Attached files
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EX-32 - 906 CERT - First Advantage Bancorp | ex32.htm |
EX-21.1 - SUBS - First Advantage Bancorp | ex21_1.htm |
EX-31.2 - CFO - First Advantage Bancorp | ex31_2.htm |
EX-23.1 - CONSENT - First Advantage Bancorp | ex23_1.htm |
EX-31.1 - CEO - First Advantage Bancorp | ex31_1.htm |
EX-99.15 OTH FIN ST - 2009 FINANCIALS - First Advantage Bancorp | financials_09.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
(Mark
One)
|
|
[X] 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
|
|
[ ] 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: 1-33682
(Exact
name of registrant as specified in its charter)
Tennessee
(State
or other jurisdiction of
incorporation
or organization)
|
26-0401680
(I.R.S.
Employer Identification No.)
|
1430 Madison Street, Clarksville,
Tennessee
(Address
of principal executive offices)
|
37040
(Zip
Code)
|
Registrant’s
telephone number, including area code: (931) 552-6176
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
|
Name of each exchange on which
registered
|
Common
Stock, par value $0.01 per share
|
Nasdaq
Stock Market, LLC
|
Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ___ No X
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ___ No X
Indicate
by check mark whether the registrant (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 X No
___
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web Site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ___ No ___
Indicate by check mark 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 the registrant’s 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. [ ]
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.
(Check
one):
|
Large
accelerated filer [ ]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
|
Smaller
reporting company [ X ]
|
Indicate by check mark whether the
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). Yes ___ No X
As of June 30, 2009, the last business
day of the registrant’s most recently completed second fiscal quarter, the
aggregate market value of the shares of common stock held by non-affiliates,
based upon the closing price per share of the registrant’s common stock on the
Nasdaq Global Market, was approximately $42.09 million.
The number of shares outstanding of the
registrant’s common stock as of March 3, 2010 was 5,171,395.
DOCUMENT INCORPORATED BY
REFERENCE:
Portions of the Proxy Statement for the
2010 Annual Meeting of Shareholders of First Advantage Bancorp, to be held on
May 19, 2010, are incorporated by reference in Part III of this Form
10-K.
INDEX
Page
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||
Part
I
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||
Item
1.
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Business
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1
|
Item
1A.
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Risk
Factors
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18
|
Item
1B.
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Unresolved
Staff Comments
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24
|
Item
2.
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Properties
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24
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Item
3.
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Legal
Proceedings
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25
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Item
4.
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Reserved
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25
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Part
II
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||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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26
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Item
6.
|
Selected
Financial Data
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28
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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30
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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52
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Item
8.
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Financial
Statements and Supplementary Data
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53
|
Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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53
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Item
9A(T).
|
Controls
and Procedures
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53
|
Item
9B.
|
Other
Information
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53
|
Part
III
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||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
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53
|
Item
11.
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Executive
Compensation
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54
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
54
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
54
|
Item
14.
|
Principal
Accounting Fees and Services
|
55
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Part
IV
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||
Item
15.
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Exhibits
and Financial Statement Schedules
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55
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SIGNATURES
|
56
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This annual report contains
forward-looking statements that are based on assumptions and may describe future
plans, strategies and expectations of First Advantage Bancorp. These
forward-looking statements are identified by use of the words
“believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar
expressions. First Advantage Bancorp’s ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on the operations of First Advantage
Bancorp and its subsidiary include, but are not limited to, changes in interest
rates, national and regional economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the U.S. government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality and composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in First Advantage Bancorp’s market
area, changes in real estate market values in First Advantage Bancorp’s market
area, changes in relevant accounting principles and guidelines and inability of
third party service providers to perform. Additional factors that may affect our
results are discussed in Item 1A to this Annual Report on Form 10-K titled “Risk
Factors” below.
These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Except as
required by applicable law or regulation, First Advantage Bancorp does not
undertake, and specifically disclaims any obligation, to release publicly the
result of any revisions that may be made to any forward-looking statements to
reflect events or circumstances after the date of the statements or to reflect
the occurrence of anticipated or unanticipated events.
Unless the context indicates otherwise,
all references in this annual report to “Company,” “we,” “us” and “our” refer to
First Advantage Bancorp and its subsidiary.
PART
I
Item
1. BUSINESS
General
First Advantage Bancorp (the “Company”)
is a Tennessee chartered company incorporated in June 2007 to serve as the
holding company for First Federal Savings Bank (“First Federal” or the
“Bank”). First Advantage Bancorp’s principal business activity is the
ownership of the outstanding common stock of First Federal. First
Advantage Bancorp uses the premises, equipment and other property of First
Federal with the payment of appropriate rental fees, as required by applicable
law and regulations, under the terms of an expense allocation
agreement. Accordingly, the information set forth in this annual
report, including the consolidated financial statements and related financial
data contained herein, relates primarily to First Federal. As a
savings and loan holding company, First Advantage Bancorp is subject to the
regulation of the Office of Thrift Supervision.
First Federal is a federally chartered
savings bank originally founded in 1953 and headquartered in Clarksville,
Tennessee. The Bank operates as a community-oriented financial
institution offering traditional financial services to customers and businesses
in the Bank’s primary market area. First Federal attracts deposits
from the general public and uses those funds to originate one-to-four family
mortgage loans, nonresidential real estate loans, construction loans (including
speculative construction loans) commercial business loans and land loans, and,
to a lesser extent, multi-family loans and consumer loans.
We have posted our Code of Ethics for
directors, officers and employees, and the charters of the Audit Committee,
Compensation Committee, and Nominating Committee of our board of directors on
the Investor Relations section of our website at www.firstfederalsb.com.
The Company’s and the Bank’s executive offices are located at 1430 Madison
Street, Clarksville, Tennessee and our main telephone number is (931)
552-6176. Information on our website should not be considered a part
of this annual report.
Stock
Conversion
On November 29, 2007, in accordance
with a Plan of Conversion adopted by its board of directors and approved by its
members, First Federal, a federally chartered mutual savings bank, reorganized
into a federally chartered stock savings bank under the operation of a stock
holding company, First Advantage Bancorp. In connection with the
conversion, the Company issued an aggregate of 5,264,683 shares of common stock
at an offering price of $10.00 per share. The Company’s common stock
began trading on the Nasdaq Global Market on November 30, 2007 under the symbol
“FABK.”
1
Market
Area
We consider Montgomery County,
Tennessee and the surrounding areas to be our primary market
area. The top employment sectors in the county are
currently the services industry, wholesale/retail trade and government and
manufacturing, which are likely to continue to be supported by the projected
growth in population and median household income.
The economy of Montgomery County is
significantly influenced by Fort Campbell, a nearby U.S. Army installation, and
Austin Peay State University, one of the county’s top employers and one of the
fastest growing universities in Tennessee, with an enrollment of approximately
10,100 students, and by the county’s proximity to Nashville,
Tennessee. A growing number of young military retirees from Fort
Campbell and the expanding Austin Peay State University community, as well as an
increased number of commuters to the Nashville metropolitan area, have created a
housing demand that currently supports lending activities in our primary market
area. Additionally, during the fourth quarter of 2008, Hemlock
Semiconductor LLC (“HSC”), a polycrystalline silicon manufacturer, announced
plans to construct and operate a new state-of-the-art $1.2 billion manufacturing
facility in Clarksville. Upon completion of the initial investment, the
Clarksville site is expected to employ more than 500 people, and will employ up
to 800 when expanded. It is anticipated that construction of the HSC
facility will also employ 1,000 construction workers during the next five to
seven years.
Competition
We face significant competition for the
attraction of deposits and origination of loans. Our most direct
competition for deposits has historically come from the several financial
institutions operating in our primary market area and from other financial
service companies such as securities and mortgage brokerage firms, credit unions
and insurance companies. We also face competition for investors’
funds from money market funds, mutual funds and other corporate and government
securities. At June 30, 2009, which is the most recent date for which
data is available from the Federal Deposit Insurance Corporation, we held
approximately 12.2% of the FDIC-insured deposits in Montgomery County,
Tennessee. This data does not reflect deposits held by credit unions
with which we also compete. In addition, banks owned by large
national and regional holding companies and other community-based banks also
operate in our primary market area. Some of these institutions are
larger than us and, therefore, may have greater resources.
Our competition for loans comes
primarily through financial institutions in our primary market area and from
other financial service providers, such as mortgage companies and mortgage
brokers. Competition for loans also comes from the increasing number
of non-depository financial service companies entering the mortgage market, such
as credit unions, insurance companies, securities companies and specialty
finance companies.
We expect competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services
industry. Technological advances, for example, have lowered barriers
to entry, allowed banks to expand their geographic reach by providing services
over the Internet, and made it possible for non-depository institutions to offer
products and services that traditionally have been provided by
banks. Changes in federal law now permit affiliation among banks,
securities firms and insurance companies, which promotes a competitive
environment in the financial services industry. Competition for
deposits and the origination of loans could limit our growth in the
future.
Lending
Activities
The largest segment of our loan
portfolio is real estate mortgage loans, primarily one-to-four family
residential loans and nonresidential real estate loans. The other
significant segments of our loan portfolio are construction loans, primarily
one-to-four family construction loans (including speculative construction
loans), multi-family loans, commercial business loans and land
loans. To a lesser degree, we also originate consumer
loans. We originate loans for investment purposes, although we
generally sell a substantial majority of our one-to-four family residential
loans into the secondary market with servicing released.
We intend to continue to emphasize
residential and non-residential real estate lending while concentrating on ways
to expand our consumer/retail banking capabilities and our commercial banking
services with a focus on serving small businesses and emphasizing relationship
banking in our primary market area.
2
One-to-Four
Family Residential Loans. Our origination
of residential mortgage loans enables borrowers to purchase or refinance
existing homes located in Montgomery County, Tennessee, and the surrounding
areas.
Our residential lending policies and
procedures conform to the secondary market guidelines as we generally sell
qualifying fixed-rate loans into the secondary market. We generally
offer fixed-rate mortgage loans with terms of 10 to 30 years. To a
lesser extent, we also offer adjustable-rate mortgage loans. Borrower
demand for adjustable-rate loans compared to fixed-rate loans is a function of
the level of interest rates, the expectations of changes in the level of
interest rates, and the difference between the interest rates and loan fees
offered for fixed-rate mortgage loans as compared to an initially discounted
interest rate and loan fees for multi-year adjustable-rate
mortgages. The relative amount of fixed-rate mortgage loans and
adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. The
loan fees, interest rates and other provisions of mortgage loans are determined
by us based on our own pricing criteria and competitive market
conditions.
Interest rates and payments on our
adjustable-rate mortgage loans generally adjust annually after an initial fixed
period that typically ranges from one to three years. Interest rates
and payments on our adjustable-rate loans generally are adjusted to a rate
typically equal to a percentage above the three or five year U.S. Treasury
index. The maximum amount by which the interest rate may be increased
or decreased is generally two percentage points per adjustment period and the
lifetime interest rate cap is generally six percentage points over the initial
interest rate of the loan. We sell with servicing released a
substantial majority of all one-to-four family loans we originate.
While one-to-four family residential
real estate loans are normally originated with up to 30-year terms, such loans
typically remain outstanding for substantially shorter periods because borrowers
often prepay their loans in full either upon sale of the property pledged as
security or upon refinancing the original loan. Therefore, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans on a regular basis. We do
not offer loans with negative amortization and generally do not offer
interest-only loans.
For the most part, we do not make
conventional loans with loan-to-value ratios exceeding 95%. Loans
with loan-to-value ratios in excess of 80% generally require private mortgage
insurance. We generally require all properties securing mortgage
loans to be appraised by a board-approved independent appraiser. We
generally require title insurance on all first mortgage
loans. Borrowers must obtain hazard insurance, and flood insurance is
required for loans on properties located in a flood zone.
Nonresidential
Real Estate Loans. We offer fixed-
and adjustable-rate mortgage loans secured by nonresidential real
estate. Our nonresidential real estate loans are generally secured by
small to moderately-sized office, retail and industrial properties located in
our primary market area and are typically made to small business owners and
professionals such as developers, physicians, attorneys and
accountants.
We originate a variety of fixed- and
adjustable-rate nonresidential real estate loans, generally for terms of one to
seven years and with payments based on an amortization schedule of 15 to 25
years. Our adjustable-rate loans generally adjust based on the prime
lending rate every three to five years. Loans are secured by first
mortgages, generally are originated with a maximum loan-to-value ratio of 80%
and generally require specified debt service coverage ratios depending on the
characteristics of the project. Rates and other terms on such loans
generally depend on our assessment of credit risk after considering such factors
as the borrower’s financial condition and credit history, loan-to-value ratio,
debt service coverage ratio and other factors.
At December 31, 2009, our largest
nonresidential real estate loan had an outstanding balance of $4.3 million ($3.0
million of which was a participation loan with an outstanding balance of $1.3
million). This loan, which was originated in October 2008 and is
secured by business assets and a deed of trust, was performing in accordance
with its original terms at December 31, 2009.
3
Construction
Loans. We
originate construction loans for one-to-four family homes and commercial,
multi-family and other nonresidential purposes. Interest rates on
these loans are generally tied to the prime lending rate. We
generally may finance up to 75% to 80% of the appraised value of the completed
property. We also offer construction loans for the financing of
one-to-four family and multiple family homes, which may convert into permanent
loans at the end of the construction period. We generally require a
maximum loan-to-value ratio of 80% for construction loans on owner occupied
homes. We generally disburse funds on a percentage-of-completion
basis following an inspection by a third party inspector. At December
31, 2009, our largest non-speculative construction loan commitment was for $5.0
million, $4.6 million of which was also our largest outstanding balance on a
non-speculative construction loan. This loan commitment, which
was originated in September 2009, related to a participation loan for a
warehouse expansion located in Portland, Tennessee.
We also originate speculative
construction loans to builders who have not identified a buyer for the completed
property at the time of origination. At December 31, 2009, we had
approved commitments for speculative construction loans of $19.7 million, of
which $11.3 million was outstanding. We require a maximum
loan-to-value ratio of 80% for speculative construction loans. We
believe we have implemented strict underwriting requirements for speculative
construction loans to help ensure that loans are made to a limited group of
reputable, financially sound builders and for feasible projects having an
adequate demand to facilitate the sale of the properties within an acceptable
period of time. Each month we monitor the total number of speculative
units under construction, the number of units with each builder, and the number
of units within each subdivision. At December 31, 2009, our largest
aggregate speculative construction loan commitment to a single builder was for
$2.2 million, of which $416,000 was outstanding. This relationship
consists of two loans that were originated in February and November of 2009,
respectively, and are secured by first mortgages on 10 single family residences
under construction and the underlying lots. These loans were performing in
accordance with their original terms at December 31, 2009.
Land
Loans. We originate loans to developers for the purpose of
developing vacant land in our primary market area, typically for residential
subdivisions. Land loans are generally interest-only loans for a term
of up to three years (one year to develop the property and approximately two
years to liquidate the lots with a minimum principal reduction required annually
and with repayment in full resulting from the sale of the improved
property. At December 31, 2009, our largest land loan had an
outstanding balance of $5.8 million ($1.5 million of which was a participation
loan) and had an outstanding balance of $4.3 million. This loan,
which was originated in November 2009 and is secured by approximately 303 acres
of undeveloped land, was performing in accordance with its original terms at
December 31, 2009.
Multi-Family Real
Estate Loans. We offer multi-family mortgage loans that are
generally secured by apartment buildings in our primary market
area. We originate a variety of fixed- and adjustable-rate
multi-family real estate loans, generally for terms of one to seven years and
with payments based on an amortization schedule of 15 to 25
years. Our adjustable-rate loans generally adjust based on the prime
lending rate every three to five years. Loans are secured by
first mortgages and generally are originated with a maximum loan-to-value ratio
of 80% and generally require specified debt service coverage ratios depending on
the characteristics of the project. Rates and other terms on such
loans generally depend on our assessment of the credit risk after considering
such factors as the borrower’s financial condition and credit history,
loan-to-value ratio, debt service coverage ratio and other factors.
Consumer
Loans. Although we offer
a variety of consumer loans, our consumer loan portfolio consists primarily of
home equity loans, both fixed-rate amortizing term loans and variable rate lines
of credit. Consumer loans typically have shorter maturities and
higher interest rates than traditional one-to-four family
lending. When combined with a first mortgage loan, we will typically
make home equity loans up to a loan-to-value ratio of 90%. The
procedures for underwriting consumer loans include an assessment of the
applicant’s payment history on other debts and ability to meet existing
obligations and payments on the proposed loan. Although the
applicant’s creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the collateral, if any, to
the proposed loan amount.
Commercial
Business Loans. We typically offer commercial business loans
to small businesses located in our primary market area. Commercial
business loans are generally secured by equipment, inventory or accounts
receivable of the borrower. Key loan terms vary depending on the
collateral, the borrower’s financial condition, credit history and other
relevant factors, and personal guarantees are typically required as part of the
loan commitment.
4
Loan
Underwriting Risks
Adjustable-Rate
Loans. While we
anticipate that adjustable-rate loans will better offset the adverse effects of
an increase in interest rates as compared to fixed-rate mortgages, an increased
monthly mortgage payment required of adjustable-rate loan borrowers in a rising
interest rate environment could cause an increase in delinquencies and
defaults. The marketability of the underlying property also may be
adversely affected in a high interest rate environment. In addition,
although adjustable-rate mortgage loans make our asset base more responsive to
changes in interest rates, the extent of this interest sensitivity is limited by
the annual and lifetime interest rate adjustment limits.
Multi-Family and
Nonresidential Real Estate Loans. Loans secured by
multi-family and nonresidential real estate generally have larger balances and
involve a greater degree of risk than one-to-four family residential mortgage
loans. Of primary concern in multi-family and nonresidential real
estate lending is the borrower’s creditworthiness and the feasibility and cash
flow potential of the project. Payments on loans secured by income
properties often depend on successful operation and management of the
properties. As a result, repayment of such loans may be subject, to a
greater extent than residential real estate loans, to adverse conditions in the
real estate market or the economy. To monitor cash flows on income
properties, we require borrowers and loan guarantors, if any, to provide annual
financial statements on multi-family and nonresidential real estate
loans. In reaching a decision on whether to make a multi-family or
nonresidential real estate loan, we consider and review a global cash flow
analysis of the borrower and consider the net operating income of the property,
the borrower’s expertise, credit history and profitability, and the value of the
underlying property. An environmental survey or environmental risk
insurance is obtained when the possibility exists that hazardous materials may
have existed on the site, or the site may have been impacted by adjoining
properties that handled hazardous materials.
Construction and
Land Loans.
Construction financing is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan depends largely upon the
accuracy of the initial estimate of the property’s value at completion of
construction and the estimated cost of construction. During the
construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be
inaccurate, we may be required to advance funds beyond the amount originally
committed to permit completion of the building. If the estimate of
value proves to be inaccurate, we may be confronted, at or before the maturity
of the loan, with a building having a value which is insufficient to assure full
repayment if liquidation is required. If we are forced to foreclose
on a building before or at completion due to a default, there can be no
assurance that we will be able to recover all of the unpaid balance of, and
accrued interest on, the loan as well as related foreclosure and holding
costs. In addition, speculative construction loans, which are loans
made to home builders who, at the time of loan origination, have not yet secured
an end buyer for the home under construction, typically carry higher risks than
those associated with traditional construction loans. These increased
risks arise because of the risk that there will be inadequate demand to ensure
the sale of the property within an acceptable time. As a result, in
addition to the risks associated with traditional construction loans,
speculative construction loans carry the added risk that the builder will have
to pay the property taxes and other carrying costs of the property until an end
buyer is found. Land loans have substantially similar risks to
speculative construction loans.
Consumer
Loans. Consumer loans
may entail greater risk than do residential mortgage loans, particularly in the
case of consumer loans that are secured by assets that depreciate rapidly, such
as motor vehicles. In such cases, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment for the
outstanding loan and a small remaining deficiency often does not warrant further
substantial collection efforts against the borrower. Consumer loan
collections depend on the borrower’s continuing financial stability and,
therefore, are likely to be adversely affected by various factors, including job
loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount that can be recovered on
such loans.
Commercial
Business Loans. Unlike residential
mortgage loans, which generally are made on the basis of the borrower’s ability
to make repayment from his or her employment income or other income, and which
are secured by real property whose value tends to be more easily ascertainable,
commercial business loans are of higher risk and typically are made on the basis
of the borrower’s ability to make repayment from the cash flow of the borrower’s
business. As a result, the availability of funds for the repayment of
commercial business loans may depend substantially on the success of the
business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in
value.
5
Loan Approval
Procedures and Authority. Our lending
activities follow written, non-discriminatory underwriting standards and loan
origination procedures established by our board of directors and
management. Currently, our aggregate debt limitation is equal to the
loans to one borrower limit as defined by the Office of Thrift
Supervision. Should the board determine to lower the loans to one
borrower limit below the Office of Thrift Supervision regulatory requirement,
then a majority of the board of directors would be required to approve a credit
extension which, in aggregate, exceeds the internal limit up to an amount not to
exceed the Office of Thrift Supervision loans to one borrower
limitation.
Loans to One
Borrower. The
maximum amount that we may lend to one borrower and the borrower’s related
entities is limited, by regulation, to 15% of our stated capital and
reserves. At December 31, 2009, our largest lending
relationship and our largest outstanding loan balance to one borrower was $6.6
million, which was comprised of land, one-to-four family residential mortgage
and commercial loans secured by real estate. This loan was performing
according to its original terms at December 31, 2009.
Loan
Commitments. We issue
commitments for fixed- and adjustable-rate mortgage loans conditioned upon the
occurrence of certain events. Commitments to originate mortgage loans
are legally binding agreements to lend to our customers. Generally,
our loan commitments expire after 30 to 45 days. See note 19 to the
notes to the consolidated financial statements beginning on page F-1 of this
annual report.
Investment
Activities
We have legal authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various government-sponsored agencies and of state and municipal governments,
collateralized mortgage obligations and mortgage-backed
securities. Within certain regulatory limits, we may also invest a
portion of our assets in other permissible securities. As a member of
the Federal Home Loan Bank of Cincinnati, we also are required to maintain an
investment in Federal Home Loan Bank of Cincinnati stock.
At December 31, 2009, our investment
portfolio consisted primarily of mortgage-backed securities, U.S. government and
agency securities, including debt securities issued by government sponsored
enterprises, municipal and other bonds, collateralized mortgage obligations and
corporate debt securities.
We invest
in callable securities. Our callable securities, with a fair market
value of $16.7 million at December 31, 2009, consist of U.S. government agency
bonds and securities that are callable beginning in periods ranging from one to
two years, corporate debt securities that are callable at periods ranging from
one to three years, and state and political subdivision bonds that are callable
beginning in periods ranging from two to eight years. We face reinvestment risk
with callable securities, particularly during periods of falling market interest
rates when issuers of callable securities tend to call or redeem their
securities. Reinvestment risk is the risk that we may have to
reinvest the proceeds from called securities at lower rates of return than the
rates paid on the called securities.
Our investment objectives are to
provide and maintain liquidity, to establish an acceptable level of interest
rate and credit risk, and to provide an alternate source of low-risk investments
at a favorable return when loan demand is weak. Our board of
directors has the overall responsibility for the investment portfolio, including
approval of the investment policy. Our Chief Financial Officer and
Chief Executive Officer, respectively, are responsible for implementation of the
investment policy and monitoring our investment performance. Our board of
directors receives monthly reports on investment activity and, as part of the
monthly financial report, is informed as to the mix of investments, yields by
category of investment and the overall yield on the portfolio, as well as any
gains or losses incurred during the prior month.
Deposit
Activities and Other Sources of Funds
Deposits, borrowings, loan repayments,
mortgage-backed security repayments and called investments are the major sources
of our funds for lending and other investment purposes. Scheduled
loan and mortgage-backed security repayments are a relatively stable source of
funds, while deposit inflows and outflows and loan prepayments and security
calls are significantly influenced by general interest rates and money market
conditions.
6
Deposit
Accounts. Substantially all
of our depositors are residents of Tennessee. Deposits are attracted
from within our primary market area through the offering of a broad selection of
deposit instruments, including non-interest-bearing demand deposits (such as
checking accounts), interest-bearing demand accounts (such as NOW and money
market accounts), regular savings accounts and certificates of
deposit. Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. In determining the terms of our deposit
accounts, we consider the rates offered by our competition, our liquidity needs,
profitability to us, matching deposit and loan products and customer preferences
and concerns. We review our deposit mix and pricing
weekly. Our deposit pricing strategy has typically been to
offer competitive rates on all types of deposit products, and to regularly offer
special rates in order to attract deposits of a specific type or
term.
In addition to accounts for
individuals, we also offer deposit accounts designed for the businesses
operating in our primary market area. Our business banking deposit
products include commercial checking accounts and money market
accounts.
Borrowings. We use advances
from the Federal Home Loan Bank of Cincinnati to supplement our investable
funds. The Federal Home Loan Bank functions as a central reserve bank
providing credit for member financial institutions. As a member, we
are required to own capital stock in the Federal Home Loan Bank and are
authorized to apply for advances on the security of such stock and certain of
our mortgage loans, non-residential real estate loans and other assets
(principally securities which are obligations of, or guaranteed by, the United
States), provided certain standards related to creditworthiness have been
met. Advances are made under several different programs, each having
its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of an institution’s net worth or on the Federal Home Loan Bank’s
assessment of the institution’s creditworthiness.
Personnel
As of December 31, 2009, we had 80
full-time employees and 5 part-time employees, none of whom is represented by a
collective bargaining unit. We believe that our relationship with our
employees is good.
Subsidiaries
First Federal Savings Bank has one
subsidiary, First Financial Mortgage Corp., which was inactive at December 31,
2009. On December 19, 2007, First Financial Mortgage Corp. conveyed
its only remaining tangible asset, the Blue Hole Lodge, to First Advantage
Bancorp for the sum of $200,000. Acquired in 2001 as a meeting
and training center, the Blue Hole Lodge property consists of approximately five
acres with an improved lodge building. Acquisition and improvement
costs totaled approximately $1.3 million. As of December 31, 2009,
the property had been written down to $200,000, which is the estimated fair
market value of the land only.
REGULATION
AND SUPERVISION
First
Advantage Bancorp, as a savings and loan holding company, is required to file
certain reports with, is subject to examination by, and otherwise must comply
with the rules and regulations of the Office of Thrift
Supervision. First Advantage Bancorp is also subject to the rules and
regulations of the Securities and Exchange Commission under the federal
securities laws. First Advantage Bancorp is listed on the Nasdaq
Global Market under the trading symbol “FABK,” and we are subject to the rules
of Nasdaq for listed companies. First Federal is subject to
extensive regulation, examination and supervision by the Office of Thrift
Supervision, as its primary federal regulator, and the Federal Deposit Insurance
Corporation, as its deposits insurer. First Federal is a member of
the Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Deposit Insurance Fund managed by the Federal Deposit
Insurance Corporation. First Federal must file reports with the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation
concerning its activities and financial condition in addition to obtaining
regulatory approvals before entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are
periodic examinations by the Office of Thrift Supervision and, under certain
circumstances, the Federal Deposit Insurance Corporation to evaluate First
Federal’s safety and soundness and compliance with various regulatory
requirements. This regulatory structure is intended primarily for the
protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could
have a material adverse impact on First Advantage Bancorp and First Federal and
their operations.
Certain of the regulatory requirements
that are applicable to First Advantage Bancorp and First Federal are described
below. This description of statutes and regulations is not intended
to be a complete explanation of such statutes and regulations and their effects
on First Advantage Bancorp and First Federal and is qualified in its entirety by
reference to the actual statutes and regulations.
7
Regulation
of Federal Savings Associations
Business
Activities. Federal law and regulations, primarily the Home
Owners’ Loan Act and the regulations of the Office of Thrift Supervision, govern
the activities of federal savings banks, such as First Federal. These
laws and regulations delineate the nature and extent of the activities in which
federal savings banks may engage. In particular, certain lending
authority for federal savings banks, e.g., commercial,
non-residential real property loans and consumer loans, is limited to a
specified percentage of the institution’s capital or assets.
Branching. Federal
savings banks are authorized to establish branch offices in any state or states
of the United States and its territories, subject to the approval of the Office
of Thrift Supervision.
Capital
Requirements. The Office of Thrift
Supervision’s capital regulations require federal savings institutions to meet
three minimum capital standards: a 1.5% tangible capital to total
assets ratio, a 4% leverage ratio (3% for institutions receiving the highest
rating on the CAMELS examination rating system) and an 8% risk-based capital
ratio. In addition, the prompt corrective action standards discussed
below establish, in effect, a minimum 2% tangible capital standard, a 4%
leverage ratio (3% for institutions receiving the highest rating on the CAMELS
system) and, together with the risk-based capital standard itself, a 4% Tier 1
risk-based capital standard. The Office of Thrift Supervision
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
national banks.
The risk-based capital standard
requires federal savings institutions to maintain Tier 1 (core) and total
capital (which is defined as core capital and supplementary capital) to
risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, recourse obligations, residual interests and direct
credit substitutes, are multiplied by a risk-weight factor of 0% to 100%,
assigned by the Office of Thrift Supervision capital regulation based on the
risks believed inherent in the type of asset. Core (Tier 1) capital
is defined as common stockholders’ equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock, the allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market
values. Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.
The Office of Thrift Supervision also
has authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution’s capital level is or
may become inadequate in light of the particular circumstances. At
December 31, 2009, First Federal met each of these capital requirements. See note 13 to the
consolidated financial statements beginning on page F-1 of this annual
report.
Prompt Corrective
Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution’s degree of
undercapitalization. Generally, a savings institution that has a
ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier
1 (core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be “undercapitalized.” A
savings institution that has a total risk-based capital ratio of less than 6%, a
Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be “significantly undercapitalized” and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
“critically undercapitalized.” Subject to a narrow exception, the
Office of Thrift Supervision is required to appoint a receiver or conservator
within specified time frames for an institution that is “critically
undercapitalized.” An institution must file a capital restoration
plan with the Office of Thrift Supervision within 45 days of the date it
receives notice that it is “undercapitalized,” “significantly undercapitalized”
or “critically undercapitalized.” Compliance with the plan must be
guaranteed by any parent holding company in the amount of the lesser of 5% of
the association’s total assets when it became undercapitalized or the amount
necessary to achieve full compliance at the time the association first failed to
comply. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. “Significantly undercapitalized”
and “critically undercapitalized” institutions are subject to more extensive
mandatory regulatory actions. The Office of Thrift Supervision could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.
8
Loans to One
Borrower. Federal law provides that savings institutions are
subject to the limits on loans to one borrower applicable to national
banks. Subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of its unimpaired capital and surplus. An additional amount
may be lent, equal to 10% of unimpaired capital and surplus, if secured by
specified readily-marketable collateral. See “—Loan Underwriting Risk—Loans to One
Borrower.”
Standards for
Safety and Soundness. As required by statute, the federal
banking agencies have adopted Interagency Guidelines Establishing Standards for
Safety and Soundness. The guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the Office of Thrift Supervision determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
Office of Thrift Supervision may require the institution to submit an acceptable
plan to achieve compliance with the standard.
Limitation on
Capital Distributions. Office of Thrift
Supervision regulations impose limitations upon all capital distributions by a
savings institution, including cash dividends, payments to repurchase its shares
and payments to stockholders of another institution in a cash-out
merger. Under the regulations, an application to and the prior
approval of the Office of Thrift Supervision is required before any capital
distribution if the institution does not meet the criteria for “expedited
treatment” of applications under Office of Thrift Supervision regulations (i.e., examination
and Community Reinvestment Act ratings in the two top categories), the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years, the institution
would be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with the Office of
Thrift Supervision. If an application is not required, the
institution must still provide prior notice to the Office of Thrift Supervision
of the capital distribution if, like First Federal, it is a subsidiary of a
holding company. If First Federal’s capital were ever to fall below
its regulatory requirements or the Office of Thrift Supervision notified it that
it was in need of increased supervision, its ability to make capital
distributions could be restricted. In addition, the Office of Thrift
Supervision could prohibit a proposed capital distribution that would otherwise
be permitted by the regulation, if the agency determines that such distribution
would constitute an unsafe or unsound practice. See note 14 to the
consolidated financial statements of this annual report.
Qualified Thrift
Lender Test. Federal law requires savings institutions to meet
a qualified thrift lender test. Under the test, a savings association
is required to either qualify as a “domestic building and loan association”
under the Internal Revenue Code or maintain at least 65% of its “portfolio
assets” (total assets less: (i) specified liquid assets up to 20% of total
assets; (ii) intangibles, including goodwill; and (iii) the value of property
used to conduct business) in certain “qualified thrift investments” (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) in at least 9 months out of each 12-month period.
A savings institution that fails the
qualified thrift lender test is subject to certain operating restrictions and
may be required to convert to a bank charter. Recent legislation has
expanded the extent to which education loans, credit card loans and small
business loans may be considered “qualified thrift investments.” As
of December 31, 2009, First Federal maintained 95.0% of its portfolio assets in
qualified thrift investments and, therefore, met the qualified thrift lender
test.
9
Transactions with
Related Parties. First Federal’s authority to engage in
transactions with “affiliates” is limited by Office of Thrift Supervision
regulations and Sections 23A and 23B of the Federal Reserve Act as implemented
by the Federal Reserve Board’s Regulation W. The term “affiliates”
for these purposes means any company that controls or is under common control
with an institution. First Advantage Bancorp and any non-savings
institution subsidiaries would be affiliates of First Federal. In
general, transactions with affiliates must be on terms that are as favorable to
the institution as comparable transactions with non-affiliates. In
addition, certain types of transactions are restricted to 10% of an
institution’s capital and surplus with any one affiliate and 20% of capital and
surplus with all affiliates. Collateral in specified amounts must
usually be provided by affiliates in order to receive loans from an
institution. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
The Sarbanes-Oxley Act of 2002
prohibits a company from making loans to its executive officers and
directors. However, that act contains a specific exception for loans
by a depository institution to its executive officers and directors in
compliance with federal banking laws. Under such laws, First
Federal’s authority to extend credit to executive officers, directors and 10%
stockholders (“insiders”), as well as entities under such persons’ control, is
limited. The law restricts both the individual and aggregate amount
of loans First Federal may make to insiders based, in part, on First Federal’s
capital position and requires certain board approval procedures to be
followed. Such loans must be made on terms substantially the same as
those offered to unaffiliated individuals and not involve more than the normal
risk of repayment. There is an exception for loans made pursuant to a
benefit or compensation program that is widely available to all employees of the
institution and does not give preference to insiders over other
employees. There are additional restrictions applicable to loans to
executive officers. For information about transactions with our
directors and officers, see Item 13, “Certain Relationships and Related
Transactions, and Director Independence.”
Enforcement. The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of
a capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, or conservatorship. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The Federal
Deposit Insurance Corporation has authority to recommend to the Director of the
Office of Thrift Supervision that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
Assessments. Federal
savings banks and holding companies are required to pay assessments to the
Office of Thrift Supervision to fund its operations. The general
assessments, paid on a semi-annual basis, are based upon the savings
institution’s total assets, including consolidated subsidiaries, as reported in
the institution’s latest quarterly thrift financial report, the institution’s
financial condition and the complexity of its asset
portfolio. The Office of Thrift Supervision assessments paid by
First Federal for the year ended December 31, 2009 totaled
$448,000.
Insurance of
Deposit Accounts. First
Federal’s deposits are insured up to applicable limits by the Deposit Insurance
Fund of the FDIC. The Deposit Insurance Fund is the successor to the
Bank Insurance Fund and the Savings Association Insurance Fund, which were
merged in 2006. The FDIC utilizes a risk-based assessment system that
imposes insurance premiums based upon a risk matrix that takes into account a
bank’s capital level and supervisory rating (“CAMELS rating”). The risk matrix
utilizes four risk categories which are distinguished by capital levels and
supervisory ratings.
In December 2008, the FDIC issued
a final rule that raised the then current assessment rates uniformly by
7 basis points for the first quarter of 2009 assessment, which resulted in
annualized assessment rates for institutions in the highest risk category (“Risk
Category 1 institutions”) ranging from 12 to 14 basis points
(basis points representing cents per $100 of assessable deposits). In
February 2009, the FDIC issued final rules to amend the DIF restoration
plan, change the risk-based assessment system and set assessment rates for Risk
Category 1 institutions beginning in the second quarter of 2009. For Risk
Category 1 institutions that have long-term debt issuer ratings, the FDIC
determines the initial base assessment rate using a combination of
weighted-average CAMELS component ratings, long-term debt issuer ratings
(converted to numbers and averaged) and the financial ratios method assessment
rate (as defined), each equally weighted. The initial base assessment rates for
Risk Category 1 institutions range from 12 to 16 basis points, on an
annualized basis. After the effect of potential base-rate adjustments, total
base assessment rates range from 7 to 24 basis points. The potential
adjustments to a Risk Category 1 institution’s initial base assessment
rate, include (i) a potential decrease of up to 5 basis points for
long-term unsecured debt, including senior and subordinated debt and (ii) a
potential increase of up to 8 basis points for secured liabilities in
excess of 25% of domestic deposits.
10
In May 2009, the FDIC issued a final
rule which levied a special assessment applicable to all insured depository
institutions totaling 5 basis points of each institution’s total assets
less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points
of domestic deposits. The special assessment was part of the FDIC’s efforts to
rebuild the DIF. Deposit insurance expense during 2009 included $155,000
recognized in the second quarter related to the special assessment.
In November 2009, the FDIC issued a
rule that required all insured depository institutions, with limited exceptions,
to prepay their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a
uniform three-basis point increase in assessment rates effective on
January 1, 2011. In December 2009, the Company paid $1.1 million in
prepaid risk-based assessments, which included $68,000 related to the fourth
quarter of 2009 that would have otherwise been payable in the first quarter of
2010. This amount is included in deposit insurance expense for 2009. The
remaining $1.0 million in pre-paid deposit insurance is included in other
assets in the accompanying consolidated balance sheet as of December 31,
2009.
FDIC insurance expense totaled $448,000
and $74,000 in 2009 and 2008, respectively. FDIC expense includes deposit
insurance assessments and Financing Corporation (“FICO”)
assessments. Additionally, FDIC expense for 2008 was unusually low
due to the utilization of a one-time credit.
Insurance of deposits may be terminated
by the Federal Deposit Insurance Corporation upon a finding that the institution
has engaged in unsafe or 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 Federal Deposit Insurance Corporation or the
Office of Thrift Supervision. The management of First Federal does
not know of any practice, condition or violation that might lead to termination
of deposit insurance.
Safety and
Soundness Standards. The
FDIA requires the federal bank regulatory agencies to prescribe standards, by
regulations or guidelines, relating to internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate risk exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits, and such other operational and managerial
standards as the agencies deem appropriate. Guidelines adopted by the federal
bank regulatory agencies establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risk and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal stockholder. In addition,
the agencies adopted regulations that authorize, but do not require, an agency
to order an institution that has been given notice by an agency that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an acceptable
compliance plan, the agency must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized institution is subject under the “prompt corrective action”
provisions of FDIA. See “Prompt Corrective Regulatory Action” above. If an
institution fails to comply with such an order, the agency may seek to enforce
such order in judicial proceedings and to impose civil money
penalties.
11
Temporary
Liquidity Guarantee Program. In November 2008, the Board of
Directors of the FDIC adopted a final rule relating to the Temporary Liquidity
Guarantee Program (“TLG Program”). The TLG Program was announced by the
FDIC in October 2008, preceded by the determination of systemic risk by the
Secretary of the Department of Treasury (after consultation with the President),
as an initiative to counter the system-wide crisis in the nation’s financial
sector. Under the TLG Program, the FDIC will (i) guarantee, through
the earlier of maturity or December 31, 2012 (extended from June 30,
2012 by subsequent amendment), certain newly issued senior unsecured debt issued
by participating institutions on or after October 14, 2008, and before
October 31, 2009 (extended from June 30, 2009 by subsequent amendment)
and (ii) provide full FDIC deposit insurance coverage for non-interest
bearing transaction deposit accounts, Negotiable Order of Withdrawal (“NOW”)
accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust
Accounts held at participating FDIC insured institutions through
June 30, 2010 (extended from December 31, 2009, subject to an opt-out
provision, by subsequent amendment). The Company elected to participate in both
guarantee programs and did not opt out of the six-month extension of the
transaction account guarantee program. Coverage under the TLG Program was
available for the first 30 days without charge. The fee assessment for
coverage of senior unsecured debt ranged from 50 basis points to
100 basis points per annum, depending on the initial maturity of the debt.
The fee assessment for deposit insurance coverage was 10 basis points per
quarter during 2009 on amounts in covered accounts exceeding $250,000. During
the six-month extension period in 2010, the fee assessment increases to
15 basis points per quarter for institutions that are in Risk
Category 1 of the risk-based premium system.
Troubled Asset
Relief Program Capital Purchase Program. On October 14,
2008, Congress passed the Emergency Economic Stabilization Act of 2008
(“EESA”). At that time, Secretary of the Department of the Treasury
announced that the Department of the Treasury would purchase equity stakes in a
wide variety of banks and thrifts. Under the program, known as the Troubled
Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase
Program”), from the $700 billion authorized by the EESA, the Treasury made
$250 billion of capital available to U.S. financial institutions in the
form of preferred stock. In conjunction with the purchase of preferred stock,
the Treasury received, from participating financial institutions, warrants to
purchase common stock with an aggregate market price equal to 15% of the
preferred investment. Participating financial institutions were required to
adopt the Treasury’s standards for executive compensation and corporate
governance for the period during which the Treasury holds equity issued under
the TARP Capital Purchase Program. On November 12, 2008, the Company announced
that it would not apply for funds available through the TARP Capital Purchase
Program.
Depositor
Preference. The FDIA provides that, in the event of the
“liquidation or other resolution” of an insured depository institution, the
claims of depositors of the institution, including the claims of the FDIC as
subrogee of insured depositors, and certain claims for administrative expenses
of the FDIC as a receiver, will have priority over other general unsecured
claims against the institution. If an insured depository institution fails,
insured and uninsured depositors, along with the FDIC, will have priority in
payment ahead of unsecured, non-deposit creditors, including depositors whose
deposits are payable only outside of the United States and the parent bank
holding company, with respect to any extensions of credit they have made to such
insured depository institution.
Liability
of Commonly Controlled Institutions. FDIC-insured depository institutions
can be held liable for any loss incurred, or reasonably expected to be incurred,
by the FDIC due to the default of another FDIC-insured depository institution
controlled by the same bank holding company, or for any assistance provided by
the FDIC to another FDIC-insured depository institution controlled by the same
bank holding company that is in danger of default. “Default” means generally the
appointment of a conservator or receiver. “In danger of default” means generally
the existence of certain conditions indicating that default is likely to occur
in the absence of regulatory assistance. Such a “cross-guarantee” claim against
a depository institution is generally superior in right of payment to claims of
the holding company and its affiliates against that depository institution. At
this time, First Federal is the only insured depository institution controlled
by the Company for this purpose. However, if the Company were to control other
FDIC-insured depository institutions in the future, the cross-guarantee would
apply to all such FDIC-insured depository institutions.
Financial
Privacy. The federal banking regulators adopted rules that
limit the ability of banks and other financial institutions to disclose
non-public information about consumers to nonaffiliated third parties. These
limitations require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain personal
information to a nonaffiliated third party. These regulations affect how
consumer information is transmitted through diversified financial companies and
conveyed to outside vendors.
Anti-Money
Laundering and the USA Patriot Act. A major focus of
governmental policy on financial institutions in recent years has been aimed at
combating money laundering and terrorist financing. The USA PATRIOT Act of 2001
(the “USA Patriot Act”) substantially broadened the scope of United States
anti-money laundering laws and regulations by imposing significant new
compliance and due diligence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the United States. The United
States Treasury Department has issued and, in some cases, proposed a number of
regulations that apply various requirements of the USA Patriot Act to financial
institutions such as First Federal. These regulations impose obligations on
financial institutions to maintain appropriate policies, procedures and controls
to detect, prevent and report money laundering and terrorist financing and to
verify the identity of their customers. Certain of those regulations impose
specific due diligence requirements on financial institutions that maintain
correspondent or private banking relationships with non-U.S. financial
institutions or persons. Failure of a financial institution to maintain and
implement adequate programs to combat money laundering and terrorist financing,
or to comply with all of the relevant laws or regulations, could have serious
legal and reputational consequences for the institution.
12
Office of Foreign
Assets Control Regulation. The United States has imposed
economic sanctions that affect transactions with designated foreign countries,
nationals and others. These are typically known as the “OFAC” rules based on
their administration by the U.S. Treasury Department Office of Foreign Assets
Control (“OFAC”). The OFAC-administered sanctions targeting countries take many
different forms. Generally, however, they contain one or more of the following
elements: (i) restrictions on trade with or investment in a sanctioned
country, including prohibitions against direct or indirect imports from and
exports to a sanctioned country and prohibitions on “U.S. persons” engaging in
financial transactions relating to making investments in, or providing
investment-related advice or assistance to, a sanctioned country; and
(ii) a blocking of assets in which the government or specially designated
nationals of the sanctioned country have an interest, by prohibiting transfers
of property subject to U.S. jurisdiction (including property in the possession
or control of U.S. persons). Blocked assets (e.g., property and bank deposits)
cannot be paid out, withdrawn, set off or transferred in any manner without a
license from OFAC. Failure to comply with these sanctions could have serious
legal and reputational consequences.
Regulatory
Reform. In June 2009, the U.S. President’s administration
proposed a wide range of regulatory reforms that, if enacted, may have
significant effects on the financial services industry in the United States.
Significant aspects of the administration’s proposals that may affect the
Company included, among other things, proposals: (i) to reassess and
increase capital requirements for banks and bank holding companies and examine
the types of instruments that qualify as regulatory capital; (ii) to
combine the OCC and the Office of Thrift Supervision into a National Bank
Supervisor with a unified federal bank charter; (iii) to expand the current
eligibility requirements for financial holding companies such as First Advantage
Bancorp so that the financial holding company must be “well capitalized” and
“well managed” on a consolidated basis; (iv) to create a federal consumer
financial protection agency to be the primary federal consumer protection
supervisor with broad examination, supervision and enforcement authority with
respect to consumer financial products and services; (v) to further limit
the ability of banks to engage in transactions with affiliates; and (vi) to
subject all “over-the-counter” derivatives markets to comprehensive
regulation.
The U.S. Congress, state lawmaking
bodies and federal and state regulatory agencies continue to consider a number
of wide-ranging and comprehensive proposals for altering the structure,
regulation and competitive relationships of the nation’s financial institutions,
including rules and regulations related to the administration’s proposals.
Separate comprehensive financial reform bills intended to address the proposals
set forth by the administration were introduced in both houses of Congress in
the second half of 2009 and remain under review by both the U.S. House of
Representatives and the U.S. Senate. In addition, both the U.S. Treasury
Department and the Basel Committee have issued policy statements regarding
proposed significant changes to the regulatory capital framework applicable to
banking organizations as discussed above. The Company cannot predict whether or
in what form further legislation or regulations may be adopted or the extent to
which the Company may be affected thereby.
Incentive
Compensation. On October 22, 2009, the Federal Reserve
issued a comprehensive proposal on incentive compensation policies (the
“Incentive Compensation Proposal”) intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive risk-taking. The
Incentive Compensation Proposal, which covers all employees that have the
ability to materially affect the risk profile of an organization, either
individually or as part of a group, is based upon the key principles that a
banking organization’s incentive compensation arrangements should
(i) provide incentives that do not encourage risk-taking beyond the
organization’s ability to effectively identify and manage risks, (ii) be
compatible with effective internal controls and risk management, and
(iii) be supported by strong corporate governance, including active and
effective oversight by the organization’s board of directors. Banking
organizations are instructed to begin an immediate review of their incentive
compensation policies to ensure that they do not encourage excessive risk-taking
and implement corrective programs as needed. Where there are deficiencies in the
incentive compensation arrangements, they must be immediately
addressed.
The Federal Reserve will review, as
part of the regular, risk-focused examination process, the incentive
compensation arrangements of banking organizations that are not “large, complex
banking organizations.” These reviews will be tailored to each organization
based on the scope and complexity of the organization’s activities and the
prevalence of incentive compensation arrangements. The findings of the
supervisory initiatives will be included in reports of examination. Deficiencies
will be incorporated into the organization’s supervisory ratings, which can
affect the organization’s ability to make acquisitions and take other actions.
Enforcement actions may be taken against a banking organization if its incentive
compensation arrangements, or related risk-management control or governance
processes, pose a risk to the organization’s safety and soundness and the
organization is not taking prompt and effective measures to correct the
deficiencies.
13
In addition, on January 12,
2010, the FDIC announced that it would seek public comment on whether banks with
compensation plans that encourage risky behavior should be charged at higher
deposit assessment rates than such banks would otherwise be
charged.
The scope and content of the U.S.
banking regulators’ policies on executive compensation are continuing to develop
and are likely to continue evolving in the near future. It cannot be determined
at this time whether compliance with such policies will adversely affect the
Company’s ability to hire, retain and motivate its key employees.
Other Legislative
and Regulatory Initiatives. In addition to the specific
proposals described above, from time to time, various legislative and regulatory
initiatives are introduced in Congress and state legislatures, as well as by
regulatory agencies. Such initiatives may include proposals to expand or
contract the powers of bank holding companies and depository institutions or
proposals to substantially change the financial institution regulatory system.
Such legislation could change banking statutes and the operating environment of
the Company in substantial and unpredictable ways. If enacted, such legislation
could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks, savings
associations, credit unions, and other financial institutions. The Company
cannot predict whether any such legislation will be enacted, and, if enacted,
the effect that it, or any implementing regulations, would have on the financial
condition or results of operations of the Company. A change in statutes,
regulations or regulatory policies applicable to the Company or First Federal
could have a material effect on the business of the Company.
Federal Home Loan
Bank System. First Federal is a member of the Federal Home
Loan Bank System, which consists of (12) regional Federal Home Loan
Banks. The Federal Home Loan Bank provides a central credit facility
primarily for member institutions. First Federal, as a member of the
Federal Home Loan Bank of Cincinnati, is required to acquire and hold shares of
capital stock in that Federal Home Loan Bank in an amount at least equal to 1.0%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20th of its advances
(borrowings) from the Federal Home Loan Bank, whichever is
greater. At December 31, 2009, First Federal complied with this
requirement with an investment in Federal Home Loan Bank stock of $3.0
million.
The Federal Home Loan Banks are
required to provide funds for certain purposes including the resolution of
insolvent thrifts in the late 1980s and to contribute funds for affordable
housing. These requirements could reduce the amount of dividends that
the Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members. If dividends were reduced, or interest on future Federal
Home Loan Bank advances increased, our net interest income would likely also be
reduced.
Community
Reinvestment Act. Under the Community Reinvestment Act, as
implemented by Office of Thrift Supervision regulations, a savings association
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The Community Reinvestment Act
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution’s discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the Community Reinvestment Act. The
Community Reinvestment Act requires the Office of Thrift Supervision, in
connection with its examination of a savings association, to assess the
institution’s record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution.
The Community Reinvestment Act requires
public disclosure of an institution’s rating and requires the Office of Thrift
Supervision to provide a written evaluation of an association’s Community
Reinvestment Act performance utilizing a four-tiered descriptive rating
system.
14
First Federal received a “satisfactory” rating as
a result of its most recent Community Reinvestment Act assessment.
Other
Regulations
Interest and other charges collected or
contracted for by First Federal are subject to state usury laws and federal laws
concerning interest rates. First Federal’s operations are also
subject to federal laws applicable to credit transactions, such as
the:
·
|
Truth-In-Lending
Act, governing disclosures of credit terms to consumer
borrowers;
|
·
|
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;
|
·
|
Equal
Credit Opportunity Act, prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending
credit;
|
·
|
Fair
Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting
agencies;
|
·
|
Fair
Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies;
and
|
·
|
Rules
and regulations of the various federal agencies charged with the
responsibility of implementing such federal
laws.
|
The
operations of First Federal also are subject to the:
·
|
Electronic
Funds Transfer Act and Regulation E promulgated thereunder, which governs
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;
|
·
|
Check
Clearing for the 21st Century Act (also known as “Check 21”), which gives
“substitute checks,” such as digital check images and copies made from
that image, the same legal standing as the original paper check;
and
|
·
|
The
Gramm-Leach-Bliley Act, which places limitations on the sharing of
consumer financial information with unaffiliated third
parties. Specifically, the Gramm-Leach-Bliley Act requires all
financial institutions offering financial products or services to retail
customers to provide such customers with the financial institution’s
privacy policy and provide such customers the opportunity to “opt out” of
the sharing of personal financial information with unaffiliated third
parties.
|
As
required by the John Warner National Defense Authorization Act for Fiscal Year
2007, the U.S. Department of Defense has adopted regulations that prohibit
extensions of consumer credit to military personnel and their dependents on
predatory terms. The regulations specifically apply to payday loans,
vehicle title loans and tax refund anticipation loans and limit the annual
percentage rate chargeable on covered loans to 36% per annum calculated in
accordance with the regulations. Creditors are required to make
specific disclosures to military personnel and their dependents, including
notice of their rights and the military annual percentage rate. The
regulations prohibit, among other things: (1) the refinance of previously
extended covered consumer credit unless it is on more favorable terms; (2) the
requirement of arbitration or unreasonable notice in the case of a dispute; and
(3) the imposition of prepayment penalties. Consumer credit in
violation of the rules is void from inception. Known violations are
subject to criminal penalties.
15
Federal
Reserve System
The Federal Reserve Board regulations
require savings institutions to maintain non-interest earning reserves against
their transaction accounts (primarily Negotiable Order of Withdrawal (“NOW”) and
regular checking accounts). At December 31, 2009, the regulations
provide that reserves be maintained against aggregate transaction accounts as
follows: a 3% reserve ratio is assessed on net transaction accounts
up to and including $55.2 million; a 10% reserve ratio is applied above $55.2
million. The first $10.7 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. The amounts are adjusted
annually. First Federal Savings Bank complies with the foregoing
requirements.
Holding
Company Regulation
General.
First Advantage Bancorp is a nondiversified unitary savings and loan
holding company within the meaning of federal law. The
Gramm-Leach-Bliley Act of 1999 provides that no company may acquire control of a
savings institution after May 4, 1999 unless it engages only in the financial
activities permitted for financial holding companies under the law or for
multiple savings and loan holding companies as described
below. Further, the Gramm-Leach-Bliley Act specifies that existing
savings and loan holding companies may only engage in such
activities. Upon any non-supervisory acquisition by First Advantage
Bancorp of another savings institution or savings bank that meets the qualified
thrift lender test and is deemed to be a savings institution by the Office of
Thrift Supervision, First Advantage Bancorp would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be limited to activities permissible for bank
holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject
to the prior approval of the Office of Thrift Supervision, and certain
activities authorized by Office of Thrift Supervision
regulation. However, the Office of Thrift Supervision has issued an
interpretation concluding that multiple savings and loan holding companies may
also engage in activities permitted for financial holding
companies.
A savings and loan holding company is
prohibited from, directly or indirectly, acquiring more than 5% of the voting
stock of another savings institution or savings and loan holding company,
without prior written approval of the Office of Thrift Supervision, and from
acquiring or retaining control of a depository institution that is not insured
by the Federal Deposit Insurance Corporation. In evaluating
applications by holding companies to acquire savings institutions, the Office of
Thrift Supervision considers the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the deposit insurance funds, the convenience and needs of the
community and competitive factors.
The Office of Thrift Supervision may
not approve any acquisition that would result in a multiple savings and loan
holding company controlling savings institutions in more than one state, subject
to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies; and (ii) the acquisition of
a savings institution in another state if the laws of the state target savings
institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Although savings and loan holding
companies are not currently subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital distributions, federal
regulations do prescribe such restrictions on subsidiary savings institutions as
described below. First Federal Savings Bank must notify the Office of
Thrift Supervision 30 days before declaring any dividend to First Advantage
Bancorp. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
Acquisition of
Control. Under the federal Change in Bank Control Act, a
notice must be submitted to the Office of Thrift Supervision if any person
(including a company), or group acting in concert, seeks to acquire “control” of
a savings and loan holding company or savings association. An
acquisition of “control” can occur upon the acquisition of 10% or more of the
voting stock of a savings and loan holding company or savings institution or as
otherwise defined by the Office of Thrift Supervision. Under the
Change in Bank Control Act, the Office of Thrift Supervision has 60 days from
the filing of a complete notice to act, taking into consideration certain
factors, including the financial and managerial resources of the acquirer and
the anti-trust effects of the acquisition. Any company that so
acquires control would then be subject to regulation as a savings and loan
holding company.
16
Federal
Securities Laws
First Advantage Bancorp’s common stock
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. First Advantage Bancorp is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements imposed under the Securities Exchange Act of 1934.
Federal
Income Taxation
General. We
report our income on a calendar year basis using the accrual method of
accounting. The federal income tax laws apply to us in the same manner as to
other corporations with some exceptions, including particularly our reserve for
bad debts discussed below. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of the
tax rules applicable to us. Our federal income tax returns have been
either audited or closed under the statute of limitations through tax year
2005. For 2009, First Federal’s maximum federal income tax rate was
34.0%.
First Advantage Bancorp and First
Federal have entered into a tax allocation agreement. Because First
Advantage Bancorp owns 100% of the issued and outstanding capital stock of First
Federal, First Advantage Bancorp and First Federal are members of an affiliated
group within the meaning of Section 1504(a) of the Internal Revenue Code, of
which group First Advantage Bancorp is the common parent
corporation. As a result of this affiliation, First Federal may be
included in the filing of a consolidated federal income tax return with First
Advantage Bancorp and, if a decision to file a consolidated tax return is made,
the parties agree to compensate each other for their individual share of the
consolidated tax liability and/or any tax benefits provided by them in the
filing of the consolidated federal income tax return.
Bad Debt
Reserves. For fiscal years
beginning before June 30, 1996, thrift institutions that qualified under certain
definitional tests and other conditions of the Internal Revenue Code were
permitted to use certain favorable provisions to calculate their deductions from
taxable income for annual additions to their bad debt reserve. A reserve could
be established for bad debts on qualifying real property loans, secured by
interests in real property improved or to be improved, under the percentage of
taxable income method or the experience method. The reserve for nonqualifying
loans was computed using the experience method. Federal legislation
enacted in 1996 repealed the reserve method of accounting for bad debts and the
percentage of taxable income method for tax years beginning after 1995 and
require savings institutions to recapture or take into income certain portions
of their accumulated bad debt reserves. Approximately $3.6 million of
our accumulated bad debt reserves would not be recaptured into taxable income
unless First Federal Savings Bank makes a “non-dividend distribution” to First
Advantage Bancorp as described below.
Distributions. If First Federal
Savings Bank makes “non-dividend distributions” to First Advantage Bancorp, the
distributions will be considered to have been made from First Federal’s
unrecaptured tax bad debt reserves, including the balance of its reserves as of
December 31, 1987, to the extent of the “non-dividend distributions,” and
then from First Federal’s supplemental reserve for losses on loans, to the
extent of those reserves, and an amount based on the amount distributed, but not
more than the amount of those reserves, will be included in First Federal’s
taxable income. Non-dividend distributions include distributions in excess of
First Federal’s current and accumulated earnings and profits, as calculated for
federal income tax purposes, distributions in redemption of stock, and
distributions in partial or complete liquidation. Dividends paid out
of First Federal’s current or accumulated earnings and profits will not be so
included in First Federal’s taxable income.
The amount of additional taxable income
triggered by a non-dividend is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution.
Therefore, if First Federal makes a non-dividend distribution to First Advantage
Bancorp, approximately one and one-half times the amount of the distribution not
in excess of the amount of the reserves would be includable in income for
federal income tax purposes, assuming a 34.0% federal corporate income tax
rate.
State
Taxation
Tennessee.
Tennessee imposes franchise and excise taxes. The franchise
tax ($0.25 per $100) is applied either to apportioned net worth or the value of
property owned and used in Tennessee, whichever is greater, as of the close of a
company’s fiscal year. The excise tax (6.5%) is applied to net
earnings derived from business transacted in Tennessee. Under
Tennessee regulations, bad debt deductions are deductible from the excise
tax. There have not been any audits of our state tax returns during
the past five years.
17
Any cash dividends, in excess of a
certain exempt amount, that would be paid with respect to First Advantage
Bancorp common stock to a stockholder (including a partnership and certain other
entities) who is a resident of Tennessee will be subject to the Tennessee income
tax (6%). Any distribution by a corporation from earnings according
to percentage ownership is considered a dividend, and the definition of a
dividend for Tennessee income tax purposes may not be the same as the definition
of a dividend for federal income tax purposes. A corporate
distribution may be treated as a dividend for Tennessee tax purposes if it is
paid from funds that exceed the corporation’s earned surplus and profits under
certain circumstances.
Executive
Officers of the Registrant
The following individuals serve as
executive officers of the Company and the Bank:
Name
|
Position
|
|
Earl
O. Bradley, III
|
Chief
Executive Officer
|
|
John
T. Halliburton
|
President
|
|
Patrick
C. Greenwell
|
Chief
Financial Officer and Corporate Secretary
|
|
Franklin
G. Wallace
|
Chief
Information Officer – First Federal Savings Bank
|
|
Jon
R. Clouser
|
Chief
Lending Officer – First Federal Savings
Bank
|
Below is information regarding our
executive officers who are not also directors. Ages presented are as
of December 31, 2009.
Patrick C.
Greenwell has been
Chief Financial Officer of First Federal Savings Bank since
2005. Before joining First Federal Savings Bank, Mr. Greenwell was
Senior Vice President, Information Systems with Wachovia Bank. Age
51.
Franklin G.
Wallace has served as
the Chief Information Officer of First Federal Savings Bank since
2005. Before joining First Federal Savings Bank, Mr. Wallace was a
Senior Vice President at Old National Bank (formerly Heritage
Bank). Age 59.
Jon R.
Clouser has
served as the Chief Lending Officer of First Federal Savings Bank since March
2007. From March 2003 to March 2007, Mr. Clouser was an Executive
Vice President of Cumberland Bank and Trust. Mr. Clouser also served
as a Senior Vice President of Old National Bank (formerly Heritage Bank) from
1990 to March 2003. Age 56.
Item
1A. RISK
FACTORS
An investment in the Company’s common
stock is subject to risks inherent to the Company’s business. The material risks
and uncertainties that management believes affect the Company are described
below. Before making an investment decision, you should carefully consider the
risks and uncertainties described below together with all of the other
information included or incorporated by reference in this report. The risks and
uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties that management is not aware of or focused on
or that management currently deems immaterial may also impair the Company’s
business operations. This report is qualified in its entirety by these risk
factors.
If any of the following risks actually
occur, the Company’s financial condition and results of operations could be
materially and adversely affected. If this were to happen, the market price of
the Company’s common stock could decline significantly, and you could lose all
or part of your investment.
18
Our
business may be adversely affected by conditions in the financial markets and
economic conditions generally.
Since December 2007 and continuing
through 2009, business activity across a wide range of industries and regions in
the United States has been greatly reduced and local governments and many
businesses are in serious difficulty due to decreased consumer spending and the
lack of liquidity in the credit markets. Unemployment has increased
significantly.
Market conditions have also led to the
failure or merger of several prominent financial institutions and numerous
regional and community-based financial institutions. These failures, as well as
projected future failures, have had a significant negative impact on the
capitalization level of the deposit insurance fund of the FDIC, which, in turn,
has led to a significant increase in deposit insurance premiums paid by
financial institutions.
Our financial performance, in
particular the ability of borrowers to pay interest on and repay principal of
outstanding loans and the value of collateral securing those loans, is highly
dependent upon the business environment in the markets where we
operate. Overall, during 2009, the business environment has been
adverse for many households and businesses in the United States and worldwide
and it is expected that such business environment will continue to deteriorate
for the foreseeable future. While the business environment in Montgomery County,
Tennessee, and the markets in which we operate have been less adverse than in
the United States as a whole, a continued overall economic downturn could
eventually have a negative affect in our market area. Such conditions
could adversely affect the credit quality of our loans, results of operations
and our financial condition.
Our
core earnings are weak, which we expect will continue for the foreseeable
future.
During 2009 our net
interest income was marginally sufficient to cover our non-interest
expense. From 2004 through 2007 our net interest income was
insufficient to cover our non-interest expense and we were only able to report a
profit in periods in which we had significant non-recurring
income. In order to achieve consistent profitability, we intend to
grow to a sufficient size to offset our expenses. However, we may not
be able to successfully do so. In addition, when we open new branch
offices, we may not be able to increase our earnings in the short term or within
a reasonable period of time, if at all. Building and staffing new
branch offices will increase our operating expenses. Numerous factors affect our
ability to open new branch offices, such as our ability to select suitable
locations, real estate acquisition costs, competition, interest rates,
managerial resources, our ability to hire and retain qualified personnel, the
effectiveness of our marketing strategy and our ability to attract
deposits. It takes time for a new branch office to generate
significant deposits and loan volume to offset expenses, some of which, like
salaries and occupancy expense, are relatively fixed costs and we may not be
successful in increasing the volume of our loans and deposits by expanding our
branch network. Furthermore, we will continue to incur additional
expenses as a result of operating as a public company and from the
implementation of new equity benefit plans for which we began incurring expenses
in August of 2008. We may not be successful in significantly
improving our earnings capacity in the near future, if at all. For
more information on our operating results, see Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.
In the
event that our loan customers do not repay their loans according to the terms of
the loans, and the collateral securing the repayment of these loans is
insufficient, or a ready market is not available, to cover any remaining loan
balance, we could experience significant loan losses, which could have a
material adverse effect on our operating results. We make various assumptions
and judgments about the collectibility of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real estate and other
assets, if any, serving as collateral for the repayment of our
loans. In determining the amount of our allowance for loan losses, we
rely on our loan quality reviews, our experience and our evaluation of economic
conditions, among other factors. If our assumptions are incorrect, our allowance
for loan losses may not be sufficient to cover probable losses inherent in our
loan portfolio, which may require additions to our allowance. Although we are
unaware of any specific problems with our loan portfolio that would require any
increase in our allowance at the present time, our allowance for loan losses may
need to be increased further in the future due to our emphasis on loan growth
and on increasing our portfolio of commercial business and commercial real
estate loans. Any material additions to our allowance for loan losses would
materially decrease our net income.
In
addition, our regulators periodically review our allowance for loan losses and
may require us to increase our provisions for loan losses or recognize further
loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by regulatory authorities could have a material adverse
effect on our consolidated results of operations and financial
condition.
19
Our
concentrations in construction loans, including speculative construction loans,
nonresidential real estate loans and land loans may expose us to increased
credit risk.
Speculative construction loans are
loans made to builders who have not identified a buyer for the completed
property at the time of loan origination. Although our origination of
these types of loans has slowed as the local economy has slowed, over time, we
intend to continue to emphasize the origination of these loan
types. These loan types expose a lender to greater risk of
non-payment and loss than one-to-four family mortgage loans because the
repayment of such loans often depends on the successful operation or sale of the
property and the income stream of the borrowers and such loans typically involve
larger balances to a single borrower or groups of related
borrowers. In addition, many borrowers of these types of loans have
more than one loan outstanding with us so an adverse development with respect to
one loan or credit relationship can expose us to significantly greater risk of
non-payment and loss. Furthermore, we may need to increase our
allowance for loan losses through future charges to income as the portfolio of
these types of loans grows, which would hurt our earnings. For more
information about the credit risk we face, see Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Risk
Management.”
Noncore
funding represents a large component of our funding base.
In addition to the traditional core
deposits, such as demand deposit accounts, interest checking, money market
savings and certificates of deposits, we utilize several noncore funding
sources, such as Federal Home Loan Bank of Cincinnati advances, the Federal
Reserve Discount Window, federal funds purchased and other sources. We utilize
these noncore funding sources to fund our ongoing operations and growth. The
availability of these noncore funding sources are subject to broad economic
conditions and, as such, the pricing on these sources may fluctuate
significantly and/or be restricted at any point in time, thus impacting our net
interest income, our immediate liquidity and/or our access to additional
liquidity. Should the FHLB system deteriorate to the point of not being able to
fund future advances to banks, including First Federal, this would place
increased pressure on other wholesale funding sources.
Fluctuations
in interest rates may hurt our earnings and asset value.
The Company’s earnings and cash flows
are largely dependent upon its net interest income. Net interest income is the
difference between interest income earned on interest-earning assets such as
loans and securities and interest expense paid on interest-bearing liabilities
such as deposits and borrowed funds. Interest rates are highly sensitive to many
factors that are beyond the Company’s control, including general economic
conditions and policies of various governmental and regulatory agencies and, in
particular, the Board of Governors of the Federal Reserve System. Changes in
monetary policy, including changes in interest rates, could influence not only
the interest the Company receives on loans and securities and the amount of
interest it pays on deposits and borrowings, but such changes could also affect
(i) the Company’s ability to originate loans and obtain deposits,
(ii) the fair value of the Company’s financial assets and liabilities, and
(iii) the average duration of the Company’s mortgage-backed securities
portfolio. If the interest rates paid on deposits and other borrowings increase
at a faster rate than the interest rates received on loans and other
investments, the Company’s net interest income, and therefore earnings, could be
adversely affected. Earnings could also be adversely affected if the interest
rates received on loans and other investments fall more quickly than the
interest rates paid on deposits and other borrowings.
Although management believes it has
implemented effective asset and liability management strategies to reduce the
potential effects of changes in interest rates on the Company’s results of
operations, any substantial, unexpected, prolonged change in market interest
rates could have a material adverse effect on the Company’s financial condition
and results of operations.
Special
Federal Deposit Insurance Corporation assessments and increased base assessment
rates by the Federal Deposit Insurance Corporation will decrease our
earnings.
Beginning in late 2008, the economic
environment caused higher levels of bank failures, which dramatically increased
Federal Deposit Insurance Corporation resolution costs and led to a significant
reduction in the Deposit Insurance Fund. As a result, the Federal
Deposit Insurance Corporation has significantly increased the initial
base assessment rates paid by financial institutions for deposit
insurance. The base assessment rate was increased by seven basis
points (7 cents for every $100 of deposits) for the first quarter of
2009. Effective April 1, 2009, initial base assessment rates were
changed to range from 12 basis points to 45 basis points across all risk
categories with possible adjustments to these rates based on certain
debt-related components. These increases in the base assessment rate
will increase our deposit insurance costs and negatively impact our
earnings. In addition, in May 2009, the Federal Deposit Insurance
Corporation imposed a special assessment on all insured institutions
due to recent bank and savings association failures. The emergency
assessment amounts to 5 basis points on each institution’s assets minus Tier 1
capital as of June 30, 2009, subject to a maximum equal to 10 basis points times
the institution’s assessment base. The assessment was collected on
September 30, 2009. Based on our assets and Tier 1 capital as of June
30, 2009, our special assessment was approximately $155,000. The
special assessment decreased our earnings. In addition, the Federal
Deposit Insurance Corporation may impose additional emergency special
assessments after June 30, 2009, of up to 5 basis points per quarter on
each institution’s assets minus Tier 1 capital if necessary to maintain
public confidence in federal deposit insurance or as a result of deterioration
in the Deposit Insurance Fund reserve ratio due to institution failures. Any
additional emergency special assessment imposed by the Federal Deposit Insurance
Corporation will further decrease our earnings.
20
We
could be subject to valuation and extension risk related to the Federal Reserve
ending its program to purchase mortgage-backed securities backed by Fannie Mae,
Freddie Mac and Ginnie Mae.
On November 25, 2008, the Federal
Reserve announced that it would initiate a program to purchase $100.0 billion in
direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks
and $500.0 billion in mortgage-backed securities backed by Fannie Mae, Freddie
Mac and the Government National Mortgage Association (“Ginnie Mae”). The Federal
Reserve stated that its actions were intended to reduce the cost and increase
the availability of credit for the purchase of houses, which in turn should
support housing markets and foster improved conditions in financial markets more
generally. On March 18, 2009, the Federal Open Market Committee (“FOMC”)
announced the expansion of the Federal Reserve’s program to purchase up to $1.25
trillion of mortgage-backed securities. On September 23, 2009, the
FOMC announced that the Federal Reserve would gradually slow the pace of
purchases, anticipating that they would be complete by the end of first quarter
2010. Recent FOMC pronouncements have confirmed that
intention. The planned withdrawal of the Federal Reserve from the
market for mortgage-backed investments could cause mortgage rates to rise and
the price of mortgage-backed securities to fall, which would negatively impact
the valuation of our investments in mortgage-backed securities and increase
extension risk on those investments. Valuation risk is the risk that
prices for mortgage-backed investments could decline as mortgage rates
increase. Extension risk is the cash flow risk resulting from the
possibility that fewer borrowers will prepay or refinance their loans as
interest rates in the mortgage market increase. This could result in
lowering the bank’s capital due to declines in mark-to-market valuations and our
net interest margin could be negatively impacted by holding relatively lower
yielding investments for a longer than anticipated period.
Our
balance sheet leverage transactions are subject to reinvestment and interest
rate risks.
On April 30, 2008 we entered into two
balance sheet leverage transactions, utilizing structured repurchase agreements,
which totaled $35 - million. $25 - million of the borrowings have
call options ranging from two to three years after origination, with final
maturities ranging from five to ten years if they are not
called. Collateral for the borrowings consists of U. S. Agency
pass-through Mortgage Backed Securities (the “Securities”). Borrowing
rates as of the report date are substantially lower than when the leverage
transaction was originated. If borrowing rates remain at or near
current low levels for two to three years it is possible that the structured
repurchase agreement borrowings will not be called and the bank will be paying
above market rates for borrowings for an extended period of
time. Additionally, the recent decrease in mortgage rates has
increased the amount of mortgages being refinanced. Prepayment of the
mortgages that are collateral for the securities used in the structured
repurchase agreement could require us to substitute additional collateral if the
minimum collateral level is not maintained. The Bank may not
have suitable collateral in the portfolio to substitute at the time and would
have to purchase additional securities at market prices. Additional
purchases would likely be reinvested in much lower yielding
investments. Both factors discussed here could contribute to a
mismatch in terms of the effective duration of both the borrowings and the
Securities and would negatively impact the anticipated spread on the leverage
transaction.
21
We
may be adversely affected by the soundness of other financial
institutions.
Financial services institutions are
interrelated as a result of trading, clearing, counterparty, or other
relationships. The Company has exposure to many different industries and
counterparties, and routinely executes transactions with counterparties in the
financial services industry, including commercial banks, brokers and dealers,
investment banks, and other institutional clients. Many of these transactions
expose the Company to credit risk in the event of a default by a counterparty or
client. In addition, the Company’s credit risk may be exacerbated when the
collateral held by the Company cannot be realized upon or is liquidated at
prices not sufficient to recover the full amount of the credit due to the
Company. Any such losses could have a material adverse effect on the Company’s
financial condition and results of operations.
New
lines of business or new products and services may subject us to additional
risks.
From time to time, the Company may
implement new lines of business or offer new products and services within
existing lines of business. There are substantial risks and uncertainties
associated with these efforts, particularly in instances where the markets are
not fully developed. In developing and marketing new lines of business and/or
new products and services the Company may invest significant time and resources.
Initial timetables for the introduction and development of new lines of business
and/or new products or services may not be achieved and price and profitability
targets may not prove feasible. External factors, such as compliance with
regulations, competitive alternatives, and shifting market preferences, may also
impact the successful implementation of a new line of business or a new product
or service. Furthermore, any new line of business and/or new product or service
could have a significant impact on the effectiveness of the Company’s system of
internal controls. Failure to successfully manage these risks in the development
and implementation of new lines of business or new products or services could
have a material adverse effect on the Company’s business, results of operations
and financial condition.
A
downturn in the local economy or a decline in real estate values could hurt our
profits.
A large majority of our loans are
secured by real estate in Montgomery County, Tennessee, and the surrounding
areas. As a result of this concentration, a downturn in the local
economy could significantly increase nonperforming loans, which would hurt our
profits. Historically, Fort Campbell, a nearby U.S. Army
installation, has played a significant role in the economy of our primary market
area. Future deployments would dampen economic activity. Furthermore,
a decline in real estate values could lead to some of our mortgage loans
becoming inadequately collateralized, which would expose us to greater risk of
loss. Additionally, a decline in real estate values could hurt our
portfolio of construction loans, nonresidential real estate loans, and land
loans and could reduce our ability to originate such loans. For a
discussion of our primary market area, see Item 1, “Business—Market
Area.”
Strong
competition within our primary market area could hurt our profits and slow
growth.
We face intense competition both in
making loans and attracting deposits. This competition has made it
more difficult for us to make new loans and attract deposits. Price
competition for loans and deposits might result in us earning less on our loans
and paying more on our deposits, which would reduce net interest
income. Competition also makes it more difficult to grow loans and
deposits. Some of the institutions with which we compete have
substantially greater resources and lending limits than we have and may offer
services that we do not provide. We expect competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services
industry. Our profitability depends upon our continued ability to
compete successfully in our primary market area. See Item 1, “Business—Market Area” and
“Business—Competition”
for more information about our primary market area and the competition we
face.
We
operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.
We are subject to extensive regulation,
supervision and examination by the Office of Thrift Supervision, First Federal’s
chartering authority, and by the Federal Deposit Insurance Corporation, as
insurer of our deposits. Regulatory authorities have
extensive discretion in their supervisory and enforcement activities, including
the imposition of restrictions on our operations, the classification of our
assets and determination of the level of our allowance for loan
losses. Any change in such regulation and oversight, whether in the
form of regulatory policy, regulations, legislation or supervisory action, may
have a material impact on our operations.
22
Our
information systems may experience an interruption or breach in
security.
The Company relies heavily on
communications and information systems to conduct its business. Any failure,
interruption or breach in security of these systems could result in failures or
disruptions in the Company’s customer relationship management, general ledger,
deposit, loan and other systems. While the Company has policies and procedures
designed to prevent or limit the effect of the failure, interruption or security
breach of its information systems, there can be no assurance that any such
failures, interruptions or security breaches will not occur or, if they do
occur, that they will be adequately addressed. The occurrence of any failures,
interruptions or security breaches of the Company’s information systems could
damage the Company’s reputation, result in a loss of customer business, subject
the Company to additional regulatory scrutiny, or expose the Company to civil
litigation and possible financial liability, any of which could have a material
adverse effect on the Company’s financial condition and results of
operations.
We
continually encounters technological change.
The financial services industry is
continually undergoing rapid technological change with frequent introductions of
new technology-driven products and services. The effective use of technology
increases efficiency and enables financial institutions to better serve
customers and to reduce costs. The Company’s future success depends, in part,
upon its ability to address the needs of its customers by using technology to
provide products and services that will satisfy customer demands, as well as to
create additional efficiencies in the Company’s operations. Many of the
Company’s competitors have substantially greater resources to invest in
technological improvements. The Company may not be able to effectively implement
new technology-driven products and services or be successful in marketing these
products and services to its customers. Failure to successfully keep pace with
technological change affecting the financial services industry could have a
material adverse impact on the Company’s business and, in turn, the Company’s
financial condition and results of operations.
Our
operations rely on certain external vendors.
The Company is reliant upon certain
external vendors to provide products and services necessary to maintain
day-to-day operations of the Company. Accordingly, the Company’s operations are
exposed to risk that these vendors will not perform in accordance with the
contracted arrangements under service level agreements. The failure of an
external vendor to perform in accordance with the contracted arrangements under
service level agreements could be disruptive to the Company’s operations, which
could have a material adverse impact on the Company’s business and, in turn, the
Company’s financial condition and results of operations.
Even though our common stock is
currently traded on the Nasdaq Stock Market’s Global Market, it has less
liquidity than many other stocks quoted on a national securities
exchange.
The trading volume in our common stock
on the Nasdaq Global Market has been relatively low when compared with larger
companies listed on the Nasdaq Global Market or other stock exchanges. Because
of this, it may be more difficult for shareholders to sell a substantial number
of shares for the same price at which shareholders could sell a smaller number
of shares.
We cannot predict the effect, if any,
that future sales of our common stock in the market, or the availability of
shares of common stock for sale in the market, will have on the market price of
our common stock. We can give no assurance that sales of substantial amounts of
common stock in the market, or the potential for large amounts of sales in the
market, would not cause the price of our common stock to decline or impair our
future ability to raise capital through sales of our common stock.
The market price of our common stock
has fluctuated in the past, and may fluctuate in the future. These fluctuations
may be unrelated to our performance. General market or industry price declines
or overall market volatility in the future could adversely affect the price of
our common stock, and the current market price may not be indicative of future
market prices.
23
We
may not continue to pay dividends on our common stock in the
future.
Holders of First Advantage Bancorp
common stock are only entitled to receive such dividends as its board of
directors may declare out of funds legally available for such payments. Although
First Advantage has established a pattern of declaring quarterly cash dividends
on its common stock, it is not required to do so and may reduce or eliminate its
common stock dividend in the future. This could adversely affect the market
price of First Advantage Bancorp’s common stock. Also, First Advantage Bancorp
is a bank holding company, and its ability to declare and pay dividends is
dependent on certain federal regulatory considerations.
An
investment in our common stock is not an insured deposit.
The Company’s common stock is not a
bank deposit and, therefore, is not insured against loss by the FDIC, any other
deposit insurance fund or by any other public or private entity. Investment in
the Company’s common stock is inherently risky for the reasons described in this
“Risk Factors” section and elsewhere in this report and is subject to the same
market forces that affect the price of common stock in any company. As a result,
if you acquire the Company’s common stock, you could lose some or all of your
investment.
Financial
services companies depend on the accuracy and completeness of information about
customers and counterparties and material misrepresentations could negatively
impact our financial condition and results of operations.
In deciding whether to extend credit or
enter into other transactions, the Company may rely on information furnished by
or on behalf of customers and counterparties, including financial statements,
credit reports and other financial information. The Company may also rely on
representations of those customers, counterparties or other third parties, such
as independent auditors, as to the accuracy and completeness of that
information. Reliance on inaccurate or misleading financial statements, credit
reports or other financial information could have a material adverse impact on
the Company’s business and, in turn, the Company’s financial condition and
results of operations.
Consumers
may decide not to use banks to complete their financial
transactions.
Technology and other changes are
allowing parties to complete financial transactions that historically have
involved banks through alternative methods. For example, consumers can now
maintain funds that would have historically been held as bank deposits in
brokerage accounts or mutual funds. Consumers can also complete transactions
such as paying bills and/or transferring funds directly without the assistance
of banks. The process of eliminating banks as intermediaries, known as
“disintermediation,” could result in the loss of fee income, as well as the loss
of customer deposits and the related income generated from those deposits. The
loss of these revenue streams and the lower cost deposits as a source of funds
could have a material adverse effect on the Company’s financial condition and
results of operations.
Item
1B. UNRESOLVED
STAFF COMMENTS
None.
Item
2. PROPERTIES
We conduct our business through our
main office and branch offices. The following table sets forth
certain information relating to these facilities as of December 31,
2009.
Location
|
Year
Opened
|
Approximate
Square
Footage
|
Status
|
Main
Office:
1430
Madison Street
Clarksville,
Tennessee 37040
|
2006
|
17,000
|
Owned
|
Branch
Offices:
Tradewinds
Branch
1929
Madison Street
Clarksville,
Tennessee 37043
|
2007
|
2,300
|
Owned
|
New
St. Bethlehem Branch (1)
2070
Wilma Rudolph Boulevard
Clarksville,
Tennessee 37043
|
2009
|
4,000
|
Owned
|
North
Clarksville Branch
1800
Ft. Campbell Boulevard
Clarksville,
Tennessee 37042
|
1996
|
8,000
|
Owned
|
Riverbend
Branch (2)
1265
Highway 48
Clarksville,
Tennessee 37040
|
2009
|
2,100
|
Leased
|
ATM
Site
1193
& 1195 Ft. Campbell Boulevard
Clarksville,
Tennessee 37042
|
1984
|
N/A
|
Owned
|
Other
Properties:
Commercial
Lot (3)
Pleasant
View, Tennessee 37040
|
N/A
|
N/A
|
Owned
|
St.
Bethlehem Branch (3)
2141
Wilma Rudolph Boulevard
Clarksville,
Tennessee 37040
|
1985
|
4,600
|
Owned
|
Downtown
(Drive-Thru Only) (3)
224
N. 2nd Street
Clarksville,
Tennessee 37042
|
1995
|
600
|
Owned
|
Blue
Hole Lodge (4)
661
Dunbar Cave Road
Clarksville,
Tennessee 37043
|
N/A
|
N/A
|
Owned
|
(1) The
new St. Bethlehem Branch opened in February 2009. The former St.
Bethlehem branch was closed concurrent with the opening of the new
branch.
(2) The
Riverbend Branch opened in March 2009. The premise is leased from a
related party (a partnership whose partners include one director of the
Company.).
(3) Former
branch office location.
(4)
|
See
Item 1, “Business—Subsidiaries”
for more information about this
property.
|
24
Item
3. LEGAL
PROCEEDINGS
Periodically, there have been various
claims and lawsuits against us, such as claims to enforce liens, condemnation
proceedings on properties in which we hold security interests, claims involving
the making and servicing of real property loans and other issues incident to our
business. We are not a party to any pending legal proceedings that we
believe would have a material adverse effect on our financial condition, results
of operations or cash flows.
Item
4. RESERVED
25
|
PART
II
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
Market
for Common Equity and Related Stockholder
Matters
|
The Company’s common stock is listed on
the Nasdaq Global Market (“Nasdaq”) under the trading symbol
“FABK.” The following table sets forth the high and low
intra-day sales prices of First Advantage Bancorp’s common stock for each
quarter of 2009 and 2008, as reported by Nasdaq, and the cash dividends paid per
share.
Cash
|
||||||||||||
Dividends
|
||||||||||||
2009
|
High
|
Low
|
Paid
|
|||||||||
First
Quarter
|
$ | 10.25 | $ | 9.00 | $ | 0.05 | ||||||
Second
Quarter
|
9.88 | 8.96 | 0.05 | |||||||||
Third
Quarter
|
10.50 | 9.20 | 0.05 | |||||||||
Fourth
Quarter
|
10.75 | 10.20 | 0.05 | |||||||||
Cash
|
||||||||||||
Dividends
|
||||||||||||
2008
|
High
|
Low
|
Paid
|
|||||||||
First
Quarter
|
$ | 12.00 | $ | 10.54 | $ | - | ||||||
Second
Quarter
|
12.50 | 11.01 | - | |||||||||
Third
Quarter
|
12.97 | 9.60 | - | |||||||||
Fourth
Quarter
|
10.58 | 9.23 | 0.05 |
As of December 31, 2009, there were
5,264,683 shares of the Company’s common stock issued and 5,171,395 shares of
the Company’s common stock outstanding. Such shares were held by
approximately 659 holders of record as of December 31, 2009. The
closing price per share of the Company’s common stock on December 31, 2009, the
last trading day of the Company’s fiscal year, was $10.61.
Equity Compensation Plan Information
Plan
Category
|
Number
of Shares
to
be Issued Upon
Exercise
of
Outstanding
Awards
|
Weighted-
Average
Exercise
Price
of
Outstanding
Awards
|
Number
of Shares
Available
for
Future
Grants
|
|||||||||
Plans
approved by stockholders:
|
||||||||||||
2008
Executive Incentive Plan - options
|
517,337 | $ | 10.29 | 14,131 | ||||||||
2008
Executive Incentive Plan - restricted stock
|
210,587 | - | - | |||||||||
Total
plans approved by stockholders
|
727,924 | $ | 10.29 | 14,131 | ||||||||
Total
plans not approved by stockholders
|
- | $ | - | - | ||||||||
Total
equity compensation plans
|
727,924 | $ | 10.29 | 14,131 | ||||||||
See
further discussion in note 14 of the Consolidated Financial
Statements.
|
26
Purchases
of Equity Securities
The Company’s board of directors has
authorized one stock repurchase program. The stock repurchase program
allows the Company to proactively manage its capital position and return excess
capital to shareholders. Under the stock repurchase program, which
was approved on December 17, 2008, the Company was authorized to repurchase up
to 263,234 shares or 5.0%, of the Company’s outstanding common stock, through
open market purchases or privately negotiated transactions, from time to time,
depending on market conditions and other factors. There is no
guarantee as to the exact number of shares to be repurchased by the
Company.
The following table provides
information with respect to purchases made by or on behalf of the Company or any
“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities
Exchange Act of 1934), of the Company’s common stock during the fourth quarter
of 2009.
Period
|
Total
Number of
Shares
Purchased
|
Average
Price
Paid
Per Share
|
Total
Number of
Shares
Purchased
as
Part of Publicly
Announced
Programs
|
Maximum
Number
of Shares
That
May Yet Be
Purchased
Under
the
Programs at the
End
of the Period
|
||||||||||||
October
1, 2009 to October 31, 2009
|
- | $ | - | - | 176,850 | |||||||||||
November
1, 2009 to November 30, 2009
|
- | - | - | 176,850 | ||||||||||||
December
1, 2009 to December 31, 2009
|
300 | 10.25 | 300 | 176,550 | ||||||||||||
Total
|
300 | $ | 10.25 | 300 | 176,550 |
27
Item
6. SELECTED
FINANCIAL DATA
At
December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Financial
Condition Data:
|
||||||||||||||||||||
Total
assets
|
$ | 344,224 | $ | 338,404 | $ | 253,403 | $ | 213,419 | $ | 220,725 | ||||||||||
Cash
and due from banks
|
9,204 | 7,991 | 3,209 | 1,754 | 2,415 | |||||||||||||||
Interest-bearing
deposits and time
deposits at other banks
|
1,686 | 4,243 | 970 | 5,631 | 8,746 | |||||||||||||||
Federal
funds sold
|
975 | 9 | 4,897 | 9,364 | 9,000 | |||||||||||||||
Available-for-sale
securities, fair value
|
98,736 | 129,076 | 112,817 | 83,519 | 67,866 | |||||||||||||||
Loans
available-for-sale
|
2,265 | 866 | 1,867 | 1,400 | 777 | |||||||||||||||
Loans
receivable, net
|
211,137 | 176,412 | 115,959 | 98,370 | 120,063 | |||||||||||||||
Deposits
|
216,240 | 186,807 | 169,854 | 176,609 | 171,140 | |||||||||||||||
Federal
Home Loan Bank advances and borrowings
at other banks
|
48,000 | 73,550 | - | - | 12,159 | |||||||||||||||
Total
equity
|
70,526 | 70,261 | 79,505 | 32,889 | 32,535 | |||||||||||||||
For
the Year Ended December 31,
|
||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Operating
Data:
|
(Dollars in thousands)
|
|||||||||||||||||||
Interest
and dividend income
|
$ | 17,232 | $ | 17,285 | $ | 13,253 | $ | 12,406 | $ | 12,719 | ||||||||||
Interest
expense
|
6,367 | 6,602 | 6,016 | 5,153 | 3,979 | |||||||||||||||
Net
interest income
|
10,865 | 10,683 | 7,237 | 7,253 | 8,740 | |||||||||||||||
Provision
(credit) for loan losses
|
868 | 685 | (364 | ) | (736 | ) | 91 | |||||||||||||
Net
interest income after provision (credit)
for loan losses
|
9,997 | 9,998 | 7,601 | 7,989 | 8,649 | |||||||||||||||
Non-interest
income (1) (3) (4) (5)
|
1,649 | (13,796 | ) | 1,987 | 2,536 | 12,006 | ||||||||||||||
Non-interest
expense (2)
|
11,151 | 10,145 | 10,060 | 9,525 | 11,689 | |||||||||||||||
Income
(loss) before provision
(credit)
for income taxes
|
495 | (13,943 | ) | (472 | ) | 1,000 | 8,966 | |||||||||||||
Provision
(credit) for income taxes
|
135 | (5,848 | ) | (217 | ) | 375 | 3,426 | |||||||||||||
Net
income (loss)
|
$ | 360 | $ | (8,095 | ) | $ | (255 | ) | $ | 625 | $ | 5,540 |
(1)
|
In
2005, includes gains on sales of securities of $9.6 million and $1.1
million from the sale of restricted
assets.
|
(2)
|
In
2005, includes a data processing termination penalty fee of
$832,000.
|
(3)
|
In
2007, includes net loss on sale of securities of $301,000 and
other-than-temporary impairment charges of
$282,000.
|
(4)
|
In
2008, includes net loss on sale of securities of $2.7 million and
other-than-temporary impairment charges of $13.6
million.
|
(5)
|
In
2009, includes other-than-temporary impairment charges of $1.1
million.
|
28
At
or for the Year Ended December 31,
|
||||||||||
Selected
Financial Ratios and Other Data
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||
Performance
Ratios:
|
||||||||||
Return
on average assets
|
0.10
|
%
|
(2.60)
|
%
|
(0.12)
|
%
|
0.29
|
%
|
2.44
|
|
Return
on average equity
|
0.51
|
(10.65)
|
(0.69)
|
1.90
|
16.71
|
|||||
Interest
rate spread (1)
|
2.86
|
2.86
|
2.76
|
3.04
|
3.53
|
|||||
Net
interest margin (2)
|
3.37
|
3.60
|
3.45
|
3.60
|
3.97
|
|||||
Other
expenses to average assets
|
3.24
|
3.26
|
4.56
|
4.49
|
5.15
|
|||||
Efficiency
ratio (3)
|
89.11
|
(325.89)
|
109.06
|
97.30
|
56.34
|
|||||
Average
interest-earning assets to average interest-bearing
liabilities
|
1.26
|
x
|
1.33
|
x
|
1.24
|
x
|
1.22
|
x
|
1.25
|
|
Average
equity to average assets
|
20.38
|
%
|
24.41
|
%
|
16.67
|
%
|
15.48
|
%
|
14.61
|
|
Capital
Ratios (Bank only):
|
||||||||||
Tangible
capital
|
13.08
|
%
|
12.86
|
%
|
20.98
|
%
|
15.18
|
%
|
13.87
|
|
Core
capital
|
13.08
|
12.86
|
20.98
|
15.18
|
13.87
|
|||||
Total
risk-based capital
|
19.87
|
22.49
|
35.31
|
28.02
|
23.91
|
|||||
Asset
Quality Ratios:
|
||||||||||
Allowance
for loan losses as a percent of nonperforming loans
|
200.50
|
%
|
262.00
|
%
|
180.62
|
%
|
46.88
|
%
|
110.66
|
|
Net
charge-offs to average outstanding loans during the period
|
0.12
|
0.01
|
0.14
|
0.36
|
0.09
|
|||||
Non-performing
loans as a percent of total loans
|
0.66
|
0.46
|
0.71
|
4.29
|
2.31
|
|||||
Non-performing
assets as a percent of total assets
|
0.5
|
0.25
|
0.33
|
2.47
|
1.53
|
|||||
Other
Data:
|
||||||||||
Number
of offices (4)
|
5
|
5
|
5
|
5
|
5
|
|||||
Number
of deposit accounts
|
12,872
|
12,052
|
11,907
|
13,247
|
12,848
|
|||||
Number
of loans
|
1,823
|
1,587
|
1,395
|
1,565
|
1,590
|
|
_______________
|
(1)
|
Represents
the difference between the weighted average yield on average
interest-earning assets and the weighted average cost on average
interest-bearing liabilities.
|
(2)
|
Represents
net interest income as a percent of average interest-earning
assets.
|
(3)
|
Represents
other expenses divided by the sum of net interest income and other
income.
|
(4)
|
For
2005 through 2008 includes a limited service office with drive-thru and
ATM services only.
|
29
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements and Factors that Could Affect Future Results
Certain statements contained in this
Annual Report on Form 10-K that are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements
are not specifically identified as such. In addition, certain statements may be
contained in the Company’s future filings with the SEC, in press releases, and
in oral and written statements made by or with the approval of the Company that
are not statements of historical fact and constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements include,
but are not limited to: (i) projections of revenues, expenses, income or
loss, earnings or loss per share, the payment or nonpayment of dividends,
capital structure and other financial items; (ii) statements of plans,
objectives and expectations of First Advantage Bancorp or its management or
Board of Directors, including those relating to products or services;
(iii) statements of future economic performance; and (iv) statements
of assumptions underlying such statements. Words such as “believes”,
“anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”,
“should”, “may” and other similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements.
Forward-looking statements involve
risks and uncertainties that may cause actual results to differ materially from
those in such statements. Factors that could cause actual results to differ from
those discussed in the forward-looking statements include, but are not limited
to:
·
|
Local,
regional, national and international economic conditions and the impact
they may have on the Company and its customers and the Company’s
assessment of that impact.
|
||||||||||||||
·
|
Volatility
and disruption in national and international financial
markets.
|
||||||||||||||
·
|
Government
intervention in the U.S. financial system.
|
||||||||||||||
·
|
Changes
in the level of non-performing assets and charge-offs.
|
||||||||||||||
·
|
Changes
in estimates of future reserve requirements based upon the periodic review
thereof under relevant regulatory and accounting
requirements.
|
||||||||||||||
·
|
The
effects of and changes in trade and monetary and fiscal policies and laws,
including the interest rate policies of the Office of Thrift Supervision
and to the Federal Reserve.
|
||||||||||||||
·
|
Inflation,
interest rate, securities market and monetary
fluctuations.
|
||||||||||||||
·
|
The
effect of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which the
Company and its subsidiaries must comply.
|
||||||||||||||
·
|
Political
instability.
|
||||||||||||||
·
|
Acts
of God or of war or terrorism.
|
||||||||||||||
·
|
The
timely development and acceptance of new products and services and
perceived overall value of these products and services by
users.
|
||||||||||||||
·
|
Changes
in consumer spending, borrowings and savings habits.
|
||||||||||||||
·
|
Changes
in the financial performance and/or condition of the Company’s
borrowers.
|
||||||||||||||
·
|
Technological
changes.
|
||||||||||||||
·
|
Acquisitions
and integration of acquired businesses.
|
||||||||||||||
·
|
The
ability to increase market share and control expenses.
|
||||||||||||||
·
|
Changes
in the competitive environment among financial holding companies and other
financial service providers.
|
||||||||||||||
·
|
The
effect of changes in accounting policies and practices, as may be adopted
by the regulatory agencies, as well as the Public Company Accounting
Oversight Board, the Financial Accounting Standards Board and other
accounting standard setters.
|
||||||||||||||
·
|
Changes
in the Company’s organization, compensation and benefit
plans.
|
||||||||||||||
·
|
The
costs and effects of legal and regulatory developments including the
resolution of legal proceedings or regulatory or other governmental
inquiries and the results of regulatory examinations or
reviews.
|
Forward-looking
statements speak only as of the date on which such statements are made. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made,
or to reflect the occurrence of unanticipated events.
30
Overview
The following discussion and analysis
presents the more significant factors affecting the Company’s financial
condition as of December 31, 2009 and 2008 and results of operations for
each of the years in the two-year period ended December 31, 2009. This
discussion and analysis should be read in conjunction with the Company’s
consolidated financial statements, notes thereto and other financial information
appearing elsewhere in this report.
Dollar amounts in tables are stated in
thousands, except per share amounts.
Income. Our primary
source of pre-tax income is net interest income. Net interest income is the
difference between interest income, which is the income that we earn on our
loans and investments, and interest expense, which is the interest that we pay
on our deposits and borrowings. Other significant sources of pre-tax income are
service charges (mostly from service charges on deposit accounts and loan
servicing fees), fees from sale of mortgage loans originated for sale in the
secondary market, and commissions on sales of securities and insurance products.
We also recognize income and loss from the sale of securities.
Allowance for
Loan Losses. The
allowance for loan losses is a valuation allowance for probable losses inherent
in the loan portfolio. We evaluate the need to establish allowances against
losses on loans on a quarterly basis. When additional allowances are necessary,
a provision for loan losses is charged to earnings.
Expenses. The
non-interest expenses we incur in operating our business consist of salaries and
employee benefits expenses, occupancy expenses, federal deposit insurance
premiums, data processing expenses and other miscellaneous
expenses. Our non-interest expenses are likely to increase as a
result of operating as a public company. These additional expenses consist
primarily of legal and accounting fees, expenses of shareholder communications
and meetings, stock exchange listing fees, and expenses related to the addition
of personnel in our accounting department.
Salaries and employee benefits consist
primarily of: salaries and wages paid to our employees; payroll taxes; and
expenses for health insurance, retirement plans and other employee
benefits. We recognize additional annual employee compensation
expenses related to the equity incentive plan which was approved by shareholders
and adopted in 2008.
Occupancy expenses, which are the fixed
and variable costs of buildings and equipment, consist primarily of depreciation
charges, furniture and equipment expenses, maintenance, real estate taxes and
costs of utilities. Depreciation of premises and equipment is computed using the
straight-line method based on the useful lives of the related assets, which
range from three to 40 years.
Data processing expenses are the fees
we pay to third parties for processing customer information, deposits and
loans.
Federal deposit insurance premiums are
payments we make to the Federal Deposit Insurance Corporation for insurance of
our deposit accounts.
Other expenses include expenses for
professional services, advertising, office supplies, postage, telephone,
insurance, regulatory assessments and other miscellaneous operating
expenses.
Critical
Accounting Policies
The accounting and reporting policies
followed by the Company conform, in all material respects, to accounting
principles generally accepted in the United States and to general practices
within the financial services industry. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While the Company
bases estimates on historical experience, current information and other factors
deemed to be relevant, actual results could differ from those
estimates.
The Company considers accounting
estimates to be critical to reported financial results if (i) the
accounting estimate requires management to make assumptions about matters that
are highly uncertain and (ii) different estimates that management
reasonably could have used for the accounting estimate in the current period, or
changes in the accounting estimate that are reasonably likely to occur from
period to period, could have a material impact on the Company’s financial
statements.
31
Allowance for
Loan Losses. The
allowance for loan losses is the amount estimated by management as necessary to
cover losses inherent in the loan portfolio at the balance sheet date. The
allowance is established through the provision for loan losses, which is charged
to income. Determining the amount of the allowance for loan losses necessarily
involves a high degree of judgment. Among the material estimates required to
establish the allowance are: loss exposure at default; the amount and timing of
future cash flows on impacted loans; value of collateral; and determination of
loss factors to be applied to the various elements of the portfolio. All of
these estimates are susceptible to significant change. Management reviews the
level of the allowance at least quarterly and establishes the provision for loan
losses based upon an evaluation of the portfolio, past loss experience, current
economic conditions and other factors related to the collectibility of the loan
portfolio. Although we believe that we use the best information available to
establish the allowance for loan losses, future adjustments to the allowance may
be necessary if economic or other conditions differ substantially from the
assumptions used in making the evaluation. In addition, the Office of Thrift
Supervision, as an integral part of its examination process, periodically
reviews our allowance for loan losses and may require us to recognize
adjustments to the allowance based on its judgments about information available
to it at the time of its examination. A large loss could deplete the allowance
and require increased provisions to replenish the allowance, which would
adversely affect earnings. See note 5 to the consolidated financial statements
beginning on page F-1 of this annual report.
Other-Than-Temporary
Impairment. Management
periodically evaluates the Company’s investment securities portfolio for
other-than-temporary impairment. If a security is considered to be
other-than-temporarily impaired, the related unrealized loss is charged to
earnings, and a new cost basis is established. Factors considered
include the reasons for the impairment, the severity and duration of the
impairment, changes in value subsequent to period-end, and forecasted
performance of the security issuer. Impairment is considered
other-than-temporary unless the Company has both the intent and ability to hold
the security until the fair value recovers and evidence supporting the recovery
outweighs evidence to the contrary. However, for equity securities,
which typically do not have a contractual maturity with a specified cash flow on
which to rely, the ability to hold an equity security indefinitely, by itself,
does not allow for avoidance of other-than-temporary
impairment. Future changes in management’s assessment of other-than-temporary impairment on its
securities could result in significant charges to earnings in future
periods. See note 4 to the consolidated financial statements
beginning on page F-1 of this annual report.
Operating
Strategy
Under the leadership of our current
senior management team, the majority of which was assembled in 2005, our
long-term focus is to operate and grow a profitable community-oriented financial
institution. We plan to achieve this objective by pursuing a strategy
of:
·
|
improving
our policies and procedures and internal control and information
systems;
|
·
|
utilizing
what we believe are conservative underwriting practices to pursue
nonresidential real estate and commercial business lending opportunities
with a focus on small businesses and construction lending opportunities in
our primary market area, including speculative construction lending
opportunities;
|
·
|
continuing
to emphasize consumer/retail banking by offering a broad array of loan and
deposit products;
|
·
|
maintaining
a stable core deposit base and providing remarkable customer service to
attract and retain customers; and
|
·
|
expanding
our market share by opening new branch offices and pursuing opportunities
to acquire other financial institutions, although we currently have no
definitive plans regarding potential acquisition
opportunities.
|
32
Improving our policies and procedures
and internal control and information systems
We continue to improve our policies and
procedures and will make further improvements to internal controls in order to
maintain compliance with the provisions of the Sarbanes-Oxley Act of
2002. In December of 2007 our board of directors adopted a new loan
policy, effective January 1, 2008, which we believe will supply the proper
structure for the Bank’s increased emphasis on small business, non-residential
real estate and commercial lending and also support the Bank’s future
growth.
Utilizing what we believe are
conservative underwriting practices to pursue in our primary market area
nonresidential real estate and commercial business lending
opportunities with a focus on small businesses and construction lending,
including speculative
construction lending opportunities.
We believe that high asset quality is a
key to long-term financial success. Under the leadership of our management team,
we believe we have implemented conservative loan underwriting standards. We
intend to continue to pursue construction lending and nonresidential real estate
and commercial business lending opportunities in our primary market area in
accordance with those underwriting standards. We believe the demographics of our
primary market area, particularly a relatively young and growing population,
provides such opportunities. Over the past five years the bank has
experienced no losses on speculative construction lending.
Continuing to emphasize
consumer/retail banking by offering a broad array of loan and deposit
products
Our mission is to offer a competitive
line of loan and deposit products designed to meet the financial needs of
consumers and small businesses in our primary market area. Toward this end, our
goal is to attract and retain experienced lenders and customer support personnel
and institute a strong customer service culture within our organization, which
we believe will lead to increased sales.
Maintaining a stable core deposit
base and providing remarkable customer service to attract and retain
customers
Core deposits (deposit accounts other
than certificates of deposit) were up 32.2% for the year ended December 31, 2009
due to a program we developed to attract and retain customer
relationships. We value core deposits because they represent longer
term customer relationships and a lower cost of funding compared to certificates
of deposit. We seek to maintain our core deposits through remarkable customer
service and targeted advertising, particularly aimed at local businesses in our
primary market area.
As a community-oriented financial
institution, we emphasize providing remarkable customer service as a means to
attract and retain customers. We deliver personalized service and respond with
flexibility to customer needs. We believe that our community orientation is
attractive to our customers and distinguishes us from the larger banks that
operate in our area.
Expanding our market share and
area
We intend to pursue opportunities to
expand our market share and area by seeking to open additional branch offices
and pursuing opportunities to acquire other financial institutions.
Balance
Sheet Analysis
Loans. Our primary lending activity
is the origination of loans secured by real estate. We originate one-to-four
family mortgage loans, multi-family loans, nonresidential real estate loans,
commercial business loans and construction loans. To a lesser extent, we
originate land loans and consumer loans.
33
Nonresidential
real estate loans were the largest segment of our loan portfolio as of December
31, 2009. These loans totaled $63.9 million, or 29.9% of total loans,
at December 31, 2009. At December 31, 2008, these loans totaled $54.4 million,
or 30.4% of total loans. The balance of nonresidential real estate
loans increased during the year due to our emphasis on growing loans in this
category, particularly with respect to small businesses.
At December 31, 2009, one-to-four
family loans totaled $44.6 million, or 20.8% of total loans, compared to $38.2
million, or 21.4% of total loans at December 31, 2008. The balance of
one-to-four family loans increased during the year primarily due to the
migration of maturing one-to-four family constructions loans to permanent
one-to-four family loans.
Our construction loan portfolio
consists primarily of residential construction loans, including speculative
residential construction loans. Construction loans totaled $26.9 million, or
12.5% of total loans at December 31, 2009. At December 31, 2008, these loans
totaled $24.2 million, or 13.5% of total loans.
Land loans totaled $20.8 million, or
9.7% of total loans, at December 31, 2009, compared to $14.2 million, or 8.0% of
total loans at December 31, 2008. These loans are primarily secured
by vacant land to be improved for residential development. The
increase in land loans during 2009 was consistent with the Bank’s construction
lending efforts, including the development of vacant land for future residential
or non-residential real estate projects.
Multi-family real estate loans totaled
$13.7 million, or 6.4% of total loans at December 31, 2009. At December 31,
2008, these loans totaled $10.8 million, or 6.1% of gross loans.
Consumer loans totaled $20.0 million,
or 9.3% of total loans, at December 31, 2009 compared to $16.8 million, or 9.4%
of gross loans at December 31, 2008.
Commercial business loans totaled $24.1
million, or 11.3% of total loans at December 31, 2009 compared to $20.1 million,
or 11.2% of total loans at December 31, 2008. Commercial loan
balances increased in 2009 due to management’s emphasis on small business
lending, primarily through the U. S. Small Business Administration, and
diversification of the loan portfolio.
34
The
following table sets forth the composition of our loan portfolio at the dates
indicated.
At
December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Real
estate loans:
|
||||||||||||||||||||||||
Permanent
loans:
|
||||||||||||||||||||||||
One-to-four
family
|
$ | 44,582 | 20.8 | % | $ | 38,210 | 21.4 | % | $ | 31,639 | 26.9 | % | ||||||||||||
Multi-family
|
13,695 | 6.4 | 10,816 | 6.1 | 5,043 | 4.3 | ||||||||||||||||||
Nonresidential
|
63,910 | 29.9 | 54,375 | 30.4 | 27,186 | 23.1 | ||||||||||||||||||
Construction
loans:
|
||||||||||||||||||||||||
One-to-four
family
|
13,880 | 6.5 | 16,769 | 9.4 | 13,019 | 11.1 | ||||||||||||||||||
Multi-family
|
3,060 | 1.4 | 2,060 | 1.1 | 3,408 | 2.9 | ||||||||||||||||||
Nonresidential
|
9,941 | 4.6 | 5,410 | 3.0 | 4,282 | 3.6 | ||||||||||||||||||
Land
loans
|
20,849 | 9.7 | 14,216 | 8.0 | 11,539 | 9.8 | ||||||||||||||||||
Total
real estate loans
|
169,917 | 79.3 | 141,856 | 79.4 | 96,116 | 81.7 | ||||||||||||||||||
Consumer:
|
||||||||||||||||||||||||
Home
equity loans and lines of credit
|
16,445 | 7.7 | 13,575 | 7.6 | 7,686 | 6.5 | ||||||||||||||||||
Auto
loans
|
850 | 0.4 | 984 | 0.6 | 505 | 0.4 | ||||||||||||||||||
Deposit
loans
|
257 | 0.1 | 255 | 0.1 | 776 | 0.7 | ||||||||||||||||||
Other
|
2,339 | 1.1 | 1,938 | 1.1 | 1,134 | 1.0 | ||||||||||||||||||
Total
consumer loans
|
19,891 | 9.3 | 16,752 | 9.4 | 10,101 | 8.6 | ||||||||||||||||||
Commercial
loans
|
24,069 | 11.3 | 20,105 | 11.2 | 11,412 | 9.7 | ||||||||||||||||||
Total
loans
|
213,877 | 100.0 | % | 178,713 | 100.0 | % | 117,629 | 100.0 | % | |||||||||||||||
Allowance
for loan losses
|
(2,813 | ) | (2,175 | ) | (1,510 | ) | ||||||||||||||||||
Net
deferred loan costs
|
73 | (126 | ) | (160 | ) | |||||||||||||||||||
Loans
receivable, net
|
$ | 211,137 | $ | 176,412 | $ | 115,959 |
35
At December 31, | ||||||||||||||||
2006
|
2005
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real
estate loans:
|
||||||||||||||||
Permanent
loans:
|
||||||||||||||||
One-to-four
family
|
$ | 34,997 | 34.8 | % | $ | 36,682 | 29.7 | % | ||||||||
Multi-family
|
7,823 | 7.8 | 6,733 | 5.5 | ||||||||||||
Nonresidential
|
26,560 | 26.4 | 33,605 | 27.2 | ||||||||||||
Construction
loans:
|
||||||||||||||||
One-to-four
family
|
13,042 | 13.0 | 16,997 | 13.8 | ||||||||||||
Multi-family
|
1,165 | 1.2 | 1,645 | 1.3 | ||||||||||||
Nonresidential
|
869 | 0.8 | 820 | 0.7 | ||||||||||||
Land
loans
|
6,989 | 6.9 | 7,136 | 5.8 | ||||||||||||
Total
real estate loans
|
91,445 | 90.9 | 103,618 | 84.0 | ||||||||||||
Consumer:
|
||||||||||||||||
Home
equity loans and lines of credit
|
6,055 | 6.0 | 13,283 | 10.7 | ||||||||||||
Auto
loans
|
377 | 0.4 | 472 | 0.4 | ||||||||||||
Deposit
loans
|
502 | 0.5 | 504 | 0.4 | ||||||||||||
Other
|
541 | 0.5 | 742 | 0.6 | ||||||||||||
Total
consumer loans
|
7,475 | 7.4 | 15,001 | 12.1 | ||||||||||||
Commercial
loans
|
1,675 | 1.7 | 4,867 | 3.9 | ||||||||||||
Total
loans
|
100,595 | 100.0 | % | 123,486 | 100.0 | % | ||||||||||
Allowance
for loan losses
|
(2,025 | ) | (3,157 | ) | ||||||||||||
Net
deferred loan costs
|
(200 | ) | (266 | ) | ||||||||||||
Loans
receivable, net
|
$ | 98,370 | $ | 120,063 |
Loan
Maturity
The following table sets forth certain
information at December 31, 2009 regarding the dollar amount of loan principal
repayments becoming due during the periods indicated. The table does not include
any estimate of prepayments which may significantly shorten the average life of
loans and may cause our actual repayment experience to differ from that shown
below. Demand loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less.
At
December 31, 2009
|
||||||||||||||||||||||||||||
|
Multi-
|
|||||||||||||||||||||||||||
|
Family
and
|
|||||||||||||||||||||||||||
|
Nonresidential
|
|||||||||||||||||||||||||||
|
One-to-Four
|
Real
Estate
|
Total
|
|||||||||||||||||||||||||
|
Family
|
Loans
|
Construction
|
Land
|
Consumer
|
Commercial
|
Loans
|
|||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||
Amounts
due in:
|
||||||||||||||||||||||||||||
One
year or less
|
$ | 9,913 | $ | 16,383 | $ | 24,139 | $ | 9,244 | $ | 13,320 | $ | 7,299 | $ | 80,298 | ||||||||||||||
More
than one year to three years
|
10,867 | 15,928 | 1,246 | 9,441 | 2,278 | 7,219 | 46,979 | |||||||||||||||||||||
More
than three years to five years
|
6,784 | 38,444 | 1,496 | 1,861 | 1,794 | 4,603 | 54,982 | |||||||||||||||||||||
More
than five years to fifteen years
|
7,553 | 6,850 | - | 303 | 2,499 | 4,948 | 22,153 | |||||||||||||||||||||
More
than fifteen years
|
9,465 | - | - | - | - | - | 9,465 | |||||||||||||||||||||
Total
|
$ | 44,582 | $ | 77,605 | $ | 26,881 | $ | 20,849 | $ | 19,891 | $ | 24,069 | $ | 213,877 |
36
Fixed vs. Adjustable Rate
Loans
The following table sets forth the
dollar amount of all loans at December 31, 2009 that are due after December 31,
2010, and have either fixed interest rates or floating or adjustable interest
rates. The amounts shown below exclude unearned loan origination
fees.
|
Floating
or
|
|||||||||||
|
Fixed
Rates
|
Adjustable
Rates
|
Total
|
|||||||||
(Dollars
in thousands)
|
||||||||||||
One-to-four
family
|
$ | 33,102 | $ | 1,567 | $ | 34,669 | ||||||
Multi-family
and nonresidential
|
52,510 | 8,712 | 61,222 | |||||||||
Construction
|
1,496 | 1,246 | 2,742 | |||||||||
Land
|
1,811 | 9,793 | 11,604 | |||||||||
Consumer
|
5,404 | 1,168 | 6,572 | |||||||||
Commercial
|
11,583 | 5,187 | 16,770 | |||||||||
Total
|
$ | 105,906 | $ | 27,673 | $ | 133,579 |
Our
adjustable-rate mortgage loans do not adjust downward below the initial
discounted contract rate. When market interest rates rise, as has occurred in
recent periods, the interest rates on these loans may increase based on the
contract rate (the index plus the margin) exceeding the initial interest rate
floor.
Securities.
Our securities portfolio consists primarily of U.S. government and
callable federal agency bonds and U.S. government agency mortgage-backed
securities, with a relatively smaller investment in obligations of states and
political subdivisions and other securities. In the year ended
December 31, 2009 the amortized cost of our securities decreased by $31.3
million, as excess funds were utilized to fund loan growth in lieu of investment
funding.
Our callable securities, with a fair
value of $16.7 million at December 31, 2009, consist of U.S. government agency
bonds and securities that are callable beginning in periods ranging from one to
two years, state and political subdivisions bonds that are callable beginning in
periods ranging from two to eight years, and corporate debt securities that are
callable beginning in periods ranging from one to three years.
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
U.
S. Treasury
|
$ | 4,765 | $ | 6,061 | $ | 4,798 | $ | 6,564 | $ | 4,828 | $ | 6,144 | ||||||||||||
U.
S. Government agencies
|
13,879 | 14,298 | 30,484 | 30,687 | 40,014 | 40,436 | ||||||||||||||||||
U.S.
Government agencies preferred securities
|
- | - | - | - | 7,512 | 7,662 | ||||||||||||||||||
State
and political subdivisions
|
8,466 | 8,554 | 7,631 | 7,394 | 7,718 | 7,735 | ||||||||||||||||||
Mortgage-backed
securities
|
62,825 | 65,086 | 79,765 | 81,510 | 45,938 | 46,343 | ||||||||||||||||||
Collateralized
mortgage obligations
|
4,795 | 4,710 | 2,376 | 2,364 | - | - | ||||||||||||||||||
Corporate
debt securities
|
30 | 30 | 1,069 | 557 | 4,895 | 4,497 | ||||||||||||||||||
Total
|
$ | 94,760 | $ | 98,739 | $ | 126,123 | $ | 129,076 | $ | 110,905 | $ | 112,817 |
37
The
following table sets forth the stated maturities and weighted average yields of
our investment securities at December 31, 2009. Certain mortgage-backed
securities have adjustable interest rates and will reprice annually within the
various maturity ranges. These repricing schedules are not reflected in the
table below.
|
More
than
|
More
than
|
||||||||||||||||||||||||||||||||||||||
|
One
Year
|
One
Year to
|
Five
Years to
|
More
than
|
||||||||||||||||||||||||||||||||||||
|
or
Less
|
Five
Years
|
Ten
Years
|
Ten
Years
|
Total
|
|||||||||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||||||||
|
Carrying
|
Average
|
Carrying
|
Average
|
Carrying
|
Average
|
Carrying
|
Average
|
Carrying
|
Average
|
||||||||||||||||||||||||||||||
|
Value
|
Yield
|
Value
|
Yield
|
Value
|
Yield
|
Value
|
Yield
|
Value
|
Yield
|
||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
U.S.
government and
federal agencies
|
$ | - | - | % | $ | - | - | % | $ | 6,061 | 8 | % | $ | 14,298 | 4.3 | % | $ | 20,359 | 5.4 | % | ||||||||||||||||||||
State
and political subdivisions
|
- | - | - | - | 5,247 | 4.1 | 3,307 | 3.9 | 8,554 | 4.0 | ||||||||||||||||||||||||||||||
Mortgage-backed
securities
|
- | - | 420 | 5.8 | 1,240 | 5.4 | 63,426 | 5 | 65,086 | 5.0 | ||||||||||||||||||||||||||||||
Collateralized
mortgage obligations
|
- | - | - | - | - | - | 4,710 | 4.3 | 4,710 | 4.3 | ||||||||||||||||||||||||||||||
Corporate
debt securities
|
- | - | - | - | - | - | 30 | - | 30 | - | ||||||||||||||||||||||||||||||
Total
|
$ | - | - | % | $ | 420 | 6.0 | % | $ | 12,548 | 5.9 | % | $ | 85,771 | 4.8 | % | $ | 98,739 | 5.0 | % |
Deposits. Deposit accounts, primarily obtained from individuals and businesses within our local market area, are our primary source of funds for lending and investment. Our deposit accounts are comprised of non-interest-bearing accounts, interest-bearing savings accounts, checking accounts, money market accounts and certificates of deposit. During the year ended December 31, 2009, our deposits increased by $29.4 million, or 15.8%, primarily as a result of a concerted program implemented in mid-year 2008 which brought in many new customers.
The
following table sets forth the balances of our deposit products at the dates
indicated.
At
December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
|||||||||
(Dollars
in thousands)
|
||||||||||||
Non-interest
bearing checking accounts
|
$ | 19,426 | $ | 15,493 | $ | 10,490 | ||||||
Interest
bearing accounts:
|
||||||||||||
Savings
|
36,581 | 18,683 | 17,913 | |||||||||
Checking
|
55,895 | 45,401 | 27,249 | |||||||||
Money
market
|
17,230 | 18,079 | 23,957 | |||||||||
Certificates
of deposit
|
87,108 | 89,151 | 90,245 | |||||||||
Total
|
$ | 216,240 | $ | 186,807 | $ | 169,854 |
The
following table indicates the amount of jumbo certificates of deposit by time
remaining until maturity as of December 31, 2009. Jumbo certificates
of deposit require minimum deposits of $100,000.
Maturity
Period
|
||||
At
December 31, 2009
|
(Dollars
in thousands)
|
|||
Three
months or less
|
$ | 10,478 | ||
Over
three through six months
|
5,014 | |||
Over
six through twelve months
|
11,883 | |||
Over
twelve months
|
6,742 | |||
Total
|
$ | 34,117 |
38
Borrowings.
Short term
borrowings. Federal Home Loan Bank (“FHLB”) overnight advances
and federal funds purchased are short-term borrowings that typically mature
within one to ninety days and reprice daily. There were no federal
funds purchased at December 31, 2009 or 2008. Securities sold under
agreements to repurchase consist of customer funds that are invested overnight
in mortgage-related securities. The following table shows the
distribution of short term borrowings, the weighted average interest rates
thereon and the maximum month-end balance at the end of each of the last two
years.
FHLB
Advances and other borrowings
|
||||||||
(Dollars
in thousands)
|
||||||||
FHLB
Short Term Advances
|
December
31, 2009
|
December
31, 2008
|
||||||
Balance
at Year End
|
$ | - | $ | 25,550 | ||||
Weighted
Avg Rate at Year End
|
- | 0.34 | % | |||||
Average
Balance During the Year
|
13,855 | 22,655 | ||||||
Weighted
Avg Rate During the Year
|
0.21 | % | 1.94 | % | ||||
Maximum
month-end Balance
|
20,000 | 34,605 | ||||||
Fed
Funds Purchased
|
||||||||
Balance
at Year End
|
$ | - | $ | - | ||||
Weighted
Avg Rate at Year End
|
- | - | ||||||
Average
Balance During the Year
|
177 | 234 | ||||||
Weighted
Avg Rate During the Year
|
0.67 | % | 2.72 | % | ||||
Maximum
month-end Balance
|
225 | 15 | ||||||
Securities
Sold Under Agreements to Repurchase
|
||||||||
Balance
at Year End
|
$ | 6,883 | $ | 5,047 | ||||
Weighted
Avg Rate at Year End
|
2.01 | % | 3.63 | % | ||||
Average
Balance During the Year
|
6,297 | 4,563 | ||||||
Weighted
Avg Rate During the Year
|
1.99 | % | 3.40 | % | ||||
Maximum
month-end Balance
|
7,876 | 6,826 |
Federal Home Loan Bank Long Term
Borrowings. The Bank has fixed rate putable advances maturing
on January 14, 2015 in the amount of $13,000, putable on January 14, 2010 and
annually thereafter, with a weighted average rate of 2.99%.
Structured Repurchase
Agreements. In a leverage strategy, on April 30, 2008, the
Bank entered into two balance sheet leverage transactions whereby it borrowed a
total of $35,000 in multiple rate repurchase agreements with an initial average
cost of 3.67% and invested the proceeds in U. S. Agency pass-through mortgage
backed securities (the “Securities”), which were pledged as
collateral. The Bank secured the borrowed funds by Securities valued
at 116% of the outstanding principal balance of the borrowings. The
borrowings have original maturity dates ranging from four to ten years, with a
weighted average maturity of 6.9 years and certain borrowings have a call option
starting with periods ranging from two to three years after origination and are
continuously callable after the initial call date. During the loan
term, any collateral that is subject to maturity or call is replaced with other
U. S. Agency instruments approved by the lender.
39
A summary
of the material terms of each agreement is set forth below.
Four Year
Liability Side Structured Repurchase Agreement. The Bank agreed to transfer
approximately $10,900 of U. S. Agency pass-through Mortgage Backed Securities as
collateral for a $10,000 repurchase facility, bearing interest
at market rates. The termination for the repurchase
facility is April 30, 2012.
Ten Year
Non-Putable Three Year Liability Side Structured Repurchase
Agreement. The Bank agreed to transfer approximately $11,800 of U. S.
Agency pass-through Mortgage Backed Securities as collateral for a $10,000
repurchase facility, bearing interest at market rates. The
termination for the repurchase facility is April 30, 2018, subject to early
cancellation.
Ten Year
Non-Putable Two Year Liability Side Structured Repurchase
Agreement. The Bank agreed to transfer approximately $5,900 of U. S.
Agency pass-through Mortgage Backed Securities as collateral for a $5,000
repurchase facility, bearing interest at market rates. The
termination for the repurchase facility is April 30, 2018, subject to early
cancellation.
Five Year
Non-Putable Three Year Bermudan Structured Repurchase Agreement. The
Bank agreed to transfer approximately $11,800 of U. S. Agency pass-through
Mortgage Backed Securities as collateral for a $10,000 repurchase facility,
bearing interest at market rates. The termination for the repurchase
facility is April 30, 2013, subject to early cancellation.
Term Repurchase Agreements:
|
||||
Repurchase
agreement - rate 3.28%, due April 30, 2018, callable after April 30,
2011
|
$ | 10,000 | ||
Repurchase
agreement - rate 2.96%, due April 30, 2018, callable after April 30,
2010
|
5,000 | |||
Structured
repurchase agreement - rate 3.71%, due April 30, 2013, callable
after
April
30, 2011, with embedded interest cap at LIBOR of 3.50% starting April 30,
2010
|
10,000 | |||
Structured
repurchase agreement - rate 4.39%, due April 30, 2012 with
embedded
interest
cap at LIBOR of 3.50% starting April 30, 2010
|
10,000 | |||
$ | 35,000 |
Results
of Operations for the Years Ended December 31, 2009 and 2008
Overview.
Net income of $360,000 was recorded for
the year ended December 31, 2009 compared to a net loss of $8.1 million for the
year ended December 31, 2008. Results for the year ended December 31,
2008 were negatively impacted by other-than-temporary impairment (“OTTI”)
charges for certain investment securities classified as available-for-sale and
losses on the sale of Federal National Mortgage Association (“Fannie Mae”) and
Federal Home Loan Mortgage Corporation (“Freddie Mac”) perpetual preferred
securities. During the third quarter of 2008, we recognized
$13.6 million of other-than-temporary impairment on these
investments. In September 2008, we recorded impairment charges of
$9.8 million for our investment grade perpetual callable preferred securities
issued by Freddie Mac and Fannie Mae, and we recorded impairment charges of $3.8
million for our investment in pooled trust preferred securities
(“PreTSLs”). The Company recognized non-cash OTTI charges of $1.1
million pre-tax ($673,000 after-tax) in the fourth quarter of 2009 on the
remaining balance of its investment in pooled trust preferred securities which
reduced the Company’s book value of the securities to approximately
$30,000.
Net
Interest Income.
Net interest income was $10.9 million
for the year ended December 31, 2009 compared to $10.7 million for the year
ended December 31, 2008. Total interest income of $17.2 million was
recorded for the year ended December 31, 2009, as interest income on loans
increased and interest income on securities and other interest income
decreased. Interest income on loans increased by 24.0% to
$11.3 million due to higher average balances while the average yield decreased
by 12 basis points. Interest income on investment securities
decreased by 27.7% to $5.6 million, primarily due to a decrease of $18.2
million, or 13.4%, in investment balances and a decline of 94 basis points in
investment yields. Investment yields were negatively impacted by the
calls of some higher yielding U. S. Government Agency bonds and accelerated
prepayments on the Bank’s mortgage-backed securities which increased the
amortization of premiums paid and decreased the yield on those investments
during the year ended December 31, 2009.
Total interest expense was $6.4 million
for the year ended December 31, 2009 compared to $6.6 million for the year ended
December 31, 2008. Average Federal Home Loan Bank advances and other
borrowings decreased by $6.7 million and interest expense related to these
borrowings decreased $431,000, or 80 basis points, for the year ended December
31, 2009. The cost of interest-bearing deposits decreased $236,000,
or 60 basis points, as average balances of interest-bearing deposits increased
18.7% for the year ended December 31, 2009 compared to the year ended December
31, 2008. Average long-term borrowings at other banks (which consist
of borrowings related to the leverage transaction entered into in April of 2008)
increased 48.8% to $35.0 million and interest expense related to these long-term
borrowings increased 49.5% to $1.3 million for the year ended December 31, 2009
compared to the year ended December 31, 2008.
40
Average
Balances and Yields.
The following table sets forth certain
information relating to the Company’s average balance sheet and reflects the
average yield on assets and cost of liabilities for the periods indicated and
the average yields earned and rates paid. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the years ended December 31, 2009 and December 31,
2008. Total average assets are computed using month-end balances. No
tax equivalent adjustments have been made as the Company’s investment in tax
exempt assets, during the periods presented, were immaterial. The table also
presents information for the periods indicated with respect to the differences
between the average yield earned on interest-earning assets and average rate
paid on interest-bearing liabilities, or “interest rate spread,” which banks
have traditionally used as an indicator of profitability. Another indicator of
net interest income is “net interest margin,” which is its net interest income
divided by the average balance of interest-earning assets. Non-accrual loans are
included in average balances. Loan fees and late charges are included in
interest income on loans and are not material.
Year
Ended December 31,
|
||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Interest
|
Interest
|
Interest
|
||||||||||||||||
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
||||||||||
Balance
|
Expense
|
Cost
|
Balance
|
Expense
|
Cost
|
Balance
|
Expense
|
Cost
|
||||||||||
Assets:
|
||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||
Interest-earning
demand deposits
|
$ 6,910
|
$ 141
|
2.05%
|
$ 3,775
|
$ 212
|
5.62%
|
$ 5,675
|
$ 293
|
5.16%
|
|||||||||
Loans
|
192,143
|
11,371
|
5.92%
|
151,827
|
9,169
|
6.04%
|
104,835
|
7,537
|
7.19%
|
|||||||||
Investment
securities
|
118,245
|
5,585
|
4.72%
|
136,458
|
7,720
|
5.66%
|
94,586
|
5,234
|
5.53%
|
|||||||||
Other
interest-earning assets
|
5,509
|
135
|
2.44%
|
4,320
|
184
|
4.26%
|
4,799
|
189
|
3.94%
|
|||||||||
Total
interest-earning assets
|
322,807
|
17,232
|
5.34%
|
296,380
|
17,285
|
5.83%
|
209,895
|
13,253
|
6.31%
|
|||||||||
Non-interest-earning
assets
|
21,311
|
14,956
|
10,606
|
|||||||||||||||
Total
assets
|
$344,118
|
$
311,336
|
$
220,501
|
|||||||||||||||
Liabilities
and shareholders' equity:
|
||||||||||||||||||
Interest-bearing
deposits
|
$188,227
|
$ 4,518
|
2.40%
|
$
158,510
|
$ 4,754
|
3.00%
|
$
168,733
|
$ 5,980
|
3.54%
|
|||||||||
FHLB
advances and other borrowings
|
33,329
|
545
|
1.64%
|
39,991
|
976
|
2.44%
|
736
|
36
|
4.89%
|
|||||||||
Long-term
borrowings at other banks
|
35,000
|
1,304
|
3.73%
|
23,525
|
872
|
3.71%
|
-
|
-
|
-
|
|||||||||
Total
interest-bearing liabilities
|
256,556
|
6,367
|
2.48%
|
222,026
|
6,602
|
2.97%
|
169,469
|
6,016
|
3.55%
|
|||||||||
Non-interest-bearing
deposits
|
14,906
|
10,430
|
11,947
|
|||||||||||||||
Other
noninterest-bearing liabilities
|
2,529
|
2,880
|
2,332
|
|||||||||||||||
Total
liabilities
|
273,991
|
235,336
|
183,748
|
|||||||||||||||
Shareholders'
equity
|
70,127
|
76,000
|
36,753
|
|||||||||||||||
Total
liabilities and shareholders' equity
|
$344,118
|
$
311,336
|
$
220,501
|
|||||||||||||||
Net
interest income
|
$10,865
|
|
$
10,683
|
|
$ 7,237
|
|||||||||||||
Net
interest margin
|
3.37%
|
3.60%
|
3.45%
|
|||||||||||||||
Interest
rate spread
|
2.86%
|
2.86%
|
2.76%
|
|||||||||||||||
Average
interest-earning assets to
|
||||||||||||||||||
average
interest-bearing liabilities
|
125.82%
|
133.49%
|
123.85%
|
41
Rate/Volume
Analysis. The following table sets forth the effects of changing rates
and volumes on our net interest income. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes
in volume (changes in volume multiplied by prior rate). The net
column represents the sum of the prior columns. Changes attributable
to changes in both rate and volume that cannot be segregated have been allocated
proportionally between rate and volume.
Year
Ended December 31, 2009
compared
to
Year
Ended December 31, 2008
|
Year
Ended December 31, 2008
compared
to
Year
Ended December 31, 2007
|
|||||||||||||||||||||||
Increase
(Decrease) due
to
|
Increase
(Decrease) due
to
|
|||||||||||||||||||||||
Volume
|
Rate
|
Net
|
Volume
|
Rate
|
Net
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Interest
and dividend income:
|
||||||||||||||||||||||||
Interest-earning
demand deposits
|
$ | (302 | ) | $ | 231 | $ | (71 | ) | $ | (110 | ) | $ | 29 | $ | (81 | ) | ||||||||
Loans
|
2,380 | (178 | ) | 2,202 | 2,538 | (906 | ) | 1,632 | ||||||||||||||||
Investment
securities
|
(959 | ) | (1,176 | ) | (2,135 | ) | 2,370 | 116 | 2,486 | |||||||||||||||
Other
interest-earning assets
|
93 | (142 | ) | (49 | ) | (30 | ) | 25 | (5 | ) | ||||||||||||||
Total
earning assets
|
$ | 1,212 | $ | (1,265 | ) | $ | (53 | ) | $ | 4,768 | $ | (736 | ) | $ | 4,032 | |||||||||
Interest
expense:
|
||||||||||||||||||||||||
Interest
bearing deposits
|
$ | 3,634 | $ | (3,870 | ) | $ | (236 | ) | $ | (354 | ) | $ | (872 | ) | $ | (1,226 | ) | |||||||
FHLB
advances and other borrowings
|
(143 | ) | (288 | ) | (431 | ) | 949 | (9 | ) | 940 | ||||||||||||||
Long-term
borrowings at other banks
|
427 | 5 | 432 | 872 | - | 872 | ||||||||||||||||||
Total
interest-bearing liabilities
|
3,918 | (4,153 | ) | (235 | ) | 1,467 | (881 | ) | 586 | |||||||||||||||
Net
increase (decrease) in interest income
|
$ | (2,706 | ) | $ | 2,888 | $ | 182 | $ | 3,301 | $ | 145 | $ | 3,446 |
Provision
for Loan Losses.
The
provision for loan losses was $868,000 in 2009 compared to $685,000 in
2008. The increase in the provision was primarily attributable to
loan growth of approximately 19.7% during the year ended December 31, 2009 and,
to a lesser extent, the increase in nonperforming and classified loans and
weakened general economic conditions.
An analysis of the changes in the
allowance for loan losses is presented under “—Risk Management—Analysis and
Determination of the Allowance for Loan Losses.”
42
Non-interest
Income. The following table shows the components of
non-interest income for the years ended December 31, 2009 and 2008.
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
%
Change
|
||||||||||
(Dollars in thousands) | ||||||||||||
Non-interest
Income
|
||||||||||||
Customer
service and other fees
|
$ | 1,277 | $ | 1,201 | 6.33 | % | ||||||
Loan
servicing and other fees
|
74 | 49 | 51.02 | |||||||||
Net
gains on loan sales
|
1,213 | 608 | 99.51 | |||||||||
Net
gain (loss) on sales of available-for-sale securities
|
7 | (2,656 | ) | (100.26 | ) | |||||||
Other-than-temporary
impairment on available-for-sale securities
|
(1,091 | ) | (13,577 | ) | (91.96 | ) | ||||||
Net
gain on sales of other assets held for sale
|
- | 295 | 100.00 | |||||||||
Commissions
on insurance and brokerage
|
158 | 292 | (45.89 | ) | ||||||||
Net
loss on premises and equipment
|
(17 | ) | (37 | ) | (54.05 | ) | ||||||
Other
|
28 | 29 | (3.45 | ) | ||||||||
Total
non-interest income (loss)
|
$ | 1,649 | $ | (13,796 | ) | (111.95 | ) % |
Total
non-interest income was $1.6 million for the twelve months ended December 31,
2009, compared to a net loss of $13.8 million over the same period in 2008.
During the fourth quarter of 2009, the Company recognized non-cash
other-than-temporary impairment (“OTTI”) charges of $1.1 million on the
remaining balance of its investment in pooled trust preferred securities which
reduced the Company’s book value of the securities to approximately
$30,000. The overriding factor contributing to the loss in
non-interest income for the year ended December 31, 2008 was OTTI charges and
realized losses from the sale of perpetual preferred securities. More
specifically, in September 2008, the Company recorded OTTI charges of $9.8
million for investment grade perpetual callable preferred securities issued by
Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National
Mortgage Association (“Fannie Mae”), and it recorded impairment charges of $3.8
million for its investments in pooled trust preferred securities. The
Company also recorded $2.6 million in losses from the sale of Fannie Mae
perpetual preferred stock during the third quarter of 2008. The
Company liquidated all of its remaining Fannie Mae and Freddie Mac perpetual
preferred securities holdings during the fourth quarter of 2008 which resulted
in additional realized losses of $570,000. These realized losses were
partially offset by gains on the sale of available-for-sale securities of
$463,000 which were realized during the fourth quarter of 2008.
The
OTTI charges which negatively affected non-interest income results for the year
ended December 31, 2009 were partially offset by a 99.5% increase in net gains
on loan sales into the secondary mortgage market compared to the year ended
December 31, 2008. This increase was primarily attributed to higher
volume in refinancing of existing homes and customers taking advantage of the U.
S. government’s tax credit incentives for first-time home
buyers. Loan servicing and others fees increased 51.0% for the year
ended December 31, 2009 compared to the year ended 2008 primarily due to our
increased loan volume. Customer service and other fees increased 6.3%
for the year ended December 31, 2009 as compared to the year ended December 31,
2008, primarily due to an increase in deposit holders at the
Bank. The net gain on sales of other assets held for sale during 2008
was primarily related to the March 27, 2008, sale of the Bank’s former
headquarters. Commissions on insurance and brokerage declined 45.9%
for the year ended December 31, 2009 from the year ended December 31, 2008 as a
result of continued overall market turmoil.
43
Non-interest
Expense. The following table shows the components of non-interest expense
and the percentage changes for the years ended December 31, 2009 and
2008.
Year
Ended December 31,
|
|||||||
2009
|
2008
|
%
Change
|
|||||
(Dollars
in thousands)
|
|||||||
Non-interest
Expense
|
|||||||
Salaries
and employee benefits
|
$ 5,951
|
$ 5,825
|
2.16
|
%
|
|||
Net
occupancy expense
|
635
|
512
|
24.02
|
||||
Equipment
expense
|
671
|
598
|
12.21
|
||||
Data
processing fees
|
863
|
784
|
10.08
|
||||
Professional
fees
|
424
|
601
|
(29.45)
|
||||
Marketing
expense
|
285
|
288
|
(1.04)
|
||||
Office
expense
|
328
|
271
|
21.03
|
||||
Loan
collection and repossession expense
|
19
|
4
|
600.00
|
||||
Insurance
expense
|
80
|
86
|
(6.98)
|
||||
FDIC
premiums and OTS assessments
|
539
|
147
|
266.67
|
||||
Other
|
1,356
|
1,029
|
30.90
|
||||
Total
non-interest expense
|
$ 11,151
|
$ 10,145
|
9.92
|
%
|
For the
year ended December 31, 2009 non-interest expense increased 9.9% to $11.2
million compared to $10.1 million for the year ended December 31,
2008. The increase in non-interest expense for 2009 was primarily due
to increased FDIC premiums and OTS assessments which totaled $539,000 for the
year ended December 31, 2009 compared to $147,000 for the year ended December
31, 2008. The increase in FDIC premium expense was the result of the
special assessment of five basis points on each FDIC insured institution’s
assets minus Tier-1 capital that occurred during the second quarter of
2009. Additionally, the Bank’s 2008 FDIC premium costs were unusually
low due to utilization of a one-time credit.
The
addition of a new branch facility and higher property tax and maintenance costs
contributed to an increase of $123,000 or 24.0% in occupancy expense for the
year ended December 31, 2009 compared to the year ended December 31,
2008. Data processing fees, office expense and equipment expense
increased a total of $209,000 or 12.6% primarily due to expanded service
offerings, increased volumes related to customer growth and higher
depreciation. Total salaries and employee benefits increased
$126,000, or 2.2% for the year ended December 31, 2009 compared to the year
ended December 31, 2008, mainly due to the recognition of a full year of expense
related to the stock awards for directors and employees under the Company’s 2008
Equity Incentive Plan, which was only in place for approximately five months
during 2008. Professional fees declined $177,000 for the twelve
months ended December 31, 2009 compared to the same period of 2008 primarily due
to decreased audit and consulting fees.
Provision
(Credit) for Income Taxes.
The
provision for income taxes was $135,000 for the year ended December 31, 2009
compared to a credit for income taxes of $5.8 million for the year ended
December 31, 2008. The effective income tax rate for 2009 was 27.7%
compared to 41.9% for 2008. The decrease in the effective tax rate
reflects an increase in the relative impact of tax exempt income on the overall
tax rate and the positive impact of reversing $39,000 of tax reserves during
2009.
44
Risk
Management
Overview. Managing risk is
an essential part of successfully managing a financial institution. Our most
prominent risk exposures are credit risk, interest rate risk and market risk.
Credit risk is the risk of not collecting the interest and/or the principal
balance of a loan or investment when it is due. Interest rate risk is the
potential reduction of interest income as a result of changes in interest rates.
Market risk arises from fluctuations in interest rates that may result in
changes in the values of financial instruments, such as available-for-sale
securities, that are accounted for on a mark-to-market basis. Other
risks that we face are operational risks, liquidity risks and reputation risk.
Operational risks include risks related to fraud, regulatory compliance,
processing errors, technology and disaster recovery. Liquidity risk
is the possible inability to fund obligations to depositors, lenders or
borrowers. Reputation risk is the risk that negative publicity or
press, whether true or not, could cause a decline in our customer base or
revenue.
Credit Risk
Management. Our strategy for
credit risk management focuses on having well-defined credit policies and
uniform underwriting criteria and providing prompt attention to potential
problem loans.
When a borrower fails to make a
required loan payment, we take a number of steps to have the borrower cure the
delinquency and restore the loan to current status. When the loan
becomes 15 days past due, a late notice is sent to the borrower. When
the loan becomes 30 days past due, a more formal letter is sent. Between 15 and
30 days past due, telephone calls are also made to the borrower. After 30 days,
we regard the borrower as in default. At 60 days delinquent, the
borrower may be sent a letter from our attorney and we may commence collection
proceedings. If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the real
property securing the loan is sold at foreclosure. When a consumer
loan becomes 60 days past due, we institute collection proceedings and attempt
to repossess any personal property that secures the loan. Management
informs the board of directors monthly of the amount of loans delinquent more
than 30 days, all loans in foreclosure and repossessed property that we
own.
Nonperforming and Classified
Assets.
We consider repossessed assets and
loans that are typically 90 days or more past due to be nonperforming assets.
Typically, loans are placed on nonaccrual status when they become 90
days delinquent at which time the accrual of interest ceases and the allowance
for any uncollectible accrued interest is established and charged against
operations. Typically, payments received on a nonaccrual loan are
first applied to the outstanding principal balance. Real estate that
we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until it is sold. When property is
acquired it is recorded at fair market value at the date of
foreclosure. Holding costs and declines in fair value after
acquisition of the property result in charges against income. Interest accrued
and unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent interest payments are applied to the
outstanding principal balance.
45
The following table provides
information with respect to our nonperforming assets at the dates indicated. We
had no troubled debt restructurings at any of the dates indicated and we had no
impaired loans at December 31, 2009.
At
December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Nonaccrual
loans:
|
||||||||||||||||||||
One-to-four
family
|
$ | 888 | $ | 641 | $ | 613 | $ | 420 | $ | 112 | ||||||||||
Multifamily
and nonresidential
|
432 | - | - | 3,888 | 2,206 | |||||||||||||||
Construction
|
- | 165 | 184 | - | - | |||||||||||||||
Land
|
- | - | - | - | - | |||||||||||||||
Consumer
|
65 | 10 | 30 | - | 194 | |||||||||||||||
Commercial
|
18 | 14 | 9 | 12 | 341 | |||||||||||||||
Total
|
1,403 | 830 | 836 | 4,320 | 2,853 | |||||||||||||||
Accruing
loans past due 90 days or more:
|
||||||||||||||||||||
One-to-four
family
|
- | - | - | - | - | |||||||||||||||
Multi-family
and nonresidential
|
- | - | - | - | - | |||||||||||||||
Construction
|
- | - | - | - | - | |||||||||||||||
Land
|
- | - | - | - | - | |||||||||||||||
Consumer
|
- | - | - | - | - | |||||||||||||||
Commercial
|
- | - | - | - | - | |||||||||||||||
Total
|
- | - | - | - | - | |||||||||||||||
Total
of nonaccrual and 90 days or more
past due loans
|
1,403 | 830 | 836 | 4,320 | 2,853 | |||||||||||||||
Real
estate owned
|
301 | - | - | 946 | 519 | |||||||||||||||
Other
nonperforming assets
|
- | - | - | - | - | |||||||||||||||
Total
nonperforming assets
|
$ | 1,704 | $ | 830 | $ | 836 | $ | 5,266 | $ | 3,372 | ||||||||||
Total
nonperforming loans to total loans
|
0.66 | % | 0.46 | % | 0.71 | % | 4.29 | % | 2.31 | % | ||||||||||
Total
nonperforming loans to total assets
|
0.41 | % | 0.25 | % | 0.33 | % | 2.02 | % | 1.29 | % | ||||||||||
Total
nonperforming assets to total assets
|
0.50 | % | 0.25 | % | 0.33 | % | 2.47 | % | 1.53 | % |
Nonperforming assets include nonaccrual
loans and foreclosed assets. Non-performing assets totaled $1.7
million at December 31, 2009 compared to $830,000 at December 31,
2008. The increase was primarily in the one-to-four family
residential mortgage and multi-family loan
portfolios.
Federal regulations require us to
review and classify our assets on a regular basis. In addition, the Office of
Thrift Supervision has the authority to identify problem assets and, if
appropriate, require them to be classified. There are three classifications for
problem assets: substandard, doubtful and loss. “Substandard assets” must have
one or more defined weaknesses and are characterized by the distinct possibility
that we will sustain some loss if the deficiencies are not corrected. “Doubtful
assets” have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. An asset classified “loss” is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. The regulations also provide for a “special
mention” category, described as assets which do not currently expose us to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving our close attention. When we
classify an asset as substandard or doubtful we may establish a specific
allowance for loan losses. If we classify an asset as loss, we charge off an
amount equal to 100% of the portion of the asset classified loss.
46
The following table shows the aggregate
amounts of our classified assets at the dates indicated.
At
December 31,
|
||||||||
|
2009
|
2008
|
||||||
(Dollars
in thousands)
|
||||||||
Special
mention assets
|
$ | 222 | $ | 909 | ||||
Substandard
assets
|
3,241 | 1,193 | ||||||
Doubtful
assets
|
- | - | ||||||
Loss
assets
|
- | - | ||||||
Total
classified assets
|
$ | 3,463 | $ | 2,102 |
There was a 64.8% increase in the level
of classified assets from December 31, 2008 to December 31, 2009 primarily in
our one-to-four family residential and multi-family loan
portfolios. Classified assets increased to $3.5 million at December
31, 2009 as compared to $2.1 million at December 31, 2008. These
classified assets are primarily loans rated special mention or substandard in
accordance with regulatory guidance. These assets warrant and receive
increased management oversight and loan loss reserves have been established to
account for the increased credit risk of these assets. Classified assets include loans that
are classified due to factors other than payment delinquencies, such as lack of
current financial statements and other required documentation, insufficient cash
flows or other deficiencies, and, therefore, are not included as non-performing
assets. Other than as disclosed in the above tables, there are no other loans
where management has serious doubts about the ability of the borrowers to comply
with the present loan repayment terms.
Analysis and
Determination of the Allowance for Loan Losses.
The allowance for loan losses is a
valuation allowance for probable credit losses in the loan portfolio and
represents management’s best estimate of known and inherent losses in the loan
portfolio, based upon management’s evaluation of the portfolio’s collectibility.
We evaluate the need to establish allowances against losses on loans on a
quarterly basis. When additional allowances are necessary, a provision for loan
losses is charged to earnings. The recommendations for increases or decreases to
the allowance are approved by the Asset Quality Review Committee and presented
to the Board of Directors.
Our methodology for assessing the
appropriateness of the allowance for loan losses consists of: (1) a specific
allowance on identified problem loans; and (2) a general valuation allowance on
the remainder of the loan portfolio. Management estimates a range of losses and
then makes its best estimate of potential credit losses within that range.
Although we determine the amount of each element of the allowance separately,
the entire allowance for loan losses is available for the entire
portfolio.
Specific
Allowance Required for Identified Problem Loans. We establish an
allowance on certain identified problem loans based on such factors as: (1) the
strength of the customer’s personal or business cash flows; (2) the availability
of other sources of repayment; (3) the amount due or past due; (4) the type and
value of collateral; (5) the strength of our collateral position; and (6) the
borrower’s effort to cure the delinquency.
General Valuation
Allowance on the Remainder of the Loan Portfolio. We establish a general
allowance for loans that are not currently classified in order to recognize the
inherent losses associated with lending activities. This general valuation
allowance is determined through two steps. First, we estimate potential losses
on the portfolio by analyzing historical losses for each loan category. Second,
we look at additional significant factors that, in management’s judgment, affect
the collectibility of the portfolio as of the evaluation date. These significant
factors may include changes in lending policies and procedures; international,
national, regional and local economic conditions; changes in the nature and
volume of the portfolio; changes in the experience, ability and depth of lending
management; changes in the volume of past dues, non-accruals and classified
assets; changes in the quality of the loan review system; changes in the value
of underlying collateral for collateral dependent loans; concentrations of
credit, and other factors.
We also identify loans that may need to
be charged-off as a loss by reviewing all delinquent loans, classified loans and
other loans for which management may have concerns about collectibility. For
individually reviewed loans, the borrower’s inability to make payments under the
terms of the loan or a shortfall in collateral value would result in our
allocating a portion of the allowance to the loan that was
impaired.
47
At
December 31, 2009, our allowance for loan losses represented 1.3% of total gross
loans and 200.1% of nonperforming loans. At December 31, 2008, our
allowance for loan losses represented 1.2% of total gross loans and 262.1% of
nonperforming loans. The allowance for loan losses increased $638,000
to $2.8 million at December 31, 2009 from $2.2 million at December 31, 2008
primarily due an increase loan growth of approximately 19.7% during the year
ended December 31, 2009 and, to a lesser extent, the increase in nonperforming
and classified loans and weakened general economic conditions.
The following table sets forth the
breakdown of the allowance for loan losses by loan category at the dates
indicated.
At
December 31,
|
||||||||||||||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||||||||||||||||||||||||
%
of
|
%
of
|
%
of
|
||||||||||||||||||||||||||||||||||
%
of
|
Loans
in
|
%
of
|
Loans
in
|
%
of
|
Loans
in
|
|||||||||||||||||||||||||||||||
Allowance
|
Category
|
Allowance
|
Category
|
Allowance
|
Category
|
|||||||||||||||||||||||||||||||
to
Total
|
to
Total
|
to
Total
|
to
Total
|
to
Total
|
to
Total
|
|||||||||||||||||||||||||||||||
Amount
|
Allowance
|
Loans
|
Amount
|
Allowance
|
Loans
|
Amount
|
Allowance
|
Loans
|
||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||
One-to-four
family
|
$ | 280 | 10.0 | % | 20.8 | % | $ | 220 | 10.1 | % | 21.4 | % | $ | 185 | 12.3 | % | 26.9 | % | ||||||||||||||||||
Multi-family
and
nonresidential
|
1,125 | 40.0 | 36.8 | 871 | 40.1 | 36.5 | 870 | 57.6 | 27.4 | |||||||||||||||||||||||||||
Construction
|
160 | 5.7 | 12.2 | 185 | 8.5 | 13.6 | 42 | 2.8 | 17.6 | |||||||||||||||||||||||||||
Land
|
286 | 10.2 | 9.7 | 39 | 1.8 | 8.0 | 40 | 2.6 | 9.8 | |||||||||||||||||||||||||||
Consumer
|
200 | 7.1 | 9.3 | 135 | 6.2 | 9.3 | 75 | 5.0 | 8.6 | |||||||||||||||||||||||||||
Commercial
|
762 | 27.1 | 11.2 | 725 | 33.4 | 11.2 | 298 | 19.7 | 9.7 | |||||||||||||||||||||||||||
Total
allowance for loan losses
|
$ | 2,813 | 100.0 | % | 100.0 | % | $ | 2,175 | 100.0 | % | 100.0 | % | $ | 1,510 | 100.0 | % | 100.0 | % |
At
December 31,
|
||||||||||||||||||||||||
|
2006
|
2005
|
||||||||||||||||||||||
|
|
|
%
of
|
|
|
%
of
|
||||||||||||||||||
|
|
%
of
|
Loans
in
|
|
%
of
|
Loans
in
|
||||||||||||||||||
|
|
Allowance
|
Category
|
|
Allowance
|
Category
|
||||||||||||||||||
|
|
to
Total
|
to
Total
|
|
to
Total
|
to
Total
|
||||||||||||||||||
|
Amount
|
Allowance
|
Loans
|
Amount
|
Allowance
|
Loans
|
||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
One-to-four
family
|
$ | 197 | 9.7 | % | 34.8 | % | $ | 355 | 11.2 | % | 29.7 | % | ||||||||||||
Multi-family
and
nonresidential
|
1,410 | 69.7 | 34.2 | 2,194 | 69.5 | 32.7 | ||||||||||||||||||
Construction
|
32 | 1.6 | 15.0 | 42 | 1.3 | 15.8 | ||||||||||||||||||
Land
|
38 | 1.9 | 6.9 | 27 | 0.9 | 5.8 | ||||||||||||||||||
Consumer
|
254 | 12.5 | 7.4 | 190 | 6.0 | 12.1 | ||||||||||||||||||
Commercial
|
94 | 4.6 | 1.7 | 349 | 11.1 | 3.9 | ||||||||||||||||||
Total
allowance for loan losses
|
$ | 2,025 | 100.0 | % | 100.0 | % | $ | 3,157 | 100.0 | % | 100.0 | % |
Although we
believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance for loan losses may be
necessary and our results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while we believe we have established our allowance
for loan losses in conformity with accepted accounting principles, there can be
no assurance that the Office of Thrift Supervision, in reviewing our loan
portfolio, will not require us to increase our allowance for loan losses. The
Office of Thrift Supervision may require us to increase our allowance for loan
losses based on judgments different from ours. In addition, because future
events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that the existing allowance for loan losses is
adequate or that increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect our financial condition and
results of operations.
48
Analysis of Loan
Loss Experience.
The following table sets forth an
analysis of the allowance for loan losses for the periods
indicated.
|
Year
Ended December 31,
|
|||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Allowance
for loan losses at beginning of period
|
$ | 2,175 | $ | 1,510 | $ | 2,025 | $ | 3,157 | $ | 3,180 | ||||||||||
Provision
(Credit) for loan losses
|
868 | 685 | (364 | ) | (736 | ) | 91 | |||||||||||||
Charge
offs:
|
||||||||||||||||||||
One-to-four
family
|
44 | 22 | 50 | 7 | 19 | |||||||||||||||
Multi-family
and nonresidential
|
- | - | 108 | 145 | 152 | |||||||||||||||
Construction
|
- | - | - | - | - | |||||||||||||||
Land
|
- | - | - | 23 | - | |||||||||||||||
Consumer
|
68 | 67 | 85 | 204 | 110 | |||||||||||||||
Commercial
|
150 | - | - | 348 | 124 | |||||||||||||||
Total
charge-offs
|
262 | 89 | 243 | 727 | 405 | |||||||||||||||
Recoveries:
|
||||||||||||||||||||
One-to-four
family
|
- | 2 | 13 | 5 | 232 | |||||||||||||||
Multi-family
and nonresidential
|
- | - | - | 87 | 2 | |||||||||||||||
Construction
|
- | - | - | - | - | |||||||||||||||
Land
|
- | - | 10 | - | - | |||||||||||||||
Consumer
|
13 | 41 | 24 | 42 | 50 | |||||||||||||||
Commercial
|
19 | 26 | 45 | 197 | 7 | |||||||||||||||
Total
recoveries
|
32 | 69 | 92 | 331 | 291 | |||||||||||||||
Net
charge-offs
|
230 | 20 | 151 | 396 | 114 | |||||||||||||||
Allowance
for loan losses at end of period
|
$ | 2,813 | $ | 2,175 | $ | 1,510 | $ | 2,025 | $ | 3,157 | ||||||||||
Allowance
for loan losses to nonperforming loans
|
200.50 | % | 262.00 | % | 180.62 | % | 46.88 | % | 110.66 | % | ||||||||||
Allowance
for loan losses to total loans outstanding at
the end of the period
|
1.31 | % | 1.22 | % | 1.28 | % | 2.01 | % | 2.56 | % | ||||||||||
Net
charge-offs to average loans outstanding during the year
|
0.12 | % | 0.01 | % | 0.14 | % | 0.36 | % | 0.09 | % |
Capital
and Liquidity.
Capital. At December 31, 2009,
shareholders’ equity totaled $70.5 million compared to $70.3 million at
December 31, 2008. In addition to net income of $360,000, other significant
changes in shareholders’ equity during 2009 included $1.0 million of
dividends paid, and $638,000 related to stock-based compensation. The change in
the accumulated other comprehensive income/loss component of shareholders’
equity totaled a net, after-tax, unrealized gain of $655,000 at
December 31, 2009 compared to a net, after-tax, unrealized gain of $684,000
at December 31, 2008. Under regulatory requirements, amounts reported as
accumulated other comprehensive income/loss related to securities available for
sale, defined benefit post-retirement benefit plans and effective cash flow
hedges do not increase or reduce regulatory capital and are not included in the
calculation of risk-based capital and leverage ratios. The Company paid
quarterly cash dividends of $0.05 per common share during each of the four
quarters of 2009. The Company declared and paid its first cash
dividend of $0.05 per common share during the fourth quarter of
2008. The dividend payout ratios, representing dividends per share
divided by diluted earnings per share for the years ended December 31, 2009 and
2008 were 250.00% and (290.00%), respectively. The dividend payout is
continually reviewed by management and the Board of
Directors.
The
Company’s board of directors has authorized a stock repurchase program. In
general, stock repurchase plans allow the Company to proactively manage its
capital position and return excess capital to shareholders. Shares purchased
under such plans also provide the Company with shares of common stock necessary
to satisfy obligations related to stock compensation awards. Under the stock
repurchase program, which was approved on December 17, 2008, the Company was
authorized to repurchase up to 263,234 shares, or 5.0% of its common stock, from
time to time in the open market or through private transactions. Under the plan,
the Company repurchased 86,684 shares at a total cost of $830,000 during the
year ended December 31, 2009. Also see Part II, Item 5 - Market
For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities, included elsewhere in this report.
49
Liquidity.
Liquidity measures the ability to meet current and future cash flow needs as
they become due. The liquidity of a financial institution reflects its ability
to meet loan requests, to accommodate possible outflows in deposits and to take
advantage of interest rate market opportunities. The ability of a financial
institution to meet its current financial obligations is a function of its
balance sheet structure, its ability to liquidate assets, and its access to
alternative sources of funds. The Company seeks to ensure its funding needs are
met by maintaining a level of liquid funds through asset/liability
management.
Asset
liquidity is provided by liquid assets which are readily marketable or
pledgeable or which will mature in the near future. Liquid assets include cash,
interest-bearing deposits in banks, securities available for sale, maturities
and cash flow from securities held to maturity, and federal funds sold and
resell agreements.
First
Federal relies on deposits as its principal source of funds and, therefore, must
be in a position to service depositors' needs as they arise. Fluctuations in the
balances of a few large depositors may cause temporary increases and decreases
in liquidity from time to time. We deal with such fluctuations by using existing
liquidity sources.
Concerns
over deposit fluctuations with respect to the overall banking industry were
addressed by the FDIC in September and October 2008. The FDIC temporarily
increased the individual account deposit insurance from $100,000 per account to
$250,000 per account through December 31, 2009, which has subsequently been
extended through December 31, 2013. The FDIC also implemented a Temporary
Liquidity Guarantee Program (TLGP), which provides for full FDIC coverage for
transaction accounts, regardless of dollar amounts. First Federal elected to
opt-in to this program, thus, our customers receive full coverage for
transaction accounts under the program. The TLGP was originally set to expire
December 31, 2009, but the FDIC has extended the program through
June 30, 2010. First Federal elected to continue participation in this
program. As of December 31, 2009, concerns regarding the overall banking
industry or the Company could have an adverse effect on future deposit
levels.
Liquidity is the ability to meet
current and future financial obligations of a short-term nature. Our primary
sources of funds consist of deposit inflows, loan repayments, maturities and
sales of investment securities and borrowings from the Federal Home Loan Bank of
Cincinnati, Federal Reserve Bank, repurchase agreements and federal funds
purchased. While maturities and scheduled amortization of loans and securities
are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
We regularly adjust our investments in
liquid assets based upon our assessment of (1) expected loan demand, (2)
expected deposit flows, (3) yields available on interest-earning deposits and
securities and (4) the objectives of our asset/liability management
policy.
The Company is a separate legal entity
from the Bank and must provide for its own liquidity. In addition to
its operating expenses, the Company, on a stand-alone basis, is responsible for
paying any dividends declared to its shareholders. The Company also
has repurchased shares of its common stock. The amount of dividends
that the Bank may declare and pay to the Company in any calendar year, without
the receipt of prior approval from the Office of Thrift Supervision but with
prior notice to the Office of Thrift Supervision, cannot exceed net income for
that year to date plus retained net income (as defined) for the preceding two
calendar years. On a stand-alone basis, the Company had liquid assets
of approximately $19.6 million at December 31, 2009.
50
Off
Balance Sheet Arrangements, Commitments and Contractual
Obligations.
Off-Balance Sheet
Arrangements. In
the normal course of operations, we engage in a variety of financial
transactions that, in accordance with accepted accounting principles are not
recorded in our financial statements. These transactions involve, to varying
degrees, elements of credit, interest rate and liquidity risk. Such transactions
are used primarily to manage customers’ requests for funding and take the form
of loan commitments and lines of credit. For information about our loan
commitments and unused lines of credit, see note 17 to the consolidated
financial statements beginning on page F-1 of this annual report.
For the year ended December 31, 2009,
we did not engage in any off-balance sheet transactions reasonably likely to
have a material effect on our financial condition, results of operations or cash
flows.
Commitments. At
December 31, 2009, we had $42.4 million in loan commitments outstanding, $32.0
million in unused commercial lines of credit (including unadvanced portions of
construction loans) and $10.2 million in unused open-end consumer lines of
credit. Certificates of deposit due within one year of December 31, 2009 totaled
$68.4 million, or 78.5% of certificates of deposit. We believe the large
percentage of certificates of deposit that mature within one year reflects
customers’ hesitancy to invest their funds for long periods due to the recent
low interest rate environment and local competitive pressure. If these maturing
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and borrowings. Depending on
market conditions, we may be required to pay higher rates on such deposits or
other borrowings than we currently pay on the certificates of deposit due on or
before December 31, 2010. We believe, however, based on past experience that a
significant portion of our certificates of deposit will remain with us. We have
the ability to attract and retain deposits by adjusting the interest rates
offered.
Contractual
Obligations. The following table presents certain of our
contractual obligations as of December 31, 2009.
0 – 1 | 1 – 3 | 3 – 5 |
Over
5
|
|||||||||||||||||
Year
|
Years
|
Years
|
Years
|
Total
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Deposits
without stated maturity
|
$ | 129,132 | $ | - | $ | - | $ | - | $ | 129,132 | ||||||||||
Certificates
of deposit
|
68,406 | 18,376 | 326 | - | 87,108 | |||||||||||||||
Operating
leases
|
42 | 46 | - | - | 88 | |||||||||||||||
Long-term
debt - Federal Home Loan Bank
|
- | - | - | 13,000 | 13,000 | |||||||||||||||
Long-term
debt - other banks
|
- | 10,000 | 10,000 | 15,000 | 35,000 | |||||||||||||||
Purchase
obligations
|
1,119 | 1,914 | 1,811 | 692 | 5,536 | |||||||||||||||
Total
contractual obligations
|
$ | 198,699 | $ | 30,336 | $ | 12,137 | $ | 28,692 | $ | 269,864 |
Regulatory
Capital Management. We are subject to various regulatory capital
requirements administered by the Office of Thrift Supervision, including a
risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At December 31, 2009 and 2008, we exceeded all of our regulatory
capital requirements. We are considered “well capitalized” under regulatory
guidelines. See Item 1, “Business—Regulation and
Supervision—Regulation of Federal Savings Associations—Capital
Requirements,” and note 12 to the consolidated financial statements
beginning on page F-1 of this annual report.
Impact
of Recent Accounting Pronouncements
For a discussion of the impact of
recent accounting pronouncements, see note 2 to the consolidated financial
statements beginning on page F-1 of this annual report.
Effect
of Inflation and Changing Prices
The consolidated financial statements
and related financial data presented in this annual report have been prepared
according to accepted accounting principles in the United States, which require
the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The primary impact of inflation on
our operations is reflected in increased operating costs. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution’s performance than do general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
51
Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Risk Management
The Bank manages the interest rate
sensitivity of interest-bearing liabilities and interest-earning assets in an
effort to minimize the adverse effects of changes in the interest rate
environment. Deposit accounts typically react more quickly to changes
in market interest rates than loans because of the shorter maturities of
deposits. As a result, sharp increases in interest rates may
adversely affect earnings while decreases in interest rates may beneficially
affect earnings. To reduce the potential volatility of earnings, the
Bank has sought to improve the match between asset and liability maturities and
rates, while maintaining an acceptable interest rate spread. The
Bank’s strategy for managing interest rate risk emphasizes: adjusting
the maturities of borrowings; adjusting the investment portfolio mix and
duration and selling in the secondary market substantially all newly originated
one-to-four family residential real estate loans. We currently do not
participate in hedging programs, interest rate swaps or other activities
involving the use of derivative financial instruments.
The Bank has an Asset/Liability
Committee which includes members of management approved by the Board of
Directors, to communicate, coordinate and control all aspects involving
asset/liability management. The committee establishes and monitors
the volume, maturities, pricing and mix of assets and funding sources with the
objective of managing assets and funding sources to provide results that are
consistent with liquidity, growth, risk limits and profitability
goals.
The goal is to manage asset and
liability positions to moderate the effects of interest rate fluctuations on net
interest income and net income.
Net
Portfolio Value Analysis
The Bank uses a net portfolio value
analysis prepared by the Office of Thrift Supervision to review the level of the
Bank’s interest rate risk. This analysis measures interest rate risk
by capturing changes in the net portfolio value of the Bank’s cash flows from
assets, liabilities and off-balance sheet items, based on a range of assumed
changes in market interest rates. Net portfolio value represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. These analyses assess risk of loss in market
risk-sensitive instruments in the event of a sudden and sustained 50 to 300
basis point increase or 50 and 100 basis point decrease in market interest rates
with no effect given to any steps that the Bank might take to counter the effect
of that interest rate movement.
The following table, which is based on
information that the Bank provided to the Office of Thrift Supervision, presents
the change in the Bank’s net portfolio value at December 31, 2009 that would
occur in the event of an immediate change in interest rates based on Office of
Thrift Supervision assumptions, with no effect given to any steps the Bank might
take to counteract that change.
Net
Portfolio Value
|
Net
Portfolio Value as a % of
|
|||||||||||||||||||||
(Dollars
in thousands
|
Portfolio
Value of Assets
|
|||||||||||||||||||||
Basis
Point (“bp”)
|
$
Amount
|
$
Change
|
%
Change
|
NPV
Ratio
|
Change
|
|||||||||||||||||
Change
in Rates
|
||||||||||||||||||||||
+300 | bp | $ | 47,157 | $ | (10,252 | ) | (18 | ) % | 13.72 | % | (224 | ) bp | ||||||||||
+200 | bp | 51,159 | (6,251 | ) | (11 | ) | 14.65 | (132 | ) bp | |||||||||||||
+100 | bp | 55,000 | (2,410 | ) | (4 | ) | 15.49 | (47 | ) bp | |||||||||||||
+50 | bp | 56,097 | (1,312 | ) | (2 | ) | 15.70 | (26 | ) bp | |||||||||||||
0 | bp | 57,409 | - | - | 15.96 | - | bp | |||||||||||||||
-50 | bp | 58,150 | 740 | 1 | 16.08 | 12 | bp | |||||||||||||||
-100 | bp | 58,914 | 1,505 | 3 | 16.21 | 25 | bp |
The Office of Thrift Supervision uses
various assumptions in assessing interest rate risk. These
assumptions relate to interest rates, loan repayment rates, deposit decay rates
and the market values of certain assets under differing interest rate scenarios,
among others. As with any method of measuring interest rate risk,
certain shortcomings are inherent in the methods of analyses presented in the
foregoing tables. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, certain assets,
such as adjustable-rate mortgage loans, have features that restrict changes in
interest rates on a short-term basis over the life of the
asset. Further, if there is a change in interest rates, expected
rates of prepayments on loans and early withdrawals from certificates could
deviate significantly from those assumed in calculating the
table. Prepayment rates can have a significant impact on interest
income. Because of the large percentage of loans and mortgage-backed
securities held by the Bank, rising or falling interest rates have a significant
impact on the prepayment speeds of the Bank’s earning assets that in turn affect
the rate sensitivity position. When interest rates rise, prepayments
tend to slow. When interest rates fall, prepayments tend to
rise. The Bank’s asset sensitivity would be reduced if repayments
slow and vice versa. While we believe these assumptions to be
reasonable, there can be no assurance that assumed prepayment rates will
approximate actual future mortgage-backed security and loan repayment
activity.
52
Item
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item
is included herein beginning on page F-1.
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
|
None
|
Item
9A(T).
|
CONTROLS
AND PROCEDURES
|
(a) Evaluation of
disclosure controls and procedures. The
Company's management, with the participation of the Chief Executive Officer and
the Chief Financial Officer, conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of December 31, 2009. Based
on that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were effective as of December 31, 2009.
(b) Management's
Report on Internal Control over Financial Reporting. The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934). The Company's management, with the
participation of the Chief Executive Officer and the Chief Financial Officer,
conducted an evaluation of the effectiveness, as of December 31, 2009, of
the Company's internal control over financial reporting based on the framework
in "Internal Control—Integrated Framework," issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
the Company's management concluded that the Company's internal control over
financial reporting was effective as of December 31, 2009.
(c) Changes in
Internal Control Over Financial Reporting. There
were no changes in the Company's internal control over financial reporting that
occurred during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item
9B. OTHER
INFORMATION
|
None.
|
|
PART
III
|
Item
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board
of Directors
For information relating to the
directors of First Advantage Bancorp., the section captioned “Items to be Voted on by
Stockholders—Item 1—Election of Directors” in the Company’s Proxy
Statement for the 2010 Annual Meeting of Stockholders is incorporated herein by
reference.
Executive
Officers
For information relating to officers of
First Advantage Bancorp, see Part I, Item 1, “Business—Executive Officers of the
Registrant” of this Annual Report on Form 10-K.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
For information regarding compliance
with Section 16(a) of the Securities Exchange Act of 1934, the cover page to
this Annual Report on Form 10-K and the section captioned “Other Information Relating to
Directors and Executive Officers—Section 16(a) Beneficial Ownership Reporting
Compliance” in the Company’s Proxy Statement for the 2010 Annual Meeting
of Stockholders are incorporated herein by reference.
53
Disclosure
of Code of Ethics
For information concerning First
Advantage Bancorp’s Code of Ethics, the information contained under the section
captioned “Corporate
Governance—Code of Ethics and Business Conduct” in the Company’s Proxy
Statement for the 2010 Annual Meeting of Stockholders is incorporated by
reference. A copy of the Code of Ethics and Business Conduct is available to
stockholders on the Company’s website at www.firstfederalsb.com.
Item
11. EXECUTIVE
COMPENSATION
For information regarding executive
compensation, the sections captioned “Executive Compensation” and
“Director Compensation”
in the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders are
incorporated herein by reference.
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
|
RELATED
STOCKHOLDER MATTERS
|
(a) Security
Ownership of Certain Beneficial Owners
Information
required by this Item is incorporated herein by reference to the section
captioned “Stock
Ownership” in the Company’s Proxy Statement for the 2010 Annual Meeting
of Stockholders.
(b) Security
Ownership of Management
Information
required by this Item is incorporated herein by reference to the section
captioned “Stock
Ownership” in the Company’s Proxy Statement for the 2010 Annual Meeting
of Stockholders.
(c) Changes
in Control
Management
of the Company knows of no arrangements, including any pledge by any person or
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the registrant.
(d) Equity
Compensation Plan Information
Information
required by this Item is incorporated herein by reference to Part II, Item 5,
“Equity Compensation Plan
Information” of this Annual Report on Form 10-K.
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Certain
Relationships and Related Transactions
For
information regarding certain relationships and related transactions, the
section captioned “Other
Information Relating to Directors and Executive Officers—Transactions with
Related Persons” in the Company’s Proxy Statement for the 2010 Annual
Meeting of Stockholders is incorporated herein by reference.
Corporate
Governance
For
information regarding director independence, the section captioned “Corporate Governance—Director
Independence” in the Company’s Proxy Statement for the 2010 Annual
Meeting of Stockholders is incorporated herein by reference.
54
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
For information regarding the principal
accountant fees and expenses, the section captioned “Items to Be Voted on By
Stockholders—Item 2—Ratification of Independent Registered Public Accounting
Firm” in the Company’s Proxy Statement for the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
Item
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(1)
|
The
financial statements required in response to this item are incorporated by
reference from Item 8 of this Annual Report on Form
10-K.
|
(2)
|
All
financial statement schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated
financial statements or the notes
thereto.
|
(3)
|
Exhibits
|
No. Description
3.1 Charter
of First Advantage Bancorp (1)
3.2 Bylaws
of First Advantage Bancorp (1)
4.1 Form
of Stock Certificate of First Advantage Bancorp (1)
|
10.1
|
Employment
Agreement by and between First Advantage Bancorp and Earl O. Bradley, III,
dated November 29, 2007* (2)
|
|
10.2
|
Employment
Agreement by and between First Federal Savings Bank and Earl O. Bradley,
III, dated November 29, 2007* (2)
|
|
10.3
|
Employment
Agreement by and between First Advantage Bancorp and John T. Halliburton,
dated November 29, 2007* (2)
|
|
10.4
|
Employment
Agreement by and between First Federal Savings Bank and John T.
Halliburton, dated November 29, 2007*
(2)
|
|
10.5
|
Employment
Agreement by and between First Advantage Bancorp and Patrick C. Greenwell,
dated November 29, 2007* (2)
|
|
10.6
|
Employment
Agreement by and between First Federal Savings Bank and Patrick C.
Greenwell, dated November 29, 2007*
(2)
|
|
10.7
|
Employment
Agreement by and between First Federal Savings Bank and Franklin G.
Wallace, dated November 29, 2007*
(2)
|
|
10.8
|
Employment
Agreement by and between First Federal Savings Bank and Jon R. Clouser,
dated November 29, 2007* (2)
|
|
10.9
|
First
Advantage Bancorp 2008 Equity Incentive Plan*
(3)
|
|
11.1
|
Statement
re: computation of per share earnings (incorporated by
reference to financial statements referenced in Item 8 of this Annual
Report on Form 10-K).
|
21.1 Subsidiaries
23.1 Consent
of Horne, LLP
31.1 Rule
13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
31.2 Rule
13a-14(a)/15d-14(a) Certificate of Chief Financial Officer
32.0 Section
1350 Certificate of Chief Executive Officer and Chief Financial
Officer
_________________________________________________________________________
|
*
|
Management
contract or compensatory plan, contract or
arrangement
|
|
(1)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-1 (File No. 333-144454), as amended, initially filed
with the Securities and Exchange Commission on July 10,
2007.
|
|
(2)
|
Incorporated
herein by reference to the exhibits to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 3,
2007.
|
|
(3)
|
Incorporated
herein by reference to the appendix to the Company’s Definitive Proxy
Statement filed with the Securities and Exchange Commission on May 5,
2008.
|
55
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.
FIRST
ADVANTAGE BANCORP
|
|
Date:
March 4, 2010
|
By: /s/Earl O. Bradley, III
|
Earl O. Bradley, III
|
|
Chief
Executive Officer
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name
|
Title
|
Date
|
/s/Earl O. Bradley, III
|
Chief
Executive Officer and Director
|
March
4, 2010
|
Earl
O. Bradley, III
|
(principal
executive officer)
|
|
/s/Patrick C. Greenwell
|
Chief
Financial Officer and Secretary
|
March
4, 2010
|
Patrick
C. Greenwell
|
(principal
accounting and financial officer)
|
|
/s/William G. Beach
|
Director
|
March
4, 2010
|
William
G. Beach
|
||
/s/Vernon M. Carrigan
|
Director
|
March
4, 2010
|
Vernon
M. Carrigan
|
||
/s/Robert E. Durrett, III
|
Director
|
March
4, 2010
|
Robert
E. Durrett, III
|
||
/s/John T. Halliburton
|
President
and Director
|
March
4, 2010
|
John
T. Halliburton
|
||
/s/William Lawson Mabry
|
Director
|
March
4, 2010
|
William
Lawson Mabry
|
||
/s/William H. Orgain
|
Director
|
March
4, 2010
|
William
H. Orgain
|
||
/s/Michael E. Wallace
|
Director
|
March
4, 2010
|
Michael
E. Wallace
|
||
/s/David L. Watson
|
Director
|
March
4, 2010
|
David
L. Watson
|
56