June 30, 2010, our securities portfolio totaled $146.6 million compared to $99.8 million as of December 31, 2009, an increase of $46.8 million. For both periods, all of our securities were classified as available for sale. The increase in the investment portfolio during the first six months of 2010 is primarily due to the purchase of government sponsored mortgaged-backed securities. We do not actively trade securities and do not expect to do so in the future.
The following table sets forth the carrying amount of our investment portfolio, as of the periods indicated:
($ in Thousands)
Balance as of | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Fair value of investment in: |
||||||||
Mortgage backed securities |
$ | 142,250 | $ | 95,278 | ||||
Corporate bonds |
4,279 | 4,196 | ||||||
Asset backed securities |
55 | 302 | ||||||
Total |
$ | 146,584 | $ | 99,776 | ||||
Federal Reserve Bank stock |
$ | 2,579 | $ | 3,000 | ||||
Federal Home Loan Bank stock |
$ | 5,417 | $ | 5,417 | ||||
OTTI
As of December 31, 2009, we owned approximately $641,000 of asset backed securities at amortized cost. During the first six months of 2010, the estimated fair value of certain of these securities declined due to changes in the cash flow and discount rate assumptions used to estimate the value of these securities and we determined that the further declines in values were other than temporary under generally accepted accounting principles. As a result, we recorded $549,000 of OTTI loss.
Please see Note 7 to our June 30, 2010 Condensed Consolidated Financial Statements for a discussion on Other Comprehensive Loss related to our securities classified as available-for-sale.
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Financing Activities
The Banks primary source of funds is deposits. Those deposits are provided by businesses, municipalities, and individuals located within the markets served by the Bank. For the six months ended June 30, 2010, total deposits increased $39.7 million to $670.1 million compared to $630.4 million as of December 31, 2009.
For the six months ended June 30, 2010 and 2009 the distribution by type of our deposit accounts was as follows (in thousands):
As of June 30, 2010 | As of June 30, 2009 | |||||||||||||||||||||||
Average Balance |
Interest | Average Rate |
Average Balance |
Interest | Average Rate |
|||||||||||||||||||
Noninterest bearing accounts |
$ | 60,817 | $ | | 0.00 | % | $ | 51,365 | $ | | 0.00 | % | ||||||||||||
Interest bearing accounts: |
||||||||||||||||||||||||
Savings, Now and MMKT |
232,313 | 1,453 | 1.26 | % | 190,304 | 1,733 | 1.84 | % | ||||||||||||||||
CDs |
353,426 | 5,174 | 2.95 | % | 428,838 | 8,075 | 3.80 | % | ||||||||||||||||
Total Interest Bearing Deposits |
585,739 | 6,627 | 2.28 | % | 619,142 | 9,808 | 3.19 | % | ||||||||||||||||
Average Total Deposits |
$ | 646,556 | $ | 6,627 | 2.07 | % | $ | 670,507 | $ | 9,808 | 2.95 | % | ||||||||||||
Brokered deposits included in total deposits |
$ | 67,079 | $ | 95,783 | ||||||||||||||||||||
Brokered deposits as a percentage of total deposits |
10.37 | % | 14.29 | % | ||||||||||||||||||||
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.
As of June 30, 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 June 30, 2010 and December 31, 2009 for the Company and the Bank:
As of June 30, 2010 (As Restated) |
As of December 31, 2009 |
Minimum to be Well Capitalized |
||||||||||
Total Risk Based Capital Ratio - Consolidated |
13.16 | % | 15.01 | % | N/A | |||||||
Total Risk Based Capital Ratio - Bank |
11.27 | % | 12.34 | % | 10.00 | % | ||||||
Tier One Risk Based Capital Ratio - Consolidated |
11.87 | % | 13.74 | % | N/A | |||||||
Tier One Risk Based Capital Ratio - Bank |
9.99 | % | 11.07 | % | 6.00 | % | ||||||
Tier One Leverage Ratio - Consolidated |
9.08 | % | 10.64 | % | N/A | |||||||
Tier One Leverage Ratio - Bank |
7.62 | % | 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. Please see Note 4 to our June 30, 2010 Condensed Consolidated Financial Statements for further discussion
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Critical Accounting Estimates.
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 that 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 that it believes is consistent with SEC, GAAP, and bank regulatory requirements. These accounting rules require specific identification of an allowance for loan loss for an impaired loan. The Bank applies a systematic methodology where the allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The following provides a summary of the 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 solely 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 that are deemed to be not solely collateral dependent, a reserve for impairment is established equal to the excess of the loan balance over 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 reflected 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 have impacted our results in prior years presented, or may likely impact our results in 2010. Please refer to Note 10 in the Notes to our Condensed Consolidated Financial Statements for the period ended June 30, 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.
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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 were no changes in our internal controls over financial reporting during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Based on the determination to revise our financial statements for periods noted above, we, with the assistance of an outside advisory firm, initiated a process to reassess the effectiveness of the design and operations of our internal controls over financial reporting. This process included, among other things, a thorough review and documentation of our procedures and controls with respect to timing of the procurement of information relating to the review and analysis of our loan loss reserves. As a result of the review and the implementation of process enhancements recommended by our outside advisory firm, we believe that as of the date of filing of this Form10-Q/A the consolidated financial statements included in this Form 10-Q/A present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented and that our disclosure controls and procedures are effective.
In designing and evaluating disclosure controls and procedures, the our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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 |
The following additional risk factors are not contained in the Companys 2009 Annual Report on Form 10-K for the year ended December 31, 2009.
If we are not successful in integrating AFI into our own business, then the benefits of the merger will not be fully realized and the market price of our common stock may be negatively affected.
We may not achieve successful integration of Anderen in a timely manner, or at all, and we may not realize the benefits and synergies of the merger to the extent, or in the timeframe, anticipated. We entered into the merger agreement with the expectation that the merger will result in benefits arising out of the combination of the companies. The successful integration of us and Anderen will require, among other things, integration of Anderens assets and operations into our company. It is possible that the integration process could result in the loss of key employees, diversion of our managements attention, the disruption or interruption of, or the loss of momentum in, our ongoing business or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect the business and financial results of the combined company and, as a result, adversely affect the market price of our common stock.
We expect to incur significant costs and commit significant management time integrating Anderens business operations, technology, development programs, products and personnel with ours. If we do not successfully integrate the business of Anderen, the expenditure of these costs will reduce our cash position.
The merger is subject to closing conditions that could result in the completion of the merger being delayed or not consummated, which could negatively impact our future business and operations.
Completion of the merger is conditioned upon Anderen and us satisfying closing conditions, including adoption of the merger agreement by Anderens shareholders and approval by the Board of Governors of the Federal Reserve System or its delegee, which is our primary federal banking regulator, and the Office of Financial Regulation for the State of Florida, our primary state banking regulator, all as set forth in the merger agreement. The required conditions to closing may not be satisfied in a timely manner, if at all, or, if permissible, waived, and the merger may not be consummated. Failure to consummate the merger could negatively impact our future business and operations, and financial condition. Any delay in the consummation of the merger or any uncertainty about the consummation of the merger may adversely affect our future business, growth, revenue and results of operations.
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We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.
We are subject to extensive regulation, supervision, and legislation that governs almost all aspects of our operations. Intended to protect customers, depositors and deposit insurance funds, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividends or distributions that the Bank can pay to the Holding Company, restrict the ability of the Bank to guarantee Holding Companys debt, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. Further, our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to additional restrictions on its business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities.
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law. The Dodd-Frank Act will have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, include, among others:
| a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards; |
| increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums; |
| the limitation on our ability to raise capital through the use of trust preferred securities, as these securities may no longer be included as Tier 1 capital going forward; and |
| the limitation on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations. |
Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.
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
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Item 6. | Exhibits |
Exhibit No. |
Description | |
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 16th day of February, 2011.
FLORIDA BANK GROUP, INC. | ||||
Date: February 16, 2011 |
By: | /s/ JOHN R. GARTHWAITE | ||
John R. Garthwaite, | ||||
Chief Financial Officer, Executive Vice President |
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