Attached files
file | filename |
---|---|
EX-31.1 - EX-31.1 - Georgia-Carolina Bancshares, Inc | c17046exv31w1.htm |
EX-31.2 - EX-31.2 - Georgia-Carolina Bancshares, Inc | c17046exv31w2.htm |
EX-32.1 - EX-32.1 - Georgia-Carolina Bancshares, Inc | c17046exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
- or -
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 0-22981
GEORGIA-CAROLINA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Georgia | 58-2326075 | |
(State or other Jurisdiction of | (I.R.S. Employer Identification Number) | |
Incorporation or Organization) |
3527 Wheeler Road, Augusta, Georgia 30909
(Address of principal executive offices, including zip code)
(706) 731-6600
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and has posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 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 whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Class | Outstanding at May 12, 2011 | |
Common Stock, $.001 Par Value | 3,551,780 shares |
GEORGIA-CAROLINA BANCSHARES, INC.
Form 10-Q
Form 10-Q
Index
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. | Financial Statements. |
GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(Unaudited)
(dollars in thousands)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 46,957 | $ | 31,696 | ||||
Securities available-for-sale |
100,984 | 76,904 | ||||||
Loans, net of allowance for loan losses of $7,398 and $7,866, respectively |
316,169 | 308,943 | ||||||
Loans, held for sale |
15,528 | 46,570 | ||||||
Bank premises and equipment |
9,147 | 9,271 | ||||||
Accrued interest receivable |
1,848 | 1,679 | ||||||
Foreclosed real estate |
2,931 | 2,751 | ||||||
Deferred tax asset, net |
2,494 | 2,475 | ||||||
Federal Home Loan Bank stock |
2,527 | 2,527 | ||||||
Bank-owned life insurance |
9,295 | 9,210 | ||||||
Other assets |
2,869 | 3,267 | ||||||
Total assets |
$ | 510,749 | $ | 495,311 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Deposits: |
||||||||
Non-interest bearing |
$ | 45,974 | $ | 41,602 | ||||
Interest-bearing: |
||||||||
NOW accounts |
40,620 | 38,668 | ||||||
Savings |
58,112 | 53,880 | ||||||
Money market accounts |
42,751 | 36,013 | ||||||
Time deposits of $100,000 or more |
169,726 | 171,843 | ||||||
Other time deposits |
71,549 | 72,743 | ||||||
Total deposits |
428,732 | 414,749 | ||||||
Borrowings: |
||||||||
Repurchase agreements |
3,068 | 3,467 | ||||||
Long-term debt |
25,000 | 25,000 | ||||||
Other borrowings |
3,625 | 3,625 | ||||||
Other liabilities |
4,032 | 3,494 | ||||||
Total liabilities |
464,457 | 450,335 | ||||||
Shareholders equity: |
||||||||
Preferred stock, par value $.001; 1,000,000 shares authorized; none issued |
| | ||||||
Common stock, par value $.001; 9,000,000 shares authorized; 3,546,125 and 3,536,715 shares issued and outstanding |
4 | 4 | ||||||
Additional paid-in-capital |
15,927 | 15,847 | ||||||
Retained earnings |
30,280 | 28,889 | ||||||
Accumulated other comprehensive income |
81 | 236 | ||||||
Total shareholders equity |
46,292 | 44,976 | ||||||
Total liabilities and shareholders equity |
$ | 510,749 | $ | 495,311 | ||||
See notes to condensed consolidated financial statements.
2
Table of Contents
GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Interest income |
||||||||
Interest and fees on loans |
$ | 5,069 | $ | 5,552 | ||||
Interest on taxable securities |
520 | 394 | ||||||
Interest on nontaxable securities |
103 | 97 | ||||||
Interest on Federal funds sold and other interest |
25 | 7 | ||||||
Total interest income |
5,717 | 6,050 | ||||||
Interest expense |
||||||||
Interest on time deposits of $100,000 or more |
673 | 936 | ||||||
Interest on other deposits |
725 | 722 | ||||||
Interest on funds purchased and other borrowings |
276 | 223 | ||||||
Total interest expense |
1,674 | 1,881 | ||||||
Net interest income |
4,043 | 4,169 | ||||||
Provision for loan losses |
99 | 1,086 | ||||||
Net interest income after provision for loan losses |
3,944 | 3,083 | ||||||
Non-interest income |
||||||||
Service charges on deposits |
385 | 343 | ||||||
Gain on sale of mortgage loans |
2,091 | 2,419 | ||||||
Other income |
384 | 268 | ||||||
Total non-interest income |
2,860 | 3,030 | ||||||
Non-interest expense |
||||||||
Salaries and employee benefits |
2,969 | 3,052 | ||||||
Occupancy expenses |
394 | 420 | ||||||
Other expenses |
1,383 | 1,613 | ||||||
Total non-interest expense |
4,746 | 5,085 | ||||||
Income before income taxes |
2,058 | 1,028 | ||||||
Income tax expense |
667 | 190 | ||||||
Net income |
$ | 1,391 | $ | 838 | ||||
Net income per share of common stock |
||||||||
Basic |
$ | 0.39 | $ | 0.24 | ||||
Diluted |
$ | 0.39 | $ | 0.24 | ||||
Dividends per share of common stock |
$ | | $ | | ||||
See notes to condensed consolidated financial statements. |
||||||||
3
Table of Contents
GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Unaudited)
(dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net Income |
$ | 1,391 | $ | 838 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized holding gain (loss) arising during the period |
(204 | ) | 113 | |||||
Reclassification for gain (loss) included in net income |
| | ||||||
Reclassification for other-than-temporary impairment included in net income |
(38 | ) | | |||||
Tax effect |
87 | (41 | ) | |||||
Total other comprehensive income (loss) |
(155 | ) | 72 | |||||
Comprehensive income |
$ | 1,236 | $ | 910 | ||||
See notes to the condensed consolidated financial statements.
4
Table of Contents
GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Unaudited)
(dollars in thousands)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 1,391 | $ | 838 | ||||
Adjustments to reconcile net income
to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
155 | 165 | ||||||
Provision for loan losses |
99 | 1,086 | ||||||
Stock option expense |
27 | 22 | ||||||
Stock compensation |
40 | 45 | ||||||
Increase in cash value of bank-owned life insurance |
(85 | ) | (85 | ) | ||||
Gain on sales of foreclosed real estate |
(178 | ) | (45 | ) | ||||
Loss on sales of premises and equipment |
10 | | ||||||
Other-than-temporary impairment of security |
38 | | ||||||
Gain on loans held for sale |
(2,091 | ) | (2,419 | ) | ||||
Proceeds from sale of loans held for sale |
114,029 | 147,778 | ||||||
Originations of loans held for sale |
(80,896 | ) | (117,398 | ) | ||||
Increase in accrued interest receivable |
(151 | ) | (4 | ) | ||||
Decrease in accrued interest payable |
(157 | ) | (14 | ) | ||||
(Increase) decrease in deferred income tax asset, net |
68 | (229 | ) | |||||
Decrease in other assets |
372 | 1,060 | ||||||
Increase in other liabilities |
695 | 276 | ||||||
Net cash provided by operating activities |
33,366 | 31,076 | ||||||
Cash flows from investing activities |
||||||||
Decrease in federal funds sold |
| 3,175 | ||||||
Loan originations and collections, net |
(7,975 | ) | (4,148 | ) | ||||
Purchases of available-for-sale securities |
(27,617 | ) | (19,252 | ) | ||||
Proceeds from maturities, sales & calls of
available-for-sale securities, net |
3,257 | 7,541 | ||||||
Proceeds from sales of foreclosed real estate |
648 | 941 | ||||||
Net additions to bank premises and fixed assets |
(15 | ) | (27 | ) | ||||
Net cash used in investing activities |
(31,702 | ) | (11,770 | ) | ||||
Cash flows from financing activities |
||||||||
Increase (decrease) in deposits |
13,983 | (1,470 | ) | |||||
Decrease in FHLB borrowings |
| (3,600 | ) | |||||
Increase (decrease) in repurchase agreements and other borrowings |
(399 | ) | 199 | |||||
Proceeds from stock options exercised |
13 | | ||||||
Net cash provided by (used in) financing activities |
13,597 | (4,871 | ) | |||||
Net increase in cash and due from banks |
15,261 | 14,435 | ||||||
Cash and due from banks at beginning of period |
31,696 | 13,055 | ||||||
Cash and due from banks at end of period |
$ | 46,957 | $ | 27,490 | ||||
See notes to the condensed consolidated financial statements.
5
Table of Contents
GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(Unaudited)
March 31, 2011
(Unaudited)
Note 1 Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of
Georgia-Carolina Bancshares, Inc. (the Company), its wholly owned subsidiary, First Bank of
Georgia (the Bank), and the wholly owned subsidiary of the Bank, Willhaven Holdings, LLC. All
intercompany transactions and accounts have been eliminated in consolidation of the Company and the
Bank.
The financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and
2010 are unaudited and have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2010.
The financial information included herein reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair presentation of the
financial position and results of operations for interim periods.
Note 2 Loans
The composition of loans for the periods ended March 31, 2011 and December 31, 2010 is summarized
as follows:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Commercial and industrial |
$ | 19,827 | $ | 20,298 | ||||
Real estate construction |
90,233 | 86,418 | ||||||
Real estate residential |
59,695 | 61,194 | ||||||
Real estate commercial |
147,387 | 142,351 | ||||||
Consumer |
6,505 | 6,606 | ||||||
Total loans receivable |
323,647 | 316,867 | ||||||
Deferred loan fees |
(80 | ) | (58 | ) | ||||
Total loans |
323,567 | 316,809 | ||||||
Allowance for loan losses |
(7,398 | ) | (7,866 | ) | ||||
Loans, net of allowance for loan losses |
$ | 316,169 | $ | 308,943 | ||||
6
Table of Contents
The Company categorizes loans into risk grades based on relevant information about the ability of
borrowers to service their debt such as: future repayment ability, financial condition,
collateral, administration, management ability of borrower, and history and character of borrower.
Grades are assigned at loan origination and may be changed due to the result of a loan review or at
the discretion of management. The Company uses the following definitions for risk grades:
Grade 1: Loans classified as Grade 1 are considered the highest quality with borrowers of
unquestionable financial strength. Financial standing of the individual is known and the borrower
exhibits superior liquidity, net worth, cash flow and leverage.
Grade 2: Loans classified as Grade 2 are considered above average quality and have minimal risk.
The borrower has stable and reliable cash flow and above average liquidity.
Grade 3: Loans classified as Grade 3 are considered average quality. The borrower has reliable
cash flow and alternate sources of repayment which may require the sale of assets. Financial
position has been leveraged to a modest degree; however, the borrower has a relatively strong net
worth considering income and debt.
Grade 4: Loans classified as Grade 4 are considered below average quality. The borrowers sources
of income or cash flow have become unstable or may possibly decline given current business or
economic conditions. The borrower may also have a highly leveraged financial position or limited
capital.
Grade 5: Loans classified as Grade 5 are considered to be special mention assets. These loans
have potential weaknesses which may inadequately protect the Banks position at some future date.
The borrower exhibits some degree of weakness in financial condition that may manifest itself in a
reduction of net worth or liquidity. Infrequent delinquencies may occur.
Grade 6: Loans classified as Grade 6 are considered to be substandard. These loans have well
defined weaknesses in the primary repayment source and undue reliance is placed on secondary
repayment sources such as collateral or guarantors. No loss is currently expected; however there
is a distinct possibility that the Bank will sustain some future loss if the credit weaknesses are
not corrected. Net worth, repayment ability, management and collateral protection all exhibit
weakness.
As of March 31, 2011 and December 31, 2010 the risk grades of loans by loan type are as follows:
Credit Risk Profile by Risk Grade Category:
As of March 31, 2011
(in thousands)
(in thousands)
Commercial | ||||||||||||||||||||||||
and | Real Estate | Real Estate | Real Estate | |||||||||||||||||||||
Industrial | Construction | Residential | Commercial | Consumer | Total | |||||||||||||||||||
Grade 1 |
$ | 277 | $ | | $ | | $ | | $ | 950 | $ | 1,227 | ||||||||||||
Grade 2 |
133 | | 220 | 803 | 124 | 1,280 | ||||||||||||||||||
Grade 3 |
15,823 | 18,163 | 49,161 | 91,428 | 5,088 | 179,663 | ||||||||||||||||||
Grade 4 |
2,976 | 64,938 | 7,373 | 48,542 | 111 | 123,940 | ||||||||||||||||||
Grade 5 |
| 3,270 | 566 | 284 | | 4,120 | ||||||||||||||||||
Grade 6 |
631 | 3,957 | 2,374 | 6,330 | 115 | 13,407 | ||||||||||||||||||
In process |
(13 | ) | (95 | ) | 1 | | 117 | 10 | ||||||||||||||||
Total loans
receivable |
$ | 19,827 | $ | 90,233 | $ | 59,695 | $ | 147,387 | $ | 6,505 | $ | 323,647 | ||||||||||||
7
Table of Contents
As of December 31, 2010
(in thousands)
(in thousands)
Commercial | ||||||||||||||||||||||||
and | Real Estate | Real Estate | Real Estate | |||||||||||||||||||||
Industrial | Construction | Residential | Commercial | Consumer | Total | |||||||||||||||||||
Grade 1 |
$ | 251 | $ | | $ | | $ | | $ | 794 | $ | 1,045 | ||||||||||||
Grade 2 |
133 | | 235 | 1,059 | 100 | 1,527 | ||||||||||||||||||
Grade 3 |
15,939 | 14,879 | 48,901 | 86,109 | 5,370 | 171,198 | ||||||||||||||||||
Grade 4 |
3,338 | 62,594 | 7,801 | 44,126 | 99 | 117,958 | ||||||||||||||||||
Grade 5 |
| 4,375 | 568 | 2,862 | | 7,805 | ||||||||||||||||||
Grade 6 |
637 | 4,348 | 3,666 | 8,195 | 125 | 16,971 | ||||||||||||||||||
In process |
| 222 | 23 | | 118 | 363 | ||||||||||||||||||
Total loans
receivable |
$ | 20,298 | $ | 86,418 | $ | 61,194 | $ | 142,351 | $ | 6,606 | $ | 316,867 | ||||||||||||
The following table presents the activity in the allowance for loan losses by loan type for the
three months ended March 31, 2011 and 2010:
Allowance for Loan Losses Activity
For the Three Months Ended March 31, 2011 and 2010
(in thousands)
For the Three Months Ended March 31, 2011 and 2010
(in thousands)
Commercial | ||||||||||||||||||||||||||||
and | Real Estate | Real Estate | Real Estate | |||||||||||||||||||||||||
Industrial | Construction | Residential | Commercial | Consumer | Unallocated | Total | ||||||||||||||||||||||
Three Months Ended
March 31, 2011: |
||||||||||||||||||||||||||||
Beginning balance |
$ | 227 | $ | 3,908 | $ | 1,070 | $ | 1,617 | $ | 251 | $ | 793 | $ | 7,866 | ||||||||||||||
Charge-offs |
| (319 | ) | (247 | ) | (116 | ) | (14 | ) | | (696 | ) | ||||||||||||||||
Recoveries |
64 | | 42 | | 23 | | 129 | |||||||||||||||||||||
Provisions |
(170 | ) | 288 | 100 | 34 | (72 | ) | (81 | ) | 99 | ||||||||||||||||||
Ending
Balance |
$ | 121 | $ | 3,877 | $ | 965 | $ | 1,535 | $ | 188 | $ | 712 | $ | 7,398 | ||||||||||||||
Ending Balances: |
||||||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 25 | $ | 100 | $ | 179 | $ | | $ | 71 | $ | | $ | 375 | ||||||||||||||
Collectively
evaluated for
impairment |
$ | 96 | $ | 3,777 | $ | 786 | $ | 1,535 | $ | 117 | $ | 712 | $ | 7,023 | ||||||||||||||
8
Table of Contents
Commercial | ||||||||||||||||||||||||||||
and | Real Estate | Real Estate | Real Estate | |||||||||||||||||||||||||
Industrial | Construction | Residential | Commercial | Consumer | Unallocated | Total | ||||||||||||||||||||||
Three Months Ended
March 31, 2010: |
||||||||||||||||||||||||||||
Beginning balance |
$ | 259 | $ | 2,364 | $ | 827 | $ | 1,319 | $ | 176 | $ | 127 | $ | 5,072 | ||||||||||||||
Charge-offs |
(3 | ) | (810 | ) | (159 | ) | | (68 | ) | | (1,040 | ) | ||||||||||||||||
Recoveries |
59 | | 2 | | 66 | | 127 | |||||||||||||||||||||
Provisions |
82 | 41 | 90 | 331 | 17 | 525 | 1,086 | |||||||||||||||||||||
Ending
Balance |
$ | 397 | $ | 1,595 | $ | 760 | $ | 1,650 | $ | 191 | $ | 652 | $ | 5,245 | ||||||||||||||
Ending Balances: |
||||||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 170 | $ | 279 | $ | 132 | $ | 500 | $ | 46 | $ | | $ | 1,127 | ||||||||||||||
Collectively
evaluated for
impairment |
$ | 227 | $ | 1,316 | $ | 628 | $ | 1,150 | $ | 145 | $ | 652 | $ | 4,118 | ||||||||||||||
The following table presents the recorded investment in loans receivable by loan type as of
March 31, 2011 and December 31, 2010:
Recorded Investment in Loans Receivable
As of March 31, 2011 and December 31, 2010
(in thousands)
As of March 31, 2011 and December 31, 2010
(in thousands)
Commercial | ||||||||||||||||||||||||||||
and | Real Estate | Real Estate | Real Estate | |||||||||||||||||||||||||
Industrial | Construction | Residential | Commercial | Consumer | Unallocated | Total | ||||||||||||||||||||||
March 31, 2011: |
||||||||||||||||||||||||||||
Ending balance total |
$ | 19,827 | $ | 90,233 | $ | 59,695 | $ | 147,387 | $ | 6,505 | $ | | $ | 323,647 | ||||||||||||||
Ending balances: |
||||||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 622 | $ | 4,426 | $ | 1,623 | $ | 6,286 | $ | 115 | $ | | $ | 13,072 | ||||||||||||||
Collectively
evaluated for
impairment |
$ | 19,205 | $ | 85,807 | $ | 58,072 | $ | 141,101 | $ | 6,390 | $ | | $ | 310,575 | ||||||||||||||
December 31, 2010: |
||||||||||||||||||||||||||||
Ending balance total |
$ | 20,298 | $ | 86,418 | $ | 61,194 | $ | 142,351 | $ | 6,606 | $ | | $ | 316,867 | ||||||||||||||
Ending balances: |
||||||||||||||||||||||||||||
Individually
evaluated for
impairment |
$ | 627 | $ | 4,347 | $ | 3,185 | $ | 8,146 | $ | 122 | $ | | $ | 16,427 | ||||||||||||||
Collectively
evaluated for
impairment |
$ | 19,671 | $ | 82,071 | $ | 58,009 | $ | 134,205 | $ | 6,484 | $ | | $ | 300,440 | ||||||||||||||
9
Table of Contents
The following tables present loans individually evaluated for impairment by loan type for the
three months ended March 31, 2011 and the year ended December 31, 2010:
Impaired Loans
For the Three Months Ended March 31, 2011
(in thousands)
For the Three Months Ended March 31, 2011
(in thousands)
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial
and industrial |
$ | 597 | $ | 608 | $ | | $ | 538 | $ | 8 | ||||||||||
Real estate
construction |
4,101 | 8,008 | | 4,883 | 14 | |||||||||||||||
Real estate
residential |
1,444 | 1,547 | | 1,272 | 11 | |||||||||||||||
Real estate
commercial |
6,286 | 6,318 | | 6,245 | 99 | |||||||||||||||
Consumer |
44 | 62 | | 44 | | |||||||||||||||
Total |
$ | 12,472 | $ | 16,543 | $ | | $ | 12,982 | $ | 132 | ||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial
and industrial |
$ | 25 | $ | 25 | $ | 25 | $ | 28 | | |||||||||||
Real estate
construction |
325 | 325 | 100 | 325 | 6 | |||||||||||||||
Real estate
residential |
179 | 179 | 179 | 179 | 3 | |||||||||||||||
Real estate
commercial |
| | | | | |||||||||||||||
Consumer |
71 | 71 | 71 | 74 | 1 | |||||||||||||||
Total |
$ | 600 | $ | 600 | $ | 375 | $ | 606 | $ | 10 | ||||||||||
Total: |
||||||||||||||||||||
Commercial
and industrial |
$ | 622 | $ | 633 | $ | 25 | $ | 566 | $ | 8 | ||||||||||
Real estate
construction |
4,426 | 8,333 | 100 | 5,208 | 20 | |||||||||||||||
Real estate
residential |
1,623 | 1,726 | 179 | 1,451 | 14 | |||||||||||||||
Real estate
commercial |
6,286 | 6,318 | | 6,245 | 99 | |||||||||||||||
Consumer |
115 | 133 | 71 | 118 | 1 | |||||||||||||||
Total |
$ | 13,072 | $ | 17,143 | $ | 375 | $ | 13,588 | $ | 142 | ||||||||||
10
Table of Contents
Impaired Loans
For the Year Ended December 31, 2010
(in thousands)
For the Year Ended December 31, 2010
(in thousands)
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial
and industrial |
$ | 597 | $ | 608 | $ | | $ | 481 | $ | 30 | ||||||||||
Real Estate
Construction |
3,705 | 7,330 | | 7,341 | 97 | |||||||||||||||
Real Estate
Residential |
2,466 | 2,628 | | 2,677 | 81 | |||||||||||||||
Real Estate
Commercial |
7,680 | 8,530 | | 8,534 | 498 | |||||||||||||||
Consumer |
49 | 68 | | 77 | 2 | |||||||||||||||
Total |
$ | 14,497 | $ | 19,164 | $ | | $ | 19,110 | $ | 708 | ||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial
and industrial |
$ | 30 | $ | 30 | $ | 30 | $ | 36 | $ | 2 | ||||||||||
Real Estate
Construction |
642 | 703 | 160 | 703 | 27 | |||||||||||||||
Real Estate
Residential |
719 | 719 | 271 | 642 | 37 | |||||||||||||||
Real Estate
Commercial |
466 | 466 | 149 | 473 | 32 | |||||||||||||||
Consumer |
73 | 73 | 73 | 77 | 6 | |||||||||||||||
Total |
$ | 1,930 | $ | 1,991 | $ | 683 | $ | 1,931 | $ | 104 | ||||||||||
Total: |
||||||||||||||||||||
Commercial
and industrial |
$ | 627 | $ | 638 | $ | 30 | $ | 517 | $ | 32 | ||||||||||
Real Estate
Construction |
4,347 | 8,033 | 160 | 8,044 | 124 | |||||||||||||||
Real Estate
Residential |
3,185 | 3,347 | 271 | 3,319 | 118 | |||||||||||||||
Real Estate
Commercial |
8,146 | 8,996 | 149 | 9,007 | 530 | |||||||||||||||
Consumer |
122 | 141 | 73 | 154 | 8 | |||||||||||||||
Total |
$ | 16,427 | $ | 21,155 | $ | 683 | $ | 21,041 | $ | 812 | ||||||||||
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The following tables present the aging of the recorded investment in past due loans receivable as
of March 31, 2011 and December 31, 2010 by loan type of loans:
Age Analysis of Past Due Loans Receivable
As of March 31, 2011
(in thousands)
As of March 31, 2011
(in thousands)
Recorded | ||||||||||||||||||||||||||||
30-59 | Investment | |||||||||||||||||||||||||||
Days | 60-89 | Greater | Current | > 90 Days | ||||||||||||||||||||||||
Past | Days | Than 90 | Total | and not | Total Loans | and | ||||||||||||||||||||||
Due | Past Due | Days | Past Due | Past Due | Receivable | Accruing | ||||||||||||||||||||||
Commercial
and industrial |
$ | 136 | $ | 34 | $ | 4 | $ | 174 | $ | 19,653 | $ | 19,827 | $ | | ||||||||||||||
Real estate construction |
753 | 375 | 2,726 | 3,854 | 86,379 | 90,233 | | |||||||||||||||||||||
Real estate residential |
1,876 | 71 | 546 | 2,493 | 57,202 | 59,695 | | |||||||||||||||||||||
Real estate commercial |
3,439 | | | 3,439 | 143,948 | 147,387 | | |||||||||||||||||||||
Consumer |
46 | 3 | 51 | 100 | 6,405 | 6,505 | | |||||||||||||||||||||
Total |
$ | 6,250 | $ | 483 | $ | 3,327 | $ | 10,060 | $ | 313,587 | $ | 323,647 | $ | | ||||||||||||||
Age Analysis of Past Due Loans Receivable
As of December, 31, 2010
(in thousands)
As of December, 31, 2010
(in thousands)
Recorded | ||||||||||||||||||||||||||||
30-59 | Investment | |||||||||||||||||||||||||||
Days | 60-89 | Greater | Current | > 90 Days | ||||||||||||||||||||||||
Past | Days | Than 90 | Total | and not | Total Loans | and | ||||||||||||||||||||||
Due | Past Due | Days | Past Due | Past Due | Receivable | Accruing | ||||||||||||||||||||||
Commercial
and industrial |
$ | 152 | $ | 30 | $ | 9 | $ | 191 | $ | 20,107 | $ | 20,298 | $ | | ||||||||||||||
Real estate construction |
675 | 943 | 3,618 | 5,236 | 81,182 | 86,418 | | |||||||||||||||||||||
Real estate residential |
1,177 | 740 | 691 | 2,608 | 58,586 | 61,194 | | |||||||||||||||||||||
Real estate commercial |
55 | 217 | 90 | 362 | 141,989 | 142,351 | | |||||||||||||||||||||
Consumer |
16 | 38 | 50 | 104 | 6,502 | 6,606 | | |||||||||||||||||||||
Total |
$ | 2,075 | $ | 1,968 | $ | 4,458 | $ | 8,501 | $ | 308,366 | $ | 316,867 | $ | | ||||||||||||||
The following table presents the recorded investment in nonaccrual loans by loan type as of
March 31, 2011 and December 31, 2010:
Loans Receivable on Nonaccrual Status
As of March 31, 2011 and December 31, 2010
As of March 31, 2011 and December 31, 2010
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Commercial and industrial |
$ | 36 | $ | 34 | ||||
Real estate construction |
3,351 | 3,753 | ||||||
Real estate residential |
1,024 | 1,979 | ||||||
Real estate commercial |
| 408 | ||||||
Consumer |
79 | 83 | ||||||
Total |
$ | 4,490 | $ | 6,257 | ||||
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The following tables present the Banks loans classified as troubled debt restructurings by loan
type as of March 31, 2011 and December 31, 2010:
Troubled Debt Restructurings
As of March 31, 2011
As of March 31, 2011
Post-Modification | ||||||||||||
Pre-Modification | Outstanding | |||||||||||
Number of | Outstanding Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
Commercial and industrial |
1 | $ | 546 | $ | 548 | |||||||
Real estate construction |
4 | 2,091 | 1,572 | |||||||||
Real estate residential |
3 | 1,024 | 1,019 | |||||||||
Real estate commercial |
11 | 7,260 | 7,260 | |||||||||
Total |
19 | $ | 10,921 | $ | 10,399 | |||||||
Troubled Debt Restructurings
As of December 31, 2010
As of December 31, 2010
Post-Modification | ||||||||||||
Pre-Modification | Outstanding | |||||||||||
Number of | Outstanding Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
Commercial and industrial |
1 | $ | 546 | $ | 546 | |||||||
Real estate construction |
3 | 1,569 | 1,569 | |||||||||
Real estate residential |
2 | 1,190 | 1,190 | |||||||||
Real estate commercial |
9 | 5,945 | 5,945 | |||||||||
Total |
15 | $ | 9,250 | $ | 9,250 | |||||||
Note 3 Stock-Based Compensation
The Company follows the fair value recognition provisions of ASC 718, Compensation-Stock
Compensation, to account for compensation costs under its stock option plans. The provisions of
ASC 718 resulted in expense in the first three months of 2011 and 2010 of $26,911 and $21,970,
respectively,
relating to the expensing of stock options. Future levels of compensation cost recognized related
to share-based compensation awards may be impacted by new awards and/or modifications, repurchases
and cancellations of existing awards that may occur subsequent to the date of adoption of this
standard.
In adopting ASC 718, the Company elected to use the modified prospective method to account for the
transition from the intrinsic value method to the fair value recognition method. Under the
modified prospective method, compensation cost is recognized from the adoption date forward for all
new stock options granted and for any outstanding unvested awards as if the fair value method had
been applied to those awards as of the date of grant.
Note 4 Earnings Per Share
Earnings per share are calculated on the basis of the weighted average number of shares
outstanding. As the Company has granted stock options to certain officers and other employees of
the Company, diluted earnings per share are presented in the Statements of Income.
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The following tables reconcile the numerators and denominators of the basic and diluted earnings
per share computations:
For the Three Months Ended March 31, 2011 | ||||||||||||
Weighted | ||||||||||||
Average Shares- | Per-Share | |||||||||||
Numerator | Denominator | Amount | ||||||||||
Basic EPS |
||||||||||||
Income available to common stockholders |
$ | 1,391,000 | 3,545,428 | $ | 0.39 | |||||||
Effect of stock options outstanding |
| | ||||||||||
Diluted EPS |
||||||||||||
Income available to common stockholders |
$ | 1,391,000 | 3,545,428 | $ | 0.39 | |||||||
For the Three Months Ended March 31, 2010 | ||||||||||||
Weighted | ||||||||||||
Average Shares- | Per-Share | |||||||||||
Numerator | Denominator | Amount | ||||||||||
Basic EPS |
||||||||||||
Income available to common
stockholders |
$ | 838,000 | 3,504,855 | $ | 0.24 | |||||||
Effect of stock options outstanding |
| | ||||||||||
Diluted EPS |
||||||||||||
Income available to common
stockholders |
$ | 838,000 | 3,504,855 | $ | 0.24 | |||||||
For the three months ended March 31, 2011 and 2010 there were 15,117 and 9,123 options,
respectively, that were antidilutive since the exercise price exceeded the average market price for
the year. These antidilutive common stock equivalents have been omitted from the calculation of
diluted earnings per common share for the three months ended March 31, 2011 and 2010.
Note 5 Fair Value Measurement
For assets and liabilities recorded at fair value, it is the Companys policy to maximize the use
of observable inputs and minimize the use of unobservable inputs when developing fair value
measurements, in accordance with the fair value hierarchy in ASC 820-10, Fair Value Measurements
and Disclosures. This standard also requires fair value measurements to be separately disclosed
by level within the fair value hierarchy.
Fair value measurements for assets and liabilities where there exists limited or no observable
market data and, therefore, are based primarily upon estimates, are often calculated based on the
economic and competitive environment, the characteristics of the asset or liability, and other
factors. Therefore, the results cannot be determined with precision and may not be realized in an
actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent
weaknesses in any calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, could significantly affect the results of
current or future values.
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Table of Contents
The Company utilizes fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at
fair value on a recurring basis. Additionally, from time to time, the Company may be required to
record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held
for investment, and certain other assets. These nonrecurring fair value adjustments typically
involve application of lower of cost or market accounting or write-downs of individual assets.
The estimated fair values of the Banks financial instruments, for those instruments for which the
Banks management believes estimated fair value does not by nature approximate the instruments
carrying amount, are as follows at March 31, 2011 and December 31, 2010 (dollars in millions):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Loans and loans held for
sale |
$ | 339.1 | $ | 367.5 | $ | 363.4 | $ | 400.5 | ||||||||
Time deposits |
$ | 241.3 | $ | 243.3 | $ | 244.6 | $ | 246.8 |
Under ASC 820-10, the Company groups assets and liabilities at fair value in three levels, based on
the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value. These levels are as follows:
Level 1 Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. The Company has no Level 1 assets or liabilities at March 31, 2011.
Level 2 Valuations are obtained from readily available pricing sources via independent
providers for market transactions involving similar assets or liabilities. The Companys principal
market for these securities is the secondary institutional markets and valuations are based on
observable market data in those markets. At March 31, 2011, Level 2 assets include U.S. Government
agency obligations, state and municipal bonds, corporate debt securities, mortgage-backed
securities, and FHLB stock. Level 2 assets also include impaired loans and foreclosed real estate
as discussed below.
Level 3 Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar techniques,
and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations
incorporate certain
assumptions and projections in determining the fair value assigned to such assets or liabilities.
The Company has no Level 3 assets or liabilities at March 31, 2011.
Following is a description of valuation methodologies used for assets and liabilities recorded at
fair value:
Investment Securities Available-for-Sale
Investment securities available-for-sale, including FHLB stock, are recorded at fair value on a
recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted
prices are not available, fair values are measured using independent pricing models or other
model-based valuation techniques such as present value of future cash flows, adjusted for the
securities credit rating, prepayment assumptions, and other factors such as credit loss
assumptions. At March 31, 2011 and December 31, 2010 the Company classified $101.0 million and
$76.9 million, respectively, of investment securities available-for-sale subject to recurring fair
value adjustments as Level 2.
15
Table of Contents
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. The fair value of loans held
for sale is based on what secondary markets are currently offering for portfolios with similar
characteristics. As such, the Company classifies loans subjected to nonrecurring fair value
adjustments as Level 2. There were no fair value adjustments related to the $15.5 million and
$46.6 million of loans held for sale at March 31, 2011 and December 31, 2010, respectively.
Loans
The Company 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 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 an individual loan is
identified as impaired, management measures the impairment in accordance with ASC 310-10-35,
Receivables-Subsequent Measurements. The fair value of impaired loans is estimated using one of
several methods, including collateral value, market value of similar debt, enterprise 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 March 31, 2011, substantially all of the total impaired
loans were evaluated based on the fair value of the collateral. In accordance with ASC 820-10,
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 an
observable market price or a current appraised value, the Company records the impaired loans as
nonrecurring Level 2. When an appraised value is not available or management determines the fair
value of the collateral is further impaired below the appraised value and there is no observable
market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans,
classified as Level 2, totaled $13.1 million and $16.4 million at March 31, 2011 and December 31,
2010, respectively. Specific loan loss allowances for impaired loans totaled $375,000 and $683,000
at March 31, 2011 and December 31, 2010, respectively.
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.
Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair
value is based upon independent market prices, appraised values of the collateral or managements
estimation of the value of the collateral. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the foreclosed asset as
nonrecurring Level 2. When an appraised value is not available or management determines the fair
value of the collateral is further impaired below the appraised value and there is no observable
market price, the Company records the foreclosed assets as nonrecurring Level 3. Foreclosed real
estate, classified as Level 2, totaled $2.9 million and $2.8 million at March 31, 2011 and December
31, 2010, respectively.
Below are tables that present information about certain assets and liabilities measured at fair
value on a recurring basis (dollars in thousands):
Fair Value Measurements at | ||||||||||||||||
March 31, 2011, Using, | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Assets/ | Active | Significant | Significant | |||||||||||||
Liabilities | Markets for | Other | Other | |||||||||||||
Measured at | Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 03/31/2011 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Available-for-sale
securities |
$ | 100,984 | $ | | $ | 100,984 | $ | |
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Table of Contents
Fair Value Measurements at | ||||||||||||||||
December 31, 2010, Using, | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Assets/ | Active | Significant | Significant | |||||||||||||
Liabilities | Markets for | Other | Other | |||||||||||||
Measured at | Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 12/31/2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Available-for-sale
securities |
$ | 76,904 | $ | | $ | 76,904 | $ | |
Note 6 Impact of Other Recently Issued Accounting Standards
In April 2011, the FASB issued Accounting Standards Update (ASU) 2011-02, A Creditors
Determination of Whether a Restructuring Is a Troubled Debt Restructuring, which updates ASC
310-40, Receivables Troubled Debt Restructurings by Creditors. The update provides additional
guidance to clarify when a loan modification or restructuring is considered a troubled debt
restructuring (TDR) in order to address current diversity in practice and lead to more consistent
application of U.S. GAAP for debt restructurings. In evaluating whether a restructuring constitutes
a troubled debt restructuring, a creditor must separately conclude that both of the following
exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial
difficulties. The amendments to Topic 310 clarify the guidance regarding the evaluation of both
considerations above. Additionally, the amendments clarify that a creditor is precluded from using
the effective interest rate test in the debtors guidance on restructuring of payables (paragraph
470-60-55-10) when evaluating whether a restructuring constitutes a TDR. This amendment is
effective for us July 1, 2011. Early adoption is permitted. Retrospective application to the
beginning of the annual period of adoption for modifications occurring on or after the beginning of
the annual adoption period is required. As a result of applying these amendments, we may identify
receivables that are newly considered to be impaired. For purposes of measuring impairment of those
receivables, an entity should apply the amendments prospectively for the first interim or annual
period beginning on or after June 15, 2011.
In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20, which updates ASC 310, Receivables. ASU
2011-01 temporarily delayed the effective date of the disclosures regarding troubled debt
restructurings in ASU No. 2010-20 for public entities. The effective date is for interim and
annual reporting periods ending after June 15, 2011.
In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310) Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses which requires
entities to provide disclosures designed to facilitate financial statement users evaluation of (i)
the nature of credit risk inherent in the entitys portfolio of financing receivables, (ii) how
that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the
changes and reasons for those changes in the allowance for credit losses. Disclosures must be
disaggregated by portfolio segment, the level at which an entity develops and documents a
systematic method for determining its allowance for credit losses, and class of financing
receivable. The required disclosures include, among other things, a rollforward of the allowance
for credit losses as well as information about modified, impaired, non-accrual and past due loans
and credit quality indicators. ASU 2010-20 was effective for our financial statements as of
December 31, 2010, as it relates to disclosures required as of the end of a reporting period.
Disclosures that relate to activity during a reporting period were effective January 1, 2011.
17
Table of Contents
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures About Fair Value Measurements which requires expanded disclosures
related to fair value measurements including (i) the amounts of significant transfers of assets or
liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers,
(ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value
hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when
transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair
value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross
presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further
clarifies that (i) fair value measurement disclosures should be provided for each class of assets
and liabilities (rather than major category), which would generally be a subset of assets or
liabilities within a line item in the statement of financial position and (ii) companys should
provide disclosures about the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements for each class of assets and liabilities
included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross
presentation of purchases, sales, issuances and settlements of assets and liabilities included in
Level 3 of the fair value hierarchy is required for us beginning January 1, 2011. The remaining
disclosure requirements and clarifications made by ASU 2010-06 became effective for us on January
1, 2010.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting
bodies, but not specifically addressed in this report, are not expected to have a material impact
on the Companys financial condition, results of operations, or liquidity.
Note 7 Commitments and Contingencies
The Bank uses the same credit policies for off-balance-sheet financial instruments as it does for
other instruments that are recorded in the financial statements. 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 may expire without being completely
drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customers creditworthiness on a case-by-case basis. In managing the
Banks credit and market risk exposure, the Bank may participate these commitments with other
institutions when funded. The credit risk involved in issuing these financial instruments is
essentially the same as that involved in making loans to customers. The amount of collateral
obtained, if deemed necessary by the Bank, upon extension of credit is based on managements credit
evaluation of the customer. Collateral held varies, but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment and personal property. At March
31, 2011, the Bank had outstanding loan commitments approximating $49.0 million.
Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit is essentially
the same as that involved in making loans to customers. The amount of standby letters of credit
whose contract amounts represent credit risk totaled approximately $5.0 million as of March 31,
2011.
The Bank, as part of its retail mortgage loan production activities, routinely enters into
short-term commitments to originate loans. Most of the loans will be sold to third parties upon
closing. For those loans, the Bank enters into best efforts forward sales commitments at the same
time the commitments to originate are finalized. While the forward sales commitments function as an
economic offset and effectively eliminate the Banks financial risk of rate changes during the rate
lock period, both the commitment to originate mortgage loans that will be sold and the commitment
to sell the mortgage loans are derivatives, the fair values of which are essentially equal and
offsetting. The fair values are calculated based on changes in market interest rates after the
commitment date. The notional amounts of these mortgage loan origination commitments and the
related forward sales commitments were approximately $37.2 million each at March 31, 2011. The net
unrealized gains/losses of the origination and sales commitments did not have a material effect on
the consolidated financial statements of the Company at March 31, 2011.
18
Table of Contents
The Bank has executed best efforts forward sales commitments related to retail mortgage loans,
which are classified as loans held for sale. The forward sales commitments on retail mortgage loans
function as an economic offset and mitigate the Banks market risk on these loans. The notional
value of the forward sales commitments on retail mortgage loans at March 31, 2011 was approximately
$18.9 million. The fair value of the sales commitments on retail mortgage loans resulted in no
material gains or losses to the Bank at March 31, 2011.
The nature of the business of the Bank is such that it ordinarily results in a certain amount of
litigation. In the opinion of management, there are no present litigation matters in which the
anticipated outcome will have a material adverse effect on the Companys financial condition,
results of operations or liquidity.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Georgia-Carolina Bancshares, Inc. (the Company) was incorporated under the laws of the State of
Georgia on January 31, 1997 to operate as a bank holding company pursuant to the Federal Bank
Holding Company Act of 1956, as amended. The Company is a one-bank holding company and owns 100%
of the issued and outstanding stock of First Bank of Georgia (the Bank), an independent,
state-chartered commercial bank. The Bank operates three offices in Augusta, Georgia, two offices
in Martinez, Georgia and one office in Thomson, Georgia. The Bank also operates two
non-depository, mortgage origination offices in Augusta, Georgia and Savannah, Georgia. The Bank
is also the parent company of Willhaven Holdings, LLC, which holds certain other real estate of the
Bank.
The Bank targets the banking needs of individuals and small to medium-sized businesses by
emphasizing personal service. The Bank offers a full range of deposit and lending services and is a
member of an electronic banking network that enables its customers to use the automated teller
machines of other financial institutions. In addition, the Bank offers commercial and business
credit services, as well as various consumer credit services, including home mortgage loans,
automobile loans, lines of credit, home equity loans and home improvement loans. The Banks
deposits are insured by the Federal Deposit Insurance Corporation (the FDIC).
Critical Accounting Policies
The accounting and reporting policies of the Company and Bank are in accordance with accounting
principles generally accepted in the United States and conform to general practices within the
banking industry. Application of these principles requires management to make estimates or judgments that
affect the amounts reported in the financial statements and the accompanying notes. These estimates
are based on information available as of the date of the financial statements; accordingly, as this
information changes, the financial statements could reflect different estimates or judgments.
Certain policies inherently have a greater reliance on the use of estimates, and as such have a
greater possibility of producing results that could be materially different than originally
reported.
Estimates or judgments are necessary when assets and liabilities are required to be recorded at
fair value, when a decline in the value of an asset not carried on the financial statements at fair
value warrants an impairment write-down or valuation reserve to be established, or when an asset or
liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at
fair value inherently results in more financial statement volatility. The fair values and the
information used to record the valuation adjustments for certain assets and liabilities are based
either on quoted market prices or are provided by other third-party sources, when available. When
third-party information is not available, valuation adjustments are estimated in good faith by
management primarily through the use of internal cash flow modeling techniques.
19
Table of Contents
Management views critical accounting policies to be those that are highly dependent on subjective
or complex judgments, estimates and assumptions, and where changes in those estimates and
assumptions could have a significant impact on the financial statements. Management currently views
the determination of the allowance for loan losses to be the only critical accounting policy.
The allowance for loan losses represents managements estimate of probable credit losses inherent
in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant
judgment and the use of estimates related to the amount and timing of expected future cash flows on
impaired loans, estimated losses on non-impaired loans based on historical loss experience, and
consideration of current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type on the consolidated
balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts
previously charged off are credited to the allowance. A provision for loan losses is charged to
operations based on managements periodic evaluation of the factors previously mentioned, as well
as other pertinent factors.
The allowance for loan losses consists of an allocated component and an unallocated component. The
components of the allowance for loan losses represent an estimation made pursuant to either ASC
450-20, Contingencies: Loss Contingencies, or ASC 310-10-35, Receivables: Subsequent
Measurement. The allocated component of the allowance for loan losses reflects expected losses
resulting from analyses developed through specific credit allocations for individual loans and
historical loss experience for each loan category. The specific credit allocations are based on
regular analyses of all loans over a fixed-dollar amount where the internal credit rating is at or
below a predetermined classification. These analyses involve a high degree of judgment in
estimating the amount of loss associated with specific loans, including estimating the amount and
timing of future cash flows and collateral values. The historical loss element is determined using
the average of actual losses incurred over prior years for each type of loan. The historical loss
experience is adjusted for known changes in economic conditions and credit quality trends such as
changes in the amount of past due and nonperforming loans. The resulting loss allocation factors
are applied to the balance of each type of loan after removing the balance of impaired loans from
each category.
There are many factors affecting the allowance for loan losses; some are quantitative while others
require qualitative judgment. Although management believes its process for determining the
allowance adequately considers all possible factors that could potentially result in credit losses,
the process includes subjective elements and may be susceptible to significant change. To the
extent actual outcomes differ from managements estimates, additional provisions for loan losses
could be required that could adversely affect the Banks earnings or financial position in future
periods.
Results of Operations
Overview
The Companys net income was $1,391,000 for the quarter ended March 31, 2011, compared to $838,000
for the first quarter of 2010, an increase of 66.0%. The increase in net income was primarily due
to a decrease in the loan loss provision and lower noninterest expense, partially offset by lower
noninterest income including gain on sale of mortgage loans. Basic and diluted earnings per share
were $0.39 for the quarter ended March 31, 2011, compared to basic and diluted earnings per share
of $0.24 for the quarter ended March 31, 2010.
The Companys return on average assets was 1.12% (annualized) for the quarter ended March 31, 2011,
compared to 0.72% (annualized) for the quarter ended March 31, 2010. The Companys return on
average equity for the quarter ended March 31, 2011 was 12.20% (annualized) compared to 7.63%
(annualized) for the quarter ended March 31, 2010.
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Interest Income
Interest income for the quarter ended March 31, 2011 was $5,717,000, a decrease of $333,000 (5.5%)
from $6,050,000 for the three months ended March 31, 2010. The decrease in interest income
partially resulted from lower yields on both loans and securities. In addition, due to growth in
deposits coupled with weakened loan demand, the Bank has had an increase in liquidity, mostly held
as cash or lower yielding securities. The overall yield on earning assets decreased from 5.61% to
4.91% from the first quarter of 2010 to the first quarter of 2011. Interest income and fees on
loans for the three months ended March 31, 2011 were $5,069,000, a decrease of $483,000 (8.7%) from
$5,552,000 for the three months ended March 31, 2010. Interest on taxable securities increased
$126,000 (32.0%) to $520,000 for the three months ended March 31, 2011 from $394,000 for the three
months ended March 31, 2010.
Interest Expense
Interest expense for the three months ended March 31, 2011 was $1,674,000, a decrease of $207,000
(11.0%) from $1,881,000 for the three months ended March 31, 2010. Although interest-bearing
deposits increased from March 2010 to March 2011, the Company has experienced a decline in interest
expense, primarily due to the continued drop in interest rates paid on these deposits as well as a
shift in the mix of interest-bearing deposits from higher cost time deposits to lower cost accounts
such as money market accounts. The Companys cost of interest-bearing liabilities has declined
from 1.97% for the first quarter of 2010 to 1.67% for the first quarter of 2011.
Net Interest Income
Net interest income is the difference between the interest and fees earned on loans, securities and
other interest-earning assets (interest income), and the interest paid on deposits and borrowed
funds (interest expense).
Net interest income was $4,043,000 for the quarter ended March 31, 2011, a decrease of $126,000
(3.0%) from net interest income of $4,169,000 for the quarter ended March 31, 2010. The decrease
in net interest income was primarily the result of the decline in interest income due to weakened
loan demand and increased liquidity, partially offset by the lower cost of interest-bearing
deposits. Interest-earning assets were $481,382,000 at March 31, 2011 compared to $469,884,000 at
December 31, 2010 and $440,489,000 at March 31, 2010, increases of $11,498,000 (2.4%) and
$40,893,000 (9.3%), respectively. Loans, including loans held for sale, are the highest yielding
component of interest-earning assets. Total loans, net of the allowance for loan losses, were
$331,697,000 at March 31, 2011 compared to $355,513,000 at December 31, 2010 and $364,710,000 at
March 31, 2010, decreases of $23,816,000 (6.7%) and $33,013,000 (9.1%), respectively. The decline
in loans was predominantly due to declines in mortgage loans held for sale. Due to softening loan demand since December 31, 2010, the Company
experienced a significant decrease in mortgage loans held for sale in the first quarter of 2011.
Mortgage loans held for sale totaled $15,528,000, $46,570,000 and $30,174,000 at March 31, 2011,
December 31, 2010 and March 31, 2010, respectively. Due to the increase in liquidity, investments
in securities increased significantly. Securities available-for-sale were $100,984,000 at March
31, 2011, compared to $76,904,000 at December 31, 2010 and $56,284,000 at March 31, 2010, increases
of $24,080,000 (31.3%) and $44,700,000 (79.4%), respectively. Interest-bearing deposits were
$382,758,000 at March 31, 2011, compared to $373,147,000 at December 31, 2010 and $360,612,000 at
March 31, 2010, increases of $9,611,000 (2.6%) and $22,146,000 (6.1%), respectively.
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Provision for Loan Losses
The provision for loan losses was $99,000 for the three months ended March 31, 2011 compared to
$1,086,000 for the three months ended March 31, 2010, a decrease of $987,000 (90.9%). This
decrease is the result of improvement in the Banks overall asset quality as well as managements
detailed review of the Banks loan portfolio and adequacy of the allowance for loan losses, level
of the Banks non-performing assets, and charge offs and loan delinquencies. As shown in the Asset
Quality section below, non-accrual loans have decreased $1,767,000 during the first quarter of
2011, and have decreased $2,092,000 since March 31, 2010. The most significant portion of the
Banks non-accrual loans originated in the Savannah, Georgia market. Consequently, the ratio of
the allowance for loan losses to total loans, excluding loans held for sale, decreased to 2.29% at
March 31, 2011 from 2.48% at December 31, 2010. Net charge-offs decreased to $567,000 for the
first quarter of 2011 compared to $913,000 for the first quarter of 2010, resulting in annualized
charge-off ratios of 0.71% and 1.08%, respectively. Management considers the current allowance for
loan losses to be appropriate based upon its detailed analysis of the potential risk in the
portfolio; however, there can be no assurance that charge-offs in future periods will not exceed
the allowance for loan losses or that additional provisions will not be required.
Non-interest Income
Non-interest income for the three months ended March 31, 2011 was $2,860,000, a decrease of
$170,000 (5.6%) from $3,030,000 for the three months ended March 31, 2010. Service charges on
deposit accounts were $385,000 for the three months ended March 31, 2011, an increase of $42,000
(12.2%) from $343,000 for the three months ended March 31, 2010. Gain on sale of mortgage loans
originated and sold by the Banks mortgage division was $2,091,000 for the three months ended March
31, 2011, a decrease of $328,000 (13.6%) from $2,419,000 for the three months ended March 31, 2010.
Loans sold in the secondary market for the first quarter of 2011 were $113,395,000 compared to
$144,081,000 for the first quarter of 2010. Substantially all loans originated by the division are
sold in the secondary market with servicing rights released. Other income was $384,000 for the
three months ended March 31, 2011, an increase of $116,000 (43.3%) from $268,000 for the three
months ended March 31, 2010. During the first quarter of 2011, other income included a $183,000
gain on sale of two tracts of land in Augusta, Georgia that had become other real estate owned by
the Bank during the fourth quarter of 2008.
Non-interest Expense
Non-interest expense for the three months ended March 31, 2011 was $4,746,000, a decrease of
$339,000 (6.7%) from $5,085,000 for the three months ended March 31, 2010. Salary and employee
benefit costs were $2,969,000 for the three months ended March 31, 2011, a decrease of $83,000
(2.7%) from $3,052,000 for the three months ended March 31, 2010. The decrease in salary and
employee benefit costs was primarily due to lower incentives and group insurance costs partially
offset by higher salaries. Other non-interest expense for the three months ended March 31, 2011
decreased by $230,000 (14.3%) to $1,383,000 from $1,613,000 for the three months ended March 31,
2010. The decrease in other non-interest expense was primarily due to decreases in other real
estate expense, loan-related expenses and data processing expense. Other real estate expense was
$131,000 for the three months ended March 31, 2011 compared to $188,000 for the three months ended
March 31, 2010, a decrease of $57,000 (30.3%). Data processing expense decreased $89,000 (31.6%)
from $282,000 for the three months ended March
31, 2010 to $193,000 for the three months ended March 31, 2011. Loan-related expense was $37,000
for the three months ended March 31, 2011, a decrease of $72,000 (66.1%) from $109,000 for the
three months ended March 31, 2010.
Income Taxes
The Company recorded income tax expense of $667,000 for the three months ended March 31, 2011,
resulting from net income before taxes of $2,058,000 for the quarter. For the three months ended
March 31, 2010, the Company recorded income tax expense of $190,000, resulting from net income
before taxes of $1,028,000 for the quarter. The income tax provision for the three months ended
March 31, 2010 reflects a provision reduction of $120,000 related to the Companys amended tax
returns filed for 2006, 2007 and 2008.
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Financial Condition
Overview
Total consolidated assets at March 31, 2011 were $510,749,000, an increase of $15,438,000 (3.1%)
from December 31, 2010 total consolidated assets of $495,311,000. This increase is primarily due
to an increase in loans receivable as well as increased liquidity, resulting in increases in cash
and due from and securities available-for-sale, partially offset by a decline in mortgage loans
held for sale. At March 31, 2011, gross loans, including loans held for sale, represented 70.0% of
interest-earning assets compared to 77.3% at December 31, 2010. Gross loans were $323,567,000 at
March 31, 2011, an increase of $6,758,000 (2.1%) from $316,809,000 at December 31, 2010.
Investments in securities at March 31, 2011 were $100,984,000, an increase of $24,080,000 (31.3%)
from $76,904,000 at December 31, 2010. Cash and due from banks totaled $46,957,000 at March 31,
2011, and $31,696,000 at December 31, 2010, an increase of $15,261,000 (48.1%). Cash and due from
banks at March 31, 2011 and December 31, 2010 included $40,175,000 and $22,275,000, respectively,
of interest-bearing balances with the Federal Reserve Bank, at a minimal interest rate, that were
included in interest-earning assets. Interest-bearing deposits at March 31, 2011 were
$382,758,000, an increase of $9,611,000 (2.6%) from the December 31, 2010 balance of $373,147,000.
The increase is the result of an increase in NOW, savings, and money market accounts, partially
offset by a decrease in time deposits. The Banks lines of credit balances with the Federal Home
Loan Bank totaled $25,000,000 at March 31, 2011 and December 31, 2010. The Banks repurchase
agreements totaled $3,068,000 at March 31, 2011, a decrease of $399,000 (11.5%) from the December
31, 2010 balance of $3,467,000.
Management continuously monitors the financial condition of the Bank in order to protect
depositors, increase retained earnings and protect current and future earnings. Further discussion
of significant items affecting the Banks financial condition is presented in detail below.
Asset Quality
A major key to long-term earnings growth is the maintenance of a high-quality loan portfolio. The
Banks directive in this regard is carried out through its policies and procedures for extending
credit to the Banks customers. The goal of these policies and procedures is to provide a sound
basis for new credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely disposition.
Non-performing assets were $7,421,000 at March 31, 2011, compared to $9,008,000 at December 31,
2010 and $10,456,000 at March 31, 2010. The composition of non-performing assets for each date is
shown in the table below.
March 31, | December 31, | March 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
Non-accrual loans |
$ | 4,490,000 | $ | 6,257,000 | $ | 6,582,000 | ||||||
OREO, net of valuation allowance |
2,931,000 | 2,751,000 | 3,874,000 | |||||||||
Total non-performing assets |
$ | 7,421,000 | $ | 9,008,000 | $ | 10,456,000 | ||||||
The Banks non-accrual loans decreased $1,767,000 (28.2%) during the first three months of 2011.
This decline is due various factors including chargeoffs and transfers to OREO as well as paydowns
and movement to accrual status. The Banks other real estate owned (OREO) increased $180,000
(6.5%) during that same time period. Since March 31, 2010, non-accrual loans have decreased
$2,092,000 (31.8%) and OREO has also declined $943,000 (24.3%). The ratio of non-performing assets
to total loans and OREO, excluding loans held for sale, was 2.27% at March 31, 2011, 2.82% at
December 31, 2010, and 3.04% at March 31, 2010. The continued reduction and disposition of
non-performing assets is a management priority.
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As of March 31, 2011, the Bank had classified 19 loans totaling $10,399,000 as troubled debt
restructurings as defined in ASC 310-40. As of December 31, 2010, the Bank had classified 15
loans totaling $9,250,000 as troubled debt restructurings.
Additions to the allowance for loan losses are made periodically to maintain the allowance at an
appropriate level based upon managements analysis of potential risk in the loan portfolio, as
described above under the heading Critical Accounting Policies. During the quarter ended March
31, 2011, management determined that the allowance for loan losses should be increased through a
provision for loan losses of $99,000, compared to a loan loss provision of $1,086,000 for the
quarter ended March 31, 2010. Net charge-offs during the quarter ended March 31, 2011 were
$567,000 or 0.71% of loans annualized, compared to $913,000 or 1.08% of loans annualized for the
quarter ended March 31, 2010. Management considers the current allowance for loan losses to be
appropriate based upon its detailed analysis of the potential risk in the Banks portfolio;
however, there can be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional provisions will not be required.
Management evaluates investment securities for other-than-temporary impairment on a periodic basis,
and more frequently when economic or market conditions warrant such evaluation. Consideration is
given to (1) the length of time and the extent to which the fair value has been less than cost, (2)
the financial condition and near-term prospects of the issuers, 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. During the first quarter of 2011, the Bank determined one of
its collateralized mortgage obligation securities was impaired due to continued deterioration of
the underlying collateral. Based on projected future losses, the Bank impaired the security by
$38,000 to a balance of $149,000.
At March 31, 2011, the gross unrealized losses are primarily the result of changes in market
interest rates and not related to the credit quality of the underlying issuer. All of the
securities are U.S. agency debt securities, mortgage-backed securities, and municipal securities.
As the Bank has the ability to hold the securities for the foreseeable future, with the exception
of the above mentioned security, no declines are deemed to be other than temporary.
Liquidity and Capital Resources
Liquidity is the ability of an organization to meet its financial commitments and obligations on a
timely basis. These commitments and obligations include credit needs of customers, withdrawals by
depositors, and payment of operating expenses and dividends. Management does not anticipate any
events which would require liquidity beyond that which is available through deposit growth,
investment maturities, federal funds lines, and other lines of credit and funding sources.
Management actively monitors and manages the levels, types and maturities of earning assets, in
relation to the sources available to fund current and future needs, to ensure that adequate funding
will be available at all times.
The Banks liquidity remains adequate to meet operating and loan funding requirements. The Banks
liquidity ratio at March 31, 2011 was 29.2%, compared to 28.5% at December 31, 2010.
Management is committed to maintaining capital at a level sufficient to protect depositors, provide
for reasonable growth, and fully comply with all regulatory requirements. Managements strategy to
achieve this goal is to retain sufficient earnings while providing a reasonable return on equity.
Federal banking regulations establish certain capital adequacy standards required to be maintained
by banks.
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The table below reflects the Banks current regulatory capital ratios, including comparisons to
December 31, 2010 and regulatory minimums:
Minimum Regulatory | ||||||||||||
March 31, 2011 | December 31, 2010 | Requirement | ||||||||||
Total risk-based capital ratio |
13.40 | % | 12.91 | % | 8.00 | % | ||||||
Tier 1 risk-based capital
ratio |
12.14 | % | 11.65 | % | 4.00 | % | ||||||
Tier 1 leverage ratio |
9.13 | % | 9.17 | % | 4.00 | % |
In September 2009, the Bank became subject to revised regulations from the State of Georgia
Department of Banking and Finance regarding its total aggregate lending limit to a single customer
and that customers related entities. The new regulation revised the definition of how a single
customer is defined. As a result, the Board of Directors approved an increase in the Banks
statutory capital base in October 2009 by appropriating a portion of retained earnings. At March
31, 2011 and December 31, 2010, the Banks statutory capital base totaled $40.0 million and
consisted of $3.2 million in capital stock, $16.3 million of surplus and $20.5 million in
appropriated retained earnings, allowing for a $10.0 million lending limit (25%).
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) became law.
Under the Troubled Asset Relief Program (TARP) authorized by EESA, the U.S. Treasury established
a Capital Purchase Program (CPP) providing for the purchase of senior preferred shares of
qualifying U.S. controlled banks, savings associations and certain bank and savings and loan
holding companies. The Board of Directors of the Bank decided not to participate in the CPP. The
FDIC also established a Temporary Liquidity Guarantee Program (TLGP) that gave the FDIC the
ability to provide a guarantee for newly-issued senior unsecured debt and non-interest bearing
transaction deposit accounts at eligible insured institutions. The Board of Directors of the Bank
elected to participate in the TLGP for the purpose of obtaining the guarantee on non-interest
bearing transaction deposit accounts.
On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and Federal Reserve, announced
the Public-Private Investment Program (the PPIP). Targeting illiquid real estate loans held on
the books of financial institutions, referred to as legacy loans, and securities backed by loan
portfolios, referred to as legacy securities, the PPIP is designed to open lending channels by
facilitating a market for distressed assets. The PPIP has been structured to combine $75 to $100
billion in capital from TARP with capital from the private sector to generate $500 billion in
purchasing power that will be used to buy legacy loans and legacy securities. The Bank has not
participated in the PPIP as of March 31, 2011.
On November 12, 2009, the FDIC adopted a final rule requiring insured depository institutions to
prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all
quarters of 2010, 2011, and 2012. The estimates were based on a 5% annual growth rate in its
assessment rate and were included on each institutions third quarter 2009 certified statement
invoice. This three-year assessment prepayment was made on December 30, 2009 in addition to the
regularly scheduled payment of the third quarter 2009 assessment. The Bank prepaid a total of
approximately $2,313,000 for 2010, 2011 and 2012 under the new rule.
On July 21, 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act
which, among other provisions, permanently increases the FDIC insurance coverage on bank deposits
to $250,000.
Off-Balance Sheet Arrangements
In the ordinary course of business, the Bank may enter into off-balance sheet financial instruments
which are not reflected in the financial statements. These instruments include commitments to
extend credit and standby letters of credit. Such financial instruments are recorded in the
financial statements when funds are disbursed or the instruments become payable.
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Table of Contents
The following is an analysis of significant off-balance sheet financial instruments at March 31,
2011 and December 31, 2010.
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Commitments to extend credit |
$ | 49,043 | $ | 49,477 | ||||
Standby letters of credit |
5,013 | 5,154 | ||||||
Total off-balance sheet financial instruments |
$ | 54,056 | $ | 54,631 | ||||
Supplemental Consolidated Cash Flow Information
The Bank had the following significant non-cash transactions during the three months ended March
31, 2011 and March 31, 2010.
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Interest received |
$ | 5,566 | $ | 6,047 | ||||
Interest paid |
1,831 | 1,895 | ||||||
Real estate acquired by foreclosure |
650 | 303 | ||||||
Unrealized gain/(loss) on securities |
(242 | ) | 112 | |||||
Income taxes paid (refunded) |
950 | (298 | ) | |||||
$ | 8,755 | $ | 8,059 | |||||
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Cautionary Note Regarding Forward-Looking Statements
The Company may, from time to time, make written or oral forward-looking statements, including
statements contained in the Companys filings with the Securities and Exchange Commission (the
Commission) and its reports to stockholders. Such forward-looking statements are made based on
managements belief as well as assumptions made by, and information currently available to,
management pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
The Companys actual results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including governmental monetary and
fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio
values and interest rate risk management; the effects of competition in the banking business from
other commercial banks, savings and loan associations, mortgage banking firms, consumer finance
companies, credit unions, securities brokerage firms, insurance companies, money market mutual
funds and other financial institutions operating in the Companys market area and elsewhere,
including institutions operating through the Internet; changes in government regulations relating
to the banking industry, including regulations relating to branching and acquisitions; failure of
assumptions underlying the establishment of reserves for loan losses, including the value of
collateral underlying delinquent loans; and other factors detailed from time to time in the
Companys periodic filings with the Commission, including Item 1A. Risk Factors, contained in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010. These risks are
exacerbated by the continuing effects of the recession which began in 2008 and uncertain economic
conditions in the United States and globally, and we are unable to predict with certainty what
effects these economic conditions will have on our future operating results and financial
condition. The Company cautions that such factors are not exclusive. The Company does not
undertake to update any forward-looking statements that may be made from time to time by, or on
behalf of, the Company.
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Table of Contents
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
There have been no material changes in the Companys quantitative and qualitative disclosures about
market risk as of March 31, 2011 from that presented under the heading Liquidity and Interest Rate
Sensitivity and Market Risk in Item 7 of the Companys Annual Report on Form 10-K for the year
ended December 31, 2010.
Item 4. | Controls and Procedures. |
Management has developed and implemented policies and procedures for reviewing disclosure controls
and procedures and internal control over financial reporting on a quarterly basis. Management,
including the Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the design and operation of disclosure controls and procedures as of March 31,
2011 and, based on such evaluation, has concluded that these controls and procedures are effective.
Disclosure controls and procedures are the Companys controls and other procedures that are
designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
the Company in the reports that it files under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure.
There were no changes in the Companys internal control over financial reporting during the
Companys last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
28
Table of Contents
Part II OTHER INFORMATION
Item 6. | Exhibits. |
The following exhibits are filed with this Report:
Exhibit No. | Description | |||
3.1 | - | Articles of Incorporation of the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended, Registration No. 333-69763). |
||
3.1.1 | - | Articles of Amendment to the Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1.1 of the Companys Annual Report on Form 10-KSB for the
year ended December 31, 2000). |
||
3.2 | - | By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 of the
Companys Registration Statement on Form SB-2 under the Securities Act of 1933, as amended,
Registration No. 333-69763). |
||
31.1 | - | Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
||
31.2 | - | Certification of Senior Vice President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
32.1 | - | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements 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.
GEORGIA-CAROLINA BANCSHARES, INC. |
||||
May 12, 2011 | By: | /s/ Remer Y. Brinson, III | ||
Remer Y. Brinson, III | ||||
President and Chief Executive Officer (principal executive officer) |
||||
May 12, 2011 | By: | /s/ Thomas J. Flournoy | ||
Thomas J. Flournoy | ||||
Senior Vice President and Chief Financial Officer (principal financial and accounting officer) |
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EXHIBIT INDEX
Exhibit No. | Description of Exhibit | |
Exhibit 31.1 | Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
Exhibit 31.2 | Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|
Exhibit 32.1 | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
31