UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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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 0-24172
SOUTHEASTERN BANK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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GEORGIA
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58-2005097 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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3530 Wheeler Road |
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Augusta, Georgia
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30909 |
(Address of principal executive offices)
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(Zip Code) |
(706) 738-6990
(Registrants telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $3.00 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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 definition of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller Reporting Company þ |
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(do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
As of June 30, 2009, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $47,606,003 based on the closing sale price of $15.50 per
share as reported on the Over the Counter Bulletin Board.
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Class
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Outstanding at February 17, 2010 |
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Common Stock, $3 par value per share
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6,673,352 shares |
DOCUMENTS INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated |
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Proxy Statement for the Annual Meeting of Shareholders to
be held
April 28, 2010
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Part III |
TABLE OF CONTENTS
Introductory Note: Due to market conditions affecting the financial services industry and the
Registrant during 2009, the aggregate market value of the Registrants common stock held by
non-affiliates (its public float) fell below $50 million as of June 30, 2009. As a result, the
Company has exited accelerated filer status and is now classified as a smaller reporting
company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Company
has elected, however, to file a report and attestation as to its internal controls over financial
reporting and otherwise comply voluntarily, as to the disclosure contained in this Annual Report on
Form 10-K, with the requirements applicable to an accelerated filer.
Item 1. Description of Business
General
Southeastern Bank Financial Corporation (the Company) is a Georgia corporation that is a
bank holding company registered with the Board of Governors of the Federal Reserve System (the
Federal Reserve) under the Bank Holding Company Act of 1956, as amended (the BHCA). The
Company had total consolidated assets of $1.5 billion, total deposits of $1.3 billion and total
stockholders equity of $93.7 million at December 31, 2009. The Company has two wholly-owned
subsidiaries that primarily do business in the Augusta-Richmond County, GA-SC metropolitan
area-Georgia Bank & Trust Company of Augusta (GB&T) and Southern Bank & Trust (SB&T or
Thrift). GB&T, a Georgia state bank, operates its main office and eight full service branches in
Augusta, Martinez, and Evans, Georgia, and one branch in Athens, Georgia, with mortgage origination
offices located in Augusta, Savannah and Athens, Georgia. SB&T Capital Corporation (the LPO) a
wholly owned subsidiary of the Bank, was organized on August 16, 2007 and opened an office in
Greenville, South Carolina. During the second quarter of 2009 the Company made the decision to
cease originations of new loans in the Greenville office and allow the portfolio, primarily real
estate loans, to decline over the life of the remaining loans. No exit costs were incurred as a
result of the decision. On November 1, 2007, GB&T entered into an Operating Agreement with NMF
Asset Management LLC (NMF) whereby the Bank became a 30% partner. NMF is an investment
management firm that provides services to individuals, trusts, pensions, nonprofit organizations as
well as other institutions. During the second quarter of 2009, GB&T withdrew from its partnership
and expensed its investment of $20 thousand. SB&T, a federally chartered thrift, operates three
full service branches in North Augusta and Aiken, South Carolina. The Companys operations campus
is located in Martinez, Georgia and services both subsidiaries.
The Company is community oriented and focuses primarily on offering real estate, commercial
and consumer loans and various deposit and other services to individuals, small to medium sized
businesses and professionals in its market area. The Company is the largest locally owned and
operated financial institution headquartered in Richmond and Columbia Counties. Each member of the
Companys management team is a banking professional with many years of experience in the Augusta or
Aiken market with this and other banking organizations. A large percentage of Company management
has worked together for many years. The Company competes against the larger regional and
super-regional banks operating in its market by emphasizing the stability and accessibility of its
management, managements long-term familiarity with the market, immediate local decision making and
the pride of local ownership.
The Companys internet address is www.georgiabankandtrust.com. It makes available
free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) of the Exchange Act as soon as reasonably practicable after it electronically files such
material with, or furnishes it to, the Securities and Exchange Commission (SEC).
2
The public may read and copy any materials that the Company files with the SEC at the SECs
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The Internet address of
the SEC website is www.sec.gov.
History
GB&T was organized by a group of local citizens from Richmond and Columbia Counties and
commenced business from the main office location at 3530 Wheeler Road in Augusta on August 28,
1989. GB&T also operates eight full service branches in Augusta, Martinez and Evans, Georgia, one
full service branch in Athens, Georgia and a loan production office in Savannah, Georgia. The
Thrift was organized by the Company during 2005 and 2006, opening its main office in Aiken, South
Carolina on September 12, 2006. SB&T opened its first North Augusta branch at 336 Georgia Avenue
in August 2007. The Thrift opened its second Aiken branch at 149 Laurens Street on January 10,
2008.
Employees
The Company had approximately 353 full-time equivalent employees at December 31, 2009. The
Company maintains training, educational and affirmative action programs designed to prepare
employees for positions of increasing responsibility in both management and operations, and
provides a variety of benefit programs, including group life, health, accident and other insurance
and retirement plans. None of the Companys employees are covered by a collective bargaining
agreement, and the Company believes its employee relations are generally good.
Management Team
GB&T was founded with an experienced management team, and that team has continued to expand
with the growth of the bank. GB&Ts President and Chief Executive Officer, R. Daniel Blanton, was
involved in the organization of GB&T in 1988 and previously served with a predecessor to Wachovia,
Georgia State Bank, for over 13 years. With the acquisition of First Columbia, GB&T obtained its
Executive Vice President and Chief Operating Officer, Ronald L. Thigpen, who had served as Chief
Executive Officer of First Columbia since 1991, and before that served in various capacities with
Wachovia and its predecessors. GB&Ts senior loan officer and Group Vice President, Jay Forrester,
has been associated with GB&T since 1995. He previously served as Vice President, Commercial
Lending for C & S National Bank and NationsBank, predecessors of Bank of America. Regina W.
Mobley, Group Vice President, Bank Operations, has been with GB&T since the acquisition of First
Columbia Bank. With over 32 years of bank operations experience, she previously served First
Columbia Bank and C & S National Bank, as predecessor of Bank of America. GB&Ts Senior Credit
Officer and Group Vice President, James R. Riordan, Jr., joined the team in 2002. For the prior
ten years, he served in various capacities with SunTrust Bank, Augusta, N. A., most recently as
senior lending officer. He has 22 years of bank lending and credit administration experience.
Paula Tankersley, Group Vice President, Retail Banking, has been associated with GB&T since 1992.
Prior to joining GB&T, she was associated with the Bank of Columbia County and its successor,
Allied Bank of Georgia. In September 2004, Robert C. Osborne, Jr., joined GB&T as Executive Vice
President and head of Wealth Management. For the prior 28 years, he was associated with Wachovia
Corporation in Atlanta and Augusta, most recently as head of their Wealth Management unit in
Augusta.
3
The Company opened SB&T with a management team that has extensive experience in the Aiken,
South Carolina market. In 2005, both Frank Townsend and Darrell Rains joined GB&T with the
responsibility of organizing SB&T. Frank Townsend became President and Chief Executive Officer of
SB&T upon its opening in September 2006. Prior to joining GB&T, Mr. Townsend spent 11 years with
Regions Bank and was the Commercial Sales Manager in Aiken. He has 23 years experience in both
banking and insurance. Darrell Rains, Group Vice President and Chief Financial Officer, has over
28 years of financial experience, including service at Regions Bank as Regional Financial Officer
for the Mid-Atlantic Region and at Palmetto Federal, a predecessor to Regions Bank in Aiken, S.C.,
as Chief Financial Officer. He serves as Chief Financial Officer for the Company, GB&T and SB&T.
Mark Wills, Executive Vice President and Senior Credit Officer, first joined GB&T in 2005 and was
one of the original employees of SB&T upon its opening in 2006. With over 28 years of banking
experience, he previously served Bank of America and Regions Bank. In September 2007, Susan
Yarborough joined SB&T as Executive Vice President and Business Development Officer. Prior to
joining SB&T, she spent 13 years with Carolina First Bank in Aiken as Senior Vice President and
City Executive and served in various capacities with Bank of America and its predecessors for 15
years.
Market Area
The Companys primary market area includes Richmond and Columbia Counties in Georgia and Aiken
County in South Carolina, all part of the Augusta-Richmond County, GA-SC metropolitan statistical
area (MSA). The 2008 population of the Augusta-Richmond County, GA-SC MSA was 534,218, the second
largest in Georgia and fourth largest in South Carolina. The Augusta market area has a diversified
economy based principally on government, public utilities, health care, manufacturing,
construction, and wholesale and retail trade. Augusta is one of the leading medical centers in the
Southeast. Significant medical facilities include the Medical College of Georgia, University
Hospital, Veterans Administration Hospital, Dwight D. Eisenhower Hospital, Gracewood State School
and Hospital, Doctors Hospital and Trinity Hospital. Other major employers in the Augusta market
area include Westinghouse Savannah River Site (nuclear defense), the Fort Gordon military
installation, E-Z Go/Textron (golf car manufacturer), the Richmond County school system and the
Columbia County school system. Major employers in the Aiken market include Westinghouse Savannah
River Site (nuclear defense), Aiken County Board of Education, Bechtel Savannah River Company
(engineering construction firm), Wal-Mart Associates Inc., Kimberly Clark Corporation, and BFS
North American Tire, LLC. The area is served by Interstate 20, which connects it to Atlanta, 140
miles to the west and Columbia, South Carolina, 70 miles to the east. Augusta is also served by a
major commercial airport (Bush Field) and a commuter airport (Daniel Field). The average
unemployment rate for the Augusta-Richmond County MSA was 6.3% in 2008. Between June 2008 and June
2009 (the latest date for which FDIC information is available), total commercial bank and thrift
deposits in the Augusta-Richmond County, GA-SC MSA increased 7.6% from $6.6 billion to $7.1
billion. Based on data reported as of June 30, 2009, the Company has 16.70% of all deposits in the
Augusta-Richmond County, GA-SC MSA and is the second largest depository institution. The
demographic information as presented above is based upon information and estimates provided by the
U.S. Census Bureau, U.S. Department of Labor, the Federal Deposit Insurance Corporation (FDIC),
Augusta Metro Chamber of Commerce, and the South Carolina Employment Security Commission.
The Company entered the Athens, GA market in December 2005. The 2008 population for the
Athens-Clarke County, GA MSA was 189,264, ranked fifth in the state of Georgia. The Athens market
area has a diversified economy based primarily on government, retail services, tourism,
manufacturing, other services, and health care, with the largest share of government jobs in the
state. Major employers in the Athens area include the University of Georgia, Athens Regional
Medical Center, Pilgrims Pride (poultry processing plant), St. Marys Hospital, Clarke County
School District, Gold Kist, Inc., Wal-Mart Associates Inc., and the Athens-Clarke County Unified
Government. Athens is located 70 miles
northeast of Atlanta and 120 miles northwest of Augusta. The average unemployment rate for
the Athens-Clarke County MSA was 4.9% in 2008. Total commercial bank and thrift deposits for the
Athens-Clarke County MSA increased 6.7% from $3.0 billion to $3.2 billion between June 2008 and
June 2009. The demographic information presented above is based upon information and estimates
provided by the U.S. Census Bureau, U.S. Department of Labor, the FDIC and the Athens Chamber of
Commerce.
4
Competition
The banking business generally is highly competitive, and sources of competition are varied.
The Company competes as a financial intermediary with other commercial banks, savings and loan
associations, credit unions, mortgage banking companies, consumer finance companies, securities
brokerages, insurance companies, and money market mutual funds operating in Richmond, Columbia and
Clarke Counties in Georgia, Aiken County in South Carolina and elsewhere. In addition, customers
conduct banking activities without regard to geographic barriers through computer-based banking and
similar services.
Many of the financial organizations in competition with the Company have much greater
financial resources, more diversified markets and larger branch networks than the Company and are
able to offer similar services at varying costs with higher lending limits. In addition, with the
enactment of federal and state laws affecting interstate and bank holding company expansion, there
have been major interstate acquisitions involving financial institutions which have offices in the
Companys market area but are headquartered in other states. The effect of such acquisitions (and
the possible increase in size of the financial institutions in the Companys market areas) may
further increase the competition faced by the Company. The Company believes, however, that it will
be able to use its local independent image to its advantage in competing for retail and commercial
business.
Lending Activities
The Company offers a wide range of lending services, including real estate, commercial and
consumer loans, to individuals, small to medium-sized businesses and professionals that are located
in, or conduct a substantial portion of their business in, the Companys market area. The
Companys total loans at December 31, 2009, were $937.5 million, or 73.5% of total interest-earning
assets. An analysis of the composition of the Companys loan portfolio is set forth under
Managements Discussion and Analysis of Financial Condition and Results of Operations -
Composition of the Loan Portfolio.
Real Estate Loans. Loans secured by real estate are the primary component of the Companys
loan portfolio, constituting $812.1 million, or 86.6% of the Companys total loans, at December 31,
2009. These loans consist of commercial real estate loans, construction and development loans,
residential real estate loans, and home equity loans.
Commercial Real Estate Loans. At December 31, 2009, the Company held $322.9 million of
commercial real estate loans of various sizes secured by office buildings, retail establishments,
and other types of property. These commercial real estate loans represented 34.4% of the Companys
total loans at December 31, 2009. Loan terms are generally limited to five years and often do not
exceed three years, although the installment payments may be structured on a 20-year amortization
basis with a balloon payment at maturity. Interest rates may be fixed or adjustable. The Company
generally charges an origination fee. Management attempts to reduce credit risk in the commercial
real estate portfolio by emphasizing loans on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does not exceed 80%. In addition, the
Company requires personal guarantees from the principal owners of the property supported with an
analysis by the
Company of the guarantors personal financial statements in connection with a substantial
majority of such loans. The Company experienced $1.1 million in net charge-offs on commercial real
estate loans during 2009. A number of the loans classified as commercial real estate loans are, in
fact, commercial loans for which a security interest in real estate has been taken as additional
collateral. These loans are subject to underwriting as commercial loans as described below.
5
Construction and Development Loans. Construction and development real estate loans comprise
$270.1 million, or 28.8% of the Companys total loans at December 31, 2009. A construction and
development loan portfolio presents special problems and risks, requiring additional administration
and monitoring. This is necessary since most loans are originated as lines of credit and draws
under the line require specific activities which add value to the asset, such as progress on the
completion of a building or the placement of utilities and roads in a development. This requires
specialized knowledge on the part of our personnel to appraise and evaluate that progress, hence
the higher level of administration and monitoring. The level of construction and development loans
are representative of the character of the Companys market. The Company subjects this type of
loan to underwriting criteria that include: certified appraisal and valuation of collateral;
loan-to-value margins (typically not exceeding 75%); cash equity requirements; evaluations of
borrowers cash flows and alternative sources of repayment; and a determination that the market is
able to absorb the project on schedule.
To further reduce the risk related to construction and development loans, the Company
generally relies upon the long-standing relationships between its loan officers and the
developer/contractor borrowers. In most cases, these relationships exceed ten years. The Company
targets seasoned developers and contractors who have experience in the local market. Various
members of the Companys Board of Directors have close contacts with the construction industry:
Robert W. Pollard, Jr. owns and operates a lumber manufacturing company; E. G. Meybohm owns the
largest local real estate brokerage firm; William J. Badger owns and operates a building supply
company; Larry S. Prather owns a utility and grading company; and Patrick D. Cunning, an
experienced real estate developer. Through these connections to the industry, the Company attempts
to monitor current economic conditions in the marketplace for residential real estate, and the
financial standing and ongoing reputation of its construction and development borrowers.
Infrastructure development loans are generally made with an initial maturity of one year,
although the Company may renew the loan for up to two additional one-year terms to allow the
developer to complete the sale of the lots comprising the property before requiring the payment of
the related loan. These loans typically bear interest at a floating rate and the Company typically
charges an origination fee. These loans are repaid, interest only, on a monthly or quarterly basis
until sales of lots begin, and then principal payments are made as each lot is sold at a rate
allowing the Company to be repaid in full by the time 75% of the lots have been sold. In order to
reduce the credit risk associated with these loans, the Company requires the projects loan to
value ratio (on an as completed basis) to be not more than 75%. The Company experienced $11.4
million in net loan charge-offs on construction and development loans during 2009.
Residential construction loans are typically made for homes with a completed value in the
range of $100 to $500 thousand. Loans are typically made for a term of six months to twelve
months. Typically, these loans bear interest at a floating rate and the Company collects an
origination fee. The Company may renew these loans for an additional term (up to 24 months total)
to allow the contractor time to market the home. In order to reduce the credit risk with respect
to these loans, the Company restricts the number and dollar amount of loans that are made for homes
being built on a speculative basis and carefully manages its aggregate lending relationship with
each borrower. The Company experienced $6.2 million in net loan charge-offs on residential
construction loans during 2009.
6
Interest reserves are established for certain ADC (acquisition, development and construction)
loans based on the feasibility of the project, the timeframe for completion, the creditworthiness
of the borrower and guarantors, and collateral. An interest reserve allows the borrowers interest
cost to be capitalized and added to the loan balance. As a matter of practice the Bank does not
generally establish loan funded interest reserves on ADC loans; however, the Companys loan
portfolio includes six loans with interest reserves at December 31, 2009. The following table
details the loans and accompanying interest reserves as of December 31, 2009 and 2008.
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December 31, 2009 |
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Reserves |
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Balance |
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Original |
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Advanced |
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Remaining |
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(Dollars in thousands) |
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Loan 1 |
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$ |
4,278 |
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179 |
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179 |
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Loan 2 |
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9,666 |
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300 |
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77 |
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223 |
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Loan 3 |
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2,598 |
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255 |
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255 |
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Loan 4 |
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455 |
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30 |
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30 |
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Loan 5 |
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166 |
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10 |
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10 |
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Loan 6 |
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1,133 |
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81 |
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81 |
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December 31, 2008 |
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Reserves |
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Balance |
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Original |
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Advanced |
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Remaining |
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(Dollars in thousands) |
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Loan 1 |
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$ |
1,245 |
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138 |
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16 |
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122 |
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Loan 2 |
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300 |
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300 |
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Loan 3 |
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2,088 |
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255 |
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192 |
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63 |
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Loan 4 |
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440 |
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30 |
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15 |
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15 |
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Loan 5 |
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163 |
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10 |
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5 |
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5 |
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Loan 6 |
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1,113 |
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81 |
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19 |
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62 |
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Underwriting for ADC loans with interest reserves follows the same process as those loans
without reserves. In order for the Bank to establish a loan funded interest reserve, the borrower
must have the ability to repay without the use of a reserve and a history of developing and
stabilizing similar properties. All ADC loans, including those with interest reserves, are
carefully monitored through periodic construction site inspections by Bank employees or third party
inspectors to ensure projects are moving along as planned. The Bank assesses the appropriateness
of the use of interest reserves during the entire term of the loan as well as the adequacy of the
reserve. Collateral inspections are completed before approval of advances. Two of these loans
have been extended; one due to delays and time needed to obtain current financial information on
the guarantors and another to allow for completion of the final punch list and negotiation of the
permanent loan. None of these loans have been restructured or are currently on nonaccrual.
Residential Loans. The Company originates, on a selective basis, residential loans for its
portfolio on single and multi-family properties, both owner-occupied and non-owner-occupied. At
December 31, 2009, the Company held $219.2 million of such loans, including home equity loans,
representing 23.4% of the Companys loan portfolio. This portfolio typically includes 15 or 30-year
adjustable rate mortgage loans whose terms mirror those prevalent in the secondary market for
mortgage loans or, less typically, floating rate non-amortized term loans for purposes other than
acquisition of the underlying residential property. A limited number of fixed rate loans are
maintained in the portfolio when there are compelling market reasons to do so. Generally, all
fixed rate residential
loans are sold into the secondary market. In the case of home equity loans and lines of
credit, the underwriting criteria are the same as applied by the Company when making a first
mortgage loan, as described above. Home equity lines of credit typically mature ten years after
their origination. The Company experienced net loan charge-offs on residential loans of $3.6
million during 2009.
7
The Company also originates both fixed and variable rate residential loans for sale into the
secondary market, servicing released. Loans originated for sale into the secondary market are
approved for purchase by an investor prior to closing. The Company generates loan origination
fees, typically ranging from 1.0% to 1.5% of the loan balance, and servicing release fees,
generally ranging from 0.25% to 0.75% of the loan balance. The Company bears minimal interest rate
risk on these loans and only holds the loans temporarily until documentation can be completed to
finalize the sale to the investor. Commitments to fund mortgage loans (interest rate locks) to be
sold into the secondary market and forward commitments for the future delivery of these mortgage
loans are accounted for as free standing derivatives. Fair values of these mortgage derivatives
are estimated based on changes in mortgage interest rates from the date the interest on the loan is
locked. The Company enters into forward commitments for the future delivery of mortgage loans when
interest rate locks are entered into, in order to hedge the change in interest rates resulting from
its commitments to fund the loans. Changes in the fair values of these derivatives are included in
net gains on sales of loans. Fair values of these derivatives were $182 and$8 as of December 31,
2009 and 2008, respectively. The Company had $19.2 million of such loans at December 31, 2009.
Commercial Loans. The Company makes loans for commercial purposes to various types of
businesses. At December 31, 2009, the Company held $102.2 million of these loans, representing
10.9% of the total loan portfolio, excluding for these purposes commercial loans secured by real
estate. See Real Estate Loans. Equipment loans are made for a term of up to five years (more
typically three years) at fixed or variable rates, with the loan being fully amortized over the
term and secured by the financed equipment with a loan-to-value ratio based on the overall
relationship and creditworthiness of the customer. Working capital loans are made for a term
typically not exceeding one year. These loans are usually secured by accounts receivable or
inventory, and principal is either repaid as the assets securing the loan are converted into cash,
or principal is due at maturity. The Company experienced net loan charge-offs on commercial loans
of $701 thousand during 2009.
Consumer Loans. The Company makes a variety of loans to individuals for personal and
household purposes, including secured and unsecured installment and term loans, and revolving lines
of credit such as overdraft protection. At December 31, 2009, the Company held $23.2 million of
consumer loans, representing 2.5% of total loans. These loans typically carry balances of less
than $25,000 and earn interest at a fixed rate. Non-revolving loans are either amortized over a
period generally not exceeding 60 months or are ninety-day term loans. Revolving loans require
monthly payments of interest and a portion of the principal balance (typically 2 to 3% of the
outstanding balance). The Company entered the indirect lending business in 1997 and currently
purchases sales finance contracts from dealers for new and used automobiles and home improvements.
At December 31, 2009, indirect loans outstanding totaled $1.9 million. The Company experienced net
charge-offs on consumer loans of $344 during 2009.
Loan Approval and Review. The Companys loan approval policies provide for various levels of
officer lending authority. When the aggregate amount of outstanding loans to a single borrower
exceeds that individual officers lending authority, the loan request must be considered and
approved by an officer with a higher lending limit or by the Directors Loan Committee. Individual
officers lending limits range from $15 to $2.0 million for GB&T and $5 to $300 for SB&T depending
on seniority and the type of loan. Any loan in excess of the lending limit of senior bank officers
must be approved by the Directors Loan Committee.
8
The Company maintains a loan review and classification process which involves multiple
officers of the Company and is designed to assess the general quality of credit underwriting and to
promote early identification of potential problem loans. All loan officers are charged with the
responsibility of risk rating all loans in their portfolios and updating the ratings, positively or
negatively, on an ongoing basis as conditions warrant. Risk ratings are selected from an 8-point
scale with ratings as follows: ratings 1 4 Satisfactory (pass), rating 5 Watch (potential
weakness), rating 6 Substandard (well-defined weakness), rating 7 Doubtful and rating 8 Loss.
When a loan officer originates a new loan, he documents the credit file with an offering sheet
summary, supplemental underwriting analyses, relevant financial information and collateral
evaluations. All of this information is used in the determination of the initial loan risk rating.
Then, the Companys Credit Administration department undertakes an independent credit review of
that relationship in order to validate the lending officers rating. Lending relationships with
total related exposure of $500 or greater are also placed into a tracking database and reviewed by
Credit Administration personnel on an annual basis in conjunction with the receipt of updated
borrower and guarantor financial information. The individual loan reviews analyze such items as:
loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated
financial strength; most recently available financial information; related loans and total borrower
exposure; and current/anticipated performance of the loan. The results of such reviews are
presented to Executive Management.
Through the review of delinquency reports, updated financial statements or other relevant
information in the normal course of business, the lending officer and/or Credit Administration
review personnel may determine that a loan relationship has weakened to the point that a criticized
(loan grade 5) or classified (loan grade 6 through 8) status is warranted. When a loan relationship
with total related exposure of $200 or greater is adversely graded (5 or above), the lending
officer is then charged with preparing a Classified/Watch report which outlines the background of
the credit problem, current repayment status of the loans, current collateral evaluation and a
workout plan of action. This plan may include goals to improve the credit rating, assisting the
borrower in moving the loans to another institution and/or collateral liquidation. All such
Classified/Watch reports are reviewed on a quarterly basis by members of Executive Management at a
regularly scheduled meeting in which each lending officer presents the workout plans for his
criticized credit relationships.
Depending upon the individual facts, circumstances and the result of the Classified/Watch
review process, Executive Management may categorize the loan relationship as impaired. Once that
determination has occurred, Executive Management in conjunction with Credit Administration
personnel, will complete an evaluation of the collateral (for collateral-dependent loans) based
upon appraisals in file adjusting for current market conditions and other local factors that may
affect collateral value. This judgmental evaluation may produce an initial specific allowance for
placement in the Companys Allowance for Loan & Lease Losses calculation. As soon as practical,
updated appraisals on the collateral backing that impaired loan relationship are ordered. When the
updated appraisals are received, Executive Management with assistance from Credit Administration
department personnel reviews the appraisal, and updates the specific allowance analysis for each
loan relationship
accordingly. The Directors Loan Committee reviews on a quarterly basis the Classified/Watch
reports including changes in credit grades of 5 or higher as well as all impaired loans, the
related allowances and OREO.
9
In general, once the specific allowance has been finalized, Executive Management will
authorize a charge-off prior to the following calendar quarter-end in which that reserve
calculation is finalized.
The review process also provides for the upgrade of loans that show improvement since the last
review.
Deposits
The Company offers a variety of deposit programs to individuals and to small to medium-sized
businesses and other organizations at interest rates generally consistent with local market
conditions. The following table sets forth the mix of depository accounts for the Company as a
percentage of total deposits at December 31, 2009.
Deposit Mix
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(Dollars in Thousands) |
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Noninterest-bearing |
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$ |
114,780 |
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8.96 |
% |
NOW accounts |
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210,438 |
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16.44 |
% |
Money management accounts |
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44,781 |
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3.50 |
% |
Savings |
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343,740 |
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26.84 |
% |
Time deposits |
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|
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|
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Under $100 |
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148,044 |
|
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11.56 |
% |
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$100 and over |
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418,751 |
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32.70 |
% |
|
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$ |
1,280,534 |
|
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100.00 |
% |
The Company accepts deposits at both main office locations and eleven branch banking
offices, twelve of which maintain an automated teller machine. The Company is a member of
Mastercards Maestro and Cirrus networks, VISA Plus, as well as the STAR network of automated
teller machines, which permits customers to perform certain transactions in many cities throughout
Georgia, South Carolina and other regions. The Company controls deposit volumes primarily through
the pricing of deposits and to a certain extent through promotional activities such as free
checking. The Company also utilizes other sources of funding, specifically repurchase agreements,
Federal Home Loan Bank borrowings, Insured Network Deposits and brokered certificates of deposit.
Deposit rates are set weekly by executive management of the Company. Management believes that the
rates it offers are competitive with, or in some cases, slightly above those offered by other
institutions in its market area. The Company does not actively solicit deposits outside of its
market area.
Supervision and Regulation
The Company, GB&T and SB&T are subject to extensive state and federal banking laws and
regulations that impose restrictions on and provide for general regulatory oversight of their
operations. These laws and regulations generally are intended to protect depositors and not
shareholders.
Legislation and regulations authorized by legislation influences, among other things:
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how, when and where the Company may expand geographically; |
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into what product or service markets it may enter; |
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how it must manage its assets; and |
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under what circumstances money may or must flow between the Company and its
subsidiaries. |
10
Set forth below is a summary of the major pieces of legislation affecting the Companys
industry and how that legislation affects its actions. The following summary is qualified by
references to the statutory and regulatory provisions discussed. Changes in applicable laws or
regulations may have a material effect on the Companys business and prospects, and legislative
changes and the policies of various regulatory authorities may significantly affect its operations.
We cannot predict the effect that fiscal or monetary policies, or new federal or state legislation
may have on the Companys business and earnings in the future.
The Company
The Company owns all of the capital stock of GB&T and SB&T and is a multi-bank holding company
under the federal Bank Holding Company Act of 1956. As a result, the Company is primarily subject
to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Board of Governors of the Federal Reserve System. As a bank holding company
located in Georgia, the Georgia Department of Banking and Finance (GDBF) also regulates and
monitors all significant aspects of the Companys operations. GB&T is a commercial bank regulated
by the GDBF, while SB&T is a federally chartered thrift regulated by the Office of Thrift
Supervision (OTS). Both subsidiaries are regulated by the FDIC.
Acquisitions of Banks. The Bank Holding Company Act requires every bank holding company to
obtain the Federal Reserve Boards prior approval before:
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acquiring direct or indirect ownership or control of any voting shares of
any bank if, after the acquisition, the bank holding company will directly or
indirectly own or control more than 5% of the banks voting shares; |
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acquiring all or substantially all of the assets of any bank; or |
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merging or consolidating with any other bank holding company. |
Additionally, the Bank Holding Company Act provides that the Federal Reserve Board may not
approve any of these transactions if it would result in or tend to create a monopoly or,
substantially lessen competition or otherwise function as a restraint of trade, unless the
anti-competitive effects of the proposed transaction are clearly outweighed by the public interest
in meeting the convenience and needs of the community to be served. The Federal Reserve Board is
also required to consider the financial and managerial resources and future prospects of the bank
holding companies and banks concerned and the convenience and needs of the community to be served.
The Federal Reserve Boards consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
Under the Bank Holding Company Act, if adequately capitalized and adequately managed, the
Company or any other bank holding company located in Georgia may purchase a bank located outside of
Georgia. Conversely, an adequately capitalized and adequately managed bank holding company located
outside of Georgia may purchase a bank located inside Georgia. In each case, however, restrictions
may be placed on the acquisition of a bank that has only been in existence for a limited amount of
time or will result in specified concentrations of deposits. Currently, Georgia law prohibits
acquisitions of banks that have been incorporated for less than three years. Because GB&T has been
chartered for more than three years, this restriction would not limit its ability to sell.
11
Change in Bank Control. Subject to various exceptions, the Bank Holding Company Act and the
Change in Bank Control Act, together with related regulations, require Federal Reserve approval
prior to any person or company acquiring control of a bank holding company. Control is
conclusively presumed to exist if an individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Control is also presumed to exist although
rebuttable if a person or company acquires 15% or more, but less than 25%, of any class of voting
securities and either:
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the bank holding company has registered securities under Section 12 of the
Securities Act of 1934; or |
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no other person owns a greater percentage of that class of voting
securities immediately after the transaction. |
The Companys common stock is registered under the Securities Exchange Act of 1934. The
regulations provide a procedure for challenging the rebuttable presumption of control.
Permitted Activities. The Bank Holding Company Act has generally prohibited a bank holding
company from engaging in activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those determined by the Federal Reserve to be closely related
to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the
Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that
qualifies as a financial holding company. Under the regulations implementing the
Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are
financial in nature or incidental or complementary to financial activity. Those activities
include, among other activities, certain insurance and securities activities.
To qualify to become a financial holding company, any depository institution subsidiary of the
Company must be well capitalized and well managed and must have a Community Reinvestment Act rating
of at least satisfactory. Additionally, the Company must file an election with the Federal
Reserve Board to become a financial holding company and must provide the Federal Reserve Board with
30 days written notice prior to engaging in a permitted financial activity. While the Company
meets the qualification standards applicable to financial holding companies, the Company has not
elected to become a financial holding company at this time.
Capital Adequacy. The Company, GB&T and SB&T are required to comply with the capital adequacy
standards established by the Federal Reserve Board, in the case of the Company, and the FDIC, in
the case of GB&T and SB&T. The Federal Reserve Board has established a risk-based and a leverage
measure of capital adequacy for bank holding companies. GB&T and SB&T are also subject to
risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar
to those adopted by the Federal Reserve Board for bank holding companies.
The risk-based capital standards are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies, to account for
off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance-sheet items.
12
The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total
capital consists of two components: Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally
consists of common stockholders equity, minority interests in the equity accounts of consolidated
subsidiaries, qualifying noncumulative perpetual preferred stock, a limited amount of qualifying
cumulative perpetual preferred stock, and notes payable to unconsolidated special purpose entities
that issue trust preferred securities, net of investment in the entity, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier
2 Capital generally consists of subordinated debt, other preferred stock and hybrid capital, and a
limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of
Tier 1 Capital. The Companys ratio of total capital to risk-weighted assets was 12.55% and the
ratio of Tier 1 Capital to risk-weighted assets was 11.06% at December 31, 2009.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for
bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average
assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that
meet specified criteria, including having the highest regulatory rating and implementing the
Federal Reserve Boards risk-based capital measure for market risk. All other bank holding
companies generally are required to maintain a leverage ratio of at least 4%. At December 31,
2009, our leverage ratio was 7.51%. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without reliance on intangible assets.
The Federal Reserve considers the leverage ratio and other indicators of capital strength in
evaluating proposals for expansion or new activities.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety
of enforcement remedies, including issuance of a capital directive, the termination of deposit
insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions
on its business. As described in Prompt Corrective Action below, significant additional
restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable
capital requirements.
Payment of Dividends
The Company is a legal entity separate and distinct from its subsidiaries. The principal
sources of the Companys cash flow, including cash flow to pay dividends to its shareholders, are
dividends paid by the subsidiaries to the Company. Statutory and regulatory limitations apply to
GB&Ts and SB&Ts payment of dividends. If, in the opinion of the federal banking regulator, such
subsidiaries were engaged in or about to engage in an unsafe or unsound practice, the federal
banking agencies could require, after notice and a hearing, that it stop or refrain from engaging
in the questioned practice. The federal banking agencies have indicated that paying dividends that
deplete a depository institutions capital base to an inadequate level would be an unsafe and
unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991,
a depository institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued
policy statements that provide that bank holding companies and insured banks should generally only
pay dividends out of current operating earnings. See The CompanyPrompt Corrective Action.
GB&T and SB&T have additional restrictions for dividends imposed by their respective
regulatory agencies. Cash dividends on GB&Ts common stock may be declared and paid only out of
its retained earnings, and dividends may not be declared at any time when GB&Ts paid-in capital
and appropriated earnings do not, in combination, equal at least 20% of its capital stock account.
In addition, the GDBFs current rules and regulations require prior approval before cash dividends
may be
declared and paid if: (1) the banks ratio of equity capital to adjusted total assets is less
than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that
calendar year exceeds 50% of the banks net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the banks loans classified as adverse as to
repayment or recovery by the GDBF at the most recent examination of the bank exceeds 80% of the
banks equity as reflected at such examination.
13
GB&T declared cash dividends payable to the Company of $0 in 2009, $1.5 million in 2008 and $0
in 2007. The Company suspended the payment of quarterly cash dividends on its common stock
effective April 22, 2009. The Company considered the action prudent in order to maintain its
capital position in the current state of the economy. The Company plans to reinstate the dividend
payment at an appropriate time once economic conditions improve and stabilize.
Restrictions on Transactions with Affiliates
The Company, GB&T and SB&T are subject to the provisions of Section 23A of the Federal Reserve
Act. Section 23A places limits on the amount of:
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a banks loans or extensions of credit to affiliates; |
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a banks investment in affiliates; |
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assets a bank may purchase from affiliates, except for real and personal
property exempted by the Federal Reserve Board; |
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loans or extensions of credit made by a bank to third parties
collateralized by the securities or obligations of affiliates; and |
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|
a banks guarantee, acceptance or letter of credit issued on behalf of an
affiliate. |
The total amount of the above transactions is limited in amount, as to any one affiliate, to
10% of a banks capital and surplus and, as to all affiliates combined, to 20% of a banks capital
and surplus. In addition to the limitation on the amount of these transactions, each of the above
transactions must also meet specified collateral requirements. GB&T and SB&T must also comply with
other provisions designed to avoid taking low-quality assets.
The Company, GB&T and SB&T are also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibit an institution from engaging in the above
transactions with affiliates unless the transactions are on terms substantially the same, or at
least as favorable to the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
GB&T and SB&T are also subject to restrictions on extensions of credit to its executive
officers, directors, principal shareholders and their related interests. These extensions of
credit (1) must be made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties, and (2) must not
involve more than the normal risk of repayment or present other unfavorable features.
Support of Subsidiary Institutions. Under Federal Reserve Board policy, the Company is
expected to act as a source of financial strength for its subsidiaries and to commit resources to
support them. This support may be required at times when, without this Federal Reserve Board
policy, the Company might not be inclined to provide it. In addition, any capital loans made by
the Company to its subsidiaries will be repaid only after the applicable subsidiarys deposits and
various other obligations are repaid in full. In the unlikely event of the Companys bankruptcy,
any commitment by it to a federal bank regulatory agency to maintain the capital of GB&T and SB&T
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
14
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of
1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized
financial institutions. Under this system, the federal banking regulators have established five
capital categories (well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) in which all institutions are placed. The federal
banking agencies have also specified by regulation the relevant capital levels for each of the
other categories.
Federal banking regulators are required to take various mandatory supervisory actions and are
authorized to take other discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends upon the capital category in which
the institution is placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically undercapitalized. The
other capital categories are well capitalized, adequately capitalized, and undercapitalized. As of
December 31, 2009, the Bank qualified for the well capitalized category. A well-capitalized bank
is one that significantly exceeds all of its capital requirements, which include maintaining a
total risk-based capital ratio of at least 10%, a tier 1 risk-based capital ratio of at least 6%,
and a tier 1 leverage ratio of at least 5%. Generally, a classification as well capitalized will
place a bank outside of the regulatory zone for purposes of prompt corrective action. However, a
well-capitalized bank may be reclassified as adequately capitalized based on criteria other than
capital, if the federal regulator determines that a bank is in an unsafe or unsound condition, or
is engaged in unsafe or unsound practices and has not corrected the deficiency.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment system for insured
depository institutions that accounts for the risks attributable to different categories and
concentrations of assets and liabilities. The system assesses higher rates on those institutions
that pose greater risks to the Deposit Insurance Fund (the DIF). The FDIC places each
institution in one of four risk categories based on three primary sources of information:
supervisory risk ratings for all institutions, financial ratios for most institutions, and
long-term debt issuer ratings for institutions that have such ratings.
In February 2009, the FDIC issued new risk based assessment rates that took effect April 1,
2009. For insured depository institutions in the lowest risk category, the annual assessment rate
ranges from 7 to 77.5 cents for every $100 of domestic deposits. For institutions assigned to
higher risk categories, the new assessment rates range from 17 to 43 cents per $100 of domestic
deposits. These ranges reflect a possible downward adjustment for unsecured debt outstanding and
possible upward adjustments for secured liabilities and, in the case of institutions outside the
lowest risk category, brokered deposits.
The FDICs assessment rates are intended to result in a reserve ratio of at least 1.15%. As of
December 31, 2008, the ratio had fallen well below this floor. The FDIC is required to return the
DIF to its statutorily mandated minimum reserve ratio of 1.15 percent within eight years, and has
undertaken several initiatives to satisfy this requirement.
On September 30, 2009, the FDIC collected a one-time special assessment of five basis points
of an institutions assets minus tier 1 capital as of June 30, 2009. The amount of the special
assessment could not exceed ten basis points times the institutions assessment base for the second
quarter 2009. In addition, on November 12, 2009, the FDIC adopted a rule that required nearly all
FDIC-insured depository institutions to prepay their DIF assessments for the fourth quarter of 2009
and for the next three years. The FDIC has indicated that the prepayment of DIF assessments will
be in lieu of additional special assessments, although there can be no guarantee that continued
pressures on the DIF will not result in additional special assessments being collected by the FDIC
in the future.
15
The FDIC also collects a deposit-based assessment from insured financial institutions on
behalf of The Financing Corporation (FICO). The funds from these assessments are used to service
debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance
Corporation. The FICO assessment rate is set quarterly and in 2009 ranged from 1.14 cents to 1.02
cents per $100 of assessable deposits. These assessments will continue until the debt matures in
2017 through 2019.
The FDIC may, without further notice-and-comment rulemaking, adopt rates that are higher or
lower than the stated base assessment rates, provided that the FDIC cannot (i) increase or decrease
the total rates from one quarter to the next by more than three basis points, or (ii) deviate by
more than three basis points from the stated assessment rates. The FDIC has proposed maintaining
current assessment rates through December 31, 2010, followed by a uniform increase in risk-based
assessment rates of three basis points effective January 1, 2011.
The FDIC may terminate its insurance of deposits if it finds that the institution has
engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or condition imposed by the
FDIC.
FDIC Temporary Liquidity Guarantee Program. On October 14, 2008, the FDIC announced that its
Board of Directors, under the authority to prevent systemic risk in the U.S. banking system,
approved the Temporary Liquidity Guarantee Program (TLGP). The purpose of the TLGP is to
strengthen confidence and encourage liquidity in the banking system. The TLGP is composed of two
components, the Debt Guarantee Program and the Transaction Account Guarantee Program, and
institutions had the opportunity, prior to December 5, 2008, to opt-out of either or both
components of the TLGP.
The Debt Guarantee Program: Under the TLGP, the FDIC is permitted to guarantee certain newly
issued senior unsecured debt issued by participating financial institutions. The annualized fee
that the FDIC will assess to guarantee the senior unsecured debt varies by the length of maturity
of the debt. For debt with a maturity of 180 days or less (excluding overnight debt), the fee is
50 basis points; for debt with a maturity between 181 days and 364 days, the fee is 75 basis
points, and for debt with a maturity of 365 days or longer, the fee is 100 basis points. The Bank
did not opt-out of the Debt Guarantee component of the TLGP.
The Transaction Account Guarantee Program: Under the TLGP, the FDIC is permitted to fully
insure non-interest bearing deposit accounts held at participating FDIC-insured institutions,
regardless of dollar amount. The temporary guarantee will expire on June 30, 2010. For the
eligible noninterest-bearing transaction deposit accounts (including accounts swept from a
noninterest bearing transaction account into an noninterest bearing savings deposit account), a 10
basis point annual rate surcharge will be applied to noninterest-bearing transaction deposit
amounts over $250,000. Institutions will not be assessed on amounts that are otherwise insured.
The Bank did not opt-out of the Transaction Account Guarantee component of the TLGP.
Community Reinvestment Act. The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective jurisdictions, the Federal Reserve
or the FDIC shall evaluate the record of each financial institution in meeting the credit needs of
its local community, including low and moderate-income neighborhoods. These facts are also
considered in evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements and limitations on
the Company. Additionally, we must publicly disclose the terms of various Community Reinvestment
Act-related agreements.
16
Allowance for Loan and Lease Losses. The Allowance for Loan and Lease Losses (the ALLL)
represents one of the most significant estimates in the Companys financial statements and
regulatory reports. Because of its significance, the Company has developed a system by which it
develops, maintains and documents a comprehensive, systematic and consistently applied process for
determining the amounts of the ALLL and the provision for loan and lease losses. The Interagency
Policy Statement on the Allowance for Loan and Lease Losses, issued on December 13, 2006,
encourages all banks to ensure controls are in place to consistently determine the ALLL in
accordance with generally accepted accounting principles, the banks stated policies and
procedures, managements best judgment and relevant supervisory guidance. Consistent with
supervisory guidance, the Company maintains a prudent and conservative, but not excessive, ALLL,
that is at a level that is appropriate to cover estimated credit losses on individually evaluated
loans determined to be impaired as well as estimated credit losses inherent in the remainder of the
loan and lease portfolio. The Companys estimate of credit losses reflects consideration of all
significant factors that affect the collectability of the portfolio as of the evaluation date. See
Managements Discussion and Analysis Critical Accounting Policies.
Commercial Real Estate Lending. Our lending operations may be subject to enhanced scrutiny by
federal banking regulators based on its concentration of commercial real estate loans. On December
6, 2006, the federal banking regulators issued final guidance to remind financial institutions of
the risk posed by commercial real estate (CRE) lending concentrations. CRE loans generally
include land development, construction loans and loans secured by multifamily property, and
nonfarm, nonresidential real property where the primary source of repayment is derived from rental
income associated with the property. The guidance prescribes the following guidelines for its
examiners to help identify institutions that are potentially exposed to significant CRE risk and
may warrant greater supervisory scrutiny:
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total reported loans for construction, land development and other land
represent 100% or more of the institutions total capital, or |
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total commercial real estate loans represent 300% or more of the
institutions total capital, and the outstanding balance of the institutions
commercial real estate loan portfolio has increased by 50% or more. |
Other Regulations. Interest and other charges collected or contracted for are subject to
state usury laws and federal laws concerning interest rates.
Our loan operations are also subject to federal laws applicable to credit transactions, such
as the:
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Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; |
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|
Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine whether a
financial institution is fulfilling its obligation to help meet the housing needs of
the community it serves; |
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Equal Credit Opportunity Act, prohibiting discrimination on the basis of
race, creed or other prohibited factors in extending credit; |
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Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies, certain identity theft protections, and
certain credit and other disclosures; |
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Fair Debt Collection Act, governing the manner in which consumer debts may
be collected by collection agencies; |
17
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Soldiers and Sailors Civil Relief Act of 1940, as amended, governing the
repayment terms of, and property rights underlying, secured obligations of persons
currently on active duty with the U.S. military; |
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Talent Amendment in the 2007 Defense Authorization Act, establishing a 36%
annual percentage rate ceiling, which includes a variety of charges including late
fees, for certain types of consumer loans to military service members and their
dependents; and |
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rules and regulations of the various federal agencies charged with the
responsibility of implementing these federal laws. |
Our deposit operations are subject to federal laws applicable to depository accounts, such as
the following:
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Truth-In-Savings Act, requiring certain disclosures for consumer deposit
accounts; |
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Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for complying
with administrative subpoenas of financial records; |
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Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve to implement that act, which govern automatic deposits to and withdrawals from
deposit accounts and customers rights and liabilities arising from the use of
automated teller machines and other electronic banking services; and, |
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rules and regulations of the various federal agencies charged with the
responsibility of implementing these federal laws. |
Georgia Bank & Trust Company
Because GB&T is a commercial bank chartered under the laws of the State of Georgia, it is
primarily subject to the supervision, examination and reporting requirements of the FDIC and the
GDBF. The FDIC and the GDBF regularly examine GB&Ts operations and have the authority to approve
or disapprove mergers, the establishment of branches and similar corporate actions. Both regulatory
agencies also have the power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law. In addition to the matters identified above, the following
requirements apply specifically to GB&T.
Branching. Under current Georgia law, GB&T may open branch offices throughout Georgia with
the prior approval of the GDBF. In addition, with prior regulatory approval, GB&T may acquire
branches of existing banks located in Georgia. GB&T and any other national or state-chartered bank
generally may branch across state lines by merging with banks in other states if allowed by the
applicable states laws. Georgia law, with limited exceptions, currently permits branching across
state lines through interstate mergers.
Under the Federal Deposit Insurance Act, states may opt-in and allow out-of-state banks to
branch into their state by establishing a new start-up branch in the state. Currently, Georgia has
not opted-in to this provision. Therefore, interstate merger is the only method through which a
bank located outside of Georgia may branch into Georgia. This provides a limited barrier of entry
into the Georgia banking market, which protects us from an important segment of potential
competition. However, because Georgia has elected not to opt-in, our ability to establish a new
start-up branch in another state may be limited. Consequently, until Georgia changes its election,
the only way we will be able to branch into states that have elected to opt-in on a reciprocal
basis will be through interstate merger. The Company entered the South Carolina market by
chartering a thrift, which is not subject to the same limitation.
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Southern Bank & Trust
SB&T is a federally chartered thrift subject to the supervision, examination and reporting
requirements of the OTS. The OTS regularly examines SB&Ts operations and has the authority to
approve or disapprove mergers, the establishment of branches and similar corporate actions, as well
as the power to prevent the continuance or development of unsafe or unsound banking practices or
other violations of law.
Qualified Thrift Lender Status. To be a Qualified Thrift Lender (QTL), an institution must
meet the requirements of the Home Owners Loan Act QTL test for nine out of the last twelve months
or the taxable year.
Under the QTL test, an institution must hold Qualified Thrift Investments (QTI) equal to at
least 65.0% of its portfolio assets. QTI must fall into one of the two following categories: (1)
assets that are includable in QTI without limit; or (2) assets limited to 20% of portfolio assets.
Portfolio assets are total assets minus goodwill and other identifiable intangible assets, office
property, and liquid assets not exceeding 20% of total assets. An institution ceases to be a QTL
when its actual thrift investment percentage (the ratio of QTI divided by portfolio assets) falls,
at month end, below 65.0% for four months within any 12-month period. At December 31, 2009, the
actual thrift investment percentage for SB&T was 69.75% compared to 72.78% at December 31, 2008.
Assets that are includable as QTI without limit include:
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Loans to purchase, refinance, construct, improve or repair domestic
residential or manufactured housing; |
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Home equity loans; |
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Educational loans; |
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Small business loans; |
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Loans made through credit card or credit card accounts; |
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Securities backed by or representing an interest in mortgages on domestic
residential or manufactured housing; |
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Federal Home Loan Bank stock; and |
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Obligations of the FDIC, FSLIC, RTC, and the FSLIC Resolution Fund. |
Assets that are includable as QTI up to 20% of portfolio assets include:
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Fifty percent of the amount of domestic residential housing mortgage loans
originated and sold within 90 days. An institution may, on a consistent basis, include
as QTI either the sales amounts from a previous quarter or the previous rolling 90 days
or three-month period; |
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Investments in a service corporation that derives at least 80% of its gross
revenues from activities related to domestic or manufactured residential housing; |
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Two hundred percent of the amount of loans and investments in starter
homes; |
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Two hundred percent of the amount of certain loans in credit-needy areas; |
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Loans for the purchase, construction, development, or improvements of
community service facilities not in credit-needy areas; |
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Loans for personal, family, or household purposes (other than those
reported in the assets includable without limit category); and |
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FNMA and FHLMC stock. |
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Lending Limit. Lenders create a form of concentration risk when they extend a significant
amount of credit to any one borrower or to borrowers who are related in a common enterprise. As
such,
savings associations are subject to regulatory limitations on loans to one borrower. Under
the general lending limit an associations total loans and extensions of credit outstanding to one
borrower at one time shall not exceed 15% of the associations unimpaired capital and unimpaired
surplus. If certain qualifications are met, the savings association can have an additional 10% for
loans and extensions of credit fully secured by readily marketable collateral having a market
value, as determined by reliable and continuously available price quotations, at least equal to the
amount of the funds outstanding. There are also other exceptions to the general lending limit
based on the loan type. The Director of the OTS may impose more stringent restrictions on a
savings associations loans to one borrower if OTS determines that such restrictions are necessary
to protect the safety and soundness of the association.
Unimpaired capital and unimpaired surplus are defined as: core capital and supplementary
capital included in total capital, plus any allowance for loan losses not included in supplementary
capital, plus the amount of investment in, and advances to, subsidiaries not included in
calculating core capital. As of December 31, 2009, the general lending limit for loans to one
borrower for SB&T was $2.4 million.
Unlike commercial banks, thrifts may generally make the following categories of loans only to
the extent specified:
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Commercial loans up to 20% of assets (50% of which must be in small
business loans). |
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Nonresidential real property loans up to 400% of capital (the OTS may grant
increased authority if it is determined that the increased authority poses no
significant threat to the safe and sound operation of the institution and is consistent
with prudent operating practices). |
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Consumer loans up to 35% of assets (all loans in excess of 30% of assets
must be direct loans). |
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Education loans up to 5% of assets. |
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Non-conforming loans up to 5% of assets. |
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Construction loans (residential) without security up to 5% of assets. |
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain wide-ranging proposals for
altering the structures, regulations and competitive relationships of financial institutions
operating or doing business in the United States. We cannot predict whether or in what form any
proposed regulation or statute will be adopted or the extent to which our business may be affected
by any new regulation or statute.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies
of the United States government and its agencies. The Federal Reserve Bank Boards monetary
policies have had, and are likely to continue to have, an important impact on the operating results
of commercial banks and thrifts through its power to implement national monetary policy in order,
among other things, to curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board affect the levels of bank loans, investments and deposits through its control over
the issuance of United States government securities, its regulation of the discount rate applicable
to member banks and its influence over reserve requirements to which member banks are subject. We
cannot predict the nature or impact of future changes in monetary and fiscal policies.
20
Item 1A. Risk Factors
An investment in our common stock involves risks. If any of the following risks or other
risks, which have not been identified or which we may believe are immaterial or unlikely, actually
occur, our business, financial condition and results of operations could be harmed. In such a
case, the trading price of our common stock could decline, and investors could lose all or part of
their investment. The risks discussed below also include forward-looking statements, and our
actual results may differ substantially from those discussed in these forward-looking statements.
The amount of other real estate owned (OREO) may increase significantly, resulting in
additional losses, and costs and expenses that will negatively affect our operations
At December 31, 2009, we had a total of $8.0 million of OREO as compared to $5.7 million at
December 31, 2008. This increase in OREO is due, among other things, to the continued
deterioration of the residential real estate market and the tightening of the credit market. As
the amount of OREO increases, our losses and the costs and expenses of maintaining the real estate
will likewise increase. Due to the on-going economic crisis, the amount of OREO may continue to
increase throughout 2010. Any additional increase in losses, and maintenance costs and expenses
due to OREO may have material adverse effects on our business, financial condition, and results of
operations. Such effects may be particularly pronounced in a market of reduced real estate values
and excess inventory, which may make the disposition of OREO properties more difficult, increase
maintenance costs and expenses, and reduce our ultimate realization from any OREO sales.
The deterioration in the residential mortgage market may continue to spread to commercial credits,
which may result in greater losses and non-performing assets, adversely affecting our business
operations.
The losses that were initially associated with subprime residential mortgages rapidly spread
into the residential mortgage market generally. If the losses in the residential mortgage market
continue to spread to commercial credits, then we may be forced to take greater losses or to hold
more non-performing assets. Our business operations and financial results could be adversely
affected if we continue to experience losses from our commercial loan portfolio.
The FDIC Deposit Insurance assessments that we are required to pay may materially increase in the
future, which would have an adverse effect on our earnings.
As an insured depository institution, we are required to pay quarterly deposit insurance
premium assessments to the FDIC. These assessments are required to ensure that the FDIC deposit
insurance reserve ratio is at least 1.15% of insured deposits. Under the Federal Deposit Insurance
Act, the FDIC, absent extraordinary circumstances, must establish and implement a plan to restore
the deposit insurance reserve ratio to 1.15% of insured deposits, over a five-year period, when the
reserve ratio falls below 1.15%. The recent failures of several financial institutions have
significantly increased the Deposit Insurance Funds loss provisions, resulting in a decline in the
reserve ratio. The FDIC expects a higher rate of insured institution failures in the next few
years, which may result in a continued decline in the reserve ratio.
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On September 30, 2009, the FDIC collected a one-time special assessment of five basis points
of an institutions assets minus tier 1 capital as of June 30, 2009. The amount of the special
assessment could not exceed ten basis points times the institutions assessment base for the second
quarter 2009. In addition, on November 12, 2009, the FDIC adopted a final rule that required
nearly all FDIC-insured depository institutions to prepay their DIF assessments for the fourth
quarter of 2009 and for the next
three years. This rule did not affect our net income, although it has had a negative effect
on cash flow. The FDIC has indicated that the prepayment of DIF assessments will be in lieu of
additional special assessments, although there can be no guarantee that continued pressures on the
DIF will not result in additional special assessments being collected by the FDIC in the future.
If we are required to pay significantly higher premiums or additional special assessments in the
future, our earnings could be adversely affected. A downgrade in our regulatory condition could
also cause our assessment to materially increase.
During the year ended December 31, 2009, we expensed $2.7 million in deposit insurance
assessments. On December 31, 2009 we prepaid three years deposit insurance in the amount of
$6,886.
Future impairment losses could be required on various investment securities, which may materially
reduce the Companys and the Banks regulatory capital levels.
The Company establishes fair value estimates of securities available-for-sale in accordance
with generally accepted accounting principles. The Companys estimates can change from reporting
period to reporting period, and we cannot provide any assurance that the fair value estimates of
our investment securities would be the realizable value in the event of a sale of the securities.
A number of factors could cause the Company to conclude in one or more future reporting
periods that any difference between the fair value and the amortized cost of one or more of the
securities that we own constitutes an other-than-temporary impairment. These factors include, but
are not limited to, an increase in the severity of the unrealized loss on a particular security, an
increase in the length of time unrealized losses continue without an improvement in value, a change
in our intent or whether the Company has the intent to sell the security or more likely than not
will be required to sell the security before its anticipated recovery, or changes in market
conditions or industry or issuer specific factors that would render us unable to forecast a full
recovery in value, including adverse developments concerning the financial condition of the
companies in which we have invested.
The Company may be required to take other-than-temporary impairment charges on various
securities in its investment portfolio. In addition, depending on various factors,
including the fair values of other securities that we hold, we may be required to take additional
other-than-temporary impairment charges on other investment securities. Any other-than-temporary
impairment charges would negatively affect our regulatory capital levels, and may result in a
change to our capitalization category, which could limit certain corporate practices and could
compel us to take specific actions.
The Company recognized an other-than-temporary impairment charge of $975 for the year ended
December 31, 2009.
We could suffer loan losses from a decline in credit quality.
We could sustain losses if borrowers, guarantors and related parties fail to perform in
accordance with the terms of their loans. We have adopted underwriting and credit monitoring
procedures and policies, including the establishment and review of the allowance for credit losses
that we believe are appropriate to minimize this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying our credit portfolio. These policies
and procedures, however, may not prevent unexpected losses that could materially adversely affect
our results of operations. In particular, we face credit quality risks presented by past, current
and potential economic and real estate market conditions as more fully described in the risk
factors appearing below.
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As a community financial institution, we have different lending risks than larger banks.
We provide services to our local communities. Our ability to diversify our economic risks is
limited by our own local markets and economies. We lend primarily to small to medium-sized
businesses and, to a lesser extent, individuals, which may expose us to greater lending risks than
those of banks lending to larger, better-capitalized businesses with longer operating histories.
We manage our credit exposure through careful monitoring of loan applicants and loan
concentrations in particular industries, and through loan approval and review procedures. We have
established an evaluation process designed to determine the adequacy of our allowance for loan
losses. While this evaluation process uses historical and other objective information, the
classification of loans and the establishment of loan losses is an estimate based on experience,
judgment and expectations regarding our borrowers, the economies in which we and our borrowers
operate, as well as the judgment of our regulators. Our loan loss reserves may not be sufficient
to absorb future loan losses or prevent a material adverse effect on our business, financial
condition, or results of operations. See the disclosure below under Our allowance for loan losses
may not be adequate to cover actual loan losses, which may require us to take a charge to our
earnings and adversely impact our financial condition and results of operations.
If the value of real estate in our core market were to decline materially, a significant portion of
our loan portfolio could become under-collateralized, which could have a material adverse effect on
our business, financial condition and results of operations.
With most of our loans concentrated in Richmond, Columbia and Clarke counties in the state of
Georgia and Aiken County in the state of South Carolina, a decline in local economic conditions
could adversely affect the values of our real estate collateral. Consequently, a decline in local
economic conditions may have a greater effect on our earnings and capital than on the earnings and
capital of larger financial institutions whose real estate loan portfolios are geographically
diverse.
In addition to considering the financial strength and cash flow characteristics of borrowers,
we often secure loans with real estate collateral. At December 31, 2009, approximately 86.6% of
our loans had real estate as a primary or secondary component of collateral. The real estate
collateral in each case provides an alternate source of repayment in the event of default by the
borrower and may deteriorate in value during the time the credit is extended. Our markets and the
U.S. generally are experiencing a period of reduced real estate values, and if we are required to
liquidate the collateral securing a significant loan or collection of loans to satisfy the debt
during such a period, our earnings and capital could be adversely affected. See the disclosure
below under An economic downturn, especially one affecting our market areas, could adversely
affect our financial condition, results of operations, or cash flows.
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We make and hold in our portfolio a significant number of land acquisition and development and
construction loans, which pose more credit risk than other types of loans typically made by
financial institutions.
We offer land acquisition and development and construction loans for builders and developers.
As of December 31, 2009, approximately $270.1 million (28.8%) of our loan portfolio represented
loans for which the related property is neither presold nor preleased. These land acquisition and
development and construction loans are considered more risky than other types of residential
mortgage loans. The primary credit risks associated with land acquisition and development and
construction lending are underwriting, project risks and market risks. Project risks include cost
overruns, borrower credit risk, project completion risk, general contractor credit risk, and
environmental and other hazard risks. Market risks are risks associated with the sale of the
completed residential units. They include
affordability risk, which means the risk of affordability of financing by borrowers, product
design risk, and risks posed by competing projects. Given the current environment, we expect that
in 2010, the non-performing loans in our land acquisition and development and construction
portfolio could increase substantially, which would reduce our interest income. These
non-performing loans could also result in an increased level of charge-offs, which would negatively
impact our capital and earnings.
Our profitability is vulnerable to interest rate fluctuations.
Our profitability depends substantially upon our net interest income. Net interest income is
the difference between the interest earned on assets, such as loans and investment securities, and
the interest paid for liabilities, such as savings and time deposits and out-of-market certificates
of deposit. Market interest rates for loans, investments and deposits are highly sensitive to many
factors beyond our control. Recently, interest rate spreads (the difference between interest rates
earned on assets and interest rates paid on liabilities) have generally narrowed as a result of
changing market conditions, policies of various government and regulatory authorities and
competitive pricing pressures, and we cannot predict whether these rate spreads will narrow even
further. This narrowing of interest rate spreads could adversely affect our financial condition
and results of operations. In addition, we cannot predict whether interest rates will continue to
remain at present levels. Changes in interest rates may cause significant changes, up or down, in
our net interest income. Depending on our portfolio of loans and investments, our results of
operations may be adversely affected by changes in interest rates. See Managements Discussion
and Analysis of Results of Operations and Financial Condition Asset/Liability Management,
Interest Rate Sensitivity and Liquidity.
Our allowance for loan losses may not be adequate to cover actual loan losses, which may require us
to take a charge to our earnings and adversely impact our financial condition and results of
operations.
We maintain an allowance for estimated loan losses that we believe is adequate for absorbing
any probable losses in our loan portfolio. Management determines the provision for loan losses
based upon an analysis of general market conditions, credit quality of our loan portfolio, and
performance of our customers relative to their financial obligations with us. We periodically
evaluate our loan portfolio for risk grading, which can result in changes in our allowance for
estimated loan losses. The amount of future losses is susceptible to changes in economic,
operating, and other conditions, including changes in interest rates that may be beyond our control
and such losses may exceed the allowance for estimated loan losses. Significant increases to the
provision for loan losses may be necessary if material adverse changes in general economic
conditions occur or the performance of our loan portfolio deteriorates. Additionally, federal
banking regulators, as an integral part of their supervisory function, periodically review the
allowance for estimated loan losses. Consultations with these regulatory agencies may lead us to
conclude that an increase in the allowance for loan losses is necessary. Such an increase would
have a negative effect on our results of operations and financial condition. See Managements
Discussion and Analysis of Results of Operations and Financial ConditionProvision for Loan Losses,
Net Charge-Offs and Allowance for Loan Losses.
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An economic downturn, especially one affecting our market areas, could adversely affect our
financial condition, results of operations or cash flows.
Our success depends upon the growth in population, income levels, deposits and housing starts
in our primary market areas which principally include Richmond, Columbia and Clarke counties in the
state of Georgia and Aiken County in the state of South Carolina. If the communities in which we
operate do not grow, or if prevailing economic conditions locally or nationally are unfavorable,
our
business may not succeed. Unpredictable economic conditions may have an adverse effect on the
quality of our loan portfolio and our financial performance. Economic recession over a prolonged
period or other economic problems in our market areas could have a material adverse impact on the
quality of the loan portfolio and the demand for our products and services. We experienced a
higher percentage of non-performing loans to total loans in 2009 than in past years based in part
on general economic conditions in our market areas. Future adverse changes in the economies in our
market areas may have a material adverse effect on our financial condition, results of operations
or cash flows. Further, the banking industry in Georgia and South Carolina is affected by general
economic conditions such as inflation, recession, unemployment and other factors beyond our
control. As community financial institutions, we are less able to spread the risk of unfavorable
local economic conditions than larger or more regional banks. Moreover, we cannot give any
assurance that we will benefit from any market growth or favorable economic conditions in our
primary market areas even if they do occur.
Ongoing deterioration in the housing market and the homebuilding industry may lead to increased
losses and further worsening of delinquencies and non-performing assets in our loan portfolios.
Consequently, our results of operations may be adversely impacted.
There has been substantial industry concern and publicity over asset quality among financial
institutions due in large part to issues related to subprime mortgage lending, declining real
estate values and general economic concerns. As of December 31, 2009, our non-performing assets had
increased significantly to $40.2 million, or 4.3%, of our loan portfolio plus other real estate
owned. Furthermore, the housing and the residential mortgage markets recently have experienced a
variety of difficulties and changed economic conditions. If market conditions continue to
deteriorate, they may lead to additional valuation adjustments on our loan portfolios and real
estate owned as we continue to reassess the market value of our loan portfolio, the losses
associated with the loans in default and the net realizable value of real estate owned.
The homebuilding industry has experienced a significant and sustained decline in demand for
new homes and an oversupply of new and existing homes available for sale in various markets,
including some of the markets in which we lend. Our customers who are builders and developers face
greater difficulty in selling their homes in markets where these trends are more pronounced.
Consequently, we are facing increased delinquencies and non-performing assets as these builders and
developers are forced to default on their loans with us. We do not know when the housing market
will improve, and accordingly, additional downgrades, provisions for loan losses and charge-offs
related to our loan portfolio may occur.
We will realize additional future losses if the proceeds we receive upon liquidation of
non-performing assets are less than the fair value of such assets.
Non-performing assets are recorded on our financial statements at our best estimate of fair
value, as required under GAAP. If the proceeds we receive upon dispositions of non-performing
assets are less than the recorded fair value of such assets then additional losses will be
recognized.
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Our use of appraisals in deciding whether to make a loan on or secured by real property or how to
value such loan in the future may not accurately describe the net value of the real property
collateral that we can realize.
In considering whether to make a loan secured by real property, we generally require an
appraisal of the property. However, an appraisal is only an estimate of the value of the property
at the time the appraisal is made, and, as real estate values in our market area have experienced
changes in value in relatively short periods of time, this estimate might not accurately describe
the net value of the
real property collateral after the loan has been closed. If the appraisal does not reflect the
amount that may be obtained upon any sale or foreclosure of the property, we may not realize an
amount equal to the indebtedness secured by the property. The valuation of the property may
negatively impact the continuing value of such loan and could adversely affect our operating
results and financial condition.
Confidential customer information transmitted through our online banking service is vulnerable to
security breaches and computer viruses, which could expose us to litigation and adversely affect
our reputation and ability to generate deposits.
We provide our customers with the ability to bank online. The secure transmission of
confidential information over the Internet is a critical element of online banking. Our network
could be vulnerable to unauthorized access, computer viruses, phishing schemes, and other security
problems. We may be required to spend significant capital and other resources to protect against
the threat of security breaches and computer viruses, or to alleviate problems caused by security
breaches or viruses. To the extent that our activities or the activities of our clients involve
the storage and transmission of confidential information, security breaches and viruses could
expose us to claims, litigation and other possible liabilities. Any inability to prevent security
breaches or computer viruses could also cause existing clients to lose confidence in our systems
and could adversely affect our reputation and ability to generate deposits.
We face intense competition in all of our current and planned markets.
The financial services industry, including commercial banking, mortgage banking, consumer
lending, and home equity lending, is highly competitive, and we encounter strong competition for
deposits, loans, and other financial services in all of our market areas in each of our lines of
business. Our principal competitors include other commercial banks, savings banks, savings and
loan associations, mutual funds, money market funds, finance companies, trust companies, insurers,
credit unions, and mortgage companies. Many of our non-bank competitors are not subject to the
same degree of regulation as us and have advantages over us in providing certain services. Many of
our competitors are significantly larger than us and have greater access to capital and other
resources. Also, our ability to compete effectively in our business is dependent on our ability to
adapt successfully to regulatory and technological changes within the banking and financial
services industry generally. If we are unable to compete effectively, we will lose market share
and our income from loans and other products may diminish.
Our ability to compete successfully depends on a number of factors, including, among other
things:
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the ability to develop, maintain, and build upon long-term customer
relationships based on top quality service and high ethical standards; |
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the scope, relevance, and pricing of products and services offered to meet
customer needs and demands; |
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the rate at which we introduce new products and services relative to our
competitors; |
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customer satisfaction with our level of service; and |
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industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken our competitive position,
which could adversely affect our growth and profitability, which, in turn, could have a material
adverse effect on our financial condition and results of operations.
26
Additional growth may require us to raise additional capital in the future, but that capital may
not be available when it is needed, which could adversely affect our financial condition and
results of operations.
We are required by federal and state regulatory authorities to maintain adequate levels of
capital to support our operations. We anticipate that our current capital resources will satisfy
our capital requirements for the foreseeable future, although we may need to raise additional
capital to support our continued growth.
Our ability to raise additional capital will depend on conditions in the capital markets at
that time, which are outside our control, and on our financial performance. Accordingly, we cannot
assure you of our ability to raise additional capital on terms that are acceptable to us or that
are not dilutive to existing shareholders. If we cannot raise additional capital when needed, our
ability to further expand our operations could be materially impaired.
Our ability to pay dividends is limited and we may be unable to pay future dividends. As a result,
capital appreciation, if any, of our common stock may be your sole opportunity for gains on your
investment for the foreseeable future.
We make no assurances that we will pay any dividends in the future. Any future determination
relating to dividend policy will be made at the discretion of our Board of Directors and will
depend on a number of factors, including our future earnings, capital requirements, financial
condition, future prospects, regulatory restrictions and other factors that our Board of Directors
may deem relevant. The holders of our common stock are entitled to receive dividends when, and if
declared by our Board of Directors out of funds legally available for that purpose. As part of our
consideration to pay cash dividends, we intend to retain adequate funds from future earnings to
support the development and growth of our business. In addition, our ability to pay dividends is
restricted by federal policies and regulations and by the terms of our existing indebtedness. It
is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on
common stock only out of net income available over the past year and only if prospective earnings
retention is consistent with the organizations expected future needs and financial condition.
Further, our principal source of funds to pay dividends are cash dividends that we receive from our
subsidiaries. See Business Supervision and Regulation Payment of Dividends.
We are subject to extensive regulation that could limit or restrict our activities and impose
financial requirements or limitations on the conduct of our business, which limitations or
restrictions could adversely affect our profitability.
As a bank holding company, we are primarily regulated by the Board of Governors of the Federal
Reserve System (Federal Reserve Board). Our subsidiary bank is primarily regulated by the
Federal Deposit Insurance Corporation (the FDIC) and the GDBF. Our subsidiary thrift is
primarily regulated by the Office of Thrift Supervision (OTS). Our compliance with Federal
Reserve Board, FDIC, Georgia Department of Banking and Finance and OTS regulations is costly and
may limit our growth and restrict certain of our activities, including payment of dividends,
mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on
deposits and locations of offices. We are also subject to capital requirements of our regulators.
The laws and regulations applicable to the banking industry could change at any time, and we
cannot predict the effects of these changes on our business and profitability. Because government
regulation greatly affects the business and financial results of all commercial banks, thrifts and
bank holding companies, our cost of compliance could adversely affect our ability to operate
profitably.
27
Environmental liability associated with lending activities could result in losses.
In the course of our business, we may foreclose on and take title to properties securing our
loans. If hazardous substances are discovered on any of these properties, we may be liable to
governmental entities or third parties for the costs of remediation of the hazard, as well as for
personal injury and property damage. Many environmental laws can impose liability regardless of
whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the
disposal of hazardous or toxic substances at another site, we may be liable for the costs of
cleaning up and removing those substances from the site, even if we neither own nor operate the
disposal site. Environmental laws may require us to incur substantial expenses and may materially
limit the use of properties that we acquire through foreclosure, reduce their value or limit our
ability to sell them in the event of a default on the loans they secure. In addition, future laws
or more stringent interpretations or enforcement policies with respect to existing laws may
increase our exposure to environmental liability.
Holders of our subordinated debentures have rights that are senior to those of our common
shareholders.
We have supported our continued growth by issuing trust preferred securities from special
purpose trusts and accompanying subordinated debentures. At December 31, 2009, we had outstanding
subordinated debentures totaling $22.9 million and may issue additional trust preferred securities
in the future. We unconditionally guarantee the payment of principal and interest on the trust
preferred securities. Also, the debentures we issued to the special purpose trusts that relate to
those trust preferred securities are senior to our common stock. As a result, we must make
payments on the subordinated debentures before we can pay any dividends on our common stock. In
the event of our bankruptcy, dissolution or liquidation, holders of our subordinated debentures
must be satisfied before any distributions can be made on our common stock. We have the right to
defer distributions on our subordinated debentures (and related trust preferred securities) for up
to five years, but during that time we would not be able to pay dividends on our common stock.
If we are unable to increase our share of deposits in our market, we may accept out of market and
brokered deposits, the costs of which may be higher than expected.
We can offer no assurance that we will be able to maintain or increase our market share of
deposits in our highly competitive service area. If we are unable to do so, we may be forced to
accept increased amounts of out of market or brokered deposits. As of December 31, 2009, we had
approximately $216.2 million in out of market deposits, including brokered deposits, which
represented approximately 16.9% of our total deposits. At times, the cost of out of market and
brokered deposits exceeds the cost of deposits in our local market. In addition, the cost of out of
market and brokered deposits can be volatile, and if we are unable to access these markets or if
our costs related to out of market and brokered deposits increases, our liquidity and ability to
support demand for loans could be adversely affected.
Opening new offices may not result in increased assets or revenues for us.
The investment necessary for branch expansion may negatively impact our efficiency ratio.
There is a risk that we will be unable to manage our growth, as the process of opening new branches
may divert our time and resources. There is also risk that we may fail to open any additional
branches, and a risk that, if we do open these branches, they may not be profitable which would
negatively impact our results of operations.
28
Changes in monetary policies may have an adverse effect on our business, financial condition and
results of operations.
Our financial condition and results of operations are affected by credit policies of monetary
authorities, particularly the Federal Reserve Board. Actions by monetary and fiscal authorities,
including the Federal Reserve Board, could have an adverse effect on our deposit levels, loan
demand or business and earnings.
Our directors and executive officers own a significant portion of our common stock and can
influence shareholder decisions.
Our directors, executive officers and relatives of directors, as a group, beneficially owned
approximately 53.4% of our fully diluted outstanding common stock as of February 17, 2010. As a
result of their ownership, the directors and executive officers will have the ability, if they
voted their shares in concert, to control the outcome of all matters submitted to our shareholders
for approval, including the election of directors.
Item 1B. Unresolved Staff Comments
None
29
The Company currently operates two main offices, eleven branches and an operations center. The
principal administrative offices of the Company are located at 3530 Wheeler Road, Augusta, Georgia.
Locations in Georgia include the main office, four branch offices in Augusta, Georgia, two
branches in Martinez, Georgia, two branches in Evans, Georgia, and one branch in Athens, Georgia.
SB&T locations include the main office and one additional branch in Aiken, South Carolina, and one
leased facility in North Augusta, South Carolina. All banking offices except the leased facility
are owned by the Company, are not subject to mortgage, and are covered by appropriate insurance for
replacement value.
Each banking office in metro Augusta is a brick building with a teller line, customer service
area, offices for the Companys lenders, drive-in teller lanes, a vault with safe deposit boxes,
and a walk-up or drive-up automated teller machine. The banking offices are generally 3,000 to
5,000 square foot buildings. Exceptions are the main office with approximately 14,000 square feet,
the Washington Road branch with 1,800 square feet, and the Cotton Exchange branch with 7,500 square
feet of space.
In December 2005, the first branch located outside of metro Augusta was opened in Athens,
Georgia. This 4,000 square foot banking office is located on the border of the Athens historic
district and includes a teller line, customer service area, and lending offices. The Pine Log Road
office, located in Aiken, South Carolina, opened in September 2006, and consists of a 4,000 square
foot banking office with all the facilities of the metro Augusta offices. In July 2007, a 1,600
square foot drive-thru facility was opened in Evans, Georgia, and in August 2007, a 4,600 square
foot full-service branch was opened in North Augusta, South Carolina. On January 10, 2008, the
Thrift opened its second branch in Aiken, South Carolina and relocated its main office to a 3,168
square foot wood frame historic home on Laurens Street.
In 1997, the Company acquired 24,000 square feet of commercial office space located at 3515
Wheeler Road, across the street from the main office. This office space is partially leased but
mainly occupied by the Companys mortgage operations, wealth management and construction lending
departments.
Due to continued growth, the Company purchased a commercial building with approximately 45,000
square feet of office space on Columbia Road in Martinez in May 2006. This office space was
renovated during 2006 and 2007, and operational functions including data processing, deposit
operations, human resources, loan operations, credit administration and accounting were relocated
to this facility in October 2007.
The Companys automated teller machine network includes three drive-up machines located in
major retail shopping areas as well as machines located at twelve of the thirteen branch offices.
See Note 7 to the Consolidated Financial Statements for additional information concerning the
Companys premises and equipment and Note 8 to the Consolidated Financial Statements for additional
information concerning the Companys commitments under various equipment leases.
30
|
|
|
Item 3. |
|
Legal Proceedings |
In the ordinary course of business, the Company and its subsidiaries are parties to various
legal proceedings. Although the amount of any ultimate liability with respect to such matters
cannot be determined, in the opinion of management, there is no proceeding pending or, to the
knowledge of management, threatened in which an adverse decision would result in a material adverse change
to the consolidated results of operations or financial condition of the Company or its
subsidiaries.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Shareholders |
There were no matters submitted to a vote of the shareholders of the Company during the fourth
quarter of the Companys fiscal year ended December 31, 2009.
31
PART II
|
|
|
Item 5. |
|
Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities |
As of February 17, 2010, there were approximately 989 holders of record of the Companys
common stock. As of February 17, 2010, there were 6,673,352 shares of the Companys common stock
outstanding. The Companys common stock is traded via the Over-the-Counter Bulletin Board under
the trading symbol SBFC. The following table reflects the range of high and low bid quotations,
adjusted for stock dividends and splits, in the Companys common stock for the past two years:
Southeastern Bank Financial Corporation Stock Price
|
|
|
|
|
|
|
|
|
|
|
Low |
|
|
High |
|
Quarter ended |
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
23.64 |
|
|
|
31.82 |
|
June 30, 2008 |
|
|
24.68 |
|
|
|
32.05 |
|
September 30, 2008 |
|
|
25.55 |
|
|
|
30.00 |
|
December 31, 2008 |
|
|
14.55 |
|
|
|
28.00 |
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
12.00 |
|
|
|
19.50 |
|
June 30, 2009 |
|
|
13.05 |
|
|
|
18.00 |
|
September 30, 2009 |
|
|
11.00 |
|
|
|
15.50 |
|
December 31, 2009 |
|
|
10.00 |
|
|
|
13.00 |
|
|
|
|
|
|
|
|
|
|
Period ended |
|
|
|
|
|
|
|
|
February 17, 2010 |
|
|
9.17 |
|
|
|
11.75 |
|
The Company declared cash dividends of $0.13 per share on January 21, 2009, but suspended cash
dividends as of April 22, 2009. The Company declared cash dividends of $0.13 per share in each
quarter of 2008 and 2007. The Companys primary sources of income are dividends and other payments
received from its subsidiaries. The amount of dividends that may be paid by GB&T and SB&T to the
Company depends upon the subsidiaries earnings and capital position and is limited by federal and
state law, regulations and policies.
Cash dividends on GB&Ts common stock may be declared and paid only out of its retained
earnings, and dividends may not be declared at any time when GB&Ts paid-in capital and
appropriated earnings do not, in combination, equal at least 20% of its capital stock account. In
addition, the GDBFs current rules and regulations require prior approval before cash dividends may
be declared and paid if: (i) the banks ratio of equity capital to adjusted total assets is less
than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that
calendar year exceeds 50% of the banks net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the banks loans classified as adverse as to
repayment or recovery by the GDBF at the most recent examination of the bank exceeds 80% of the
banks equity as reflected at such examination. Cash dividends on SB&Ts common stock are not
permitted during its first three years of operation without approval from the OTS pursuant to its
current business plan.
32
The Companys ability to pay cash dividends is further subject to continued payment of
interest that is owed on subordinated debentures issued in connection with the Southeastern Bank
Financial Statutory Trust I issuance in December 2005 of $10.0 million of trust preferred
securities and the Southeastern Bank Financial Trust II issuance in March 2006 of $10.0 million of
trust preferred securities. As of December 31, 2009, the Company had approximately $22.9 million
of subordinated debentures outstanding. On $20 million of subordinated debt the Company has the
right to defer payment of interest for a period not exceeding 20 consecutive quarters. If the
Company defers, or fails to make, interest payments on the subordinated debentures, the Company
will be prohibited, subject to certain exceptions, from paying cash dividends on common stock until
all deferred interest is paid and interest payments on the subordinated debentures resumes.
There were no shares repurchased under an existing stock repurchase plan or otherwise during
the fourth quarter of 2009.
The Company did not sell any of its equity securities without registration under the
Securities Act of 1933, as amended, during the fourth quarter of 2009.
See Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters for a table presenting information on equity securities subject to future
issuance under the Companys equity compensation plans.
33
|
|
|
Item 6. |
|
Selected Financial Data |
The selected consolidated financial data presented on the following page as of December 31,
2009 and 2008 and for each of the years in the three-year period ended December 31, 2009 is derived
from the audited consolidated financial statements and related notes included in this report and
should be read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations. The selected consolidated financial data as of December 31, 2006 and 2005
is derived from audited consolidated financial statements that are not included in this report but
that are included in the Annual Reports on Form 10-K filed with the Securities and Exchange
Commission for those years. The per share data presented on the following page has been adjusted
accordingly for the 10% stock dividend paid June 2, 2008.
In September 2006, the SEC issued guidance on how the effects of prior-year uncorrected
financial statement misstatements should be considered in quantifying a current year misstatement.
Public companies are required to quantify misstatements using both an income statement (rollover)
and balance sheet (iron curtain) approach and evaluate whether either approach results in a
misstatement that, when all relevant quantitative and qualitative factors are considered, is
material. If prior year errors that had been previously considered immaterial now are considered
material based on either approach, no restatement is required so long as management properly
applied its previous approach and all relevant facts and circumstances were considered.
Adjustments considered immaterial in prior years under the method previously used, but now
considered material under the dual approach, are to be recorded upon initial adoption. The amount
so recorded is shown as a cumulative effect adjustment is recorded in opening retained earnings as
of January 1, 2006. Included in this cumulative effect adjustment are the following items and
amounts: The allowance for loan loss was decreased $694,000 to adjust for estimated losses on
unfunded lines and commitments and standby letters of credit. This reduction also resulted in a
$269,235 decrease in the deferred income tax asset account and a $424,765 increase in retained
earnings. Accrued income taxes were decreased by $369,726 to eliminate a tax contingency reserve
due to an assumption of taxability of certain federal agency interest for state purposes,
subsequently determined to be nontaxable. The reduction in accrued income taxes resulted in an
increase in retained earnings of $369,726. Both of these amounts had been recorded in immaterial
amounts over the preceding six to seven years.
Proforma disclosures illustrating the effects of this guidance on what the allowance for loan
loss and the related provision for loan loss and ratios would have been excluding the error are
provided in selected financial data and in other related areas of the report.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Consolidated Financial Data |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands, except per share data) |
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
70,760 |
|
|
$ |
75,675 |
|
|
$ |
79,181 |
|
|
$ |
65,626 |
|
|
$ |
47,277 |
|
Total interest expense |
|
|
28,483 |
|
|
|
35,489 |
|
|
|
40,932 |
|
|
|
31,423 |
|
|
|
17,885 |
|
Net interest income |
|
|
42,277 |
|
|
|
40,186 |
|
|
|
38,249 |
|
|
|
34,203 |
|
|
|
29,392 |
|
Provision for loan losses |
|
|
30,904 |
|
|
|
9,055 |
|
|
|
3,823 |
|
|
|
2,478 |
|
|
|
1,842 |
|
Noninterest income |
|
|
20,739 |
|
|
|
16,705 |
|
|
|
16,168 |
|
|
|
14,040 |
|
|
|
12,371 |
|
Noninterest expense |
|
|
46,511 |
|
|
|
36,752 |
|
|
|
32,508 |
|
|
|
28,932 |
|
|
|
25,012 |
|
Net income (loss) |
|
|
(7,985 |
) |
|
|
7,578 |
|
|
|
11,765 |
|
|
|
11,160 |
|
|
|
9,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)- Diluted |
|
$ |
(1.24 |
) |
|
$ |
1.26 |
|
|
$ |
1.95 |
|
|
$ |
1.89 |
|
|
$ |
1.69 |
|
Book value |
|
|
14.05 |
|
|
|
15.81 |
|
|
|
15.04 |
|
|
|
13.21 |
|
|
|
10.98 |
|
Cash dividends declared per common share |
|
|
0.13 |
|
|
|
0.52 |
|
|
|
0.52 |
|
|
|
0.52 |
|
|
|
0.52 |
|
Weighted average common and common
equivalent shares outstanding |
|
|
6,422,867 |
|
|
|
6,011,689 |
|
|
|
6,044,871 |
|
|
|
5,908,659 |
|
|
|
5,885,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,476,887 |
|
|
$ |
1,318,384 |
|
|
$ |
1,133,064 |
|
|
$ |
951,115 |
|
|
$ |
785,081 |
|
Total loans (net of unearned income) |
|
|
965,111 |
|
|
|
934,512 |
|
|
|
800,852 |
|
|
|
647,421 |
|
|
|
530,662 |
|
Deposits |
|
|
1,221,100 |
|
|
|
1,057,198 |
|
|
|
893,959 |
|
|
|
735,128 |
|
|
|
611,029 |
|
Stockholders equity |
|
|
100,760 |
|
|
|
89,337 |
|
|
|
83,850 |
|
|
|
69,317 |
|
|
|
61,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Year-End Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,491,119 |
|
|
$ |
1,411,039 |
|
|
$ |
1,212,980 |
|
|
$ |
1,041,202 |
|
|
$ |
864,277 |
|
Loans (net of unearned income) |
|
|
937,489 |
|
|
|
986,831 |
|
|
|
871,440 |
|
|
|
735,112 |
|
|
|
579,088 |
|
Allowance for loan losses |
|
|
22,338 |
|
|
|
14,742 |
|
|
|
11,800 |
|
|
|
9,777 |
|
|
|
9,125 |
|
Deposits |
|
|
1,280,534 |
|
|
|
1,139,552 |
|
|
|
952,166 |
|
|
|
801,763 |
|
|
|
663,655 |
|
Short-term borrowings |
|
|
20,788 |
|
|
|
62,553 |
|
|
|
81,666 |
|
|
|
76,020 |
|
|
|
73,013 |
|
Long-term borrowings |
|
|
82,947 |
|
|
|
104,000 |
|
|
|
79,000 |
|
|
|
75,000 |
|
|
|
57,000 |
|
Stockholders equity |
|
|
93,744 |
|
|
|
94,651 |
|
|
|
89,758 |
|
|
|
78,924 |
|
|
|
63,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
(0.54 |
%) |
|
|
0.57 |
% |
|
|
1.04 |
% |
|
|
1.17 |
% |
|
|
1.27 |
% |
Return on average equity |
|
|
(7.92 |
%) |
|
|
8.48 |
% |
|
|
14.03 |
% |
|
|
16.10 |
% |
|
|
16.15 |
% |
Average earning assets to average total assets |
|
|
91.54 |
% |
|
|
94.11 |
% |
|
|
93.66 |
% |
|
|
93.67 |
% |
|
|
93.90 |
% |
Average loans to average deposits |
|
|
79.04 |
% |
|
|
88.40 |
% |
|
|
89.58 |
% |
|
|
88.07 |
% |
|
|
86.85 |
% |
Average equity to average total assets |
|
|
6.82 |
% |
|
|
6.78 |
% |
|
|
7.40 |
% |
|
|
7.29 |
% |
|
|
7.85 |
% |
Net interest margin |
|
|
3.12 |
% |
|
|
3.24 |
% |
|
|
3.60 |
% |
|
|
3.84 |
% |
|
|
3.98 |
% |
Operating efficiency |
|
|
75.66 |
% |
|
|
64.52 |
% |
|
|
60.64 |
% |
|
|
60.20 |
% |
|
|
59.78 |
% |
Net charge-offs to average loans |
|
|
2.42 |
% |
|
|
0.65 |
% |
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.12 |
% |
Allowance for loan losses to net loans (year-end) |
|
|
2.38 |
% |
|
|
1.49 |
% |
|
|
1.35 |
% |
|
|
1.33 |
% |
|
|
1.58 |
% |
Risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
11.06 |
% |
|
|
10.45 |
% |
|
|
11.38 |
% |
|
|
12.09 |
% |
|
|
11.10 |
% |
Total capital |
|
|
12.55 |
% |
|
|
11.70 |
% |
|
|
12.61 |
% |
|
|
13.29 |
% |
|
|
12.35 |
% |
Tier 1 leverage ratio |
|
|
7.51 |
% |
|
|
8.14 |
% |
|
|
9.08 |
% |
|
|
9.78 |
% |
|
|
9.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma data to illustrate the effect of SAB 108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to net loans excluding amount
applicable to unfunded lines, commitments and standby letters
of credit (year-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses excluding amount applicable to
unfunded lines, commitments and standby letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,723 |
|
Allowance for loan losses excluding amount applicable to
unfunded lines, commitments and standby letters of credit (year-
end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,431 |
|
35
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
(Dollar amounts are expressed in thousands unless otherwise noted)
The purpose of this discussion is to focus on significant changes in the financial condition
and results of operations of the Company and its subsidiaries, Georgia Bank & Trust Company of
Augusta (GB&T) and Southern Bank & Trust (SB&T), during the past three years. The discussion
and analysis is intended to supplement and highlight information contained in the accompanying
consolidated financial statements and related notes to the consolidated financial statements.
Overview
The Companys services include the origination of residential and commercial real estate
loans, construction and development loans, and commercial and consumer loans. The Company also
offers a variety of deposit programs, including noninterest-bearing demand, interest checking,
money management, savings, and time deposits. In the Augusta-Richmond County, GA-SC metropolitan
statistical area, the Company had 16.70% of all deposits and was the second largest depository
institution and the largest locally based institution at June 30, 2009 based on deposit levels, as
cited from the FDICs website. Securities sold under repurchase agreements are also offered.
Additional services include wealth management, trust, retail investment, and mortgage. As a matter
of practice, most mortgage loans are sold in the secondary market; however, some mortgage loans are
placed in the portfolio based on asset/liability management strategies. The Company continues to
concentrate on increasing its market share through various new deposit and loan products and other
financial services, by adding locations, and by focusing on the customer relationship management
philosophy. The Company is committed to building lifelong relationships with its customers,
employees, shareholders, and the communities it serves.
Net loss in 2009 was $8.0 million compared to net income of $7.6 million in 2008. National
economic conditions contributed to problems with loan quality. As a result the provision for loan
loss expense increased $21.8 million primarily due to increased losses on nonperforming assets and
downgrades in the loan portfolio.
The Companys primary source of income is from its lending activities followed by interest
income from its investment activities, service charges and fees on deposits, and gain on sales of
mortgage loans in the secondary market. Interest income on loans decreased primarily due to lower
rates, decreased volumes and higher levels of nonaccrual loans. Service charges and fees on
deposits decreased due to decreases in NSF income on retail and business checking accounts and
debit/ATM card income, both the result of decreased economic activity. Gain on sales of mortgage
loans for 2009 increased over 2008 due to higher production levels from adding lending personnel at
the Thrift and due to increased mortgage refinance activity resulting from declining interest
rates. Retail investment income experienced a slight increase due to increased bond trading. Trust
service fees were relatively unchanged as growth in assets under management offset declines in fees
due to declining portfolio balances. Salary and benefit expenses have increased $1.7 million from
2008 primarily due to increased commissions related to mortgage originations and expenses related
to salary continuation agreements. Occupancy expense increased $318 from 2008 primarily due to
depreciation expense associated with the Companys purchase of upgraded data processing equipment
and software programs in late 2008 and in 2009.
36
The Company continues to experience growth, although at a slower rate, due to economic
conditions. Over the past four years, assets grew from $864.3 million at December 31, 2005 to $1.5
billion at December 31, 2009. From year end 2005 to year end 2009, loans increased $358 million,
and deposits increased $617 million. Net interest income for the year ended 2005 was $29.4 million
compared to net interest income of $42.3 million in 2009. The Company has paid cash dividends of
$0.13 per share each quarter since 2004 but elected to suspend dividends effective April 22, 2009
to conserve capital.
The Company meets its liquidity needs by managing cash and due from banks, federal funds
purchased and sold, maturity of investment securities, principal repayments received from mortgage
backed securities, and draws on lines of credit. Additionally, liquidity can be managed through
structuring deposit and loan maturities. The Company funds loan and investment growth with core
deposits, securities sold under repurchase agreements, Federal Home Loan Bank advances and other
wholesale funding including brokered certificates of deposit. During inflationary periods,
interest rates generally increase and operating expenses generally rise. When interest rates rise,
variable rate loans and investments produce higher earnings; however, deposit and other borrowings
interest expense also rise. The Company monitors its interest rate risk as it applies to net
income in a ramp up and down annually 200 basis points (2.0%) scenario and as it applies to
economic value of equity in a shock up and down 200 (2.0%) basis points scenario. The Company
monitors operating expenses through responsibility center budgeting. See Interest Rate
Sensitivity below.
Critical Accounting Estimates
The accounting and financial reporting policies of the Company and its subsidiaries conform to
accounting principles generally accepted in the United States of America and to general practices
within the banking industry. Of these policies, management has identified the allowance for loan
losses, determining the fair values of financial instruments including other real estate owned,
investment securities, income taxes and other-than-temporary impairment as critical accounting
estimates that requires difficult, subjective judgment and are important to the presentation
of the financial condition and results of operations of the Company.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to
expense, which affects the Companys earnings directly. Loans are charged against the allowance
for loan losses when management believes that the collectability of the principal is unlikely.
Subsequent recoveries are added to the allowance. The allowance is an amount that reflects
managements estimate of the level of incurred losses in the portfolio. Factors considered by
management in determining the adequacy of the allowance include, but are not limited to: (1)
detailed reviews of individual loans; (2) historical and current trends in loan charge-offs for the
various portfolio segments evaluated; (3) the level of the allowance in relation to total loans and
to historical loss levels; (4) levels and trends in non-performing and past due loans; (5)
collateral values of properties securing loans; (6) managements assessment of economic conditions.
The Companys Board of Directors reviews the recommendations of management regarding the
appropriate level for the allowance for loan losses based upon these factors.
The provision for loan losses is the charge to operating earnings necessary to maintain an
adequate allowance for loan losses. The Company has developed policies and procedures for
evaluating the overall quality of its loan portfolio and the timely identification of problem
credits. Management continues to review these policies and procedures and makes further
improvements as needed. The adequacy of the Companys allowance for loan losses and the
effectiveness of the Companys internal policies and procedures are also reviewed periodically by
the Companys regulators and the Companys internal loan review personnel. The Companys
regulators may advise the Company to recognize additions to the allowance based upon their
judgments about information available to them at the time of their examination. Such regulatory
guidance is considered, and the Company may recognize additions to the allowance as a result.
37
The Company continues to refine the methodology on which the level of the allowance for loan
losses is based, by comparing historical loss ratios utilized to actual experience and by
classifying loans for analysis based on similar risk characteristics. Cash receipts for accruing
loans are applied to principal and interest under the contractual terms of the loan agreement;
however, cash receipts on impaired and nonaccrual loans for which the accrual of interest has been
discontinued are applied to principal and interest income depending upon the overall risk of
principal loss to the Company.
Please see Allowance for Loan Losses and Non-Performing Assets for a further discussion of
the Companys loans, loss experience, and methodology in determining the allowance.
Fair Value of Financial Instruments
A significant portion of the Companys assets are financial instruments carried at fair value.
This includes securities available for sale, loans held for sale, certain impaired loans, tax
credits and other real estate owned. At December 31, 2009 and December 31, 2008 the percentage of
total assets measured at fair value was 23.04% and 24.05% respectively. The majority of assets
carried at fair value are based on either quoted market prices or market prices for similar
instruments. At December 31, 2009, 9.47% of assets measured at fair value were based on
significant unobservable inputs. This represents approximately 2.18% of the Companys total
assets. See Note 6 Fair Value Measurements in the Notes to Consolidated Financial Statements
herein for additional disclosures regarding the fair value of financial instruments.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure are initially
recorded at the lesser of the outstanding loan balance or the fair value at the date of foreclosure
minus estimated costs to sell. Any valuation adjustments required at the time of foreclosure are
charged to the allowance for loan losses. After foreclosure, the properties are carried at the
lower of carrying value or fair value less estimated costs to sell. Any subsequent valuation
adjustments, operating expenses or income, and gains and losses on disposition of such properties
are recognized in current operations. The valuation allowance is established based on our
historical realization of losses and adjusted for current market trends.
Investment Securities
The fair values for available-for-sale securities are generally based upon quoted market
prices or observable market prices for similar instruments. These values take into account recent
market activity as well as other market observable data such as interest rate, spread and
prepayment information. When market observable data is not available, which generally occurs due
to the lack of liquidity for certain securities, the valuation of the security is subjective and
may involve substantial judgment. The Company conducts periodic reviews to identify and evaluate
each available-for-sale security that has an unrealized loss for other-than-temporary impairment.
An unrealized loss exists when the fair value of an individual security is less than its amortized
cost basis. The primary factors the Company considers in determining whether an impairment is
other-than-temporary are the financial condition and near-term prospects of the issuer, including
any specific events which may influence the operations of the issuer and whether the Company
intends to sell the security or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less any current-period credit loss. As of December
31, 2009 the Company had approximately $14.4 million of available-for-sale securities, which is
approximately 0.96% of total assets, valued using unobservable inputs (Level 3). These securities
were primarily non-agency mortgage-backed securities and subordinated debentures issued by
financial institutions.
38
Results of Operations
Total assets increased $80.1 million, or 5.68% in 2009 compared to year end 2008, primarily
due to growth in cash and cash equivalents resulting from decreased levels of loans coupled with
increased levels of deposits. The Company recorded a net loss of $8.0 million in 2009 compared to
net income of $7.6 million in 2008. The decrease in net income is primarily attributable to a $21.8
million increase in provision for loan losses associated with increased levels of nonperforming
assets and loan charge-offs. Loan charge-offs increased from $6.7 million in 2008 to $24.1 million
in 2009 and resulted primarily from segments of the Companys acquisition development and
construction loan portfolio (ADC) outside of its primary market. Loans participated with other
banks on properties in the metro Atlanta market as well as ADC loans in the Athens and Savannah,
Georgia markets experienced a level of charge offs higher than that experienced in the Companys
primary market area of the Augusta-Richmond County, GA-SC metropolitan statistical area (MSA).
Interest income decreased $4.9 million or 6.49% to $70.8 million in 2009. Interest income on
loans decreased $5.4 million from 2008 and was primarily the result of a decline in average yield
on loans from 6.46% in 2008 to 5.70% in 2009. Loan yields were impacted by the reduction in the
prime lending rate during 2008 when the Federal Reserve Board reduced its target funds rate by
400bp causing a corresponding reduction in the prime lending rate from 7.25% to 3.25%. Interest
income on investment securities increased $691 in 2009 primarily as a result of a $39.3 million
increase in the
average balance of the investment portfolio in 2009. The yield on the taxable investment
portfolio declined from 5.38% in 2008 to 4.88% in 2009.
Noninterest income increased $4.0 million in 2009 and was due primarily to increased gain on
sale of mortgage loans of $2.7 million and increased gains on sales of investment securities of
$2.6 million. Partially offsetting the increase were other-than-temporary impairment losses of
$975 and a decrease in service charges and fees on deposits.
Interest expense decreased $7.0 million to $28.5 million in 2009. The Company had total
deposit growth of $141.0 million, or 12.37% in 2009. Interest expense on deposits decreased $5.8
million to $24.2 million primarily due to continuing declines in cost of funds somewhat offset by
the growth of deposits. The most significant increases were in savings accounts, NOW accounts and
time deposits over $100. Savings accounts increased $96.5 million, a significant portion of which
resulted from funds moving from securities sold under repurchase agreements. NOW accounts increased
$43.9 million and resulted from increased public funds of $23.8 million and a $22.8 million
increase in the Banks premium interest checking product. Time deposits over $100 increased $33.3
million due primarily to increased balances of brokered CDs which increased from $183.2 million at
year end 2008 to $216.2 million at year end 2009.
Noninterest expense increased $9.8 million or 26.55% in 2009. The principal reasons for the
increased expense were due to losses on sale of other real estate of $6.3 million, $1.8 million
increase in FDIC insurance premiums, $786 increase in commissions and $795 increase in accruals for
the Companys non-qualified defined benefit plan. The operating efficiency ratio of 75.66% in 2009
is an 11.14% increase from 2008.
39
The earnings performance of the Company is reflected in its return on average assets and
average equity of (0.54%) and (7.92%), respectively, during 2009 compared to 0.57% and 8.48%,
respectively, during 2008. Basic net income (loss) per share on weighted average common shares
outstanding declined to ($1.24) in 2009 compared to $1.27 in 2008 and $1.97 in 2007. Diluted net
income (loss) per share on weighted average common and common equivalent shares outstanding
declined to ($1.24) in 2009 compared to $1.26 in 2008 and $1.95 in 2007.
Net Interest Income
The primary source of earnings for the Company is net interest income, which is the difference
between income on interest-earning assets, such as loans and investment securities, and interest
expense incurred on interest-bearing sources of funds, such as deposits and borrowings. The
following table shows the average balances of interest-earning assets and interest-bearing
liabilities, average yields earned and rates paid on those respective balances, and the resulting
interest income and interest expense for the periods indicated. Average balances are calculated
based on daily balances, yields on non-taxable investments are not reported on a tax equivalent
basis and average balances for loans include nonaccrual loans even though interest was not earned.
40
Average Balances, Income and Expenses, Yields and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Dec. 31, 2009 |
|
|
Year Ended Dec. 31, 2008 |
|
|
Year Ended Dec. 31, 2007 |
|
|
|
|
|
|
|
Average |
|
|
Amount |
|
|
|
|
|
|
Average |
|
|
Amount |
|
|
|
|
|
|
Average |
|
|
Amount |
|
|
|
Average |
|
|
Yield or |
|
|
Paid or |
|
|
Average |
|
|
Yield or |
|
|
Paid or |
|
|
Average |
|
|
Yield or |
|
|
Paid or |
|
|
|
Amount |
|
|
Rate |
|
|
Earned |
|
|
Amount |
|
|
Rate |
|
|
Earned |
|
|
Amount |
|
|
Rate |
|
|
Earned |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
986,305 |
|
|
|
5.70 |
% |
|
$ |
56,196 |
|
|
$ |
952,800 |
|
|
|
6.46 |
% |
|
$ |
61,568 |
|
|
$ |
811,509 |
|
|
|
8.16 |
% |
|
$ |
66,219 |
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
273,834 |
|
|
|
4.88 |
% |
|
|
13,376 |
|
|
|
239,253 |
|
|
|
5.38 |
% |
|
|
12,875 |
|
|
|
209,082 |
|
|
|
5.27 |
% |
|
|
11,023 |
|
Tax-exempt |
|
|
20,969 |
|
|
|
4.32 |
% |
|
|
906 |
|
|
|
16,266 |
|
|
|
4.40 |
% |
|
|
716 |
|
|
|
18,734 |
|
|
|
4.27 |
% |
|
|
800 |
|
Federal funds sold |
|
|
22,322 |
|
|
|
0.43 |
% |
|
|
95 |
|
|
|
29,916 |
|
|
|
1.57 |
% |
|
|
470 |
|
|
|
21,434 |
|
|
|
5.19 |
% |
|
|
1,112 |
|
Interest-bearing deposits in other
banks |
|
|
48,509 |
|
|
|
0.39 |
% |
|
|
187 |
|
|
|
2,557 |
|
|
|
1.80 |
% |
|
|
46 |
|
|
|
506 |
|
|
|
5.34 |
% |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
1,351,939 |
|
|
|
5.23 |
% |
|
$ |
70,760 |
|
|
|
1,240,792 |
|
|
|
6.10 |
% |
|
$ |
75,675 |
|
|
|
1,061,265 |
|
|
|
7.46 |
% |
|
$ |
79,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
49,848 |
|
|
|
|
|
|
|
|
|
|
|
22,846 |
|
|
|
|
|
|
|
|
|
|
|
25,624 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
32,894 |
|
|
|
|
|
|
|
|
|
|
|
33,584 |
|
|
|
|
|
|
|
|
|
|
|
26,676 |
|
|
|
|
|
|
|
|
|
Other |
|
|
58,036 |
|
|
|
|
|
|
|
|
|
|
|
34,581 |
|
|
|
|
|
|
|
|
|
|
|
30,527 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(15,830 |
) |
|
|
|
|
|
|
|
|
|
|
(13,419 |
) |
|
|
|
|
|
|
|
|
|
|
(11,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,476,887 |
|
|
|
|
|
|
|
|
|
|
$ |
1,318,384 |
|
|
|
|
|
|
|
|
|
|
$ |
1,133,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
$ |
187,250 |
|
|
|
0.95 |
% |
|
$ |
1,777 |
|
|
$ |
147,227 |
|
|
|
1.46 |
% |
|
$ |
2,149 |
|
|
$ |
127,093 |
|
|
|
2.30 |
% |
|
$ |
2,926 |
|
Savings and money management
accounts |
|
|
341,118 |
|
|
|
1.71 |
% |
|
|
5,842 |
|
|
|
353,719 |
|
|
|
2.52 |
% |
|
|
8,912 |
|
|
|
341,097 |
|
|
|
4.04 |
% |
|
|
13,788 |
|
Time deposits |
|
|
577,897 |
|
|
|
2.88 |
% |
|
|
16,630 |
|
|
|
446,434 |
|
|
|
4.25 |
% |
|
|
18,956 |
|
|
|
317,298 |
|
|
|
5.18 |
% |
|
|
16,433 |
|
Federal funds purchased / securities
sold under repurchase agreements |
|
|
40,823 |
|
|
|
0.80 |
% |
|
|
327 |
|
|
|
60,629 |
|
|
|
2.17 |
% |
|
|
1,317 |
|
|
|
65,735 |
|
|
|
5.03 |
% |
|
|
3,305 |
|
Other borrowings |
|
|
103,238 |
|
|
|
3.78 |
% |
|
|
3,907 |
|
|
|
98,741 |
|
|
|
4.21 |
% |
|
|
4,155 |
|
|
|
79,250 |
|
|
|
5.65 |
% |
|
|
4,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,250,326 |
|
|
|
2.28 |
% |
|
|
28,483 |
|
|
|
1,106,750 |
|
|
|
3.21 |
% |
|
|
35,489 |
|
|
|
930,473 |
|
|
|
4.40 |
% |
|
|
40,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
114,835 |
|
|
|
|
|
|
|
|
|
|
|
109,818 |
|
|
|
|
|
|
|
|
|
|
|
108,470 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
10,966 |
|
|
|
|
|
|
|
|
|
|
|
12,479 |
|
|
|
|
|
|
|
|
|
|
|
10,270 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
100,760 |
|
|
|
|
|
|
|
|
|
|
|
89,337 |
|
|
|
|
|
|
|
|
|
|
|
83,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$ |
1,476,887 |
|
|
|
|
|
|
|
|
|
|
$ |
1,318,384 |
|
|
|
|
|
|
|
|
|
|
$ |
1,133,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
2.89 |
% |
|
|
|
|
|
|
|
|
|
|
3.06 |
% |
|
|
|
|
Benefit of noninterest sources |
|
|
|
|
|
|
0.17 |
% |
|
|
|
|
|
|
|
|
|
|
0.35 |
% |
|
|
|
|
|
|
|
|
|
|
0.54 |
% |
|
|
|
|
Net interest margin/income |
|
|
|
|
|
|
3.12 |
% |
|
$ |
42,277 |
|
|
|
|
|
|
|
3.24 |
% |
|
$ |
40,186 |
|
|
|
|
|
|
|
3.60 |
% |
|
$ |
38,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 compared with 2008:
Interest earning asset yields declined sharply in 2009 compared to 2008, decreasing 87 basis
points while interest bearing liability rates declined 93 basis points. As a result the Companys
average interest rate spread improved slightly to 2.95% in 2009 as compared to 2.89% in 2008. The
year over year decline in asset yields and liability costs were a result of decreased market
interest rates coupled with an increased level of liquidity. The Federal Reserve Board decreased
its target Federal Funds rate seven times totaling 400 basis points during 2008. As a result, the
prime interest rate dropped from 7.25% at year end 2007 to 3.25% at year end 2008. A significant
portion of the Companys loan portfolio adjusts immediately to these changes in rates while deposit
liabilities typically lag. In addition, the yield on federal funds sold declined 114 basis points
and negatively impacted overall asset yields. These factors contributed to the net interest margin
declining from 3.24% in 2008 to 3.12% in 2009.
41
The increase in average loans of $33.5 million, average investments of $39.3 million, average
interest bearing deposits in other banks of $46.0 million and average cash and due from banks of
$27.0 million were funded by increases in average interest bearing deposits of $158.9 million and
other borrowings of $4.5 million, offset in part by decreases in federal funds purchased and
securities sold under repurchase agreements of $19.8 million. For 2009, average total assets were
$1.5 billion, a 12.02% increase over 2008. Average interest-earning assets for 2009 were $1.4
billion, or 91.5% of average total assets.
Interest income is the largest contributor to income. Interest income on loans, including
loan fees, decreased $5.4 million from 2008 to $56.2 million in 2009. Declining interest rates
accounted for approximately $7.3 million reduction in interest but was offset by approximately $2.2
million due to increased average balances of loans. Also affecting the overall yield on loans was
an increase in average non-accrual loans from $22.7 million in 2008 to $38.3 million in 2009. Loans
placed on non-accrual resulted in the reversal of interest income of $1.3 million for the year
ended 2009 and $1.0 in 2008. If these non-accrual loans had been accruing interest under their
original terms, approximately $2.4 million in 2009 and $1.6 million in 2008 would have been
recognized in earnings. Interest income on investments increased $691 to $14.3 million primarily
as a result of higher average balances partially offset by lower investment yields in 2009. The
average yield on the taxable investment portfolio declined from 5.38% in 2008 to 4.88% in 2009 and
accounted for $1.2 million in decreased interest in 2009. Market yields available on high quality
investments made during the year were lower in 2009 and were impacted by the investment of funds
from increased deposits, maturities of investments coupled with funds reinvested from the
liquidation of certain securities based on asset liability strategies. Interest income on federal
funds sold decreased as the average yield declined from 1.57% in 2008 to 0.43% in 2009. Average
yields on interest-earning assets were 5.23% in 2009, compared to 6.10% in 2008.
Interest expense on deposits decreased $5.8 million from 2008 to $24.2 million in 2009.
Declining interest rates paid on deposits more than offset the additional interest due to growth.
The mix of interest bearing deposits also affects the interest rate spread. During 2009 the
proportion of higher cost time deposits as a percent of interest bearing liabilities increased from 40% to 46%
while lower cost money management and savings accounts decreased from 32% to 27%. The overall
result was an increase in net interest income of $2.1 million or 5.2% in 2009 from 2008.
A key performance measure for net interest income is the net interest margin, or net
interest income divided by average interest-earning assets. Unlike the net interest spread (the
difference between interest rates earned on assets and interest rates paid on liabilities), the net
interest margin is affected by the level of non-interest sources of funding used to support
interest-earning assets. The Companys net interest margin decreased to 3.12% in 2009 from 3.24%
in 2008. The net interest margin deteriorated in 2009 as the benefit of noninterest sources
decreased from 0.35% in 2008 to 0.17% in 2009 reflecting the reduced benefit of such balances in
the net interest margin. The high level of competition in the local market for both loans and
particularly deposits continues to influence the net interest margin. The net interest margin
continues to be supported by demand deposits which provide a noninterest-bearing source of funds.
The Companys marketing efforts continue to be focused on demand deposits and NOW accounts to help
prevent further deterioration in the net interest margin. The net interest spread measures the
difference between the average yield on interest-earning assets and the average rate paid on
interest-bearing sources of funds. The net interest spread eliminates the impact of
noninterest-bearing funds and gives a direct perspective on the effect of market interest rate
movements. As a result of changes in interest rates in 2009, the net interest spread increased 6
basis points to 2.95% in 2009.
42
2008 compared with 2007:
Despite declining yields, net interest income increased $1.9 million in 2008 compared to 2007
as a result of the growth in the volume of average earning assets. Interest earning assets
averaged $1.2 billion in 2008, an increase of 16.9%, from the $1.1 billion averaged in 2007.
Average yields on earning assets decreased to 6.10% in 2008, compared to 7.46% in 2007 as a result
of decreased market interest rates. The Federal Reserve Board decreased its target Federal Funds
rate seven times totaling 400 basis points during 2008. As a result, the prime interest rate
dropped from 7.25% at year end 2007 to 3.25% at year end 2008.
In 2008, the Companys net interest margin decreased to 3.24% from 3.60% in 2007 as the
average rate paid on interest-bearing deposits decreased less than the average rate on
interest-earning assets. The 2008 net interest spread of 2.89% decreased 17 basis points from
2007s 3.06% due to changes in interest rates.
Changes in the net interest income from period to period result from increases or decreases in
the volume of interest-earning assets and interest-bearing liabilities, increases in the average
rates earned and paid on such assets and liabilities, the ability to manage the earning asset
portfolio, and the availability of particular sources of funds, such as noninterest-bearing
deposits. The following table: Analysis of Changes in Net Interest Income indicates the changes
in the Companys net interest income as a result of changes in volume and rate from 2009 to 2008,
and 2008 to 2007. The analysis of changes in net interest income included in the following table
indicates that on an overall basis in 2009 to 2008, the increase in the balances or volumes of
interest-earning assets created a positive impact in net income. This was somewhat offset by the
impact of increased volumes of interest-bearing liabilities. The rate environment of 2009 resulted
in significant rate decreases on interest-earning assets and interest-bearing liabilities. In 2008
to 2007, the increase in the balances or volumes of interest-earning assets created a positive
impact in net income which was partially offset by the impact of increased volumes of interest-bearing liabilities. Declining rates in 2008 resulted in rate
decreases on interest-earning assets and interest-bearing liabilities.
43
Analysis of Changes in Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008 |
|
|
2008 vs. 2007 |
|
|
|
Increase (Decrease) |
|
|
Increase (Decrease) |
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Combined |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Combined |
|
|
Total |
|
|
(Dollars in thousands) |
|
|
(Dollars in thousands) |
|
Interest income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
2,164 |
|
|
$ |
(7,264 |
) |
|
$ |
(272 |
) |
|
$ |
(5,372 |
) |
|
$ |
11,529 |
|
|
$ |
(13,781 |
) |
|
$ |
(2,399 |
) |
|
$ |
(4,651 |
) |
Investments, taxable |
|
|
1,860 |
|
|
|
(1,185 |
) |
|
|
(174 |
) |
|
|
501 |
|
|
|
1,590 |
|
|
|
233 |
|
|
|
29 |
|
|
|
1,852 |
|
Investments, tax-exempt |
|
|
207 |
|
|
|
(13 |
) |
|
|
(4 |
) |
|
|
190 |
|
|
|
(105 |
) |
|
|
24 |
|
|
|
(3 |
) |
|
|
(84 |
) |
Federal funds sold |
|
|
(119 |
) |
|
|
(342 |
) |
|
|
86 |
|
|
|
(375 |
) |
|
|
440 |
|
|
|
(726 |
) |
|
|
(356 |
) |
|
|
(642 |
) |
Interest-bearing deposits in
other banks |
|
|
827 |
|
|
|
(36 |
) |
|
|
(650 |
) |
|
|
141 |
|
|
|
109 |
|
|
|
(19 |
) |
|
|
(71 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,939 |
|
|
$ |
(8,840 |
) |
|
$ |
(1,014 |
) |
|
$ |
(4,915 |
) |
|
$ |
13,563 |
|
|
$ |
(14,269 |
) |
|
$ |
(2,800 |
) |
|
$ |
(3,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
$ |
584 |
|
|
$ |
(752 |
) |
|
$ |
(204 |
) |
|
$ |
(372 |
) |
|
$ |
463 |
|
|
$ |
(1,068 |
) |
|
$ |
(172 |
) |
|
$ |
(777 |
) |
Savings and money management accounts |
|
|
(318 |
) |
|
|
(2,857 |
) |
|
|
104 |
|
|
|
(3,071 |
) |
|
|
510 |
|
|
|
(5,186 |
) |
|
|
(200 |
) |
|
|
(4,876 |
) |
Time deposits |
|
|
5,587 |
|
|
|
(6,127 |
) |
|
|
(1,785 |
) |
|
|
(2,325 |
) |
|
|
6,689 |
|
|
|
(2,963 |
) |
|
|
(1,203 |
) |
|
|
2,523 |
|
Federal funds purchased /
securities sold under
repurchase agreements |
|
|
(430 |
) |
|
|
(829 |
) |
|
|
269 |
|
|
|
(990 |
) |
|
|
(257 |
) |
|
|
(1,878 |
) |
|
|
147 |
|
|
|
(1,988 |
) |
Other borrowings |
|
|
189 |
|
|
|
(420 |
) |
|
|
(17 |
) |
|
|
(248 |
) |
|
|
1,101 |
|
|
|
(1,143 |
) |
|
|
(283 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,612 |
|
|
$ |
(10,985 |
) |
|
$ |
(1,633 |
) |
|
$ |
(7,006 |
) |
|
$ |
8,506 |
|
|
$ |
(12,238 |
) |
|
$ |
(1,711 |
) |
|
$ |
(5,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The variances for each major category of interest-earning assets and interest-bearing
liabilities are attributable to (a) changes in volume (changes in volume times prior year rate),
(b) changes in rate (changes in rate times prior year volume) and (c) combined (changes in rate
times the change in volume).
Provision for Loan Losses
The provision for loan losses is the charge to operating earnings necessary to maintain the
allowance for loan losses at a level which, in managements estimate, is adequate to cover the
estimated amount of incurred losses in the loan portfolio. The provision for loan losses totaled
$30.9 million for the year ended December 31, 2009 compared to $9.1 million for the year ended
December 31, 2008. See Allowance for Loan Losses for further analysis of the provision for loan
losses.
Noninterest Income
Noninterest income consists of revenues generated from a broad range of financial services and
activities, including service charges on deposit accounts, gain on sales of loans, gain on sale of
fixed assets, fee-based services, and products where commissions are earned through sales of
products such as real estate mortgages, retail investment services, trust services, and other
activities. In addition, the increases in cash surrender value of bank-owned life insurance and
gains or losses realized from the sale of investment securities are included in noninterest income.
44
2009 compared with 2008:
Noninterest income for 2009 was $20.7 million, an increase of $4.0 million or 24.15% from
2008. Gain on sales of loans increased $2.7 million as falling rates caused an increase in
mortgage refinance activity coupled with improved pricing. Investment securities gains increased
$2.6 million due to increased sales of investments which occurred in part to asset liability
strategies during the year. These increases were partially offset by other-than-temporary
impairment losses of $975 and reduced service charges and fees on deposits of $240. The reduced
level of service charges was primarily due to lower returned check fees resulting from decreased
economic activity.
2008 compared with 2007:
Noninterest income for 2008 was $16.7 million, an increase of $537 or 3.3% from 2007. Service
charges and fees on deposits increased $882 in 2008 primarily due to increases in NSF fees for
retail checking accounts and debit/ATM card income, both the result of new account growth. The gain
on the sale of fixed assets decreased $1.0 million from 2007. Gain on sale of loans increased $562
as falling rates caused an increase in mortgage refinance activity coupled with improved pricing.
These increases were somewhat offset by decreases in retail investment income of $171 which was
impacted by the declining stock market. Investment securities losses decreased $160 from 2007.
The following table presents the principal components of noninterest income for the last three
years:
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
7,051 |
|
|
$ |
7,291 |
|
|
$ |
6,409 |
|
Gain on sales of loans |
|
|
8,493 |
|
|
|
5,747 |
|
|
|
5,185 |
|
(Loss) gain on sale of fixed assets, net |
|
|
(15 |
) |
|
|
8 |
|
|
|
1,049 |
|
Investment securities gains (losses), net of OTTI |
|
|
1,557 |
|
|
|
(77 |
) |
|
|
(237 |
) |
Retail investment income |
|
|
1,175 |
|
|
|
1,096 |
|
|
|
1,267 |
|
Trust service fees |
|
|
1,040 |
|
|
|
1,134 |
|
|
|
1,132 |
|
Increase in cash surrender value of
bank-owned
life insurance |
|
|
880 |
|
|
|
708 |
|
|
|
678 |
|
Miscellaneous income |
|
|
558 |
|
|
|
798 |
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
20,739 |
|
|
$ |
16,705 |
|
|
$ |
16,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income as a percentage of total
average assets |
|
|
1.40 |
% |
|
|
1.27 |
% |
|
|
1.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income as a percentage of total
income |
|
|
22.67 |
% |
|
|
18.08 |
% |
|
|
16.96 |
% |
45
Noninterest Expense
2009 compared with 2008:
Noninterest expense totaled $46.5 million in 2009, an increase of $9.8 million or 26.55% over
2008.
The significant increase in noninterest expense in 2009 was from losses on sales of other real
estate which increased $5.8 million and a $588 valuation allowance established based on recent
appraisals. The increase was due primarily to aggressive liquidation of such assets in the fourth
quarter. During the fourth quarter, management became concerned with declining real estate values
on foreclosed properties and concluded that liquidation of a significant portion of such assets was
necessary to avoid further value declines. Proceeds from sales of other real estate totaled $5.8
million during the fourth quarter and a loss of $5.2 million was recorded on those sales.
Salaries and other personnel expense increased $1.7 million or 8.06% due primarily to a $787
increase in commissions paid due to higher mortgage production and a $795 increase in accruals to
the Companys non-qualified defined benefit plan due to a reduction in the discount rate and newly
added participants.
FDIC insurance expense increased $1.8 million or 203.14% due primarily to a special assessment
of $670 and increased assessment rates. Occupancy expense increased $317 in 2009 due primarily to
depreciation expense on purchases of upgraded computer systems and software. Loan costs increased
$322 primarily related to the increase in expense from foreclosed properties.
2008 compared with 2007:
Noninterest expense totaled $36.8 million in 2008, an increase of $4.2 million or 13.1% from
2007 noninterest expense of $32.5 million. Salaries and other personnel expense increased $1.5
million or 7.8% due to full year expense of offices opened in the Aiken and Greenville, South
Carolina and Evans, Georgia markets, the expansion of the wealth management area, medical expenses,
employer 401K expense, and stock options compensation expense somewhat offset by an increase in FAS
91 deferred cost expense. Occupancy expense increased $916 in 2008 due primarily to a full years
expense associated with the Companys new Operation center which was occupied in October 2007. In
addition, the full year effect of two new branches and a loan production office impacted the
increase. FDIC insurance expense increased $785 due primarily to credits which expired in 2007,
increased assessments and growth in deposits. Processing expenses increased $167 primarily due to
ATM processing fees related to new account growth of checking products, payroll processing fees
related to employee growth, disaster recovery fee increases and CDARS account fees related to new
account growth. IT maintenance expense increased $261 primarily for increase in core software
maintenance agreement and security maintenance. Professional fees increased $255 due in part to
the Company outsourcing a portion of the Companys routine Sarbanes Oxley testing. Contribution
expense decreased from 2007 primarily due to a donation to Georgia Bank Foundation in 2007. Loan
costs increased $135 primarily related to the increase in expense from foreclosed properties.
The Company continues to monitor expenditures in all organizational units by utilizing
specific cost-accounting and reporting methods as well as responsibility center budgeting. The
following table presents the principal components of noninterest expense for the years ended
December 31, 2009, 2008 and 2007.
46
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Salaries and other personnel expense |
|
$ |
22,534 |
|
|
$ |
20,852 |
|
|
$ |
19,343 |
|
Occupancy expense |
|
|
4,691 |
|
|
|
4,373 |
|
|
|
3,457 |
|
Marketing & business development |
|
|
1,451 |
|
|
|
1,668 |
|
|
|
1,586 |
|
Processing expense |
|
|
1,733 |
|
|
|
1,917 |
|
|
|
1,750 |
|
Legal and professional fees |
|
|
1,552 |
|
|
|
1,763 |
|
|
|
1,508 |
|
Data processing expense |
|
|
1,265 |
|
|
|
1,203 |
|
|
|
942 |
|
FDIC insurance |
|
|
2,723 |
|
|
|
898 |
|
|
|
113 |
|
Loss (gain) on sale of other real estate |
|
|
5,741 |
|
|
|
(63 |
) |
|
|
29 |
|
Other real estate valuation allowance |
|
|
588 |
|
|
|
|
|
|
|
|
|
Loan costs |
|
|
917 |
|
|
|
658 |
|
|
|
460 |
|
Supplies expense |
|
|
604 |
|
|
|
763 |
|
|
|
704 |
|
Other expense |
|
|
2,712 |
|
|
|
2,720 |
|
|
|
2,616 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
46,511 |
|
|
$ |
36,752 |
|
|
$ |
32,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense as a percentage
of total average assets |
|
|
3.15 |
% |
|
|
2.79 |
% |
|
|
2.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating efficiency ratio |
|
|
75.66 |
% |
|
|
64.52 |
% |
|
|
60.64 |
% |
The Companys efficiency ratio (noninterest expense as a percentage of net interest
income and noninterest income, excluding gains and losses on the sale of investments) increased to
75.66% in 2009 compared to 64.52% in 2008, and 60.64% in 2007.
Income Taxes
Income tax expense decreased $9.9 million to a net tax benefit of $6.4 million in 2009 from
2008, and decreased $2.8 million or 44.5% in 2008 from 2007. The effective tax rate as a
percentage of pre-tax income was 44.5% in 2009, 31.6% in 2008, and 34.9% in 2007. A significant
driver in the effective tax rate in 2008 was the loan loss provision which lowered pre-tax income
and thereby increased the proportion of tax exempt income to taxable income. In 2009, the
effective tax rate exceeded the combined statutory rate due to the coupling of the net loss while
maintaining existing levels of tax exempt income.
At December 31, 2009, the Company maintains net deferred tax assets of $11.2 million. In
evaluating the need for a valuation allowance against the deferred tax asset, management has
considered primarily existing carryback potential of $22.8 million. Furthermore, management has
considered the severity and number of consecutive quarterly losses and has determined that a
valuation allowance is not necessary based on a single quarterly loss.
47
Financial Condition
Composition of the Loan Portfolio
Loans are the primary component of the Companys interest-earning assets and generally are
expected to provide higher yields than the other categories of earning assets. Those higher yields
reflect the inherent credit risks associated with the loan portfolio. Management attempts to
control and balance those risks with the rewards associated with higher returns.
Loans outstanding averaged $965.1 million in 2009 compared to $934.5 million in 2008 and
$800.9 million in 2007. At December 31, 2009, loans totaled $937.5 million compared to $986.8
million at December 31, 2008, a decrease of $49.3 million or 5.0%.
The Company experienced significant increases in loan volumes and balances during 2008 but has
experienced decreased balances during 2009 as the economy continued to worsen. Beginning in the
fourth quarter of 2008 loan demand began to decrease and has continued to decline through 2009.
Commercial real estate loans increased $56.5 million or 21.2% in 2009. Construction and
development loans decreased $99.7 million or 27.0% from year end 2008. Loan growth in 2008 was
impacted by the purchase of a $29.7 million portfolio in the Athens, Georgia market.
The following table sets forth the composition of the Companys loan portfolio as of December
31st for the past five years. The Companys loan portfolio does not contain any
concentrations of loans exceeding 10% of total loans which are not otherwise disclosed as a
category of loans in this table. The Company has not invested in loans to finance highly-leveraged
transactions (HLT), such as leveraged buy-out transactions, as defined by the Federal Reserve and
other regulatory agencies. Loans made by a bank for recapitalization or acquisitions (including
acquisitions by management or employees) which result in a material change in the borrowers
financial structure to a highly-leveraged condition are considered HLT loans. The Company had no
foreign loans or loans to lesser-developed countries as of December 31st of any of the
years presented.
Loan Portfolio Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
|
(Dollars in thousands) |
|
Commercial financial and
agricultural |
|
$ |
102,160 |
|
|
|
10.90 |
% |
|
$ |
109,751 |
|
|
|
11.12 |
% |
|
$ |
93,318 |
|
|
|
10.71 |
% |
|
$ |
80,823 |
|
|
|
10.99 |
% |
|
$ |
64,398 |
|
|
|
11.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
322,864 |
|
|
|
34.44 |
% |
|
|
266,362 |
|
|
|
26.99 |
% |
|
|
236,358 |
|
|
|
27.12 |
% |
|
|
198,453 |
|
|
|
27.00 |
% |
|
|
156,896 |
|
|
|
27.09 |
% |
Residential |
|
|
219,217 |
|
|
|
23.38 |
% |
|
|
212,856 |
|
|
|
21.57 |
% |
|
|
190,613 |
|
|
|
21.88 |
% |
|
|
158,543 |
|
|
|
21.57 |
% |
|
|
138,716 |
|
|
|
23.95 |
% |
Acquisition, development
and construction |
|
|
270,062 |
|
|
|
28.81 |
% |
|
|
369,731 |
|
|
|
37.47 |
% |
|
|
318,438 |
|
|
|
36.54 |
% |
|
|
266,875 |
|
|
|
36.30 |
% |
|
|
184,826 |
|
|
|
31.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
|
812,143 |
|
|
|
86.63 |
% |
|
|
848,949 |
|
|
|
86.03 |
% |
|
|
745,409 |
|
|
|
85.54 |
% |
|
|
623,871 |
|
|
|
84.87 |
% |
|
|
480,438 |
|
|
|
82.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing |
|
|
0 |
|
|
|
0.00 |
% |
|
|
33 |
|
|
|
0.00 |
% |
|
|
37 |
|
|
|
0.00 |
% |
|
|
116 |
|
|
|
0.02 |
% |
|
|
111 |
|
|
|
0.02 |
% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
20,507 |
|
|
|
2.19 |
% |
|
|
24,272 |
|
|
|
2.46 |
% |
|
|
25,569 |
|
|
|
2.93 |
% |
|
|
24,146 |
|
|
|
3.28 |
% |
|
|
24,343 |
|
|
|
4.20 |
% |
Indirect |
|
|
1,898 |
|
|
|
0.20 |
% |
|
|
3,319 |
|
|
|
0.34 |
% |
|
|
4,237 |
|
|
|
0.49 |
% |
|
|
6,232 |
|
|
|
0.85 |
% |
|
|
9,752 |
|
|
|
1.69 |
% |
Revolving |
|
|
836 |
|
|
|
0.09 |
% |
|
|
905 |
|
|
|
0.09 |
% |
|
|
3,819 |
|
|
|
0.44 |
% |
|
|
843 |
|
|
|
0.12 |
% |
|
|
656 |
|
|
|
0.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
23,241 |
|
|
|
2.48 |
% |
|
|
28,496 |
|
|
|
2.89 |
% |
|
|
33,625 |
|
|
|
3.86 |
% |
|
|
31,221 |
|
|
|
4.25 |
% |
|
|
34,751 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan origination fees |
|
|
(55 |
) |
|
|
(0.01 |
%) |
|
|
(398 |
) |
|
|
(0.04 |
%) |
|
|
(949 |
) |
|
|
(0.11 |
%) |
|
|
(919 |
) |
|
|
(0.13 |
%) |
|
|
(610 |
) |
|
|
(0.10 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
937,489 |
|
|
|
100.00 |
% |
|
$ |
986,831 |
|
|
|
100.00 |
% |
|
$ |
871,440 |
|
|
|
100.00 |
% |
|
$ |
735,112 |
|
|
|
100.00 |
% |
|
$ |
579,088 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Loans may be periodically renewed with principal reductions and appropriate interest rate
adjustments. Loan maturities as of December 31, 2009 are set forth in the following table based
upon contractual terms. Actual cash flows may differ as borrowers generally have the right to
prepay without prepayment penalties.
Loan Maturity Schedule At
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
One to Five |
|
|
After Five |
|
|
|
|
|
|
One Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
|
|
Commercial, financial and agricultural |
|
$ |
59,443 |
|
|
$ |
41,369 |
|
|
$ |
1,348 |
|
|
$ |
102,160 |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
94,632 |
|
|
|
219,457 |
|
|
|
8,775 |
|
|
|
322,864 |
|
Residential |
|
|
103,825 |
|
|
|
91,765 |
|
|
|
23,627 |
|
|
|
219,217 |
|
Acquisition, development and
construction |
|
|
202,139 |
|
|
|
62,707 |
|
|
|
5,216 |
|
|
|
270,062 |
|
Consumer |
|
|
12,573 |
|
|
|
10,343 |
|
|
|
325 |
|
|
|
23,241 |
|
Deferred loan origination fees |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
472,557 |
|
|
$ |
425,641 |
|
|
$ |
39,291 |
|
|
$ |
937,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents an interest rate sensitivity analysis of the Companys loan
portfolio as of December 31, 2009. The loans outstanding are shown in the time period where they
are first subject to repricing.
Sensitivity of Loans to Changes in Interest Rates
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
One to Five |
|
|
After Five |
|
|
|
|
($ in thousands) |
|
One year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans maturing or repricing with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined interest rates |
|
$ |
152,143 |
|
|
$ |
208,857 |
|
|
$ |
10,914 |
|
|
$ |
371,914 |
|
Floating or adjustable interest rates |
|
|
405,149 |
|
|
|
157,026 |
|
|
|
3,400 |
|
|
|
565,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
557,292 |
|
|
$ |
365,883 |
|
|
$ |
14,314 |
|
|
$ |
937,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Assets
As a result of managements ongoing review of the loan portfolio, loans are classified as
nonaccrual when it is not reasonable to expect collections of interest and principal under the
original terms, generally when a loan becomes 90 days or more past due. These loans are classified
as nonaccrual, even though the presence of collateral or the borrowers financial strength may be
sufficient to provide for ultimate repayment. When a loan is placed on nonaccrual, the interest
which has been accrued but remains unpaid is reversed and deducted from current period interest
income. No additional interest is accrued and recognized as income on the loan balance until the
collection of both principal and interest becomes reasonably certain. Also, there may be write
downs, and ultimately, the
total charge-off of the principal balance of the loan, which could necessitate additional
charges to earnings through the provision for loan losses.
49
If non accruing loans had been accruing interest under their original terms, approximately
$2.4 million in 2009, $1.6 million in 2008, and $198 in 2007 would have been recognized as
earnings.
The Company is required to identify impaired loans and evaluate the collectability of both
contractual interest and principal of loans when assessing the need for a loss allowance. Large
pools of smaller balance homogeneous loans are collectively evaluated for impairment. A loan is
considered impaired, when based upon current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the note
agreement. The amount of the impairment is measured based on the present value of future cash flows
discounted at the loans effective interest rate or, if the loan is collateral dependent or
foreclosure is probable, the fair value of collateral, less estimated selling expenses. Regulatory
guidance is also considered. At December 31, 2009 and 2008, the Company had impaired loans of
$34.7 million and $33.8 million, respectively. Allowances for losses on impaired loans totaled $2.0
million on balances of $11.7 million and $2.2 million on balances of $16.9 million respectively at
December 31, 2009 and 2008. Charge-offs of $19.6 million were taken on these impaired loans during
2009. The amount of impaired loans for which there is no related allowance for credit losses
totaled $22.9 million and $16.8 million at December 31, 2009 and 2008, respectively. Impaired
loans for which there is no related allowance for credit losses are secured by collateral with
fair value less estimated selling expenses in excess of the carrying amount of the loan.
Non-performing assets include nonaccrual loans, loans past due 90 days or more, restructured
loans and other real estate owned. The following table, Non-Performing Assets, presents
information on these assets as of December 31st, for the past five years.
Non-performing assets were $40.2 million at December 31, 2009 or 4.26% of period end loans and
other real estate owned. This compares to $40.5 million or 4.08% of total loans and other real
estate owned at December 31, 2008.
At December 31, 2009, 2007 and 2006 there were no loans past due 90 days or more and still
accruing. At December 31, 2008 and 2005, there were loans past due 90 days or more and still
accruing of $7.3 million and $1, respectively. All loans past due 90 days or more are classified
as nonaccrual loans unless the loan officer believes that both principal and interest are
collectible, in which case the loan continues to accrue interest.
Restructured loans are loans on which the original terms have been modified in favor of the
borrower or either principal or interest has been forgiven due to deterioration in the borrowers
financial condition. Restructured loans totaled $1.7 million at December 31, 2009.
50
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
616 |
|
|
$ |
261 |
|
|
$ |
253 |
|
|
$ |
101 |
|
|
$ |
87 |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
2,932 |
|
|
|
3,491 |
|
|
|
1,440 |
|
|
|
1,028 |
|
|
|
1,022 |
|
Residential |
|
|
4,623 |
|
|
|
2,815 |
|
|
|
993 |
|
|
|
787 |
|
|
|
1,735 |
|
Acquisition, development and construction |
|
|
23,755 |
|
|
|
27,908 |
|
|
|
2,261 |
|
|
|
205 |
|
|
|
674 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
331 |
|
|
|
306 |
|
|
|
548 |
|
|
|
230 |
|
|
|
491 |
|
Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonaccrual loans |
|
$ |
32,257 |
|
|
$ |
34,781 |
|
|
$ |
5,495 |
|
|
$ |
2,351 |
|
|
$ |
4,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other real estate owned |
|
|
7,974 |
|
|
|
5,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming assets |
|
$ |
40,231 |
|
|
$ |
40,515 |
|
|
$ |
5,495 |
|
|
$ |
2,351 |
|
|
$ |
4,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still
accruing interest |
|
$ |
|
|
|
$ |
7,298 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to period end total
loans |
|
|
2.38 |
% |
|
|
1.49 |
% |
|
|
1.35 |
% |
|
|
1.33 |
% |
|
|
1.58 |
% |
Allowance for loan losses to period end
nonperforming loans |
|
|
69.25 |
% |
|
|
42.39 |
% |
|
|
214.74 |
% |
|
|
415.87 |
% |
|
|
227.61 |
% |
Net charge-offs to average loans |
|
|
2.42 |
% |
|
|
0.65 |
% |
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.12 |
% |
Nonperforming assets to period end loans |
|
|
4.29 |
% |
|
|
4.11 |
% |
|
|
0.63 |
% |
|
|
0.32 |
% |
|
|
0.69 |
% |
Nonperforming assets to period end loans
and other real estate owned |
|
|
4.26 |
% |
|
|
4.08 |
% |
|
|
0.63 |
% |
|
|
0.32 |
% |
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma data to illustrate the effect of SAB 108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to period end net
loans
excluding amount applicable to unfunded lines,
commitments and standby letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.40 |
% |
Allowance for loan losses to period end
nonperforming loans excluding amount applicable
to unfunded lines, commitments and standby letters
of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210.30 |
% |
|
|
|
(1) |
|
Restructured loans on nonaccrual status at year end are included under nonaccrual loans in the
table. |
51
The table below presents a roll forward of other real estate owned for the twelve month period
ended December 31, 2009 and 2008, respectively.
Other Real Estate Owned
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Beginning balance, January 1 |
|
$ |
5,734 |
|
|
$ |
|
|
Additions |
|
|
20,752 |
|
|
|
6,386 |
|
Valuation allowance |
|
|
(588 |
) |
|
|
|
|
Sales |
|
|
(12,183 |
) |
|
|
(715 |
) |
(Loss) gain on sale of OREO |
|
|
(5,741 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
Ending balance, December 31 |
|
$ |
7,974 |
|
|
$ |
5,734 |
|
|
|
|
|
|
|
|
The following table provides details of other real estate owned as of December 31, 2009 and
2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Other Real Estate: |
|
|
|
|
|
|
|
|
Single family developed lots |
|
$ |
724 |
|
|
$ |
1,636 |
|
Single family undeveloped land |
|
|
|
|
|
|
1,050 |
|
1-4 Family residential |
|
|
484 |
|
|
|
1,848 |
|
Commercial land |
|
|
4,468 |
|
|
|
1,200 |
|
Condominums |
|
|
2,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,562 |
|
|
|
5,734 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,974 |
|
|
$ |
5,734 |
|
|
|
|
|
|
|
|
The increase in other real estate owned is primarily due to the foreclosure of impaired loans,
the most significant of which are included in the table below. The net increase in nonaccrual
loans reflects increased levels of such loans offset by foreclosures and loans returned to accrual
status due to improved performance. A significant portion of the increases were in ADC loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
|
|
|
($000s) |
|
|
|
|
Appraisal |
|
Appraised |
|
|
|
Balance |
|
|
Originated |
|
|
Date |
|
Trigger |
|
Collateral |
|
Allowance |
|
|
Method |
|
Date |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADC Loan Athens, Georgia |
|
$ |
856 |
|
|
|
07/31/06-10/11/06 |
|
|
01/28/09 |
|
delinquency |
|
houses |
|
|
|
|
|
collateral value |
|
05/09 |
|
$ |
1,580 |
|
ADC Loan CSRA |
|
|
1,814 |
|
|
|
12/16/05-04/11/08 |
|
|
11/30/09 |
|
delinquency |
|
lots & land |
|
|
|
|
|
collateral value |
|
In Process |
|
|
2,682 |
|
1-4 Family Residential |
|
|
1,265 |
|
|
|
09/22/06-09/04/08 |
|
|
11/30/09 |
|
delinquency |
|
houses & lots |
|
|
|
|
|
collateral value |
|
In Process |
|
|
1,733 |
|
ADC Loan Georgia Loan Participation |
|
|
1,272 |
|
|
|
12/06/06 |
|
|
09/17/08 |
|
delinquency |
|
lots |
|
|
|
|
|
collateral value |
|
12/09 |
|
|
2,000 |
|
ADC Loan Georgia Loan Participation |
|
|
1,727 |
|
|
|
04/13/06 |
|
|
09/17/08 |
|
delinquency |
|
lots |
|
|
706 |
|
|
collateral value |
|
03/09 |
|
|
1,330 |
|
ADC Loan CSRA |
|
|
1,222 |
|
|
|
08/17/07-05/02/08 |
|
|
12/30/09 |
|
delinquency |
|
lots |
|
|
124 |
|
|
collateral value |
|
12/09 |
|
|
1,220 |
|
ADC Loan Athens, Georgia |
|
|
1,611 |
|
|
|
03/29/06 |
|
|
06/11/09 |
|
delinquency |
|
condominums |
|
|
|
|
|
collateral value |
|
10/09 |
|
|
1,790 |
|
ADC Loan CSRA |
|
|
3,514 |
|
|
|
08/25/06 |
|
|
08/17/09 |
|
delinquency |
|
lots |
|
|
|
|
|
collateral value |
|
09/09 |
|
|
6,333 |
|
ADC Loan Athens, Georgia |
|
|
1,638 |
|
|
|
01/12/05-07/26/06 |
|
|
4/08-6/08 |
|
delinquency |
|
lots & land |
|
|
|
|
|
collateral value |
|
12/09 |
|
|
1,880 |
|
ADC Loan Athens, Georgia |
|
|
657 |
|
|
|
03/26/08 |
|
|
06/02/08 |
|
delinquency |
|
lots |
|
|
|
|
|
collateral value |
|
12/09 |
|
|
730 |
|
ADC Loan Athens, Georgia |
|
|
2,747 |
|
|
|
08/18/06-01/10/07 |
|
|
01/28/09 |
|
delinquency |
|
land & townhomes |
|
|
|
|
|
collateral value |
|
02/09 |
|
|
3,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net |
|
|
13,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans at December 31, 2009 |
|
$ |
32,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
In addition to loans disclosed above as past due, nonaccrual and restructured as of December
31, 2009, management also identified further weaknesses in $20.4 million of already classified
loans. These loans, principally classified for regulatory purposes as substandard, are principally
commercial real estate and ADC loans in the companys primary market area. Estimated potential
losses from these potential credit weaknesses have been provided for in determining the allowance
for loan losses at December 31, 2009.
Allowance for Loan Losses
The allowance for loan losses represents an allocation for the estimated amount of incurred
losses in the loan portfolio. The Company has developed policies and procedures for evaluating the
overall quality of its loan portfolio and the timely identification of problem credits. Management
continues to review these policies and procedures and makes further improvements as needed. The
adequacy of the Companys allowance for loan losses and the effectiveness of the Companys internal
policies and procedures are also reviewed periodically by the Companys regulators and the
Companys internal loan review personnel. The Companys regulators may advise the Company to
recognize additions to the allowance based upon their judgments about information available to them
at the time of their examination. Such regulatory guidance is considered, and the Company may
recognize additions to the allowance as a result.
The Companys Board of Directors, with the recommendation of management, approves the
appropriate level for the allowance for loan losses based upon internal policies and procedures,
historical loan loss ratios, loan volume, size and character of the loan portfolio, concentrations
of loans to specific borrowers or industries, value of the collateral underlying the loans,
specific problem loans and present or anticipated economic conditions and trends. The Company
continues to refine the methodology on which the level of the allowance for loan losses is based,
by comparing historical loss ratios utilized to actual experience and by classifying loans for
analysis based on similar risk characteristics.
For significant problem loans, managements review consists of the evaluation of the financial
condition and strengths of the borrower, cash flows available for debt repayment, the related
collateral supporting the loan and the effects of known and expected economic conditions. When the
evaluation reflects a greater than normal risk associated with the individual problem loan,
management classifies the loan accordingly and allocates a portion of the allowance for loan losses
for that loan based on the results of the evaluations described above.
Additions to the allowance for loan losses, which are expensed on the Companys income
statement as the provision for loan losses, are made periodically to maintain the allowance for
loan losses at an appropriate level based upon managements analysis of risk in loan portfolio. The
Companys provision for loan losses in 2009 was $30.9 million, an increase of $21.8 million, or
241% from the 2008 provision of $9.1 million.
53
The table below indicates the allocated general allowance for all loans according to loan type
determined through the Companys comprehensive allowance methodology for the years indicated.
Because these allocations are based upon estimates and subjective judgment, it is not necessarily
indicative of the specific amounts or loan categories in which loan losses may occur.
Allocation of the Allowance for Loan Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
Amount |
|
|
Percent(1) |
|
|
Amount |
|
|
Percent(1) |
|
|
Amount |
|
|
Percent(1) |
|
|
Amount |
|
|
Percent(1) |
|
|
Amount |
|
|
Percent(1) |
|
|
|
(Dollars in thousands) |
|
Balance at end of year
Applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial,
agricultural |
|
$ |
1,442 |
|
|
|
18.21 |
% |
|
$ |
1,964 |
|
|
|
18.93 |
% |
|
$ |
1,760 |
|
|
|
17.73 |
% |
|
$ |
1,713 |
|
|
|
18.91 |
% |
|
$ |
1,550 |
|
|
|
22.66 |
% |
Real estate-commercial |
|
$ |
5,709 |
|
|
|
33.10 |
% |
|
$ |
2,565 |
|
|
|
26.92 |
% |
|
$ |
2,483 |
|
|
|
28.67 |
% |
|
$ |
2,547 |
|
|
|
25.04 |
% |
|
$ |
2,494 |
|
|
|
26.32 |
% |
Real estate-acquisition,
development and construction |
|
|
8,876 |
|
|
|
29.51 |
% |
|
|
7,050 |
|
|
|
37.13 |
% |
|
|
4,344 |
|
|
|
34.38 |
% |
|
|
3,191 |
|
|
|
36.33 |
% |
|
|
2,521 |
|
|
|
32.99 |
% |
Real estate residential mortgage |
|
|
5,322 |
|
|
|
16.68 |
% |
|
|
2,048 |
|
|
|
14.11 |
% |
|
|
2,198 |
|
|
|
15.37 |
% |
|
|
1,382 |
|
|
|
16.42 |
% |
|
|
82 |
|
|
|
13.69 |
% |
Consumer loans to
individuals |
|
|
989 |
|
|
|
2.50 |
% |
|
|
1,115 |
|
|
|
2.91 |
% |
|
|
1,015 |
|
|
|
3.85 |
% |
|
|
944 |
|
|
|
3.30 |
% |
|
|
1,784 |
|
|
|
4.34 |
% |
Unfunded lines, commitments
and standby letters of credit |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
694 |
|
|
|
0.00 |
% |
Other |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
22,338 |
|
|
|
100.00 |
% |
|
$ |
14,742 |
|
|
|
100.00 |
% |
|
$ |
11,800 |
|
|
|
100.00 |
% |
|
$ |
9,777 |
|
|
|
100.00 |
% |
|
$ |
9,125 |
|
|
|
100.00 |
% |
Proforma excluding unfunded lines, commitments and
standby letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Percent of gross loans in each category to total loans adjusted for loans recorded at fair
value |
In response to the prospect of further declines in real estate values in metro Atlanta, Athens
and Savannah, Georgia to which the company has already been severely impacted, the Company
aggressively liquidated loans and other real estate owned in the fourth quarter and took similarly
aggressive write downs on remaining problem assets to reflect managements anticipated disposition
of such assets.
The allocation of the allowance for loan losses on the acquisition development and
construction segment grew $1.8 million in 2009, despite an overall decrease in the portfolio of
$99.7 million. At December 31, 2009, the $8.9 million allowance allocated to this portfolio
consisted of $6.9 million allocated as general reserves and $2.0 million allocated as specific
reserves, as compared to $5.0 million allocated to general reserves and $2.1 million allocated as
specific reserves at year end 2008. The allocation of general reserves to the performing portfolio
was 2.72%, as compared to 1.47% at December 31, 2008. This increase in general reserves reflects
the ongoing risk of this portfolio in an prolonged weakened economy with high inventory levels and
extremely slow absorption rates on these types of properties.
In response to the economic environment, management ceased originating and participating in
new out of market ADC lending opportunities, has curtailed ADC lending in its primary market and is
allowing the portfolio segment to contract to reduce the Companys near term exposure. Accordingly,
in 2009, the portfolio declined $99.7 million or 27.0%. In the CSRA, demand for origination of ADC
loans was slow during 2009, and new loans were granted generally in pre-sold situations, or with
those borrowers with longstanding superior credit relationships with the bank, having a limited
number of speculative houses in inventory.
54
Charge offs were elevated and more pronounced in the Atlanta, Savannah and Athens markets
which accounted for 95.9% of the $17.6 million in gross charge offs in 2009. The Savannah segment
declined $8.6 million from $28.3 to $19.7 million and included charge offs of $2.2 million. 40% of
the remaining performing loans were outstanding to three of the areas strongest builders. The
Athens segment declined $11.8 million from $31.8 to $20.0 million and included charge offs of $9.5
million. Approximately 37% of the remaining performing loans represented residential construction
loans to stronger builders with the balance being in loans secured by residential or commercial
lots and land. The Georgia and Florida participations declined $11.8 million from $21.7 to $9.9
million including charge offs of $4.7 million. A total of four relationships remain in these
portfolios. Management has carefully evaluated the remaining portfolios and has provided general
reserves which have increased signficantly in comparision to long-term historicial losses.
Management believes the allocations are appropriate due to the significant detrioration of the
market and prospect of further deterioation, despite the relative strength of the remaining
borrowers.
The majority of the remaining ADC portfolio is the CSRA which has experienced significantly
less loss. Only 4.1%, or $720 of the $17.6 million in charge-offs incurred in the ADC portfolio,
were derived from the CSRA portfolio. Although the CSRA market is not entirely immune to the
current
national recession, it has performed better due to several factors, including: (1) the level
of military spending due to the ongoing expansion of the Armys Fort Gordon and its missions, (2)
the ongoing expansion and economic opportunities provided by the medical community around the
states Medical College of Georgia, and (3) the reduced level of volatility shown in the
Augusta/CSRA residential housing market. However, the CSRA has experienced an increase in
classified/watch rated loans as well as loans considered impaired which resulted in an increase in
the allowance. Consequently, management has increased the general reserves on this portfolio to
$3.8 million at December 31, 2009, as compared to $1.7 million at December 31, 2008.
55
The following table provides selected asset quality information related to the acquisition
development and construction loan portfolio as of December 31, 2009 and 2008.
Acquisition Development and Construction Loans
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
CSRA primary market area |
|
|
|
|
|
|
|
|
Period-end loans |
|
|
195,394 |
|
|
|
266,156 |
|
Specific reserve impaired loans |
|
|
11,278 |
|
|
|
5,187 |
|
Classified/watch rated loans |
|
|
27,237 |
|
|
|
9,879 |
|
Charge-offs % (annual) |
|
|
0.44 |
% |
|
|
0.19 |
% |
Specific reserve allowance / Impaired loans |
|
|
10.29 |
% |
|
|
0.00 |
% |
General reserve allowance / Loans not impaired % |
|
|
2.10 |
% |
|
|
0.67 |
% |
Allowance / Charge-offs |
|
|
6.94 |
|
|
|
4.78 |
|
|
|
|
|
|
|
|
|
|
Savannah, Georgia |
|
|
|
|
|
|
|
|
Period-end loans |
|
|
19,666 |
|
|
|
28,300 |
|
Specific reserve impaired loans |
|
|
1,300 |
|
|
|
2,645 |
|
Classified/watch rated loans |
|
|
4,064 |
|
|
|
5,060 |
|
Charge-offs % (annual) |
|
|
11.21 |
% |
|
|
3.18 |
% |
Specific reserve allowance / Impaired loans |
|
|
8.62 |
% |
|
|
6.62 |
% |
General reserve allowance / Loans not impaired % |
|
|
3.42 |
% |
|
|
4.20 |
% |
Allowance / Charge-offs |
|
|
0.34 |
|
|
|
1.39 |
|
|
|
|
|
|
|
|
|
|
Athens, Georgia |
|
|
|
|
|
|
|
|
Period-end loans |
|
|
20,031 |
|
|
|
31,806 |
|
Specific reserve impaired loans |
|
|
8,457 |
|
|
|
8,772 |
|
Classified/watch rated loans |
|
|
2,742 |
|
|
|
13,667 |
|
Charge-offs % (annual) |
|
|
47.59 |
% |
|
|
1.78 |
% |
Specific reserve allowance / Impaired loans |
|
|
0.00 |
% |
|
|
12.04 |
% |
General reserve allowance / Loans not impaired % |
|
|
10.68 |
% |
|
|
3.97 |
% |
Allowance / Charge-offs |
|
|
0.13 |
|
|
|
2.55 |
|
|
|
|
|
|
|
|
|
|
ADC Participations Georgia |
|
|
|
|
|
|
|
|
Period-end loans |
|
|
9,893 |
|
|
|
21,676 |
|
Specific reserve impaired loans |
|
|
3,393 |
|
|
|
10,637 |
|
Classified/watch rated loans |
|
|
6,500 |
|
|
|
48 |
|
Charge-offs % (annual) |
|
|
47.41 |
% |
|
|
8.88 |
% |
Specific reserve allowance / Impaired loans |
|
|
20.81 |
% |
|
|
4.09 |
% |
General reserve allowance / Loans not impaired % |
|
|
9.50 |
% |
|
|
9.55 |
% |
Allowance / Charge-offs |
|
|
0.28 |
|
|
|
0.77 |
|
|
|
|
|
|
|
|
|
|
ADC Participations Florida |
|
|
|
|
|
|
|
|
Period-end loans |
|
|
4,034 |
|
|
|
8,005 |
|
Specific reserve impaired loans |
|
|
1,034 |
|
|
|
3,650 |
|
Classified/watch rated loans |
|
|
|
|
|
|
704 |
|
Charge-offs % (annual) |
|
|
10.26 |
% |
|
|
0.19 |
% |
Specific reserve allowance / Impaired loans |
|
|
0.00 |
% |
|
|
11.34 |
% |
General reserve allowance / Loans not impaired % |
|
|
10.00 |
% |
|
|
4.27 |
% |
Allowance / Charge-offs |
|
|
0.72 |
|
|
|
2.00 |
|
The allocation of allowance for loan losses on Commercial real estate increased $3.1 million
and was due in part to an increased level of classified/watch rated loans coupled with an increase
in balances. The allocation of allowance for loan losses for Residential real estate increased $3.2
million and was due in part to an increased level of classified/watch rated loans coupled with an
increase in balances and charge offs during 2009.
56
The following table provides details regarding charge-offs and recoveries by loan category
during the most recent five year period, as well as supplemental information relating to both net
loan losses, the provision and the allowance for loan losses during each of the past five years.
Net charge-offs for 2009 represented 2.42% of average loans outstanding, compared to 0.65% for 2008
and 0.22% for 2007.
Allowances for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans outstanding at end of period,
net of unearned income |
|
$ |
937,489 |
|
|
$ |
986,831 |
|
|
$ |
871,440 |
|
|
$ |
735,112 |
|
|
$ |
579,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans outstanding, net of
unearned income |
|
$ |
965,111 |
|
|
$ |
934,512 |
|
|
$ |
800,852 |
|
|
$ |
647,421 |
|
|
$ |
530,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan losses at
beginning of year |
|
$ |
14,742 |
|
|
$ |
11,800 |
|
|
$ |
9,777 |
|
|
$ |
8,431 |
(1) |
|
$ |
7,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
|
1,061 |
|
|
|
816 |
|
|
|
98 |
|
|
|
648 |
|
|
|
694 |
|
Real estate commercial |
|
|
1,082 |
|
|
|
279 |
|
|
|
219 |
|
|
|
130 |
|
|
|
65 |
|
Real estate acquisition, development
and construction |
|
|
17,573 |
|
|
|
4,265 |
|
|
|
915 |
|
|
|
100 |
|
|
|
80 |
|
Real estate residential mortgage |
|
|
3,801 |
|
|
|
665 |
|
|
|
258 |
|
|
|
676 |
|
|
|
30 |
|
Consumer |
|
|
616 |
|
|
|
711 |
|
|
|
1,086 |
|
|
|
386 |
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
24,133 |
|
|
|
6,736 |
|
|
|
2,576 |
|
|
|
1,940 |
|
|
|
1,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of previous loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
|
360 |
|
|
|
348 |
|
|
|
21 |
|
|
|
287 |
|
|
|
307 |
|
Real estate commercial |
|
|
15 |
|
|
|
|
|
|
|
32 |
|
|
|
20 |
|
|
|
45 |
|
Real estate acquisition, development
and construction |
|
|
6 |
|
|
|
2 |
|
|
|
12 |
|
|
|
6 |
|
|
|
5 |
|
Real estate residential mortgage |
|
|
172 |
|
|
|
41 |
|
|
|
93 |
|
|
|
11 |
|
|
|
7 |
|
Consumer |
|
|
272 |
|
|
|
232 |
|
|
|
618 |
|
|
|
484 |
|
|
|
594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
825 |
|
|
|
623 |
|
|
|
776 |
|
|
|
808 |
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan losses |
|
|
23,308 |
|
|
|
6,113 |
|
|
|
1,800 |
|
|
|
1,132 |
|
|
|
647 |
|
Provision for loan losses |
|
|
30,904 |
|
|
|
9,055 |
|
|
|
3,823 |
|
|
|
2,478 |
|
|
|
1,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan losses at
end of period |
|
$ |
22,338 |
|
|
$ |
14,742 |
|
|
$ |
11,800 |
|
|
|
9,777 |
|
|
|
9,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to period end
loans |
|
|
2.38 |
% |
|
|
1.49 |
% |
|
|
1.35 |
% |
|
|
1.33 |
% |
|
|
1.58 |
% |
Net charge-offs to average loans |
|
|
2.42 |
% |
|
|
0.65 |
% |
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.12 |
% |
Proforma ALLL at end of period (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,431 |
|
Proforma
ALLL to period end loans (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.40 |
% |
|
|
|
(1) |
|
Includes adjustment of $694 for estimated overstatement of allowance for loan loss as of
12/31/05 as required by SAB 108. |
|
(2) |
|
Proforma assumes adjustment to prior periods of amounts corrected pursuant to SAB108 under the
iron curtain method. |
57
At December 31, 2009, the allowance for loan losses was 2.38% of outstanding loans, up from
1.49% at December 31, 2008 and 1.35% at December 31, 2007. The Company experienced significantly
higher levels of net charge-offs in the real estate construction and real estate mortgage
categories in 2009. Due to declining real estate values in the Companys acquisition development
and construction portfolio coupled with the amount of such loans determined to be both impaired and
collateral dependent, charge-offs of such loans have increased. Impaired loans are evaluated based
on recent appraisals of the collateral. Collateral values are monitored and further charge-offs
are taken if its determined collateral values have continued to decline.
Management considers the allowance appropriate based upon its analysis of risk in the
portfolio using the methods previously discussed. Managements judgment is based upon a number of
assumptions about events which are believed to be reasonable, but which may or may not prove
correct. While it is the Companys policy to charge off in the current period the loans in which a
loss is considered probable, there are additional risks of losses which cannot be quantified
precisely or attributed to a particular loan or class of loans. Because management evaluates such
factors as changes
in the nature and volume of the loan portfolio, historical loss rates, overall portfolio
quality, review of specific problem loans, and current economic conditions and trends that may
affect a borrowers ability to repay, managements judgment as to the adequacy of the allowance is
necessarily approximate and imprecise. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional increases in the allowance
will not be required. See Critical Accounting Estimates.
Investment Securities
The Companys investment securities portfolio increased $6.7 million to $306.7 million at
year-end 2009 from 2008. The Company maintains an investment strategy of seeking portfolio yields
within acceptable risk levels, as well as providing liquidity. The Company maintains two
classifications of investments: Held to Maturity and Available for Sale. Available for Sale
securities are carried at fair market value with related unrealized gains or losses included in
stockholders equity as accumulated other comprehensive income, whereas the Held to Maturity
securities are carried at amortized cost. As a consequence, with a higher percentage of securities
being placed in the Available for Sale category, the Companys stockholders equity is more
volatile than it would be if a larger percentage of investment securities were placed in the Held
to Maturity category. Although equity is more volatile, management has discretion, with respect
to the Available for Sale securities, to proactively adjust to favorable market conditions in
order to provide liquidity and realize gains on the sales of securities. The changes in values in
the investment securities portfolio are not taken into account in determining regulatory capital
requirements. As of December 31, 2009, except for the U.S. Government agencies and government
sponsored entities, there was no issuer who represented 10% or more of stockholders equity within
the investment portfolio. As of December 31, 2009 and 2008, the estimated fair value of investment
securities as a percentage of their amortized cost was 99.3% and 99.9%, respectively. At December
31, 2009, the investment securities portfolio had gross unrealized gains of $3.9 million and gross
unrealized losses of $6.1 million, for a net unrealized loss of $2.2 million. As of December 31,
2008 and 2007, the investment securities portfolio had a net unrealized gain of $81 and $75,
respectively. The following table presents the amortized cost of investment securities held by the
Company at December 31, 2009, 2008 and 2007.
58
Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in
thousands) |
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
$ |
55,086 |
|
|
$ |
109,256 |
|
|
$ |
96,166 |
|
Obligations of states and political subdivisions |
|
|
26,402 |
|
|
|
17,384 |
|
|
|
15,755 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
98,667 |
|
|
|
117,373 |
|
|
|
82,921 |
|
U.S. GSEs CMO |
|
|
107,153 |
|
|
|
28,179 |
|
|
|
24,704 |
|
Other CMO |
|
|
8,484 |
|
|
|
11,997 |
|
|
|
10,554 |
|
Corporate bonds |
|
|
12,591 |
|
|
|
15,032 |
|
|
|
15,036 |
|
Equity securities |
|
|
4 |
|
|
|
46 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
308,387 |
|
|
$ |
299,267 |
|
|
$ |
245,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions |
|
$ |
490 |
|
|
$ |
689 |
|
|
$ |
1,435 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
490 |
|
|
$ |
689 |
|
|
$ |
1,435 |
|
|
|
|
|
|
|
|
|
|
|
The Companys equity securities include 35 thousand common shares of Nexity Corporation. For
the year ended December 31, 2009, the Company recognized a $31 pre-tax charge for the
other-than-temporary decline in fair value in this investment. When a decline in fair value below
cost is deemed to be other than temporary, the unrealized loss must be recognized as a charge to
earnings.
The following table represents maturities and weighted average yields of debt securities at
December 31, 2009. Yields are based on the amortized cost of securities. Maturities are based on
the contractual maturities. Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or prepayment
penalties.
59
Maturity Distribution and Yields of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Amortized Cost |
|
|
Yield |
|
|
|
(Dollars in
thousands) |
|
Available for Sale |
|
|
|
|
|
|
|
|
Obligations of U.S. Government
agencies |
|
|
|
|
|
|
|
|
Over five through ten years |
|
|
5,996 |
|
|
|
3.77 |
% |
Over ten years |
|
|
49,090 |
|
|
|
4.72 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
55,086 |
|
|
|
4.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political
subdivisions(1) |
|
|
|
|
|
|
|
|
Over one through five years |
|
$ |
1,790 |
|
|
|
4.27 |
% |
Over five through ten years |
|
|
5,891 |
|
|
|
5.37 |
% |
Over ten years |
|
|
18,721 |
|
|
|
6.17 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
26,402 |
|
|
|
5.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
Over one through five years |
|
$ |
1,008 |
|
|
|
6.44 |
% |
Over five through ten years |
|
|
2,909 |
|
|
|
6.01 |
% |
Over ten years |
|
|
8,674 |
|
|
|
5.34 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
12,591 |
|
|
|
5.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
|
|
|
|
|
|
One year or less |
|
$ |
1,181 |
|
|
|
3.50 |
% |
Over one through five years |
|
|
1,819 |
|
|
|
4.13 |
% |
Over five through ten years |
|
|
16,750 |
|
|
|
3.47 |
% |
Over ten years |
|
|
78,917 |
|
|
|
3.78 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
98,667 |
|
|
|
3.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs CMO |
|
|
|
|
|
|
|
|
Over five through ten years |
|
$ |
8,250 |
|
|
|
4.35 |
% |
Over ten years |
|
|
98,903 |
|
|
|
4.05 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
107,153 |
|
|
|
4.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other CMO |
|
|
|
|
|
|
|
|
Over five through ten years |
|
$ |
721 |
|
|
|
4.98 |
% |
Over ten years |
|
|
7,763 |
|
|
|
7.30 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
8,484 |
|
|
|
7.10 |
% |
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
4 |
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
Total Available for Sale |
|
$ |
308,387 |
|
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
Obligations of states and political
subdivisions(1) |
|
|
|
|
|
|
|
|
One year or less |
|
$ |
180 |
|
|
|
7.87 |
% |
Over one through five years |
|
$ |
310 |
|
|
|
7.87 |
% |
|
|
|
|
|
|
|
Total |
|
$ |
490 |
|
|
|
7.87 |
% |
|
|
|
|
|
|
|
|
|
Total Held to Maturity |
|
$ |
490 |
|
|
|
7.87 |
% |
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
308,877 |
|
|
|
4.36 |
% |
|
|
|
|
|
|
|
60
Deposits
The Companys average deposits and other borrowings increased $148.6 million or 12.21% from
2008 to 2009. Average interest-bearing liabilities increased $143.6 million or 12.97% while
average noninterest-bearing deposits increased $5.0 million or 4.57% from 2008 to 2009. Average
deposits increased $163.9 million or 15.50% over 2008 of which $11.3 million or 1.07% were
brokered deposits. Average borrowings decreased $15.3 million or 9.61% from 2008 to 2009. The
majority of the growth in deposits reflects the Companys strategy of consistently emphasizing
deposit growth, as deposits are the primary source of funding for balance sheet growth. Borrowed
funds consist of short-term borrowings, securities sold under agreements to repurchase with the
Companys commercial customers and reverse repurchase agreements with SunTrust Robinson Humphrey,
federal funds purchased, subordinated debentures and borrowings from the Federal Home Loan Bank.
Average interest-bearing liabilities increased $176.3 million or 18.9% from 2007 to 2008,
while average noninterest-bearing deposits increased $1.3 million or 1.2% during the same period.
The following table presents the average amount outstanding and the average rate paid on
deposits and borrowings by the Company for the years 2009, 2008 and 2007:
Average Deposit and Borrowing Balances and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
$ |
114,835 |
|
|
|
0.00 |
% |
|
$ |
109,818 |
|
|
|
0.00 |
% |
|
$ |
108,470 |
|
|
|
0.00 |
% |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
|
187,250 |
|
|
|
0.95 |
% |
|
|
147,227 |
|
|
|
1.46 |
% |
|
|
127,093 |
|
|
|
2.30 |
% |
Savings, money management accounts |
|
|
341,118 |
|
|
|
1.71 |
% |
|
|
353,719 |
|
|
|
2.52 |
% |
|
|
341,097 |
|
|
|
4.04 |
% |
Time deposits |
|
|
577,897 |
|
|
|
2.88 |
% |
|
|
446,434 |
|
|
|
4.25 |
% |
|
|
317,298 |
|
|
|
5.18 |
% |
Federal funds purchased / securities
sold under repurchase agreements |
|
|
40,823 |
|
|
|
0.80 |
% |
|
|
60,629 |
|
|
|
2.17 |
% |
|
|
65,735 |
|
|
|
5.03 |
% |
Other borrowings |
|
|
103,238 |
|
|
|
3.78 |
% |
|
|
98,741 |
|
|
|
4.21 |
% |
|
|
79,250 |
|
|
|
5.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
1,250,326 |
|
|
|
2.28 |
% |
|
$ |
1,106,750 |
|
|
|
3.21 |
% |
|
$ |
930,473 |
|
|
|
4.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest & interest-bearing liabilities |
|
$ |
1,365,161 |
|
|
|
|
|
|
$ |
1,216,568 |
|
|
|
|
|
|
$ |
1,038,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the maturities of the Companys time deposits over $100 at
December 31, 2009:
Maturities of Time Deposits
(Dollars in thousands)
|
|
|
|
|
|
|
Time Certificates |
|
|
|
of Deposit of |
|
|
|
$100 or More |
|
Months to Maturity |
|
|
|
|
Within 3 months |
|
$ |
119,439 |
|
After 3 through 6 months |
|
|
39,076 |
|
After 6 through 12 months |
|
|
115,227 |
|
|
|
|
|
Within one year |
|
|
273,742 |
|
After 12 months |
|
|
145,009 |
|
|
|
|
|
Total |
|
$ |
418,751 |
|
|
|
|
|
61
This table indicates that the majority of time deposits of $100 or more have a maturity of
less than twelve months. This is reflective of both the Companys market and recent interest rate
environments. Large time deposit customers tend to be extremely rate sensitive, making these
deposits a volatile source of funding for liquidity planning purposes. However, dependent upon
pricing, these deposits are virtually always available in the Companys market. At December 31,
2009, the Company had $102.1 million of brokered certificates of deposit that mature after 12
months. The Company does not have any time deposits of $100 or more that are not certificates of
deposit.
Off-Balance Sheet Arrangements
The Company is party to lines of credit with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. Lines of credit are unfunded commitments to
extend credit. These instruments involve, in varying degrees, exposure to credit and interest rate
risk in excess of the amounts recognized in the financial statements. The Companys exposure to
credit loss in the event of nonperformance by the other party to the financial instrument for
unfunded commitments to extend credit and letters of credit is represented by the contractual
amount of those instruments. The Company follows the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Unfunded commitments to extend credit where contractual amounts represent potential credit
risk totaled $174.9 million and $202.6 million at December 31, 2009 and 2008, respectively. These
commitments are primarily at variable interest rates.
The Companys commitments are funded through internal funding sources of scheduled repayments
of loans and sales and maturities of investment securities available for sale or external funding
sources through acceptance of deposits from customers or borrowings from other financial
institutions.
The following table is a summary of the Companys commitments to extend credit, commitments
under contractual leases as well as the Company contractual obligations, consisting of deposits,
FHLB advances and borrowed funds by contractual maturity date.
Commitments and Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1 - 3 |
|
|
3 - 5 |
|
|
More than |
|
(Dollars in thousands) |
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
Lines of credit |
|
$ |
146,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments |
|
|
28,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease agreements |
|
|
361 |
|
|
|
459 |
|
|
|
72 |
|
|
|
61 |
|
Deposits |
|
|
1,093,122 |
|
|
|
173,438 |
|
|
|
11,750 |
|
|
|
2,224 |
|
Securities sold under
repurchase agreements |
|
|
3,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances |
|
|
17,000 |
|
|
|
8,000 |
|
|
|
13,000 |
|
|
|
39,000 |
|
Other borrowings |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures |
|
|
|
|
|
|
|
|
|
|
2,947 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments and
contractual obligations |
|
$ |
1,289,165 |
|
|
|
181,897 |
|
|
|
27,769 |
|
|
|
61,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Although management regularly monitors the balance of outstanding commitments to fund loans to
ensure funding availability should the need arise, management believes that the risk of all
customers fully drawing on all these lines of credit at the same time is remote.
Asset/Liability Management, Interest Rate Sensitivity and Liquidity
General. It is the objective of the Company to manage assets and liabilities to preserve the
integrity and safety of the deposit and capital base of the Company by protecting the Company from
undue exposure to poor asset quality and interest rate risk. Additionally, the Company pursues a
consistent level of earnings as further protection for the depositors and to provide an appropriate
return to stockholders on their investment.
These objectives are achieved through compliance with an established framework of
asset/liability, interest rate risk, loan, investment, and capital policies. Management is
responsible for monitoring policies and procedures that result in proper management of the
components of the asset/liability function to achieve stated objectives. The Companys philosophy
is to support quality asset growth primarily through growth of core deposits, which include
non-volatile deposits of individuals, partnerships and corporations. Management seeks to invest the
largest portion of the Companys assets in loans that meet the Companys quality standards.
Alternative investments are made in the investment portfolio. The Companys asset/liability
function and related components of liquidity and interest rate risk are monitored on a continuous
basis by management. The Board of Directors reviews and monitors these functions on a monthly
basis.
Interest Rate Sensitivity. The process of asset/liability management involves monitoring the
Companys balance sheet in order to determine the potential impact that changes in the interest
rate environment would have on net interest income so that the appropriate strategies to minimize
any negative impact can be implemented. The primary objective of asset/liability management is to
continue the steady growth of net interest income, the Companys primary earnings component within
a context of liquidity requirements.
In theory, interest rate risk can be minimized by maintaining a nominal level of interest rate
sensitivity. In practice, however, this is made difficult because of uncontrollable influences on
the Companys balance sheet, including variations in both loan demand and the availability of
funding sources.
The measurement of the Companys interest rate sensitivity is one of the primary techniques
employed by the Company in asset/liability management. The dollar difference between assets and
liabilities which are subject to interest rate repricing within a given time period, including both
floating rate or adjustable instruments and instruments which are approaching maturity, determine
the interest sensitivity gap.
The Company manages its sensitivity to interest rate movements by adjusting the maturity of,
and establishing rates on, the interest-earning asset portfolio and interest-bearing liabilities in
line with managements expectations relative to market interest rates. The Company would generally
benefit from increasing market interest rates when the balance sheet is asset sensitive and would
benefit from decreasing market rates when it is liability sensitive. At December 31, 2009, the
Companys interest rate sensitivity position was liability sensitive within the one-year horizon.
63
The following table Interest Sensitivity Analysis details the interest rate sensitivity of
the Company at December 31, 2009. The principal balances of the various interest-earning and
interest-bearing balance sheet instruments are shown in the time period where they are first
subject to repricing,
whether as a result of floating or adjustable rate contracts. At December 31, 2008 the
Company has instituted floors on various categories of its variable rate loan portfolio. In most
cases the floors are between 5.5% and 6.0% and based upon the prime interest rate plus a margin.
The prime interest rate at December 31, 2009 was 3.25%. At this level the prime based variable rate
loans will essentially have the characteristics of fixed rate loans until the prime rate increases
above 5.5% to 6.0%. Fixed rate time deposits are presented according to their contractual maturity
while variable rate time deposits reprice with the prime rate and are presented in the within three
months time frame. Prime savings accounts reprice at managements discretion when prime is below
5% and at 50% of the prime rate when prime is greater than 5%. In the table presented below, prime
savings reprices in the within three months time frame. Regular savings, money management and NOW
accounts do not have a contractual maturity date and are presented as repricing at the earliest
date in which the deposit holder could withdraw the funds. All other borrowings are shown in the
first period in which they could reprice. In the one-year time period, the pricing mismatch on a
cumulative basis was liability sensitive $366.7 million or 28.8% of total interest-earning assets.
Management has procedures in place to carefully monitor the Companys interest rate sensitivity as
the rate environment changes. It should also be noted that all interest rates do not adjust at the
same velocity. As an example, the majority of the savings category listed below is priced on an
adjustable basis. When prime is greater than 5%, it is fifty percent of the prime rate.
Therefore, as the prime rate adjusts 100 basis points, the rate on this liability only adjusts 50
basis points. Moreover, varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities. Investments prepayments are reflected at their
current prepayment speeds in the interest sensitivity analysis report. No other prepayments are
reflected in the following interest sensitivity analysis report. Prepayments may have significant
effects on the Companys net interest margin. Hence, gap is only a general indicator of interest
rate sensitivity and cannot be interpreted as an absolute measurement of the Companys interest
rate risk.
64
Interest Sensitivity Analysis
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Six |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Three |
|
|
Through |
|
|
|
|
|
|
One Year |
|
|
|
|
|
|
|
|
|
Within Three |
|
|
Through Six |
|
|
Twelve |
|
|
Within |
|
|
Through Five |
|
|
Over Five |
|
|
|
|
|
|
Months |
|
|
Months |
|
|
Months |
|
|
One Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
386,803 |
|
|
|
71,481 |
|
|
|
99,008 |
|
|
|
557,292 |
|
|
|
365,883 |
|
|
|
14,314 |
|
|
|
937,489 |
|
Investment securities (including
restricted equity securities) |
|
|
27,867 |
|
|
|
24,632 |
|
|
|
20,533 |
|
|
|
73,032 |
|
|
|
160,401 |
|
|
|
79,611 |
|
|
|
313,044 |
|
Federal funds sold |
|
|
7,300 |
|
|
|
|
|
|
|
|
|
|
|
7,300 |
|
|
|
|
|
|
|
|
|
|
|
7,300 |
|
Interest-bearing deposits in other
banks |
|
|
17,033 |
|
|
|
|
|
|
|
|
|
|
|
17,033 |
|
|
|
|
|
|
|
|
|
|
|
17,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
439,003 |
|
|
$ |
96,113 |
|
|
$ |
119,541 |
|
|
$ |
654,657 |
|
|
$ |
526,284 |
|
|
$ |
93,925 |
|
|
$ |
1,274,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money management accounts |
|
$ |
44,781 |
|
|
|
|
|
|
|
|
|
|
|
44,781 |
|
|
|
|
|
|
|
|
|
|
|
44,781 |
|
Savings accounts |
|
|
343,740 |
|
|
|
|
|
|
|
|
|
|
|
343,740 |
|
|
|
|
|
|
|
|
|
|
|
343,740 |
|
NOW accounts |
|
|
210,438 |
|
|
|
|
|
|
|
|
|
|
|
210,438 |
|
|
|
|
|
|
|
|
|
|
|
210,438 |
|
Time deposits |
|
|
169,107 |
|
|
|
68,734 |
|
|
|
143,752 |
|
|
|
381,593 |
|
|
|
185,202 |
|
|
|
|
|
|
|
566,795 |
|
Federal funds purchased / securities
sold under repurchase ageements |
|
|
3,188 |
|
|
|
|
|
|
|
|
|
|
|
3,188 |
|
|
|
|
|
|
|
|
|
|
|
3,188 |
|
Federal Home Loan Bank advances |
|
|
5,000 |
|
|
|
|
|
|
|
12,000 |
|
|
|
17,000 |
|
|
|
21,000 |
|
|
|
39,000 |
|
|
|
77,000 |
|
Notes and bonds payable |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
Subordinated debentures |
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
2,947 |
|
|
|
|
|
|
|
22,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
796,854 |
|
|
$ |
68,734 |
|
|
$ |
155,752 |
|
|
$ |
1,021,340 |
|
|
$ |
209,149 |
|
|
$ |
39,000 |
|
|
$ |
1,269,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period gap |
|
$ |
(357,851 |
) |
|
$ |
27,379 |
|
|
$ |
(36,211 |
) |
|
$ |
(366,683 |
) |
|
$ |
317,135 |
|
|
$ |
54,925 |
|
|
|
|
|
Cumulative gap |
|
$ |
(357,851 |
) |
|
$ |
(330,472 |
) |
|
$ |
(366,683 |
) |
|
$ |
(366,683 |
) |
|
$ |
(49,548 |
) |
|
$ |
5,377 |
|
|
|
|
|
Ratio of cumulative gap to total
interest-earning assets |
|
|
(28.07 |
%) |
|
|
(25.92 |
%) |
|
|
(28.76 |
%) |
|
|
(28.76 |
%) |
|
|
(3.89 |
%) |
|
|
0.42 |
% |
|
|
|
|
Liquidity
Management of the Companys liquidity position is closely related to the process of
asset/liability management. Liquidity represents the ability to provide steady sources of funds
for loan commitments and investment activities, as well as to provide sufficient funds to cover
deposit withdrawals and payment of debt and operating obligations. The Company intends to meet its
liquidity needs by managing cash and due from banks, federal funds sold and purchased, maturity of
investment securities, principal repayments received from mortgage-backed securities and lines of
credit as necessary. The Bank and the Thrift each maintain a line of credit with the Federal Home
Loan Bank approximating 10% of their total assets. Federal Home Loan Bank advances are
collateralized by eligible first mortgages, commercial real estate loans and investment securities.
The Bank maintains repurchase lines of credit with SunTrust Robinson Humphrey, Atlanta, Georgia,
for advances up to $20.0 million of which no amounts were outstanding at December 31, 2009. The
Bank has a federal funds purchased accommodation with SunTrust Bank, Atlanta, Georgia, for advances
up to $10.0 million. Effective May 1, 2009 Silverton Bank, N.A. was closed by the Office of the
Comptroller of the Currency (OCC). The FDIC created a bridge bank to take over the operations of
Silverton Bank and the FDIC was appointed receiver. On July 29, 2009 federal funds purchased
accommodations with the bridge bank in the amount of $16.7 million for the Bank and $4.6 million
for the Thrift were discontinued. Management established another correspondent relationship with
Center State Bank, Orlando, Florida, for a $10.0 million repurchase line of credit. Additionally,
liquidity needs can be supplemented by the structuring of the maturities of investment securities
and the pricing and maturities on loans and deposits offered to customers. The Company also uses
retail securities sold under repurchase agreements to fund growth. Retail securities sold under
repurchase agreements were $3.2 million at December 31, 2009.
65
Capital
Total stockholders equity was $93.7 million at December 31, 2009, a decrease of $907 or 0.96%
from the previous year. The decrease in capital was the result of the net loss of $8.0 million
coupled with the payment of dividends of $778 offset by $9.0 million in proceeds from the issuance
of common stock. The Company purchased 302 shares of treasury stock in 2009, and 13,600 shares in
2008 at a cost of $5 and $445, respectively, which is shown as a reduction of stockholders equity.
The Company issued 302 shares of treasury stock in 2009 and 1,170 shares in 2008 at a price of $5
and $35, respectively, for the Director Stock Purchase Plan and 22,000 shares in 2008, and 400
shares in 2007 at a price of $726 and $17, respectively, for stock options which were exercised.
The Companys average equity to average total assets was 6.82% in 2009 compared to 6.78% in
2008 and 7.40% in 2007. Capital is considered to be adequate to meet present operating needs and
anticipated future operating requirements. The Company applied for but withdrew its application
for a capital investment from the United States Department of the Treasury under the Troubled
Assets Relief Program (TARP) Capital Purchase Program and instead elected to issue common stock
and subordinated debentures during the second quarter of 2009. 683,272 shares of common stock were
issued at a purchase price of $13.25 per share (representing aggregate proceeds of approximately
$9.0 million) in a private placement pursuant to Rule 506 under the Securities Act of 1933, as
amended (the Act). A $2.9 million unsecured subordinated debenture was issued to a related
party, R.W. Pollard
Enterprises, LLP, in a private placement exempt from registration under Rule 506 of the Act,
as amended. The proceeds of each were used to increase capital at the Bank.
Management is not aware of any trends, events or uncertainties that are reasonably likely to
have a material effect on the Companys capital resources or operations. The following table
presents the return on equity and assets for the years 2009, 2008 and 2007.
Return on Equity and Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
(0.54 |
%) |
|
|
0.57 |
% |
|
|
1.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity |
|
|
(7.92 |
%) |
|
|
8.48 |
% |
|
|
14.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets ratio |
|
|
6.82 |
% |
|
|
6.78 |
% |
|
|
7.40 |
% |
At December 31, 2009, the Company was well above the minimum capital ratios required under the
regulatory risk-based capital guidelines and was considered well capitalized. The following table
presents the capital ratios for the Company and its subsidiaries.
66
ANALYSIS OF CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required |
|
|
Actual |
|
|
Excess |
|
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
|
(Dollars in thousands) |
|
Southeastern Bank Financial
Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
41,573 |
|
|
|
4.00 |
% |
|
$ |
114,930 |
|
|
|
11.06 |
% |
|
$ |
73,357 |
|
|
|
7.06 |
% |
Total capital |
|
|
83,146 |
|
|
|
8.00 |
% |
|
|
130,395 |
|
|
|
12.55 |
% |
|
|
47,249 |
|
|
|
4.55 |
% |
Tier 1 leverage ratio |
|
|
61,177 |
|
|
|
4.00 |
% |
|
|
114,930 |
|
|
|
7.51 |
% |
|
|
53,753 |
|
|
|
3.51 |
% |
12/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
43,829 |
|
|
|
4.00 |
% |
|
$ |
114,467 |
|
|
|
10.45 |
% |
|
$ |
70,638 |
|
|
|
6.45 |
% |
Total capital |
|
|
87,658 |
|
|
|
8.00 |
% |
|
|
128,177 |
|
|
|
11.70 |
% |
|
|
40,519 |
|
|
|
3.70 |
% |
Tier 1 leverage ratio |
|
|
56,231 |
|
|
|
4.00 |
% |
|
|
114,467 |
|
|
|
8.14 |
% |
|
|
58,236 |
|
|
|
4.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia Bank & Trust Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
36,391 |
|
|
|
4.00 |
% |
|
$ |
99,984 |
|
|
|
10.99 |
% |
|
$ |
63,593 |
|
|
|
6.99 |
% |
Total capital |
|
|
72,782 |
|
|
|
8.00 |
% |
|
|
111,465 |
|
|
|
12.25 |
% |
|
|
38,683 |
|
|
|
4.25 |
% |
Tier 1 leverage ratio |
|
|
61,301 |
|
|
|
4.50 |
% |
|
|
99,984 |
|
|
|
7.34 |
% |
|
|
38,683 |
|
|
|
2.84 |
% |
12/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
39,246 |
|
|
|
4.00 |
% |
|
$ |
95,546 |
|
|
|
9.74 |
% |
|
$ |
56,300 |
|
|
|
5.74 |
% |
Total capital |
|
|
78,491 |
|
|
|
8.00 |
% |
|
|
107,821 |
|
|
|
10.99 |
% |
|
|
29,330 |
|
|
|
2.99 |
% |
Tier 1 leverage ratio |
|
|
57,551 |
|
|
|
4.50 |
% |
|
|
95,546 |
|
|
|
7.47 |
% |
|
|
37,995 |
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Bank & Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
5,091 |
|
|
|
4.00 |
% |
|
$ |
14,136 |
|
|
|
11.11 |
% |
|
$ |
9,045 |
|
|
|
7.11 |
% |
Total capital |
|
|
10,183 |
|
|
|
8.00 |
% |
|
|
15,734 |
|
|
|
12.36 |
% |
|
|
5,551 |
|
|
|
4.36 |
% |
Tier 1 leverage ratio |
|
|
6,640 |
|
|
|
4.00 |
% |
|
|
14,136 |
|
|
|
8.52 |
% |
|
|
7,496 |
|
|
|
4.52 |
% |
12/31/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
4,528 |
|
|
|
4.00 |
% |
|
$ |
13,939 |
|
|
|
12.31 |
% |
|
$ |
9,411 |
|
|
|
8.31 |
% |
Total capital |
|
|
9,055 |
|
|
|
8.00 |
% |
|
|
15,356 |
|
|
|
13.57 |
% |
|
|
6,301 |
|
|
|
5.57 |
% |
Tier 1 leverage ratio |
|
|
4,943 |
|
|
|
4.00 |
% |
|
|
13,939 |
|
|
|
11.28 |
% |
|
|
8,996 |
|
|
|
7.28 |
% |
Cash Flows from Operating, Investing and Financing Activities
Net cash provided by operating activities was $19.3 million in 2009, an increase of $11.5
million from 2008. An increase in net proceeds from sales of real estate loans over real estate
loans originated for sale of $6.4 million contributed to the increase. Net cash provided by
operating activities was $7.8 million in 2008, a decrease of $9.8 million from 2007. A reduction
in proceeds from sales of real estate loans of $3.8 million as well as an increase in real estate
loans originated for sale of $6.8 million contributed to the decrease.
Net cash provided by investing activities increased $189.9 million in 2009 to $4.5 million.
Loans decreased $5.3 million in 2009 compared to an increase in loans of $127.9 million in 2008. In
addition, the Company received proceeds from sale of other real estate of $12.2 million. Net cash
used in investing activities decreased $4.9 million in 2008 to $185.4 million. Loan growth of
$123.0 million caused a decrease in cash used of $10.6 million for 2008, a $7.6 million decrease in
cash used to purchase new additions to premises and equipment as well as a $1.5 million decrease in
cash provided by proceeds from the sale of premises and equipment as compared to 2007. These
decreases were somewhat offset by increases in cash used of $10.7 million for net changes in the
investment securities portfolio.
67
Net cash provided by financing activities in 2009 was $86.4 million, a decrease of $103.9
million from 2008. The primary reason for the decrease was slower deposit growth of $46.4 million
compared to 2008 coupled with a decrease in federal funds purchased and securities sold under
repurchase agreements. In addition cash from financing activities included the issuance of common
stock of $9.0 million and proceeds of issuance of subordinated debt of $2.9 million. Deposit
accounts provided cash flows of $141.9 million in 2009, a decrease of $46.4 million over 2008.
Cash provided by federal funds purchased and securities sold under repurchase agreements decreased
$40.8 million in 2009. Cash was used to repay $7.0 million in advances from Federal Home Loan
Bank. Net cash provided by financing activities in 2008 was $190.4 million, an increase of $33.5
million from 2007. Deposit accounts provided cash flows of $187.4 million in 2008, an increase of
$37.0 million over 2007. Cash provided by federal funds purchased and securities sold under
repurchase agreements decreased $29.8 million in 2008. Cash provided by new advances from Federal
Home Loan Bank increased $15.0 million and was somewhat offset by a decrease of $11.0 million in
cash used for repayment of Federal Home Loan Bank advances from 2007.
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking statements, including
statements contained in the Companys filings with the Securities and Exchange Commission
(the Commission) and its reports to shareholders. Statements made in such documents, other
than those concerning historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based upon managements
belief as well as assumptions made by, and information currently available to, management pursuant
to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Companys
actual results may differ materially from the results anticipated in forward-looking statements due
to a variety of factors, including unanticipated changes in the Companys local economy, the
national economy, governmental monetary and fiscal policies, deposit levels, loan demand, loan
collateral values and securities portfolio values; difficulties in interest rate risk management;
the effects of competition in the banking business; difficulties in expanding the Companys
business into new markets; changes in governmental regulation relating to the banking industry,
including regulations relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for loan losses, including the value of collateral underlying delinquent
loans; and other factors. The Company cautions that such factors are not exclusive. The Company
does not undertake to update any forward-looking statement that may be made from time to time by,
or on behalf of, the Company.
Adoption of New Accounting Standards
In April 2009, the FASB amended existing guidance for determining whether impairment is
other-than-temporary (OTTI) for debt securities. According to the amendment, an entity is required
to assess whether it intends to sell, or it is more likely than not that it will be required to
sell a security in an unrealized loss position before recovery of its amortized cost basis. If
either of these criteria is met, the entire difference between amortized cost and fair value is
recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of
impairment recognized in earnings is limited to the amount related to credit losses, while
impairment related to other factors is recognized in other comprehensive income. Additionally, the
standard expands and increases the frequency of existing disclosures about other-than-temporary
impairments for debt and equity securities. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Company adopted the standard effective April 1, 2009. As a result of
implementing the new standard, the amount of OTTI recognized in income for the year ended December
31, 2009 was $975. Had the standard not been issued, the amount of OTTI that would have been
recognized in income for the year would have been $1.8 million.
68
In April 2009, the FASB issued guidance that emphasizes that the objective of a fair value
measurement does not change even when market activity for the asset or liability has decreased
significantly. Fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants. The standard provides a number of factors to consider when evaluating
whether there has been a significant decrease in the volume and level of activity for an asset or
liability in relation to normal market activity. In addition, when transactions or quoted prices
are not considered orderly, adjustments to those prices based on the weight of available
information may be needed to determine the appropriate fair value. The standard also requires
increased disclosures. This standard is effective for interim and annual reporting periods ending
after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods
ending after March 15, 2009. The adoption of this standard at June 30, 2009 did not have a
material impact on the results of operations or financial position.
In May 2009, the FASB issued guidance which requires the effects of events that occur
subsequent to the balance-sheet date be evaluated through the date the financial statements are
either issued or available to be issued. Companies should disclose the date through which
subsequent events have been evaluated and whether that date is the date the financial statements
were issued or the date the financial statements were available to be issued. Companies are
required to reflect in their financial statements the effects of subsequent events that provide
additional evidence about conditions at the
balance-sheet date (recognized subsequent events). Companies are also prohibited from
reflecting in their financial statements the effects of subsequent events that provide evidence
about conditions that arose after the balance-sheet date (nonrecognized subsequent events), but
requires information about those events to be disclosed if the financial statements would otherwise
be misleading. This guidance was effective for interim and annual financial periods ending after
June 15, 2009 with prospective application. The adoption had no impact on the Companys
consolidated financial statements.
In June 2009, the FASB replaced The Hierarchy of Generally Accepted Accounting Principles,
with the FASB Accounting Standards Codification (the Codification) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the
Securities and Exchange Commission under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification was effective for financial statements
issued for periods ending after September 15, 2009.
In August 2009, the FASB amended existing guidance for the fair value measurement of
liabilities by clarifying that in circumstances in which a quoted price in an active market for the
identical liability is not available, a reporting entity is required to measure fair value using a
valuation technique that uses the quoted price of the identical liability when traded as an asset,
quoted prices for similar liabilities or similar liabilities when traded as assets, or that is
consistent with existing fair value guidance. The amendments in this guidance also clarify that
both a quoted price in an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The
guidance was effective for the first reporting period beginning after issuance. The adoption had
no impact on the Companys consolidated financial statements.
69
Newly Issued Not Yet Effective Standards
In June 2009, the FASB amended previous guidance relating to transfers of financial assets and
eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of
the beginning of each reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period and for interim
and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or
after the effective date. Additionally, on and after the effective date, the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore,
formerly qualifying special-purpose entities should be evaluated for consolidation by reporting
entities on and after the effective date in accordance with the applicable consolidation guidance.
The disclosure provisions were also amended and apply to transfers that occurred both before and
after the effective date of this guidance. The effect of adopting this new guidance is expected to
be immaterial.
Effects of Inflation and Changing Prices
Inflation generally increases the cost of funds and operating overhead, and to the extent
loans and other assets bear variable rates, the yields on such assets. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on the performance of
a financial institution than the effects of general levels of inflation. Although interest rates
do not necessarily move in the same direction and to the same extent as the prices of goods and
services, increases in inflation generally have resulted in increased interest rates. In addition,
inflation can increase a financial institutions cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and related increases in
interest rates generally decrease the market value of investments and
loans held and may adversely affect liquidity, earnings, and stockholders equity. Mortgage
originations and refinancings tend to slow as interest rates increase, and can reduce the Companys
earnings from such activities and the income from the sale of residential mortgage loans in the
secondary market.
Various information shown elsewhere herein will assist in the understanding of how well the
Company is positioned to react to changing interest rates and inflationary trends. In particular,
the summary of net interest income, the maturity distributions and compositions of the loan and
security portfolios and the data on the interest sensitivity of loans and deposits should be
considered.
70
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk reflects the risk of loss due to changes in the market prices and interest rates.
This loss could be reflected in diminished current market values or reduced net interest income in
future periods.
The Companys market risk arises primarily from the interest rate risk inherent in its lending
and deposit activities. This risk is managed primarily by careful periodic analysis and modeling
of the various components of the entire balance sheet. The investment portfolio is utilized to
assist in minimizing interest rate risk in both loans and deposits due to the flexibility afforded
in structuring the investment portfolio with regards to various maturities, cash flows and fixed or
variable rates.
The following tables present all rate sensitive assets and liabilities by contractual amounts
and maturity dates. Cash flows from mortgage backed securities reflect anticipated prepayments.
For core deposits, without a contractual maturity date, cash flows are based on the earliest date
at which the deposit holder could withdraw the funds. The fair value of rate sensitive assets and
liabilities is presented in total. The fair value of investment securities is based on quoted
market prices, where available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments. The fair value of loans is calculated using
discounted cash flows by loan type. The discount rate used to determine the present value of the
loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent
in the loan portfolio. Fair values for certificates of deposit have been determined using
discounted cash flows. The discount rate used is based on estimated market rates for deposits of
similar remaining maturities. The carrying amounts of all other deposits, securities sold under
repurchase agreements and variable interest rate borrowings approximated their fair values. The
fair value of the Federal Home Loan Bank borrowings is obtained from the Federal Home Loan Bank and
is calculated by discounting contractual cash flows using an estimated interest rate based on the
current rates available to the Company for debt of similar remaining maturities and collateral
terms.
71
Market Risk at December 31, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
|
Value |
|
Rate Sensitive Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate loans |
|
|
158,913 |
|
|
|
95,003 |
|
|
|
75,387 |
|
|
|
21,144 |
|
|
|
9,280 |
|
|
|
31,344 |
|
|
|
391,071 |
|
|
|
504,030 |
|
Average interest rate |
|
|
5.90 |
% |
|
|
6.29 |
% |
|
|
6.25 |
% |
|
|
6.51 |
% |
|
|
6.35 |
% |
|
|
5.82 |
% |
|
|
6.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate loans |
|
|
397,982 |
|
|
|
65,407 |
|
|
|
54,511 |
|
|
|
19,583 |
|
|
|
7,911 |
|
|
|
20,181 |
|
|
|
565,575 |
|
|
|
462,193 |
|
Average interest rate |
|
|
5.59 |
% |
|
|
6.20 |
% |
|
|
6.15 |
% |
|
|
5.60 |
% |
|
|
6.20 |
% |
|
|
4.74 |
% |
|
|
5.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate securities |
|
|
31,425 |
|
|
|
30,472 |
|
|
|
31,854 |
|
|
|
30,621 |
|
|
|
30,704 |
|
|
|
109,219 |
|
|
|
264,295 |
|
|
|
264,297 |
|
Average interest rate |
|
|
4.22 |
% |
|
|
4.14 |
% |
|
|
4.66 |
% |
|
|
4.49 |
% |
|
|
4.41 |
% |
|
|
4.67 |
% |
|
|
4.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate securities |
|
|
35,266 |
|
|
|
6,873 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,411 |
|
|
|
42,411 |
|
Average interest rate |
|
|
2.32 |
% |
|
|
4.83 |
% |
|
|
4.95 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
2.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable federal funds sold |
|
|
7,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,300 |
|
|
|
7,300 |
|
Average interest rate |
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest-bearing deposits in other banks |
|
|
17,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,033 |
|
|
|
17,027 |
|
Average interest rate |
|
|
0.19 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitive Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
114,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,780 |
|
|
|
107,692 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts |
|
|
44,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,781 |
|
|
|
44,936 |
|
Average interest rate |
|
|
1.59 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
343,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,740 |
|
|
|
337,505 |
|
Average interest rate |
|
|
1.70 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
|
210,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,438 |
|
|
|
202,212 |
|
Average interest rate |
|
|
0.89 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate time deposits < $100M |
|
|
107,782 |
|
|
|
32,023 |
|
|
|
2,245 |
|
|
|
2,106 |
|
|
|
3,819 |
|
|
|
4 |
|
|
|
147,979 |
|
|
|
148,256 |
|
Average interest rate |
|
|
2.01 |
% |
|
|
2.68 |
% |
|
|
3.36 |
% |
|
|
3.50 |
% |
|
|
3.05 |
% |
|
|
3.44 |
% |
|
|
2.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate time deposits < $100M |
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
66 |
|
Average interest rate |
|
|
4.16 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
4.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate time deposits > $100M |
|
|
273,741 |
|
|
|
74,178 |
|
|
|
65,011 |
|
|
|
2,851 |
|
|
|
2,970 |
|
|
|
|
|
|
|
418,751 |
|
|
|
422,470 |
|
Average interest rate |
|
|
2.36 |
% |
|
|
2.38 |
% |
|
|
2.46 |
% |
|
|
3.41 |
% |
|
|
3.03 |
% |
|
|
0.00 |
% |
|
|
2.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate time deposits > $100M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements |
|
|
3,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,188 |
|
|
|
3,188 |
|
Average interest rate |
|
|
1.50 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Federal Home Loan Bank borrowings |
|
|
17,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
39,000 |
|
|
|
77,000 |
|
|
|
80,670 |
|
Average interest rate |
|
|
5.73 |
% |
|
|
4.47 |
% |
|
|
0.00 |
% |
|
|
2.86 |
% |
|
|
0.00 |
% |
|
|
3.98 |
% |
|
|
4.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Federal Home Loan Bank borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TT&L note borrowings |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
600 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947 |
|
|
|
|
|
|
|
2,947 |
|
|
|
2,947 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
8.00 |
% |
|
|
0.00 |
% |
|
|
1.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
11,846 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.65 |
% |
|
|
1.65 |
% |
|
|
|
|
72
Market Risk at December 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
Total |
|
|
Value |
|
Rate Sensitive Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate loans |
|
|
172,617 |
|
|
|
96,837 |
|
|
|
113,054 |
|
|
|
23,316 |
|
|
|
27,549 |
|
|
|
33,105 |
|
|
|
466,478 |
|
|
|
472,771 |
|
Average interest rate |
|
|
6.36 |
% |
|
|
7.01 |
% |
|
|
6.46 |
% |
|
|
7.13 |
% |
|
|
6.56 |
% |
|
|
7.02 |
% |
|
|
6.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate loans |
|
|
505,786 |
|
|
|
15,774 |
|
|
|
7,869 |
|
|
|
6,474 |
|
|
|
2,656 |
|
|
|
749 |
|
|
|
539,308 |
|
|
|
539,308 |
|
Average interest rate |
|
|
5.30 |
% |
|
|
5.48 |
% |
|
|
6.43 |
% |
|
|
5.64 |
% |
|
|
5.04 |
% |
|
|
5.86 |
% |
|
|
5.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate securities |
|
|
26,037 |
|
|
|
27,086 |
|
|
|
25,713 |
|
|
|
27,443 |
|
|
|
28,628 |
|
|
|
154,353 |
|
|
|
289,260 |
|
|
|
289,268 |
|
Average interest rate |
|
|
5.64 |
% |
|
|
5.39 |
% |
|
|
5.23 |
% |
|
|
5.30 |
% |
|
|
5.03 |
% |
|
|
5.37 |
% |
|
|
5.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate securities |
|
|
3,932 |
|
|
|
1,431 |
|
|
|
2,453 |
|
|
|
1,431 |
|
|
|
1,431 |
|
|
|
90 |
|
|
|
10,768 |
|
|
|
10,768 |
|
Average interest rate |
|
|
5.93 |
% |
|
|
5.00 |
% |
|
|
4.87 |
% |
|
|
5.61 |
% |
|
|
5.54 |
% |
|
|
5.54 |
% |
|
|
5.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable federal funds sold |
|
|
9,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,780 |
|
|
|
9,780 |
|
Average interest rate |
|
|
0.04 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest-bearing deposits in other banks |
|
|
3,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,128 |
|
|
|
3,124 |
|
Average interest rate |
|
|
1.48 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Sensitive Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
111,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,291 |
|
|
|
111,291 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts |
|
|
50,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,404 |
|
|
|
50,404 |
|
Average interest rate |
|
|
2.70 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
2.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
247,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,249 |
|
|
|
247,249 |
|
Average interest rate |
|
|
1.94 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
|
166,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,561 |
|
|
|
166,561 |
|
Average interest rate |
|
|
1.18 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate time deposits < $100M |
|
|
161,189 |
|
|
|
11,185 |
|
|
|
1,920 |
|
|
|
567 |
|
|
|
1,465 |
|
|
|
|
|
|
|
176,326 |
|
|
|
176,474 |
|
Average interest rate |
|
|
3.38 |
% |
|
|
3.53 |
% |
|
|
4.51 |
% |
|
|
4.21 |
% |
|
|
3.61 |
% |
|
|
0.00 |
% |
|
|
3.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate time deposits < $100M |
|
|
2,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,282 |
|
|
|
2,282 |
|
Average interest rate |
|
|
4.16 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
4.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate time deposits > $100M |
|
|
321,219 |
|
|
|
57,354 |
|
|
|
1,511 |
|
|
|
3,552 |
|
|
|
626 |
|
|
|
|
|
|
|
384,262 |
|
|
|
384,347 |
|
Average interest rate |
|
|
3.60 |
% |
|
|
3.97 |
% |
|
|
4.88 |
% |
|
|
4.48 |
% |
|
|
4.47 |
% |
|
|
0.00 |
% |
|
|
3.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate time deposits > $100M |
|
|
1,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,177 |
|
|
|
1,177 |
|
Average interest rate |
|
|
4.16 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
4.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements |
|
|
62,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,553 |
|
|
|
62,553 |
|
Average interest rate |
|
|
0.54 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Federal Home Loan Bank borrowings |
|
|
|
|
|
|
24,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
52,000 |
|
|
|
47,720 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
5.86 |
% |
|
|
4.47 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
3.44 |
% |
|
|
4.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Federal Home Loan Bank borrowings |
|
|
32,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,000 |
|
|
|
28,370 |
|
Average interest rate |
|
|
2.73 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TT&L note borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
11,814 |
|
Average interest rate |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
3.40 |
% |
|
|
3.40 |
% |
|
|
|
|
73
Item 8. Financial Statements and Supplementary Data
74
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Table of Contents
75
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Southeastern Bank Financial Corporation
Augusta, Georgia
We have audited the accompanying consolidated balance sheets of Southeastern Bank Financial
Corporation and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of income (loss), stockholders equity and comprehensive income (loss), and cash flows
for each of the three years in the period ended December 31, 2009. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Southeastern Bank Financial Corporation and Subsidiaries as
of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Southeastern Bank Financial Corporation and Subsidiaries internal control
over financial reporting as of December 31, 2009, based on criteria established in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2010 expressed an unqualified opinion thereon.
/s/ Crowe Horwath LLP
Brentwood, Tennessee
February 25, 2010
76
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
123,661 |
|
|
|
24,860 |
|
Federal funds sold |
|
|
7,300 |
|
|
|
9,780 |
|
Interest-bearing deposits in other banks |
|
|
17,033 |
|
|
|
3,128 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
147,994 |
|
|
|
37,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
306,216 |
|
|
|
299,339 |
|
Held-to-maturity, at cost (fair values of $492
and $698 at December 31, 2009 and 2008,
respectively) |
|
|
490 |
|
|
|
689 |
|
Loans held for sale |
|
|
19,157 |
|
|
|
18,955 |
|
Loans |
|
|
937,489 |
|
|
|
986,831 |
|
Less allowance for loan losses |
|
|
22,338 |
|
|
|
14,742 |
|
|
|
|
|
|
|
|
Loans, net |
|
|
915,151 |
|
|
|
972,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
31,702 |
|
|
|
33,960 |
|
Accrued interest receivable |
|
|
6,091 |
|
|
|
7,085 |
|
Goodwill, net |
|
|
140 |
|
|
|
140 |
|
Bank-owned life insurance |
|
|
23,248 |
|
|
|
17,368 |
|
Restricted equity securities |
|
|
6,338 |
|
|
|
6,571 |
|
Other real estate owned |
|
|
7,974 |
|
|
|
5,734 |
|
Prepaid FDIC assessment |
|
|
6,886 |
|
|
|
32 |
|
Deferred tax asset |
|
|
11,160 |
|
|
|
6,342 |
|
Other assets |
|
|
8,572 |
|
|
|
4,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,491,119 |
|
|
|
1,411,039 |
|
|
|
|
|
|
|
|
(continued)
77
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
114,780 |
|
|
|
111,291 |
|
Interest-bearing: |
|
|
|
|
|
|
|
|
NOW accounts |
|
|
210,438 |
|
|
|
166,561 |
|
Savings |
|
|
343,740 |
|
|
|
247,249 |
|
Money management accounts |
|
|
44,781 |
|
|
|
50,404 |
|
Time deposits of $100 or more |
|
|
418,751 |
|
|
|
385,439 |
|
Other time deposits |
|
|
148,044 |
|
|
|
178,608 |
|
|
|
|
|
|
|
|
|
|
|
1,280,534 |
|
|
|
1,139,552 |
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements |
|
|
3,188 |
|
|
|
62,553 |
|
Advances from Federal Home Loan Bank |
|
|
77,000 |
|
|
|
84,000 |
|
Other borrowed funds |
|
|
600 |
|
|
|
|
|
Accrued interest payable and other liabilities |
|
|
13,106 |
|
|
|
10,283 |
|
Subordinated debentures |
|
|
22,947 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,397,375 |
|
|
|
1,316,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 10,000,000 shares
authorized; 0 shares outstanding in 2009
and 2008, respectively |
|
|
|
|
|
|
|
|
Common stock, $3.00 par value; 10,000,000 shares
authorized; 6,672,826 and 5,987,674 shares issued and
outstanding in 2009 and 2008, respectively |
|
|
20,018 |
|
|
|
17,963 |
|
Additional paid-in capital |
|
|
62,360 |
|
|
|
55,189 |
|
Retained earnings |
|
|
12,692 |
|
|
|
21,455 |
|
Accumulated other comprehensive (loss) income, net |
|
|
(1,326 |
) |
|
|
44 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
93,744 |
|
|
|
94,651 |
|
|
|
|
|
|
|
|
|
|
$ |
1,491,119 |
|
|
|
1,411,039 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
78
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands, except per share data) |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
56,196 |
|
|
|
61,568 |
|
|
|
66,219 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
13,376 |
|
|
|
12,875 |
|
|
|
11,023 |
|
Tax-exempt |
|
|
906 |
|
|
|
716 |
|
|
|
800 |
|
Federal funds sold |
|
|
95 |
|
|
|
470 |
|
|
|
1,112 |
|
Interest-bearing deposits in other banks |
|
|
187 |
|
|
|
46 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
70,760 |
|
|
|
75,675 |
|
|
|
79,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (including interest on time deposits over
$100 of $12,135, $13,342 and $11,529 in 2009,
2008 and 2007, respectively) |
|
|
24,249 |
|
|
|
30,017 |
|
|
|
33,147 |
|
Federal funds purchased and securities sold
under repurchase agreements |
|
|
327 |
|
|
|
1,317 |
|
|
|
3,305 |
|
Other borrowings |
|
|
3,907 |
|
|
|
4,155 |
|
|
|
4,480 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
28,483 |
|
|
|
35,489 |
|
|
|
40,932 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
42,277 |
|
|
|
40,186 |
|
|
|
38,249 |
|
Provision for loan losses |
|
|
30,904 |
|
|
|
9,055 |
|
|
|
3,823 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
11,373 |
|
|
|
31,131 |
|
|
|
34,426 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposits |
|
|
7,051 |
|
|
|
7,291 |
|
|
|
6,409 |
|
Gain on sales of loans |
|
|
8,493 |
|
|
|
5,747 |
|
|
|
5,185 |
|
(Loss) gain on sale of fixed assets, net |
|
|
(15 |
) |
|
|
8 |
|
|
|
1,049 |
|
Investment securities gains (losses), net |
|
|
2,532 |
|
|
|
(77 |
) |
|
|
(237 |
) |
Other-than-temporary loss |
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment loss |
|
|
(991 |
) |
|
|
|
|
|
|
|
|
Loss recognized in other comprehensive loss |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss recognized in earnings |
|
|
(975 |
) |
|
|
|
|
|
|
|
|
Retail investment income |
|
|
1,175 |
|
|
|
1,096 |
|
|
|
1,267 |
|
Trust services fees |
|
|
1,040 |
|
|
|
1,134 |
|
|
|
1,132 |
|
Increase in cash surrender value of bank-owned
life insurance |
|
|
880 |
|
|
|
708 |
|
|
|
678 |
|
Miscellaneous income |
|
|
558 |
|
|
|
798 |
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
20,739 |
|
|
|
16,705 |
|
|
|
16,168 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and other personnel expense |
|
|
22,534 |
|
|
|
20,852 |
|
|
|
19,343 |
|
Occupancy expenses |
|
|
4,691 |
|
|
|
4,373 |
|
|
|
3,457 |
|
Other real estate losses (gains) |
|
|
6,329 |
|
|
|
(63 |
) |
|
|
29 |
|
Other operating expenses |
|
|
12,957 |
|
|
|
11,590 |
|
|
|
9,679 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
46,511 |
|
|
|
36,752 |
|
|
|
32,508 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(14,399 |
) |
|
|
11,084 |
|
|
|
18,086 |
|
Income tax (benefit) expense |
|
|
(6,414 |
) |
|
|
3,506 |
|
|
|
6,321 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,985 |
) |
|
|
7,578 |
|
|
|
11,765 |
|
|
|
|
|
|
|
|
|
|
|
(continued)
79
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(1.24 |
) |
|
|
1.27 |
|
|
|
1.97 |
|
Diluted net income (loss) per share |
|
|
(1.24 |
) |
|
|
1.26 |
|
|
|
1.95 |
|
Weighted average common shares outstanding |
|
|
6,422,867 |
|
|
|
5,972,429 |
|
|
|
5,972,793 |
|
Weighted average number of common and
common equivalent shares outstanding |
|
|
6,422,867 |
|
|
|
6,011,689 |
|
|
|
6,044,871 |
|
See accompanying notes to consolidated financial statements.
80
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
Years ended December 31, 2009, 2008 and 2007
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
other |
|
|
Total |
|
|
|
Comprehensive |
|
|
Number |
|
|
|
|
|
|
paid-in |
|
|
Retained |
|
|
Treasury |
|
|
comprehensive |
|
|
stockholders |
|
|
|
income (loss) |
|
|
of shares |
|
|
Amount |
|
|
capital |
|
|
earnings |
|
|
stock |
|
|
income (loss), net |
|
|
equity |
|
Balance, December 31, 2006 |
|
|
|
|
|
|
5,433 |
|
|
$ |
16,300 |
|
|
|
38,989 |
|
|
|
25,287 |
|
|
|
(17 |
) |
|
|
(1,635 |
) |
|
|
78,924 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,765 |
|
|
|
|
|
|
|
|
|
|
|
11,765 |
|
Other comprehensive income unrealized
gain on investment securities available for sale,
net of income tax effect of $857 |
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,663 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
13,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.52 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,824 |
) |
|
|
|
|
|
|
|
|
|
|
(2,824 |
) |
Stock options exercised |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
(17 |
) |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
1 |
|
Stock options compensation cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317 |
) |
|
|
|
|
|
|
(317 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
|
|
|
|
5,434 |
|
|
$ |
16,301 |
|
|
|
39,518 |
|
|
|
34,228 |
|
|
|
(317 |
) |
|
|
28 |
|
|
|
89,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,578 |
|
|
|
|
|
|
|
|
|
|
|
7,578 |
|
Other comprehensive income unrealized
gain on investment securities available for sale,
net of income tax effect of $13 |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
7,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.52 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,968 |
) |
|
|
|
|
|
|
|
|
|
|
(2,968 |
) |
Stock options exercised |
|
|
|
|
|
|
11 |
|
|
|
32 |
|
|
|
(291 |
) |
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
467 |
|
Stock options compensation cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209 |
|
Stock dividend |
|
|
|
|
|
|
543 |
|
|
|
1,630 |
|
|
|
15,753 |
|
|
|
(17,383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Directors stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
36 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(445 |
) |
|
|
|
|
|
|
(445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
|
|
|
|
5,988 |
|
|
$ |
17,963 |
|
|
|
55,189 |
|
|
|
21,455 |
|
|
|
|
|
|
|
44 |
|
|
|
94,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,985 |
) |
|
|
|
|
|
|
|
|
|
|
(7,985 |
) |
Other comprehensive loss unrealized
loss on investment securities available for sale,
net of income tax effect of $873 |
|
|
(1,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,370 |
) |
|
|
(1,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(9,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.13 per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(778 |
) |
|
|
|
|
|
|
|
|
|
|
(778 |
) |
Stock options compensation cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188 |
|
Issuance of common stock |
|
|
|
|
|
|
683 |
|
|
|
2,049 |
|
|
|
6,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,010 |
|
Directors stock purchase plan |
|
|
|
|
|
|
2 |
|
|
|
6 |
|
|
|
22 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
33 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
|
|
|
|
6,673 |
|
|
$ |
20,018 |
|
|
|
62,360 |
|
|
|
12,692 |
|
|
|
|
|
|
|
(1,326 |
) |
|
|
93,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
81
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of reclassification amount |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Unrealized holding (losses) gains arising
during period, net of taxes |
|
$ |
(686 |
) |
|
|
(48 |
) |
|
|
2,283 |
|
Reclassification adjustment for (gains) losses
included in net income (loss) |
|
|
(1,557 |
) |
|
|
77 |
|
|
|
237 |
|
Tax effect |
|
|
873 |
|
|
|
(13 |
) |
|
|
(857 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains in securities |
|
$ |
(1,370 |
) |
|
|
16 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
82
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,985 |
) |
|
|
7,578 |
|
|
|
11,765 |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
2,718 |
|
|
|
2,343 |
|
|
|
1,606 |
|
Deferred income tax benefit |
|
|
(3,945 |
) |
|
|
(929 |
) |
|
|
(825 |
) |
Provision for loan losses |
|
|
30,904 |
|
|
|
9,055 |
|
|
|
3,823 |
|
Investment securities (gains) losses, net |
|
|
(2,532 |
) |
|
|
77 |
|
|
|
237 |
|
Other-than-temporary impairment losses |
|
|
975 |
|
|
|
|
|
|
|
|
|
Net amortization of premium (accretion of discount)
on investment securities |
|
|
366 |
|
|
|
(147 |
) |
|
|
(151 |
) |
Increase in cash surrender value of bank-owned
life insurance |
|
|
(880 |
) |
|
|
(708 |
) |
|
|
(678 |
) |
Stock options compensation cost |
|
|
188 |
|
|
|
209 |
|
|
|
546 |
|
Loss (gain) on disposal of premises and equipment |
|
|
15 |
|
|
|
(8 |
) |
|
|
(1,049 |
) |
Loss (gain) on the sale of other real estate |
|
|
5,741 |
|
|
|
(63 |
) |
|
|
29 |
|
Other real estate valuation allowance |
|
|
588 |
|
|
|
|
|
|
|
|
|
Gain on sales of loans |
|
|
(8,493 |
) |
|
|
(5,747 |
) |
|
|
(5,185 |
) |
Real estate loans originated for sale |
|
|
(367,532 |
) |
|
|
(258,946 |
) |
|
|
(252,114 |
) |
Proceeds from sales of real estate loans |
|
|
375,823 |
|
|
|
257,042 |
|
|
|
260,853 |
|
Decrease (increase) in accrued interest receivable |
|
|
994 |
|
|
|
331 |
|
|
|
(1,433 |
) |
Increase in other assets |
|
|
(10,458 |
) |
|
|
(2,199 |
) |
|
|
(710 |
) |
Increase (decrease) in accrued interest payable and other liabilities |
|
|
2,823 |
|
|
|
(107 |
) |
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
19,310 |
|
|
|
7,781 |
|
|
|
17,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of available for sale securities |
|
|
127,524 |
|
|
|
27,285 |
|
|
|
20,712 |
|
Proceeds from maturities of available for sale securities |
|
|
128,193 |
|
|
|
68,665 |
|
|
|
52,200 |
|
Proceeds from maturities of held to maturity securities |
|
|
203 |
|
|
|
765 |
|
|
|
1,555 |
|
Purchase of available for sale securities |
|
|
(263,117 |
) |
|
|
(149,781 |
) |
|
|
(116,790 |
) |
Purchase of restricted equity securities |
|
|
(322 |
) |
|
|
(1,511 |
) |
|
|
(619 |
) |
Proceeds from redemption of FHLB stock |
|
|
23 |
|
|
|
|
|
|
|
495 |
|
Purchase of loans |
|
|
(1,809 |
) |
|
|
|
|
|
|
|
|
Net decrease (increase) in loans |
|
|
7,090 |
|
|
|
(127,889 |
) |
|
|
(138,469 |
) |
Purchase of Bank-owned life insurance |
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
Additions to premises and equipment |
|
|
(747 |
) |
|
|
(5,196 |
) |
|
|
(12,783 |
) |
Proceeds from sale of other real estate |
|
|
12,183 |
|
|
|
715 |
|
|
|
312 |
|
Proceeds from sale of premises and equipment |
|
|
271 |
|
|
|
1,513 |
|
|
|
3,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
4,492 |
|
|
|
(185,434 |
) |
|
|
(190,371 |
) |
|
|
|
|
|
|
|
|
|
|
(continued)
83
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
140,982 |
|
|
|
187,386 |
|
|
|
150,403 |
|
Net (decrease) increase in federal funds purchased
and securities sold under repurchase agreements |
|
|
(59,365 |
) |
|
|
(18,613 |
) |
|
|
11,146 |
|
Advances from Federal Home Loan Bank |
|
|
|
|
|
|
25,000 |
|
|
|
10,000 |
|
Payments of Federal Home Loan Bank advances |
|
|
(7,000 |
) |
|
|
|
|
|
|
(11,000 |
) |
Proceeds from subordinated debentures |
|
|
2,947 |
|
|
|
|
|
|
|
|
|
Proceeds from other borrowed funds |
|
|
600 |
|
|
|
|
|
|
|
|
|
Principal payments on other borrowed funds |
|
|
|
|
|
|
(500 |
) |
|
|
(500 |
) |
Proceeds from issuance of common stock |
|
|
9,010 |
|
|
|
|
|
|
|
|
|
Proceeds from directors stock purchase plan |
|
|
33 |
|
|
|
36 |
|
|
|
|
|
Purchase of treasury stock |
|
|
(5 |
) |
|
|
(445 |
) |
|
|
(317 |
) |
Payment of cash dividends |
|
|
(778 |
) |
|
|
(2,968 |
) |
|
|
(2,824 |
) |
Proceeds from stock options exercised, net of stock redeemed |
|
|
|
|
|
|
467 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
86,424 |
|
|
|
190,363 |
|
|
|
156,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
|
110,226 |
|
|
|
12,710 |
|
|
|
(15,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
37,768 |
|
|
|
25,058 |
|
|
|
40,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
147,994 |
|
|
|
37,768 |
|
|
|
25,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
29,620 |
|
|
|
35,729 |
|
|
|
40,285 |
|
Income taxes |
|
|
628 |
|
|
|
4,092 |
|
|
|
7,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information on noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate |
|
$ |
20,752 |
|
|
|
6,386 |
|
|
|
341 |
|
See accompanying notes to consolidated financial statements.
84
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(1) Summary of Significant Accounting Policies
Southeastern Bank Financial Corporation and its wholly owned subsidiaries (collectively the
Company), consisting of Southeastern Bank Financial Corporation (the Parent), Georgia Bank
& Trust Company of Augusta, Georgia (the Bank), and Southern Bank and Trust Company of
Aiken, South Carolina (the Thrift), offer a wide range of lending services, including real
estate, commercial, and consumer loans to individuals and small to medium-sized businesses and
professionals that are located in, or conduct a substantial portion of their business in, the
Richmond, Columbia, and Clarke Counties area of Georgia, and Aiken County, South Carolina.
The Company is subject to competition from other financial institutions and is also subject to
the regulations of certain Federal and state agencies and undergoes periodic examinations by
those regulatory authorities. The accounting and reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and to general
practices within the banking industry. The following is a description of the more significant
of those policies the Company follows in preparing and presenting its consolidated financial
statements.
(a) Subsequent Events
The Company has evaluated subsequent events for recognition or disclosure through
February 25, 2010, which is the date the financial statements were issued.
(b) Basis of Presentation
The consolidated financial statements include the accounts of Southeastern Bank
Financial Corporation and its wholly owned subsidiaries, Georgia Bank & Trust Company of
Augusta, Georgia and Southern Bank and Trust Company of Aiken, South Carolina.
Significant intercompany transactions and accounts are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could differ significantly from
those estimates.
Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, other real estate
owned and other than temporary impairment of debt securities.
85
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, Federal funds sold, and
short-term interest-bearing deposits in other banks. Generally, Federal funds are sold
for one-day periods. Net cash flows are reported for loan and deposit transactions and
for short term borrowings with an original maturity of 90 days or less.
(d) Investment Securities
The Company classifies its investment securities into one of two categories:
available-for-sale and held-to-maturity. Held-to-maturity securities are those debt
securities for which the Company has the ability and intent to hold the security until
maturity. All other securities are classified as available-for-sale.
Held-to-maturity securities are recorded at cost adjusted for the amortization or
accretion of premiums or discounts. Available-for-sale securities are recorded at fair
value. Unrealized holding gains and losses, net of related tax effects, on securities
available-for-sale are excluded from net income and are reported within stockholders
equity as a component of other comprehensive income (loss) until realized.
A decline in the fair value of securities below their cost that are other than temporary
are reflected as realized losses. Management evaluates securities for
other-than-temporary losses quarterly and more frequently when economic or market
conditions warrant such an evaluation. In estimating other-than-temporary losses,
management considers: the length of time and extent that fair value has been less than
cost, the financial condition and near term prospects of the issuer, whether the market
decline was affected by macroeconomic conditions, and whether the Company has the intent
to sell the security or more likely than not will be required to sell the security
before its anticipated recovery.
Premiums and discounts are amortized or accreted over the life of the related investment
security as an adjustment to yield using a method which approximates the effective
interest method and takes into consideration prepayment assumptions. Dividends and
interest income are recognized when earned. Realized gains and losses for investment
securities available-for-sale which are sold are included in earnings and are derived
using the specific identification method for determining the cost of securities sold.
(e) Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal outstanding less unearned loan fees,
reduced by an allowance for loan losses. Interest on loans is calculated using the
simple interest method. Loan origination fees, net of certain direct origination costs,
are deferred and recognized in interest income using the straight line method without
anticipating prepayments. Accrual of interest is generally discontinued on loans that
become past due 90 days or more. These loans are classified as nonaccrual, even though
the presence of collateral or the borrowers financial strength may be sufficient to
provide for ultimate repayment. When a loan is placed on nonaccrual status, all
interest accrued but not received is reversed against interest income.
86
Interest received on such loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
Concentration of Credit Risk:
Most of the Companys business activity is with customers located within the
Augusta-Richmond County, GA-SC metropolitan statistical area. Therefore, the Companys
exposure to credit risk is significantly affected by changes in the economy in this
area. The Company also has a significant concentration of loans with real estate
developers.
Certain Purchased Loans:
The Company purchases individual loans and groups of loans, some of which have shown
evidence of credit deterioration since origination. These purchased loans
are recorded at the amount paid, such that there is no carryover of the sellers
allowance for loan losses. After acquisition, losses are recognized by an increase in
the allowance for loan losses.
Such purchased loans are accounted for individually or aggregated into pools of loans
based on common risk characteristics such as, credit score, loan type, and date of
origination. The Company estimates the amount and timing of expected cash flows for
each purchased loan or pool, and the expected cash flows in excess of amount paid is
recorded as interest income over the remaining life of the loan or pool (accretable
yield). The excess of the loans or pools contractual principal and interest over
expected cash flows is not recorded (nonaccretable difference).
Over the life of the loan or pool, expected cash flows continue to be estimated. If the
present value of expected cash flows is less than the carrying amount, a loss is
recorded. If the present value of expected cash flows is greater than the carrying
amount, it is recognized as part of future interest income.
Allowance for Loan Losses:
The allowance for loan losses is established through a provision for loan losses charged
to expense. Loans are charged against the allowance for loan losses when management
believes that the collectability of the principal is unlikely. Subsequent recoveries
are added to the allowance. The allowance is an amount that management believes will be
adequate to absorb probable incurred losses on existing loans that become uncollectible,
based on evaluations of the collectability of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan portfolio,
historical loss rates, overall portfolio quality, review of specific problem loans, and
current economic conditions and trends that may affect a borrowers ability to pay. The
allowance is evaluated on a regular basis utilizing estimated loss factors for specific
types of loans. Such loss factors are periodically reviewed and adjusted as necessary
based on actual losses.
87
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination process,
periodically review the Companys allowance for loan losses. Such agencies may advise
the Company to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Management, considering current information and events regarding a borrowers ability to
repay its obligations, considers a loan to be impaired if it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of
the loan agreement. The amount of impairment is generally measured based on the present
value of expected future cash flows discounted at the loans effective interest rate.
If the loan is collateral-dependent, the fair value of the collateral less estimated
selling costs is used to determine the amount of impairment. Specific guidance from
bank regulators is also considered.
Loans, for which the terms have been modified, and for which the borrower is
experiencing financial difficulties, are considered troubled debt restructurings and
classified as impaired. Troubled debt restructurings are measured at the present value
of estimated future cash flows using the loans effective rate at inception.
Impairment losses are included in the allowance for loan losses through a charge to the
provision for losses on loans. The accounting for impaired loans described above
applies to all loans, except for large pools of smaller-balance, homogeneous loans that
are collectively evaluated for impairment and loans that are measured at fair value or
at the lower of cost or fair value. The allowance for loan losses for loans not
considered impaired and for large pools of smaller-balance, homogeneous loans is
established through consideration of such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, individual risk rating, adequacy of the
underlying collateral, loan concentrations, historical charge-off trends, and economic
conditions that may affect the borrowers ability to pay. Cash receipts on impaired
loans for which the accrual of interest has been discontinued are applied first to
reduce the principal amount of such loans until all contractual principal payments have
been brought current.
The process of assessing the adequacy of the allowance is necessarily subjective.
Further, and particularly in terms of economic downturns, it is reasonably possible that
future credit losses may exceed historical loss levels and may also exceed managements
current estimates of probable incurred credit losses inherent within the loan portfolio.
As such, there can be no assurance that future loan charge-offs will not exceed
managements current estimate of the allowance for loan losses.
Mortgage loans held for sale are generally sold with servicing rights released. The
Company originates mortgages to be held for sale only for loans that have been
individually pre-approved by the investor. Mortgage loans originated and intended for
sale in the secondary market are carried at fair value, as determined by outstanding
commitments from investors.
88
Gains and losses on sales of mortgage loans are based on the difference between the
selling price and the carrying value of the related loan sold.
The Company bears minimal interest rate risk on these loans and only holds the loans
temporarily until documentation can be completed to finalize the sale to the investor.
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary
market and forward commitments for the future delivery of these mortgage loans are
accounted for as free standing derivatives. Fair values of these mortgage derivatives
are estimated based on changes in mortgage interest rates from the date the interest on
the loan is locked. The Company enters into forward commitments for the future delivery
of mortgage loans when interest rate locks are entered into, in order to hedge the
change in interest rates resulting from its commitments to fund the loans. Changes in
the fair values of these derivatives are included in net gains on sales of loans. Fair
values of these derivatives were $182 and $8 as of December 31, 2009 and 2008,
respectively.
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is
provided on the straight-line basis over the estimated useful lives of the related
assets, which range from three to forty years. Premises and equipment and other long
term assets are reviewed for impairment when events indicate their carrying amounts may
not be recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at fair value.
(g) Other Real Estate
Assets acquired through or instead of loan foreclosure are initially recorded at lower
of cost or fair value less costs to sell when acquired, establishing a new cost basis.
If fair value declines subsequent to foreclosure, a valuation allowance is recorded
through expense. Operating costs after acquisition are expensed. Costs related to the
development and improvement of property are capitalized.
(h) Goodwill
Goodwill results from business acquisitions and represents the excess of the purchase
price over the fair value of acquired tangible assets and liabilities and identifiable
intangible assets. Goodwill is assessed at least annually for impairment and any such
impairment will be recognized in the period identified. The Companys goodwill is not
considered impaired at December 31, 2009.
(i) Stock-Based Compensation
Compensation cost is recognized for stock options and restricted stock awards issued to
employees, based on the fair value of these awards at the date of grant. A Black-Scholes
model is utilized to estimate the fair value of stock options, while the market price of
the Corporations common stock at the date of grant is used for restricted stock awards.
Compensation cost is recognized over the required service period, generally defined as
the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over the requisite service
period for the entire award.
89
(j) 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. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The Company adopted guidance issued by the FASB with respect to accounting for
uncertainty in income taxes as of January 1, 2007. A tax position is recognized as a
benefit only if it is more likely than not that the tax position would be sustained in
a tax examination, with a tax examination being presumed to occur. The amount
recognized is the largest amount of tax benefit that is greater than 50% likely of being
realized on examination. For tax positions not meeting the more likely than not test,
no tax benefit is recorded. The adoption had no material affect on the Companys
consolidated financial statements.
The Company recognizes interest related to income tax matters as interest expense and
penalties related to income tax matters as other expense.
(k) Income (Loss) Per Share
Basic net income (loss) per share is net income (loss) divided by the weighted average
number of common shares outstanding during the period. Diluted net income (loss) per
share includes the dilutive effect of additional potential common shares issuable under
stock options. The calculation of diluted loss per share for 2009 excludes the dilutive
effect of stock options outstanding as the effect is anti-dilutive. Income per share is
restated for all stock dividends through the date of issuance of the financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Weighted average common shares outstanding
for basic earnings per common share |
|
|
6,422,867 |
|
|
|
5,972,429 |
|
|
|
5,972,793 |
|
Add: Dilutive effects of assumed exercises of
stock options |
|
|
|
|
|
|
39,260 |
|
|
|
72,078 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and
common equivalent shares outstanding |
|
|
6,422,867 |
|
|
|
6,011,689 |
|
|
|
6,044,871 |
|
|
|
|
|
|
|
|
|
|
|
(l) Other Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains and losses on
securities available for sale which are also recognized as separate components of
equity.
90
(m) Segment Disclosures
While the chief decision-makers monitor the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a Company
wide basis. Discrete financial information is not available other than on a Company
wide basis. Accordingly, all of the financial service operations are considered by
management to be aggregated in one reportable operating segment.
(n) Adoption of New Accounting Standards
In April 2009, the FASB amended existing guidance for determining whether impairment is
other-than-temporary (OTTI) for debt securities. According to the amendment, an entity
is required to assess whether it intends to sell, or it is more likely than not that it
will be required to sell a security in an unrealized loss position before recovery of
its amortized cost basis. If either of these criteria is met, the entire difference
between amortized cost and fair value is recognized in earnings. For securities that do
not meet the aforementioned criteria, the amount of impairment recognized in earnings is
limited to the amount related to credit losses, while impairment related to other
factors is recognized in other comprehensive income or loss. Additionally, the standard
expands and increases the frequency of existing disclosures about other-than-temporary
impairments for debt and equity securities. This standard is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. The Company adopted the standard effective April
1, 2009. As a result of implementing the new standard, the amount of OTTI recognized in
income for the year ended December 31, 2009 was $975. Had the standard not been issued,
the amount of OTTI that would have been recognized in income for the year would have
been $1.8 million.
In April 2009, the FASB issued guidance that emphasizes that the objective of a fair
value measurement does not change even when market activity for the asset or liability
has decreased significantly. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants. The standard provides a
number of factors to consider when evaluating whether there has been a significant
decrease in the volume and level of activity for an asset or liability in relation to
normal market activity. In addition, when transactions or quoted prices are not
considered orderly, adjustments to those prices based on the weight of available
information may be needed to determine the appropriate fair value. The standard also
requires increased disclosures. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied prospectively. Early
adoption is permitted for periods ending after March 15, 2009. The adoption of this
standard at June 30, 2009 did not have a material impact on the results of operations or
financial position.
91
In May 2009, the FASB issued guidance which requires the effects of events that occur
subsequent to the balance-sheet date be evaluated through the date the financial
statements are either issued or available to be issued. Companies should disclose the
date through which subsequent events have been evaluated and whether that date is the
date the financial statements were issued or the date the financial statements were
available to be issued. Companies are required to reflect in their financial statements
the effects of subsequent events that provide additional evidence about conditions at
the balance-sheet date (recognized subsequent events). Companies are also prohibited
from reflecting in their financial statements the effects of subsequent events that
provide evidence about conditions that arose after the balance-sheet date (nonrecognized
subsequent events), but requires information about those events to be disclosed if the
financial statements would otherwise be misleading. This guidance was effective for
interim and annual financial periods ending after June 15, 2009 with prospective
application. See subsequent events disclosure in (a) above.
In June 2009, the FASB replaced The Hierarchy of Generally Accepted Accounting
Principles, with the FASB Accounting Standards Codification (the Codification) as the
source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with
GAAP. Rules and interpretive releases of the Securities and Exchange Commission under
authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. The Codification was effective for financial statements issued for periods
ending after September 15, 2009.
In August 2009, the FASB amended existing guidance for the fair value measurement of
liabilities by clarifying that in circumstances in which a quoted price in an active
market for the identical liability is not available, a reporting entity is required to
measure fair value using a valuation technique that uses the quoted price of the
identical liability when traded as an asset, quoted prices for similar liabilities or
similar liabilities when traded as assets, or that is consistent with existing fair
value guidance. The amendments in this guidance also clarify that both a quoted price in
an active market for the identical liability at the measurement date and the quoted
price for the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. The guidance was effective for the first reporting period beginning after
issuance. The adoption had no impact on the Companys consolidated financial
statements.
(o) Newly Issued Not Yet Effective Standards
In June 2009, the FASB amended previous guidance relating to transfers of financial
assets and eliminates the concept of a qualifying special purpose entity. This guidance
must be applied as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. This guidance
must be applied to transfers occurring on or after the effective date. Additionally, on
and after the effective date, the concept of a qualifying special-purpose entity is no
longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose
entities should be evaluated for consolidation by reporting entities on and after the
effective date in accordance with the applicable consolidation guidance. The disclosure
provisions were also amended and apply to transfers that occurred both before and after
the effective date of this guidance. The effect of adopting this new guidance is
expected to be immaterial to the Companys consolidated financial statements.
92
(p) Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. Bank owned
life insurance is recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
(q) Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are reported as liabilities when the likelihood of loss is probable and an
amount or range of loss can be reasonably estimated. Management does not believe there
now are such matters that will have a material effect on the consolidated financial
statements.
(r) Reclassifications
Some items in the prior period financial statements were reclassified to conform to the
current presentation.
(s) Rounding
Dollar amounts are rounded to thousands except share and per share data unless otherwise
noted.
(2) Cash and Due From Banks
The Companys subsidiaries are required by the Federal Reserve Bank to maintain average daily
cash balances. These required balances were $5,199 at December 31, 2009 and $1,375 at
December 31, 2008.
93
(3) Investment Securities
The following tables summarize the amortized cost and fair value of the available-for-sale and
held-to-maturity investment securities portfolio at December 31, 2009 and 2008 and the
corresponding amounts of unrealized gains and losses therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Estimated |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
fair value |
|
|
|
(Dollars in Thousands) |
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions |
|
$ |
490 |
|
|
|
2 |
|
|
|
|
|
|
|
492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
490 |
|
|
|
2 |
|
|
|
|
|
|
|
492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
55,086 |
|
|
|
38 |
|
|
|
(968 |
) |
|
|
54,156 |
|
Obligations of states and
political subdivisions |
|
|
26,402 |
|
|
|
299 |
|
|
|
(521 |
) |
|
|
26,180 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
98,667 |
|
|
|
2,250 |
|
|
|
(142 |
) |
|
|
100,775 |
|
U.S. GSEs CMO |
|
|
107,153 |
|
|
|
1,116 |
|
|
|
(1,427 |
) |
|
|
106,842 |
|
Other CMO |
|
|
8,484 |
|
|
|
142 |
|
|
|
(399 |
) |
|
|
8,227 |
|
Corporate bonds |
|
|
12,591 |
|
|
|
35 |
|
|
|
(2,594 |
) |
|
|
10,032 |
|
Equity securities |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
308,387 |
|
|
|
3,880 |
|
|
|
(6,051 |
) |
|
|
306,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Estimated |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
fair value |
|
|
|
(Dollars in Thousands) |
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions |
|
$ |
689 |
|
|
|
9 |
|
|
|
|
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
689 |
|
|
|
9 |
|
|
|
|
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
109,256 |
|
|
|
1,448 |
|
|
|
(29 |
) |
|
|
110,675 |
|
Obligations of states and
political subdivisions |
|
|
17,384 |
|
|
|
131 |
|
|
|
(559 |
) |
|
|
16,956 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
117,373 |
|
|
|
3,427 |
|
|
|
(28 |
) |
|
|
120,772 |
|
U.S. GSEs CMO |
|
|
28,179 |
|
|
|
359 |
|
|
|
(113 |
) |
|
|
28,425 |
|
Other CMO |
|
|
11,997 |
|
|
|
|
|
|
|
(1,159 |
) |
|
|
10,838 |
|
Corporate bonds |
|
|
15,032 |
|
|
|
|
|
|
|
(3,405 |
) |
|
|
11,627 |
|
Equity securities |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
299,267 |
|
|
|
5,365 |
|
|
|
(5,293 |
) |
|
|
299,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, except for the U.S. Government agencies and government sponsored
entities, there was no issuer who represented 10% or more of stockholders equity within the
investment portfolio.
Proceeds from sales of securities available-for-sale during 2009, 2008 and 2007 were $127,524,
$27,285 and $20,712, respectively. Gross realized gains of $3,132, $211 and $68, were
realized on those sales in 2009, 2008 and 2007, respectively, and gross realized losses of
$603, $288 and $305, were realized on those sales in 2009, 2008 and 2007, respectively.
94
Investment securities with a carrying amount of approximately $161,449 and $214,358 at
December 31, 2009 and 2008, respectively, were pledged to secure public and trust deposits,
and for other purposes required or permitted by law.
The amortized cost and fair value of the investment securities portfolio excluding equity
securities are shown below by contractual maturity. Expected maturities may differ from
contractual maturities if borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
held to maturity |
|
|
available for sale |
|
|
|
Amortized |
|
|
Estimated |
|
|
Amorized |
|
|
Estimated |
|
|
|
cost |
|
|
fair value |
|
|
cost |
|
|
fair value |
|
|
|
Dollars in thousands |
|
One year or less |
|
$ |
180 |
|
|
|
180 |
|
|
|
1,181 |
|
|
|
1,188 |
|
After one year through five years |
|
|
310 |
|
|
|
312 |
|
|
|
4,617 |
|
|
|
4,524 |
|
After five years through ten years |
|
|
|
|
|
|
|
|
|
|
40,517 |
|
|
|
40,356 |
|
After ten years |
|
|
|
|
|
|
|
|
|
|
262,068 |
|
|
|
260,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
490 |
|
|
|
492 |
|
|
|
308,383 |
|
|
|
306,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the investment securities with unrealized losses at
year-end 2009 and 2008, aggregated by investment category and length of time the individual
securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
fair value |
|
|
loss |
|
|
fair value |
|
|
loss |
|
|
fair value |
|
|
loss |
|
|
|
(Dollars in thousands) |
|
Temporarily impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
35,628 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
35,628 |
|
|
|
968 |
|
Obligations of states and
political subdivisions |
|
|
8,644 |
|
|
|
220 |
|
|
|
4,457 |
|
|
|
301 |
|
|
|
13,101 |
|
|
|
521 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
29,344 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
29,344 |
|
|
|
142 |
|
U.S. GSEs CMO |
|
|
61,373 |
|
|
|
1,408 |
|
|
|
665 |
|
|
|
19 |
|
|
|
62,038 |
|
|
|
1,427 |
|
Other CMO |
|
|
552 |
|
|
|
98 |
|
|
|
4,243 |
|
|
|
285 |
|
|
|
4,795 |
|
|
|
383 |
|
Corporate bonds |
|
|
733 |
|
|
|
267 |
|
|
|
6,291 |
|
|
|
2,327 |
|
|
|
7,024 |
|
|
|
2,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,274 |
|
|
|
3,103 |
|
|
|
15,656 |
|
|
|
2,932 |
|
|
|
151,930 |
|
|
|
6,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
Other CMO |
|
$ |
|
|
|
|
|
|
|
|
748 |
|
|
|
16 |
|
|
|
748 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
136,274 |
|
|
|
3,103 |
|
|
|
16,404 |
|
|
|
2,948 |
|
|
|
152,678 |
|
|
|
6,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
fair value |
|
|
loss |
|
|
fair value |
|
|
loss |
|
|
fair value |
|
|
loss |
|
|
|
(Dollars in Thousands) |
|
Temporarily impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
6,462 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
6,462 |
|
|
|
29 |
|
Obligations of states and
political subdivisions |
|
|
5,556 |
|
|
|
112 |
|
|
|
5,619 |
|
|
|
447 |
|
|
|
11,175 |
|
|
|
559 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
8,045 |
|
|
|
17 |
|
|
|
1,316 |
|
|
|
11 |
|
|
|
9,361 |
|
|
|
28 |
|
U.S. GSEs CMO |
|
|
6,477 |
|
|
|
86 |
|
|
|
1,034 |
|
|
|
27 |
|
|
|
7,511 |
|
|
|
113 |
|
Other CMO |
|
|
8,580 |
|
|
|
650 |
|
|
|
2,258 |
|
|
|
509 |
|
|
|
10,838 |
|
|
|
1,159 |
|
Corporate bonds |
|
|
6,995 |
|
|
|
1,912 |
|
|
|
4,632 |
|
|
|
1,493 |
|
|
|
11,627 |
|
|
|
3,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,115 |
|
|
|
2,806 |
|
|
|
14,859 |
|
|
|
2,487 |
|
|
|
56,974 |
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,115 |
|
|
|
2,806 |
|
|
|
14,859 |
|
|
|
2,487 |
|
|
|
56,974 |
|
|
|
5,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary Impairment
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis, and more frequently when economic or market conditions warrant such an
evaluation. Investment securities classified as available-for-sale or held-to-maturity are
generally evaluated for OTTI under the provisions of ASC 320-10, Investments Debt and Equity
Securities. In determining OTTI, management considers many factors, including: (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, (3) whether the market decline was affected
by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt
security or more likely than not will be required to sell the debt security before its
anticipated recovery. The assessment of whether an other-than-temporary decline exists
involves a high degree of subjectivity and judgment and is based on the information available
to management at a point in time.
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity
intends to sell the security or it is more likely than not it will be required to sell the
security before recovery of its amortized cost basis. If an entity intends to sell or it is
more likely than not it will be required to sell the security before recovery of its amortized
cost basis, the OTTI shall be recognized in earnings equal to the entire difference between
the investments amortized cost basis and its fair value at the balance sheet date. If an
entity does not intend to sell the security and it is not more likely than not that the entity
will be required to sell the security before recovery of its amortized cost basis, the OTTI
shall be separated into the amount representing the credit loss and the amount related to all
other factors. The amount of the total OTTI related to the credit loss is determined based on
the present value of cash flows expected to be collected and is recognized in earnings. The
amount of the total OTTI related to other factors is recognized in other comprehensive income
or loss, net of applicable taxes. The previous amortized cost basis less the OTTI recognized
in earnings becomes the new amortized cost basis of the investment.
96
As of December 31, 2009, the Companys security portfolio consisted of 247 securities, 100 of
which were in an unrealized loss position. The majority of unrealized losses are related to
the Companys mortgage-backed and corporate securities, as discussed below:
Mortgage-backed Securities
At December 31, 2009, $207,617 or approximately 96.19% of the Companys mortgage-backed
securities totaling $215,844 were issued by U.S. government-sponsored entities and agencies,
primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has
affirmed its commitment to support. Because the decline in fair value is attributable to
changes in interest rates and illiquidity, and not credit quality, and because the Company
does not have the intent to sell these mortgage-backed securities and it is likely that it
will not be required to sell the securities before their anticipated recovery, the Company
does not consider these securities to be other-than-temporarily impaired at December 31, 2009.
The Companys mortgage-backed securities portfolio also includes twelve non-agency
collateralized mortgage obligations with a market value of $8,227 which had unrealized losses
of approximately $399 at December 31, 2009. These non-agency securities were rated AAA at
purchase.
At December 31, 2009, five of these non-agency securities were rated below investment grade
and a cash flow analysis was performed to evaluate OTTI. The assumptions used in the model
include expected future default rates, loss severity and prepayments. The model also takes
into account the structure of the security including credit support. Based on these
assumptions, the model calculates and projects the timing and amount of interest and principal
payments expected for the security. In addition, the model was used to stress each
security, or make assumptions more severe than expected activity, to determine the degree to
which assumptions could deteriorate before the security could no longer fully support
repayment. In 2009 two of these securities had OTTI losses of $491, of which $475 was
recorded as expense and $16 was recorded in other comprehensive income or loss. These two
securities remained classified as available-for-sale at December 31, 2009.
At December 31, 2009, the fair values of four collateralized mortgage obligations totaling
$4,333 were measured using Level 3 inputs because the market for them has become illiquid, as
indicated by few, if any, trades during the period. These securities were previously measured
using Level 2 inputs. The discount rates used in the valuation model were based on a yield
that the market would require for collateralized mortgage obligations with maturities and risk
characteristics similar to the securities being measured.
97
Corporate Securities
The Company holds thirteen corporate securities to eight issuers totaling $10,032 with an
unrealized loss of $2,594. The Companys unrealized losses on corporate securities relate
primarily to its investment in single issuer corporate and corporate trust preferred
securities. At December 31, 2009, three of the corporate securities were rated Speculative
and three were rated Investment grade by at least one of the major rating agencies, (Moodys,
S&P and Fitch). Seven of the securities to three issuers were not rated. None of the issuers
were in default and to date all interest payments have been made as contracted. The Company
considered several factors including the financial condition and near term prospects of the
issuers and concluded that the decline in fair value was primarily attributable to temporary
illiquidity and an increase in credit spreads for financial institution debt issuers due to
the financial crisis affecting these markets and not necessarily the expected cash flows of
the individual securities. Because the Company does not have the intent to sell these
securities and it is likely that it will not be required to sell the securities before their
anticipated recovery, the Company does not consider these securities to be
other-than-temporarily impaired at December 31, 2009.
At December 31, 2009, the fair values of all thirteen corporate securities were measured using
Level 3 inputs because the market for them has become illiquid, as indicated by few, if any,
trades during the period. These securities, eight of which totaled $4,307 were previously
measured using Level 2 inputs. The discount rates used in the valuation model were based on
current spreads to U.S. Treasury rates of long-term corporate debt obligations with maturities
and risk characteristics similar to the subordinated debentures being measured. An additional
adjustment to the discount rate for illiquidity in the market for subordinated debentures was
not considered necessary based on the illiquidity premium already present in the spreads used
to estimate the discount rate.
In addition to the securities discussed above, the Company had an investment in the senior
debt of Silverton Financial Services, Inc. of $500 for which an other-than-temporary
impairment charge was taken in the first half of 2009.
98
The table below presents a rollforward of the credit losses recognized in earnings for the
twelve month period ended December 31, 2009:
|
|
|
|
|
Beginning balance, January 1, 2009 |
|
$ |
|
|
Amounts related to credit loss for which
an other-than-temporary impairment
was not previously recognized |
|
|
975 |
|
Additions/Subtractions |
|
|
|
|
Amounts realized for securities sold during the period |
|
|
|
|
Amounts related to securities for which the company
intends to sell or that it will be more likely than not
that the company will be required to sell prior to
recovery of amortized cost basis |
|
|
|
|
Reductions for increase in cash flows expected to be
collected that are recognized over the remaining
life of the security |
|
|
|
|
Increases to the amount related to the credit
loss for which other-than-temporary was previously
recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, December 31, 2009 |
|
$ |
975 |
|
|
|
|
|
The following details the two mortgage-backed securities and one single issuer corporate
debt security with OTTI at December 31, 2009 and the related credit losses recognized in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silverton |
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
Services, Inc |
|
|
CMO 1 |
|
|
CMO 2 |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Amount of other-than temporary-impairment
related to credit losses at January 1, 2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition for credit losses recognized in earnings |
|
|
500 |
|
|
|
155 |
|
|
|
320 |
|
|
|
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of other-than temporary-impairment
related to credit losses at December 31, 2009 |
|
$ |
500 |
|
|
$ |
155 |
|
|
$ |
320 |
|
|
$ |
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Further deterioration in economic conditions could cause the Company to record additional
impairment charges related to credit losses of up to $2,034 which is the carrying amount of
these securities.
99
The following table details the credit ratings and the total impairment loss related to all
other factors recorded as a component of accumulated other comprehensive income or loss for
the Companys mortgage-backed securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
Unrealized |
|
|
Ratings as of Dec. 31, 2009 |
(Dollars in thousands) |
|
cost |
|
|
Value |
|
|
Gains (Losses) |
|
|
S&P |
|
Fitch |
|
Moodys |
Silverton Financial Services, Inc. |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
NR |
|
NR |
|
NR |
CMO 1 |
|
|
764 |
|
|
|
748 |
|
|
|
(16 |
) |
|
CCC |
|
C |
|
NR |
CMO 2 |
|
|
1,270 |
|
|
|
1,399 |
|
|
|
129 |
|
|
CCC |
|
NR |
|
Caa2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,034 |
|
|
$ |
2,147 |
|
|
$ |
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO 2 was in an unrealized loss position during 2009 and an OTTI charge of $320 was
recognized. As of December 31, 2009, the fair value increased to result in an unrealized gain
position.
(4) Loans
Loans at year end were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Dollars in thousands |
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural |
|
$ |
102,160 |
|
|
$ |
109,784 |
|
Real estate: |
|
|
|
|
|
|
|
|
Construction |
|
|
270,062 |
|
|
|
369,731 |
|
Residential |
|
|
219,217 |
|
|
|
212,856 |
|
Commercial |
|
|
322,864 |
|
|
|
266,362 |
|
Consumer installment |
|
|
23,241 |
|
|
|
28,496 |
|
|
|
|
|
|
|
|
|
|
|
937,544 |
|
|
|
987,229 |
|
Less allowance for loan losses |
|
|
22,338 |
|
|
|
14,742 |
|
Less deferred loan origination fees |
|
|
55 |
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
$ |
915,151 |
|
|
$ |
972,089 |
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Dollars in thousands |
|
Balance, beginning of year |
|
$ |
14,742 |
|
|
|
11,800 |
|
|
|
9,777 |
|
Provision for loan losses |
|
|
30,904 |
|
|
|
9,055 |
|
|
|
3,823 |
|
Charge-offs |
|
|
(24,133 |
) |
|
|
(6,736 |
) |
|
|
(2,576 |
) |
Recoveries |
|
|
825 |
|
|
|
623 |
|
|
|
776 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
22,338 |
|
|
|
14,742 |
|
|
|
11,800 |
|
|
|
|
|
|
|
|
|
|
|
100
Individually impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Dollars in thousands |
|
Year end loans with no allocated allowance
for loan losses |
|
$ |
22,921 |
|
|
$ |
16,836 |
|
Year end loans with allocated allowance
for loan losses |
|
|
11,746 |
|
|
|
16,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,667 |
|
|
$ |
33,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of the allowance for loan loss allocated |
|
$ |
1,979 |
|
|
$ |
2,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Dollars in thousands |
|
Average of individually impaired loans during year |
|
$ |
37,212 |
|
|
$ |
29,397 |
|
|
$ |
5,022 |
|
Interest income recognized during impairment |
|
|
784 |
|
|
|
702 |
|
|
|
598 |
|
Cash-basis interest income recognized |
|
|
784 |
|
|
|
702 |
|
|
|
598 |
|
Nonaccrual loans and loans past due 90 days still on accrual were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Dollars in thousands |
|
Loans past due over 90 days still on accrual |
|
$ |
|
|
|
$ |
7,298 |
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
|
32,257 |
|
|
|
34,781 |
|
Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance
homogeneous loans that are collectively evaluated for impairment and individually classified
impaired loans. Interest that would have been recorded on nonaccrual loans had they been in
accruing status was approximately $2,377 in 2009, $1,561 in 2008, and $198 in 2007.
The Company has purchased loans, for which there was, at acquisition, evidence of
deterioration of credit quality since origination and it was probable, at acquisition, that
all contractually required payments would not be collected. The carrying amount of these
loans is as follows:
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Dollars in thousands |
|
Construction |
|
$ |
2,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount, net of
allowance of $706,
$0 and $0
respectively |
|
$ |
1,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company increased the allowance for loan losses by $706, $0 and $0 during 2009, 2008
and 2007 for these purchased loans. No allowances for loan losses were reversed during 2009,
2008 or 2007.
Income is not recognized on certain purchased loans if the Company cannot reasonably estimate
cash flows expected to be collected. The carrying amounts of such loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Dollars in thousands |
|
Loans purchased during the year |
|
$ |
2,121 |
|
|
|
|
|
|
|
|
|
Loans at end of year |
|
|
1,415 |
|
|
|
|
|
|
|
|
|
The Company has direct and indirect loans outstanding to certain executive officers and
directors, including affiliates, and principal holders of the Companys securities.
The following is a summary of the activity in loans outstanding to executive officers and
directors, including affiliates, and principal holders of the Companys securities for the
year ended December 31, 2009:
|
|
|
|
|
|
|
Dollars in thousands |
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
39,360 |
|
New loans |
|
|
53,818 |
|
Effect of changes in composition
of related parties |
|
|
12 |
|
Principal repayments |
|
|
(57,336 |
) |
|
|
|
|
Balance at end of year |
|
$ |
35,854 |
|
|
|
|
|
The Company is also committed to extend credit to certain directors and executives of the
Company, including companies in which they are principal owners, through personal lines of
credit, letters of credit, and other loan commitments. As of December 31, 2009, available
balances on these commitments to these persons aggregated approximately $13,601.
102
(5) Real Estate Owned
The following table presents a roll forward of other real estate owned as of December 31,
2009, 2008 and 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Beginning balance, January 1 |
|
$ |
5,734 |
|
|
$ |
|
|
|
$ |
|
|
Additions |
|
|
20,752 |
|
|
|
6,386 |
|
|
|
341 |
|
Valuation allowance |
|
|
(588 |
) |
|
|
|
|
|
|
|
|
Sales |
|
|
(12,183 |
) |
|
|
(715 |
) |
|
|
(312 |
) |
(Loss) gain on sale of OREO |
|
|
(5,741 |
) |
|
|
63 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance, December 31 |
|
$ |
7,974 |
|
|
$ |
5,734 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Provision charged to expense |
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
588 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses related to foreclosed assets include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Net loss (gain) on sales |
|
$ |
5,741 |
|
|
$ |
(63 |
) |
|
$ |
29 |
|
OREO expenses, net of
rental income |
|
|
248 |
|
|
|
72 |
|
|
|
5 |
|
OREO valuation allowance |
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,577 |
|
|
$ |
9 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
(6) Fair Value Measurements
Fair value is the exchange price that would be received to sell an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair values:
|
Level 1: |
|
Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date. |
103
|
Level 2: |
|
Significant other observable inputs other than Level 1 prices, such as
quoted market prices for similar assets or liabilities, quoted prices in markets that are
not active, or other inputs that are observable or can be corroborated by observable
market data. |
|
Level 3: |
|
Significant unobservable inputs that reflect a companys own assumptions about
the assumptions that market participants would use in pricing an asset or liability. |
In determining the appropriate levels, the Company used the following methods and significant
assumptions to estimate the fair value of each type of financial instrument:
Investment Securities: The fair values for investment securities are determined by
quoted market prices, if available (Level 1). For securities where quoted prices are not
available, fair values are calculated based on market prices of similar securities (Level 2).
For securities where quoted prices or market prices of similar securities are not available,
fair values are calculated using discounted cash flows or other market indicators (Level 3) as
more fully discussed in Note 3. Discounted cash flows are calculated using spread to swap and
LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and
optionality. During times when trading is more liquid, broker quotes are used (if available)
to validate the model. Rating agency and industry research reports as well as defaults and
deferrals on individual securities are reviewed and incorporated into the calculations.
Mortgage Banking Derivatives: The fair value of mortgage banking derivatives is
determined by individual third party sales contract prices for the specific loans held at each
reporting period end (Level 2 inputs). The fair value adjustment is included in other assets.
Loans Held for Sale: Loans held for sale are carried at fair value, as determined by
outstanding commitments, from third party investors (Level 2).
Impaired Loans: The fair value of impaired loans with specific allocations of the
allowance for loan losses is generally based on recent real estate appraisals. These
appraisals may
utilize a single valuation approach or a combination of approaches including comparable sales
and the income approach. Adjustments are routinely made in the appraisal process by the
appraisers to adjust for differences between the comparable sales and income data available.
Such adjustments are typically significant and result in a Level 3 classification of the
inputs for determining fair value.
Investments in Tax Credits: The fair values for tax credits are measured on a
recurring basis and are based upon total credits and deductions remaining to be allocated and
total estimated credits and deductions to be allocated (Level 3 inputs).
Other Real Estate Owned: The fair value of other real estate owned is generally based
on recent real estate appraisals. These appraisals may utilize a single valuation approach or
a combination of approaches including comparable sales and the income approach.
104
Adjustments
are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income date available. Management may adjust the appraised
value for estimated costs to sell. Such adjustments are typically significant and result in a
Level 3 classification of the inputs for determining fair value.
Assets and Liabilities Measured on a Recurring Basis
The following tables present the balances of assets and liabilities measured at fair value on
a recurring basis by level within the hierarchy as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
54,156 |
|
|
|
9,489 |
|
|
|
44,667 |
|
|
|
|
|
Obligations of states and
political subdivisions |
|
|
26,180 |
|
|
|
|
|
|
|
26,180 |
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
100,775 |
|
|
|
12,174 |
|
|
|
88,601 |
|
|
|
|
|
U.S. GSEs CMO |
|
|
106,842 |
|
|
|
10,510 |
|
|
|
96,332 |
|
|
|
|
|
Other CMO |
|
|
8,227 |
|
|
|
|
|
|
|
3,894 |
|
|
|
4,333 |
|
Corporate bonds |
|
|
10,032 |
|
|
|
|
|
|
|
|
|
|
|
10,032 |
|
Equity securities |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
306,216 |
|
|
|
32,177 |
|
|
|
259,674 |
|
|
|
14,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credits |
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
19,157 |
|
|
|
|
|
|
|
19,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives |
|
|
182 |
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
325,990 |
|
|
|
32,177 |
|
|
|
279,013 |
|
|
|
14,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government agencies |
|
$ |
110,675 |
|
|
|
|
|
|
|
110,675 |
|
|
|
|
|
Obligations of states and
political subdivisions |
|
|
16,956 |
|
|
|
|
|
|
|
16,956 |
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GSEs MBS residential |
|
|
120,772 |
|
|
|
|
|
|
|
120,772 |
|
|
|
|
|
U.S. GSEs CMO |
|
|
28,425 |
|
|
|
|
|
|
|
28,425 |
|
|
|
|
|
Other CMO |
|
|
10,838 |
|
|
|
|
|
|
|
10,838 |
|
|
|
|
|
Corporate bonds |
|
|
11,627 |
|
|
|
|
|
|
|
7,497 |
|
|
|
4,130 |
|
Equity securities |
|
|
46 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
299,339 |
|
|
|
46 |
|
|
|
295,163 |
|
|
|
4,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credits |
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
18,955 |
|
|
|
|
|
|
|
18,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking derivatives |
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
318,817 |
|
|
|
46 |
|
|
|
314,126 |
|
|
|
4,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present a reconciliation and income statement classification of gains
and losses for all assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
Tax credits |
|
|
Securities |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1, 2009 |
|
$ |
515 |
|
|
|
4,130 |
|
|
|
4,645 |
|
Total gains or losses (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment |
|
|
|
|
|
|
(975 |
) |
|
|
(975 |
) |
Amortization of tax credit investment |
|
|
(80 |
) |
|
|
|
|
|
|
(80 |
) |
Included in other comprehensive income (loss) |
|
|
|
|
|
|
1,595 |
|
|
|
1,595 |
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
9,615 |
|
|
|
9,615 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance, December 31, 2009 |
|
$ |
435 |
|
|
|
14,365 |
|
|
|
14,800 |
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
Tax credits |
|
|
Securities |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Beginning balance, January 1, 2008 |
|
$ |
594 |
|
|
|
|
|
|
|
594 |
|
Total gains or losses (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of tax credit investment |
|
|
(79 |
) |
|
|
|
|
|
|
(79 |
) |
Included in other comprehensive income |
|
|
|
|
|
|
(282 |
) |
|
|
(282 |
) |
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
4,412 |
|
|
|
4,412 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance, December 31, 2008 |
|
$ |
515 |
|
|
|
4,130 |
|
|
|
4,645 |
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2009
and 2008 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
9,767 |
|
|
|
|
|
|
|
|
|
|
|
9,767 |
|
Other real estate owned |
|
|
7,974 |
|
|
|
|
|
|
|
|
|
|
|
7,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
14,743 |
|
|
|
|
|
|
|
|
|
|
|
14,743 |
|
Other real estate owned |
|
|
5,734 |
|
|
|
|
|
|
|
|
|
|
|
5,734 |
|
The following represents impairment charges recognized during the period:
Impaired loans, which are measured for impairment using the fair value of the collateral for
collateral dependent loans, had a carrying amount of $11,746, with a valuation allowance of
$1,979, resulting in an additional provision for loan losses of $1,979 for the year ended
December 31, 2009. Impaired loans for which there is no specific allowance for credit losses
had a carrying amount of $22,921 at December 31, 2009.
As of December 31, 2008 impaired loans had a carrying amount of $16,944 with a valuation
allowance of $2,201, resulting in an additional provision for loan losses of $2,201 for the
year ended December 31, 2008. Impaired loans for which there is no specific allowance for
credit losses had a carrying amount of $16,836 at December 31, 2008.
107
Other real estate owned, which is carried at lower of cost or fair value, was $7,974 which
consisted of the outstanding balance of $8,562, less a valuation allowance of $588, resulting
in a write down of $588 for the year ending 2009. There was no valuation allowance or
provisions for the year ending 2008.
(7) Premises and Equipment
Premises and equipment at December 31, 2009 and 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Land |
|
$ |
7,819 |
|
|
$ |
7,868 |
|
Buildings |
|
|
23,876 |
|
|
|
24,289 |
|
Furniture and equipment |
|
|
16,152 |
|
|
|
15,251 |
|
|
|
|
|
|
|
|
|
|
|
47,847 |
|
|
|
47,408 |
|
Less accumulated depreciation |
|
|
16,145 |
|
|
|
13,448 |
|
|
|
|
|
|
|
|
|
|
$ |
31,702 |
|
|
$ |
33,960 |
|
|
|
|
|
|
|
|
Depreciation expense amounted to $2,718, $2,343 and $1,606, in 2009, 2008 and 2007,
respectively.
(8) Commitments
The Company is committed under various operating leases for office space and equipment. At
December 31, 2009, minimum future lease payments under non-cancelable real property and
equipment operating leases are as follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2010 |
|
$ |
361 |
|
2011 |
|
|
284 |
|
2012 |
|
|
175 |
|
2013 |
|
|
37 |
|
2014 |
|
|
35 |
|
2015 & Beyond |
|
|
61 |
|
|
|
|
|
|
|
$ |
953 |
|
|
|
|
|
Rent and lease expense for all building, equipment, and furniture rentals totaled $320, $317,
and $163, for the years ended December 31, 2009, 2008, and 2007, respectively.
The Company is party to lines of credit with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. Lines of credit are unfunded
commitments to extend credit. These instruments involve, in varying degrees, exposure to
credit and interest rate risk in excess of the amounts recognized in the financial statements.
108
The Companys exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for unfunded commitments to extend credit is represented by the
contractual amount of those instruments. The Company follows the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet instruments.
Unfunded commitments to extend credit where contract amounts represent potential credit risk
totaled $174,894 and $202,580, at December 31, 2009 and 2008, respectively. These commitments
are primarily at variable interest rates. Fixed rate commitments totaled $15,903 and $18,265
at December 31, 2009 and 2008, respectively. The rates on these commitments ranged from 3.50%
to 16.00% at December 31, 2009, and 5.00% to 16.00% at December 31, 2008. Maturity dates
ranged from 1/8/2010 to 12/19/2017, at December 31, 2009, and 1/2/2009 to 12/19/2017 at
December 31, 2008.
Lines of credit are legally binding contracts to lend to a customer, as long as there is no
violation of any condition established in the contract. These commitments have fixed
termination dates and generally require payment of a fee. As commitments often expire prior
to being drawn, the amounts above do not necessarily represent the future cash requirements of
the commitments. Credit worthiness is evaluated on a case by case basis, and if necessary,
collateral is obtained to support the commitment.
(9) Deposits
At December 31, 2009, scheduled maturities of certificates of deposit are as follows:
|
|
|
|
|
|
|
Dollars in thousands |
|
|
|
|
|
|
2010 |
|
$ |
379,383 |
|
2011 |
|
|
106,177 |
|
2012 |
|
|
67,261 |
|
2013 |
|
|
4,959 |
|
2014 |
|
|
6,791 |
|
Thereafter |
|
|
2,224 |
|
|
|
|
|
Total |
|
$ |
566,795 |
|
|
|
|
|
Brokered deposits as of December 31, 2009 and 2008 totaled $255,876 and $244,540,
respectively.
(10) Borrowings
Securities Sold Under Repurchase Agreements
The securities sold under repurchase agreements are collateralized by obligations of the U.S.
Government or its corporations and agencies, state and municipal securities, corporate bonds,
or mortgage-backed securities. The aggregate carrying value of such agreements for corporate
customers at December 31, 2009 and 2008 were $0 and $20,000, respectively.
109
At December 31,
2009, public funds agreements for deposit accounts and securities sold under repurchase
agreements for public funds customers were maintained by the Georgia Bankers Association
pooled pledging program. The total carrying value of investments in the pooled pledging
program at December 31, 2009 and 2008 was $161,449 and $192,761, respectively. The repurchase
agreements at December 31, 2009 mature on demand. The following table summarizes pertinent
data related to the securities sold under the agreements to repurchase as of and for the years
ended December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Securities Sold Under Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average borrowing rate at
year-end |
|
|
1.50 |
% |
|
|
0.96 |
% |
|
|
4.38 |
% |
Weighted average borrowing rate during
the year |
|
|
0.80 |
% |
|
|
2.15 |
% |
|
|
5.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance during the year |
|
$ |
40,820 |
|
|
|
59,925 |
|
|
|
64,501 |
|
Maximum month-end balance during
the year |
|
|
61,378 |
|
|
|
64,734 |
|
|
|
74,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end |
|
$ |
3,188 |
|
|
|
62,553 |
|
|
|
63,629 |
|
Federal Funds Purchased |
|
|
|
|
|
|
|
|
|
|
17,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,188 |
|
|
|
62,553 |
|
|
|
81,166 |
|
|
|
|
|
|
|
|
|
|
|
Advances from Federal Home Loan Bank
The Company has an available line of credit from the Federal Home Loan Bank of Atlanta (FHLB)
in an amount not to exceed 10% of total assets. The line of credit is reviewed annually by
the FHLB. The following advances were outstanding under this line at December 31, 2009 and
2008.
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Rate |
|
|
2008 |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
Due March 22, 2010 |
|
$ |
|
|
|
|
0.000 |
% |
|
$ |
7,000 |
|
|
|
6.180 |
% |
Due March 30, 2010 |
|
|
5,000 |
|
|
|
6.020 |
% |
|
|
5,000 |
|
|
|
6.020 |
% |
Due September 29, 2010 |
|
|
5,000 |
|
|
|
5.820 |
% |
|
|
5,000 |
|
|
|
5.820 |
% |
Due October 18, 2010 |
|
|
7,000 |
|
|
|
5.460 |
% |
|
|
7,000 |
|
|
|
5.460 |
% |
Due April 29, 2011 |
|
|
2,000 |
|
|
|
3.455 |
% |
|
|
2,000 |
|
|
|
3.455 |
% |
Due May 2, 2011 |
|
|
6,000 |
|
|
|
4.800 |
% |
|
|
6,000 |
|
|
|
4.800 |
% |
Due April 4, 2013
convertible flipper |
|
|
10,000 |
|
|
|
2.900 |
% |
|
|
10,000 |
|
|
|
3.708 |
% |
Due July 18, 2013
convertible flipper |
|
|
3,000 |
|
|
|
2.720 |
% |
|
|
3,000 |
|
|
|
4.003 |
% |
Due July 26, 2017 |
|
|
10,000 |
|
|
|
4.406 |
% |
|
|
10,000 |
|
|
|
4.406 |
% |
Due January 31, 2018 |
|
|
10,000 |
|
|
|
2.475 |
% |
|
|
10,000 |
|
|
|
2.475 |
% |
Due January 27, 2019
convertible flipper |
|
|
5,000 |
|
|
|
4.100 |
% |
|
|
5,000 |
|
|
|
0.000 |
% |
Due April 22, 2019
convertible flipper |
|
|
8,000 |
|
|
|
4.750 |
% |
|
|
8,000 |
|
|
|
3.559 |
% |
Due May 22, 2019
convertible flipper |
|
|
6,000 |
|
|
|
4.680 |
% |
|
|
6,000 |
|
|
|
1.653 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,000 |
|
|
|
|
|
|
$ |
84,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average rate |
|
|
4.23 |
% |
|
|
|
|
|
|
3.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The FHLB has the option to convert the fixed-rate advances and convertible advances to
three-month, LIBOR-based floating-rate advances at various dates throughout the terms of the
advances.
The fixed rate advance due on March 22, 2010 was repaid on July 16, 2009 and resulted in a
prepayment penalty of $276. The convertible flipper advance maturing on April 4, 2013 was
indexed to the three month LIBOR based floating rate minus 50 basis points and converted to a
fixed rate of 2.90% on April 4, 2009. The convertible flipper advance maturing on January 27,
2019, was indexed to the one-month LIBOR-based floating rate minus 50 basis points for the
first three years and was converted to a fixed rate of 4.10% on January 27, 2009 for the last
ten years. The convertible flipper advance maturing on April 22, 2019, was indexed to the
three-month LIBOR-based floating rate minus 50 basis points for the first three years and then
converted to a fixed rate of 4.75% on April 22, 2009 for the last ten years. The flipper
advance maturing on May 22, 2019, was indexed to the three-month LIBOR-based floating rate
minus 50 basis points and then converted to a fixed rate of 4.68% on May 22, 2009. The
convertible flipper advance maturing on July 18, 2013 was indexed to the three month LIBOR
based floating rate minus 50 basis points and was converted to a fixed rate of 2.72% on July
18, 2009. At December 31, 2009, the Company has pledged, under a blanket floating lien,
eligible first mortgage loans with unpaid balances which, when discounted at approximately 60%
of such unpaid principal balances, total $62,599. The Company has also pledged for this lien
eligible commercial
real estate loans with unpaid balances which, when discounted at approximately 50% of such
unpaid principal balances, total $31,238.
111
Other Borrowed Funds
Other borrowed funds consist of a treasury, tax, and loan account with the Federal Reserve
Bank of $600 and $0 at December 31, 2009 and December 31, 2008 respectively.
(11) Subordinated Debentures
In December 2005 the Company issued $10.0 million of unsecured subordinated debentures, which
bear interest at three-month LIBOR plus 1.40% (1.65% at December 31, 2009), adjusted
quarterly, to Southeastern Bank Financial Statutory Trust I. The Company used these funds to
capitalize Southern Bank and Trust. Southeastern Bank Financial Statutory Trust I is a wholly
owned subsidiary of the Company which is not consolidated in these financial statements.
Southeastern Bank Financial Statutory Trust I acquired these debentures using the proceeds of
its offerings of $10.0 million of Trust Preferred Securities to outside investors. The Trust
Preferred Securities qualify as Tier 1 capital under Federal Reserve Board guidelines up to
certain limits and accrue and pay distributions quarterly at a variable per annum rate of
interest, reset quarterly, equal to LIBOR plus 1.40% of the stated liquidation amount of $1
thousand dollars per Capital Security. The Company has entered into contractual arrangements
which constitute a full, irrevocable and unconditional guarantee on a subordinated basis by
the Company of the obligations of Southeastern Bank Financial Statutory Trust I under the
Trust Preferred Securities.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the debentures on
December 15, 2035, or upon earlier redemption as provided in the indenture. The Company has
the right to redeem the debentures purchased by Southeastern Bank Financial Statutory Trust I
in whole or in part, on or after December 15, 2010 and in whole or in part at any time within
90 days following the occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event. As specified in the indenture, if the debentures are redeemed prior to
maturity, the redemption price will be 100% of their principal amount plus accrued but unpaid
interest. Prior to December 15, 2010, the redemption of any debenture following a Tax Event,
an Investment Company Event or a Capital Treatment Event, will be an amount in cash equal to
100.785% of the principal amount of the debentures and thereafter at par.
In March 2006 the Company issued $10.0 million of unsecured subordinated debentures, which
bear interest at three-month LIBOR plus 1.40% (1.65% at December 31, 2009), adjusted
quarterly, to Southeastern Bank Financial Trust II. The Company used $5.0 million of the
proceeds to contribute additional capital to Southern Bank & Trust on June 28, 2007. The
remaining $5.0 million has been used for general corporate purposes. Southeastern Bank
Financial Trust II is a wholly owned subsidiary of the Company which is not consolidated in
these financial statements. Southeastern Bank Financial Statutory Trust I acquired these
debentures using the proceeds of its offerings of $10.0 million of Trust Preferred Securities
to outside investors. The Trust Preferred Securities qualify as Tier 1 capital under Federal
Reserve Board guidelines up to certain limits and accrue and
pay distributions quarterly at a variable per annum rate of interest, reset quarterly, equal
to LIBOR plus 1.40% of the stated liquidation amount of $1 thousand dollars per Capital
Security. The Company has entered into contractual arrangements which constitute a full,
irrevocable and unconditional guarantee on a subordinated basis by the Company of the
obligations of Southeastern Bank Financial Trust II under the Trust Preferred Securities.
112
The Trust Preferred Securities are mandatorily redeemable upon maturity of the debentures on
June 15, 2036, or upon earlier redemption as provided in the indenture. The Company has the
right to redeem the debentures purchased by Southeastern Bank Financial Trust II in whole or
in part, on or after June 15, 2011 and in whole or in part at any time within 90 days
following the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment
Event. As specified in the indenture, if the debentures are redeemed prior to maturity, the
redemption price will be 100% of their principal amount plus accrued but unpaid interest.
Prior to June 15, 2010, the redemption of any debenture following a Tax Event, an Investment
Company Event or a Capital Treatment Event, will be an amount in cash equal to 101.570% of the
principal amount of the debentures. Thereafter, an amount equal in cash to the percentage of
the principal amount of the debentures plus unpaid interest will be redeemed as specified
below.
|
|
|
|
|
Special Redemption During the |
|
|
|
12-Month Period Beginning June 15 |
|
Percentage of Principal Amount |
|
2010 |
|
|
100.785 |
% |
2011 and thereafter |
|
|
100.000 |
% |
In May 2009 the Company issued a $2.9 million unsecured subordinated debenture, which bears
interest at a rate of 8.0% per annum, to a related party, R.W. Pollard Enterprises, LLP. The
Company used the proceeds to increase capital at the Bank. The debenture matures on May 14,
2014 and the Company has the right to redeem the debenture, in whole or in part, at any time
after May 14, 2012. As specified in the indenture, if the debenture is redeemed prior to
maturity, the redemption price will be the principal amount plus any accrued and unpaid
interest.
113
(12) Income Taxes
Income tax (benefit) expense for the years ended December 31, 2009, 2008 and 2007 consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current tax (benefit) expense: |
|
(Dollars in thousands) |
|
Federal |
|
$ |
(2,469 |
) |
|
$ |
4,268 |
|
|
$ |
6,543 |
|
State |
|
|
|
|
|
|
167 |
|
|
|
603 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(2,469 |
) |
|
|
4,435 |
|
|
|
7,146 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(2,500 |
) |
|
|
(800 |
) |
|
|
(681 |
) |
State |
|
|
(1,445 |
) |
|
|
(129 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(3,945 |
) |
|
|
(929 |
) |
|
|
(825 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(6,414 |
) |
|
$ |
3,506 |
|
|
$ |
6,321 |
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense differed from the amount computed by applying the statutory
Federal corporate tax rate of 34% in 2009 and 35% in 2008 and 2007 to income before income
taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Computed expected tax (benefit) expense |
|
$ |
(4,896 |
) |
|
$ |
3,879 |
|
|
$ |
6,330 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest income |
|
|
(370 |
) |
|
|
(326 |
) |
|
|
(368 |
) |
Nondeductible interest expense |
|
|
33 |
|
|
|
40 |
|
|
|
53 |
|
State income tax, net of Federal tax
effect |
|
|
(966 |
) |
|
|
25 |
|
|
|
298 |
|
Earnings on cash surrender value of
life insurance |
|
|
(299 |
) |
|
|
(248 |
) |
|
|
(237 |
) |
Nondeductible stock compensation expense |
|
|
64 |
|
|
|
73 |
|
|
|
191 |
|
Meals, entertainment, and club dues |
|
|
58 |
|
|
|
59 |
|
|
|
51 |
|
Other, net |
|
|
(38 |
) |
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(6,414 |
) |
|
$ |
3,506 |
|
|
$ |
6,321 |
|
|
|
|
|
|
|
|
|
|
|
114
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2009 and 2008 are presented
below:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
8,556 |
|
|
$ |
5,678 |
|
Deferred compensation |
|
|
2,177 |
|
|
|
1,611 |
|
Nonaccrual loan interest income |
|
|
29 |
|
|
|
600 |
|
State net operating loss and other carryovers |
|
|
982 |
|
|
|
|
|
Unrealized loss on investment securities available for sale |
|
|
845 |
|
|
|
|
|
Other |
|
|
427 |
|
|
|
311 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
13,016 |
|
|
|
8,200 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(1,198 |
) |
|
|
(1,225 |
) |
Prepaid assets and other |
|
|
(658 |
) |
|
|
(605 |
) |
Unrealized gain on investment securities available for sale |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,856 |
) |
|
|
(1,858 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
11,160 |
|
|
$ |
6,342 |
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management
considers taxes paid in the carryback period, the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projection for future
taxable income over the periods which the temporary differences resulting in the deferred tax
assets are deductible, management has determined it is more likely than not that the Company
will realize the benefits of these deductible differences.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax
of the state of Georgia and South Carolina. The Company is no longer subject to examination
by federal and state taxing authorities for years before 2006.
The amount of the accrued income tax liability for uncertainties related to tax benefits was
not material to the Companys consolidated balance sheets as of December 31, 2009 or 2008.
Additionally, the total amount of interest and penalties recorded in the consolidated
statements of income or loss for the year ended December 31, 2009, 2008 and 2007 was not
material.
115
(13) Related Party Transactions
Deposits include accounts with certain directors and executives of the Company, including
affiliates, and principal holders of the Companys securities. As of December 31, 2009 and
2008, these deposits totaled approximately $20,344, and $21,571, respectively. See note 4 for
discussion of related party loans and note 11 for discussion of related party debt.
(14) Regulatory Capital Requirements
The Company and its subsidiaries are subject to various regulatory capital requirements
administered by the Federal 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 consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Companys assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Companys capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require minimum
amounts and ratios (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 December 31, 2009, that the Company
meets all capital adequacy requirements to which it is subject.
As of December 31, 2009, the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table
below. Management is not aware of the existence of any conditions or events occurring
subsequent to December 31, 2009 which would affect the Banks well capitalized classification.
Actual capital amounts and ratios for the Company are presented in the table below as of
December 31, 2009 and 2008, on a consolidated basis and for the Bank and Thrift individually:
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be well capitalized |
|
|
|
|
|
|
|
|
|
|
|
For capital adequacy |
|
|
under prompt corrective |
|
|
|
Actual |
|
|
purposes |
|
|
action provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(Dollars in thousands) |
|
Southeastern Bank Financial Corporation
and subsidiaries consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
$ |
130,395 |
|
|
|
12.55 |
% |
|
$ |
83,146 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
114,930 |
|
|
|
11.06 |
% |
|
|
41,573 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Tier I Capital leverage
(to average assets) |
|
|
114,930 |
|
|
|
7.51 |
% |
|
|
61,177 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
|
128,177 |
|
|
|
11.70 |
% |
|
$ |
87,658 |
|
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
114,467 |
|
|
|
10.45 |
% |
|
|
43,829 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Tier I Capital leverage
(to average assets) |
|
|
114,467 |
|
|
|
8.14 |
% |
|
|
56,231 |
|
|
|
4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be well capitalized |
|
|
|
|
|
|
|
|
|
|
|
For capital adequacy |
|
|
under prompt corrective |
|
|
|
Actual |
|
|
purposes |
|
|
action provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(Dollars in thousands) |
|
Georgia Bank & Trust Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
$ |
111,465 |
|
|
|
12.25 |
% |
|
$ |
72,782 |
|
|
|
8.00 |
% |
|
$ |
90,978 |
|
|
|
10.00 |
% |
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
99,984 |
|
|
|
10.99 |
% |
|
|
36,391 |
|
|
|
4.00 |
% |
|
|
54,587 |
|
|
|
6.00 |
% |
Tier I Capital leverage
(to average assets) |
|
|
99,984 |
|
|
|
7.34 |
% |
|
|
61,301 |
|
|
|
4.50 |
% |
|
|
68,112 |
|
|
|
5.00 |
% |
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
|
107,821 |
|
|
|
10.99 |
% |
|
$ |
78,491 |
|
|
|
8.00 |
% |
|
$ |
98,114 |
|
|
|
10.00 |
% |
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
95,546 |
|
|
|
9.74 |
% |
|
|
39,246 |
|
|
|
4.00 |
% |
|
|
58,869 |
|
|
|
6.00 |
% |
Tier I Capital leverage
(to average assets) |
|
|
95,546 |
|
|
|
7.47 |
% |
|
|
57,551 |
|
|
|
4.50 |
% |
|
|
63,945 |
|
|
|
5.00 |
% |
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be well capitalized |
|
|
|
|
|
|
|
|
|
|
|
For capital adequacy |
|
|
under prompt corrective |
|
|
|
Actual |
|
|
purposes |
|
|
action provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(Dollars in thousands) |
|
Southern Bank & Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
$ |
15,734 |
|
|
|
12.36 |
% |
|
$ |
10,183 |
|
|
|
8.00 |
% |
|
$ |
12,729 |
|
|
|
10.00 |
% |
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
14,136 |
|
|
|
11.11 |
% |
|
|
5,091 |
|
|
|
4.00 |
% |
|
|
7,637 |
|
|
|
6.00 |
% |
Tier I Capital leverage
(to average assets) |
|
|
14,136 |
|
|
|
8.52 |
% |
|
|
6,640 |
|
|
|
4.00 |
% |
|
|
8,300 |
|
|
|
5.00 |
% |
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-
weighted assets) |
|
|
15,356 |
|
|
|
13.57 |
% |
|
$ |
9,055 |
|
|
|
8.00 |
% |
|
$ |
11,319 |
|
|
|
10.00 |
% |
Tier I Capital risk-based
(to risk-weighted assets) |
|
|
13,939 |
|
|
|
12.31 |
% |
|
|
4,528 |
|
|
|
4.00 |
% |
|
|
6,792 |
|
|
|
6.00 |
% |
Tier I Capital leverage
(to average assets) |
|
|
13,939 |
|
|
|
11.28 |
% |
|
|
4,943 |
|
|
|
4.00 |
% |
|
|
6,179 |
|
|
|
5.00 |
% |
Southeastern Bank Financial Corporation and Georgia Bank and Trust Company are regulated by
the Department of Banking and Finance of the State of Georgia (DBF). The DBF requires that
state banks in Georgia generally maintain a minimum ratio of Tier 1 capital to total assets of
four and one-half percent (4.5%) for banks and four percent (4%) for holding companies. These
ratios are shown in the preceding tables as Tier 1 Capital leverage (to average assets).
The Companys ratio at 7.51% and the Banks ratio at 7.34% exceed the minimum required.
Banking regulations limit the amount of dividends that may be paid without prior approval of
the Banks regulatory agency. With a net loss of $7.7 million at December 31, 2009, prior
approval would be required from the DBF before payment of dividends in 2010.
(15) Employee Benefit Plans
The Company has an employee savings plan (the Plan) that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, participating
employees may defer a portion of their pretax earnings, up to the Internal Revenue Service
annual contribution limit. The Company has the option to make discretionary payments to the
Plan. For the years ended December 31, 2009, 2008 and 2007, the Company contributed $527, $753
and $699, respectively, to the Plan, which is 3% of the annual salary of all eligible
employees for 2009 and 5% of the annual salary of all eligible employees for 2008 and 2007.
In 1997, the Company established a nonqualified Long-Term Incentive Plan designed to motivate
and sustain high levels of individual performance and align the interests of key officers with
those of shareholders by rewarding capital appreciation and earnings growth.
Stock appreciation rights may be awarded annually to those key officers whose performance
during the year has made a significant contribution to the Companys growth. Such stock
appreciation rights are granted at a strike price equal to the trading price of the Companys
stock at date of grant, and are earned over a five-year appreciation period. Officers vest in
such rights over a 10-year period. The Company recognized expense of $15, $57 and $57, during
2009, 2008 and 2007, respectively, related to this plan. The total amount accrued for both
December 31, 2009 and 2008 was $15 and $57, respectively.
118
The Company also has salary continuation agreements in place with certain key officers. Such
agreements are structured with differing benefits based on the participants overall position
and responsibility. These agreements provide the participants with a supplemental income upon
retirement at age 65, additional incentive to remain with the Company in order to receive
these deferred retirement benefits and a compensation package that is competitive in the
market. These agreements vest over a ten year period, require a minimum number of years
service, and contain change of control provisions. All benefits would cease in the event of
termination for cause, and if the participants employment were to end due to disability,
voluntary termination or termination without cause, the participant would be entitled to
receive certain reduced benefits based on vesting and other conditions. The estimated cost of
an annuity to pay this obligation is being accrued over the vesting period for each officer.
The Company recognized expense of $1,512, $717, and $758, during 2009, 2008 and 2007,
respectively, related to these agreements. The total amount accrued at December 31, 2009 and
2008 was $5,627 and $4,187, respectively.
(16) Stock Option Plan
During 2000, the Company adopted the 2000 Long-Term Incentive Plan (the 2000 Plan) which
allows for stock option awards for up to 278,300 shares of the Companys common stock to
employees, officers, and directors of the Company. The Company believes that such awards
better align the interests of its employees with those of its shareholders. Under the
provisions of the 2000 Plan, the option price is determined by a committee of the board of
directors at the time of grant and may not be less than 100% of the fair value of the common
stock on the date of the grant of such option. Generally, when granted, these options vest
over a five-year period. However, there were 11,000 options granted in 2005, that vest based
on specific loan growth performance targets. All options must be exercised within a ten-year
period. As of December 31, 2007, all options under this plan had been issued. As of December
31, 2009, due to employee terminations, 2,750 options have reverted back to the option pool
and are available for re-granting under the 2000 Plan.
During 2006, the Company adopted the 2006 Long-Term Incentive Plan (the 2006 Plan), approved
by shareholders at the annual meeting, which allows for stock options awards for up to 275,000
shares of the Companys common stock to key employees, officers, directors and independent
contractors providing material services to the Company. The purpose of the Plan is to enhance
stockholder investment by attracting, retaining and motivating key employees, officers,
directors and independent contractors of the Company, and to encourage stock ownership by such
persons by providing them with a means to acquire a proprietary interest in the Companys
success, and to align the interests of management
with those of stockholders. Under the provisions of the 2006 Plan, the option price is
determined by a committee of the board of directors at the time of grant and may not be less
than 100% of the fair value of the common stock on the date of the grant of such option.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted to a
Participant who is a Ten Percent or more Stockholder, the Option Price shall not be less than
one hundred and ten percent (110%) of the Fair Market Value of the Common Stock on the Date of
Grant. Generally, when granted, these options vest over a five-year period. All options must
be exercised within a ten year period from the date of the grant; however, options issued to a
ten percent or more stockholder must be exercised within a five year period from its date of
grant. As of December 31, 2009 and 2008, total options granted under this Plan were 100,517.
As of December 31, 2009, 174,483 shares remain available for future grants under this Plan.
119
The Company periodically purchases treasury stock and uses it for stock option exercises, when
available. If treasury stock is not available, additional stock is issued. The Company
repurchased 302 and 13,600 shares during 2009 and 2008 respectively. The Company issued 302
shares of treasury stock in 2009 and 1,170 shares in 2008, respectively, for the Director
Stock Purchase Plan and 22,000 shares in 2008 for stock options which were exercised.
The Company is required to compute the fair value of options at the date of grant and to
recognize such costs as compensation expense ratably over the vesting period of the options.
For the year ended December 31, 2009, 2008 and 2007, the Company recognized $188, $209 and
$546, respectively, as compensation expense resulting from all stock options.
The fair value of each option is estimated on the date of grant using the Black-Scholes
valuation model that uses the assumptions noted in the following table. Expected volatility
is the measure of the amount by which the share price is expected to fluctuate during a
period. The method used to calculate historical average annualized volatility is based on
the closing price of the first trade of each month. Expected dividends are based on the
Companys historical pattern of dividend payments. The Company uses historical data to
estimate option exercise and employee termination within the valuation model. The risk-free
rate is the U.S. Treasury note at the time of grant for the expected term of the option.
The fair value of all options granted was determined using the following weighted average
assumptions as of grant date in 2008 and 2007. There were no stock option grants during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Options granted |
|
|
n/a |
|
|
|
19,300 |
|
|
|
30,250 |
|
Risk-free interest rate |
|
|
n/a |
|
|
|
3.23 |
% |
|
|
4.74 |
% |
Dividend yield |
|
|
n/a |
|
|
|
2.00 |
% |
|
|
2.00 |
% |
Expected life at date of grant |
|
|
n/a |
|
|
8.01 years |
|
7.86 years |
Volatility |
|
|
n/a |
|
|
|
21.96 |
% |
|
|
17.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted |
|
|
n/a |
|
|
$ |
7.36 |
|
|
$ |
15.12 |
|
120
A summary of activity for stock options with a specified vesting period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
Options outstanding December 31, 2008 |
|
|
277,263 |
|
|
$ |
27.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options lapsed in 2009 |
|
|
(2,200 |
) |
|
|
36.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding December 31, 2009 |
|
|
275,063 |
|
|
$ |
26.94 |
|
|
|
4.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested or expected to vest |
|
|
275,063 |
|
|
$ |
26.94 |
|
|
|
4.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
208,253 |
|
|
$ |
24.71 |
|
|
|
4.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to the stock options that vest over a specified period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands, except per share data) |
|
Intrinsic value of options exercised |
|
$ |
|
|
|
|
423 |
|
|
|
27 |
|
Intrinsic value of options forfeit |
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options lapsed |
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from option exercises |
|
|
|
|
|
|
466 |
|
|
|
1 |
|
Fair market value of stock received from option exercises |
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value |
|
|
|
|
|
|
7.36 |
|
|
|
15.12 |
|
All stock options issued are incentive stock options and therefore, no tax benefit is
realized.
As of December 31, 2009 and 2008, there was $402 and $577, respectively, of total unrecognized
compensation cost related to nonvested options that vest over a five year period. That cost
is expected to be recognized over a weighted average period of 2.0 years.
The following table provides information for stock options that vest based on specific loan
growth performance targets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
Options outstanding December 31, 2008 |
|
|
11,000 |
|
|
$ |
31.18 |
|
|
|
6.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding December 31, 2009 |
|
|
11,000 |
|
|
$ |
31.18 |
|
|
|
5.50 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
8,250 |
|
|
$ |
31.18 |
|
|
|
5.50 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
As of December 31, 2009 and 2008, there was $8 and $25, respectively, of total unrecognized
compensation cost related to nonvested options granted based on performance. That cost is
expected to be recognized over a weighted average period of 0.5 years.
(17) Other Operating Expenses
Components of other operating expenses exceeding 1% of total revenues include the following
for the years ended December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Marketing and business development |
|
$ |
1,451 |
|
|
$ |
1,668 |
|
|
$ |
1,586 |
|
Processing expense |
|
|
1,733 |
|
|
|
1,917 |
|
|
|
1,750 |
|
Legal and professional fees |
|
|
1,552 |
|
|
|
1,763 |
|
|
|
1,508 |
|
Data processing expense |
|
|
1,265 |
|
|
|
1,203 |
|
|
|
942 |
|
FDIC Insurance |
|
|
2,723 |
|
|
|
898 |
|
|
|
113 |
|
Other expense |
|
|
4,233 |
|
|
|
4,141 |
|
|
|
3,780 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating expense |
|
$ |
12,957 |
|
|
$ |
11,590 |
|
|
$ |
9,679 |
|
|
|
|
|
|
|
|
|
|
|
(18) Fair Value of Financial Instruments
Disclosure of fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value is required. Fair value
estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Companys entire holdings of
a particular financial instrument.
Because no market exists for a portion of the Companys financial instruments, fair value
estimates are based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of the
estimates.
122
The assumptions used in the estimation of the fair value of the Companys financial
instruments are explained below. Where quoted market prices are not available, fair values
are based on estimates using discounted cash flow and other valuation techniques. Discounted
cash flows can be significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following fair value estimates cannot be
substantiated by comparison to independent markets and should not be considered representative
of the liquidation value of the Companys financial instruments, but rather a good-faith
estimate of the fair value of financial instruments held by the Company. Certain financial
instruments and all nonfinancial instruments are excluded from disclosure requirements.
The following methods and assumptions were used by the Company in estimating the fair value of
its financial instruments:
|
(a) |
|
Cash and Cash Equivalents |
Fair value equals the carrying value of such assets due to their nature.
|
(b) |
|
Investment Securities |
As discussed in more detail in Note 6, the fair value of investment securities is based
on quoted market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments. The carrying
amount of related accrued interest receivable approximates its fair value and is not
disclosed.
The fair value of loans is calculated using discounted cash flows by loan type. The
discount rate used to determine the present value of the loan portfolio is an estimated
market rate that reflects the credit and interest rate risk inherent in the loan
portfolio without considering widening credit spreads due to market illiquidity. The
estimated maturity is based on the Companys historical experience with repayments
adjusted to estimate the effect of current market conditions. The carrying amount of
related accrued interest receivable approximates its fair value and is not disclosed.
The carrying amount of real estate loans originated for sale approximates their fair
value. The allowance for loan losses is considered a reasonable discount for credit
risk.
Fair values for certificates of deposit have been determined using discounted cash
flows. The discount rate used is based on estimated market rates for deposits of
similar remaining maturities. The carrying amounts of all other deposits, due to their
short-term nature, approximate their fair values. The carrying amount of related
accrued interest payable approximates its fair value and is not disclosed.
|
(e) |
|
Securities Sold Under Repurchase Agreements |
Fair value approximates the carrying value of such liabilities due to their short-term
nature.
123
Fair value approximates the carrying value of such liabilities as the borrowings are at
a variable rate of interest.
The fair value of the FHLB advances is obtained from the FHLB and is calculated by
discounting contractual cash flows using an estimated interest rate based on the current
rates available to the Company for debt of similar remaining maturities and collateral
terms.
|
(h) |
|
Subordinated debentures |
The fair value for subordinated debentures is calculated based upon current market
spreads to LIBOR for debt of similar remaining maturities and collateral terms.
The difference between the carrying values and fair values of commitments to extend
credit are not significant and are not disclosed.
The carrying amounts and estimated fair values of the Companys financial instruments at
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
amount |
|
|
fair value |
|
|
amount |
|
|
fair value |
|
|
|
(Dollars in thousands) |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
147,994 |
|
|
|
147,994 |
|
|
$ |
37,768 |
|
|
|
37,768 |
|
Investment securities |
|
|
306,706 |
|
|
|
306,708 |
|
|
|
300,028 |
|
|
|
300,037 |
|
Loans, net |
|
|
934,308 |
|
|
|
943,885 |
|
|
|
991,044 |
|
|
|
997,338 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,280,534 |
|
|
|
1,263,137 |
|
|
|
1,139,552 |
|
|
|
1,141,627 |
|
Securities sold under
repurchase agreements |
|
|
3,188 |
|
|
|
3,188 |
|
|
|
62,553 |
|
|
|
62,553 |
|
Other borrowed funds |
|
|
600 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
Advances from FHLB |
|
|
77,000 |
|
|
|
80,670 |
|
|
|
84,000 |
|
|
|
76,090 |
|
Subordinated debentures |
|
|
22,947 |
|
|
|
14,793 |
|
|
|
20,000 |
|
|
|
11,814 |
|
124
(19) Condensed Financial Statements of Southeastern Bank Financial Corporation (Parent Only)
The following represents Parent Company only condensed financial information of Southeastern
Bank Financial Corporation:
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
564 |
|
|
|
1,921 |
|
Investment securities |
|
|
2,005 |
|
|
|
2,042 |
|
available for sale
Investment in banking subsidiaries |
|
|
112,932 |
|
|
|
109,671 |
|
Premises and equipment, net |
|
|
811 |
|
|
|
856 |
|
Accrued interest receivable |
|
|
20 |
|
|
|
20 |
|
Deferred tax asset, net |
|
|
12 |
|
|
|
2 |
|
Income tax receivable |
|
|
1,178 |
|
|
|
166 |
|
Other assets |
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
$ |
117,527 |
|
|
|
114,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accrued interest and other
liabilities |
|
$ |
836 |
|
|
|
33 |
|
Subordinated debentures |
|
|
22,947 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
23,783 |
|
|
|
20,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
93,744 |
|
|
|
94,651 |
|
|
|
|
|
|
|
|
|
|
$ |
117,527 |
|
|
|
114,684 |
|
|
|
|
|
|
|
|
125
Condensed Statements of Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income |
|
$ |
15 |
|
|
|
1,481 |
|
|
|
43 |
|
Interest income on investment securities |
|
|
110 |
|
|
|
143 |
|
|
|
294 |
|
Investment securities (losses) gains, net |
|
|
(35 |
) |
|
|
(204 |
) |
|
|
23 |
|
Miscellaneous income |
|
|
102 |
|
|
|
102 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192 |
|
|
|
1,522 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
647 |
|
|
|
960 |
|
|
|
1,435 |
|
Salaries and other personnel expense |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
24 |
|
Occupancy expense |
|
|
45 |
|
|
|
60 |
|
|
|
52 |
|
Other operating expense |
|
|
139 |
|
|
|
187 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
825 |
|
|
|
1,201 |
|
|
|
1,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
undistributed (excess distributed)
earnings of banking subsidiaries |
|
|
(633 |
) |
|
|
321 |
|
|
|
(1,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (excess distributed) undistributed
earnings of banking subsidiaries |
|
|
(7,593 |
) |
|
|
6,818 |
|
|
|
12,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
(241 |
) |
|
|
(439 |
) |
|
|
(486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,985 |
) |
|
|
7,578 |
|
|
|
11,765 |
|
|
|
|
|
|
|
|
|
|
|
126
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,985 |
) |
|
|
7,578 |
|
|
|
11,765 |
|
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation |
|
|
45 |
|
|
|
45 |
|
|
|
45 |
|
Deferred income tax benefit |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
Equity in excess distributed (undistributed)
earnings of banking subsidiaries |
|
|
7,593 |
|
|
|
(6,818 |
) |
|
|
(12,494 |
) |
Investment securities losses (gains), net |
|
|
35 |
|
|
|
204 |
|
|
|
(23 |
) |
Stock options compensation cost |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
24 |
|
Accretion on investment securities |
|
|
|
|
|
|
|
|
|
|
(113 |
) |
Decrease (increase) in accrued interest receivable |
|
|
|
|
|
|
20 |
|
|
|
(33 |
) |
Increase (decrease) in accrued interest payable
and other liabilities |
|
|
803 |
|
|
|
(31 |
) |
|
|
(3 |
) |
(Increase) decrease in other assets |
|
|
(1,011 |
) |
|
|
(44 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(538 |
) |
|
|
948 |
|
|
|
(827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturities of investment securities |
|
|
7 |
|
|
|
4,000 |
|
|
|
18,023 |
|
Purchase of investment securities |
|
|
|
|
|
|
(3,000 |
) |
|
|
(10,941 |
) |
Investment in banking subsidiary |
|
|
(12,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
Additions to premises and equipment |
|
|
|
|
|
|
|
|
|
|
(1,700 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(11,993 |
) |
|
|
2,400 |
|
|
|
382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from subordinated debentures |
|
|
2,947 |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
9,010 |
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(5 |
) |
|
|
(445 |
) |
|
|
(317 |
) |
Payment of cash dividends |
|
|
(778 |
) |
|
|
(2,968 |
) |
|
|
(2,824 |
) |
Proceeds from stock options exercised,
net of stock redeemed |
|
|
|
|
|
|
467 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
11,174 |
|
|
|
(2,946 |
) |
|
|
(3,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents |
|
|
(1,357 |
) |
|
|
402 |
|
|
|
(3,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
1,921 |
|
|
|
1,519 |
|
|
|
5,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
564 |
|
|
|
1,921 |
|
|
|
1,519 |
|
|
|
|
|
|
|
|
|
|
|
127
(20) Quarterly Financial Data (Unaudited)
The supplemental quarterly financial data for the years ended December 31, 2009 and 2008 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
17,907 |
|
|
|
17,835 |
|
|
|
17,602 |
|
|
|
17,416 |
|
Interest expense |
|
|
7,808 |
|
|
|
7,127 |
|
|
|
6,781 |
|
|
|
6,767 |
|
Net interest income |
|
|
10,099 |
|
|
|
10,708 |
|
|
|
10,821 |
|
|
|
10,649 |
|
Provision for loan losses |
|
|
4,749 |
|
|
|
5,114 |
|
|
|
4,879 |
|
|
|
16,162 |
|
Noninterest income |
|
|
4,545 |
|
|
|
5,912 |
|
|
|
4,808 |
|
|
|
5,474 |
|
Noninterest expense |
|
|
9,833 |
|
|
|
10,808 |
|
|
|
10,264 |
|
|
|
15,606 |
|
Net income (loss) |
|
|
56 |
|
|
|
637 |
|
|
|
740 |
|
|
|
(9,418 |
) |
Net income (loss) per share basic |
|
|
0.01 |
|
|
|
0.10 |
|
|
|
0.11 |
|
|
|
(1.41 |
) |
Net income (loss) per share diluted |
|
|
0.01 |
|
|
|
0.10 |
|
|
|
0.11 |
|
|
|
(1.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
19,751 |
|
|
|
18,526 |
|
|
|
18,543 |
|
|
|
18,855 |
|
Interest expense |
|
|
9,486 |
|
|
|
8,483 |
|
|
|
8,801 |
|
|
|
8,719 |
|
Net interest income |
|
|
10,265 |
|
|
|
10,043 |
|
|
|
9,742 |
|
|
|
10,136 |
|
Provision for loan losses |
|
|
1,271 |
|
|
|
1,652 |
|
|
|
2,073 |
|
|
|
4,059 |
|
Noninterest income |
|
|
3,931 |
|
|
|
4,452 |
|
|
|
4,437 |
|
|
|
3,886 |
|
Noninterest expense |
|
|
8,921 |
|
|
|
9,265 |
|
|
|
9,365 |
|
|
|
9,201 |
|
Net income |
|
|
2,635 |
|
|
|
2,408 |
|
|
|
1,875 |
|
|
|
660 |
|
Net income per share basic |
|
|
0.45 |
|
|
|
0.40 |
|
|
|
0.31 |
|
|
|
0.11 |
|
Net income per share diluted |
|
|
0.44 |
|
|
|
0.40 |
|
|
|
0.31 |
|
|
|
0.11 |
|
In the fourth quarter of 2009 the Company liquidated a significant amount of other real estate
which resulted in losses of $5,813. In addition, the Company increased the provision for loan
losses to reflect the continued risk of the loan portfolio amidst the anticipation of a slow
recovery of real estate values.
128
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As of the end of the period covered by this report, our management, including our Chief
Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of the
design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its consolidated
subsidiaries) that is required to be included in the Companys periodic filings with the Securities
and Exchange Commission. During the fourth quarter of 2009, there were no significant changes in
the Companys internal controls that materially affected, or are reasonably likely to materially
affect the Companys internal controls over financial reporting.
129
Managements Report on Internal Control over Financial Reporting
The management of Southeastern Bank Financial Corporation is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company. Internal control
over financial reporting is a process designed to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition, transactions are executed in
accordance with appropriate management authorization and accounting records are reliable for the
preparation of financial statements in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Southeastern Bank Financial Corporations
internal control over financial reporting as of December 31, 2009. In making our assessment,
management has utilized the framework published by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission Internal Control-Integrated Framework. Based on our
assessment, management has concluded that, as of December 31, 2009, internal control over financial
reporting was effective.
|
|
|
/s/ R. Daniel Blanton
Chief Executive Officer
|
|
|
(principal executive officer) |
|
|
|
|
|
/s/ Ronald L. Thigpen
Chief Operating Officer
|
|
|
|
|
|
/s/ Darrell R. Rains
Chief Financial Officer
|
|
|
(principal financial officer) |
|
|
|
|
|
Date: February 25, 2010 |
|
|
130
Report of Independent Registered Public Accounting Firm on Internal Control Over
Over Financial Reporting
We have audited Southeastern Bank Financial Corporations internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Southeastern Bank Financial Corporations management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on Internal
Control Over Financial Reporting, included in Item 9.A. of the Companys Annual Report on Form
10-K. Our responsibility is to express an opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Southeastern Bank Financial Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
131
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Southeastern Bank Financial Corporation
and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of income
(loss), stockholders equity and comprehensive income (loss) and cash flows for each of the three
years in the period ended December 31, 2009 and our report dated February 25, 2010 expressed an
unqualified opinion on those consolidated financial statements.
/s/ Crowe Horwath LLP
Brentwood, Tennessee
February 25, 2010
132
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers and Corporate Governance
The Company has adopted a Code of Ethics applicable to its senior financial officers. A copy
is available, without charge, upon telephonic or written request addressed to Ron Thigpen,
Executive Vice President, Chief Operating Officer and Assistant Corporate Secretary, Southeastern
Bank Financial Corporation, 3530 Wheeler Road, Augusta, Georgia 30909, telephone (706) 738-6990.
The Code of Ethics is also incorporated by reference as an exhibit to this Annual Report on Form
10-K. The remaining information in response to this item is incorporated by reference to the
Companys definitive Proxy Statement for use in connection with the 2010 annual meeting of
shareholders (which definitive Proxy Statement shall be filed with the commission not later than
April 30, 2010).
Item 11. Executive Compensation
The remaining information in response to this item is incorporated by reference to the
Companys definitive Proxy Statement for use in connection with the 2010 annual meeting of
shareholders (which definitive Proxy Statement shall be filed with the commission not later than
April 30, 2010).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information regarding compensation plans under which equity
securities of the Company are authorized for issuance. All data is presented as of December 31,
2009.
133
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Table |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
Number of securities to be |
|
|
Weighted average |
|
|
Number of securities remaining available |
|
|
|
issued upon exercise of |
|
|
exercise price of |
|
|
for future issuance under equity |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
compensation plans (excluding securities |
|
Plan Category |
|
warrants and rights |
|
|
warrants and rights |
|
|
reflected in column (a)) |
|
Equity compensation
plans approved by
security holders |
|
|
275,063 |
|
|
$ |
26.94 |
|
|
|
177,233 |
|
Equity compensation
plans not approved by
security holders |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
275,063 |
|
|
$ |
26.94 |
|
|
|
177,233 |
|
|
|
|
|
|
|
|
|
|
|
Additional information in response to this item is incorporated by reference to the Companys
definitive Proxy Statement for use in connection with the 2010 annual meeting of shareholders
(which definitive Proxy Statement shall be filed with the commission not later than April
30, 2010).
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this item is incorporated by reference to the Companys definitive
Proxy Statement for use in connection with the 2010 annual meeting of shareholders (which
definitive Proxy Statement shall be filed with the commission not later than April 30, 2010).
Item 14. Principal Accountant Fees and Services
Information in response to this item is incorporated by reference to the Companys definitive
Proxy Statement for use in connection with the 2010 annual meeting of shareholders (which
definitive Proxy Statement shall be filed with the Commission not later than April 30,
2010).
134
PART IV
Item 15. Exhibits and Financial Statement Schedules
|
(a)(1) |
|
See Item 8 for a list of the financial statements as filed as a part of this report. |
|
|
(2) |
|
No financial statement schedules are applicable as the required information is
included in the financial statements in Item 8. |
|
|
(3) |
|
The following exhibits are filed as part of this report. Documents incorporated
by reference have been filed with the Securities and Exchange Commission. The Companys
Commission file number is: 0-24172. See Item 1 Description of Business General for
additional information regarding the Companys filings with the Commission. |
Exhibit No. and Document
|
|
|
|
|
|
3.1 |
|
|
Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.) |
|
|
|
|
|
|
3.2 |
|
|
Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.) |
|
|
|
|
|
|
4.1 |
|
|
Indenture dated December 5, 2005 between the Company and
U.S. Bank
National Association (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on December 8, 2005.) |
|
|
|
|
|
|
4.2 |
|
|
Indenture dated March 31, 2006 between the Company and La
Salle Bank
National Association (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on April 6, 2006.) |
|
|
|
|
|
|
4.3 |
|
|
8% Subordinated Debenture due 2014 (Incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K filed on May 20,
2009.) |
|
|
|
|
|
|
10.1 |
|
|
Key Officer Compensation Agreement dated January 1, 2000
between the Bank & R. Daniel Blanton (Incorporated by reference to Exhibit 10.1
to the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2000.)* |
|
|
|
|
|
|
10.2 |
|
|
First Amendment dated October 15, 2003 to Key Officer
Compensation Agreement dated January 1, 2000 between the Bank and R. Daniel
Blanton. (Incorporated by reference to Exhibit 10.2 to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.)* |
135
|
|
|
|
|
|
10.3 |
|
|
Second Amendment dated December 31, 2008 to Key Officer
Compensation Agreement dated January 1, 2000 between the Bank and R. Daniel
Blanton (Incorporated by reference to Exhibit 10.3 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.)* |
|
|
|
|
|
|
10.4 |
|
|
Key Officer Compensation Agreement dated January 1, 2000
between the Bank & Ronald L. Thigpen (Incorporated by reference to Exhibit 10.2
to the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2000.)* |
|
|
|
|
|
|
10.5 |
|
|
First Amendment dated October 15, 2003 to Key Officer
Compensation Agreement dated January 1, 2000 between the Bank and Ronald L.
Thigpen (Incorporated by reference to Exhibit 10.4 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2006.)* |
|
|
|
|
|
|
10.6 |
|
|
Second Amendment dated December 31, 2008 to Key Officer
Compensation Agreement dated January 1, 2000 between the Bank and Ronald L.
Thigpen (Incorporated by reference to Exhibit 10.6 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.)* |
|
|
|
|
|
|
10.7 |
|
|
2006 Long-term Incentive Plan (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006.)* |
|
|
|
|
|
|
10.8 |
|
|
Form of incentive stock option agreement under the 2006
Long-term Incentive Plan (Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.)* |
|
|
|
|
|
|
10.9 |
|
|
Form of non-qualified stock option agreement under the 2006
Long-term Incentive Plan (Incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.)* |
|
|
|
|
|
|
10.10 |
|
|
2000 Long Term Incentive Plan (Incorporated by reference to
Appendix A to the Companys definitive Proxy Statement, filed on March 29,
2001.)* |
|
|
|
|
|
|
10.11 |
|
|
Form of option agreement under 2000 Long Term Incentive Plan.
(Incorporated by reference to Exhibit 10.4 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2004.)* |
136
|
|
|
|
|
|
10.12 |
|
|
1997 Long-term Incentive Plan. (Incorporated by reference to
Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2004.)* |
|
|
|
|
|
|
10.13 |
|
|
Form of stock appreciation rights agreement under 1997
Long-term Incentive Plan. (Incorporated by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2004.)* |
|
|
|
|
|
|
10.14 |
|
|
Non-Qualified Defined Benefit Plan dated October 1, 2000.
(Incorporated by reference to Exhibit 10.7 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2005.)* |
|
|
|
|
|
|
10.15 |
|
|
Salary Continuation Agreement dated October 1, 2000 between
the Company, the Bank and R. Daniel Blanton. (Incorporated by reference to
Exhibit 10.8 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.)* |
|
|
|
|
|
|
10.16 |
|
|
First Amendment dated as of October 15, 2003 to Salary
Continuation Agreement dated October 1, 2000 between the Company, the Bank and
R. Daniel Blanton. (Incorporated by reference to Exhibit 10.14 to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.)* |
|
|
|
|
|
|
10.17 |
|
|
Salary Continuation Agreement dated October 15, 2003 between
the Company, the Bank and Ronald L. Thigpen. (Incorporated by reference to
Exhibit 10.11 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.)* |
|
|
|
|
|
|
10.18 |
|
|
Supplemental Executive Retirement Benefits Agreement dated
December 31, 2008 between the Bank and R. Daniel Blanton (Incorporated by
reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.)* |
|
|
|
|
|
|
10.19 |
|
|
Supplemental Executive Retirement Benefits Agreement dated
December 31, 2008 between the Bank and Ronald L. Thigpen (Incorporated by
reference to Exhibit 10.19 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.)* |
|
|
|
|
|
|
10.20 |
|
|
Supplemental Executive Retirement Benefits Agreement dated
December 31, 2008 between the Bank and Darrell R. Rains (Incorporated by
reference to Exhibit 10.20 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.)* |
137
|
|
|
|
|
|
10.21 |
|
|
Employment Agreement dated April 30, 2007 between the Bank and
Darrell R. Rains. (Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on May 4, 2007.)* |
|
|
|
|
|
|
10.22 |
|
|
First Amendment dated December 31, 2008 to Employment
Agreement dated April 30, 2007 between the Bank and Darrell R. Rains
(Incorporated by reference to Exhibit 10.22 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2008.)* |
|
|
|
|
|
|
10.23 |
|
|
Southeastern Bank Financial Corporation Director Stock
Purchase Plan (Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on December 27, 2007.) |
|
|
|
|
|
|
14.1 |
|
|
Code of Ethics (Incorporated by reference to Exhibit 14.2 to
the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2003.) |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Company (Incorporated by reference to
Exhibit 21.1 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.) |
|
|
|
|
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
31.1 |
|
|
Certification by the Chief Executive Officer (principal
executive officer) |
|
|
|
|
|
|
31.2 |
|
|
Certification by the Chief Financial Officer (principal
financial officer) |
|
|
|
|
|
|
32.1 |
|
|
Certification by the Chief Executive Officer and Chief
Financial Officer |
|
|
|
* |
|
Denotes a management compensatory agreement or arrangement. |
138
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SOUTHEASTERN BANK FINANCIAL CORPORATION
|
|
|
|
|
By:
|
|
/s/ Robert W. Pollard, Jr.
|
|
|
|
|
Robert W. Pollard, Jr. |
|
|
|
|
Chairman of the Board |
|
|
|
|
|
|
|
February 25, 2010 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K
has been signed below by the following persons on behalf of the Registrant in the capacities and on
the date indicated.
February 25, 2010
SIGNATURE TITLE
|
|
|
/s/ Robert W. Pollard, Jr.
Robert W. Pollard, Jr.
|
|
Chairman of the Board
and Director |
|
|
|
/s/ Edward G. Meybohm
Edward G. Meybohm
|
|
Vice Chairman of the Board
and Director |
|
|
|
/s/ R. Daniel Blanton
R. Daniel Blanton
|
|
President, Chief Executive Officer
and Director
(Principal Executive Officer) |
|
|
|
/s/ Ronald L. Thigpen
Ronald L. Thigpen
|
|
Executive Vice President,
Chief
Operating Officer and Director |
|
|
|
/s/ Darrell R. Rains
Darrell R. Rains
|
|
Group Vice President and Chief
Financial Officer
(Principal Financial Officer) |
139
|
|
|
/s/ William J. Badger
William J. Badger
|
|
Director |
|
|
|
/s/ Warren A. Daniel
Warren A. Daniel
|
|
Director |
|
|
|
/s/ Randolph R. Smith, M.D.
Randolph R. Smith, M.D.
|
|
Director |
|
|
|
/s/ John W. Trulock, Jr.
John W. Trulock, Jr.
|
|
Director |
|
|
|
/s/ Patrick D. Cunning
Patrick D. Cunning
|
|
Director |
|
|
|
/s/ Larry S. Prather, Sr.
Larry S. Prather, Sr.
|
|
Director |
|
|
|
/s/ W. Marshall Brown
W. Marshall Brown
|
|
Director |
140
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
(a) Exhibits |
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.1 to
the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
Bylaws of the Company (Incorporated
by reference to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2004.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
Indenture dated December 5, 2005
between the Company and U.S. Bank National
Association (Incorporated by reference to Exhibit
4.1 to the Companys Current Report on Form 8-K filed
on December 8, 2005.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
Indenture dated March 31, 2006
between the Company and La Salle Bank National
Association (Incorporated by reference to Exhibit 4.1
to the Companys Current Report on Form 8-K filed on
April 6, 2006.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
|
8% Subordinated Debenture due 2014
(Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on May 20,
2009.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
Key Officer Compensation Agreement
dated January 1, 2000 between the Bank & R. Daniel
Blanton (Incorporated by reference to Exhibit 10.1 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
First Amendment dated October 15, 2003
to Key Officer Compensation Agreement dated January 1,
2000 between the Bank and R. Daniel Blanton.
(Incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006.)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
|
Second Amendment dated December 31,
2008 to Key Officer Compensation Agreement dated
January 1, 2000 between the Bank and R. Daniel Blanton
(Incorporated by reference to Exhibit 10.3 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.)* |
|
|
|
|
141
|
|
|
|
|
|
|
|
|
(a) Exhibits |
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
Key Officer Compensation Agreement
dated January 1, 2000 between the Bank & Ronald L.
Thigpen (Incorporated by reference to Exhibit 10.2 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5 |
|
|
First Amendment dated October 15, 2003
to Key Officer Compensation Agreement dated January 1,
2000 between the Bank and Ronald L. Thigpen.
(Incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006.)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
|
Second Amendment dated December 31,
2008 to Key Officer Compensation Agreement dated
January 1, 2000 between the Bank and Ronald L. Thigpen
(Incorporated by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.)* |
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10.7 |
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2006 Long-term Incentive Plan
(Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006.)* |
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10.8 |
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Form of incentive stock option
agreement under the 2006 Long-term Incentive Plan
(Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006.)* |
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10.9 |
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Form of non-qualified stock option
agreement under the 2006 Long-term Incentive Plan
(Incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006.)* |
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10.10 |
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2000 Long Term Incentive Plan
(Incorporated by reference to Appendix A to the
Companys
definitive Proxy Statement, filed on March 29,
2001.)* |
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142
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(a) Exhibits |
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Page |
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10.11 |
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Form of option agreement under 2000
Long Term Incentive Plan. (Incorporated by reference to
Exhibit 10.4 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2004.)* |
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10.12 |
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1997 Long-term Incentive Plan.
(Incorporated by reference to Exhibit 10.5 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2004.)* |
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10.13 |
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Form of stock appreciation rights
agreement under 1997 Long-term Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2004.)* |
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10.14 |
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Non-Qualified Defined Benefit Plan
dated October 1, 2000. (Incorporated by reference to
Exhibit 10.7 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2005.)* |
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10.15 |
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Salary continuation agreement dated
October 1, 2000 between the Company, the Bank and R.
Daniel Blanton. (Incorporated by reference to Exhibit
10.8 to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2005.)* |
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10.16 |
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First Amendment dated as of October
15, 2003 to Salary Continuation Agreement dated October
1, 2000 between the Company, the Bank and R. Daniel
Blanton. (Incorporated by reference to Exhibit 10.14 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006.)* |
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10.17 |
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Salary continuation agreement dated
October 15, 2003 between the Company, the Bank and
Ronald L. Thigpen. (Incorporated by reference to
Exhibit 10.11 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2005.)* |
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143
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(a) Exhibits |
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Page |
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10.18 |
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Supplemental Executive Retirement
Benefits Agreement dated December 31, 2008 between the
Bank and R. Daniel Blanton (Incorporated by reference
to Exhibit 10.18 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2008.)* |
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10.19 |
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Supplemental Executive Retirement
Benefits Agreement dated December 31, 2008 between the
Bank and Ronald L. Thigpen (Incorporated by reference
to Exhibit 10.19 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2008.)* |
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10.20 |
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Supplemental Executive Retirement
Benefits Agreement dated December 31, 2008 between the
Bank and Darrell R. Rains (Incorporated by reference to
Exhibit 10.20 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2008.)* |
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10.21 |
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Employment Agreement dated April 30,
2007 between the Bank and Darrell R. Rains.
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on May 4,
2007.)* |
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10.22 |
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First Amendment dated December 31,
2008 to Employment Agreement dated April 30, 2007
between the Bank and Darrell R. Rains (Incorporated by
reference to Exhibit 10.22 to the Companys Annual
Report on Form 10-K for the fiscal year ended December
31, 2008.)* |
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10.23 |
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Southeastern Bank Financial
Corporation Director Stock Purchase Plan (Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on December 27, 2007.) |
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14.1 |
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Code of Ethics (Incorporated by
reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2003) |
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21.1 |
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Subsidiaries of the Company
(Incorporated by reference to Exhibit 21.1 to the
Companys Annual
Report on Form 10-K for the fiscal year ended
December 31, 2008.) |
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144
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(a) Exhibits |
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Page |
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23.1 |
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Consent of Independent Registered Public
Accounting Firm
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146 |
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31.1 |
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Certification by the Chief Executive
Officer (principal executive officer)
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147 |
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31.2 |
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Certification by the Chief Financial
Officer (principal financial officer)
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149 |
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32.1 |
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Certification by the Chief Executive
Officer and Chief Financial Officer
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151 |
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* |
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Denotes a management compensatory agreement or arrangement. |
145