UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-34534
ATHENS BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
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Tennessee
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27-0920126 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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106 Washington Avenue, Athens, Tennessee
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37303 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (423) 745-1111
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, par value $0.01 per share
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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 o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate 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 o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a small reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer o |
Accelerated Filer o |
Non-accelerated Filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Exchange Act).
Yes o No þ
The aggregate market value of the voting and non-voting common equity held by nonaffiliates as
of June 30, 2009 was $0.
The number of shares outstanding of the registrants common stock as of March 19, 2010 was
2,777,250.
DOCUMENTS INCORPORATED BY REFERENCE: None
This annual report contains forward-looking statements that are based on assumptions and may
describe future plans, strategies and expectations of Athens Bancshares Corporation. These
forward-looking statements are generally identified by use of the words believe, expect,
intend, anticipate, estimate, project or similar expressions. Athens Bancshares
Corporations 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
Athens Bancshares Corporation 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 Athens Bancshares
Corporations market area, changes in real estate market values in Athens Bancshares Corporations
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, Athens Bancshares Corporation 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 Athens Bancshares Corporation and its subsidiaries.
PART I
General
Athens Bancshares Corporation (the Company) was incorporated in September 2009 to serve as
the holding company for Athens Federal Community Bank (the Bank), a federally chartered savings
bank. On January 6, 2010, the Bank converted from a mutual savings bank to a stock savings bank
and became the wholly owned subsidiary of the Company. In the conversion, the Company sold an
aggregate of 2,677,250 shares of common stock at a price of $10.00 per share to depositors of the
Bank. In addition, in connection with the conversion, the Bank formed the Athens Federal
Foundation, to which the Company contributed an additional 100,000 shares of common stock and
$100,000 in cash. Because the Banks conversion and the Companys stock offering were consummated
on January 6, 2010, the Company was not an operating company at December 31, 2009. As a result,
the information presented in this annual report is on a consolidated basis for the Bank only.
The Companys principal business activity is the ownership of the outstanding shares of common
stock of the Bank. The Company does not own or lease any property but instead uses the premises,
equipment and other property of the Bank, with the payment of appropriate rental fees, as required
by applicable laws and regulations, under the terms of an expense allocation agreement.
The Bank operates as a community-oriented financial institution offering traditional financial
services to consumers and businesses in our primary market area. We attract deposits from the
general public and use those funds to originate primarily residential mortgage loans and, to a
lesser extent, non-residential real estate loans, construction loans, land and land development
loans, multi-family real estate loans, consumer loans and commercial business loans. We conduct
our lending and deposit activities primarily with individuals and small businesses in our primary
market area.
Our website address is www.athensfederal.com. Information on our website should not be
considered a part of this annual report.
1
Market Area
We are headquartered in Athens, Tennessee, which is located in southeastern Tennessee along
Interstate 75, approximately half way between Knoxville and Chattanooga, Tennessee. We consider
McMinn, Monroe and Bradley Counties, Tennessee, and the surrounding areas to be our primary market
area. The top employment sectors in our primary market area currently consist of manufacturing
services, particularly the automobile manufacturing industry, and, to a lesser extent, wholesale
and retail trade services, government services and educational, health care and social assistance
services. Our local economy has been negatively impacted by the economic recession in recent
months, which has resulted in increased job losses in the manufacturing services sector. However,
at the same time, our local economy has also benefited from new manufacturing activity entering the
market which is expected to create additional jobs for local workers. Notably, Volkswagen of
America, Inc. and Wacker Chemie AG, a leading manufacturer of solar panels, are currently
constructing manufacturing plants in our primary market area. Our local economy has also been
positively impacted by retirees relocating to our primary market area, due to the affordable
housing prices, temperate climate and lack of state income tax.
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
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.
Our competition for loans comes primarily from financial institutions, including credit
unions, in our primary market area and from other financial service providers, such as mortgage
companies and mortgage brokers. Competition for loans also comes from non-depository financial
service companies entering the mortgage market, such as 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.
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 mortgage loans, and, to a lesser extent, non-residential real estate loans,
construction loans, land and land development loans, multi-family real estate loans, consumer loans
and commercial business loans. We originate loans for investment purposes, although we generally
sell our fixed-rate residential mortgage loans into the secondary market with servicing retained.
Our lending activities focus on serving small businesses and emphasizing relationship banking in
our primary market area. We do not offer, and have not offered, Alt-A, sub-prime or
no-documentation mortgage loans.
One-to Four-Family Residential Loans. At December 31, 2009, we had $79.6 million in one- to
four-family residential loans, which represented 40.8% of our total loan portfolio. Our
origination of residential mortgage loans enables borrowers to purchase or refinance existing homes
located in our primary market area. In recent years, a significant portion of the residential
mortgage loans that we have originated have been secured by non-owner occupied properties. Loans
secured by non-owner occupied properties generally carry a greater risk of loss than loans secured
by owner-occupied properties. See Item 1A. Risk Factors Our concentration in non-owner
occupied real estate loans may expose us to increased credit risk.
Our residential lending policies and procedures generally conform to the secondary market
guidelines. We generally offer a mix of adjustable rate mortgage loans and fixed-rate mortgage
loans with terms of up to 30 years. 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. We determine the loan fees, interest rates and other provisions of mortgage loans based on our
own pricing criteria and competitive market conditions.
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Interest rates and payments on our adjustable-rate mortgage loans generally adjust annually
after an initial fixed period that typically ranges from one to five years. Interest rates and
payments on our adjustable-rate loans generally are indexed to the National Monthly Median Cost of
Funds or the one year U.S. Treasury Constant Maturity Index.
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
residential mortgage loans with negative amortization and generally do not offer interest-only
residential mortgage loans.
We generally do not make owner occupied one- to four-family residential real estate loans with
loan-to-value ratios exceeding 95%. Loans with loan-to-value ratios in excess of 89% typically
require private mortgage insurance. In addition, we generally do not make not make non-owner
occupied one- to four-family residential real estate loans with loan-to-value ratios exceeding 85%.
We generally require all properties securing mortgage loans to be appraised by a board-approved
independent appraiser. We also generally require title insurance on all first mortgage loans.
Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in
flood hazard areas.
Non-residential Real Estate Loans. We offer fixed- and adjustable-rate mortgage loans secured
by non-residential real estate. At December 31, 2009, non-residential real estate loans totaled
$37.9 million, or 19.4% of our total loan portfolio. Our non-residential real estate loans are
generally secured by small to moderately-sized office and retail properties, churches and hotels
located both in and out of our primary market area. With respect to non-residential real estate
loans, we typically require that either the borrower or the property securing the loan be located
in our primary market area.
We originate fixed-rate non-residential real estate loans, generally with terms of three to
five years and payments based on an amortization schedule of up to 30 years, resulting in balloon
balances at maturity. We also offer adjustable-rate commercial real estate loans, generally with
terms up to 30 years and with interest rates typically equal to the prime lending rate as reported
in the Wall Street Journal plus an applicable margin. Loans are secured by first mortgages,
generally are originated with a maximum loan-to-value ratio of 80% and may 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
borrowers financial condition and credit history, loan-to-value ratio, debt service coverage ratio
and other factors. Our non-residential real estate loans typically provide for an interest rate
floor of 5.0%.
At December 31, 2009, our largest non-residential real estate loan had an outstanding balance
of $2.5 million. This loan, which was originated in June 2008 as a construction loan as a mixed
use building comprised of ground level retail space with residential units on the second floor.
The construction phase of this project is now completed. The property is located in Cleveland,
Tennessee and is performing in accordance with its original terms as of December 31, 2009.
Construction Loans. We originate construction loans for one-to four-family homes and, to a
much lesser extent, commercial properties, such as retail shops and office units, and multi-family
properties. At December 31, 2009, residential and non-residential construction loans totaled $8.8
million, which represented 4.5% of our total loan portfolio. Construction loans are typically for
a term of 12 months with monthly interest only payments, and generally are followed by an automatic
conversion to a 15-year to 30-year permanent loan with monthly payments of principal and interest.
Except for speculative loans, discussed below, residential construction loans are generally only
made to homeowners and the repayment of such loans generally comes from the proceeds of a permanent
mortgage loan for which a commitment is typically in place when the construction loan is
originated. Interest rates on these loans are generally tied to either the National Monthly Median
Cost of Funds or the One Year U.S. Treasury Constant Maturity Index. We generally require a
maximum loan-to-value ratio of 80% for all construction loans. We generally disburse funds on a percentage-of-completion basis following an
inspection by a third party inspector.
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We also originate speculative construction loans to builders who have not identified a buyer
for the completed property at the time of origination. We generally limit speculative construction
loans to a group of well-established builders in our primary market area and we also limit the
number of projects with each builder. At December 31, 2009, we had approved commitments for
speculative construction loans of $5.6 million, of which $3.9 million was outstanding. We
generally require a maximum loan-to-value ratio of 80% for speculative construction loans.
At December 31, 2009, our largest non-speculative construction loan relationship was a
commitment of $1.3 million, $1.1 million of which was outstanding. This relationship was
performing according to its original terms at December 31, 2009. At December 31, 2009, our largest
speculative construction loan relationship was a commitment of $2.0 million, $1.4 million of which
was outstanding. The relationship was performing according to its original terms at December 31,
2009.
Land and Land Development Loans. We originate loans to individuals and developers for the
purpose of developing vacant land in our primary market area, typically for building an
individuals future residence or, in the case of a developer, residential subdivisions. At
December 31, 2009, land and land development loans totaled $14.7 million, which represented 7.5% of
our total loan portfolio. Land development loans, which are offered for terms of up to 12 months,
are generally indexed to the prime rate as reported in the Wall Street Journal plus an applicable
margin. We generally require a maximum loan-to-value ratio to 75% of the discounted market value
based upon expected cash flows upon completion of the project. We also originate loans to
individuals secured by undeveloped land held for investment purposes. At December 31, 2009, our
largest land development relationship consisted of three loans which had an aggregate outstanding
balance of $3.4 million. Each loan in this relationship was performing in accordance with its
original terms at December 31, 2009.
Multi-Family Real Estate Loans. We offer multi-family (5 or more units) mortgage loans that
are generally secured by properties in our primary market area. At December 31, 2009, multi-family
loans totaled $14.6 million, which represented 7.5% of our total loan portfolio. Multi-family
loans are secured by first mortgages and generally are originated with a maximum loan-to-value
ratio of 85% 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 borrowers financial condition
and credit history, loan-to-value ratio, debt service coverage ratio and other factors. At
December 31, 2009, our largest multi-family real estate loan had an outstanding balance of $3.9
million, was secured by an apartment complex located in northwest Georgia and was performing in
accordance with its original terms at December 31, 2009.
Consumer Loans. We offer a variety of consumer loans, including home equity loans and lines
of credit, automobile loans, and loans secured by deposits. At December 31, 2009, consumer loans
totaled $27.6 million, or 14.2% of our total loan portfolio. Our consumer loan portfolio consists
primarily of home equity loans, both fixed-rate amortizing term loans with terms up to 15 years and
adjustable rate lines of credit with interest rates indexed to the prime rate as published in the
Wall Street Journal. Consumer loans typically have shorter maturities and higher interest rates
than traditional one- to four-family lending. We typically do not originate home equity loans with
loan-to-value ratios exceeding 89%, including any first mortgage loan balance. The procedures for
underwriting consumer loans include an assessment of the applicants payment history on other debts
and ability to meet existing obligations and payments on the proposed loan.
Through our operating subsidiary, Southland Finance, Inc., we also offer consumer finance
loans secured by used automobiles, televisions and various other personal property to borrowers
with historically lower credit scores. These consumer finance loans are partially funded by a $2.0
million line of credit with us. The line of credit matures in January 2010 and upon maturity the
maximum line will be reduced to $1.0 million. Loans originated at Southland Finance, Inc. are
generally made for terms of 12 to 36 months and have an average loan balance of approximately
$3,800. We generally maintain separate underwriting standards and more aggressive collection
activity for these consumer finance loans.
4
Commercial Business Loans. We typically offer commercial business loans to small businesses
located in our primary market area. At December 31, 2009, commercial business loans totaled $12.0
million, which represented 6.2% of our total loan portfolio. Commercial business loans consist of floating
rate loans indexed to the prime rate as published in the Wall Street Journal plus an applicable
margin and fixed rate loans for terms of up to five years. Our commercial business loan portfolio
consists primarily of loans that are secured by land or equipment but also includes a smaller
amount of unsecured loans for purposes of financing expansion or providing working capital for
general business purposes. Key loan terms vary depending on the collateral, the borrowers
financial condition, credit history and other relevant factors.
Loan Underwriting
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.
Non-Owner Occupied Residential Real Estate Loans. Loans secured by rental properties
represent a unique credit risk to us and, as a result, we adhere to special underwriting
guidelines. Of primary concern in non-owner occupied real estate lending is the consistency of
rental income of the property. Payments on loans secured by rental properties often depend on the
maintenance of the property and the payment of rent by its tenants. Payments on loans secured by
rental properties often depend on successful operation and management of the properties. As a
result, repayment of such loans may be subject to adverse conditions in the real estate market or
the economy. To monitor cash flows on rental properties, we require borrowers and loan guarantors,
if any, to provide annual financial statements and we consider and review a rental income cash flow
analysis of the borrower and consider the net operating income of the property, the borrowers
expertise, credit history and profitability, and the value of the underlying property. We generally
require collateral on these loans to be a first mortgage along with an assignment of rents and
leases.
Non-residential and Multi-Family Real Estate Loans. Loans secured by multi-family and
commercial 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 commercial
real estate lending is the borrowers 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
adverse conditions in the real estate market or the economy. We apply what we believe to be
conservative underwriting standards when originating commercial loans and seek to limit our
exposure to lending concentrations to related borrowers, types of business and geographies, as well
as seeking to participate with other banks in both buying and selling larger loans of this nature.
Management has hired experienced lending officers and credit management personnel over the past
several years in order to safely increase this type of lending. To monitor cash flows on income
properties, we require borrowers and loan guarantors, if any, to provide annual financial
statements on multi-family and commercial real estate loans. In reaching a decision on whether to
make a multi-family or commercial 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 borrowers
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, Land and Land Development 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 propertys 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,
we may be unable 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
5
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 and land development loans
have substantially similar risks to speculative construction loans. To monitor cash flows on
construction properties, we require borrowers and loan guarantors, if any, to provide annual
financial statements and, in reaching a decision on whether to make a construction or land
development loan, we consider and review a global cash flow analysis of the borrower and consider
the borrowers expertise, credit history and profitability. We also generally disburse funds on a
percentage-of-completion basis following an inspection by a third party inspector.
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. In the case of
home equity loans, real estate values may be reduced to a level that is insufficient to cover the
outstanding loan balance after accounting for the first mortgage loan balance. Consumer loan
collections depend on the borrowers 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 borrowers 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 borrowers
ability to make repayment from the cash flow of the borrowers 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.
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. Certain of our employees have been granted individual lending limits,
which vary depending on the individual, the type of loan and whether the loan is secured or
unsecured. Generally, all loan requests exceeding the individual officer lending limits are
approved as follows: (i) the approval of any two members of our Loan Committee is required for
residential loans up to $250,000; (ii) the approval of any three members of our Loan Committee (one
of whom must be the President and Chief Executive Officer or Chief Credit Officer) is required for
any single transaction of between $250,000 and $1.0 million and aggregate debt to one borrower
transactions of between $250,000 and $1.0 million; and (iii) the approval of any four members of
our board of directors is required for all single transactions exceeding $1.0 million and all loans
to customers having aggregate outstanding debt to us exceeding $1.0 million. Our Loan Committee
consists of our President and Chief Executive Officer, Chief Credit Officer, Vice President, Chief
Operating Officer and Chief Financial Officer and certain other officers designated by the board of
directors.
Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrowers
related entities is limited, by regulation, to generally 15% of our unimpaired capital and surplus.
At December 31, 2009, our regulatory limit on loans to one borrower was $4.1 million. At that
date, our largest lending relationship was $3.9 million and was performing according to its
original terms at that date. This loan relationship is secured primarily by commercial real estate
and equipment.
Loan Commitments. We issue commitments for residential and commercial 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 days. See note 16 to the notes to the consolidated financial statements beginning on page F-1of
this annual report.
6
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, mortgage-backed securities and certificates of deposit of federally insured
institutions. Within certain regulatory limits, we also may 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 U.S. government and
agency securities, mortgage-backed securities and securities issued by government sponsored
enterprises, and municipal securities. We do not currently invest in trading account securities.
At December 31, 2009, we also maintained an investment, at cost, in Federal Home Loan Bank of
Cincinnati common stock.
Our investment objectives are: (i) to provide and maintain liquidity within the guidelines of
the Office of Thrift Supervisions regulations, (ii) to manage interest rate risk; and (iii) to
provide collateral for public unit deposits. Our board of directors has the overall responsibility
for the investment portfolio, including approval of the investment policy. Our President and Chief
Executive Officer and our Vice President, Chief Operating Officer and Chief Financial Officer are
responsible for implementation of the investment policy and monitoring our investment performance.
In addition, we have retained a third party registered investment advisor to serve as our
investment manager and execute investment transactions, perform pre-purchase analysis and provide
portfolio analysis on a quarterly basis. Our investment manager acts in a co-advisory capacity and
does not have discretionary authority to execute trades on our behalf without the pre-approval of
our President and Chief Executive Officer and/or Vice President, Chief Operating Officer and Chief
Financial Officer. Our board of directors reviews the status of our investment portfolio on a
monthly basis, or more frequently if warranted.
Deposit Activities and Other Sources of Funds
Deposits, borrowings and loan repayments are the major sources of our funds for lending and
other investment purposes. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are significantly influenced by general
interest rates and money market conditions.
Deposit Accounts. 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 generally 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 periodically offer special rates in order to attract
deposits of a specific type or term.
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 of Cincinnati and are authorized to apply for advances on the security of
such stock and certain of our mortgage 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 institutions net worth, the Federal Home
Loan Banks assessment of the institutions creditworthiness, collateral value and level of Federal
Home Loan Bank stock ownership. We also utilize securities sold under agreements to repurchase and
overnight repurchase agreements to supplement our supply of investable funds and to meet deposit
withdrawal requirements.
Personnel
As of December 31, 2009, we had 91 full-time employees and 5 part-time employees, none of whom
is represented by a collective bargaining unit. We believe our relationship with our employees is
good.
7
REGULATION AND SUPERVISION
The Bank 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. The Bank 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. The Bank 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 the Banks 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 the Company and the Bank and their
operations. The Company, as a savings and loan holding company, will be 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. The Company will also be subject to the rules and
regulations of the Securities and Exchange Commission under the federal securities laws.
Certain of the regulatory requirements that are applicable to the Bank and the Company 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 the Bank and the Company and is
qualified in its entirety by reference to the actual statutes and regulations.
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 the Bank. 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
institutions 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 Supervisions 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 generally 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 shareholders 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.
8
The Office of Thrift Supervision also has authority to establish individual minimum capital
requirements in appropriate cases upon a determination that an institutions capital level is or
may become inadequate in light of the particular circumstances. At December 31, 2009, the Bank met
each of these capital requirements. See note 9 of the notes 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 institutions 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 associations 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. 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. Significantly undercapitalized and critically undercapitalized institutions are
subject to more extensive mandatory regulatory actions.
Loans to One Borrower. Federal law provides that savings institutions are generally 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 Lending Activities Loans to One Borrower.
Standards for Safety and Soundness. 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 shareholders 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., generally, 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, it is a subsidiary of a holding company, like the Bank. If the
Banks 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.
9
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, the Bank maintained 87.8% of
its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift
lender test.
Transactions with Related Parties. The Banks 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 Boards Regulation W. The term
affiliates for these purposes generally means any company that controls or is under common
control with an institution. The Company and any non-savings institution subsidiaries are
affiliates of the Bank. Transactions with affiliates must be on terms that are as favorable to the
institution as comparable transactions with non-affiliates. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of an institutions capital and
surplus. The aggregate amount of covered transactions with all affiliates is limited to 20% of
capital and surplus. Certain transactions with affiliates must be secured by collateral in an
amount and of a type specified by federal law. The purchase of low quality assets from affiliates
is generally prohibited. 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 generally 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, the Banks authority to extend credit to executive officers, directors and
10% shareholders (insiders), as well as entities such persons control, is limited. The law
restricts both the individual and aggregate amount of loans the Bank may make to insiders based, in
part, on the Banks 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. Loans to executive
officers are subject to additional restrictions based on the type of loan involved. 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 shareholders, 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.
10
Assessments. Federal savings banks 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 institutions total assets, including consolidated subsidiaries, as reported
in the institutions latest quarterly thrift financial report, the institutions financial
condition and the complexity of its asset portfolio. The Bank paid $74,000 in assessments to the
Office of Thrift Supervision for the fiscal year ended December 31, 2009.
Insurance of Deposit Accounts. The Banks deposits are insured up to applicable limits by the
Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Under the Federal Deposit
Insurance Corporations risk-based assessment system, insured institutions are assigned to one of
four risk categories based on supervisory evaluations, regulatory capital levels and certain other
factors with less risky institutions paying lower assessments. No institution may pay a dividend
if in default of the federal deposit insurance assessment.
For 2008, assessments ranged from five to forty-three basis points of assessable deposits.
Due to losses incurred by the Deposit Insurance Fund in 2008 from failed institutions, and
anticipated future losses, the Federal Deposit Insurance Corporation adopted an across the board
seven basis point increase in the assessment range for the first quarter of 2009. The Federal
Deposit Insurance Corporation adopted further refinements to its risk-based assessment that were
effective April 1, 2009 and effectively make the range seven to 771/2 basis points. The
Federal Deposit Insurance Corporation may adjust the assessment scale uniformly from one quarter to
the next, except that no adjustment can deviate more than three basis points from the base scale
without notice and comment rulemaking.
The Federal Deposit Insurance Corporation imposed on all insured institutions a special
emergency assessment of 5 basis points of total assets less Tier 1 capital as of June 30, 2009
(subject to a cap of 10 basis points of each institutions deposit assessment base on the same
date) in order to cover losses to the Deposit Insurance Fund. The special assessment was paid on
September 30, 2009. The Federal Deposit Insurance Corporation had also provided for the
possibility of two additional special assessments for the final two quarters of 2009, if necessary.
However, in lieu of further special assessments, the Federal Deposit Insurance Corporation
required insured institutions to prepay estimated quarterly risk-based assessments for the fourth
quarter of 2009 through the fourth quarter of 2012. The estimated assessments, which included an
assumed annual assessment base increase of 5%, was recorded as a prepaid expense asset as of
December 30, 2009. As of December 31, 2009, and each quarter thereafter, the Bank will record a
change to earnings for each regular special assessment and an offsetting credit to the prepaid
asset.
Due to the recent difficult economic conditions, deposit insurance per account owner has been
raised to $250,000 for all types of accounts until January 1, 2014. In addition, the Federal
Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which,
for a fee, non-interest-bearing transaction accounts would receive unlimited insurance coverage
until December 31, 2009 and certain senior unsecured debt issued by institutions and their holding
companies would temporarily be guaranteed by the Federal Deposit Insurance Corporation. On October
1, 2009 the Federal Deposit Insurance Corporation gave the option for banks currently participating
in the Transaction Account Guarantee program to extend the coverage date through June 30, 2010.
The Bank made the business decision to participate in the unlimited non-interest-bearing
transaction account coverage and to continue to remain in this program through the current
expiration date of June 30, 2010. The Bank also opted to participate in the unsecured debt
guarantee program.
In addition to the assessment for deposit insurance, institutions are required to make
payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a
predecessor deposit insurance fund. This payment is established quarterly and during the four
quarters ended December 31, 2009 averaged 1.06 basis points of assessable deposits.
The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A
significant increase in insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of the Bank. Management cannot predict what insurance
assessment rates will be in the future.
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. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
11
Federal Home Loan Bank System. The Bank 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. The Bank, 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. At December 31, 2009, the Bank complied with this requirement with an
investment in Federal Home Loan Bank stock of $2.9 million.
The Federal Home Loan Banks are required to provide funds for the resolution of insolvent
thrifts in the late 1980s and to contribute funds for affordable housing programs. These
requirements, or general results of operations, could reduce or eliminate the dividends that the
Federal Home Loan Banks pay to their members and 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
institutions 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 institutions 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 institutions rating and
requires the Office of Thrift Supervision to provide a written evaluation of an associations
Community Reinvestment Act performance utilizing a four-tiered descriptive rating system.
The Bank received a satisfactory rating as a result of its most recent Community
Reinvestment Act assessment.
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). For 2009, the regulations generally 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 $44.4 million; a 10% reserve ratio is applied above
$44.4 million. The first $10.3 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted
annually and, for 2010, require a 3% ratio for up to $55.2 million and an exemption of $10.7
million. The Bank complies with the foregoing requirements.
In October 2008, the Federal Reserve Board began paying interest on certain reserve balances.
Holding Company Regulation
General. The Company is a unitary savings and loan holding company within the meaning of
federal law. The Gramm-Leach-Bliley Act of 1999 provided 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 the
Company 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, the Company would
become a multiple savings and loan holding company (if the acquired institution is held as a
separate subsidiary) and would generally 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. 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.
12
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. The Bank must notify the Office of Thrift Supervision 30 days before declaring any dividend
to the Company. 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.
Federal Securities Laws
The Companys common stock is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. Accordingly, the Company is subject to the
information, proxy solicitation, insider trading restrictions and other requirements under the
Securities Exchange Act of 1934, as amended.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing
and accounting, executive compensation, and enhanced and timely disclosure of corporate
information. As directed by the Sarbanes-Oxley Act of 2002, the Companys Chief Executive Officer
and Chief Financial Officer are required to certify that the Companys quarterly and annual reports
do not contain any untrue statement of a material fact. The rules adopted by the Securities and
Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including
having these officers certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of our internal controls; they have made certain disclosures
to our auditors and the audit committee of the board of directors about our internal controls; and
they have included information in our quarterly and annual reports about their evaluation and
whether there have been significant changes in our internal controls or in other factors that could
significantly affect internal controls. The Company is subject to further reporting and audit
requirements beginning with the year ending December 31, 2010 under the requirements of the
Sarbanes-Oxley Act. The Company intends to prepare policies, procedures and systems designed to
comply with these regulations to ensure compliance with these regulations.
13
Federal Income Taxation
General. We report our income on a fiscal 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 not been
audited during the last five years. For its 2009 fiscal year, the Banks maximum federal income
tax rate was 34.0%.
The Company and the Bank have entered into a tax allocation agreement because The Company and
the Bank are members of an affiliated group within the meaning of Section 1504(a) of the Internal
Revenue Code, of which group the Company is the common parent corporation. As a result of this
affiliation, the Bank may be included in the filing of a consolidated federal income tax return
with the Company 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, generally 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.
Distributions. If the Bank makes non-dividend distributions to the Company, the
distributions will be considered to have been made from the Banks 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 the Banks 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 the Banks taxable income. Non-dividend
distributions include distributions in excess of the Banks 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 the Banks current or
accumulated earnings and profits will not be so included in the Banks 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 the Bank makes a non-dividend distribution to the Company, 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. The Bank does not intend to pay dividends that would result in a recapture of any portion of
its bad debt reserves.
14
State Taxation
Tennessee. Tennessee imposes franchise and excise taxes. The franchise tax ($0.25 per $100)
is applied either to apportioned net income or the value of property owned and used in Tennessee,
whichever is greater, as of the close of the 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.
Any cash dividends, in excess of a certain exempt amount, that would be paid with respect to
the Companys common stock to a shareholder (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 corporations earned surplus
and profits under certain circumstances.
Our concentration in non-owner occupied real estate loans may expose us to increased credit risk.
At December 31, 2009, $26.7 million, or 33.5% of our residential mortgage loan portfolio and
13.7% of our total loan portfolio, consisted of loans secured by non-owner occupied residential
properties. Loans secured by non-owner occupied properties generally expose us to greater risk of
non-payment and loss than loans secured by owner occupied properties because the repayment of such
loans depends primarily on the tenants continuing ability to pay rent to the property owner, who
is our borrower, or, if the property owner is unable to find a tenant, the property owners ability
to repay the loan without the benefit of a rental income stream. In addition, the physical
condition of non-owner occupied properties is often below that of owner occupied properties due to
lax property maintenance standards, which has a negative impact on the value of the collateral
properties. Furthermore, some of our non-owner occupied residential loan borrowers have more than
one loan outstanding with us. Consequently, an adverse development with respect to one credit
relationship may expose us to a greater risk of loss compared to an adverse development with
respect to an owner occupied residential mortgage loan. At December 31, 2009, non-performing
non-owner occupied residential mortgage loans totaled $948,000, or 3.6% of our non-owner occupied
residential loan portfolio, of which $867,000 was attributable to a single borrower. At December
31, 2009, we did not hold any non-owner occupied residential properties as real estate owned;
however, we anticipate foreclosure on the $867,000 relationship referenced above upon receipt of a
relief of stay agreement from the borrowers chapter 13 bankruptcy filing. This loan is secured by
seven one-to-four residential real estate properties. For more information about the credit risk
we face, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Risk Management.
15
Our construction loan and land and land development loan portfolios may expose us to increased
credit risk.
At December 31, 2009, $23.5 million, or 12.0% of our loan portfolio, consisted of construction
loans and land and land development loans, and $3.9 million, or 44.3% of the construction loan
portfolio, consisted of speculative construction loans. While recently the demand for construction
loans has decreased significantly due to the decline in the housing market, historically,
construction loans, including speculative construction loans, have been a material part of our loan
portfolio. Speculative construction loans are loans made to builders who have not identified a
buyer for the completed property at the time of loan origination. Subject to market conditions, we
intend to continue to emphasize the origination of construction loans and land and land development
loans. These loan types generally expose a lender to greater risk of nonpayment and loss than
residential 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
decrease our earnings. For more information about the credit risk we face, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Risk
Management.
Our consumer loan portfolio includes consumer loans secured by rapidly depreciable assets and may
expose us to increased credit risk.
At December 31, 2009, $27.6 million, or 14.2% of our loan portfolio, consisted of consumer
loans. Included in consumer loans at that date were $4.7 million in automobile loans and $2.0
million in consumer finance loans made to borrowers by our operating subsidiary, Southland Finance,
Inc. These consumer finance loans are generally secured by used automobiles, televisions and
various other personal property and are generally offered to borrowers with historically lower
credit scores at higher risk-adjusted interest rates. At December 31, 2009, Southland Finance,
Inc.s average outstanding loan balance was approximately $3,700 and the weighted-average yield of
its loan portfolio was 25.8%. Consumer loans secured by rapidly depreciable assets such as
automobiles and other personal property may be subject to greater risk of loss than loans secured
by real estate because any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance.
Significant loan losses could require us to increase our allowance for loan losses through a charge
to earnings.
When we loan money we incur the risk that our borrowers will not repay their loans. We provide
for loan losses by establishing an allowance through a charge to earnings. The amount of this
allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for
determining the amount of the allowance is critical to our financial condition and results of
operations. It requires subjective and complex judgments about the future, including forecasts of
economic or market conditions that might impair the ability of our borrowers to repay their loans.
We might underestimate the loan losses inherent in our loan portfolio and have loan losses in
excess of the amount recorded in our allowance for loan losses. We might increase the allowance
because of changing economic conditions. For example, in a rising interest rate environment,
borrowers with adjustable-rate loans could see their payments increase. There may be a significant
increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in
our charging off more loans and increasing our allowance. In addition, when real estate values
decline, the potential severity of loss on a real estate-secured loan can increase significantly,
especially in the case of loans with high combined loan-to-value ratios. The recent decline in the
national economy and the local economies of the areas in which the loans are concentrated could
result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased
charge-off amounts and the need for additional loan loss allowances in future periods. In addition,
our determination as to the amount of our allowance for loan losses is subject to review by our
primary regulator, the Office of Thrift Supervision, as part of its examination process, which may
result in the establishment of an additional allowance based upon the judgment of the Office of
Thrift Supervision after a review of the information available at the time of its examination.
Our allowance for loan losses amounted to $3.4 million, or 1.8% of total loans outstanding and
169.5% of non-performing loans, at December 31, 2009. Our allowance for loan losses at December
31, 2009 may not be sufficient to cover future loan losses. A large loss could deplete the
allowance and require increased provisions to replenish the allowance, which would decrease our
earnings.
16
In addition, at December 31, 2009, we had 36 loan relationships with outstanding balances that
exceeded $1.0 million, all of which were performing according to their original terms, with the
exception of one relationship with total outstanding loans of $1.2 million. This relationship
includes a non-owner occupied residential real estate secured loan totaling approximately $867,000,
two loans secured by non-residential real estate totaling approximately $223,000 and three consumer
loans totaling approximately $156,000. We believe that the consumer loans will be treated as
unsecured in the debtors chapter 13 bankruptcy plan and anticipate a total loss on these loans. We
anticipate total losses relating to this relationship could total $293,000, which has been
accounted for in our allowance for loan losses. The further deterioration of one or more of these
large relationship loans could result in a significant increase in our non-performing loans and our
provision for loan losses, which would negatively impact our results of operations.
A continuation of recent turmoil in the financial markets could have an adverse effect on our
financial position or results of operations.
Beginning in 2008, United States and global financial markets have experienced severe
disruption and volatility, and general economic conditions have declined significantly. Adverse
developments in credit quality, asset values and revenue opportunities throughout the financial
services industry, as well as general uncertainty regarding the economic, industry and regulatory
environment, have had a marked negative impact on the industry. Dramatic declines in the U.S.
housing market over the past eighteen months, with falling home prices, increasing foreclosures and
increasing unemployment, have negatively affected the credit performance of mortgage loans and
resulted in significant write-downs of asset values by many financial institutions. The United
States and the governments of other countries have taken steps to try to stabilize the financial
system, including investing in financial institutions, and have also been working to design and
implement programs to improve general economic conditions. Notwithstanding the actions of the
United States and other governments, these efforts may not succeed in restoring industry, economic
or market conditions and may result in adverse unintended consequences. Factors that could
continue to pressure financial services companies, including the Company, are numerous and include
(i) worsening credit quality, leading among other things to increases in loan losses and reserves,
(ii) continued or worsening disruption and volatility in financial markets, leading among other
things to continuing reductions in asset values, (iii) capital and liquidity concerns regarding
financial institutions generally, (iv) limitations resulting from or imposed in connection with
governmental actions intended to stabilize or provide additional regulation of the financial
system, or (v) recessionary conditions that are deeper or last longer than currently anticipated.
The current economic recession could result in increases in our level of non-performing loans
and/or reduce demand for our products and services, which would lead to lower revenue, higher loan
losses and lower earnings.
Our business activities and earnings are affected by general business conditions in the United
States and in our primary market area. These conditions include short-term and long-term interest
rates, inflation, unemployment levels, monetary supply, consumer confidence and spending,
fluctuations in both debt and equity capital markets and the strength of the economy in the United
States generally and in our primary market area in particular. In the current recession, the
national economy has experienced general economic downturns, with rising unemployment levels,
declines in real estate values and an erosion in consumer confidence. The current economic
recession has also had a negative impact on our primary market area. Based on published
statistics, our primary market area had an unemployment rate of 13.1% at December 31, 2009, which
exceeded both the national and state unemployment rates at that date. In addition, our primary
market area has experienced a softening of the local real estate market, including reductions in
local property values, and a decline in the local manufacturing industry, which employs many of our
borrowers. A prolonged or more severe economic downturn, continued elevated levels of
unemployment, further declines in the values of real estate, or other events that affect household
and/or corporate incomes could impair the ability of our borrowers to repay their loans in
accordance with their terms. Nearly all of our loans are secured by real estate or made to
businesses in our primary market area, which consists of McMinn, Monroe and Bradley Counties in
Tennessee and the surrounding areas. As a result of this concentration, a prolonged or more severe
downturn in the local economy could result in significant increases in non-performing loans, which
would negatively impact our interest income and result in higher provisions for loan losses, which
would decrease our earnings. The economic downturn could also result in reduced demand for credit
or fee-based products and services, which also would decrease our revenues.
17
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
institutions assets minus Tier 1 capital as of June 30, 2009, subject to a maximum equal to 10
basis points times the institutions 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 $109,000. 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 institutions 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.
Changing interest rates may decrease our earnings and asset value.
Our net interest income is the interest we earn on loans and investments less the interest we
pay on our deposits and borrowings. Our net interest margin is the difference between the yield we
earn on our assets and the interest rate we pay for deposits and our other sources of funding.
Changes in interest ratesup or downcould adversely affect our net interest margin and, as a
result, our net interest income. Although the yield we earn on our assets and our funding costs
tend to move in the same direction in response to changes in interest rates, one can rise or fall
faster than the other, causing our net interest margin to expand or contract. Our liabilities tend
to be shorter in duration than our assets, so they may adjust faster in response to changes in
interest rates. As a result, when interest rates rise, our funding costs may rise faster than the
yield we earn on our assets, causing our net interest margin to contract until the yield catches
up. This contraction could be more severe following a prolonged period of lower interest rates, as
a larger proportion of our fixed rate residential loan portfolio will have been originated at those
lower rates and borrowers may be more reluctant or unable to sell their homes in a higher interest
rate environment. Changes in the slope of the yield curveor the spread between short-term and
long-term interest ratescould also reduce our net interest margin. Normally, the yield curve is
upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities
tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we
could experience pressure on our net interest margin as our cost of funds increases relative to the
yield we can earn on our assets. For further discussion of how changes in interest rates could
impact us, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Risk Management Interest Rate Risk Management.
Strong competition within our primary market area could negatively impact 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. At June 30, 2009, which is the most recent date for which data is available from the
Federal Deposit Insurance Corporation, we held approximately 19.3% of the deposits in McMinn
County, Tennessee, 2.8% of the deposits in Monroe County, Tennessee and 1.0% of the deposits in
Bradley County, Tennessee. 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 Item 1. Business Competition for more
information about our primary market area and the competition we face.
18
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, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer
of our deposits. The Company also will be subject to regulation and supervision by the Office of
Thrift Supervision. Such regulation and supervision governs the activities in which an institution
and its holding company may engage, and are intended primarily for the protection of the insurance
fund and the depositors and borrowers of the Bank rather than for holders of the Companys common
stock. 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. If our regulators require
us to charge-off loans or increase our allowance for loan losses, our earnings would suffer. 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. For a further
discussion, see Item 1. Business Regulation and Supervision. The current administration has
also proposed comprehensive legislation intended to modernize regulation of the United States
financial system. The proposed legislation contains several provisions that would have a direct
impact on the Company and the Bank. Under the proposed legislation, the federal savings
association charter would be eliminated and the Office of Thrift Supervision would be consolidated
with the Comptroller of the Currency into a new regulator, the National Bank Supervisor. The
proposed legislation would also require the Bank to become a national bank or convert to a
state-chartered institution. In addition, it would eliminate the status of savings and loan
holding company and mandate that all companies that control an insured depository institution
register as a bank holding company. Registration as a bank holding company would represent a
significant change, as material differences currently exist between savings and loan holding
company and bank holding company supervision and regulation. For example, bank holding companies
above a specified asset size are subject to consolidated leverage and risk-based capital
requirements whereas savings and loan holding companies are not subject to such requirements. The
proposed legislation would also create a new federal agency, the Consumer Financial Protection
Agency, that would be dedicated to administering and enforcing fair lending and consumer compliance
laws with respect to financial products and services, which could result in new regulatory
requirements and increased regulatory costs for us. If enacted, the legislation may have a
substantial impact on our operations. However, because any final legislation may differ
significantly from the current administrations proposal, the specific effects of the legislation
cannot be evaluated at this time.
Our contribution to the Athens Federal Foundation may not be tax deductible, which could decrease
our profits.
We believe that our contribution to the Athens Federal Foundation, valued at $1.1 million,
pre-tax, will be deductible for federal income tax purposes. However, if the Internal Revenue
Service does not grant tax-exempt status to the foundation, the contribution will not be deductible
and we would not receive any tax benefit from the contribution. In addition, even if the
contribution is tax deductible, we may not have sufficient profits to be able to use the deduction
fully. If it is more likely than not that we will be unable to use the entire deduction, we will
be required to establish a valuation allowance related to any deferred tax asset that has been
recorded for this contribution.
Establishment of the Athens Federal Foundation will decrease our profits for fiscal 2010.
The Company contributed 100,000 shares of the Companys common stock and $100,000 in cash to
the Athens Federal Foundation. This contribution is an additional operating expense and will
reduce net income during the fiscal year ending December 31, 2010, the fiscal year in which the
foundation was established.
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None.
19
We conduct our business through our main office, branch offices and other offices. The
following table sets forth certain information relating to these facilities as of December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
Year |
|
|
Owned/ |
|
|
at |
|
Location |
|
Opened |
|
|
Leased |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Main Office: |
|
|
|
|
|
|
|
|
|
|
|
|
Athens Main Office
106 Washington Avenue
Athens, Tennessee 37303 |
|
|
1962 |
|
|
Owned |
|
$ |
1,181 |
|
Branch Offices: |
|
|
|
|
|
|
|
|
|
|
|
|
Athens Decatur Pike Office
1103 Decatur Pike
Athens, Tennessee 37303 |
|
|
1980 |
|
|
Owned |
|
|
192 |
|
Cleveland Ocoee Street Office
3855 North Ocoee Street
Cleveland, Tennessee 37312 |
|
|
2007 |
|
|
Leased (1) |
|
|
|
|
Cleveland 25th Street Office
950 25th Street
Cleveland, Tennessee 37311 |
|
|
2007 |
|
|
Leased (2) |
|
|
|
|
Etowah Office
523 Tennessee Avenue
Etowah, Tennessee 37331 |
|
|
1977 |
|
|
Owned |
|
|
698 |
|
Madisonville Office
4785 New Highway 68
Madisonville, Tennessee 37875 |
|
|
2005 |
|
|
Owned |
|
|
900 |
|
Sweetwater Office
800 Highway 68
Sweetwater, Tennessee 37874 |
|
|
1995 |
|
|
Owned |
|
|
225 |
|
Other Offices: |
|
|
|
|
|
|
|
|
|
|
|
|
Athens Lending Center
106 Hornsby Street
Athens, Tennessee 37303 |
|
|
1998 |
|
|
Owned |
|
|
515 |
|
Southland Finance Company
516 South Congress Parkway
Athens, Tennessee 37303 |
|
|
1996 |
|
|
Leased (3) |
|
|
|
|
Valley Title Services, LLC
d/b/a Sweetwater Valley Title
202 N. White Street
Athens, Tennessee 37303 |
|
|
2007 |
|
|
Leased (4) |
|
|
|
|
Valley Title Services, LLC
d/b/a Title Company of Monroe County
New Highway 68
Sweetwater, Tennessee 37874 |
|
|
2007 |
|
|
Leased (3) |
|
|
|
|
Valley Title Services, LLC
205 Decatur Pike
Athens, Tennessee 37303 |
|
|
2007 |
|
|
Owned |
|
|
217 |
|
|
|
|
(1) |
|
Lease expires in February 2012. |
|
(2) |
|
Lease expires in December 2017. |
|
(3) |
|
Property is leased on a month-to-month basis. |
|
(4) |
|
Lease expires in December 2010. |
20
|
|
|
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. |
|
(REMOVED AND RESERVED) |
None.
21
PART II
|
|
|
Item 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market for Common Equity and Related Stockholder Matters
The Companys common stock is listed on the Nasdaq Capital Market (Nasdaq) under the trading
symbol AFCB. The Company completed its initial public offering on January 6, 2010 and commenced
trading on January 7, 2010. Because the Companys common stock did not begin trading until after
the end of its fiscal year, there is no information for high and low sale prices for the year ended
December 31, 2009. The Company has not paid any dividends to its stockholders to date. See Item
1. Business Regulation and Supervision Holding Company Regulation. As of March 19, 2010,
the Company had approximately 367 holders of record of common stock. The figure of shareholders of
record does not reflect the number of persons whose shares are in nominee or street name accounts
through brokers.
The effective date of the Companys Registration Statement on Form S-1 (File No. 333-161967)
was November 12, 2009. The offering was consummated on January 6, 2010 with the sale of 2,677,250
securities registered pursuant to the Registration Statement. Keefe, Bruyette & Woods, Inc. acted
as marketing agent for the offering. The class of securities registered was common stock, par
value $0.01 per share. The aggregate amount of such securities registered was 2,777,250, of which
100,000 shares were contributed to the Athens Federal Foundation and 2,677,250 shares were sold to
certain depositors of the Bank and the Banks employee stock ownership plan for aggregate proceeds
of $26.8 million. As of December 31, 2009, the expenses incurred in connection with the stock
offering are $1.3 million, including expenses paid to the marketing agent of $296,000, attorney and
accounting fees of $579,000 and other expenses of $390,000. The net proceeds resulting from the
offering after deducting expenses were $25.5 million. The net proceeds have initially been
invested in securities and cash and cash equivalents.
Purchase of Equity Securities
The Company did not purchase any shares of its common stock during the quarter ended December
31, 2009.
22
|
|
|
Item 6. |
|
SELECTED FINANCIAL DATA |
The following tables contain certain information concerning our consolidated financial
position and results of operations, which is derived in part from our consolidated financial
statements. The following is only a summary and should be read in conjunction with the
consolidated financial statements and notes beginning on page F-1 of this annual report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
276,458 |
|
|
$ |
251,000 |
|
|
$ |
230,505 |
|
|
$ |
212,383 |
|
|
$ |
190,505 |
|
Cash and cash equivalents |
|
|
40,707 |
|
|
|
4,547 |
|
|
|
9,284 |
|
|
|
8,989 |
|
|
|
4,554 |
|
Securities available-for-sale |
|
|
23,585 |
|
|
|
30,509 |
|
|
|
22,967 |
|
|
|
21,440 |
|
|
|
27,695 |
|
Securities held-to-maturity |
|
|
|
|
|
|
5 |
|
|
|
14 |
|
|
|
25 |
|
|
|
63 |
|
Investments, at cost |
|
|
2,899 |
|
|
|
2,899 |
|
|
|
4,746 |
|
|
|
6,076 |
|
|
|
7,235 |
|
Loans receivable, net |
|
|
191,404 |
|
|
|
196,520 |
|
|
|
178,603 |
|
|
|
157,013 |
|
|
|
138,570 |
|
Deposits |
|
|
236,064 |
|
|
|
206,493 |
|
|
|
197,344 |
|
|
|
171,214 |
|
|
|
153,190 |
|
Securities sold under agreements to
repurchase |
|
|
899 |
|
|
|
912 |
|
|
|
1,151 |
|
|
|
1,681 |
|
|
|
1,421 |
|
Advances from Federal Home Loan Bank |
|
|
10,324 |
|
|
|
16,310 |
|
|
|
5,532 |
|
|
|
15,630 |
|
|
|
13,600 |
|
Total equity |
|
|
25,722 |
|
|
|
24,212 |
|
|
|
23,271 |
|
|
|
21,879 |
|
|
|
20,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
14,668 |
|
|
$ |
15,580 |
|
|
$ |
15,457 |
|
|
$ |
12,775 |
|
|
$ |
10,519 |
|
Interest expense |
|
|
5,657 |
|
|
|
7,133 |
|
|
|
7,101 |
|
|
|
5,277 |
|
|
|
3,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9,011 |
|
|
|
8,447 |
|
|
|
8,356 |
|
|
|
7,498 |
|
|
|
6,533 |
|
Provision for loan losses |
|
|
1,024 |
|
|
|
761 |
|
|
|
443 |
|
|
|
704 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan
losses |
|
|
7,987 |
|
|
|
7,686 |
|
|
|
7,913 |
|
|
|
6,794 |
|
|
|
6,192 |
|
Non-interest income |
|
|
4,670 |
|
|
|
4,161 |
|
|
|
4,030 |
|
|
|
2,682 |
|
|
|
2,563 |
|
Non-interest expense |
|
|
10,668 |
|
|
|
10,251 |
|
|
|
10,431 |
|
|
|
8,244 |
|
|
|
6,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,989 |
|
|
|
1,596 |
|
|
|
1,512 |
|
|
|
1,232 |
|
|
|
1,768 |
|
Income taxes |
|
|
644 |
|
|
|
487 |
|
|
|
392 |
|
|
|
348 |
|
|
|
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,345 |
|
|
$ |
1,109 |
|
|
$ |
1,120 |
|
|
$ |
884 |
|
|
$ |
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.54 |
% |
|
|
0.45 |
% |
|
|
0.50 |
% |
|
|
0.44 |
% |
|
|
0.65 |
% |
Return on average equity |
|
|
5.29 |
|
|
|
4.72 |
|
|
|
5.02 |
|
|
|
4.07 |
|
|
|
5.84 |
|
Interest rate spread (1) |
|
|
3.67 |
|
|
|
3.51 |
|
|
|
3.79 |
|
|
|
3.79 |
|
|
|
3.60 |
|
Net interest margin (2) |
|
|
3.89 |
|
|
|
3.74 |
|
|
|
4.05 |
|
|
|
4.07 |
|
|
|
3.81 |
|
Other expenses to average assets |
|
|
4.28 |
|
|
|
4.18 |
|
|
|
4.64 |
|
|
|
4.13 |
|
|
|
3.77 |
|
Efficiency ratio (3) |
|
|
77.98 |
|
|
|
81.30 |
|
|
|
84.22 |
|
|
|
80.98 |
|
|
|
76.81 |
|
Average interest-earning assets to
average interest-bearing liabilities |
|
|
109.18 |
|
|
|
107.20 |
|
|
|
107.67 |
|
|
|
109.99 |
|
|
|
109.06 |
|
Average equity to average assets |
|
|
10.20 |
|
|
|
9.58 |
|
|
|
9.92 |
|
|
|
10.87 |
|
|
|
11.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
|
15.3 |
% |
|
|
14.0 |
% |
|
|
14.8 |
% |
|
|
15.6 |
% |
|
|
16.8 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
14.1 |
|
|
|
12.8 |
|
|
|
13.5 |
|
|
|
14.4 |
|
|
|
15.6 |
|
Tier 1 capital (to adjusted total assets) |
|
|
9.1 |
|
|
|
9.4 |
|
|
|
9.8 |
|
|
|
10.3 |
|
|
|
10.9 |
|
Tangible equity (to adjusted total assets) |
|
|
9.1 |
|
|
|
9.4 |
|
|
|
9.8 |
|
|
|
10.3 |
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of
total loans |
|
|
1.75 |
% |
|
|
1.52 |
% |
|
|
1.37 |
% |
|
|
1.58 |
% |
|
|
1.44 |
% |
Allowance for loan losses as a percent of
non-performing loans |
|
|
169.54 |
|
|
|
73.87 |
|
|
|
704.52 |
|
|
|
1,457.43 |
|
|
|
326.81 |
|
Net charge-offs to average outstanding
loans during the period |
|
|
0.36 |
|
|
|
0.12 |
|
|
|
0.29 |
|
|
|
0.13 |
|
|
|
0.14 |
|
Non-performing loans as a percent
of total loans |
|
|
1.03 |
|
|
|
2.08 |
|
|
|
0.20 |
|
|
|
0.11 |
|
|
|
0.45 |
|
Non-performing assets as a percent
of total assets |
|
|
1.01 |
|
|
|
1.76 |
|
|
|
0.17 |
|
|
|
0.11 |
|
|
|
0.48 |
|
Total non-performing assets and troubled
debt restructurings as a percent of total
assets |
|
|
2.28 |
|
|
|
1.87 |
|
|
|
0.27 |
|
|
|
0.21 |
|
|
|
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
5 |
|
|
|
5 |
|
Number of deposit accounts |
|
|
15,837 |
|
|
|
15,296 |
|
|
|
14,769 |
|
|
|
13,482 |
|
|
|
12,726 |
|
Number of loans |
|
|
3,696 |
|
|
|
3,297 |
|
|
|
3,442 |
|
|
|
3,292 |
|
|
|
3,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the difference between the weighted average yield on average interest-earning
assets and the weighted average cost on average interest-bearing liabilities. Tax exempt
income is reported on a tax equivalent basis using a federal marginal
tax rate of 34.0%. |
|
(2) |
|
Represents net interest income as a percent of average interest-earning assets. Tax exempt
income is reported on a tax equivalent basis using a federal marginal tax rate of 34.0%. |
|
(3) |
|
Represents other expenses divided by the sum of net interest income and other income. |
24
|
|
|
Item 7. |
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION |
Operating Strategy
Our primary objective is to operate and grow a profitable community-oriented financial
institution serving customers in our primary market areas. We have sought to achieve this through
the adoption of a business strategy designed to maintain a strong capital position and high asset
quality. Most of our senior management team has been in place for the past ten years. We have
implemented a plan to diversify our product offerings by expanding our commercial deposit and
lending products, expanding our branch network into nearby communities, and emphasizing high asset
quality standards. Our operating strategy includes the following:
|
|
|
remaining a
community-oriented financial institution; |
|
|
|
continuing our historical
focus on residential mortgage lending; |
|
|
|
expanding our commercial
real estate and multi-family lending activities; |
|
|
|
emphasizing lower cost core
deposits to maintain low funding costs; and |
|
|
|
expanding our market share within our primary market area. |
Overview
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 the sale of mortgage loans
originated for sale in the secondary market, and commissions on sales of securities and investment
products. We also recognize income 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 monthly basis. When additional allowances are necessary, a provision
for loan losses is charged to earnings.
Expenses. The non-interest expense we incur in operating our business consists of salaries
and employee benefits expenses, occupancy expenses, federal deposit insurance premiums and
assessments, data processing expenses and other miscellaneous expenses. Our non-interest expenses
are likely to increase as a result of expenses of shareholder communications and meetings, stock
exchange listing fees, and expenses related to additional public company accounting services.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management
that have, or could have, a material impact on the carrying value of certain assets or on income to
be critical accounting policies. The following represent our critical accounting policies:
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
monthly 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 collectability
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
25
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 4 of the
notes to the consolidated financial statements beginning on page F-1 of this annual report.
Fair Value of Investments. Securities are characterized as available for sale or held to
maturity based on managements ability and intent regarding such investment at acquisition. On an
ongoing basis, management must estimate the fair value of its investment securities based on
information and assumptions it deems reliable and reasonable, which may be quoted market prices or
if quoted market prices are not available, fair values extrapolated from the quoted prices of
similar instruments. Based on this information, an assessment must be made as to whether any
decline in the fair value of an investment security should be considered an other-than-temporary
impairment and recorded in non-interest income as a loss on investments. The determination of such
impairment is subject to a variety of factors, including managements judgment and experience. See
note 14 of the notes to the consolidated financial statements beginning on page F-1 of this annual
report.
Deferred Compensation and Executive Benefit Plans. We have several deferred compensation
arrangements for key executive officers and directors as well as certain executive benefit plans.
Each plan has unique characteristics management must consider when recording the related
liabilities and expenses at each reporting date of the consolidated financial statements and during
the reporting period. The related liabilities are considered accounting estimates and are subject
to judgments and assumptions by management which affect the recorded amounts of liabilities and
expenses recorded during the period as well as disclosure of contingent liabilities. Actual
results could differ from those estimates. See notes 12 and 13 of the notes to the consolidated
financial statements beginning on page F-1 of this annual report.
Balance Sheet Analysis
Assets. At December 31, 2009, our total assets were $276.5 million, an increase of $25.5
million from December 31, 2008. The increase during the year ended December 31, 2009 was primarily
the result of a $36.2 million increase in cash and cash equivalents due to funds on deposit in
connection with stock subscription orders. Investment securities and interest bearing deposits in
banks, net loans, net premises and equipment and accrued interest receivable decreased $7.5
million, $5.1 million, $548,000 and $162,000 respectively, while cash surrender of life insurance,
foreclosed real estate and other assets increased $222,000, $549,000 and $1.9 million,
respectively.
Loans. Our primary lending activity is the origination of loans secured by real estate. We
originate primarily residential mortgage loans and, to a lesser extent, non-residential real estate
loans, construction loans, land and land development loans, multi-family real estate loans,
consumer loans and commercial business loans.
Residential mortgage loans and residential construction loans totaled $79.6 million, or 40.8%,
and $5.5 million, or 2.8% of the total loan portfolio, at December 31, 2009, respectively. At
December 31, 2008, these loans totaled $75.3 million, or 37.6%, and $13.1 million, or 6.5% of the
total loan portfolio, respectively. The decrease in residential construction loans was primarily a
result of completion of construction projects and loans being re-categorized to permanent
financing.
Commercial real estate loans, including non-residential, multi-family, land and construction
loans on these types of properties, comprised $70.6 million, or 36.1% of the total loan portfolio,
at December 31, 2009. At December 31, 2008, these loans totaled $69.7 million, or 34.8% of the
total loan portfolio. The increase was primarily due to an increase in land and land development
loans. During the year ended December 31, 2009, non-residential and non-residential construction
loans decreased $3.0 million, while multi-family real estate loans increased $129,000 and land and
land development loans increased $3.8 million. The primary reason for the increase in land and
land development loans was the granting of additional loans to a borrower on a subdivision we
foreclosed on in Ooltewah, Tennessee in June 2009 and subsequent financing for a portion of an
additional section of a residential development in Ooltewah, Tennessee. In 2008, the original
subdivision loan was categorized as non-residential construction, but was reclassified as land and
land development upon origination of the new financing since both developments are now completed
and in the selling phase.
26
Commercial business loans decreased to $12.0 million, or 6.2% of the total loan portfolio, and
consumer loans increased to $27.6 million, or 14.2% of the total loan portfolio at December 31,
2009 as compared to $14.6 million, or 7.3% of the total loan portfolio, and $27.5 million, or 13.8%
of the total loan portfolio, respectively, at December 31, 2008. The decrease in commercial
business loans was primarily due to a payoff being received on two loans totaling $908,000, where
the two separate companies sold the businesses, with the remaining decrease due to smaller
principal payoffs and lower market activity due to current economic conditions. The increase in
consumer loans was primarily due to additional principal funded on home equity lines of credit.
27
The following table sets forth the composition of our loan portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
(Dollars in thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one- to four-family |
|
$ |
79,573 |
|
|
|
40.75 |
% |
|
$ |
75,297 |
|
|
|
37.62 |
% |
|
$ |
71,629 |
|
|
|
39.38 |
% |
|
$ |
65,586 |
|
|
|
40.89 |
% |
|
$ |
63,663 |
|
|
|
45.04 |
% |
Non-residential |
|
|
37,905 |
|
|
|
19.41 |
|
|
|
32,295 |
|
|
|
16.14 |
|
|
|
33,710 |
|
|
|
18.53 |
|
|
|
30,699 |
|
|
|
19.14 |
|
|
|
28,760 |
|
|
|
20.35 |
|
Multi-family |
|
|
14,625 |
|
|
|
7.49 |
|
|
|
11,255 |
|
|
|
5.62 |
|
|
|
6,841 |
|
|
|
3.76 |
|
|
|
3,925 |
|
|
|
2.45 |
|
|
|
2,905 |
|
|
|
2.05 |
|
Residential construction |
|
|
5,489 |
|
|
|
2.81 |
|
|
|
13,059 |
|
|
|
6.52 |
|
|
|
10,296 |
|
|
|
5.66 |
|
|
|
8,262 |
|
|
|
5.15 |
|
|
|
6,290 |
|
|
|
4.45 |
|
Multi-family construction |
|
|
624 |
|
|
|
0.32 |
|
|
|
3,865 |
|
|
|
1.93 |
|
|
|
1,252 |
|
|
|
0.69 |
|
|
|
|
|
|
|
|
|
|
|
571 |
|
|
|
0.40 |
|
Non-residential construction |
|
|
2,709 |
|
|
|
1.39 |
|
|
|
11,390 |
|
|
|
5.69 |
|
|
|
8,011 |
|
|
|
4.40 |
|
|
|
6,077 |
|
|
|
3.79 |
|
|
|
2,270 |
|
|
|
1.61 |
|
Land |
|
|
14,690 |
|
|
|
7.52 |
|
|
|
10,893 |
|
|
|
5.44 |
|
|
|
12,095 |
|
|
|
6.65 |
|
|
|
8,559 |
|
|
|
5.34 |
|
|
|
7,079 |
|
|
|
5.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
155,615 |
|
|
|
79.69 |
|
|
|
158,054 |
|
|
|
78.96 |
|
|
|
143,834 |
|
|
|
79.07 |
|
|
|
123,108 |
|
|
|
76.76 |
|
|
|
111,538 |
|
|
|
78.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
12,001 |
|
|
|
6.15 |
|
|
|
14,565 |
|
|
|
7.28 |
|
|
|
9,940 |
|
|
|
5.46 |
|
|
|
14,027 |
|
|
|
8.75 |
|
|
|
7,488 |
|
|
|
5.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines
of credit |
|
|
16,552 |
|
|
|
8.48 |
|
|
|
14,671 |
|
|
|
7.33 |
|
|
|
13,130 |
|
|
|
7.22 |
|
|
|
10,227 |
|
|
|
6.38 |
|
|
|
9,418 |
|
|
|
6.66 |
|
Auto loans |
|
|
4,725 |
|
|
|
2.42 |
|
|
|
4,905 |
|
|
|
2.45 |
|
|
|
5,133 |
|
|
|
2.82 |
|
|
|
4,710 |
|
|
|
2.94 |
|
|
|
5,315 |
|
|
|
3.76 |
|
Loans secured by deposits |
|
|
1,367 |
|
|
|
0.70 |
|
|
|
1,546 |
|
|
|
0.77 |
|
|
|
2,331 |
|
|
|
1.28 |
|
|
|
1,203 |
|
|
|
0.75 |
|
|
|
1,125 |
|
|
|
0.79 |
|
Consumer finance loans |
|
|
1,970 |
|
|
|
1.01 |
|
|
|
2,600 |
|
|
|
1.30 |
|
|
|
3,367 |
|
|
|
1.85 |
|
|
|
3,505 |
|
|
|
2.19 |
|
|
|
3,260 |
|
|
|
2.31 |
|
Other |
|
|
3,023 |
|
|
|
1.55 |
|
|
|
3,815 |
|
|
|
1.91 |
|
|
|
4,179 |
|
|
|
2.30 |
|
|
|
3,593 |
|
|
|
2.23 |
|
|
|
3,209 |
|
|
|
2.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
27,637 |
|
|
|
14.16 |
|
|
|
27,537 |
|
|
|
13.76 |
|
|
|
28,140 |
|
|
|
15.47 |
|
|
|
23,238 |
|
|
|
14.49 |
|
|
|
22,327 |
|
|
|
15.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
195,253 |
|
|
|
100 |
% |
|
|
200,156 |
|
|
|
100.00 |
% |
|
|
181,914 |
|
|
|
100 |
% |
|
|
160,373 |
|
|
|
100.00 |
% |
|
|
141,353 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: unearned interest and fees |
|
|
(271 |
) |
|
|
|
|
|
|
(361 |
) |
|
|
|
|
|
|
(544 |
) |
|
|
|
|
|
|
(588 |
) |
|
|
|
|
|
|
(534 |
) |
|
|
|
|
Less: net deferred loan origination
fees |
|
|
(165 |
) |
|
|
|
|
|
|
(192 |
) |
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
(198 |
) |
|
|
|
|
|
|
(190 |
) |
|
|
|
|
Less: allowance for loan losses |
|
|
(3,413 |
) |
|
|
|
|
|
|
(3,083 |
) |
|
|
|
|
|
|
(2,536 |
) |
|
|
|
|
|
|
(2,574 |
) |
|
|
|
|
|
|
(2,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
191,404 |
|
|
|
|
|
|
$ |
196,520 |
|
|
|
|
|
|
$ |
178,603 |
|
|
|
|
|
|
$ |
157,013 |
|
|
|
|
|
|
$ |
138,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
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 significantly shorten the average life of all 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 |
|
|
|
Residential |
|
|
Non-residential |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
Total |
|
(Dollars in thousands) |
|
Real Estate |
|
|
Real Estate (1) |
|
|
Construction (2) |
|
|
Land |
|
|
Business |
|
|
Consumer |
|
|
Loans |
|
Amounts due in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less |
|
$ |
6,913 |
|
|
$ |
15,301 |
|
|
$ |
6,134 |
|
|
$ |
6,360 |
|
|
$ |
8,405 |
|
|
$ |
5,060 |
|
|
$ |
48,173 |
|
More than one year
through two years |
|
|
4,191 |
|
|
|
8,284 |
|
|
|
|
|
|
|
437 |
|
|
|
530 |
|
|
|
2,678 |
|
|
|
16,120 |
|
More than two years
through three years |
|
|
2,249 |
|
|
|
11,689 |
|
|
|
|
|
|
|
2,097 |
|
|
|
745 |
|
|
|
4,216 |
|
|
|
20,996 |
|
More than three years
through five years |
|
|
13,301 |
|
|
|
8,591 |
|
|
|
|
|
|
|
2,930 |
|
|
|
1,934 |
|
|
|
3,370 |
|
|
|
30,126 |
|
More than five years
through ten years |
|
|
7,406 |
|
|
|
2,414 |
|
|
|
|
|
|
|
525 |
|
|
|
387 |
|
|
|
2,440 |
|
|
|
13,172 |
|
More than ten years
through fifteen years |
|
|
6,032 |
|
|
|
3,670 |
|
|
|
|
|
|
|
626 |
|
|
|
|
|
|
|
9,546 |
|
|
|
19,874 |
|
More than fifteen years |
|
|
39,481 |
|
|
|
2,581 |
|
|
|
2,688 |
|
|
|
1,715 |
|
|
|
|
|
|
|
327 |
|
|
|
46,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
79,573 |
|
|
$ |
52,530 |
|
|
$ |
8,822 |
|
|
$ |
14,690 |
|
|
$ |
12,001 |
|
|
$ |
27,637 |
|
|
$ |
195,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes multi-family real estate loans. |
|
(2) |
|
Includes residential real estate construction loans, non-residential real estate
construction loans and multi-family real estate construction loans. |
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 that have either fixed interest rates or floating or adjustable
interest rates. The amounts shown below exclude unearned loan origination fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating or |
|
|
|
|
(In thousands) |
|
Fixed Rates |
|
|
Adjustable Rates |
|
|
Total |
|
Residential real estate |
|
$ |
17,089 |
|
|
$ |
55,571 |
|
|
$ |
72,660 |
|
Non-residential real estate |
|
|
19,955 |
|
|
|
17,274 |
|
|
|
37,229 |
|
Construction |
|
|
|
|
|
|
2,688 |
|
|
|
2,688 |
|
Land |
|
|
2,007 |
|
|
|
6,323 |
|
|
|
8,330 |
|
Commercial business |
|
|
2,924 |
|
|
|
672 |
|
|
|
3,596 |
|
Consumer |
|
|
8,370 |
|
|
|
14,207 |
|
|
|
22,577 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50,345 |
|
|
$ |
96,735 |
|
|
$ |
147,080 |
|
|
|
|
|
|
|
|
|
|
|
Most of our adjustable rate loans contain floor rates. Some adjustable rate loan products
contain floor rates equal to the initial interest rate on the loan. When market interest rates
fall below the floor rate, as has occurred in recent months, loan rates do not adjust further
downward. As market interest rates rise in the future, the interest rates on these loans may rise
based on the contract rate (index plus the margin) exceeding the initial interest floor rate;
however, contract interest rates will only increase when the index plus margin exceed the imposed
floor rate.
29
Loan Activity
The following table shows loans originated, purchased and sold during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Total loans at beginning of period |
|
$ |
199,603 |
|
|
$ |
181,139 |
|
|
$ |
159,587 |
|
|
|
|
|
|
|
|
|
|
|
Loans originated: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
66,650 |
|
|
|
30,813 |
|
|
|
34,526 |
|
Non-residential real estate |
|
|
12,281 |
|
|
|
10,163 |
|
|
|
7,959 |
|
Land |
|
|
6,529 |
|
|
|
4,046 |
|
|
|
8,109 |
|
Construction |
|
|
10,286 |
|
|
|
23,562 |
|
|
|
23,180 |
|
Commercial business |
|
|
5,834 |
|
|
|
14,087 |
|
|
|
15,084 |
|
Consumer |
|
|
18,782 |
|
|
|
22,650 |
|
|
|
18,807 |
|
|
|
|
|
|
|
|
|
|
|
Total loans originated |
|
|
120,362 |
|
|
|
105,321 |
|
|
|
107,665 |
|
|
|
|
|
|
|
|
|
|
|
Loans purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
1,993 |
|
Non-residential real estate |
|
|
|
|
|
|
1,009 |
|
|
|
2,655 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans purchased |
|
|
|
|
|
|
1,009 |
|
|
|
4,648 |
|
|
|
|
|
|
|
|
|
|
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan principal repayments |
|
|
77,574 |
|
|
|
77,131 |
|
|
|
84,640 |
|
Loan sales |
|
|
47,574 |
|
|
|
10,735 |
|
|
|
6,121 |
|
|
|
|
|
|
|
|
|
|
|
Total repayments and sales |
|
|
125,148 |
|
|
|
87,866 |
|
|
|
90,761 |
|
|
|
|
|
|
|
|
|
|
|
Net loan activity |
|
|
(4,786 |
) |
|
|
18,464 |
|
|
|
21,552 |
|
|
|
|
|
|
|
|
|
|
|
Total loans at end of period |
|
$ |
194,817 |
|
|
$ |
199,603 |
|
|
$ |
181,139 |
|
|
|
|
|
|
|
|
|
|
|
Loan originations come from a number of sources. The primary sources of loan originations are
existing customers, walk-in traffic, advertising and referrals from customers. We generally sell
in the secondary market long-term fixed-rate residential mortgage loans that we originate. Our
decision to sell loans is based on prevailing market interest rate conditions, interest rate
management and liquidity needs. Occasionally, we have purchased participation interests in
commercial real estate loans to supplement our loan portfolio. We underwrite participation
interests using the same underwriting standards for loans that we originate for our portfolio. At
December 31, 2009, our participation interests totaled $10.8 million, most of which were secured by
properties outside of our primary market area but within a 75-mile radius of it.
Securities
At December 31, 2009, our securities portfolio consisted of securities of U.S. government
agencies and corporations, securities of various government-sponsored agencies and of state and
municipal governments and mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie
Mae. At December 31, 2009, we also held an investment in the common stock of the Federal Home Loan
Bank of Cincinnati. A portion of this investment is required in order to collateralize borrowings
from the Federal Home Loan Bank of Cincinnati and the investment is periodically increased by stock
dividends paid by the Federal Home Loan Bank. Our securities portfolio is used to invest excess
funds for increased yield, manage interest rate risk and as collateralization for public unit
deposits.
At December 31, 2009, $23.6 million of our securities portfolio was classified as available
for sale. In addition, at December 31, 2009, we had $2.9 million of other investments, at cost,
which consisted solely of Federal Home Loan Bank of Cincinnati common stock.
Total securities decreased by $6.9 million, or 20.7%, for the year ended December 31, 2009
primarily as a result of $4.2 million in repayments on mortgage backed securities and $8.0 million
calls on agency securities partially offset by $5.0 million in purchases of agency securities. Our
securities portfolio increased by $5.7 million, or 20.5%, during the year ended December 31, 2008
primarily due to purchases of U.S. Government agency securities and municipal bonds totaling $16.6
million. We hold no stock in Fannie Mae or Freddie Mac and have not held stock in these entities
throughout the periods presented. In addition, for all periods presented, our mortgage-backed and
related securities did not include any private label issues or real estate mortgage investment
conduits.
30
The following table sets forth the amortized costs and fair values of our investment
securities at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
U.S. government agencies
and corporations |
|
$ |
8,612 |
|
|
$ |
8,603 |
|
|
$ |
10,545 |
|
|
$ |
10,649 |
|
|
$ |
6,743 |
|
|
$ |
6,676 |
|
States and political subdivisions |
|
|
4,532 |
|
|
|
4,449 |
|
|
|
5,544 |
|
|
|
5,276 |
|
|
|
3,718 |
|
|
|
3,684 |
|
Mortgage-backed
and related securities |
|
|
10,080 |
|
|
|
10,533 |
|
|
|
14,332 |
|
|
|
14,589 |
|
|
|
12,532 |
|
|
|
12,621 |
|
Other investment securities
available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
and held to maturity |
|
|
23,224 |
|
|
|
23,585 |
|
|
|
30,421 |
|
|
|
30,514 |
|
|
|
22,993 |
|
|
|
22,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank of
Cincinnati common stock |
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,786 |
|
|
|
2,786 |
|
Other investment securities held at
cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,960 |
|
|
|
1,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at cost |
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
|
|
4,746 |
|
|
|
4,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,123 |
|
|
$ |
26,484 |
|
|
$ |
33,320 |
|
|
$ |
33,413 |
|
|
$ |
27,739 |
|
|
$ |
27,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the activity in our investment securities portfolio during
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Mortgage-backed and related securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities,
beginning of period (1) |
|
$ |
14,589 |
|
|
$ |
12,621 |
|
|
$ |
8,501 |
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
|
|
|
|
4,527 |
|
|
|
5,984 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments and prepayments |
|
|
(4,203 |
) |
|
|
(2,727 |
) |
|
|
(2,035 |
) |
Increase (decrease) in net unrealized gain |
|
|
148 |
|
|
|
168 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in mortgage-backed
securities |
|
|
(4,055 |
) |
|
|
1,968 |
|
|
|
4,120 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and related securities,
end of period (1) |
|
|
10,534 |
|
|
$ |
14,589 |
|
|
$ |
12,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, beginning of period (1) |
|
|
15,925 |
|
|
$ |
12,320 |
|
|
$ |
16,254 |
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
5,000 |
|
|
|
12,051 |
|
|
|
6,355 |
|
Sales |
|
|
|
|
|
|
(2,160 |
) |
|
|
(3,600 |
) |
Maturities |
|
|
(8,039 |
) |
|
|
(6,254 |
) |
|
|
(6,850 |
) |
Increase (decrease) in net unrealized gain |
|
|
165 |
|
|
|
(32 |
) |
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in investment securities |
|
|
(2,874 |
) |
|
|
3,605 |
|
|
|
(3,934 |
) |
|
|
|
|
|
|
|
|
|
|
Investment securities, end of period (1) |
|
$ |
13,051 |
|
|
$ |
15,925 |
|
|
$ |
12,320 |
|
|
|
|
|
|
|
|
|
|
|
31
The following tables set forth the stated maturities and weighted average yields
of securities at December 31, 2009. Weighted average yields on tax-exempt securities are presented
on a tax equivalent basis using a federal marginal tax rate of 34.0%. 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. Weighted average yield
calculations on investments available for sale do not give effect to changes in fair value that are
reflected as a component of equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
(Dollars in thousands) |
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
U.S. government agencies
and corporations |
|
$ |
|
|
|
|
|
|
|
$ |
4,579 |
|
|
|
4.97 |
% |
|
$ |
2,054 |
|
|
|
5.00 |
% |
|
$ |
1,970 |
|
|
|
5.11 |
% |
|
|
8,603 |
|
|
|
5.01 |
% |
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
767 |
|
|
|
5.53 |
|
|
|
621 |
|
|
|
5.50 |
|
|
|
3,061 |
|
|
|
5.65 |
|
|
|
4,449 |
|
|
|
5.61 |
|
Mortgage-backed and related securities |
|
|
3,361 |
|
|
|
4.65 |
% |
|
|
4,956 |
|
|
|
5.21 |
|
|
|
1,679 |
|
|
|
5.22 |
|
|
|
537 |
|
|
|
5.25 |
|
|
|
10,533 |
|
|
|
5.04 |
|
Federal Home Loan Bank of Cincinnati
common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,899 |
|
|
|
4.50 |
|
|
|
2,899 |
|
|
|
4.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,361 |
|
|
|
4.65 |
% |
|
$ |
10,302 |
|
|
|
5.13 |
% |
|
$ |
4,354 |
|
|
|
5.16 |
% |
|
$ |
8,467 |
|
|
|
5.11 |
% |
|
$ |
26,484 |
|
|
|
5.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Bank Owned Life Insurance. We invest in bank owned life insurance to provide us with
a funding source for our benefit plan obligations. Bank owned life insurance also generally
provides us non-interest income that is non-taxable. Federal regulations generally limit our
investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan
losses at the time of investment. This investment is accounted for using the cash surrender value
method and is recorded at the amount that can be realized under the insurance policies at the
balance sheet date. At December 31, 2009 and December 31, 2008, the aggregate cash surrender value
of these policies was $6.5 million and $6.2 million, respectively.
Deposits. We accept deposits primarily from individuals and businesses who are located in our
primary market area or who have a pre-existing lending relationship with us. We rely on
competitive pricing, customer service, account features and the location of our branch offices to
attract and retain deposits. Deposits serve as the primary source of funds for our lending and
investment activities. Deposit accounts offered include individual and business checking accounts,
money market accounts, individual NOW accounts, savings accounts and certificates of deposit.
Non-interest-bearing accounts consist of free checking and commercial checking accounts.
The following table sets forth the balances of our deposit accounts at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Non-interest-bearing accounts |
|
$ |
7,320 |
|
|
$ |
7,289 |
|
|
$ |
7,807 |
|
Demand and NOW accounts |
|
|
72,539 |
|
|
|
38,408 |
|
|
|
35,413 |
|
Money market accounts |
|
|
41,715 |
|
|
|
22,130 |
|
|
|
16,402 |
|
Passbook savings accounts |
|
|
11,002 |
|
|
|
10,505 |
|
|
|
11,372 |
|
Certificates of deposit |
|
|
103,488 |
|
|
|
128,161 |
|
|
|
126,350 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
236,064 |
|
|
$ |
206,493 |
|
|
$ |
197,344 |
|
|
|
|
|
|
|
|
|
|
|
Demand deposit and NOW accounts increased $34.1 million or 88.9% for the year ended
December 31, 2009 and increased $3.0 million or 8.5% for the year ended December 31, 2008. The
increase in demand deposit and NOW accounts at December 31, 2009 is primarily due to deposits held
in trust for our stock subscription orders.
Money market accounts increased $19.6 million or 88.5% for the year ended December 31, 2009
and increased $5.7 million or 34.9% for the year ended December 31, 2008. The increase in money
market accounts at December 31, 2009 is primarily due to movement of funds from certificates of
deposit as a result of customers reluctance to lock rates on a certificate of deposit during a
time of low market interest rates.
Certificates of deposit decreased by $24.7 million or 19.3% during the year ended December 31,
2009. A portion of these funds were moved to other types of interest-bearing deposits with us
including money market accounts. Lower levels of market interest rates, as well as competitor
pricing significantly above prevailing market rates, has contributed to the decline in certificates
of deposit. Our need for loan funding, ability to invest these funds for a positive return and
consideration of other customer relationships influences our willingness to match above market
rates to retain these accounts.
The following table indicates the amount of jumbo certificates of deposit by time remaining
until maturity as of December 31, 2009, none of which are brokered deposits. Jumbo certificates of
deposit require minimum deposits of $100,000.
|
|
|
|
|
Maturity Period |
|
Amount |
|
|
|
(In thousands) |
|
Three months or less |
|
$ |
7,771 |
|
Over three through six months |
|
|
5,394 |
|
Over six through twelve months |
|
|
9,907 |
|
Over twelve months |
|
|
17,202 |
|
|
|
|
|
Total |
|
$ |
40,274 |
|
|
|
|
|
33
The following table sets forth time deposits classified by rates at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
0.00 - 1.00% |
|
$ |
2,157 |
|
|
$ |
548 |
|
|
$ |
203 |
|
1.01 - 2.00% |
|
|
34,667 |
|
|
|
9,109 |
|
|
|
1,875 |
|
2.01 - 3.00% |
|
|
16,806 |
|
|
|
13,122 |
|
|
|
1,763 |
|
3.01 - 4.00% |
|
|
11,402 |
|
|
|
37,146 |
|
|
|
19,015 |
|
4.01 - 5.00% |
|
|
20,332 |
|
|
|
41,344 |
|
|
|
45,705 |
|
5.01 - 6.00% |
|
|
18,049 |
|
|
|
26,762 |
|
|
|
57,403 |
|
6.01 - 7.00% |
|
|
|
|
|
|
55 |
|
|
|
|
|
7.01 - 8.00% |
|
|
75 |
|
|
|
75 |
|
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103,488 |
|
|
$ |
128,161 |
|
|
$ |
126,350 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the amount and maturities of time deposits at December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Due |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
More Than |
|
|
More Than |
|
|
|
|
|
|
|
|
|
|
Total Time |
|
|
|
Less Than |
|
|
One Year to |
|
|
Two Years to |
|
|
More Than |
|
|
|
|
|
|
Deposit |
|
(Dollars in thousands) |
|
One Year |
|
|
Two Years |
|
|
Three Years |
|
|
Three Years |
|
|
Total |
|
|
Accounts |
|
0.00 - 1.00% |
|
$ |
2,157 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,157 |
|
|
|
2.08 |
% |
1.01 - 2.00% |
|
|
30,753 |
|
|
|
2,870 |
|
|
|
1,009 |
|
|
|
35 |
|
|
|
34,667 |
|
|
|
33.50 |
|
2.01 - 3.00% |
|
|
10,368 |
|
|
|
2,559 |
|
|
|
2,761 |
|
|
|
1,118 |
|
|
|
16,806 |
|
|
|
16.24 |
|
3.01 - 4.00% |
|
|
4,756 |
|
|
|
2,113 |
|
|
|
446 |
|
|
|
4,087 |
|
|
|
11,402 |
|
|
|
11.02 |
|
4.01 - 5.00% |
|
|
10,355 |
|
|
|
5,112 |
|
|
|
2,774 |
|
|
|
2,091 |
|
|
|
20,332 |
|
|
|
19.65 |
|
5.01 - 6.00% |
|
|
5,832 |
|
|
|
5,546 |
|
|
|
6,359 |
|
|
|
312 |
|
|
|
18,049 |
|
|
|
17.44 |
|
6.01 - 7.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.01 - 8.00% |
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,221 |
|
|
$ |
18,275 |
|
|
$ |
13,349 |
|
|
$ |
7,643 |
|
|
$ |
103,488 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth deposit activity for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Beginning balance |
|
$ |
206,493 |
|
|
$ |
197,344 |
|
|
$ |
171,214 |
|
Increase (decrease) before interest credited |
|
|
28,479 |
|
|
|
4,161 |
|
|
|
20,424 |
|
Interest credited |
|
|
1,092 |
|
|
|
4,988 |
|
|
|
5,706 |
|
Net increase (decrease) in deposits |
|
|
29,571 |
|
|
|
9,149 |
|
|
|
26,130 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
236,064 |
|
|
$ |
206,493 |
|
|
$ |
197,344 |
|
|
|
|
|
|
|
|
|
|
|
34
Borrowings. We use borrowings from the Federal Home Loan Bank of Cincinnati and
repurchase agreements to supplement our supply of funds for loans and investments and for interest
rate risk management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Maximum balance outstanding at any month-end
during period: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
$ |
14,422 |
|
|
$ |
16,310 |
|
|
$ |
15,622 |
|
Securities sold under agreements to repurchase |
|
|
1,292 |
|
|
|
2,098 |
|
|
|
1,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding during period: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan bank advances |
|
$ |
10,955 |
|
|
$ |
9,690 |
|
|
$ |
11,035 |
|
Securities sold under agreements to repurchase |
|
|
1,052 |
|
|
|
1,400 |
|
|
|
1,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate during period: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan bank advances |
|
|
3.89 |
% |
|
|
3.78 |
% |
|
|
4.13 |
% |
Securities sold under agreements to repurchase |
|
|
0.76 |
% |
|
|
1.62 |
% |
|
|
2.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan bank advances |
|
$ |
10,324 |
|
|
$ |
16,310 |
|
|
$ |
5,532 |
|
Securities sold under agreements to repurchase |
|
|
899 |
|
|
|
912 |
|
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan bank advances |
|
|
4.06 |
% |
|
|
3.25 |
% |
|
|
4.42 |
% |
Securities sold under agreements to repurchase |
|
|
0.49 |
% |
|
|
0.99 |
% |
|
|
2.15 |
% |
Results of Operations for the Years Ended December 31, 2009 and 2008
Overview. Net income increased $236,000, or 21.2%, to $1.3 million for the year ended
December 31, 2009 compared to the year ended December 31, 2008. Our primary source of income
during each of the years ended December 31, 2009 and 2008 was net interest income, which increased
from $8.4 million at December 31, 2008 to $9.0 million at December 31, 2009. Non-interest income
increased by $509,000 during the year ended December 31, 2009 while non-interest expense increased
by $417,000 during fiscal 2009. Employee performance bonuses for our officers are typically
expensed in the year for which they are attributable, but paid in the first quarter of the
following year after full results of the operating year are known. During the year ended December
31, 2008, our compensation committee, board of directors and senior management determined that
events in the general economy, and more particularly in the housing and commercial lending markets,
might require us to retain additional capital. Accordingly, officer performance incentive bonuses
accrued throughout the year in 2008 were reversed in the fourth quarter of 2008, which decreased
non-interest expense by $263,000.
Net Interest Income. Net interest income increased by $236,000, or 21.2%, for the year ended
December 31, 2009 as compared to the year ended December 31, 2008, primarily due to the extended
low interest rate environment and use of interest rate floors in many of our variable rate loans.
Total interest income decreased by $913,000, or 5.9%, and loan interest income decreased by
$456,000, or 3.3%, during the year ended December 31, 2009, due primarily to a reduction in market
interest rates. Total interest expense decreased by $1.5 million, or 20.7%, during the year ended
December 31, 2009, while average interest-bearing liabilities increased $970,000, or 0.5%, due
primarily to the repricing of deposits throughout the year to lower market interest rates. Federal
Home Loan Bank of Cincinnati advances at December 31, 2009 totaled $10.3 million as compared to
$16.3 million at December 31, 2008 as we utilized favorable rates to fund lending.
Provision for Loan Losses. The provision for loan losses was $1.0 million for the year ended
December 31, 2009 as compared to $761,000 for the year ended December 31, 2008. The increase in
the provision was attributable to increases in classified assets, increases in specific reserves
and increases in evaluated qualitative risk factors, primarily related to prevailing economic
conditions, used to determine the overall risk inherent in our loan portfolio during the year ended
December 31, 2009. In evaluating these qualitative risk factors, loans are grouped by category
among residential real estate loans, non-residential real estate and land loans, commercial
business loans and consumer loans in order to determine estimated loss percentages for each
category. The qualitative risk factors that we consider in determining the loss percentages
include current industry conditions, unemployment rates, home permits, home price index, the levels
and trends of delinquencies, percentage of classified loans to total loans, charge-offs, bankruptcy
filings and collateral values in our primary market area. The evaluation of these qualitative risk
factors to the non-residential loan portfolio and the commercial business loan portfolio primarily
contributed to
35
the increase in the provision for loan losses from 2008 to 2009. The allowance for
loan losses for residential real estate loans, non-residential real estate loans and commercial
business loans decreased slightly from 29.39% to 28.90%, 39.61% to 37.47% and 17.69% to 17.73%,
respectively of the total allowance, while consumer loans increased from 12.90% to 15.00% of the
total allowance when comparing December 31, 2009 to December 31, 2008. The primary reason for the
increase in the allowance attributed to consumer loans was an increase in specific reserves related
to one lending relationship where the customer has filed for bankruptcy protection that has not yet
been discharged; however, we anticipate and have accounted for a full loss on consumer loans in
this relationship.
36
Average Balances and Yields
The following tables present information regarding average balances of assets and liabilities,
the total dollar amounts of interest income and dividends from average interest-earning assets, the
total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting
annualized average yields and costs. The yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances have been calculated using daily balances. Nonaccrual loans
are included in average balances only. Loan fees are included in interest income on loans and are
not material. Tax exempt income on loans and on investment and mortgage-backed securities has been
calculated on a tax equivalent basis using a federal marginal tax rate of 34.0%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
and |
|
|
Yield/ |
|
|
Average |
|
|
and |
|
|
Yield/ |
|
|
Average |
|
|
and |
|
|
Yield/ |
|
(Dollars in thousands) |
|
Balance |
|
|
Dividends |
|
|
Cost |
|
|
Balance |
|
|
Dividends |
|
|
Cost |
|
|
Balance |
|
|
Dividends |
|
|
Cost |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits at other
financial institutions |
|
$ |
7,705 |
|
|
$ |
49 |
|
|
|
0.64 |
% |
|
$ |
5,125 |
|
|
$ |
133 |
|
|
|
2.60 |
% |
|
$ |
7,341 |
|
|
$ |
357 |
|
|
|
4.87 |
% |
Loans |
|
|
192,804 |
|
|
|
13,369 |
|
|
|
6.93 |
|
|
|
185,292 |
|
|
|
13,824 |
|
|
|
7.46 |
|
|
|
164,065 |
|
|
|
13,421 |
|
|
|
8.18 |
|
Investment securities |
|
|
15,035 |
|
|
|
625 |
|
|
|
4.16 |
|
|
|
18,667 |
|
|
|
832 |
|
|
|
4.46 |
|
|
|
20,369 |
|
|
|
976 |
|
|
|
4.79 |
|
Mortgage-backed and related securities |
|
|
11,919 |
|
|
|
615 |
|
|
|
5.16 |
|
|
|
14,382 |
|
|
|
725 |
|
|
|
5.04 |
|
|
|
9,810 |
|
|
|
473 |
|
|
|
4.82 |
|
Other interest-earning assets |
|
|
3,897 |
|
|
|
10 |
|
|
|
0.26 |
|
|
|
2,662 |
|
|
|
66 |
|
|
|
2.47 |
|
|
|
4,493 |
|
|
|
230 |
|
|
|
5.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
231,360 |
|
|
|
14,668 |
|
|
|
6.34 |
|
|
|
226,128 |
|
|
|
15,580 |
|
|
|
6.89 |
|
|
|
206,078 |
|
|
|
15,457 |
|
|
|
7.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
17,843 |
|
|
|
|
|
|
|
|
|
|
|
19,377 |
|
|
|
|
|
|
|
|
|
|
|
18,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
249,203 |
|
|
|
|
|
|
|
|
|
|
$ |
245,505 |
|
|
|
|
|
|
|
|
|
|
$ |
224,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and NOW accounts |
|
$ |
43,469 |
|
|
$ |
362 |
|
|
|
0.83 |
% |
|
$ |
40,821 |
|
|
$ |
517 |
|
|
|
1.27 |
% |
|
$ |
35,450 |
|
|
$ |
527 |
|
|
|
1.49 |
% |
Money market accounts |
|
|
29,456 |
|
|
|
537 |
|
|
|
1.82 |
|
|
|
20,726 |
|
|
|
541 |
|
|
|
2.61 |
|
|
|
14,304 |
|
|
|
462 |
|
|
|
3.23 |
|
Passbook savings accounts |
|
|
11,190 |
|
|
|
48 |
|
|
|
0.43 |
|
|
|
11,350 |
|
|
|
82 |
|
|
|
0.72 |
|
|
|
11,851 |
|
|
|
95 |
|
|
|
0.80 |
|
Certificates of deposit |
|
|
115,786 |
|
|
|
4,276 |
|
|
|
3.69 |
|
|
|
126,950 |
|
|
|
5,604 |
|
|
|
4.41 |
|
|
|
117,072 |
|
|
|
5,525 |
|
|
|
4.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
199,901 |
|
|
|
5,223 |
|
|
|
2.61 |
|
|
|
199,847 |
|
|
|
6,744 |
|
|
|
3.37 |
|
|
|
178,677 |
|
|
|
6,609 |
|
|
|
3.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
10,960 |
|
|
|
426 |
|
|
|
3.89 |
|
|
|
9,690 |
|
|
|
366 |
|
|
|
3.78 |
|
|
|
11,035 |
|
|
|
456 |
|
|
|
4.13 |
|
Securities sold under agreements
to repurchase |
|
|
1,046 |
|
|
|
8 |
|
|
|
0.76 |
|
|
|
1,400 |
|
|
|
23 |
|
|
|
1.62 |
|
|
|
1,692 |
|
|
|
36 |
|
|
|
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
211,907 |
|
|
|
5,657 |
|
|
|
2.67 |
|
|
|
210,937 |
|
|
|
7,133 |
|
|
|
3.38 |
|
|
|
191,404 |
|
|
|
7,101 |
|
|
|
3.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits |
|
|
8,340 |
|
|
|
|
|
|
|
|
|
|
|
7,710 |
|
|
|
|
|
|
|
|
|
|
|
8,112 |
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities |
|
|
3,526 |
|
|
|
|
|
|
|
|
|
|
|
3,347 |
|
|
|
|
|
|
|
|
|
|
|
2,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
223,773 |
|
|
|
|
|
|
|
|
|
|
|
221,994 |
|
|
|
|
|
|
|
|
|
|
|
202,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
25,430 |
|
|
|
|
|
|
|
|
|
|
|
23,511 |
|
|
|
|
|
|
|
|
|
|
|
22,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
249,203 |
|
|
|
|
|
|
|
|
|
|
$ |
245,505 |
|
|
|
|
|
|
|
|
|
|
$ |
224,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
9,011 |
|
|
|
|
|
|
|
|
|
|
$ |
8,447 |
|
|
|
|
|
|
|
|
|
|
$ |
8,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.67 |
|
|
|
|
|
|
|
|
|
|
|
3.51 |
|
|
|
|
|
|
|
|
|
|
|
3.79 |
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.89 |
|
|
|
|
|
|
|
|
|
|
|
3.74 |
|
|
|
|
|
|
|
|
|
|
|
4.05 |
|
Average interest-earning assets to average
interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
109.18 |
% |
|
|
|
|
|
|
|
|
|
|
107.20 |
% |
|
|
|
|
|
|
|
|
|
|
107.67 |
% |
37
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
have been allocated proportionally based on the absolute dollar amounts of change in each.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
Year Ended December 31, 2008 |
|
|
|
Compared to |
|
|
Compared to |
|
|
|
Year Ended December 31, 2008 |
|
|
Year Ended December 31, 2007 |
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
Due to |
|
|
|
|
|
|
Due to |
|
|
|
|
(In thousands) |
|
Volume |
|
|
Rate |
|
|
Net |
|
|
Volume |
|
|
Rate |
|
|
Net |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits at
other financial institutions |
|
$ |
67 |
|
|
$ |
(151 |
) |
|
$ |
(84 |
) |
|
$ |
(108 |
) |
|
$ |
(116 |
) |
|
$ |
(224 |
) |
Loans receivable |
|
|
560 |
|
|
|
(1,015 |
) |
|
|
(455 |
) |
|
|
1,736 |
|
|
|
(1,333 |
) |
|
|
403 |
|
Investment securities |
|
|
(162 |
) |
|
|
(45 |
) |
|
|
(207 |
) |
|
|
(77 |
) |
|
|
(68 |
) |
|
|
(145 |
) |
Mortgage-backed and related securities |
|
|
(124 |
) |
|
|
14 |
|
|
|
(110 |
) |
|
|
220 |
|
|
|
32 |
|
|
|
252 |
|
Other interest-earning assets |
|
|
31 |
|
|
|
(87 |
) |
|
|
(56 |
) |
|
|
(93 |
) |
|
|
(70 |
) |
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
372 |
|
|
|
(1,284 |
) |
|
|
(912 |
) |
|
|
1,678 |
|
|
|
(1,555 |
) |
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
(232 |
) |
|
|
(1,289 |
) |
|
|
(1,521 |
) |
|
|
750 |
|
|
|
(615 |
) |
|
|
135 |
|
Federal Home Loan Bank advances |
|
|
48 |
|
|
|
12 |
|
|
|
60 |
|
|
|
(56 |
) |
|
|
(34 |
) |
|
|
(90 |
) |
Securities sold under agreement to
repurchase |
|
|
(6 |
) |
|
|
(9 |
) |
|
|
(15 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
(190 |
) |
|
|
(1,286 |
) |
|
|
(1,476 |
) |
|
|
688 |
|
|
|
(656 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
interest income |
|
$ |
562 |
|
|
$ |
2 |
|
|
$ |
564 |
|
|
$ |
990 |
|
|
$ |
(899 |
) |
|
$ |
91 |
|
Non-interest Income. During the year ended December 31, 2009, total non-interest income
increased $509,000, or 12.2%, as compared to the year ended December 31, 2008. The increase in
non-interest income was primarily the result of income related to the sale of mortgage loans on the
secondary market. The net gain on sales of mortgage loans, customer service fees related to debit
card income and insufficient funds fees, non-customer service fees and increase in cash value of
life insurance increased $445,000, $90,000, $21,000 and $3,000 respectively, partially offset by
decreases in investment sales commission and other fees and charges of $36,000 and $14,000,
respectively for the year ending December 31, 2009 as compared to the year ending December 31,
2008.
Non-interest Expense. Non-interest expense increased by $417,000, or 4.1%, for the year ended
December 31, 2009 as compared to the year ended December 31, 2008. The primary factors effecting
the change were increases in Federal Deposit Insurance Corporation insurance premiums and salaries
and employee benefits expense. Federal Deposit Insurance Corporation insurance premium costs
increased $308,000 during the year ended December 31, 2009 due to a special assessment paid in the
third quarter of 2009, increases in deposits and increases in assessment rates. Salary and
employee benefits expense increased $281,000 primarily due to performance bonuses being accrued for
management during 2009 where most management performance bonuses were not accrued during 2008.
Data processing costs decreased $150,000 during the year ended December 31, 2009 due to
renegotiation of our contract with our core processor during the fourth quarter of 2008. Occupancy
and equipment expense decreased $135,000 primarily due to reductions in amortized cost of current
equipment. Advertising expenses decreased by $83,000 during the year ended December 31, 2009 due
to less intensive marketing efforts related to new branches opened in 2007. All other expenses
increased approximately $196,000 primarily due to expenses related to property foreclosures.
Income Tax Expense. Provision for income taxes increased $157,000, or 32.2%, during the year
ended December 31, 2009 primarily due to an increase in taxable income.
Total Comprehensive Income. Total comprehensive income for the periods presented consists of
net income and the change in unrealized gains (losses) on securities available for sale, net of
tax. Total comprehensive income was $1.5 million and $1.2 million for the years ended December 31,
2009 and 2008, respectively. The
increase in total comprehensive income resulted from a $236,000 increase in net income and a
$100,000 increase in unrealized gain on securities available for sale, net of tax.
38
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 risk, 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. We do not offer, and have not offered, Alt-A, sub-prime or
no-documentation mortgage 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 day
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 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 generally is sold at foreclosure.
Generally, 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.
Analysis of Non-performing and Classified Assets. We consider repossessed assets and loans
that are 90 days or more past due to be non-performing assets. Loans are generally 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 the
lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair market
value at the date of foreclosure. Any holding costs and declines in fair value after acquisition
of the property result in charges against income.
39
The following table provides information with respect to our non-performing assets at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
$ |
1,377 |
|
|
$ |
688 |
|
|
$ |
149 |
|
|
$ |
93 |
|
|
$ |
431 |
|
Non-residential real estate |
|
|
410 |
|
|
|
2,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
0 |
|
|
|
270 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
36 |
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
174 |
|
|
|
19 |
|
|
|
23 |
|
|
|
44 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,997 |
|
|
|
4,139 |
|
|
|
316 |
|
|
|
137 |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
Non-residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
Consumer |
|
|
15 |
|
|
|
30 |
|
|
|
43 |
|
|
|
16 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16 |
|
|
|
33 |
|
|
|
43 |
|
|
|
43 |
|
|
|
133 |
|
Total of non-accrual and 90 days or
more past due loans |
|
|
2,013 |
|
|
|
4,172 |
|
|
|
359 |
|
|
|
180 |
|
|
|
630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
|
779 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
235 |
|
Other non-performing assets |
|
|
10 |
|
|
|
26 |
|
|
|
36 |
|
|
|
48 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
|
2,802 |
|
|
|
4,428 |
|
|
|
395 |
|
|
|
228 |
|
|
|
907 |
|
Troubled debt restructurings |
|
|
3,515 |
|
|
|
267 |
|
|
|
219 |
|
|
|
210 |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings and
total non-performing assets |
|
$ |
6,317 |
|
|
$ |
4,695 |
|
|
$ |
614 |
|
|
$ |
438 |
|
|
$ |
1,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans |
|
|
1.03 |
% |
|
|
2.08 |
% |
|
|
0.20 |
% |
|
|
0.11 |
% |
|
|
0.45 |
% |
Total non-performing loans to total assets |
|
|
0.73 |
% |
|
|
1.66 |
% |
|
|
0.16 |
% |
|
|
0.08 |
% |
|
|
0.33 |
% |
Total non-performing assets and troubled
debt restructurings to total assets |
|
|
2.28 |
% |
|
|
1.87 |
% |
|
|
0.27 |
% |
|
|
0.21 |
% |
|
|
0.59 |
% |
The decrease in non-performing loans from December 31, 2008 to December 31, 2009 was
attributable to a $2.7 million non-residential real estate development loan being foreclosed and
the related sum of the property securing the loan to a qualifying buyer with financing provided by
Athens Federal Community Bank.
We periodically modify loans to extend the term or make other concessions to help borrowers
stay current on their loan and to avoid foreclosure. We do not forgive principal or interest on
loans or modify the interest rates on loans to rates that are below market rates. At December 31,
2009, we had $3.5 million of these modified loans, which are also referred to as troubled debt
restructurings, as compared to $267,000 at December 31, 2008. The increase in troubled debt
restructurings during the year ended December 31, 2009 was primarily the result of the
restructuring of a $2.3 million commercial business loan secured by assets of a borrower who
operates radio stations in the East Tennessee market. The loan was restructured to require
interest only payments. At December 31, 2009, $454,000 of the total $3.5 million of trouble debt
restructurings were not current.
Interest income that would have been recorded for the year ended December 31, 2009 and the
year ended December 31, 2008, had non-accruing loans been current according to their original
terms, amounted to $107,000 and $158,000, respectively. Interest income of $310,000 and $406,000
related to non-performing loans was included in interest income for the year ended December 31,
2009 and the year ended December 31, 2008, respectively.
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 weakness 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
40
also provide for a special mention category, described as assets which do not currently expose an
institution to a sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving 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.
The following table shows the aggregate amounts of our classified assets at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Special mention assets |
|
$ |
4,070 |
|
|
$ |
2,299 |
|
|
$ |
3,171 |
|
Substandard assets |
|
|
7,732 |
|
|
|
6,514 |
|
|
|
1,122 |
|
Doubtful assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loss assets |
|
|
144 |
|
|
|
34 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
Total classified assets |
|
$ |
11,946 |
|
|
$ |
8,847 |
|
|
$ |
4,340 |
|
|
|
|
|
|
|
|
|
|
|
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.
Delinquencies. The following table provides information about delinquencies (excluding
non-accrual loans) in our loan portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
|
30-89 Days |
|
|
90 Days or More |
|
|
|
Number |
|
|
Principal |
|
|
Number |
|
|
Principal |
|
|
|
of |
|
|
Balance |
|
|
of |
|
|
Balance |
|
(Dollars n thousands) |
|
Loans |
|
|
of Loans |
|
|
Loans |
|
|
of Loans |
|
Residential real estate |
|
|
11 |
|
|
$ |
1,085 |
|
|
|
1 |
|
|
$ |
1 |
|
Non-residential real estate |
|
|
1 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
3 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
55 |
|
|
|
227 |
|
|
|
4 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
70 |
|
|
$ |
1,426 |
|
|
|
5 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
30-89 Days |
|
|
90 Days or More |
|
|
30-89 Days |
|
|
90 Days or More |
|
|
|
Number |
|
|
Principal |
|
|
Number |
|
|
Principal |
|
|
Number |
|
|
Principal |
|
|
Number |
|
|
Principal |
|
|
|
of |
|
|
Balance |
|
|
of |
|
|
Balance |
|
|
of |
|
|
Balance |
|
|
of |
|
|
Balance |
|
(Dollars in thousands) |
|
Loans |
|
|
of Loans |
|
|
Loans |
|
|
of Loans |
|
|
Loans |
|
|
of Loans |
|
|
Loans |
|
|
of Loans |
|
Residential real estate |
|
|
10 |
|
|
$ |
537 |
|
|
|
2 |
|
|
$ |
3 |
|
|
|
11 |
|
|
$ |
546 |
|
|
|
|
|
|
$ |
|
|
Non-residential real estate |
|
|
1 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
2 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
69 |
|
|
|
273 |
|
|
|
8 |
|
|
|
30 |
|
|
|
47 |
|
|
|
195 |
|
|
|
9 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
82 |
|
|
$ |
1,006 |
|
|
|
10 |
|
|
$ |
33 |
|
|
|
60 |
|
|
$ |
762 |
|
|
|
9 |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Analysis and Determination of the 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 monthly
basis. When additional allowances are necessary, a provision for loan losses is charged to
earnings. Our methodology for assessing the appropriateness of the allowance for loan losses is
reviewed periodically by the board of directors. The board of directors also reviews the allowance
for loan losses established on a quarterly basis.
General Valuation Allowance. We establish a general valuation allowance for loans that should
be adequate to reserve for the estimated credit losses inherent in each segment of our loan
portfolio, given the facts and circumstances as of the valuation date for all loans in the
portfolio that have not been classified. The allowance is based on our average annual rate of net
charge offs experienced over the previous three years on each segment of the portfolio and is
adjusted for current qualitative factors. If historical loss data is not available for a segment,
the estimates used will be no less than the industry average for that segment. For purposes of
determining the estimated credit losses, the loan portfolio is segmented as follows: (i)
residential real estate loans (one- to four-family); (ii) commercial real estate loans; (iii)
commercial loans (secured); (iv) commercial loans (unsecured and leases); and (v) consumer loans.
Qualitative factors that are considered in determining the adequacy of the allowance for loan
losses are as follows: (i) trends of delinquent and non-accrual loans; (ii) economic factors; (iii)
concentrations of credit; (iv) changes in the nature and volume of the loan portfolio; and (v)
changes in lending staff and loan policies.
Specific Valuation Allowance. In accordance with Accounting Standards Codification Topic 310,
Receivables all adversely classified loans meeting the following loan balance thresholds will be
individually reviewed: (i) residential loans greater than $100,000; (ii) commercial real estate
loans and land loans greater than $50,000; (iii) consumer loans greater than $25,000; and (iv) all
other commercial loans. Any portion of the recorded investment in excess of the fair value of the
collateral that can be identified as uncollectible will be charged off against the allowance for
loan losses.
We establish a specific allowance for loan losses for 100% of the assets or portions thereof
classified as loss. The amount of the loss will be the excess of the recorded investment in the
loan over the fair value of collateral estimated on the date that a probable loss is identified.
Lending management will use updated appraisals, National Automobile Dealers Association values, or
other prudent sources for determining collateral value.
All other adversely classified loans as well as special mention and watch loans will be
reviewed in accordance with Accounting Standards Codification Topic 450, Contingencies. Our
historical loss experience in each category of loans will be utilized in determining the allowance
for that group. The loss history will be based on the average actual loss sustained from the sale
of real estate owned. If we have not experienced any losses in a particular category, the factor
will be determined from either the loss history of a reasonably similar category or the peer group
industry average. The determined loss factor in each loan category may be adjusted for qualitative
factors as determined by management.
Unallocated Valuation Allowance. Our allowance for loan losses methodology also includes an
unallocated component to reflect the margin of imprecision inherent in the underlying assumptions
used in the methodologies for estimating specific and general losses in the loan portfolio.
42
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 |
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
Loans in |
|
|
|
|
|
|
% of |
|
|
Loans in |
|
|
|
|
|
|
|
Allowance |
|
|
Category |
|
|
|
|
|
|
Allowance |
|
|
Category |
|
|
|
|
|
|
|
to Total |
|
|
to Total |
|
|
|
|
|
|
to Total |
|
|
to Total |
|
(Dollars in thousands) |
|
Amount |
|
|
Allowance |
|
|
Loans |
|
|
Amount |
|
|
Allowance |
|
|
Loans |
|
Residential real estate (1) |
|
$ |
986 |
|
|
|
28.90 |
% |
|
|
52.11 |
% |
|
$ |
906 |
|
|
|
29.39 |
% |
|
|
51.58 |
% |
Non-residential real estate (1) |
|
|
1,279 |
|
|
|
37.47 |
|
|
|
36.18 |
|
|
|
1,221 |
|
|
|
39.61 |
|
|
|
34.89 |
|
Commercial business |
|
|
605 |
|
|
|
17.73 |
|
|
|
6.16 |
|
|
|
545 |
|
|
|
17.69 |
|
|
|
7.30 |
|
Consumer |
|
|
512 |
|
|
|
15.00 |
|
|
|
5.55 |
|
|
|
398 |
|
|
|
12.90 |
|
|
|
6.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,382 |
|
|
|
99.10 |
% |
|
|
100.00 |
% |
|
|
3,070 |
|
|
|
99.59 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
31 |
|
|
|
0.90 |
|
|
|
|
|
|
|
13 |
|
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
3,413 |
|
|
|
100.00 |
% |
|
|
|
|
|
$ |
3,083 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
% 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 |
|
(Dollars in thousands) |
|
Amount |
|
|
Allowance |
|
|
Loans |
|
|
Amount |
|
|
Allowance |
|
|
Loans |
|
|
Amount |
|
|
Allowance |
|
|
Loans |
|
Residential real estate (1) |
|
$ |
989 |
|
|
|
39.00 |
% |
|
|
52.41 |
% |
|
$ |
220 |
|
|
|
8.53 |
% |
|
|
52.61 |
% |
|
$ |
235 |
|
|
|
11.41 |
% |
|
|
56.36 |
% |
Non-residential real estate (1) |
|
|
777 |
|
|
|
30.62 |
|
|
|
34.13 |
|
|
|
504 |
|
|
|
19.58 |
|
|
|
30.83 |
|
|
|
410 |
|
|
|
19.91 |
|
|
|
29.53 |
|
Commercial business |
|
|
278 |
|
|
|
10.96 |
|
|
|
5.48 |
|
|
|
1,060 |
|
|
|
41.19 |
|
|
|
8.78 |
|
|
|
223 |
|
|
|
10.83 |
|
|
|
5.32 |
|
Consumer |
|
|
413 |
|
|
|
16.30 |
|
|
|
7.98 |
|
|
|
369 |
|
|
|
14.34 |
|
|
|
7.78 |
|
|
|
359 |
|
|
|
17.44 |
|
|
|
8.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,457 |
|
|
|
96.88 |
|
|
|
100.00 |
% |
|
|
2,153 |
|
|
|
83.64 |
|
|
|
100.00 |
% |
|
|
1,227 |
|
|
|
59.59 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
79 |
|
|
|
3.12 |
|
|
|
|
|
|
|
421 |
|
|
|
16.36 |
|
|
|
|
|
|
|
832 |
|
|
|
40.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
2,536 |
|
|
|
100.00 |
% |
|
|
|
|
|
$ |
2,574 |
|
|
|
100.00 |
% |
|
|
|
|
|
$ |
2,059 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes construction loans. |
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 generally 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 operation.
43
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, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Allowance for loan losses at beginning of period |
|
$ |
3,083 |
|
|
$ |
2,536 |
|
|
$ |
2,574 |
|
|
$ |
2,059 |
|
|
$ |
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,024 |
|
|
|
761 |
|
|
|
443 |
|
|
|
704 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
60 |
|
|
|
30 |
|
|
|
20 |
|
|
|
1 |
|
|
|
45 |
|
Non-residential real estate |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
228 |
|
|
|
5 |
|
|
|
244 |
|
|
|
10 |
|
|
|
|
|
Consumer |
|
|
274 |
|
|
|
258 |
|
|
|
265 |
|
|
|
234 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
758 |
|
|
|
324 |
|
|
|
529 |
|
|
|
245 |
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
20 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Non-residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
43 |
|
|
|
108 |
|
|
|
48 |
|
|
|
56 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
64 |
|
|
|
110 |
|
|
|
48 |
|
|
|
56 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
|
694 |
|
|
|
214 |
|
|
|
481 |
|
|
|
189 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
3,413 |
|
|
$ |
3,083 |
|
|
$ |
2,536 |
|
|
$ |
2,574 |
|
|
$ |
2,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing
loans |
|
|
169.54 |
% |
|
|
73.87 |
% |
|
|
704.52 |
% |
|
|
1,457.43 |
% |
|
|
326.81 |
% |
Allowance for loan losses to total loans
outstanding at the end of the period |
|
|
1.75 |
% |
|
|
1.52 |
% |
|
|
1.37 |
% |
|
|
1.58 |
% |
|
|
1.44 |
% |
Net charge-offs (recoveries) to average
loans outstanding during the period |
|
|
0.36 |
% |
|
|
0.12 |
% |
|
|
0.29 |
% |
|
|
0.13 |
% |
|
|
0.14 |
% |
Interest Rate Risk Management. Our goal is to manage asset and liability positions to
moderate the effects of interest rate fluctuations on net interest and net income. Deposit
accounts typically react more quickly to changes in market interest rates than mortgage loans
because of the shorter maturities of deposits. As a result, sharp increases in interest rates may
adversely affect our earnings while decreases in interest rates may beneficially affect our
earnings. To reduce the potential volatility of our earnings, we have sought to improve the match
between asset and liability maturities and rates, while maintaining an acceptable interest rate
spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of
borrowings; adjusting the investment portfolio mix and duration and generally selling in the
secondary market substantially all newly originated fixed rate 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.
We have an Asset/Liability Management Committee, which includes members of management selected
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.
Net Portfolio Value Analysis. We use the net portfolio value analysis prepared by the Office
of Thrift Supervision to review our level of interest rate risk. This analysis measures interest
rate risk by capturing changes in net portfolio value of our 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 the risk of loss in market risk-sensitive instruments in the event of a
sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in market interest
rates with no effect given to any steps that we might take to counter the effect of that interest
rate movement.
44
The following table, which is based on information that we provide to the Office of Thrift
Supervision, presents the change in our 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 that we might take to counteract that change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Portfolio Value |
|
|
Net Portfolio Value as % of |
|
Basis Point (bp) |
|
(Dollars in thousands) |
|
|
Portfolio Value of Assets |
|
Change in Rates |
|
$ Amount |
|
|
$ Change |
|
|
% Change |
|
|
NPV Ratio |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300bp |
|
$ |
40,175 |
|
|
$ |
3,153 |
|
|
|
9 |
% |
|
|
13.80 |
% |
|
111 |
bp |
200 |
|
|
39,323 |
|
|
|
2,304 |
|
|
|
6 |
|
|
|
13.49 |
% |
|
|
80 |
|
100 |
|
|
38,338 |
|
|
|
1,319 |
|
|
|
4 |
|
|
|
13.14 |
% |
|
|
45 |
|
0 |
|
|
37,019 |
|
|
|
|
|
|
|
|
|
|
|
12.69 |
% |
|
|
|
|
(100) |
|
|
35,494 |
|
|
|
(1,525 |
) |
|
|
(4 |
) |
|
|
12.18 |
% |
|
|
(51 |
) |
The Office of Thrift Supervision uses various assumptions in assessing interest rate risk.
These assumptions relate to interest rates, loan prepayment 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
analysis 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 and 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 we hold, rising or falling interest
rates have a significant impact on the prepayment speeds of our 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. Our asset sensitivity would be reduced if prepayments 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.
Liquidity Management. 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. 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 (i) expected
loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and
securities and (iv) the objectives of our asset/liability management policy.
Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level
of these assets depends on our operating, financing, lending and investing activities during any
given period. At December 31, 2009, cash and cash equivalents totaled $40.7 million. Securities
classified as available-for-sale, amounting to $23.6 million and interest-bearing deposits in banks
of $1.3 million at December 31, 2009, provide additional sources of liquidity. In addition, at
December 31, 2009, we had the ability to borrow a total of approximately $32 million from the
Federal Home Loan Bank of Cincinnati. At December 31, 2009, we had $10.3 million in Federal Home
Loan Bank advances outstanding and $18.0 million in letters of credit to secure public funds
deposits.
At December 31, 2009, we had $16.8 million in commitments to extend credit outstanding.
Certificates of deposit due within one year of December 31, 2009 totaled $64.2 million, or 62.0% 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.
45
The following tables present certain of our contractual obligations as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
One to |
|
|
Three to |
|
|
More Than |
|
Contractual Obligations |
|
Total |
|
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
|
|
(In thousands) |
|
Deferred director fee arrangements |
|
$ |
888 |
|
|
$ |
184 |
|
|
$ |
478 |
|
|
$ |
95 |
|
|
$ |
131 |
|
Deferred compensation arrangements |
|
|
758 |
|
|
|
37 |
|
|
|
68 |
|
|
|
68 |
|
|
|
585 |
|
Operating lease obligations |
|
|
580 |
|
|
|
197 |
|
|
|
223 |
|
|
|
80 |
|
|
|
80 |
|
Federal Home Loan Bank advances |
|
|
10,324 |
|
|
|
2,120 |
|
|
|
5,204 |
|
|
|
3,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,550 |
|
|
$ |
2,538 |
|
|
$ |
5,973 |
|
|
$ |
3,243 |
|
|
$ |
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our primary investing activities are the origination of loans and the purchase of securities.
Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank
advances. Deposit flows are affected by the overall level of interest rates, the interest rates
and product offered by us and our local competitors and other factors. We generally manage the
pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain
deposit products to attract deposits.
Financing and Investing Activities
The following table presents our primary investing and financing activities during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan purchases |
|
$ |
|
|
|
$ |
1,009 |
|
|
$ |
4,648 |
|
Loan originations |
|
|
120,362 |
|
|
|
105,321 |
|
|
|
107,665 |
|
Loan principal repayments |
|
|
77,574 |
|
|
|
77,131 |
|
|
|
84,640 |
|
Loan sales |
|
|
47,574 |
|
|
|
10,735 |
|
|
|
6,121 |
|
Proceeds from calls, maturities and principal
repayments of investment securities |
|
|
8,039 |
|
|
|
6,254 |
|
|
|
6,850 |
|
Proceeds from calls, maturities and principal
repayments of mortgage-backed and related
securities |
|
|
4,203 |
|
|
|
2,727 |
|
|
|
2,035 |
|
Proceeds from sales of investment securities
available- for-sale |
|
|
|
|
|
|
2,160 |
|
|
|
3,600 |
|
Proceeds from sales of mortgage-backed
and related securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investment securities |
|
|
5,000 |
|
|
|
12,051 |
|
|
|
6,355 |
|
Purchases of mortgage-backed
and related securities |
|
|
|
|
|
|
4,527 |
|
|
|
5,984 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in deposits |
|
$ |
29,571 |
|
|
$ |
9,149 |
|
|
$ |
26,130 |
|
Increase (decrease) in Federal Home Loan Bank
advances |
|
|
(5,986 |
) |
|
|
10,778 |
|
|
|
(10,098 |
) |
Increase (decrease) in securities sold under
agreements to repurchase |
|
|
(12 |
) |
|
|
(239 |
) |
|
|
(530 |
) |
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, we exceeded all of our regulatory capital requirements and were considered well
capitalized under regulatory guidelines. See Item 1. Business Regulation and Supervision
Regulation of Federal Savings AssociationsCapital Requirements and note 9 of the notes to
consolidated financial statements beginning on page F-1 of this annual report.
46
Off-Balance Sheet Arrangements. In the normal course of operations, we
engage in a variety of financial transactions that, in accordance with generally 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,
unused lines of credit and letters of credit. For information about our loan commitments, unused
lines of credit and letters of credit, see note 16 of the notes to consolidated financial
statements.
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.
Impact of Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see note 1 of the notes to
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 prospectus
have been prepared according to generally accepted accounting principles in the United States,
which require the measurement of financial positions 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 generally have a more significant
impact on a financial institutions 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.
|
|
|
Item 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required by this item is incorporated herein by reference to Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation.
|
|
|
Item 8. |
|
FINANCIAL STATEMENTS |
The 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 |
The Companys management, including the Companys principal executive officer and principal
financial officer, have evaluated the effectiveness of the Companys disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended (the Exchange Act). Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the period covered by this
report, the Companys disclosure controls and procedures were effective for the purpose of ensuring
that the information required to be disclosed in the reports that the Company files or submits
under the Exchange Act with the Securities and Exchange Commission (the SEC): (1) is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and (2) is accumulated and communicated to the Companys management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. In addition, based on that evaluation, no change in the Companys internal
control over financial reporting occurred during the quarter or year ended December 31, 2009 that
has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
47
This annual report on Form 10-K does not include a report of managements assessment regarding
internal
control over financial reporting or an attestation report of the Companys independent registered
public accounting firm due to a transition period established by rules of the Securities and
Exchange Commission for newly public companies.
|
|
|
Item 9B. |
|
OTHER INFORMATION |
None.
PART III
|
|
|
Item 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Board of Directors
The board of directors of the Company and the Bank are each comprised of eight persons who are
elected for terms of three (3) years, approximately one-third of whom are elected annually. At the
first annual meeting of shareholders of the Company, each director will be up for election for
either a one-year, two-year or three-year term so as to establish the initial classification of the
board of directors. The same individuals comprise the boards of directors of the Company and the
Bank.
Information regarding the directors is provided below. Unless otherwise stated, each person
has held his or her current occupation for the last five years. Ages presented are as of December
31, 2009. The starting year of service as director relates to service on the board of directors of
the Bank.
Dr. James L. Carter, Jr. is a retired dentist. Age 71. Director since 1987.
Dr. Carters strong ties to the community, through his former dental practice and involvement
in civic organizations, provides the Board with valuable insight regarding the local business and
consumer environment.
Elaine M. Cathcart is a retired realtor. Age 61. Director since 1993.
Ms. Cathcarts background provides the Board of Directors with critical experience in real
estate matters, which are essential to the business of the Bank.
Jeffrey L. Cunningham serves as President and Chief Executive Officer of the Company and the
Bank. Mr. Cunningham is a licensed attorney with significant experience in real estate and probate
law as well as general corporate and commercial practice. Mr. Cunningham joined the Bank as Chief
Operating Officer in October 1999 and became President and Chief Executive Officer in March 2000.
Age 52. Director since 1992.
Mr. Cunninghams extensive experience in the local banking industry and involvement in
business and civic organizations in the communities in which the Bank serves affords the Board
valuable insight regarding the business and operations of the Company and Bank. In addition, Mr.
Cunninghams legal background and experience provides the Board with unique skills needed to guide
the Company and its management effectively. Mr. Cunninghams knowledge of all aspects of the
Companys and Banks business and history, combined with his success and strategic vision, position
him well to continue to serve as our President and Chief Executive Officer.
G. Scott Hannah is the retired owner of Hiwassee Sales, Inc., a wholesale beverage
distributor. Age 59. Director since 2003.
Mr. Hannahs background offers the Board of Directors substantial small company management
experience, specifically within the region in which the Bank conducts its business, and provides
the Board with valuable insight regarding the local business and consumer environment. In
addition, Mr. Hannah offers the Board of Directors significant business and management level
experience from a setting outside of the financial services industry.
G. Timothy Howard is the President of Howard Brothers Logging, Inc., a timber products
company. Age 51. Director since 2001.
48
Mr. Howards background offers the Board of Directors substantial small company management
experience, specifically within the region in which the Bank conducts its business, and provides
the Board with valuable insight regarding the local business and consumer environment. In
addition, Mr. Howard offers the Board of Directors significant business and management level
experience from a setting outside of the financial services industry.
M. Darrell Murray is a self-employed realtor and auctioneer. Age 64. Director since 1993.
Mr. Murrays background provides the Board of Directors with critical experience in real
estate matters, which are essential to the business of the Bank.
Lyn B. Thompson has worked as a self-employed certified public accountant since January 2007.
From January 2005 to January 2007, Ms. Thompson served as Chief Financial Officer of Smoky
Management, LLC, a cash advance company. Before that, Ms. Thompson was a Director at G.R. Rush &
Company, P.C., a certified public accounting firm. Age 50. Director since 2005.
As a certified public accountant, Ms. Thompson provides the Board of Directors with experience
regarding accounting and financial matters.
Larry D. Wallace serves as Chairman of the Board of Directors of the Bank and the Company.
Mr. Wallace previously served as the Director of the Tennessee Bureau of Investigation for 12 years
from 1992 through 2003. Upon his retirement as Director of the Tennessee Bureau of Investigation,
Mr. Wallace returned home to Athens, Tennessee and presently serves Tennessee Wesleyan College as
Vice President of Administration. Age 65. Director since 2006.
Mr. Wallaces involvement with Tennessee Wesleyan College has allowed Mr. Wallace to develop
strong ties to the community, providing the board with valuable insight regarding the local
business and consumer environment. In addition, Mr. Wallace is also a strong advocate of the
Company and the Bank through his extensive civic and community involvement.
Executive Officers
The executive officers of the Company and the Bank are elected annually by the board of
directors and serve at the boards discretion. The executive officers of the Company and the Bank
are:
|
|
|
Name |
|
Position |
Jeffrey L. Cunningham
|
|
President and Chief Executive Officer of both
Athens Bancshares Corporation and Athens
Federal Community Bank |
|
|
|
Michael R. Hutsell
|
|
Treasurer and Chief Financial Officer of Athens
Bancshares Corporation; and Vice President,
Chief Operating Officer and Chief Financial
Officer of Athens Federal Community Bank |
|
|
|
Jay Leggett, Jr.
|
|
City PresidentCleveland of Athens Federal
Community Bank |
|
|
|
Ross A. Millsaps
|
|
Vice President and Chief Credit Officer of
Athens Federal Community Bank |
Below is information regarding our other executive officers who are not also directors. Each
individual has held his current position for at least the last five years, unless otherwise stated.
Ages presented are as of December 31, 2009.
49
Michael R. Hutsell is Treasurer and Chief Financial Officer of the Company and Vice President,
Chief Operating Officer and Chief Financial Officer of the Bank. Mr. Hutsell joined the Bank in
August 1998. Age 43.
Jay Leggett, Jr. has served as City President of the Banks Cleveland Division since March
2006. From November 2003 to March 2006, Mr. Leggett was Senior Vice President of Lending for
Bradley and Hamilton Counties, Tennessee at First Citizens Bank. Age 45.
Ross A. Millsaps has served as Vice President and Chief Credit Officer of the Bank since April
2006. Before that time, Mr. Millsaps was a bank regulatory examiner with the Office of Thrift
Supervision. Age 43.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to regulations promulgated under the Exchange Act, the Companys officers, directors
and persons who own more than 10% of the outstanding shares of the Companys common Stock
(Reporting Persons) are required to file reports detailing their ownership and changes of
ownership in such common stock (collectively, Reports), and to furnish the Company with copies of
all such Reports. Based solely on its review of the copies of such Reports or written
representations that no such Reports were necessary that the Company received during the past
fiscal year or with respect to the last fiscal year, management believes that during the fiscal
year ended December 31, 2009, all of the Reporting Persons complied with these reporting
requirements.
Code of Ethics
The Company has adopted a code of ethics and business conduct which applies to all of the
Companys and the Banks directors, officers and employees. A copy of the code of ethics and
business conduct is available to stockholders on the Investor Relations portion of the Banks
website at www.athensfederal.com.
50
Corporate Governance
The Audit Committee consists of Lyn B. Thompson (Chair), James L. Carter, Jr., G. Scott Hannah
and M. Darrell Murray. The Audit Committee is responsible for providing oversight relating to our
financial statements and financial reporting process, systems of internal accounting and financial
controls, internal audit function, annual independent audit and the compliance and ethics programs
established by management and the board. Each member of the Audit Committee is independent in
accordance with the listing standards of the Nasdaq Stock Market. The board of directors of the
Company has designated Lyn B. Thompson as an audit committee financial expert under the rules of
the Securities and Exchange Commission.
Board Leadership Structure and Boards Role in Risk Oversight
The Board of Directors of the Company has determined that the separation of the offices of
Chairman of the Board and President and Chief Executive Officer will enhance Board independence and
oversight. Moreover, the separation of the Chairman of the Board and President and Chief Executive
Officer will allow the President and Chief Executive Officer to better focus on his growing
responsibilities of running the Company, enhancing shareholder value and expanding and
strengthening our franchise while allowing the Chairman of the Board to lead the board in its
fundamental role of providing advice to and independent oversight of management. Consistent with
this determination, Larry D. Wallace serves as Chairman of the Board of the Company and Jeffrey L.
Cunningham serves as President and Chief Executive Officer of the Company.
Risk is inherent with every business, and how well a business manages risk can ultimately
determine its success. We face a number of risks, including credit risk, interest rate risk,
liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible
for the day-to-day management of risks the Company faces, while the board, as a whole and through
its committees, has responsibility for the oversight of risk management. In its risk oversight
role, the board of directors has the responsibility to satisfy itself that the risk management
processes designed and implemented by management are adequate and functioning as designed. To do
this, the Chairman of the Board meets regularly with management to discuss strategy and risks
facing the Company. Senior management attends the board meetings and is available to address any
questions or concerns raised by the board on risk management and any other matters. The Chairman
of the Board and independent members of the board work together to provide strong, independent
oversight of the Companys management and affairs through its standing committees and, when
necessary, special meetings of independent directors.
51
|
|
|
Item 11. |
|
EXECUTIVE COMPENSATION |
Summary Compensation Table
The following information is furnished for the principal executive officer and the next two
most highly compensated executive officers of the Company whose total compensation for the year
ended December 31, 2009 exceeded $100,000. These individuals are referred to in this prospectus as
named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
Name and Principal Position |
|
Year |
|
|
Salary (1) |
|
|
Bonus |
|
|
Compensation (2) |
|
|
Total |
|
Jeffrey L. Cunningham |
|
|
2009 |
|
|
$ |
256,810 |
|
|
$ |
50,393 |
|
|
$ |
196,405 |
|
|
$ |
503,608 |
|
President & Chief Executive Officer |
|
|
2008 |
|
|
|
249,854 |
|
|
|
|
|
|
|
139,325 |
|
|
|
389,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Hutsell |
|
|
2009 |
|
|
|
152,938 |
|
|
|
68,275 |
|
|
|
19,073 |
|
|
|
240,286 |
|
Vice President, Chief Operating Officer and Chief Financial Officer |
|
|
2008 |
|
|
|
144,200 |
|
|
|
|
|
|
|
18,693 |
|
|
|
162,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jay Leggett, Jr. |
|
|
2009 |
|
|
|
125,166 |
|
|
|
42,000 |
|
|
|
36,770 |
|
|
|
203,936 |
|
City PresidentCleveland |
|
|
2008 |
|
|
|
116,699 |
|
|
|
40,845 |
|
|
|
35,501 |
|
|
|
193,045 |
|
|
|
|
(1) |
|
For Mr. Cunningham, includes $18,000 received in board fees during the year ended
December 31, 2009. |
|
(2) |
|
Details of the amounts disclosed in the All Other Compensation column for the fiscal year
ended December 31, 2009 are provided in the table below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Cunningham |
|
|
Mr. Hutsell |
|
|
Mr. Leggett |
|
Employer contributions to 401(k) plan |
|
$ |
22,050 |
|
|
$ |
14,470 |
|
|
$ |
14,994 |
|
Supplemental executive retirement plan |
|
|
105,224 |
|
|
|
|
|
|
|
|
|
Deferred compensation credit |
|
|
46,383 |
(a) |
|
|
|
|
|
|
|
|
Perquisites |
|
|
22,748 |
(b) |
|
|
4,603 |
(c) |
|
|
21,776 |
(d) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
196,405 |
|
|
$ |
19,073 |
|
|
$ |
36,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents a non-cash credit by the Bank to a deferred compensation account for the
benefit of Mr. Cunningham. |
|
(b) |
|
Includes an automobile allowance of $15,666 and $7,082 for country club dues and
employer paid insurance premiums. |
|
(c) |
|
Did not exceed $10,000. |
|
(d) |
|
Includes an automobile allowance of $13,534 and $8,242 for country club dues and
employer paid insurance premiums. |
Employment Agreements
The Bank has entered into an employment agreement with Jeffrey L. Cunningham. The agreement,
which became effective on January 1, 2008, provides for a three-year term, subject to annual
renewal by the Banks board of directors for an additional year beyond the then-current expiration
date. On January 1, 2009, the board of directors renewed the agreement for an additional year,
effectively extending its term until December 31, 2011.
Under the agreement Mr. Cunningham was paid an annual base salary of $238,809 for fiscal 2009
and was eligible for additional cash compensation upon satisfaction of certain performance based
goals relating to the Banks annual net after-tax income. Pursuant to the agreement, the Bank will
also make an annual contribution to a deferred compensation account equal to 20% of Mr.
Cunninghams annual base compensation. Mr. Cunninghams interest in the deferred compensation
vests at the rate of 1/3 on the date of credit and 1/3 on each of the next two anniversaries of the
date of credit if (i) Mr. Cunninghams employment terminates during the year due to good reason (as
such term is defined in the agreement), death or disability or (ii) upon the satisfaction of
certain performance based goals relating to the Banks net after-tax income and regulatory
examination ratings. In addition to cash compensation, Mr. Cunningham is also eligible to
participate in all standard benefit programs sponsored by us, including family health insurance
coverage.
Under the agreement, if Mr. Cunninghams employment is terminated by us for just cause, as
such term is defined in the agreement, Mr. Cunningham will not be entitled to receive any
compensation for any period after his termination date. Alternatively, if Mr. Cunninghams
employment is terminated by the Bank without just cause, Mr. Cunningham will generally be entitled
to the following benefits: (i) his annual base salary for the remaining term of
the agreement, plus an additional year of base salary, and (ii) either (a) a lump sum cash payment
equal to the present value of his continued participation in our benefit programs through the
expiration of the agreement or (b) continued participation in such benefit programs.
52
Under the agreement, if Mr. Cunningham voluntarily terminates his employment with us upon 90
days written notice, he will be entitled to receive his compensation and any vested benefits
(including any vested deferred compensation benefits) up to the date of his termination. However,
if Mr. Cunningham voluntarily terminates his employment with the Bank for an event that constitutes
good reason, as such term is defined in the agreement, and the Bank fails to remedy such event
within the time frame set forth in the agreement, Mr. Cunningham will be entitled to receive
benefits as if he had been terminated by the Bank without just cause.
If Mr. Cunninghams employment is terminated due to death, the Bank will provide Mr.
Cunninghams beneficiary with the compensation due to Mr. Cunningham through the expiration date of
his employment agreement. If Mr. Cunninghams employment is terminated due to disability, as such
term is defined in the agreement, the agreement provides that Mr. Cunningham will be entitled to
compensation and benefits for (i) any period before the establishment of such disability during
which Mr. Cunningham is unable to work due to the physical or mental infirmity (ii) any period of
disability before his termination of employment; and (iii) for the remaining term of the agreement.
Life Insurance Benefits. We have entered into group carve-out plans with Messrs. Cunningham
and Hutsell pursuant to which the proceeds of certain insurance policies are divided upon the death
of the executives. Under the plans, if Messrs. Cunningham or Hutsell dies prior to termination of
employment, his beneficiary will receive a benefit equal to three times the executives annual
salary less $50,000, up to a maximum benefit of $450,000. The executives participation in the
plans terminates at the time the executive terminates employment (other than on account of death or
following a change in control).
Nonqualified Deferred Compensation
Current Supplemental Executive Retirement Plan. In 2006, we entered into a separate
supplemental executive retirement agreement with Mr. Cunningham. Under the agreement, we will
provide Mr. Cunningham with an annual benefit (payable in monthly installments) of $160,000 for 20
years, if Mr. Cunningham separates from service with the Bank after attaining age 58. If we
terminate Mr. Cunninghams service before age 58 for reasons other than cause or disability, Mr.
Cunningham will receive a reduced annual benefit (based on the amount we have accrued toward the
normal retirement benefit) for 20 years, payable commencing at the time Mr. Cunningham turns age
58. If Mr. Cunningham voluntarily terminates his service with us before age 58, he will receive
the vested portion of the account value (determined based on the amount we have accrued toward the
normal retirement benefit) for 20 years, payable commencing at the time Mr. Cunningham turns age
58. Under the plan, Mr. Cunningham currently vests at the rate of 8.93% per year and was 37.50%
vested as of December 31, 2009. If Mr. Cunningham separates from service with us before attaining
age 58 as a result of having become disabled, he will receive an annual benefit equal to 100% of
the account value for 20 years, commencing at the time he separates from service. If Mr.
Cunningham dies while in active service with the Bank, his beneficiary will receive the normal
retirement benefit that otherwise would have been paid to him for 20 years. If Mr. Cunningham dies
after separating from service with us, his beneficiary will receive or continue to receive the
benefit to which Mr. Cunningham was otherwise entitled. In connection with the conversion, we
anticipate amending and restating the supplemental retirement agreement and adding a change in
control provision under which Mr. Cunningham would be entitled to the normal retirement benefit if
he separates from service for any reason, other than for cause, following a change in control. The
change in control benefit would be payable at the later of his separation from service or his
normal retirement age (age 58) under the agreement.
Potential Post-Termination Benefits
Death. Under the employment with Mr. Cunningham, if Mr. Cunningham dies during the term of
the agreement, we will pay his estate the compensation that would have been due to him through the
expiration date of the term of the agreement. Upon his death, Mr. Cunningham will also vest in the
deferred compensation account established for him under the employment agreement. Under group
carve-out plans we have entered into with Messrs. Cunningham and Hutsell, if Messrs. Cunningham or
Hutsell dies while employed, his beneficiary will
53
receive a benefit equal to three times the executives annual salary less $50,000, up to a
maximum benefit of $450,000. If Mr. Cunningham dies while in active service, we will pay his
beneficiary the normal retirement benefit under the Supplemental Executive Retirement Plan
Agreement that otherwise would have been paid to him for 20 years. If Mr. Cunningham dies after
separating from service, his beneficiary will receive or continue to receive the benefit to which
Mr. Cunningham was otherwise entitled under the supplemental agreement.
Disability. Under the employment agreement with Mr. Cunningham, if we terminate Mr.
Cunninghams employment due to disability, we will pay Mr. Cunningham the compensation and benefits
due under the agreement for (i) any period prior to the establishment of the disability during
which he is unable to work due to the physical or mental infirmity (ii) any period of disability
prior to his termination of employment; and (iii) for the remaining term of the agreement. Upon
his termination of employment due to disability, Mr. Cunningham will also vest in the deferred
compensation account established for him under the employment agreement. If Mr. Cunningham
separates from service with us before attaining age 58 as a result of having become disabled, he
will receive an annual benefit under the Supplemental Executive Retirement Plan Agreement equal to
100% of the account value for 20 years, commencing at the time he separates from service.
Just Cause. Mr. Cunningham does not have the right to receive any payments or benefits under
his employment agreement if we terminate his employment for Just Cause. The term Just Cause is
defined in the employment agreement as the Executives personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform
duties stated herein, willful violation of any law, rule or regulation (other than traffic
violations or similar non-criminal offenses) or final cease-and-desist order, or material breach of
any provision of the employment agreement. Mr. Cunningham will forfeit all benefits under the
Supplemental Executive Retirement Plan Agreement if his employment is terminated for Just Cause.
Without Just Cause or with Good Reason. If we terminate Mr. Cunninghams employment without
Just Cause or if Mr. Cunningham terminates employment with Good Reason, we will provide him
with the following payments and benefits: (i) his annual base salary for the remaining term of the
agreement, plus an additional year of base salary, and (ii) either (a) a lump sum cash payment
equal to the present value of his continued participation in our benefit programs through the
expiration of the agreement or (b) continued participation in the benefit programs; provided that
the total value of the payments may not exceed three years total compensation. The employment
agreement defines Good Reason as any of the following events, which Mr. Cunningham does not
provide his written consent: (i) a material diminution in Mr. Cunninghams base compensation; (ii)
a material diminution in the his authority, duties, or responsibilities; (iii) a material
diminution in the authority, duties, or responsibilities of the supervisor (or supervisory
committee) to whom Mr. Cunningham is required to report, including a requirement that Mr.
Cunningham report to a corporate officer or employee instead of reporting directly to the board of
directors of the Bank; (iv) a material diminution in the budget over which Mr. Cunningham retains
authority; (v) a material change in the geographic location at which Mr. Cunningham must perform
the services he is required to perform under his employment agreement; or (vi) any other action or
inaction that constitutes a material breach by us of Mr. Cunninghams employment agreement,
Supplemental Executive Retirement Plan Agreement, or any other agreements related or ancillary to
the benefits provided under employment agreement.
Voluntary Resignation. Under the employment agreement, if Mr. Cunningham voluntarily
terminates employment with us upon 90 days written notice, we will provide him with the
compensation due him through the date of his termination. Mr. Cunningham is also entitled to the
vested portion of the deferred compensation account established for him under the employment
agreement. Under the Supplemental Executive Retirement Plan Agreement with Mr. Cunningham, we will
provide Mr. Cunningham with an annual benefit of $160,000 for 20 years, if Mr. Cunningham
terminates employment with us after attaining age 58. If Mr. Cunningham voluntarily terminates his
service with us before age 58, he will receive the vested portion of the account value (determined
based on the amount we have accrued toward the normal retirement benefit) for 20 years, payable
commencing at the time Mr. Cunningham turns age 58. Under the Supplemental Executive Retirement
Plan Agreement, Mr. Cunningham currently vests at the rate of 8.93% per year and was 37.50% vested
as of December 31, 2009.
54
Director Compensation
The following table provides the compensation received by individuals who served as
non-employee directors of the Bank during the 2009 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
|
|
|
|
|
Paid in Cash |
|
|
Total |
|
Dr. James L. Carter, Jr. |
|
$ |
18,000 |
|
|
$ |
18,000 |
|
Elaine M. Cathcart |
|
|
18,000 |
|
|
|
18,000 |
|
G. Scott Hannah |
|
|
20,000 |
|
|
|
20,000 |
|
G. Timothy Howard |
|
|
18,900 |
|
|
|
18,900 |
|
M. Darrell Murray |
|
|
18,000 |
|
|
|
18,000 |
|
Lyn B. Thompson |
|
|
22,000 |
|
|
|
22,000 |
|
Larry D. Wallace |
|
|
21,500 |
|
|
|
21,500 |
|
Cash Retainer and Meeting Fees For Non-Employee Directors. The following table sets forth the
applicable retainers and fees that will be paid to our directors for their service on the board of
directors of the Bank and the Company during the fiscal year ending December 31, 2010
|
|
|
|
|
Board of Directors of Athens Federal Community Bank: |
|
|
|
|
Monthly Retainer |
|
$ |
1,500 |
|
Additional Monthly Retainer for Chairman of the Board |
|
|
500 |
|
Additional Monthly Retainer for Audit Committee
Chairperson |
|
|
1,000 |
|
Additional Monthly Retainer for Compensation Committee
Chairperson |
|
|
500 |
|
|
|
|
|
|
Board of Directors of Athens Bancshares Corporation: |
|
|
|
|
Monthly Retainer |
|
$ |
400 |
|
Directors Deferred Compensation Agreement. The Bank has entered into a directors deferred
compensation agreement with James L. Carter, Jr. Under the terms of the agreement, Dr. Carter may
defer the receipt of meeting and other board fees until the date he retires from the board of
directors. Pursuant to the agreement, within 90 days after his retirement as a director, Dr.
Carter may elect to receive any deferred compensation, together with accumulated interest, in
either a single lump sum or in equal monthly installments distributable over a period of 60 to 180
months. If Dr. Carter elects to receive his deferred compensation amounts in monthly installments,
the Bank will credit the monthly payments with an interest rate equal to the highest rate allowed
to be credited on savings or certificate accounts as of December 31 of the succeeding calendar year
after Dr. Carters election. Furthermore, if Dr. Carter experiences financial hardship, as such
term is defined in the agreement, he may apply to the Bank for the distribution of all or any part
of his deferred compensation account. If Dr. Carter dies before the commencement of benefit
payments under the agreement, the agreement provides that benefits will be payable to Dr. Carters
beneficiary, together with accumulated interest thereon, in either a single lump sum or in equal
monthly installments distributable over a period of 60 to 180 months. Dr. Carter does not
currently defer fees under the agreement. At December 31, 2009, the balance of Dr. Carters
deferred compensation account totaled $383,000.
55
|
|
|
Item 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Stock Ownership of Certain Beneficial Owners
The following table provides information as of March 19, 2010 about the persons, other than
directors and executive officers, known to the Company to be the beneficial owners of more than 5%
of the Companys outstanding common stock. A person may be considered to beneficially own any
shares of common stock over which he or she has, directly or indirectly, sole or shared voting or
investment power.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
Number of |
|
|
of Common Stock |
|
Name and Address |
|
Shares Owned |
|
|
Outstanding (1) |
|
|
|
|
|
|
|
|
|
|
Athens Federal Community Bank |
|
|
222,180 |
(2) |
|
|
8.00 |
% |
Employee Stock Ownership Plan |
|
|
|
|
|
|
|
|
106 Washington Avenue |
|
|
|
|
|
|
|
|
Athens, Tennessee 37303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandler ONeill Asset Management, LLC |
|
|
210,000 |
(3) |
|
|
7.56 |
% |
SOAM Holdings, LLC |
|
|
|
|
|
|
|
|
Malta Partners, L.P. |
|
|
|
|
|
|
|
|
Malta Hedge Fund, L.P. |
|
|
|
|
|
|
|
|
Malta Hedge Fund II, L.P. |
|
|
|
|
|
|
|
|
Malta Offshore, Ltd. |
|
|
|
|
|
|
|
|
Terry Maltese |
|
|
|
|
|
|
|
|
780 Third Avenue, 5th Floor |
|
|
|
|
|
|
|
|
New York, New York 10017 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on 2,777,250 shares of the Companys common stock outstanding and entitled to vote as
of March 19, 2010. |
|
(2) |
|
As of March 19, 2010, no shares have been allocated to participants ESOP accounts. |
|
(3) |
|
Based on a Schedule 13D filed with the Securities and Exchange Commission on January 22,
2010. |
56
Ownership of Management
The following table provides information about the shares of Company common stock that may be
considered to be owned by each director or nominee for director of the Company, by the executive
officers and by all directors, nominees for director and executive officers of the Company as a
group as of March 19, 2010. A person may be considered to own any shares of common stock over
which he or she has, directly or indirectly, sole or shared voting or investment power. Unless
otherwise indicated, each of the named individuals has sole voting and investment power with
respect to the shares shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
Number of |
|
|
Common Stock |
|
Name |
|
Shares Owned (1) |
|
|
Outstanding (2) |
|
Directors: |
|
|
|
|
|
|
|
|
Dr. James. L. Carter, Jr. |
|
|
39,844 |
(3) |
|
|
1.43 |
% |
Elaine M. Cathcart |
|
|
50,000 |
(4) |
|
|
1.80 |
|
Jeffrey L. Cunningham |
|
|
30,000 |
|
|
|
1.08 |
|
G. Scott Hannah |
|
|
33,000 |
(5) |
|
|
1.19 |
|
G. Timothy Howard |
|
|
7,500 |
|
|
|
* |
|
M. Darrell Murray |
|
|
37,200 |
(6) |
|
|
1.34 |
|
Lyn B. Thompson |
|
|
35,000 |
(7) |
|
|
1.26 |
|
Larry D. Wallace |
|
|
5,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Executive Officers Who Are Not Directors: |
|
|
|
|
|
|
|
|
Michael R. Hutsell |
|
|
20,337 |
(8) |
|
|
* |
|
Jay Leggett, Jr. |
|
|
29,522 |
|
|
|
1.06 |
|
Ross A. Millsaps |
|
|
10,297 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as
a Group (11) persons |
|
|
296,281 |
|
|
|
10.72 |
% |
|
|
|
* |
|
Represents less than 1% of the Companys outstanding shares. |
|
(1) |
|
Includes shares held under the Athens Federal Community Bank 401(k) Plan
through a unitized Employer Stock Fund as follows: Mr. Cunningham 30,000 units; Mr.
Hutsell 20,087 units; Mr. Leggett 13,322 units; and Mr. Millsaps 10,297 units. |
|
(2) |
|
Based on 2,777,250 shares of the Companys common stock outstanding and
entitled to vote as of March 19, 2010. |
|
(3) |
|
Includes 10,000 shares held by IRA, 20,000 shares held by Dr. Carters spouse,
1,294 shares held by his spouses IRA, 8,000 shares held jointly by his spouse and son
and 550 shares held by Dr. Carters spouse as custodian for their grandson. |
|
(4) |
|
Includes 5,500 shares held by IRA, 13,400 shares held by Ms. Cathcarts spouse
and 6,600 shares held by her spouses IRA. |
|
(5) |
|
Includes 20,885 shares held by IRA and 12,115 shares held by Mr. Hannahs
spouses IRA. |
|
(6) |
|
Includes 25,000 shares held by IRA and 12,200 shares held by Mr. Murrays
spouses IRA. |
|
(7) |
|
Includes 10,000 shares held by IRA and 25,000 shares held by Ms. Thompsons
spouses IRA. |
|
(8) |
|
Includes 150 shares held as custodian for Mr. Hutsells niece and 100 shares
held as custodian for his nephew. |
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.
Securities Authorized for Issuance Under Compensation
None.
57
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits loans by
the Company to its executive officers and directors. However, the Sarbanes-Oxley Act contains a
specific exemption from such prohibition for loans by the Bank to its executive officers and
directors in compliance with federal banking regulations. Federal regulations require that all
loans or extensions of credit to executive officers and directors of insured institutions must be
made on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons and must not involve more than the
normal risk of repayment or present other unfavorable features. The Bank is therefore prohibited
from making any new loans or extensions of credit to executive officers and directors at different
rates or terms than those offered to the general public. Notwithstanding this rule, federal
regulations permit the Bank to make loans to executive officers and directors at reduced interest
rates if the loan is made under a benefit program generally available to all other employees and
does not give preference to any executive officer or director over any other employee.
The Bank currently maintains a preferred rate employee loan program that is available to all
employees of the Bank and its subsidiaries and does not give preference to any executive officer
over any other employee. Non-employee directors of the Bank are not eligible to participate in the
preferred rate employee loan program. Pursuant to the terms of the program, consumer loan rates
are generally based on the Banks most recent cost of funds, which is determined on a monthly basis
by the Banks Vice President, Chief Operating Officer and Chief Financial Officer. In addition,
under the terms of the program, real estate loans are generally offered at the prevailing loan rate
less 1.0%, with the exception of certain adjustable rate loans, which will generally remain at the
prevailing rate during the discounted or locked period and then be adjusted to 1.0% less than the
prevailing margin. With respect to real estate loans, origination fees are waived on both in-house
and secondary market loans and employee loan closing costs are equal to those fees imposed upon
third parties. Home equity lines of credit are also offered to employees at a rate equal to the
Wall Street Journal prime rate index minus 0.50%. The minimum and maximum rate for employee home
equity loans is 6.5% and 21.0%, respectively, and all annual fees are waived for employees.
The preferred rate employee loan program is made available to employees at the completion of
90 days of employment and all loan funds must be used by employees for personal purposes only. In
addition, the program does not extend to members of an employees family and loan benefits may not
be used to fund an employees outside business activities. Reduced employee loan margins only
apply to employees who meet the Banks normal underwriting criteria and employee loans made
pursuant to the program are subject to credit approval and normal underwriting standards. If an
employees employment with the Bank is terminated, rates made available under the preferred
employee loan program will increase to the terms of the loan contained in the initial disclosure.
At December 31, 2009, none of our named executive officers had any outstanding loans under the
preferred rate employee loan program. However, at that date, Ross A. Millsaps, our Vice President
and Chief Credit Officer, had an outstanding home equity line of credit with an available credit
line of $50,000 and an outstanding construction loan for construction of a new primary residence
with a total commitment of $525,000 under the preferred rate employee loan program. At December
31, 2009, the outstanding balances of Mr. Millsaps home equity line of credit and construction
loan were approximately $48,000 and $447,000, respectively. These loans, which were originated on
February 2, 2007 and November 5, 2008, respectively, were accruing interest at rates of 2.75% and
5.00% per annum, respectively, at December 31, 2009. Since the respective date of origination of
each loan, Mr. Millsaps has made total interest payments of approximately $6,000 with respect to
the home equity line of credit and $14,000 with respect to the construction loan.
Pursuant to the Companys Audit Committee Charter, the Audit Committee periodically reviews,
no less frequently than quarterly, a summary of the Companys transactions with directors and
executive officers of the Company and with firms that employ directors, as well as any other
related person transactions, to recommend to the disinterested members of the Board of Directors
that the transactions are fair, reasonable and within Company policy and should be ratified and
approved. Also, in accordance with banking regulations and its policy, the Board of Directors
reviews all loans made to a director or executive officer in an amount that, when aggregated with
the amount of all other loans to such person and his or her related interests, exceed the greater
of $25,000 or 5% of the Companys capital and surplus (up to a maximum of $500,000) and such loan
must be approved in advance by a
58
majority of the disinterested members of the Board of Directors.
Additionally, pursuant to the Companys Code of
Ethics and Business Conduct, all executive officers and directors of the Company must disclose any
existing or potential conflicts of interest to the President and Chief Executive Officer of the
Company. Such potential conflicts of interest include, but are not limited to, the following: (1)
the Company conducting business with or competing against an organization in which a family member
of an executive officer or director has an ownership or employment interest and (2) the ownership
of more than 5% of the outstanding securities or 5% of total assets of any business entity that
does business with or is in competition with the Company. See Item 1. Business Regulation and
Supervision Regulation of Federal Savings Associations Transactions with Related Parties.
The aggregate outstanding balance of loans extended by the Bank to its executive officers and
directors and related parties was $1.2 million at December 31, 2009. These loans were performing
according to their original terms at December 31, 2009. In addition, these loans were made in the
ordinary course of business, on substantially the same terms, including interest rates except for
those made in accordance with employee benefits program discussed above and collateral, as those
prevailing at the time for comparable loans with persons not related to the Bank, and did not
involve more than the normal risk of collectibility or present other unfavorable features when
made.
Other Transactions. Since January 1, 2009, there have been no transactions and there are no
currently proposed transactions in which we were or are to be a participant and the amount involved
exceeds $120,000, and in which any of our executive officers and directors had or will have a
direct or indirect material interest.
Director Independence
All of our directors are independent under the current listing standards of the Nasdaq Stock
Market, except for Jeffrey L. Cunningham, who serves as President and Chief Executive Officer of
the Company and the Bank. In determining the independence of directors, the board of directors
considered the various deposit, loan and other relationships that each director has with the Bank,
including loans and lines of credit made to Directors Howard and Thompson, in addition to the
transactions disclosed under this Item 13, but determined in each case that these relationships did
not interfere with their exercise of independent judgment in carrying out their responsibilities as
a director.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed to the Company by Hazlett, Lewis & Bieter, PLLC
for the fiscal years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Audit fees (1) |
|
$ |
241,325 |
|
|
$ |
72,922 |
|
Audit related fees (2) |
|
|
62,123 |
|
|
|
59,783 |
|
Tax fees (3) |
|
|
20,833 |
|
|
|
10,900 |
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees for the audit of the consolidated financial statements and review of
the interim financial information contained in the quarterly reports on Form 10-Q and
other regulatory reporting. In addition, this category includes fees for services
associated with SEC registration statements or other documents filed in connection with
securities offerings including comfort letters, consents and assistance with the review
of documents filed with the SEC. |
|
(2) |
|
Includes fees for attestation and related services traditionally performed by
the auditor including attestation services not required by statute or regulation,
consultations concerning financial accounting and reporting standards and due diligence
related to mergers or acquisitions. |
|
(3) |
|
Includes fees for tax compliance services including preparation of original and
amended federal and state income tax returns, preparation of personal property tax
returns and tax payment and planning advice. |
59
Pre-Approval of Services by the Independent Registered Public Accounting Firm
The Companys Audit Committee has adopted a policy for approval of audit and permitted
non-audit services by the Companys independent registered public accounting firm. The Audit
Committee will consider annually and approve the provision of audit services by the independent
registered public accounting firm and, if appropriate, approve the provision of certain defined
audit and non-audit services. The Audit Committee also will consider on a case-by-case basis and,
if appropriate, approve specific engagements.
Any proposed specific engagement may be presented to the Audit Committee for consideration at
its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or
more of its members. The member or members to whom such authority is delegated shall report any
specific approval of services at its next regular meeting. The Audit Committee will regularly
review summary reports detailing all services being provided to the Company by its independent
registered public accounting firm.
During the year ended December 31, 2009, all of the audit related fees, tax fees and all other
fees set forth above were approved by the Audit Committee.
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
|
|
Amended and Restated Charter of Athens Bancshares Corporation (1) |
3.2
|
|
Amended and Restated Bylaws of Athens Bancshares Corporation (2) |
4.1
|
|
Specimen Stock Certificate of Athens Bancshares Corporation (3) |
10.1
|
|
Employment Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (3) |
10.2
|
|
Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (3) |
10.3
|
|
Directors Deferred Compensation Agreement between Athens Federal Community Bank and Dr. James L. Carter, Jr. * (3) |
10.4
|
|
Athens Federal Community Bank Amended Group Term Carve Out Plan for Jeffrey L.
Cunningham* (3) |
10.5
|
|
Athens Federal Community Bank Amended Group Term Carve Out Plan for Michael R. Hutsell* (3) |
21.0
|
|
Subsidiaries |
23.0
|
|
Consent of Hazlett, Lewis & Bieter, PLLC |
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 exhibit to the
Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 10, 2009. |
|
(2) |
|
Incorporated herein by reference to the exhibit to the
Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 23, 2009. |
|
(3) |
|
Incorporated herein by reference to the exhibits to the
Companys Registration Statement on Form S-1 (File No. 333-144454), as
amended, initially filed with the Securities and Exchange Commission on
September 17, 2009. |
60
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Athens Federal Community Bank
Athens, Tennessee
We have audited the accompanying consolidated balance sheets of Athens Federal Community Bank
and subsidiaries (Bank) as of December 31, 2009 and 2008, and the related consolidated statements
of income, changes in equity and cash flows for the years then ended. These financial statements
are the responsibility of the Banks management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Athens Federal Community Bank and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash flows for the years
then ended in conformity with U.S. generally accepted accounting principles.
/s/ HAZLETT, LEWIS & BIETER, PLLC
Chattanooga, Tennessee
March 26, 2010
F-1
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
34,307,334 |
|
|
$ |
4,547,478 |
|
Federal funds sold |
|
|
6,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
40,707,334 |
|
|
|
4,547,478 |
|
Interest-bearing deposits in banks |
|
|
1,279,000 |
|
|
|
1,881,000 |
|
Securities available for sale |
|
|
23,584,627 |
|
|
|
30,509,092 |
|
Securities held to maturity (fair value approximates $61 and
$4,961 at December 31, 2009 and December 31, 2008,
respectively) |
|
|
61 |
|
|
|
4,961 |
|
Federal Home Loan Bank stock, at cost |
|
|
2,898,800 |
|
|
|
2,898,800 |
|
Loans, net of allowance for loan losses of $3,412,963 and
$3,082,602 at December 31, 2009 and December 31,
2008, respectively |
|
|
191,403,719 |
|
|
|
196,519,657 |
|
Premises and equipment, net |
|
|
4,794,831 |
|
|
|
5,343,364 |
|
Accrued interest receivable |
|
|
988,232 |
|
|
|
1,150,013 |
|
Cash surrender value of bank owned life insurance |
|
|
6,468,054 |
|
|
|
6,245,790 |
|
Foreclosed real estate |
|
|
779,642 |
|
|
|
230,491 |
|
Other assets |
|
|
3,553,898 |
|
|
|
1,669,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
276,458,198 |
|
|
$ |
251,000,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
7,320,547 |
|
|
$ |
7,288,603 |
|
Interest-bearing |
|
|
228,743,341 |
|
|
|
199,204,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
236,063,888 |
|
|
|
206,493,318 |
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
263,006 |
|
|
|
418,181 |
|
Securities sold under agreements to repurchase |
|
|
899,421 |
|
|
|
911,658 |
|
Federal Home Loan Bank advances |
|
|
10,324,189 |
|
|
|
16,310,272 |
|
Accrued expenses and other liabilities |
|
|
3,185,558 |
|
|
|
2,654,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
250,736,062 |
|
|
|
226,788,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
|
223,215 |
|
|
|
58,054 |
|
Retained earnings |
|
|
25,498,921 |
|
|
|
24,153,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
25,722,136 |
|
|
|
24,211,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
276,458,198 |
|
|
$ |
251,000,072 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-2
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
13,368,827 |
|
|
$ |
13,824,469 |
|
Dividends |
|
|
142,465 |
|
|
|
153,062 |
|
Securities and interest-bearing deposits in other banks |
|
|
1,156,578 |
|
|
|
1,602,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
14,667,870 |
|
|
|
15,580,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Deposits |
|
|
5,223,431 |
|
|
|
6,744,227 |
|
Federal funds purchased and securities sold under
agreements to repurchase |
|
|
8,176 |
|
|
|
22,720 |
|
Federal Home Loan Bank advances |
|
|
425,805 |
|
|
|
366,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,657,412 |
|
|
|
7,133,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9,010,458 |
|
|
|
8,447,401 |
|
|
Provision for loan losses |
|
|
1,023,540 |
|
|
|
760,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
7,986,918 |
|
|
|
7,686,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
Customer service fees |
|
|
1,712,016 |
|
|
|
1,621,943 |
|
Other charges and fees |
|
|
1,762,052 |
|
|
|
1,775,629 |
|
Investment sales commissions |
|
|
252,394 |
|
|
|
288,865 |
|
Increase in cash surrender value of life insurance |
|
|
258,767 |
|
|
|
256,153 |
|
Other noninterest income |
|
|
684,890 |
|
|
|
218,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
4,670,119 |
|
|
|
4,160,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
5,919,339 |
|
|
|
5,638,138 |
|
Occupancy and equipment |
|
|
1,478,239 |
|
|
|
1,613,481 |
|
Federal deposit insurance premiums |
|
|
391,155 |
|
|
|
82,630 |
|
Data processing |
|
|
592,511 |
|
|
|
742,967 |
|
Advertising |
|
|
144,140 |
|
|
|
227,293 |
|
Other operating expenses |
|
|
2,142,315 |
|
|
|
1,946,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses |
|
|
10,667,699 |
|
|
|
10,250,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,989,338 |
|
|
|
1,596,660 |
|
Income taxes |
|
|
644,260 |
|
|
|
487,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,345,078 |
|
|
$ |
1,109,407 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Comprehensive |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Income |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
Balance, December 31, 2007 |
|
|
|
|
|
$ |
23,277,556 |
|
|
$ |
(7,039 |
) |
|
$ |
23,270,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle |
|
|
|
|
|
|
(233,120 |
) |
|
|
|
|
|
|
(233,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,109,407 |
|
|
|
1,109,407 |
|
|
|
|
|
|
|
1,109,407 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on securities
available for sale, net of tax effect of $39,890 |
|
|
65,093 |
|
|
|
|
|
|
|
65,093 |
|
|
|
65,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
1,174,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
|
|
|
|
24,153,843 |
|
|
|
58,054 |
|
|
|
24,211,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,345,078 |
|
|
|
1,345,078 |
|
|
|
|
|
|
|
1,345,078 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on securities
available for sale, net of tax effect of $101,233 |
|
|
165,161 |
|
|
|
|
|
|
|
165,161 |
|
|
|
165,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
1,510,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
|
|
|
$ |
25,498,921 |
|
|
$ |
223,215 |
|
|
$ |
25,722,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,345,078 |
|
|
$ |
1,109,407 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
654,230 |
|
|
|
763,939 |
|
Amortization of securities and other assets |
|
|
199,334 |
|
|
|
255,855 |
|
Provision for loan losses |
|
|
1,023,540 |
|
|
|
760,803 |
|
Deferred income taxes |
|
|
(236,293 |
) |
|
|
(192,559 |
) |
Other gains and losses, net |
|
|
15,257 |
|
|
|
(10,296 |
) |
Federal Home Loan Bank stock dividends |
|
|
|
|
|
|
(112,800 |
) |
Net change in: |
|
|
|
|
|
|
|
|
Cash surrender value of life insurance |
|
|
(222,264 |
) |
|
|
(225,587 |
) |
Loans held for sale |
|
|
(381,250 |
) |
|
|
(83,011 |
) |
Accrued interest receivable |
|
|
161,781 |
|
|
|
95,711 |
|
Accrued interest payable |
|
|
(155,175 |
) |
|
|
(36,269 |
) |
Prepaid FDIC assessment |
|
|
(1,063,792 |
) |
|
|
|
|
Other assets and liabilities |
|
|
(293,270 |
) |
|
|
(206,194 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,047,176 |
|
|
|
2,118,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net change in interest-bearing deposits in banks |
|
|
602,000 |
|
|
|
(1,881,000 |
) |
Securities available for sale: |
|
|
|
|
|
|
|
|
Purchases |
|
|
(5,148,500 |
) |
|
|
(16,687,862 |
) |
Maturities, prepayments and calls |
|
|
12,278,487 |
|
|
|
8,941,411 |
|
Sales |
|
|
|
|
|
|
212,632 |
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
Principal repayments received |
|
|
4,900 |
|
|
|
9,486 |
|
Loan originations and principal collections, net |
|
|
875,969 |
|
|
|
(18,855,847 |
) |
Purchases of premises and equipment |
|
|
(105,697 |
) |
|
|
(251,262 |
) |
Proceeds from sales of premises and equipment |
|
|
|
|
|
|
8,597 |
|
Proceeds from sale of foreclosed real estate |
|
|
3,033,271 |
|
|
|
|
|
Redemption of investments, at cost |
|
|
|
|
|
|
1,960,000 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
11,540,430 |
|
|
|
(26,543,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
29,570,570 |
|
|
|
9,149,229 |
|
Net decrease in securities sold under agreements to repurchase |
|
|
(12,237 |
) |
|
|
(239,314 |
) |
Proceeds from Federal Home Loan Bank advances |
|
|
7,150,000 |
|
|
|
44,530,000 |
|
Repayment of Federal Home Loan Bank advances |
|
|
(13,136,083 |
) |
|
|
(33,752,001 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
23,572,250 |
|
|
|
19,687,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS |
|
|
36,159,856 |
|
|
|
(4,736,932 |
) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
4,547,478 |
|
|
|
9,284,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
40,707,334 |
|
|
$ |
4,547,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid on deposits and borrowed funds |
|
$ |
5,812,587 |
|
|
$ |
7,169,277 |
|
Income taxes paid |
|
|
1,023,136 |
|
|
|
531,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Acquisition of real estate acquired through foreclosure |
|
$ |
3,597,679 |
|
|
$ |
230,491 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies |
|
|
The accounting and reporting policies of Athens Federal Community Bank (Bank) and
subsidiaries conform with United States generally accepted accounting principles (GAAP)
and practices within the banking industry. During 2009 the Financial Accounting
Standards Board (FASB) adopted the FASB Accounting Standards Codification (ASC) as the
single source of authoritative nongovernmental GAAP. Rules and interpretive releases
of the Securities and Exchange Commission (SEC) are also sources of authoritative GAAP
for SEC registrants. |
|
|
|
The policies that materially affect financial position and results of operations are
summarized as follows: |
|
|
|
Principles of consolidation |
|
|
|
The consolidated financial statements of Athens Federal Community Bank and subsidiaries
include the Bank and its wholly-owned subsidiaries: Southland Finance, Inc. (Southland)
and Ti-Serv, Inc. All material intercompany accounts and transactions have been
eliminated in consolidation. |
|
|
|
Nature of operations |
|
|
|
The Bank provides a variety of financial services to individuals and corporate
customers through its seven branches located in Athens, Sweetwater, Etowah,
Madisonville, and Cleveland, Tennessee. The Banks primary deposit products include
checking, savings, certificates of deposit, and IRA accounts. Its primary lending
products are one-to-four family residential, commercial real estate, and consumer
loans. Southland is a consumer finance company with one branch located in Athens,
Tennessee. Ti-Serv, Inc. maintains the Banks investment in Valley Title Services, LLC
and provides title insurance services. |
|
|
|
Use of estimates |
|
|
|
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the valuation of
deferred tax assets, other-than-temporary impairment of securities, and the fair value
of financial instruments. |
|
|
|
Cash and cash equivalents |
|
|
|
For purposes of the consolidated statements of cash flows, cash and cash equivalents
include cash and balances due from banks, money market mutual funds and federal funds
sold and securities purchased under agreements to resell, all of which mature within
ninety days. |
F-6
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Interest-bearing deposits in banks |
|
|
|
Interest-bearing deposits in banks have a maturity of one year or less and are carried
at cost. |
|
|
|
Securities |
|
|
|
Debt securities are classified as held to maturity when the Bank has the intent and
ability to hold the securities to maturity. Securities held to maturity are carried at
amortized cost. The amortization of premiums and accretion of discounts are recognized
in interest income using the interest method over the period to maturity. |
|
|
|
Securities available for sale are carried at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive income. Realized
gains and losses on securities available for sale are included in other income and,
when applicable, are reported as a reclassification adjustment, net of tax, in other
comprehensive income. Gains and losses on sales of securities are determined on the
specific-identification method. |
|
|
|
Prior to a change in accounting guidance on April 1, 2009, in determining whether
other-than-temporary impairment existed, management considered (1) the length of time
and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability of the
Bank to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value. Declines in the fair value of individual
securities below their cost that are deemed to be other-than-temporary are reflected in
earnings as realized losses. |
|
|
|
Effective April 1, 2009, the Bank adopted new accounting guidance related to
other-than-temporary impairment of securities. The new guidance amended the criteria
for recognizing other-than-temporary impairments of debt securities and expanded the
disclosure requirements for impairment losses on debt and equity securities. The new
guidance specifies that (1) if a company does not have the intent to sell a debt
security prior to recovery and (2) it is more likely than not that it will not have to
sell the debt security prior to recovery, the security would not be considered
other-than-temporarily impaired unless there is a credit loss. The credit loss
component is the amount of principal cash flows not expected to be received over the
remaining term of the security based on cash flow projections. For debt securities
that management has no intent to sell and believes that it more likely than not will be
required to sell prior to recovery, only the credit loss component of the impairment is
recognized in earnings, while the non-credit loss is included in accumulated other
comprehensive income. |
|
|
|
Loans |
|
|
|
The Bank grants mortgage, commercial and consumer loans to customers. A substantial
portion of the loan portfolio is represented by mortgage and commercial real estate
loans located primarily in the East Tennessee area. The ability of the Banks debtors
to honor their contracts is dependent upon the real estate and general economic
conditions in this area. |
F-7
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Loans (Continued) |
|
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|
Loans that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off generally are stated at unpaid principal balances, less the
allowance for loan losses, net deferred loan origination fees and costs, and unearned
interest and fees. |
|
|
|
Loan fees, net of estimated initial direct cost relating to initiating and closing
mortgage loans, have been deferred and are being amortized into interest income over
the remaining contractual lives of the loans as an adjustment of yield using the level
yield method. |
|
|
|
Unearned interest on consumer finance loans is recognized as income over the terms of
the loans using a declining balance method. Interest on other loans is calculated
using the simple interest method on the principal outstanding. |
|
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|
The accrual of interest on mortgage and commercial loans is discontinued at the time
the loan is 90 days past due unless the credit is well-secured and in process of
collection. Other personal loans are typically charged off no later than 120 days past
due. Past due status is based on contractual terms of the loan. In all cases, loans
are placed on nonaccrual or charged off at an earlier date if collection of principal
or interest is considered doubtful. |
|
|
|
All interest accrued but not collected for loans that are placed on non-accrual or
charged off is reversed against interest income. The interest on these loans is
accounted for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably
assured. |
|
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|
Allowance for loan losses |
|
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|
The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the allowance. |
|
|
|
The allowance for loan losses is evaluated on a regular basis by management and is
based upon managements periodic review of the collectibility of the loans in light of
historical experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant revision as
more information becomes available. |
F-8
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Allowance for loan losses (Continued) |
|
|
|
The allowance consists of allocated and general components. The allocated component
relates to loans that are classified as impaired. For those loans that are classified
as impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non-classified loans and is based on
historical charge-off experience and expected loss given default derived from the
Banks internal risk rating process. Other adjustments may be made to the allowance
for pools of loans after an assessment of internal or external influences on credit
quality that are not fully reflected in the historical loss or risk rating data. |
|
|
|
A loan is considered impaired when, based on current information and events, it is
probable the Bank will be unable to collect the scheduled payments of principal or
interest when due according to contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls are not
classified as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a
loan-by-loan basis by either the present value of future cash flows discounted at the
loans effective interest rate, the loans obtainable market price, or the fair value
of the collateral if the loan is collateral dependent. |
|
|
|
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Bank does not separately identify individual consumer
loans for impairment disclosures, unless such loans are the subject of a restructuring
agreement due to financial difficulties of the borrower. |
|
|
|
Significant group concentrations of credit risk |
|
|
|
Most of the Banks activities are with customers located in East Tennessee. The types
of securities that the Bank invests in are included in Note 3. The types of lending
the Bank engages in are included in Note 4. The Bank does not have any significant
concentrations to any one industry or customer. |
|
|
|
Commercial real estate, including commercial construction loans, represented 28.61
percent of the loan portfolio at December 31, 2009, and 29.38 percent of the loan
portfolio at December 31, 2008. |
F-9
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Servicing |
|
|
|
Generally, servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. For sales of mortgage loans, a
portion of the cost of originating the loan is allocated to the servicing right based
on fair value. Fair value is based on market prices for comparable mortgage servicing
contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. The valuation
model incorporates assumptions that market participants would use in estimating future
net servicing income, such as the cost to service, the discount rate, the custodial
earnings rate, an inflation rate, ancillary income, prepayment speeds, and default
rates and losses. |
|
|
|
The Bank has not recorded any servicing assets or liabilities in accordance with ASC
Topic 860, Transfers and Servicing, because the benefits received for servicing
approximate the costs incurred by the Bank for its servicing responsibilities. |
|
|
|
Servicing fee income is recorded for fees earned for servicing loans. The fees are
based on a contractual percentage of the outstanding principal; or a fixed amount per
loan and are recorded as income when earned. The amortization of mortgage servicing
rights is netted against loan servicing fee income. |
|
|
|
Foreclosed real estate |
|
|
|
Assets acquired through, or in lieu of, loan foreclosures are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or
fair value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets. |
|
|
|
Premises and equipment |
|
|
|
Land is carried at cost. Other premises and equipment are stated at cost less
accumulated depreciation. Depreciation, computed using a combination of accelerated
and straight-line methods, is based on estimated useful lives of three to forty years.
Maintenance and repairs are expensed as incurred while major additions and improvements
are capitalized. Gains and losses on dispositions are included in current operations. |
|
|
|
Federal Home Loan Bank Stock |
|
|
|
The Bank, as a member of the Federal Home Loan Bank (FHLB) of Cincinnati, is
required to maintain an investment in capital stock of the FHLB. Based on redemption
provisions of the FHLB, the stock has no quoted market value and is carried at cost.
Management reviews for impairment based on the ultimate recoverability of the cost
basis in the FHLB stock. |
F-10
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Cash surrender value of bank owned life insurance |
|
|
|
The Bank maintains life insurance policies (BOLI) on certain key executives and
directors to help offset the rising cost of employee benefits and to assist in the
funding of deferred compensation and other employee benefits. BOLI is accounted for
using the cash surrender value method and is recorded at the amount that can be
realized under the insurance policies at the balance sheet date. At December 31, 2009
and 2008, the aggregate cash surrender value of these policies was $6,468,054 and
$6,245,790, respectively. |
|
|
|
Income taxes |
|
|
|
The Bank accounts for income taxes in accordance with income tax accounting guidance in
ASC Topic 740. The income tax accounting guidance results in two components of income
tax expense current and deferred. Current income tax expense reflects taxes to be
paid or refunded for the current period by applying the provisions of the enacted tax
law to taxable income or loss. The Bank determines deferred income taxes using the
liability method. Under this method, the net deferred tax asset or liability is based
on the tax effects of the differences between the book and tax bases of assets and
liabilities. The Banks deferred taxes relate primarily to differences between the
basis of the allowance for loan losses, deferred compensation plans and accumulated
depreciation. Deferred tax assets and liabilities are reflected at income tax rates
applicable to the period in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes. The Bank
files consolidated income tax returns with its subsidiaries. |
|
|
|
The Bank recognizes deferred tax assets if it is more likely than not, based on the
technical merits, that the tax position will be realized or sustained upon examination.
The Bank follows the statutory requirements for its income tax accounting and
generally avoids risks associated with potentially problematic tax positions that may
be challenged upon examination. |
|
|
|
Advertising costs |
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|
|
Advertising costs are expensed as incurred. |
|
|
|
Variable interest entities |
|
|
|
An entity is referred to as a variable interest entity (VIE) if it meets the criteria
outlined in ASC Topic 810, which are: (1) the entity has equity that is insufficient to
permit the entity to finance its activities without additional subordinated financial
support from other parties, or (2) the entity has equity investors that cannot make
significant decisions about the entitys operations or that do not absorb the expected
losses or receive the expected returns of the entity. A VIE must be consolidated by
the Bank if it is deemed to be the primary beneficiary of the VIE, which is the party
involved with the VIE that
has a majority of the expected losses, expected residual returns, or both. At December
31, 2009, the Bank was not involved with any entity that is deemed to be a VIE. |
F-11
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Comprehensive income |
|
|
|
Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains on securities available for sale, and
unrealized losses related to factors other than credit losses on debt securities. |
|
|
|
Securities sold under agreements to repurchase |
|
|
|
The Bank enters into sales of securities under agreements to repurchase identical
securities the next day. |
|
|
|
Segment reporting |
|
|
|
ASC Topic 280, Segment Reporting, provides for the identification of reportable
segments on the basis of discrete business units and their financial information to the
extent such units are reviewed by an entitys chief decision maker (which can be an
individual or group of management persons). The Statement permits aggregation or
combination of segments that have similar characteristics. In the operations of the
Bank and its subsidiaries, each bank branch is viewed by management as being a
separately identifiable business or segment from the perspective of monitoring
performance and allocation of financial resources. Although the branches operate
independently and are managed and monitored separately, each is substantially similar
in terms of business focus, type of customers, products, and services. Further, the
results of Southland and Ti-Serv, Inc. for the years ended December 31, 2009 and 2008,
were not significant for separate disclosure. Accordingly, the Banks consolidated
financial statements reflect the presentation of segment information on an aggregated
basis in one reportable segment. |
|
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|
Transfers of financial assets |
|
|
|
Transfers of financial assets are accounted for as sales, when control over the assets
has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Bank, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Bank does not maintain effective control
over the transferred assets through an agreement to repurchase them before their
maturity or the ability to unilaterally cause the holder to return specific assets. |
|
|
|
The Bank originates fixed-rate mortgage loans for sale to secondary market investors
subject to contractually specified and limited recourse provisions. The Bank may be
required to repurchase a previously sold mortgage loan if there is major noncompliance
with defined loan origination or documentation standards, including fraud, negligence
or material misstatement in the loan documents. The Bank has been notified by FHLMC
that four loans previously sold to them may not have qualified under their terms of
purchase, and the Bank may be required to repurchase these loans in the future. At
December 31, 2009 and December 31, 2008, the aggregate outstanding balance of loans
subject to this recourse obligation was approximately $226,000 and $237,000,
respectively. For the years ended December 31, 2009 and 2008, the Bank was not |
F-12
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Transfers of financial assets (Continued) |
|
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|
required to repurchase any loans and realized no gains or losses. Recourse
obligations, if any, are determined based upon an estimate of probable credit losses
over the term of the loan, and are not significant to the consolidated financial
statements. |
|
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|
Subsequent Events |
|
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|
The Bank has evaluated subsequent events for potential recognition and disclosure in
the consolidated financial statements and accompanying notes included in this annual
report. Upon evaluation management believes that the following meets the requirement
for disclosure: |
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|
Mutual to Stock Conversion and Change in Corporate Form: |
|
|
|
On January 6, 2010, in accordance with a Plan of Conversion by its Board of Directors
as approved by its members, the Bank converted from a mutual savings bank to a stock
savings bank and became the wholly-owned subsidiary of Athens Bancshares Corporation
(Company), a stock holding company. In connection with the conversion, the Company
issued an aggregate of 2,677,250 shares of common stock at an offering price of $10.00
per share. In connection with the conversion, Athens Community Foundation was formed,
to which the Company contributed 100,000 shares of common stock and $100,000 in cash.
In addition, the Banks Board of Directors adopted an employee stock ownership plan
(ESOP) which subscribed for 8 percent of the sum of the common stock sold in the
offering and contributed to the foundation. |
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Recent accounting pronouncements |
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|
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability have Significantly Decreased
and Identifying Transactions that Are Not Orderly (FSP 157-4) (ASC Topic 820, Fair
Value Measurements and Disclosures). FSP 157-4 indicates that if an entity determines
that either the volume and/or level of activity for an asset or liability has
significantly decreased (from normal conditions for that asset or liability) or price
quotations or observable inputs are not associated with orderly transactions, increased
analysis and management judgment will be required to estimate fair value. FSP 157-4 is
effective for interim and annual periods ended after June 15, 2009, with early adoption
permitted. FSP 157-4 must be applied prospectively. The provisions of FSP 157-4 became
effective for the Banks interim period ended on June 30, 2009, and its adoption did
not have a significant impact on the consolidated financial statements. |
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|
In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments (FSP 107-1 and APB 28-1) (ASC Topic
825, Financial Instruments, and ASC Topic 270, Interim Reporting). FSP 107-1 and APB
28-1 requires disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. |
F-13
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
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Recent accounting pronouncements (Continued) |
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|
This FSP also amends ASC Topic 270, Interim Reporting, to require those disclosures in
summarized financial information at interim reporting periods. The provisions of FSP
107-1 and APB 28-1 became effective for the Banks interim period ended on June 30,
2009 and resulted in the applicable fair value disclosures being included in interim
reporting periods. |
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|
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP 115-2 and 124-2) (ASC Topic
320, Investments Debt and Equity Securities). FSP 115-2 and 124-2 clarifies the
interaction of the factors that should be considered when determining whether a debt
security is other-than-temporarily impaired. For debt securities, management must
assess whether (a) it has the intent to sell the security and (b) it is more likely
than not that it will be required to sell the security prior to its anticipated
recovery. These assessments are made before assessing whether the entity will recover
the cost basis of the investment. This change does not affect the need to forecast
recovery of the value of the security through either cash flows or market price. In
instances when a determination is made that an other-than-temporary impairment exists
but the investor does not intend to sell the debt security and it is not more likely
than not that it will be required to sell the debt security prior to its anticipated
recovery, FSP 115-2 and 124-2 changes the presentation and amount of the
other-than-temporary impairment recognized in the income statement. The
other-than-temporary impairment is separated into (a) the amount of the total
other-than-temporary impairment related to a decrease in cash flows expected to be
collected from the debt security (the credit loss) and (b) the amount of the total
other-than-temporary impairment related to all other factors. The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings.
The amount of the total other-than-temporary impairment related to all other factors is
recognized in other comprehensive income. FSP 115-2 and 124-2 also requires substantial
additional disclosures. The provisions of FSP 115-2 and 124-2 became effective for the
Banks interim period ended on June 30, 2009, and there was no impact from the adoption
on the Banks financial position, results of operations or cash flows. The expanded
disclosures related to FSP 115-2 and 124-2 are included in Note 3. |
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On June 30, 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
Replacement of FASB Statement No. 162 (the Codification) (ASC Topic 105, Generally
Accepted Accounting Principles). The Codification became the single source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities and Exchange Commission are also
sources of authoritative GAAP registrants. All guidance contained in the Codification
carries an equal level of authority. The Codification is not intended to change GAAP,
but rather is expected to simplify accounting research by reorganizing current GAAP
into approximately 90 accounting topics. The Bank adopted this
accounting standard in preparing its consolidated financial statements for the period
ended September 30, 2009. The adoption of this accounting standard had no impact on
retained earnings or on the Banks consolidated statements of income and condition. |
F-14
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
Recent accounting pronouncements (Continued) |
|
|
|
On August 18, 2009, the Securities and Exchange Commission published interpretive
guidance titled Commission Guidance Regarding the Financial Accounting Standards
Boards Accounting Standards of Codification. In its guidance, the SEC stated that
concurrent with the effective date, references in the SECs rules and SEC staff
guidance to specific standards under GAAP should be understood to mean the
corresponding reference in the Codification. The SEC also stated that the Codification
does not supersede any SEC rules or regulations, is not the authoritative source for
SEC rules or SEC staff guidance, and the inclusion of any SEC rules or SEC staff
guidance in the Codification will not affect how such items may be updated in the
future by the SEC. |
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ASC Topic 855, Subsequent Events, was issued in May 2009 and established general
standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. The Bank adopted the provisions of ASC
Topic 855 during the period ended June 30, 2009. The adoption of ASC Topic 855 did not
have a significant impact on the consolidated financial statements. |
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In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU
2009-05), Fair Value Measurements and Disclosures (ASC Topic 820, Measuring
Liabilities at Fair Value). ASU 2009-05 amends subtopic 820-10, Fair Value
Measurements and Disclosures Overall, and provides clarification for the fair value
measurement of liabilities. ASU 2009-05 is effective for the first reporting period
including interim periods beginning after issuance. The Bank adopted this standard for
the year ended December 31, 2009, and its adoption did not have a material impact on
its consolidated financial statements. |
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Other than disclosures contained within these statements, the Bank has determined that
all other recently issued accounting pronouncements will not have a material impact on
its consolidated financial statements or do not apply to its operations. |
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Reclassification |
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Certain amounts in the 2008 consolidated financial statements have been reclassified to
conform to the 2009 presentation. |
Note 2. |
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Cash and Cash Equivalents |
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Restrictions on cash and due from banks |
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The Bank is required to maintain average balances on hand or with the Federal Reserve
Bank. At December 31, 2009 and 2008, these reserve balances amounted to $350,000 and
$350,000, respectively. |
F-15
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
The amortized cost and estimated fair value of securities classified as available for
sale and held to maturity at December 31, 2009 and December 31, 2008 are as follows: |
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December 31, 2009 |
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Gross |
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Gross |
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Amortized |
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Unrealized |
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Unrealized |
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Fair |
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Cost |
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Gains |
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Losses |
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Value |
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S.
Government agencies
and corporations |
|
$ |
8,612,168 |
|
|
$ |
81,170 |
|
|
$ |
(90,912 |
) |
|
$ |
8,602,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities (1) |
|
|
10,079,939 |
|
|
|
455,459 |
|
|
|
(1,912 |
) |
|
|
10,533,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
securities |
|
|
4,532,497 |
|
|
|
11,325 |
|
|
|
(95,107 |
) |
|
|
4,448,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,224,604 |
|
|
$ |
547,954 |
|
|
$ |
(187,931 |
) |
|
$ |
23,584,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities (1) |
|
$ |
61 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S.
Government agencies
and corporations |
|
$ |
10,545,132 |
|
|
$ |
117,062 |
|
|
$ |
(13,529 |
) |
|
$ |
10,648,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities (1) |
|
|
14,326,656 |
|
|
|
328,282 |
|
|
|
(71,006 |
) |
|
|
14,583,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
securities |
|
|
5,543,675 |
|
|
|
2,349 |
|
|
|
(269,529 |
) |
|
|
5,276,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,415,463 |
|
|
$ |
447,693 |
|
|
$ |
(354,064 |
) |
|
$ |
30,509,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities (1) |
|
$ |
4,961 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Collateralized by residential mortgages and guaranteed by U.S. Government sponsored
entities. |
F-16
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 3. |
|
Securities
(Continued) |
|
|
The amortized cost and estimated fair value of securities at December 31, 2009, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Securities Available for Sale |
|
|
Securities Held to Maturity |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Due after one year through
five years |
|
|
5,375,985 |
|
|
|
5,346,561 |
|
|
|
|
|
|
|
|
|
Due five years to ten years |
|
|
2,637,156 |
|
|
|
2,674,195 |
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
5,131,524 |
|
|
|
5,030,385 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
10,079,939 |
|
|
|
10,533,486 |
|
|
|
61 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,224,604 |
|
|
$ |
23,584,627 |
|
|
$ |
61 |
|
|
$ |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale totaled $212,632 in 2008.
There were no sales during 2009. No realized gains or losses were recognized for the
years ended December 31, 2009 and 2008. |
|
|
|
The Bank has pledged securities with carrying values of approximately $16,310,000 and
$22,612,000 (which approximates market values) to secure deposits of public and private
funds as of December 31, 2009 and December 31, 2008. |
|
|
|
Securities with gross unrealized losses at December 31, 2009 and December 31, 2008,
aggregated by investment category and length of time that individual securities have
been in a continuous loss position, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(dollars in thousands) |
|
Securities Available for
Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S.
Government agencies
and corporations |
|
$ |
5,045 |
|
|
$ |
(91 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,045 |
|
|
$ |
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities |
|
|
722 |
|
|
|
(1 |
) |
|
|
299 |
|
|
|
(1 |
) |
|
|
1,021 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
securities |
|
|
3,263 |
|
|
|
(26 |
) |
|
|
874 |
|
|
|
(69 |
) |
|
|
4,137 |
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,030 |
|
|
$ |
(118 |
) |
|
$ |
1,173 |
|
|
$ |
(70 |
) |
|
$ |
10,203 |
|
|
$ |
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 3. |
|
Securities (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
(dollars in thousands) |
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S.
Government agencies
and corporations |
|
$ |
1,759 |
|
|
$ |
(14 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,759 |
|
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
related securities |
|
|
1,958 |
|
|
|
(14 |
) |
|
|
1,393 |
|
|
|
(57 |
) |
|
|
3,351 |
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
securities |
|
|
3,344 |
|
|
|
(151 |
) |
|
|
618 |
|
|
|
(119 |
) |
|
|
3,962 |
|
|
|
(270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,061 |
|
|
$ |
(179 |
) |
|
$ |
2,011 |
|
|
$ |
(176 |
) |
|
$ |
9,072 |
|
|
$ |
(355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management performs periodic reviews for impairment in accordance with ASC Topic
320, Investment Debt and Equity Securities. |
|
|
|
At December 31, 2009, the 22 securities with unrealized losses had depreciated 1.84
percent from the Banks amortized cost basis. At December 31, 2008, the 25 securities
with unrealized losses had depreciated 3.76 percent from the Banks amortized cost
basis. Most of these securities are guaranteed by either U.S. government corporations
or agencies or had investment grade ratings upon purchase. Further, the issuers of
these securities have not established any cause for default. The unrealized losses
associated with these investment securities are primarily driven by changes in interest
rates and are not due to the credit quality of the securities. These securities will
continue to be monitored as a part of the Banks ongoing impairment analysis, but are
expected to perform even if the rating agencies reduce the credit rating of the bond
insurers. Management evaluates the financial performance of each issuer on a quarterly
basis to determine if it is probable that the issuers can make all contractual
principal and interest payments. |
|
|
|
ASC Topic 320 requires an entity to assess whether the entity has the intent to sell
the debt security or more likely than not will be required to sell the debt security
before its anticipated recovery. Management does not intend to sell these securities
and it is not more likely than not that management will be required to sell the
investments before the recovery of its amortized cost bases. In making this
determination, management has considered its cash flow and liquidity requirements,
capital requirements, economic factors, and contractual or regulatory obligations for
indication that these securities will be required to be sold before a forecasted
recovery occurs. Therefore, in managements
opinion, all securities that have been in a continuous unrealized loss position for the
past 12 months or longer as of December 31, 2009, are not other-than-temporarily
impaired, and therefore, no impairment charges as of December 31, 2009 are warranted. |
F-18
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 4. |
|
Loans and Allowance for Loan Losses |
The Bank and Southland provide mortgage, consumer, and commercial lending services to
individuals and businesses primarily in the East Tennessee area.
At December 31, 2009 and December 31, 2008, the Banks loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate: |
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
$ |
79,572,745 |
|
|
$ |
75,296,542 |
|
Residential multifamily (5 or more units) |
|
|
14,624,421 |
|
|
|
11,255,113 |
|
Commercial |
|
|
37,905,281 |
|
|
|
32,294,514 |
|
Construction and development |
|
|
23,512,087 |
|
|
|
39,207,695 |
|
Equity lines of credit |
|
|
16,552,356 |
|
|
|
14,670,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,166,890 |
|
|
|
172,724,529 |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
|
|
12,001,374 |
|
|
|
14,564,990 |
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
11,084,816 |
|
|
|
12,865,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
195,253,080 |
|
|
|
200,155,362 |
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses |
|
|
(3,412,963 |
) |
|
|
(3,082,602 |
) |
Unearned interest and fees |
|
|
(271,072 |
) |
|
|
(360,646 |
) |
Net deferred loan origination fees |
|
|
(165,326 |
) |
|
|
(192,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
191,403,719 |
|
|
$ |
196,519,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of the allowance for loan losses follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
3,082,602 |
|
|
$ |
2,536,097 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,023,540 |
|
|
|
760,803 |
|
Loans charged-off |
|
|
(758,193 |
) |
|
|
(323,747 |
) |
Recoveries of loans previously charged-off |
|
|
65,014 |
|
|
|
109,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
3,412,963 |
|
|
$ |
3,082,602 |
|
|
|
|
|
|
|
|
|
|
Loan impairment and any related valuation allowance is determined under the
provisions established by ASC Topic 310. For all periods presented above, impaired
loans without a valuation allowance represent loans for which management believes that
the collateral value of the loan is higher than the carrying value of that loan. |
F-19
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 4. |
|
Loans and Allowance for Loan Losses (Continued) |
|
|
The following is a summary of information pertaining to impaired and non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Impaired loans without a valuation allowance |
|
$ |
2,090,046 |
|
|
$ |
1,227,695 |
|
Impaired loans with a valuation allowance |
|
|
5,735,999 |
|
|
|
5,320,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
7,826,045 |
|
|
$ |
6,548,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans |
|
$ |
1,037,069 |
|
|
$ |
926,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans |
|
$ |
1,996,455 |
|
|
$ |
4,139,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans past-due ninety days or more and still accruing |
|
$ |
15,644 |
|
|
$ |
33,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Average investment in impaired loans |
|
$ |
4,480,879 |
|
|
$ |
3,653,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans |
|
$ |
310,000 |
|
|
$ |
406,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on a cash basis on impaired loans |
|
$ |
310,000 |
|
|
$ |
406,000 |
|
|
|
|
|
|
|
|
Note 5. |
|
Premises and Equipment |
|
|
|
A summary of the Banks premises and equipment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
Land |
|
$ |
1,060,880 |
|
|
$ |
1,060,880 |
|
Buildings |
|
|
5,181,517 |
|
|
|
5,171,389 |
|
Leasehold improvements |
|
|
88,987 |
|
|
|
88,987 |
|
Equipment |
|
|
4,585,384 |
|
|
|
4,515,404 |
|
Automobiles |
|
|
22,494 |
|
|
|
22,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,939,262 |
|
|
|
10,859,154 |
|
Less accumulated depreciation |
|
|
(6,144,431 |
) |
|
|
(5,515,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,794,831 |
|
|
$ |
5,343,364 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense amounted to $654,230 and $763,939 for the years ended
December 31, 2009 and 2008, respectively. |
F-20
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
|
The aggregate amount of time deposits in denominations of $100,000 or more were
$40,273,857 and $56,444,040 at December 31, 2009 and 2008. |
|
|
|
Deposit accounts are federally insured up to $250,000 per depositor through December
31, 2013. On January 1, 2014, the FDIC insurance limit will return to $100,000 per
depositor for all deposit categories except for IRA and certain retirement accounts,
which will remain at $250,000 per depositor. |
|
|
|
At December 31, 2009, the scheduled maturities of time deposits are as follows: |
|
|
|
|
|
2010 |
|
$ |
64,220,792 |
|
2011 |
|
|
18,399,795 |
|
2012 |
|
|
13,348,816 |
|
2013 |
|
|
6,190,433 |
|
2014 |
|
|
1,327,743 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
103,487,579 |
|
|
|
|
|
|
|
Deposit interest expense for the years ended December 31, 2009 and 2008 is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Demand deposit and NOW accounts |
|
$ |
361,611 |
|
|
$ |
517,724 |
|
Money market accounts |
|
|
537,376 |
|
|
|
540,757 |
|
Savings accounts |
|
|
48,266 |
|
|
|
81,950 |
|
IRA accounts |
|
|
1,339,559 |
|
|
|
1,563,692 |
|
Certificates of deposit |
|
|
2,936,619 |
|
|
|
4,040,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,223,431 |
|
|
$ |
6,744,227 |
|
|
|
|
|
|
|
|
Note 7. |
|
Securities Sold Under Agreements to Repurchase |
|
|
|
Securities sold under agreements to repurchase averaged approximately $1,046,000 and
$1,400,000 for the years ended December 31, 2009 and 2008, respectively. |
F-21
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 8. |
|
Federal Home Loan Bank Advances |
|
|
|
The schedule of advances from the Federal Home Loan Bank (FHLB) at December 31, 2009
and 2008, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Final |
|
|
|
|
|
|
Date of Advance |
|
Rate |
|
Maturity Date |
|
2009 |
|
|
2008 |
|
September 6, 2002 |
|
3.93% |
|
October 1, 2012 |
|
$ |
324,189 |
|
|
$ |
430,272 |
|
November 30, 2006 |
|
4.39% |
|
November 30, 2011 |
|
|
5,000,000 |
|
|
|
5,000,000 |
|
February 5, 2008 |
|
2.85% |
|
February 5, 2010 |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
July 11, 2008 |
|
4.37% |
|
July 11, 2013 |
|
|
1,500,000 |
|
|
|
1,500,000 |
|
July 31, 2008 |
|
4.28% |
|
September 6, 2013 |
|
|
1,500,000 |
|
|
|
1,500,000 |
|
November 28, 2008 |
|
0.99% |
|
February 26, 2009 |
|
|
|
|
|
|
3,000,000 |
|
December 23, 2008 |
|
0.54% |
|
March 23, 2009 |
|
|
|
|
|
|
2,655,000 |
|
December 29, 2008 |
|
0.54% |
|
March 27, 2009 |
|
|
|
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,324,189 |
|
|
$ |
16,310,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to collateral agreements with the FHLB, the advances and letters of
credit described below are secured by the Banks FHLB stock and qualifying first
mortgage loans, totaling approximately $33,745,000 and $41,037,000 as of December 31,
2009 and 2008, respectively. |
|
|
|
The Bank also has a Standby Letter of Credit for Public Unit Deposit Collateralization
Line with the FHLB which provides an alternative for the Bank instead of pledging
securities to public depositors up to a maximum credit line of approximately
$18,000,000. This line of credit is also secured by the same collateral described
above. The FHLB issues irrevocable letters of credit on behalf of the Bank to certain
public entities which are depositors of the Bank. Letters of credit outstanding as of
December 31, 2009 and 2008, were $14,350,000 and $14,200,000, respectively. |
|
|
|
At December 31, 2009, the scheduled maturities of the FHLB advances are as follows: |
|
|
|
|
|
2010 |
|
$ |
2,119,719 |
|
2011 |
|
|
5,115,118 |
|
2012 |
|
|
89,352 |
|
2013 |
|
|
3,000,000 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
$ |
10,324,189 |
|
|
|
|
|
F-22
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 9. |
|
Minimum Regulatory Capital Requirements |
|
|
The Bank is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material affect on the Bank and the consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Banks assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. |
|
|
|
Quantitative measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2009 and December 31, 2008, that the Bank met all capital
adequacy requirements to which it was subject. |
|
|
|
As of December 31, 2009, the most recent notification from the OTS categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes have
changed the institutions prompt corrective action category. |
|
|
|
The Banks actual capital amounts and ratios are presented in the following table.
Dollar amounts are presented in thousands. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
(to risk-weighted assets) |
|
$ |
27,223 |
|
|
|
15.33 |
% |
|
$ |
14,202 |
|
|
|
8.00 |
% |
|
$ |
17,753 |
|
|
|
10.00 |
% |
Tier I capital
(to risk-weighted assets) |
|
|
25,002 |
|
|
|
14.08 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
10,652 |
|
|
|
6.00 |
% |
Tier I capital
(to adjusted total assets) |
|
|
25,002 |
|
|
|
9.07 |
% |
|
|
11,020 |
|
|
|
4.00 |
% |
|
|
13,776 |
|
|
|
5.00 |
% |
Tangible capital
(to adjusted total assets) |
|
|
25,002 |
|
|
|
9.07 |
% |
|
|
4,133 |
|
|
|
1.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
F-23
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 9. |
|
Minimum Regulatory Capital Requirements (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
(to risk-weighted assets) |
|
$ |
25,757 |
|
|
|
14.01 |
% |
|
$ |
14,709 |
|
|
|
8.00 |
% |
|
|
18,386 |
|
|
|
10.00 |
% |
Tier I capital
(to risk-weighted assets) |
|
|
23,518 |
|
|
|
12.79 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
11,031 |
|
|
|
6.00 |
% |
Tier I capital
(to adjusted total assets) |
|
|
23,518 |
|
|
|
9.40 |
% |
|
|
10,152 |
|
|
|
4.00 |
% |
|
|
12,514 |
|
|
|
5.00 |
% |
Tangible capital
(to adjusted total assets) |
|
|
23,518 |
|
|
|
9.40 |
% |
|
|
3,754 |
|
|
|
1.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
Below is a reconciliation of GAAP and regulatory capital amounts (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Total equity per the financial statements |
|
$ |
25,722 |
|
|
$ |
24,212 |
|
Other intangible assets |
|
|
(497 |
) |
|
|
(636 |
) |
Unrealized gains on available for sale securities |
|
|
(223 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital |
|
|
25,002 |
|
|
|
23,518 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses allowable portion |
|
|
2,221 |
|
|
|
2,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
$ |
27,223 |
|
|
$ |
25,757 |
|
|
|
|
|
|
|
|
F-24
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
|
Net deferred tax assets consist of the following components as of December 31, 2009 and
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
555,084 |
|
|
$ |
428,589 |
|
Deferred compensation |
|
|
637,177 |
|
|
|
597,600 |
|
Executive benefit plan |
|
|
159,746 |
|
|
|
172,252 |
|
Other |
|
|
114,901 |
|
|
|
74,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,466,908 |
|
|
|
1,273,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
FHLB stock dividends |
|
|
375,510 |
|
|
|
375,510 |
|
Depreciable assets |
|
|
214,657 |
|
|
|
168,447 |
|
Other |
|
|
507,136 |
|
|
|
494,777 |
|
|
|
|
|
|
|
|
|
|
|
|
1,097,303 |
|
|
|
1,038,734 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
369,605 |
|
|
$ |
234,539 |
|
|
|
|
|
|
|
|
|
|
The provision for income taxes charged to income for the years ended December 31,
2009 and 2008, consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Current tax expense |
|
$ |
880,553 |
|
|
$ |
679,812 |
|
Deferred benefit |
|
|
(236,293 |
) |
|
|
(192,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for income taxes |
|
$ |
644,260 |
|
|
$ |
487,253 |
|
|
|
|
|
|
|
|
F-25
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 10. |
|
Income Taxes (Continued) |
|
|
The income tax provision is less than the expected tax provision computed by multiplying
income before income taxes by the statutory federal income tax rates. The reasons for
this difference are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
% |
|
|
2008 |
|
|
% |
|
|
Expected tax at statutory rates |
|
$ |
676,400 |
|
|
|
34.00 |
% |
|
$ |
542,900 |
|
|
|
34.00 |
% |
Tax-exempt earnings on
life insurance policies |
|
|
(99,100 |
) |
|
|
(4.98 |
) |
|
|
(98,100 |
) |
|
|
(6.14 |
) |
Tax-exempt interest |
|
|
(82,650 |
) |
|
|
(4.15 |
) |
|
|
(75,650 |
) |
|
|
(4.74 |
) |
State income taxes, net of federal
income tax benefit |
|
|
85,350 |
|
|
|
4.29 |
|
|
|
68,500 |
|
|
|
4.29 |
|
Other |
|
|
64,260 |
|
|
|
3.23 |
|
|
|
49,603 |
|
|
|
3.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
644,260 |
|
|
|
32.39 |
% |
|
$ |
487,253 |
|
|
|
30.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11. |
|
Employee Benefit Plan |
|
|
|
The Bank has adopted a 401(k) plan covering substantially all employees. Employees are
allowed to contribute up to 75% of earnings and, in addition, the Bank will match a
portion of the employees contributions. The expenses incurred by the Bank for the plan
totaled $305,935 and $312,568 for the years ended December 31, 2009 and 2008,
respectively. |
Note 12. |
|
Deferred Compensation |
|
|
|
The Bank has established deferred compensation plans for the benefit of its board of
directors. Under the plans, any director electing to defer directors fees will be
entitled to receive the accumulated benefits, including interest earned, over a period
of five to fifteen years following retirement. The Bank recognizes the liability for
these benefits over the service period. As of December 31, 2009 and December 31, 2008,
the liability for these benefits was $888,142 and $926,608, respectively. The expenses
incurred by the Bank for these plans totaled $21,991 and $39,376 for the years ended
December 31, 2009 and 2008, respectively. The Bank, utilizing bank owned life
insurance, has insured the lives of certain directors who participate in the deferred
compensation plans to assist in the funding of the deferred compensation liability. The
Bank is the owner and beneficiary of the insurance policies. |
F-26
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 13. |
|
Executive Benefit Plans |
|
|
The Bank has adopted a noncontributory executive salary continuation agreement and an
executive salary continuation plan for its former president. The following is a summary
of the plans funded status: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period |
|
$ |
449,863 |
|
|
$ |
473,004 |
|
Service cost and net periodic benefit cost |
|
|
26,996 |
|
|
|
27,331 |
|
Payments to former president |
|
|
(59,659 |
) |
|
|
(50,472 |
) |
|
|
|
|
|
|
|
|
Net benefit liability at end of period |
|
$ |
417,200 |
|
|
$ |
449,863 |
|
|
|
|
|
|
|
|
|
|
The weighted-average discount rate used in determining the present value of the benefit
liability is 6%. |
|
|
|
Also, the Bank has an employment agreement with its president and chief executive
officer for post-retirement compensation and other related benefits. As of December 31,
2009 and December 31, 2008, the net present value liability of these benefits was
approximately $341,000 and $168,000, respectively. The expenses incurred by the Bank
for these executive benefits totaled $172,592 and $130,067 for the years ended December
31, 2009 and 2008, respectively. |
|
Note 14. |
|
Fair Value Disclosures |
|
|
|
The Bank uses fair value measurements to record fair value adjustments to certain assets
and liabilities and to determine fair value disclosures. In accordance with the Fair
Value Measurements and Disclosures ASC Topic 820, the fair value of a financial
instrument is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Fair value is best determined based upon quoted market prices. In cases where quoted
market prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate settlement of
the instrument. |
|
|
|
ASC Topic 820 provides a consistent definition of fair value, which focuses on exit
price in an orderly transaction between market participants at the measurement date
under current market conditions. If there has been a significant decrease in the volume
and level of activity for the asset or liability, a change in valuation technique or the
use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date
under current market conditions depends on the facts and circumstances and requires the
use of significant judgment. The fair value is a reasonable point within the range that
is most representative of fair value under current market conditions. |
F-27
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 14. |
|
Fair Value Disclosures (Continued) |
|
|
ASC Topic 820 also establishes a three-tier fair value which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value, as follows: |
|
|
|
|
Level 1 Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Bank has the ability to access. |
|
|
|
|
Level 2 Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities in active markets, quoted prices in markets
that are not active and other inputs that are observable or can be corroborated by
observable market data. |
|
|
|
|
Level 3 Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability. |
|
|
|
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. |
|
|
|
The following methods and assumptions were used by the Bank in estimating fair value
disclosures for financial instruments: |
|
|
|
Cash, cash equivalents, and interest-bearing deposits in banks: |
|
|
|
The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks
approximate fair values based on the short-term nature of the assets. |
|
|
|
Securities: |
|
|
|
Fair values are estimated using pricing models and discounted cash flows that consider
standard input factors such as observable market data, benchmark yields, interest rate
volatilities, broker/dealer quotes, and credit spreads. Securities classified as
available for sale are reported at fair value utilizing Level 2 inputs. |
|
|
|
Federal Home Loan Bank stock, at cost: |
|
|
|
The carrying value of FHLB stock approximates fair value based on the redemption
provisions of the FHLB. |
|
|
|
Loans: |
|
|
|
For variable-rate loans that reprice frequently and with no significant change in credit
risk, fair values are based on carrying values. Fair value for fixed-rate loans are
estimated using discounted cash flow analyses, using market interest rates for
comparable loans. The Bank does not record loans at fair value on a recurring basis.
However, from time to time, a loan is considered impaired and an allowance for loan
losses is |
F-28
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 14. |
|
Fair Value Disclosures (Continued) |
|
|
Loans: (continued) |
|
|
|
established. Loans for which it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement are
considered impaired. Once a loan is identified as individually impaired, management
measures impairment in accordance with ASC Topic 310, Receivables. The fair value of
impaired loans is estimated using several methods including collateral value,
liquidation value and discounted cash flows. Those impaired loans not requiring an
allowance represent loans for which the fair value of the expected repayments or
collateral exceed the recorded investments in such loans. At December 31, 2009,
substantially all of the total impaired loans were evaluated based on the fair value of
collateral. In accordance with ASC Topic 310, impaired loans where an allowance is
established based on the fair value of collateral require classification in the fair
value hierarchy. When the fair value of the collateral is based on the observable
market price or a current, independent appraised value, the Bank records the impaired
loan as nonrecurring Level 2. The Bank records the impaired loan as nonrecurring Level
3 when management has become aware of events that have significantly impacted the
condition or marketability of the collateral since the most recent appraisal. In this
case, management will reduce the appraisal value based on factors determined by their
judgment and collective knowledge of the collateral and market conditions. |
|
|
|
Cash surrender value of bank owned life insurance: |
|
|
|
The carrying amounts of cash surrender value of bank owned life insurance approximate
their fair value. The carrying amount is based on information received from the
insurance carriers indicating the financial performance of the policies and the amount
the Company would receive should the policies be surrendered. The Bank reflects these
assets within Level 2 of the valuation hierarchy. |
|
|
|
Foreclosed real estate: |
|
|
|
Foreclosed real estate consisting of properties obtained through foreclosure or in
satisfaction of loans is initially recorded at fair value, determined on the basis of
current appraisals, comparable sales, and other estimates of value obtained principally
from independent sources, adjusted for estimated selling costs. At the time of
foreclosure, any excess of the loan balance over the fair value of the real estate held
as collateral is treated as a charge against the allowance for loan losses. Gains or
losses on sale and any subsequent adjustments to the fair value are recorded as a
component of foreclosed real estate expense. Other real estate is included in Level 2
of the valuation hierarchy. |
|
|
|
Deposits: |
|
|
|
The fair value of deposits with no stated maturity, such as noninterest-bearing demand
deposits and NOW, money market, and savings accounts, is equal to the amount payable on
demand at the reporting date. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining maturities. |
F-29
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 14. |
|
Fair Value Disclosures (Continued) |
|
|
Securities sold under agreements to repurchase: |
|
|
|
The estimated fair value of these liabilities, which are extremely short term,
approximates their carrying value. |
|
|
|
Federal Home Loan Bank advances: |
|
|
|
Rates currently available to the Bank for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt. |
|
|
|
Accrued interest: |
|
|
|
The carrying amounts of accrued interest approximate fair value. |
|
|
|
Commitments to extend credit, letters of credit and lines of credit: |
|
|
|
The fair value of commitments is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest rates and
the committed rates. |
|
|
|
The tables below present the recorded amount of assets and liabilities measured at fair
value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Other |
|
|
|
Balance as of |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Securities available
for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S.
Government agencies
and corporations |
|
$ |
8,602,426 |
|
|
$ |
|
|
|
$ |
8,602,426 |
|
|
$ |
|
|
Mortgage-backed
securities |
|
|
10,533,486 |
|
|
|
|
|
|
|
10,533,486 |
|
|
|
|
|
State and municipal
securities |
|
|
4,448,715 |
|
|
|
|
|
|
|
4,448,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale |
|
$ |
23,584,627 |
|
|
$ |
|
|
|
$ |
23,584,627 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash surrender value
of bank owned life
insurance |
|
$ |
6,468,054 |
|
|
$ |
|
|
|
$ |
6,468,054 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 14. |
|
Fair Value Disclosures (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Other |
|
|
|
Balance as of |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Securities available
for sale |
|
$ |
30,509,092 |
|
|
$ |
|
|
|
$ |
30,509,092 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash surrender value
of bank owned life
insurance |
|
$ |
6,245,790 |
|
|
$ |
|
|
|
$ |
6,245,790 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present information about assets and liabilities for which a
nonrecurring change in fair value was recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Other |
|
|
|
Balance as of |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Impaired loans |
|
$ |
4,698,930 |
|
|
$ |
|
|
|
$ |
4,687,430 |
|
|
$ |
11,500 |
|
Foreclosed real estate |
|
|
779,642 |
|
|
|
|
|
|
|
779,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Other |
|
|
|
Balance as of |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Impaired loans |
|
$ |
4,394,000 |
|
|
$ |
|
|
|
$ |
4,209,000 |
|
|
$ |
185,000 |
|
Foreclosed real estate |
|
|
230,491 |
|
|
|
|
|
|
|
230,491 |
|
|
|
|
|
F-31
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 14. |
|
Fair Value Disclosures (Continued) |
|
|
The carrying amount and estimated fair value of the Banks financial instruments at
December 31, 2009 and 2008, are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,707 |
|
|
$ |
40,707 |
|
|
$ |
4,547 |
|
|
$ |
4,547 |
|
Interest-bearing deposits in banks |
|
|
1,279 |
|
|
|
1,279 |
|
|
|
1,881 |
|
|
|
1,881 |
|
Securities |
|
|
23,585 |
|
|
|
23,585 |
|
|
|
30,514 |
|
|
|
30,514 |
|
Federal Home Loan Bank stock, at cost |
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
|
|
2,899 |
|
Loans, net |
|
|
191,404 |
|
|
|
193,362 |
|
|
|
196,520 |
|
|
|
198,575 |
|
Cash surrender value of bank
owned life insurance |
|
|
6,468 |
|
|
|
6,468 |
|
|
|
6,246 |
|
|
|
6,246 |
|
Accrued interest receivable |
|
|
988 |
|
|
|
988 |
|
|
|
1,150 |
|
|
|
1,150 |
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
236,064 |
|
|
|
242,097 |
|
|
|
206,493 |
|
|
|
214,439 |
|
Securities sold under agreements
to repurchase |
|
|
899 |
|
|
|
899 |
|
|
|
912 |
|
|
|
912 |
|
Federal Home Loan Bank advances |
|
|
10,324 |
|
|
|
10,553 |
|
|
|
16,310 |
|
|
|
16,883 |
|
Accrued interest payable |
|
|
263 |
|
|
|
263 |
|
|
|
418 |
|
|
|
418 |
|
|
Unrecognized financial
instruments (net of contract amount): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15. |
|
Related Party Transactions |
|
|
|
In the ordinary course of business, the Bank grants loans to principal officers and
directors and their affiliates. The Bank is prohibited from making loans or extensions
of credit to executive officers and directors at different rates or terms than those
offered to the general public. Notwithstanding this rule, federal regulations permit
the Bank to make loans to executive officers at reduced interest rates if the loan is
made under a benefit program generally available to all other employees and does not
give preference to any executive officer over any other employee. All Bank employees
are provided a reduction in their interest rate of approximately 1.00%. Other than a
reduced interest rate, the loans are made on substantially the same terms as those
prevailing at the time for comparable transactions with other persons. Directors do not
participate in this benefit program. Loans to directors are substantially on the same
rates and terms offered to the general public. Further, in managements opinion, these
loans did not involve more than normal risk of collectability or present other
unfavorable features. |
F-32
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 15. |
|
Related Party Transactions (Continued) |
|
|
Activity for the years ended December 31, 2009 and 2008, consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Beginning balance |
|
$ |
1,066,209 |
|
|
$ |
1,499,158 |
|
New loans |
|
|
2,106,042 |
|
|
|
1,230,730 |
|
Repayments |
|
|
(1,993,121 |
) |
|
|
(1,663,679 |
) |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,179,130 |
|
|
$ |
1,066,209 |
|
|
|
|
|
|
|
|
|
|
The Bank held related party deposits of $5,337,406 and $5,099,187 at December 31, 2009
and 2008, respectively. |
|
Note 16. |
|
Financial Instruments With Off-Balance Sheet Risk |
|
|
|
The Bank is party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recorded in the accompanying consolidated balance sheets. Such
financial instruments are recorded when they are funded. |
|
|
|
The Banks exposure to credit loss in the event of nonperformance by the counterparty to
the financial instruments for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the same
credit policies in making such commitments as it does for instruments that are included
in the balance sheet. |
|
|
|
At December 31, 2009 and 2008, commitments under standby letters of credit were
approximately $2,571,000, $3,200,000, respectively. Undisbursed loan commitments
aggregated approximately $14,248,000 and $22,869,000 at December 31, 2009 and 2008,
respectively. Approximately $479,000 of the $14,248,000 and $4,357,000 of the
$22,869,000 undisbursed loan commitments at December 31, 2009 and December 31, 2008,
respectively, represented fixed rate loan commitments for which the interest rates
committed ranged from 3.98% to 21.00% at December 31, 2009 and 4.97% to 21.00% at
December 31, 2008. |
F-33
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 16. |
|
Financial Instruments With Off-Balance Sheet Risk (Continued) |
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Bank
evaluates each customers creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based
on managements credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties. |
|
|
|
Standby letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Standby letters of credit generally
have fixed expiration dates or other termination clauses and may require payment of a
fee. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Banks policy for
obtaining collateral, and the nature of such collateral, is essentially the same as that
involved in making commitments to extend credit. |
|
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|
The Bank has not been required to perform on any financial guarantees during any of the
periods presented. The Bank has not incurred any losses on its commitments for the
years ended December 31, 2009 and 2008. |
F-34
ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Note 17. Quarterly Data (Unaudited)
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Years Ended December 31, |
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2009 |
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|
2008 |
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|
Fourth |
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Third |
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Second |
|
|
First |
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|
Fourth |
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|
Third |
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|
Second |
|
|
First |
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|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
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|
Quarter |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,547,950 |
|
|
$ |
3,608,877 |
|
|
$ |
3,719,076 |
|
|
$ |
3,791,967 |
|
|
$ |
3,888,192 |
|
|
$ |
3,856,054 |
|
|
$ |
3,876,649 |
|
|
$ |
3,959,514 |
|
Interest expense |
|
|
1,286,428 |
|
|
|
1,367,696 |
|
|
|
1,450,273 |
|
|
|
1,553,015 |
|
|
|
1,713,945 |
|
|
|
1,743,768 |
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|
|
1,779,670 |
|
|
|
1,895,625 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income |
|
|
2,261,522 |
|
|
|
2,241,181 |
|
|
|
2,268,803 |
|
|
|
2,238,952 |
|
|
|
2,174,247 |
|
|
|
2,112,286 |
|
|
|
2,096,979 |
|
|
|
2,063,889 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses |
|
|
477,537 |
|
|
|
428,270 |
|
|
|
48,059 |
|
|
|
69,674 |
|
|
|
151,972 |
|
|
|
321,795 |
|
|
|
214,429 |
|
|
|
72,607 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income after
provision for
loan losses |
|
|
1,783,985 |
|
|
|
1,812,911 |
|
|
|
2,220,744 |
|
|
|
2,169,278 |
|
|
|
2,022,275 |
|
|
|
1,790,491 |
|
|
|
1,882,550 |
|
|
|
1,991,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
1,104,898 |
|
|
|
1,076,823 |
|
|
|
1,271,053 |
|
|
|
1,217,345 |
|
|
|
959,636 |
|
|
|
1,017,491 |
|
|
|
1,109,492 |
|
|
|
1,074,223 |
|
Noninterest
expenses |
|
|
2,648,619 |
|
|
|
2,629,979 |
|
|
|
2,790,488 |
|
|
|
2,598,613 |
|
|
|
2,172,044 |
|
|
|
2,637,117 |
|
|
|
2,692,372 |
|
|
|
2,749,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes |
|
|
240,264 |
|
|
|
259,755 |
|
|
|
701,309 |
|
|
|
788,010 |
|
|
|
809,867 |
|
|
|
170,865 |
|
|
|
299,670 |
|
|
|
316,258 |
|
Income taxes |
|
|
186,451 |
|
|
|
52,119 |
|
|
|
118,425 |
|
|
|
287,265 |
|
|
|
309,674 |
|
|
|
24,611 |
|
|
|
78,368 |
|
|
|
74,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
53,813 |
|
|
$ |
207,636 |
|
|
$ |
582,884 |
|
|
$ |
500,745 |
|
|
$ |
500,193 |
|
|
$ |
146,254 |
|
|
$ |
221,302 |
|
|
$ |
241,658 |
|
|
|
|
|
|
|
|
|
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F-35
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.
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|
ATHENS BANCSHARES CORPORATION
|
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Date: March 29, 2010 |
By: |
/s/ Jeffrey L. Cunningham |
|
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|
Jeffrey L. Cunningham |
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|
President, Chief Executive Officer and Director |
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|
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.
|
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Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Jeffrey L. Cunningham
|
|
President, Chief Executive Officer
and Director
|
|
March 29, 2010 |
Jeffrey L. Cunningham
|
|
(principal executive officer) |
|
|
|
|
|
|
|
/s/ Michael R. Hutsell
|
|
Treasurer and Chief Financial Officer
|
|
March 29, 2010 |
Michael R. Hutsell
|
|
(principal accounting and financial officer) |
|
|
|
|
|
|
|
/s/ Dr. James L. Carter, Jr.
|
|
Director
|
|
March 29, 2010 |
Dr. James L. Carter, Jr. |
|
|
|
|
|
|
|
|
|
/s/ Elaine M. Cathcart
|
|
Director
|
|
March 29, 2010 |
Elaine M. Cathcart
|
|
|
|
|
|
|
|
|
|
/s/ G. Scott Hannah |
|
Director
|
|
March 29, 2010 |
G. Scott Hannah
|
|
|
|
|
|
|
|
|
|
/s/ G. Timothy Howard
|
|
Director
|
|
March 29, 2010 |
G. Timothy Howard
|
|
|
|
|
|
|
|
|
|
/s/ M. Darrell Murray
|
|
Director
|
|
March 29, 2010 |
M. Darrell Murray
|
|
|
|
|
|
|
|
|
|
/s/ Lyn B. Thompson
|
|
Director
|
|
March 29, 2010 |
Lyn B. Thompson
|
|
|
|
|
|
|
|
|
|
/s/ Larry D. Wallace
|
|
Director
|
|
March 29, 2010 |
Larry D. Wallace
|
|
|
|
|