e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 June 30, 2009
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: 001-32590
COMMUNITY BANKERS TRUST CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
20-2652949 |
(State or other jurisdiction of
incorporation of organization)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
4235 Innslake Drive, Suite 200
Glen Allen, Virginia
(Address of principal executive offices)
|
|
23060
(Zip Code) |
(804) 934-9999
(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 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 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.
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
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
At August 3, 2009, there were 21,468,455 shares of the Companys common stock outstanding.
COMMUNITY BANKERS TRUST CORPORATION
TABLE OF CONTENTS
FORM 10-Q
June 30, 2009
|
|
|
|
|
|
|
Page |
|
|
|
3 |
|
|
|
|
3 |
|
|
|
|
3 |
|
|
|
|
4 |
|
|
|
|
5 |
|
|
|
|
6 |
|
|
|
|
7 |
|
|
|
|
21 |
|
|
|
|
30 |
|
|
|
|
31 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
35 |
|
|
|
|
35 |
|
|
|
|
36 |
|
2
PART I FINANCIAL INFORMATION
|
|
|
Item 1. |
|
Financial Statements |
COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT JUNE 30, 2009 AND DECEMBER 31, 2008
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
(Audited) |
|
|
(Unaudited) |
|
(Restated) |
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
20,110 |
|
|
$ |
10,864 |
|
Interest bearing bank deposits |
|
|
14,158 |
|
|
|
107,376 |
|
Federal funds sold |
|
|
25,830 |
|
|
|
10,193 |
|
|
|
|
Total cash and cash equivalents |
|
|
60,098 |
|
|
|
128,433 |
|
|
|
|
|
|
|
|
|
|
Securities available for sale, at fair value |
|
|
178,923 |
|
|
|
193,992 |
|
Securities held to maturity, fair value of
$131,752 and $94,965, respectively |
|
|
130,113 |
|
|
|
94,865 |
|
Equity securities, restricted, at cost |
|
|
6,838 |
|
|
|
3,612 |
|
|
|
|
Total securities |
|
|
315,874 |
|
|
|
292,469 |
|
|
|
|
|
|
|
|
|
|
Loans held for resale |
|
|
668 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
551,799 |
|
|
|
523,298 |
|
Allowance for loan losses |
|
|
(12,185 |
) |
|
|
(6,939 |
) |
|
|
|
Net loans |
|
|
539,614 |
|
|
|
516,359 |
|
|
|
|
|
|
|
|
|
|
FDIC covered assets (Note 9) |
|
|
278,436 |
|
|
|
|
|
Bank premises and equipment |
|
|
37,484 |
|
|
|
24,111 |
|
Other real estate owned |
|
|
864 |
|
|
|
223 |
|
Bank owned life insurance |
|
|
6,415 |
|
|
|
6,300 |
|
Core deposit intangibles, net |
|
|
18,211 |
|
|
|
17,163 |
|
Goodwill (Note 5) |
|
|
13,152 |
|
|
|
37,184 |
|
Other assets |
|
|
13,022 |
|
|
|
7,325 |
|
|
|
|
Total assets |
|
$ |
1,283,838 |
|
|
$ |
1,029,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand: |
|
|
|
|
|
|
|
|
Noninterest bearing |
|
$ |
59,949 |
|
|
$ |
59,699 |
|
Interest bearing |
|
|
1,007,498 |
|
|
|
746,649 |
|
|
|
|
Total deposits |
|
|
1,067,447 |
|
|
|
806,348 |
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
37,000 |
|
|
|
37,900 |
|
Trust preferred capital notes |
|
|
4,124 |
|
|
|
4,124 |
|
Other liabilities |
|
|
26,379 |
|
|
|
16,992 |
|
|
|
|
Total liabilities |
|
$ |
1,134,950 |
|
|
$ |
865,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock (5,000,000 shares authorized,
$0.01 par value) 17,680 shares issued and
outstanding |
|
|
17,680 |
|
|
|
17,680 |
|
Discount on preferred stock |
|
|
(943 |
) |
|
|
(1,031 |
) |
Warrants on preferred stock |
|
|
1,037 |
|
|
|
1,037 |
|
Common stock (50,000,000 shares authorized,
$0.01 par value) 21,468,455 shares issued and
outstanding |
|
|
215 |
|
|
|
215 |
|
Additional paid in capital |
|
|
144,506 |
|
|
|
146,076 |
|
Retained (deficit) earnings |
|
|
(13,677 |
) |
|
|
1,691 |
|
Accumulated other comprehensive income (loss) |
|
|
70 |
|
|
|
(1,265 |
) |
|
|
|
Total stockholders equity |
|
$ |
148,888 |
|
|
$ |
164,403 |
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,283,838 |
|
|
$ |
1,029,767 |
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
3
COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(dollars and shares in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the six months ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
|
|
Interest and dividend income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
9,631 |
|
|
$ |
2,704 |
|
|
$ |
18,047 |
|
|
$ |
2,704 |
|
Interest and fees on FDIC covered loans |
|
|
3,016 |
|
|
|
|
|
|
|
6,286 |
|
|
|
|
|
Interest on federal funds sold |
|
|
12 |
|
|
|
46 |
|
|
|
26 |
|
|
|
46 |
|
Interest on deposits in other banks |
|
|
81 |
|
|
|
|
|
|
|
202 |
|
|
|
|
|
Interest and dividends on securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
2,607 |
|
|
|
282 |
|
|
|
5,499 |
|
|
|
687 |
|
Nontaxable |
|
|
820 |
|
|
|
110 |
|
|
|
1,577 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
16,167 |
|
|
|
3,142 |
|
|
|
31,637 |
|
|
|
3,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
6,299 |
|
|
|
1,027 |
|
|
|
12,417 |
|
|
|
1,027 |
|
Interest on federal funds purchased |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
13 |
|
Interest on other borrowed funds |
|
|
390 |
|
|
|
80 |
|
|
|
737 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
6,689 |
|
|
|
1,120 |
|
|
|
13,154 |
|
|
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9,478 |
|
|
|
2,022 |
|
|
|
18,483 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
540 |
|
|
|
234 |
|
|
|
6,040 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
8,938 |
|
|
|
1,788 |
|
|
|
12,443 |
|
|
|
2,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
618 |
|
|
|
180 |
|
|
|
1,189 |
|
|
|
180 |
|
Gain on SFSB transaction |
|
|
|
|
|
|
|
|
|
|
21,260 |
|
|
|
|
|
Gain on securities transactions, net |
|
|
341 |
|
|
|
|
|
|
|
293 |
|
|
|
|
|
Gain on sale of other real estate |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
Other |
|
|
374 |
|
|
|
119 |
|
|
|
669 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,333 |
|
|
|
299 |
|
|
|
23,432 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
5,028 |
|
|
|
574 |
|
|
|
9,454 |
|
|
|
574 |
|
Occupancy expenses |
|
|
554 |
|
|
|
112 |
|
|
|
1,134 |
|
|
|
112 |
|
Equipment expenses |
|
|
419 |
|
|
|
108 |
|
|
|
762 |
|
|
|
108 |
|
Legal fees |
|
|
305 |
|
|
|
46 |
|
|
|
555 |
|
|
|
99 |
|
Professional fees |
|
|
456 |
|
|
|
24 |
|
|
|
1,156 |
|
|
|
100 |
|
FDIC assessment |
|
|
744 |
|
|
|
16 |
|
|
|
874 |
|
|
|
16 |
|
Data processing fees |
|
|
732 |
|
|
|
104 |
|
|
|
1,474 |
|
|
|
104 |
|
Amortization of intangibles |
|
|
654 |
|
|
|
149 |
|
|
|
1,110 |
|
|
|
149 |
|
Impairment of goodwill (Note 5) |
|
|
24,032 |
|
|
|
|
|
|
|
24,032 |
|
|
|
|
|
Other operating expenses |
|
|
1,876 |
|
|
|
582 |
|
|
|
3,637 |
|
|
|
673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
34,800 |
|
|
|
1,715 |
|
|
|
44,188 |
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(24,529 |
) |
|
|
372 |
|
|
|
(8,313 |
) |
|
|
557 |
|
Income tax (benefit) expense |
|
|
(410 |
) |
|
|
84 |
|
|
|
4,872 |
|
|
|
158 |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(24,119 |
) |
|
$ |
288 |
|
|
$ |
(13,185 |
) |
|
$ |
399 |
|
Dividends accrued on preferred stock |
|
|
220 |
|
|
|
|
|
|
|
438 |
|
|
|
|
|
Accretion of discount on preferred stock |
|
|
45 |
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders |
|
$ |
(24,384 |
) |
|
$ |
288 |
|
|
$ |
(13,711 |
) |
|
$ |
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share basic |
|
$ |
(1.14 |
) |
|
$ |
0.02 |
|
|
$ |
(0.64 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
Net (loss) income per share diluted |
|
$ |
(1.14 |
) |
|
$ |
0.02 |
|
|
$ |
(0.64 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
|
21,468 |
|
|
|
13,407 |
|
|
|
21,468 |
|
|
|
11,391 |
|
diluted |
|
|
21,468 |
|
|
|
15,283 |
|
|
|
21,468 |
|
|
|
13,553 |
|
See accompanying notes to unaudited consolidated financial statements
4
COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Dollars and shares in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Retained |
|
Other |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Paid in |
|
Earnings |
|
Comprehensive |
|
|
|
|
Shares |
|
Amount |
|
Warrants |
|
Discount |
|
Shares |
|
Amount |
|
Capital |
|
(Deficit) |
|
Income |
|
Total |
Balance December 31, 2007 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
9,375 |
|
|
$ |
94 |
|
|
$ |
42,989 |
|
|
$ |
2,229 |
|
|
$ |
|
|
|
$ |
45,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with merger |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,501 |
|
|
|
135 |
|
|
|
116,035 |
|
|
|
|
|
|
|
|
|
|
|
116,170 |
|
Common stock redeemed in connection with merger |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,405 |
) |
|
|
(14 |
) |
|
|
(10,829 |
) |
|
|
|
|
|
|
|
|
|
|
(10,843 |
) |
Comprehesive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399 |
|
|
|
|
|
|
|
399 |
|
Change in net unrealized gain or loss on
securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(835 |
) |
|
|
(835 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
399 |
|
|
|
|
|
|
|
(436 |
) |
|
|
|
Balance June 30, 2008 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
21,471 |
|
|
$ |
215 |
|
|
$ |
148,195 |
|
|
$ |
3,027 |
|
|
$ |
(835 |
) |
|
$ |
150,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 (restated) |
|
|
18 |
|
|
$ |
17,680 |
|
|
$ |
1,037 |
|
|
$ |
(1,031 |
) |
|
|
21,468 |
|
|
$ |
215 |
|
|
$ |
146,076 |
|
|
$ |
1,691 |
|
|
$ |
(1,265 |
) |
|
|
164,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of preferred stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
Reclassification for preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
37 |
|
Recognize SFSB January 2009 net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
(56 |
) |
Repurchase of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,570 |
) |
|
|
|
|
|
|
|
|
|
|
(1,570 |
) |
Dividends paid on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359 |
) |
|
|
|
|
|
|
(359 |
) |
Comprehesive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,185 |
) |
|
|
|
|
|
|
(13,185 |
) |
Change in net unrealized gain or loss on
securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528 |
|
|
|
|
|
Less: Reclassification adjustment for gain on
securities sold, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193 |
) |
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335 |
|
|
|
1,335 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,850 |
) |
Dividends paid on common stock ($.08 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,717 |
) |
|
|
|
|
|
|
(1,717 |
) |
|
|
|
Balance June 30, 2009 |
|
|
18 |
|
|
$ |
17,680 |
|
|
$ |
1,037 |
|
|
$ |
(943 |
) |
|
|
21,468 |
|
|
$ |
215 |
|
|
$ |
144,506 |
|
|
$ |
(13,677 |
) |
|
$ |
70 |
|
|
$ |
148,888 |
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
5
COMMUNITY BANKERS TRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(13,185 |
) |
|
$ |
399 |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and intangibles amortization |
|
|
2,043 |
|
|
|
271 |
|
Provision for loan losses |
|
|
6,040 |
|
|
|
234 |
|
Amortization of security premiums and accretion of discounts, net |
|
|
940 |
|
|
|
8 |
|
Change in loans held for sale |
|
|
(468 |
) |
|
|
535 |
|
Net gain on SFSB transaction |
|
|
(21,260 |
) |
|
|
|
|
Prior period goodwill adjustment |
|
|
(2,899 |
) |
|
|
|
|
Impairment of goodwill |
|
|
24,032 |
|
|
|
|
|
Net gain on sale of securities |
|
|
(293 |
) |
|
|
|
|
Net gain on sale of OREO |
|
|
(21 |
) |
|
|
|
|
Net loss/(gain) on sale of loans |
|
|
20 |
|
|
|
(12 |
) |
Cash aquired in acquisitions |
|
|
35,662 |
|
|
|
10,016 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease/(increase) in other assets |
|
|
11,138 |
|
|
|
(4,022 |
) |
Increase in accrued expenses and other liabilities |
|
|
7,631 |
|
|
|
2,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
49,380 |
|
|
|
9,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Proceeds from securities |
|
|
98,329 |
|
|
|
56,342 |
|
Purchase of securities |
|
|
(108,075 |
) |
|
|
|
|
Net increase in loans |
|
|
(5,732 |
) |
|
|
(11,230 |
) |
Purchase of premises and equipment, net |
|
|
(14,268 |
) |
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by investing activities |
|
|
(29,746 |
) |
|
|
44,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net (decrease)/increase in noninterest bearing and interest bearing deposits |
|
|
(45,898 |
) |
|
|
4,919 |
|
Net decrease in federal funds purchased |
|
|
|
|
|
|
(1,287 |
) |
Cash paid to shareholders for converted shares |
|
|
|
|
|
|
(10,843 |
) |
Cash paid to reduce FHLB borrowings |
|
|
(38,425 |
) |
|
|
|
|
Cash paid to redeem shares related to asserted appraisal rights and retire warrants |
|
|
(1,570 |
) |
|
|
|
|
Cash dividends paid on preferred and common stock |
|
|
(2,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(87,969 |
) |
|
|
(7,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(68,335 |
) |
|
|
47,281 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of the period |
|
$ |
128,433 |
|
|
$ |
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period |
|
$ |
60,098 |
|
|
$ |
47,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
13,640 |
|
|
$ |
1,156 |
|
Income taxes paid |
|
$ |
250 |
|
|
$ |
|
|
Transfers of OREO property |
|
$ |
640 |
|
|
$ |
224 |
|
Transactions related to acquisition |
|
|
|
|
|
|
|
|
Increase in assets and liabilities: |
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
278,507 |
|
|
$ |
471,864 |
|
Other real estate owned |
|
$ |
17,820 |
|
|
$ |
|
|
Securities |
|
$ |
7,416 |
|
|
$ |
68,306 |
|
Fixed assets, net |
|
$ |
37 |
|
|
$ |
|
|
Other assets |
|
$ |
16,582 |
|
|
$ |
89,857 |
|
Deposits |
|
$ |
306,997 |
|
|
$ |
491,462 |
|
Borrowings |
|
$ |
37,525 |
|
|
$ |
32,359 |
|
Other liabilities |
|
$ |
1,756 |
|
|
$ |
8,861 |
|
See accompanying notes to unaudited consolidated financial statements
6
COMMUNITY BANKERS TRUST CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Community Bankers Trust Corporation (the Company) is a bank holding company that was
incorporated under Delaware law on April 6, 2005. The Company is headquartered in Glen Allen,
Virginia and is the holding company for Essex Bank (the Bank), a Virginia state bank with 25
full-service offices in Virginia, Maryland and Georgia. Bank of Essex changed its name to Essex
Bank on April 20, 2009.
The Company was initially formed as a special purpose acquisition company to effect a merger,
capital stock exchange, asset acquisition or other similar business combination with an operating
business in the banking industry. Prior to its acquisition of two bank holding companies in 2008,
the Companys activities were limited to organizational matters, completing its initial public
offering and seeking and evaluating possible business combination opportunities. On May 31, 2008,
the Company acquired each of TransCommunity Financial Corporation, a Virginia corporation (TFC),
and BOE Financial Services of Virginia, Inc., a Virginia corporation (BOE). The Company changed
its corporate name in connection with the acquisitions. On November 21, 2008, the Bank acquired
certain assets and assumed all deposit liabilities relating to four former branch offices of The
Community Bank (TCB), a Georgia state-chartered bank. On January 30, 2009, the Bank acquired
certain assets and assumed all deposit liabilities relating to seven former branch offices of
Suburban Federal Savings Bank, Crofton, Maryland (SFSB).
The Bank was established in 1926 and is headquartered in Tappahannock, Virginia. The Bank
engages in a general commercial banking business and provides a wide range of financial services
primarily to individuals and small businesses, including individual and commercial demand and time
deposit accounts, commercial and consumer loans, travelers checks, safe deposit box facilities,
investment services and fixed rate residential mortgages. Fourteen offices are located in Virginia,
primarily from the Chesapeake Bay to just west of Richmond, seven are located in Maryland along the
Baltimore-Washington corridor and four are located in the Atlanta, Georgia metropolitan market.
The consolidated statements presented include accounts of the Company and its wholly-owned
subsidiary. All significant intercompany accounts have been eliminated. In the opinion of
management, the accompanying financial statements contain all adjustments necessary to fairly
present the financial position of the Company at each of June 30, 2009 and December 31, 2008. The
statements should be read in conjunction with the Companys consolidated financial statements and
the accompanying notes to consolidated financial statements included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2008.
The financial information with respect to the operations of the Company prior to May 31, 2008,
which includes five of the first six months of 2008, and the first two months of the second quarter
of 2008, does not provide any meaningful basis for comparison since the Company was not an
operating company during those periods. As a result of the acquisitions of TFC and BOE on May 31,
2008, the Company became an operating company. Consequently, the Company did not have meaningful
comparable periods to report.
In the opinion of management, all adjustments (consisting of normal accruals) were made that
are necessary to present fairly the financial position of the Company at June 30, 2009, and the
results of its operations and its cash flows for the three and six months ended June 30, 2009 and
2008.
The statements and related notes have been prepared pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States (GAAP) are not presented pursuant to such
rules and regulations, because the periods reported are not comparable.
7
2. ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform to GAAP and to the general
practices within the banking industry. The interim financial statements have not been audited;
however, in the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the consolidated financial statements have been
included. Operating results for the three and six month period ended June 30, 2009, are not
necessarily indicative of the results that may be expected for the year ending December 31, 2009.
Certain reclassifications have been made to prior period balances to conform to the current
period presentation.
The Companys financial statements are prepared in accordance with GAAP. The financial
information contained within the statements is, to a significant extent, financial information that
is based on measures of the financial effects of transactions and events that have already
occurred. A variety of factors could affect the ultimate value that is obtained either when earning
income, recognizing an expense, recovering an asset or relieving a liability. The Company uses
historical loss factors as one factor in determining the inherent loss that may be present in its
loan portfolio. Actual losses could differ significantly from the historical factors that the
Company uses. In addition, GAAP itself may change from one previously acceptable method to another
method. Although the economics of the Companys transactions would be the same, the timing of
events that would impact its transactions could change. In preparing the financial statements, the
Company has evaluated events and transactions occurring subsequent to the financial statement date
through the filing date of August 10, 2009 for potential recognition or disclosure.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 does not require any
new fair value measurements, but rather, provides enhanced guidance to other pronouncements that
require or permit assets or liabilities to be measured at fair value. The Company adopted SFAS 157
on January 1, 2008. The FASB approved a one-year deferral for the implementation of the Statement
for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The Company adopted the provisions of SFAS 157 for
nonfinancial assets and liabilities as of January 1, 2009 without a material impact on the
consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R),
Business Combinations (SFAS 141(R)). The Standard significantly changed the financial accounting
and reporting of business combination transactions. SFAS 141(R) establishes principles for how an
acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of
an entitys first year that begins after December 15, 2008. The Company does not expect the
implementation of SFAS 141(R) to have a material impact on its consolidated financial statements,
at this time.
In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 141(R)-1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP SFAS
141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. The FSP is effective for assets and
liabilities arising from contingencies in business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15,
2008. The Company does not expect the adoption of FSP SFAS 141(R)-1 to have a material impact on
its consolidated financial statements.
In April 2009, the FASB issued FSP SFAS 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 SFAS 157-4 provides additional guidance for estimating fair
value in accordance with SFAS 157 when the volume and level of activity for the asset or liability
have significantly decreased. The FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. FSP SFAS 157-4 is effective for interim and annual periods
ending after June 15, 2009, and shall be applied prospectively. Earlier adoption is permitted for
periods ending after March 15, 2009. The Company does not expect the adoption of FSP SFAS 157-4 to
have a material impact on its (consolidated) financial statements.
8
In April 2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board (APB) 28-1,
Interim Disclosures about Fair Value of Financial Instruments. FSP SFAS 107-1 and APB 28-1 amends
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about
fair value of financial instruments for interim reporting periods of publicly traded companies as
well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, Interim
Financial Reporting, to require those disclosures in summarized financial information at interim
reporting periods. The FSP is effective for interim periods ending after June 15, 2009, with
earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the
adoption of FSP SFAS 107-1 and APB 28-1 to have a material impact on its consolidated financial
statements.
In April 2009, the FASB issued FSP SFAS 115-1 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. FSP FAS 115-1 and SFAS 124-2 amends other-than-temporary
impairment guidance for debt securities to make guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and equity securities. The
FSP does not amend existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities. FSP SFAS 115-1 and SFAS 124-2 is effective for interim and annual
periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March
15, 2009. The Company does not expect the adoption of FSP SFAS 115-1 and SFAS 124-2 to have a
material impact on its consolidated financial statements.
In April 2009, the SEC issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and
replaces SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain
Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous views
related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The
Company does not expect the implementation of SAB 111 to have a material impact on its consolidated
financial statements.
In May 2009, the FASB issued SFAS 165, Subsequent Events (SFAS 165) to provide guidance on
when a subsequent event should be recognized in the financial statements. Subsequent events that
provide additional evidence about conditions that existed at the date of the balance sheet should
be recognized at the balance sheet date. Subsequent events that provide evidence about conditions
that arose after the balance sheet date but before financial statements are issued, or are
available to be issued, are not required to be recognized. The date through which subsequent events
have been evaluated must be disclosed as well as whether it is the date the financial statements
were issued or the date the financial statements were available to be issued. For nonrecognized
subsequent events which should be disclosed to keep the financial statements from being misleading,
the nature of the event and an estimate of its financial effect, or a statement that such an
estimate cannot be made, should be disclosed. The standard is effective for interim or annual
periods ending after June 15, 2009. See Note 14 for the Companys evaluation of subsequent events.
In June 2009, the FASB issued SFAS 166, Accounting for Transfers of Financial Assets an
amendment of FASB Statement No. 140 (SFAS 166). SFAS 166 limits the circumstances in which a
financial asset should be derecognized when the transferor has not transferred the entire financial
asset by taking into consideration the transferors continuing involvement. The standard requires
that a transferor recognize and initially measure at fair value all assets obtained (including a
transferors beneficial interest) and liabilities incurred as a result of a transfer of financial
assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from
SFAS 140 along with the exception from applying FIN 46(R). The standard is effective for the first
annual reporting period that begins after November 15, 2009, for interim periods within the first
annual reporting period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The Company does not expect SFAS 166 to have a material impact on its
consolidated financial statements.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R) (SFAS
167). The standard amends FASB Interpretation Number (FIN) 46(R) to require a company to analyze
whether its interest in a variable interest entity (VIE) gives it a controlling financial
interest. A company must assess whether it has an implicit financial responsibility to ensure that
the VIE operates as designed when determining whether it has the power to direct the activities of
the VIE that significantly impact its economic performance. Ongoing reassessments of whether a
company is the primary beneficiary is also required by the standard. SFAS 167 amends the criteria
to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The
standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is
effective as of the beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative
disclosures will be required for periods after the effective date. The Company does not expect
SFAS 167 to have a material impact on its consolidated financial statements.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification
TM and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB
Statement No. 162 (SFAS 168). SFAS 168 establishes the FASB Accounting Standards
Codification TM (Codification) as the source of authoritative generally accepted
accounting principles for
9
nongovernmental entities. SFAS 168 is effective for interim and annual periods ending after
September 15, 2009, and is not expected to have a material impact on the Companys consolidated
financial statements.
In June 2009, the SEC issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or
rescinds portions of the interpretative guidance included in the codification of SABs in order to
make the interpretive guidance consistent with current GAAP. The Company does not expect the
adoption of SAB 112 to have a material impact on its consolidated financial statements.
4. MERGERS AND ACQUISITIONS
Business Combinations
On May 31, 2008, the Company acquired each of TFC and BOE. The transaction with TFC was valued
at $53.0 million. Total consideration paid to TFC shareholders consisted of 6,544,840 shares of the
Companys common stock issued. The transaction resulted in total assets acquired at May 31, 2008 of
$268.8 million, including $241.9 million of loans, and liabilities assumed were $241.7 million,
including $232.1 million of deposits. The transaction with BOE was valued at $53.9 million. Total
consideration paid to BOE shareholders consisted of 6,957,405 shares of the Companys common stock
issued. This transaction resulted in total assets acquired at May 31, 2008 of $317.6 million,
including $233.3 million of loans, and liabilities assumed were $288.0 million, including $256.4
million of deposits. Due to the mergers with each of TFC and BOE, the Company recorded
approximately $37.2 million in goodwill and $15.0 million in core deposit intangibles.
Immediately following the mergers with TFC and BOE, the Company operated TransCommunity Bank
and the Bank as separate banking subsidiaries. TransCommunity Banks offices operated under the
Bank of Goochland, Bank of Powhatan, Bank of Louisa and Bank of Rockbridge division names.
Effective July 31, 2008, TransCommunity Bank was consolidated into the Bank under the Banks state
charter. As a result, the Company was a one-bank holding company at the September 30, 2008
reporting date.
Acquisition of Georgia Operations
On November 21, 2008, the Bank acquired certain assets and assumed all deposit liabilities
relating to four former branch offices of The Community Bank (TCB), a Georgia state-chartered
bank. The transaction was consummated pursuant to a Purchase and Assumption Agreement, dated
November 21, 2008, by and among the Federal Deposit Insurance Corporation (FDIC), as Receiver for
The Community Bank, the Bank and the FDIC.
Pursuant to the terms of the Purchase and Assumption Agreement, the Bank assumed approximately
$600 million in deposits, approximately $250 million of which were deemed to be core deposits, and
paid the FDIC a premium of 1.36% on all deposits, excluding brokered and internet deposits. All
deposits have been fully assumed, and all deposits insured prior to the closing of the transaction
maintain their current insurance coverage. Other than loans fully secured by deposit accounts, the
Bank did not purchase any loans but is providing loan servicing to TCBs former loan customers.
Pursuant to the terms of the Purchase and Assumption Agreement, the Bank had 60 days to evaluate
and, at its sole option, purchase any of the remaining TCB loans. The Bank purchased 175 loans
totaling $21 million on January 9, 2009. In addition, the Bank agreed to purchase all four former
banking premises of TCB for $6.4 million on February 19, 2009.
10
Acquisition of Maryland Operations
On January 30, 2009, the Bank acquired certain assets and assumed all deposit liabilities
relating to seven former branch offices of Suburban Federal Savings Bank, Crofton, Maryland
(SFSB). The transaction was consummated pursuant to a Purchase and Assumption Agreement, dated
January 30, 2009, by and among the FDIC, as Receiver for SFSB, the Bank and the FDIC.
Pursuant to the terms of the Purchase and Assumption Agreement, the Bank assumed approximately
$303 million in deposits, all of which were deemed to be core deposits. The Bank bid a negative $45
million for the assets acquired and liabilities assumed. The Bank acquired approximately $348
million in loans and other assets and agreed to provide loan servicing to SFSBs existing loan
customers. The Bank has entered into shared-loss agreements with the FDIC with respect to certain
covered assets acquired. All deposits have been fully assumed, and all deposits maintain their
current insurance coverage. As a result of the acquisition of SFSBs operations, the Company
recorded a one-time gain of $21.3 million in the first quarter of 2009.
Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising
from covered loan assets, on the first $118 million of all
losses on such covered loans, and for 95% of losses on
covered loans thereafter. Under the shared-loss agreements, a loss on a covered loan is defined
generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or
restructuring of the covered asset. As described below, the reimbursements for losses on single
family one-to-four residential mortgage loans are to be made monthly until the end of the month in
which the 10th anniversary of the closing of the transaction occurs, and the reimbursements for
losses on other loans are to be made quarterly until the end of the quarter in which the fifth
anniversary of the closing of the transaction occurs. The shared-loss agreements provide for
indemnification from the first dollar of losses without any threshold requirement. The reimbursable
losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at
the date of the transaction, January 30, 2009. New loans made after that date are not covered by
the shared-loss agreements.
The Company is reviewing certain contracts between SFSB and its vendors in order to identify
any efficiencies from the merger through contract cancellation. Costs of cancelling certain
contracts may be material and would change the amount of any negative goodwill associated with the
merger. Additionally, the Company is still determining the value of the intangibles assets and the
fair value of assets acquired and liabilities assumed that are used to calculate negative goodwill
in the transaction. An estimate of the fair value of the assets acquired and liabilities assumed
has been used in the preparation of these unaudited consolidated financial statements, however,
these estimates may be revised once the final valuations are performed.
5. GOODWILL AND INTANGIBLE ASSETS
The Company follows SFAS 142, Goodwill and Other Intangible Assets, which prescribes the
accounting for goodwill and intangible assets subsequent to initial recognition. Provisions within
SFAS 142 discontinue any amortization of goodwill and intangible assets with indefinite lives, and
require at least an annual impairment review or more often if certain impairment conditions exist.
With the TFC and BOE mergers consummated May 31, 2008, there were significant amounts of goodwill
and other intangible assets recorded. Goodwill was assessed for potential impairment as of May 31,
2009, the anniversary date of the mergers.
Since the mergers in 2008, there has been further decline in economic conditions, which has
significantly affected the banking sector and the Companys financial condition and results. The
Companys average closing stock price during the second quarter of 2008 and 2009 was $6.64 per
share and $3.67 per share, respectively, which represented a 44.73% decline. On the last business
day prior to May 31, 2009, the closing stock price was $3.10 per share.
The first step in identifying potential impairment involves comparing the current fair value
of such goodwill to its recorded or carrying amount. If the carrying value exceeds such fair
value, there is possible impairment. Next, a second step is performed to determine the amount of
the impairment, if any. This step requires a comparison of the Companys book value to the fair
value of its assets, liabilities, and intangibles. If the carrying amount of goodwill exceeds the
fair value, an impairment charge must be recorded in an amount equal to the excess. Management
retained a business valuation expert to assist in determining the level and extent to which
goodwill was impaired. The Company determined that goodwill was impaired as of May 31, 2009, and a
$24.0 million impairment charge was recorded during the second quarter of 2009. Because the
acquisitions were considered tax-free exchanges, the goodwill impairment charge cannot be deducted
for tax purposes and, as such, an income tax benefit cannot be recorded. Due to this tax
treatment, the goodwill impairment charge will be reflected as a permanent difference in the
deferred tax calculation.
Also, upon further evaluation of the original amount recorded for goodwill associated with the
mergers with each of TFC and BOE, adjustments of $2.9 million were made to goodwill as of December
31, 2008, which is reflected as a restated amount in the consolidated statement of financial
condition and consolidated statement of changes in stockholders equity of the consolidated
11
financial statements in this report. The restated amount was primarily related to properly
reflecting the fair value of the options acquired by the Company at the time of its mergers. This
adjustment to goodwill has no effect on the Companys 2008 net income.
Core deposit intangible assets are amortized over the period of expected benefit, ranging from
2.6 to 9 years. Due to the mergers with TFC and BOE on May 31, 2008, the Company recorded
approximately $15.0 million in core deposit intangible assets. Core deposit intangibles related to
the Georgia and Maryland transactions equaled $3.1 million and $2.2 million, respectively, and will
be amortized over approximately 9 years.
Goodwill and core deposit intangible assets are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
Accumulated |
|
|
|
|
|
Net Carrying |
|
|
Value |
|
Amortization |
|
Impairment |
|
Value |
|
|
(dollars in thousands) |
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (restated) |
|
$ |
37,184 |
|
|
|
|
|
|
$ |
|
|
|
$ |
37,184 |
|
Core deposit intangibles |
|
$ |
18,132 |
|
|
$ |
969 |
|
|
|
|
|
|
$ |
17,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
37,184 |
|
|
|
|
|
|
$ |
24,032 |
|
|
$ |
13,152 |
|
Core deposit intangibles |
|
$ |
20,290 |
|
|
$ |
2,079 |
|
|
|
|
|
|
$ |
18,211 |
|
12
6. FAIR VALUE MEASUREMENTS
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,
trading securities and derivatives, if present, 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.
Fair Value Hierarchy
Under SFAS 157, Fair Value Measurement, 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:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active
markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one
significant assumption not observable in the market. These unobservable assumptions reflect
estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash flow models and similar
techniques.
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 are recorded at fair value each reporting period.
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 the present value of future cash flows, adjusted for the securitys credit
rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1
securities include those traded on an active exchange, such as the New York Stock Exchange, U.S.
Treasury securities that are traded by dealers or brokers in active over-the-counter markets and
money market funds. Level 2 securities include mortgage-backed securities issued by government
sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3
include asset-backed securities in less liquid markets.
Loans held for sale
Loans held for sale are recorded at the lower of cost or fair value each reporting period, and
are comprised of residential mortgages. These loans are held for a short period of time with the
intention of being sold on the secondary market. Therefore, the fair value is determined on rates
currently offered using observable market information, which does not deviate materially from the
cost value. If there are any adjustments to record the loan at the lower of cost of market value,
it would be reflected in the consolidated statements of income. It was determined that the cost
value recorded at June 30, 2009 was similar to the fair value, and therefore no adjustment was
necessary. Due to the observable market data available in pricing these loans held for sale, they
were considered as Level 2.
Loans
The Company does not record unimpaired loans held for investment at fair value each reporting
period. 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 a
loan is identified as individually impaired, management measures impairment in accordance with SFAS
114, Accounting by Creditors for Impairment of a Loan. 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 June 30, 2009, substantially all of the total
impaired loans were evaluated based on the fair value of the collateral. In
13
accordance with SFAS 157, 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 loan 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.
Other real estate owned
Other real estate owned (OREO), including foreclosed assets, are adjusted to fair value upon
transfer of the loans to foreclosed assets. Subsequently, OREO is 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 OREO as a 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 asset as nonrecurring Level 3.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value
on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
Investment securities available-for-sale |
|
$ |
178,923 |
|
|
$ |
1,383 |
|
|
$ |
177,540 |
|
|
$ |
|
|
Loans held for sale |
|
|
668 |
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
179,591 |
|
|
$ |
1,383 |
|
|
$ |
178,208 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no Level 3 assets measured at fair value on a recurring basis at June 30,
2009.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis in accordance with GAAP. These assets include assets that are measured at the
lower of cost value or market value that were recognized at fair value below cost at the end of the
period. The table below presents the recorded amount of assets and liabilities measured at fair
value on a nonrecurring basis, excluding FDIC covered assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
Loans impaired loans |
|
$ |
90,367 |
|
|
$ |
|
|
|
$ |
82,002 |
|
|
$ |
8,365 |
|
Other real estate owned (OREO) |
|
$ |
864 |
|
|
$ |
|
|
|
$ |
864 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
91,231 |
|
|
$ |
|
|
|
$ |
82,866 |
|
|
$ |
8,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no Level 1 assets measured at fair value on a nonrecurring basis at June 30,
2009.
SFAS 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of the
fair value of financial assets and financial liabilities, including those financial assets and
financial liabilities that are not measured and reported at fair value on a recurring basis or
non-recurring basis. The fair values and carrying values are as follows:
14
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Carrying |
|
Fair |
(dollars
in thousands) |
|
Value |
|
Value |
Financial assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
60,098 |
|
|
$ |
60,137 |
|
Securities available for sale |
|
|
178,923 |
|
|
|
178,923 |
|
Securities held to maturity |
|
|
130,113 |
|
|
|
131,752 |
|
Equity securities |
|
|
6,838 |
|
|
|
6,838 |
|
Loans held for sale |
|
|
668 |
|
|
|
668 |
|
Net loans |
|
|
539,614 |
|
|
|
540,433 |
|
FDIC covered assets |
|
|
278,436 |
|
|
|
281,159 |
|
Accrued interest receivable |
|
|
5,572 |
|
|
|
5,572 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
Deposits |
|
|
1,067,447 |
|
|
|
1,075,303 |
|
Borrowings |
|
|
41,124 |
|
|
|
41,676 |
|
Accrued interest payable |
|
|
5,670 |
|
|
|
5,670 |
|
7. SECURITIES
Amortized costs and fair values of securities available for sale at June 30, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Gross Unrealized |
|
|
|
|
(dollars
in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
U.S. Treasury issue and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
15,025 |
|
|
$ |
372 |
|
|
$ |
(13 |
) |
|
$ |
15,384 |
|
State, county and municipal |
|
|
78,162 |
|
|
|
886 |
|
|
|
(697 |
) |
|
|
78,351 |
|
Corporates and other bonds |
|
|
6,663 |
|
|
|
86 |
|
|
|
(1 |
) |
|
|
6,748 |
|
Mortgage backed securities |
|
|
75,711 |
|
|
|
1,502 |
|
|
|
(156 |
) |
|
|
77,057 |
|
Other securities |
|
|
1,278 |
|
|
|
157 |
|
|
|
(52 |
) |
|
|
1,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
176,839 |
|
|
$ |
3,003 |
|
|
$ |
(919 |
) |
|
$ |
178,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The fair value and gross unrealized losses for securities available for sale, totaled by the
length of time that individual securities have been in a continuous gross unrealized loss position,
at June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
(dollars
in thousands) |
|
Fair Value |
|
|
Loss |
|
|
Fair Value |
|
|
Loss |
|
|
Fair Value |
|
|
Loss |
|
U.S. Treasury issue and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
486 |
|
|
$ |
(13 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
486 |
|
|
$ |
(13 |
) |
State, county and municipal |
|
|
29,795 |
|
|
|
(586 |
) |
|
|
2,076 |
|
|
|
(111 |
) |
|
|
31,871 |
|
|
|
(697 |
) |
Corporates and other bonds |
|
|
1,004 |
|
|
|
(1 |
) |
|
|
250 |
|
|
|
|
|
|
|
1,254 |
|
|
|
(1 |
) |
Mortgage backed securities |
|
|
11,829 |
|
|
|
(156 |
) |
|
|
2 |
|
|
|
|
|
|
|
11,831 |
|
|
|
(156 |
) |
Other securities |
|
|
470 |
|
|
|
(45 |
) |
|
|
12 |
|
|
|
(7 |
) |
|
|
482 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
43,584 |
|
|
$ |
(801 |
) |
|
$ |
2,340 |
|
|
$ |
(118 |
) |
|
$ |
45,924 |
|
|
$ |
(919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, there were $2.3 million of securities available for sale that were in a
continuous loss position for more than twelve months with unrealized losses of $118,000 and
consisted primarily of municipal obligations. Management continually monitors the fair value and
credit quality of the Companys investment portfolio.
Amortized costs and fair values of securities held to maturity at June 30, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Gross Unrealized |
|
|
|
|
(dollars
in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
U.S. Treasury issue and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
748 |
|
|
$ |
|
|
|
$ |
(15 |
) |
|
$ |
733 |
|
State, county and municipal |
|
|
13,111 |
|
|
|
336 |
|
|
|
(32 |
) |
|
|
13,415 |
|
Corporates and other bonds |
|
|
1,035 |
|
|
|
9 |
|
|
|
|
|
|
|
1,044 |
|
Mortgage backed securities |
|
|
115,219 |
|
|
|
1,750 |
|
|
|
(409 |
) |
|
|
116,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
130,113 |
|
|
$ |
2,095 |
|
|
$ |
(456 |
) |
|
$ |
131,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value and gross unrealized losses for securities held to maturity, totaled by the
length of time that individual securities have been in a continuous gross unrealized loss position,
at June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
(dollars
thousands) |
|
Fair Value |
|
|
Loss |
|
|
Fair Value |
|
|
Loss |
|
|
Fair Value |
|
|
Loss |
|
U.S. Treasury issue and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
733 |
|
|
$ |
(15 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
733 |
|
|
$ |
(15 |
) |
State, county and municipal |
|
|
2,140 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
2,140 |
|
|
|
(35 |
) |
Corporates and other bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities |
|
|
32,790 |
|
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
32,790 |
|
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
35,663 |
|
|
$ |
(456 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
35,663 |
|
|
$ |
(456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management continually monitors the fair value and credit quality of the Companys investment
portfolio. At June 30, 2009, all impairments are considered temporary; there are no other than
temporary impairments. The Company does not intend to sell the securities. It is not likely that
the Company will be required to sell the security before recovery of
its amortized cost. The
Company expects to fully recover its amortized cost basis even if it does not intend to sell the
impaired securities. At this time, the Company considers all impairments to be temporary since the
unrealized losses are related to market risk and not credit risk. Issuers of the securities both
held to maturity and available for sale are of suitable credit quality, and all of the securities
are of investment grade.
15
The Companys investment in Federal Home Loan Bank (FHLB) stock totaled $3.6 million at June
30, 2009. FHLB stock is restricted since it is not actively traded on an exchange, and is owned
solely by the FHLB and its member institutions. The Company records FHLB stock on a cost basis.
When evaluating FHLB stock for impairment, its value is based on recovery of the par value rather
than by recognizing temporary decline in value. While the FHLB has suspended dividend payments on
it stock and repurchases of excess capital stock during 2009, the Company does not consider this
investment to be other than temporarily impaired at June 30, 2009, and therefore no impairment was
recorded.
8. LOANS
The Companys loan portfolio, excluding FDIC covered assets, at June 30, 2009 and December 31,
2008, was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(dollars in thousands) |
|
Mortgage loans on real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
$ |
135,701 |
|
|
|
24.56 |
% |
|
$ |
129,607 |
|
|
|
24.73 |
% |
Commercial |
|
|
179,079 |
|
|
|
32.41 |
% |
|
|
158,062 |
|
|
|
30.16 |
% |
Construction |
|
|
137,951 |
|
|
|
24.97 |
% |
|
|
139,515 |
|
|
|
26.62 |
% |
Second mortgages |
|
|
14,356 |
|
|
|
2.60 |
% |
|
|
15,599 |
|
|
|
2.98 |
% |
Multifamily |
|
|
9,152 |
|
|
|
1.66 |
% |
|
|
9,370 |
|
|
|
1.79 |
% |
Agriculture |
|
|
4,859 |
|
|
|
0.88 |
% |
|
|
5,143 |
|
|
|
0.98 |
% |
|
|
|
|
|
|
Total real estate loans |
|
|
481,098 |
|
|
|
87.08 |
% |
|
|
457,296 |
|
|
|
87.26 |
% |
Commercial loans |
|
|
45,685 |
|
|
|
8.27 |
% |
|
|
45,320 |
|
|
|
8.65 |
% |
Consumer installment loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
|
13,490 |
|
|
|
2.44 |
% |
|
|
14,457 |
|
|
|
2.76 |
% |
All other loans |
|
|
12,228 |
|
|
|
2.21 |
% |
|
|
7,005 |
|
|
|
1.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
|
552,501 |
|
|
|
100.00 |
% |
|
|
524,078 |
|
|
|
100.00 |
% |
Less unearned income on loans |
|
|
(702 |
) |
|
|
|
|
|
|
(780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
551,799 |
|
|
|
|
|
|
$ |
523,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 30, 2009, the Bank acquired certain assets and assumed all deposit liabilities
relating to seven former branch offices of SFSB. The Bank purchased approximately $348 million in
loans and other assets and is providing loan servicing to SFSBs existing loan customers. The Bank
has entered into shared-loss agreements with the FDIC with respect to certain covered assets
acquired.
The following is a summary of information for impaired and nonaccrual loans as of June 30,
2009, excluding FDIC covered assets (dollars in thousands):
|
|
|
|
|
|
|
Amount |
|
Impaired loans without a valuation allowance |
|
$ |
65,686 |
|
Impaired loans with a valuation allowance |
|
|
24,681 |
|
|
|
|
|
Total impaired loans |
|
$ |
90,367 |
|
|
|
|
|
Valuation allowance related to impaired loans |
|
$ |
6,729 |
|
Total nonaccrual loans |
|
$ |
24,482 |
|
Total loans 90 days or more past due and still accruing |
|
$ |
514 |
|
Average investment in impaired loans during the six months ending June 30, 2009 |
|
$ |
92,128 |
|
|
|
|
|
Interest income recognized on impaired loans |
|
$ |
773 |
|
|
|
|
|
Interest income recognized on a cash basis on impaired loans |
|
$ |
773 |
|
|
|
|
|
17
9. FDIC COVERED ASSETS
Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising
from covered loan assets, on the first $118 million of all
losses on such covered loans, and for 95% of losses on
covered loans thereafter. Under the shared-loss agreements, a loss on a covered loan is defined
generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or
restructuring of the covered asset. As described below, the reimbursements for losses on single
family one-to-four residential mortgage loans are to be made monthly until the end of the month in
which the 10th anniversary of the closing of the transaction occurs, and the reimbursements for
losses on other loans are to be made quarterly until the end of the quarter in which the fifth
anniversary of the closing of the transaction occurs. The shared-loss agreements provide for
indemnification from the first dollar of losses without any threshold requirement. The reimbursable
losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at
the date of the transaction, January 30, 2009. New loans made after that date are not covered by
the shared-loss agreements.
The American Institute of Certified Public Accountants (AICPA) Statement of Position 03-3
(SOP 03-3), Accounting for Certain Loans or Debt Securities Acquired in a Transfer, applies to
loans with evidence of deterioration of credit quality since origination, acquired by completion of
a transfer for which it is probable, at acquisition, that the investor will be unable to collect
all contractually required payments receivable. In our acquisition of SFSB, the preliminary fair
value of SOP 03-3 loans was determined based on assigned risk ratings, expected cash flows and the
fair value of the collateral. The fair value of non SOP 03-3 loans was determined based on
preliminary estimates of default probabilities. The Company determined which purchased loans were
impaired at the time of the acquisition, and will consider those loans for SOP 03-3 application.
Those loans that were not considered impaired at the time of acquisition will not be considered for
SOP 03-3. Since there are FDIC shared-loss agreements, the Bank recorded an FDIC receivable to the
extent amounts will be reimbursed for losses incurred, and is included in the amount reported as
FDIC covered assets. The carrying amount of FDIC covered assets at June 30, 2009, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non SOP 03-3 |
|
|
|
|
|
|
SOP 03-3 Loans |
|
Loans |
|
Other |
|
Total |
|
|
|
Commercial related loans |
|
$ |
13,753 |
|
|
$ |
15,536 |
|
|
$ |
|
|
|
$ |
29,289 |
|
Mortgage and other loans |
|
|
12,101 |
|
|
|
130,519 |
|
|
|
|
|
|
|
142,620 |
|
Foreclosed real estate |
|
|
|
|
|
|
|
|
|
|
21,525 |
|
|
|
21,525 |
|
FDIC receivable for covered assets |
|
|
|
|
|
|
|
|
|
|
83,829 |
|
|
|
83,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated loss reimbursement from FDIC for expenses incurred |
|
|
|
|
|
|
|
|
|
|
1,173 |
|
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FDIC covered assets |
|
$ |
25,854 |
|
|
$ |
146,055 |
|
|
$ |
106,527 |
|
|
$ |
278,436 |
|
|
|
|
As of the acquisition date, the preliminary estimates of the contractually required payments
receivable for all SOP 03-3 loans acquired in the SFSB acquisition were $84.7 million, the cash
flows expected to be collected were $32.9 million including interest, and the estimated fair value
of the loans were approximately $26.0 million. These amounts were determined based upon the
estimated remaining life of the underlying loans, which include the effects of estimated
prepayments. At June 30, 2009, a majority of these loans were valued based on the liquidation
value of the underlying collateral. Interest income, through accretion of the difference between
the carrying amount of the SOP 03-3 loans and the expected cash flows, is expected to be recognized
on the remaining loans. There was no allowance for credit losses related to these SOP 03-3 loans
at June 30, 2009. Certain amounts related to the SOP 03-3 loans and related indemnification
amounts are preliminary estimates. The Company expects to finalize its analysis of these assets
within 12 months of the acquisition date and, therefore, adjustments to the estimated amounts are
likely.
10. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses, for the six months ended June 30, 2009 and 2008,
was comprised of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
June 30, 2009 |
|
|
June 30, 2008 |
|
Beginning balance |
|
$ |
6,939 |
|
|
$ |
4,993 |
|
Provision for loan losses |
|
|
6,040 |
|
|
|
234 |
|
Recoveries of loans charged off |
|
|
82 |
|
|
|
25 |
|
Loans charged off |
|
|
(876 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
12,185 |
|
|
$ |
5,182 |
|
|
|
|
|
|
|
|
18
For information reported for June 30, 2008, the figures presented are solely for the month of
June 2008, as the Company did not have banking operations prior to its merger with each of TFC and
BOE at May 31, 2008, and as such, did not have an allowance for loan losses.
At June 30, 2009, total impaired loans equaled $90.4 million, excluding FDIC covered assets.
As required by the fair value accounting rules for the SFSB transaction in the first quarter of
2009, no allowance for loan losses was recorded on loans acquired since the loans were recorded at
fair value and adjusted for expected credit losses, less amounts to be reimbursed by the FDIC. For
additional information regarding the accounting entries, see the Companys Current Report on
Form 8-K/A (Amendment No. 1) filed on April 17, 2009, under Note 2 Description of the Pro Forma
Purchase Accounting Adjustments.
Significant provisions were made to the loan loss reserve during the six months ended June 30,
2009, as economic conditions deteriorated. In addition, net-charge off activity increased as
certain loans were deemed uncollectible.
11. DEPOSITS
The following table provides interest-bearing deposit information by category for the dates
indicated:
|
|
|
|
|
|
|
|
|
Balance
by deposit type |
|
June 30, 2009 |
|
December 31, 2008 |
|
|
(dollars in thousands) |
NOW |
|
$ |
90,380 |
|
|
$ |
76,575 |
|
MMDA |
|
|
115,048 |
|
|
|
55,200 |
|
Savings |
|
|
58,380 |
|
|
|
34,688 |
|
Time deposits less than $100,000 |
|
|
453,953 |
|
|
|
303,424 |
|
Time deposits greater than $100,000 |
|
|
289,737 |
|
|
|
276,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
1,007,498 |
|
|
$ |
746,649 |
|
|
|
|
12. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income or loss available to
common stockholders by the weighted average number of shares outstanding during the period. Diluted
EPS is computed using the weighted average number of common shares outstanding during the period,
including the effect of all potentially dilutive potential common shares outstanding attributable
to stock instruments.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
(Loss)/ |
|
|
Average |
|
|
|
|
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
(dollars and shares in thousands, except per share data) |
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
For the Three Months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
(24,384 |
) |
|
|
21,468 |
|
|
$ |
(1.14 |
) |
Effect of dilutive stock awards and options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
(24,384 |
) |
|
|
21,468 |
|
|
$ |
(1.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
288 |
|
|
|
13,407 |
|
|
$ |
0.02 |
|
Effect of dilutive stock awards and options |
|
|
|
|
|
|
1,876 |
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
288 |
|
|
|
15,283 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
(13,711 |
) |
|
|
21,468 |
|
|
$ |
(0.64 |
) |
Effect of dilutive stock awards and options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
(13,711 |
) |
|
|
21,468 |
|
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
399 |
|
|
|
11,391 |
|
|
$ |
0.04 |
|
Effect of dilutive stock awards and options |
|
|
|
|
|
|
2,162 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
Diluted EPS |
|
$ |
399 |
|
|
|
13,553 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
There were 5,973,870 shares in the Company available through options and warrants that were
considered anti-dilutive at June 30, 2009.
13. DEFINED BENEFIT PLAN
The Company adopted the Bank noncontributory, defined benefit pension plan for all full-time,
pre-merger Bank employees over 21 years of age at May 31, 2008. Benefits are generally based upon
years of service and the employees compensation. The Company funds pension costs in accordance
with the funding provisions of the Employee Retirement Income Security Act.
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
(In thousands) |
|
Service cost |
|
$ |
184 |
|
Interest cost |
|
|
162 |
|
Expected return on plan assets |
|
|
(106 |
) |
Amortization of prior service cost |
|
|
2 |
|
Amortization of net obligation at transition |
|
|
(2 |
) |
Amortization of net loss |
|
|
44 |
|
|
|
|
|
Net periodic benefit cost |
|
$ |
284 |
|
|
|
|
|
At June 30, 2009, no employer contributions have been made for the plan year. The Company is
currently analyzing the Defined Benefit Plan as well as other alternatives, such as enhancing its
Defined Contribution Plan (401(k)). A determination during fiscal 2009 will be made for the current and future benefits for all full-time employees of the
combined entities. The plan was frozen to new entrants prior to BOEs merger with the Company.
20
14. SUBSEQUENT EVENTS
On July 20, 2009, the Company amended its certificate of incorporation to increase the number
of authorized shares of common stock to 200,000,000. The Company approved this amendment at the
2009 annual meeting of stockholders.
On July 30, 2009, the Companys Board of Directors declared a quarterly dividend of $0.04 per
share with respect to the Companys outstanding common stock. The dividend will be payable on
August 24, 2009, to stockholders of record at the close of business on August 10, 2009.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis of the financial condition at June 30, 2009 and results
of operations of the Company for the three and six months ended June 30, 2009 should be read in
conjunction with the Companys consolidated financial statements and the accompanying notes to
consolidated financial statements included in this report and in the Companys Annual Report on
Form 10-K for the year ended December 31, 2008.
Overview
Community Bankers Trust Corporation (the Company) is a bank holding company that was
incorporated under Delaware law on April 6, 2005. The Company is headquartered in Glen Allen,
Virginia and is the holding company for Essex Bank, a Virginia state bank with 25 full-service
offices in Virginia, Maryland and Georgia.
The Bank was established in 1926 and is headquartered in Tappahannock, Virginia. The Bank
engages in a general commercial banking business and provides a wide range of financial services
primarily to individuals and small businesses, including individual and commercial demand and time
deposit accounts, commercial and consumer loans, travelers checks, safe deposit box facilities,
investment services and fixed rate residential mortgages. Fourteen branches are located in
Virginia, primarily from the Chesapeake Bay to just west of Richmond, seven are located in Maryland
along the Baltimore-Washington corridor and four are located in the Atlanta, Georgia metropolitan
market.
The Company generates a significant amount of its income from the net interest income earned
by the Bank. Net interest income is the difference between interest income and interest expense.
Interest income depends on the amount of interest-earning assets outstanding during the period and
the interest rates earned thereon. The Companys cost of funds is a function of the average amount
of interest-bearing deposits and borrowed money outstanding during the period and the interest
rates paid thereon. The quality of the assets further influences the amount of interest income lost
on non-accrual loans and the amount of additions to the allowance for loan losses. Additionally,
the Bank earns non-interest income from service charges on deposit accounts and other fee or
commission-based services and products. Other sources of non-interest income can include gains or
losses on securities transactions, gains from loans sales, transactions involving bank-owned
property, and income from Bank Owned Life Insurance (BOLI) policies. The Companys income is
offset by non-interest expense, which consists of goodwill impairment and other charges, salaries
and benefits, occupancy and equipment costs, professional fees, and other operational expenses.
The provision for loan losses and income taxes materially affect income.
Caution About Forward-Looking Statements
The Company makes certain forward-looking statements in this Form 10-Q that are subject to
risks and uncertainties. These forward-looking statements include statements regarding our
profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth
strategy, and financial and other goals. These forward-looking statements are generally identified
by phrases such as the Company expects, the Company believes or words of similar import.
These forward-looking statements are subject to significant uncertainties because they are
based upon or are affected by factors, including, without limitation, the effects of and changes in
the following:
|
|
|
general economic and market conditions, either nationally or locally; |
|
|
|
|
the interest rate environment; |
|
|
|
|
competitive pressures among banks and financial institutions or from companies outside
the banking industry; |
|
|
|
|
real estate values; |
21
|
|
|
the quality or composition of the Companys loan or investment portfolios; |
|
|
|
|
the demand for deposit, loan, and investment products and other financial services; |
|
|
|
|
the demand, development and acceptance of new products and services; |
|
|
|
|
the timing of future reimbursements from the FDIC to the Company under the shared-loss
agreements; |
|
|
|
|
consumer profiles and spending and savings habits; |
|
|
|
|
the securities and credit markets; |
|
|
|
|
the integration of banking and other internal operations, and associated costs, including
the integration of SFSBs operations in the third quarter of 2009; |
|
|
|
|
managements evaluation of goodwill and other assets on a periodic basis, and any
resulting impairment charges, under applicable accounting standards; |
|
|
|
|
the soundness of other financial institutions with which the Company does business; |
|
|
|
|
inflation; |
|
|
|
|
technology; and |
|
|
|
|
legislative and regulatory requirements. |
These factors and additional risks and uncertainties are described in the Companys Annual
Report on Form 10-K for the year ended December 31, 2008 and other reports filed from time to time
by the Company with the Securities and Exchange Commission.
Although the Company believes that its expectations with respect to the forward-looking
statements are based upon reliable assumptions within the bounds of its knowledge of its business
and operations, there can be no assurance that actual results, performance or achievements of the
Company will not differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements.
Critical Accounting Policies
The following is a summary of the Companys critical accounting policies that are highly
dependent on estimates, assumptions and judgments.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (ALLL) is maintained at a level that is appropriate
to cover estimated credit losses on individually evaluated loans determined to be impaired, as well
as estimated credit losses inherent in the remainder of the loan and lease portfolio. Since
arriving at an appropriate ALLL involves a high degree of management judgment, an ongoing quarterly
analysis to develop a range of estimated losses is utilized. In accordance with accounting
principles generally accepted in the United States, best estimates within the range of potential
credit loss to determine the appropriate ALLL is utilized. Credit losses are charged and recoveries
are credited to the ALLL.
The Company utilizes an internal risk grading system for its loans. Those larger credits that
exhibit probable or well defined credit weaknesses are subject to individual review. The borrowers
cash flow, adequacy of collateral coverage, and other options available to the Company, including
legal remedies, are evaluated. The review of individual loans includes those loans that are
impaired as defined by SFAS 114, Accounting by Creditors for Impairment of a Loan. Collectability
of both principal and interest when assessing the need for loss provision is considered. Historical
loss rates are applied to other loans not subject to specific allocations. The loss rates are
determined from historical net charge offs experienced by the Bank.
22
Historical loss rates for commercial and retail loans are adjusted for significant factors
that, in managements judgment, reflect the impact of any current conditions on loss recognition.
Factors that are considered include delinquency trends, current economic conditions and trends,
strength of supervision and administration of the loan portfolio, levels of underperforming loans,
level of recoveries to prior years charge offs, trend in loan losses, industry concentrations and
their relative strengths, amount of unsecured loans and underwriting exceptions. These factors are
reviewed quarterly and a weighted score is assigned depending on the level and extent of the risk.
The total of each of these weighted factors is then applied against the applicable portion of the
portfolio and the ALLL is adjusted to ensure an appropriate level.
The Companys financial statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). The financial information contained within the
statements is, to a significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. A variety of factors could
affect the ultimate value that is obtained either when earning income, recognizing an expense,
recovering an asset or relieving a liability. The Company uses historical loss factors as one
factor in determining the inherent loss that may be present in its loan portfolio. Actual losses
could differ significantly from the historical factors that the Company uses. In addition, GAAP
itself may change from one previously acceptable method to another method. Although the economics
of the Companys transactions would be the same, the timing of events that would impact its
transactions could change.
23
Income Taxes
The Company follows tax guidance, including the Financial Accounting Standards Boards (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes (SFAS 109). In determining the appropriate level of income taxes to be
recorded each reporting, management assesses the potential tax effects and records those amounts in
both current and deferred tax accounts, whether may be an asset or liability. In addition, an
income tax expense or benefit is determined, which is recorded on the consolidated income
statement.
Goodwill and Other Intangible Assets
The Company adopted SFAS 142, Goodwill and Other Intangible Assets. Accordingly, goodwill is
no longer subject to amortization over its estimated useful life, but is subject to at least an
annual assessment for impairment by applying a fair value-based test. As a result of the mergers
with each of TFC and BOE at May 31, 2008, goodwill was initially recorded for $39.5 million.
Subsequently, adjustments were recorded to properly reflect goodwill
of $37.2 million on the financial statements.
The Company assessed goodwill for impairment as of the one year anniversary date of the mergers, at
May 31, 2009.
The first step in identifying potential impairment involves comparing the current fair value
of such goodwill to its recorded or carrying amount. If the carrying value exceeds such fair
value, there is possible impairment. Next, a second step is performed to determine the amount of
the impairment, if any. This requires a comparison of the Companys book value to the fair value
of its assets, liabilities, and intangibles. If the carrying amount of goodwill exceeds the fair
value, an impairment charge must be recorded in an amount equal to the excess. The Company
determined that goodwill was impaired as of May 31, 2009, and a $24.0 million impairment charge was
recorded during the second quarter of 2009. The goodwill impairment charge was due to an overall
decline in general economic conditions, rapid change in the market valuations of financial
institutions and the discount that shares of the Companys common stock have traded to their
tangible book value for an extended period of time.
Additionally, under SFAS 142, acquired intangible assets (such as core deposit intangibles)
are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented,
or exchanged, and amortized over their useful lives. Branch acquisition transactions were outside
the scope of SFAS 142 and, accordingly, intangible assets related to such transactions continued to
amortize upon the adoption of SFAS 142. The costs of purchased deposit relationships and other
intangible assets, based on independent valuation by a qualified third party, are being amortized
over their estimated lives. Core deposit intangible amortization expense charged to operations was
$654,000 and $1.1 million for the three and six months ended June 30, 2009, respectively. The
Company did not record any goodwill or other intangible prior to the TFC and BOE mergers. As a
result of the TCB and SFSB transactions, core deposit intangibles were recorded of $3.2 million and
$2.2 million, respectively. Also related to the SFSB transaction during the first quarter of 2009
was negative goodwill of $21.3 million ($12.9 million, net of taxes), which was recorded as a
one-time gain on the income statement.
Financial Condition
At June 30, 2009, the Company had total assets of $1.284 billion, an increase of
$254.8 million or 24.76% from December 31, 2008. Total loans, excluding FDIC covered assets,
equaled $551.8 million at June 30, 2009, increasing $28.5 million, or 5.45% from December 31, 2008.
Securities totaled $315.9 million and increased $23.4 million, or 8.00% during the first half of
2009. The Company had federal funds sold of $25.8 million at June 30, 2009, versus $10.2 million at
year-end 2008, an increase of $15.6 million or 153.41%.
The increase in asset size was primarily due to the SFSB transaction in Maryland. At June 30,
2009, FDIC covered assets equaled $278.4 million, which was comprised of loans, other real estate
owned, FDIC loss recovery receivable, and reimbursable items related to the covered assets. The
FDIC loss recovery receivable is the amount that the Company expects to collect from the FDIC under the
shared-loss agreements as a result of the difference between the initial value of the covered
assets received from the transaction, less their fair value. Securities from SFSB were incorporated
into the Companys securities portfolio at fair value as of the effective time of the transaction, and
are not considered covered assets under the terms of the FDIC shared-loss agreements.
The Company is required to account for the effect of market changes in the value of securities
available-for-sale (AFS) under SFAS 115. The market value of the June 30, 2009 AFS portfolio was
$178.9 million at June 30, 2009, and the net unrealized gain on the AFS portfolio was $1.3 million,
net of taxes, and included as part of the Companys accumulated other comprehensive income of
$70,000. Since December 31, 2008, the interest rate environment has experienced declining rates,
and as a result the AFS portfolio shifted from a net unrealized loss of $700,000 to a net unrealized gain of $2.1 million,
exclusive of taxes over the first six months of 2009.
24
Total deposits at June 30, 2009 were $1.067 billion, which increased $261.1 million from
December 31, 2008. Deposit growth was attributed to the SFSB transaction, which was concentrated in
certificates of deposit. At June 30, 2009, total deposits in our Maryland branches aggregated
$291.2 million of which $221.4 million were time deposits. The Companys total loans-to-deposits
ratio, excluding FDIC covered loans, was 51.69% at June 30, 2009 and 64.90% at December 31, 2008.
Stockholders equity at June 30, 2009 was $148.9 million and represented 11.60% of total
assets. Stockholders equity was $163.7 million, or 15.91% of total assets at December 31, 2008.
Results of Operations
Net Income
For the three months ended June 30, 2009, net losses before dividends and accretion on
preferred stock were $24.1 million, compared with net income of $288,000 for the same period in
2008. Net losses available to common stockholders was $24.4 million, which represented $1.14 per
share on a fully diluted basis, versus net income available to common stockholders of $288,000, or
$0.02 per share on a fully diluted basis for the same period in 2008. Second quarter losses were
driven by the goodwill impairment charge of $24.0 million, which is not tax deductible, and was
related to the goodwill impairment assessment performed as of the anniversary date of the mergers
with each of TFC and BOE.
For the six months ended June 30, 2009, net losses before dividends and accretion on preferred
stock was $13.2 million, compared with net income $399,000 for the same period in 2008. Net losses
available to common stockholders was $13.7 million, which represented $0.64 per share on a fully
diluted basis, versus net income available to common stockholders of $399,000, or $0.03 per share
on a fully diluted basis for the same period in 2008. Losses for the six months ended June 30,
2009, were driven by the goodwill impairment charge, and partially offset by a one-time gain of
$21.3 million, excluding taxes, related to the SFSB transaction in the first quarter.
Net Interest Income
The Companys results of operations are significantly affected by its ability to manage
effectively the interest rate sensitivity and maturity of its interest-earning assets and
interest-bearing liabilities. At June 30, 2009, the Companys interest-earning assets exceeded its
interest-bearing liabilities by approximately $138.1 million, compared with a $137.9 million excess
at December 31, 2008.
Net interest income was $9.5 million for the three months ended June 30, 2009, compared with
$2.0 million for the same period in 2008. The net interest income is useful in determining the net
interest margin and the net interest spread. The net interest margin is the net interest income for
the reporting period divided by average earning assets for the same period. For the three months
ended June 30, 2009, the net interest margin was 3.30%. The net interest spread is the difference
between the yield on average earning assets and cost of funds associated with interest-bearing
liabilities. For the three months ended June 30, 2009, the net interest spread was 3.02%. For the
six months ended June 30, 2009, net interest income was $18.5 million, and equated to a net
interest margin of 3.29%, and net interest spread was 2.99%.
Components used in determining the net interest spread and the net interest margin, including
yields on assets and costs of funds by category, are depicted in the following table:
25
COMMUNITY BANKERS TRUST CORPORATION
NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009 |
|
|
For the six months ended June 30, 2009 |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Balance |
|
|
Income/ |
|
|
Rates |
|
|
Balance |
|
|
Income/ |
|
|
Rates |
|
|
|
Sheet |
|
|
Expense |
|
|
Earned/Paid |
|
|
Sheet |
|
|
Expense |
|
|
Earned/Paid |
|
|
|
(Dollars in thousands) |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
548,577 |
|
|
$ |
9,631 |
|
|
|
7.02 |
% |
|
$ |
541,184 |
|
|
$ |
18,047 |
|
|
|
6.67 |
% |
FDIC covered loans |
|
|
261,205 |
|
|
|
3,016 |
|
|
|
4.62 |
% |
|
|
232,513 |
|
|
|
6,286 |
|
|
|
5.41 |
% |
Interest bearing bank balances |
|
|
19,741 |
|
|
|
81 |
|
|
|
1.64 |
% |
|
|
34,122 |
|
|
|
202 |
|
|
|
1.18 |
% |
Federal funds sold |
|
|
24,142 |
|
|
|
12 |
|
|
|
0.20 |
% |
|
|
20,041 |
|
|
|
26 |
|
|
|
0.26 |
% |
Investments (taxable) |
|
|
262,007 |
|
|
|
2,607 |
|
|
|
3.98 |
% |
|
|
264,566 |
|
|
|
5,499 |
|
|
|
4.16 |
% |
Investments (tax exempt) |
|
|
83,505 |
|
|
|
1,242 |
|
|
|
5.95 |
% |
|
|
80,232 |
|
|
|
2,389 |
|
|
|
5.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,199,177 |
|
|
|
16,589 |
|
|
|
5.53 |
% |
|
|
1,172,658 |
|
|
|
32,449 |
|
|
|
5.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(11,009 |
) |
|
|
|
|
|
|
|
|
|
|
(9,280 |
) |
|
|
|
|
|
|
|
|
Non-earning assets |
|
|
137,175 |
|
|
|
|
|
|
|
|
|
|
|
133,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,325,343 |
|
|
|
|
|
|
|
|
|
|
$ |
1,296,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing |
|
$ |
203,965 |
|
|
$ |
485 |
|
|
|
0.95 |
% |
|
$ |
191,231 |
|
|
$ |
1,175 |
|
|
|
1.23 |
% |
Savings |
|
|
57,364 |
|
|
|
114 |
|
|
|
0.79 |
% |
|
|
53,252 |
|
|
|
274 |
|
|
|
1.03 |
% |
Time deposits |
|
|
763,276 |
|
|
|
5,700 |
|
|
|
2.99 |
% |
|
|
744,007 |
|
|
|
10,968 |
|
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,024,605 |
|
|
|
6,299 |
|
|
|
2.46 |
% |
|
|
988,490 |
|
|
|
12,417 |
|
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB and other borrowings |
|
|
41,913 |
|
|
|
390 |
|
|
|
3.72 |
% |
|
|
47,437 |
|
|
|
737 |
|
|
|
3.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
1,066,518 |
|
|
|
6,689 |
|
|
|
2.51 |
% |
|
|
1,035,927 |
|
|
|
13,154 |
|
|
|
2.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
deposits |
|
|
61,421 |
|
|
|
|
|
|
|
|
|
|
|
61,301 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
31,056 |
|
|
|
|
|
|
|
|
|
|
|
31,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,158,995 |
|
|
|
|
|
|
|
|
|
|
|
1,128,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
166,348 |
|
|
|
|
|
|
|
|
|
|
|
168,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
1,325,343 |
|
|
|
|
|
|
|
|
|
|
$ |
1,296,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings |
|
|
|
|
|
$ |
9,900 |
|
|
|
|
|
|
|
|
|
|
$ |
19,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.02 |
% |
|
|
|
|
|
|
|
|
|
|
2.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.30 |
% |
|
|
|
|
|
|
|
|
|
|
3.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%. |
26
A net interest margin analysis is not provided for the three and six months ended June 30,
2008, since there were no banking operations for the Company for the first five months of 2008.
Provision for Credit Losses
For the three months ended June 30, 2009, the Companys provision for loan losses was
$540,000. For the six months ended June 30, 2009, provisions were $6.0 million. For each of the
three and six month periods ended June 30, 2008, provisions were $234,000.
Significant provisions were made to the loan loss reserve during the six months ended June 30,
2009, as economic conditions continued to show signs of deterioration. The provisions during this
period are attributable to downgraded credits and further insulation from the economic downturn.
Management continues to monitor the loan portfolio closely and make appropriate adjustments using
the Companys internal risk rating system. Provisions are primarily related to the loans
originated with the Virginia operations. While the Maryland loan portfolio contains significant
risk, it was considered in determining the initial fair value adjustments
recorded at the time of the SFSB transaction, less the FDIC guaranteed portion of losses on covered
assets. Net-charge off activity has increased during recent quarters, a trend that is expected to
continue until economic conditions begin to subside. Please refer to the Asset Quality portion of
this section for further analysis.
Noninterest Income
For the three months ended June 30, 2009, noninterest income was $1.3 million, compared with
$299,000 in the same period of 2008. The large increase over the comparable periods was due the
fact that there were no banking operations for the Company for the first five months of 2008.
Service charges on deposit accounts aggregated $618,000, while other noninterest income was
$374,000. The Company recorded net gains on securities sold of $341,000.
For the six months ended June 30, 2009, noninterest income was $2.2 million, excluding the
first quarter gain on the SFSB transaction of $21.3 million, compared with $299,000 during the same
period of 2008. Service charges on deposit accounts aggregated $1.2 million, and other noninterest
income was $669,000. As previously mentioned, the Company recorded a one-time gain related to the
negative bid for certain assets acquired and liabilities assumed from the SFSB transaction.
Noninterest Expenses
For the three month period ended June 30, 2009, noninterest expenses were $34.8 million. A
goodwill impairment charge of $24.0 million diminished efforts to generate quarterly earnings, and
was the single largest component of noninterest expenses. Salaries and employee benefits were
$5.0 million. This was the first quarter where all of SFSBs operations and personnel costs were
incurred for a complete three month reporting period. Excluding the goodwill impairment charge,
salaries and benefits represented 46.69% of noninterest expenses. During the second quarter of
2009, we added seven full-time equivalent employees. Other overhead costs included other operating
expenses of $1.9 million, amortization of intangibles of $654,000, occupancy expenses of $554,000,
equipment expense of $419,000, data processing fees of $732,000, legal fees of $305,000, and other
professional fees of $456,000. FDIC assessments for the quarter equaled $744,000, which included a
special assessment of $583,000 in their effort to restore the bank insurance fund to a safer level.
For the six month period ended June 30, 2009, noninterest expenses were $44.2 million,
inclusive of the goodwill impairment charge. Salaries and employee benefits were $9.5 million and
represented 46.90% of overhead exclusive of the goodwill impairment charge. Members of senior
management were hired during the first and second quarters, and the full effect of the salaries
associated with those individuals will in occur in future periods. Other overhead costs included
other operating expenses of $3.6 million, amortization of intangibles of $1.1 million, occupancy
expenses of $1.1 million, equipment expense of $762,000, data processing fees of $1.5 million,
professional fees of $1.2 million, and legal fees of $555,000.
Income Taxes
An income tax benefit of $410,000 was recorded for the three months ended June 30, 2009, and
there was an income tax expense of $4.9 million for the six months ended June 30, 2009. Income tax
expenses were $84,000 and $158,000 for the same respective periods in 2008. This substantial
difference is directly attributable to the goodwill impairment charge recorded during the second
quarter of 2009, and the Companys inability to use it as a tax deduction, despite the substantial
reduction in earnings.
27
Asset Quality
The Companys asset quality is continually monitored and management believes the allowance for
loan losses is adequate. The allowance for loan losses represents managements estimate of the
amount adequate to provide for potential losses inherent in the loan portfolio. The Companys
management has established an allowance for loan losses that it believes is adequate for the risk
of loss inherent in the loan portfolio. Among other factors, management considers the Companys
historical loss experience, the size and composition of the loan portfolio, the value and adequacy
of collateral and guarantors, non-performing credits and current and anticipated economic
conditions. There are additional risks of future loan losses, which cannot be precisely quantified
nor attributed to particular loans or classes of loans. Because those risks include general
economic trends, as well as conditions affecting individual borrowers, the allowance for loan
losses is an estimate. The allowance is also subject to regulatory examinations and determination
as to adequacy, which may take into account such factors as the methodology used to calculate the
allowance and size of the allowance in comparison to peer companies identified by regulatory
agencies.
The Company maintains a list of loans that have potential weaknesses that may need special
attention. This nonperforming loan list is used to monitor such loans and is used in the
determination of the adequacy of the Companys allowance for loan losses. At June 30, 2009,
nonperforming assets, excluding FDIC covered assets, totaled $25.9 million, versus $5.2 million at
December 31, 2008. The large increase in nonperforming loans during the second quarter was due
primarily to two borrowers totaling $11.0 million being placed in nonaccrual status. Previously,
these two borrowers were on managements watch list and considered in prior loan loss reserve
adequacy calculations. Excluding FDIC loans, net charge-offs were $346,000 and $794,000 for the
three and six months ended June 30, 2009, respectively.
At June 30, 2009, nonaccrual loans, excluding FDIC covered assets, were $24.5 million or 4.44%
of total loans. Total nonaccrual loans at the Banks Maryland operations aggregated $64.4 million
or 72.46% of the total nonaccrual loans for the Bank. Excluding loans at the Maryland operations,
loans past due 90 days or more and accruing interest were $514,000. Loans past due 90 days or more
on the Maryland portfolio were $714,000. Other real estate owned (OREO) equaled $864,000,
excluding OREO in the Maryland operations of $21.5 million.
Nationally, industry concerns over asset quality have increased due in large part to issues
related to subprime mortgage lending, declining real estate activity and general economic concerns.
While the Company has experienced reduced residential real estate activity, the markets in which
the Company operates indicate a weakened economic condition. While the Company incurred
appropriate provisions for loan losses and thus an adequate level of allowance for loan losses,
there has been continued deterioration in the quality of the loan portfolio. Residential loan
demand has moderated somewhat, but the Company is still experiencing continued loan demand,
particularly in commercial real estate. Management will continue to monitor delinquencies, risk
rating changes, charge-offs, market trends and other indicators of risk in the Companys portfolio,
particularly those tied to residential real estate, and adjust the allowance for loan losses
accordingly.
The following table sets forth selected asset quality data, excluding FDIC covered assets, and
ratios for the dates indicated:
28
|
|
|
|
|
|
|
|
|
(dollars
in thousands) |
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
Nonaccrual loans |
|
$ |
24,482 |
|
|
$ |
4,534 |
|
Loans past due over 90 days |
|
|
514 |
|
|
|
397 |
|
Other real estate owned |
|
|
864 |
|
|
|
223 |
|
|
|
|
Total nonperforming assets |
|
$ |
25,860 |
|
|
$ |
5,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
12,185 |
|
|
$ |
6,939 |
|
Average loans during quarter, net of unearned income |
|
$ |
548,577 |
|
|
$ |
511,042 |
|
Loans, net of unearned income |
|
$ |
551,799 |
|
|
$ |
523,298 |
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
Allowance for loan losses to loans |
|
|
2.21 |
% |
|
|
1.33 |
% |
Allowance for loan losses to nonperforming assets |
|
|
47.12 |
% |
|
|
134.63 |
% |
Nonperforming
assets to loans and other real estate |
|
|
4.68 |
% |
|
|
0.98 |
% |
Net charge-offs for quarter to average loans, annualized |
|
|
0.25 |
% |
|
|
0.32 |
% |
Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of losses arising
from covered loan assets, on the first $118 million of all
losses on such covered loans, and for 95% of losses on
covered loans thereafter. Under the shared-loss agreements, a loss on a covered loan is defined
generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or
restructuring of the covered asset. As described below, the reimbursements for losses on single
family one-to-four residential mortgage loans are to be made monthly until the end of the month in
which the 10th anniversary of the closing of the Transaction occurs, and the reimbursements for
losses on other loans are to be made quarterly until the end of the quarter in which the fifth
anniversary of the closing of the Transaction occurs. The shared-loss agreements provide for
indemnification from the first dollar of losses without any threshold requirement. The reimbursable
losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at
the date of the Transaction, January 30, 2009. New loans made after that date are not covered by
the shared-loss agreements.
The following table delineates the volume of covered assets that were nonperforming at June
30, 2009, related to the acquisition of SFSB in Maryland, which are FDIC covered assets under the
shared-loss agreements:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
% of Total |
|
Nonaccrual loans |
|
$ |
64,419 |
|
|
|
72.46 |
% |
Loans past due over 90 days |
|
|
714 |
|
|
|
58.14 |
% |
Other real estate owned |
|
|
21,525 |
|
|
|
96.14 |
% |
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
86,658 |
|
|
|
77.02 |
% |
|
|
|
|
|
|
|
See Note 10 to the unaudited consolidated financial statements for information related to the
allowance for loan losses. At June 30, 2009, total impaired loans equaled $90.4 million, excluding
FDIC covered assets.
Capital Requirements
The determination of capital adequacy depends upon a number of factors, such as asset quality,
liquidity, earnings, growth trends and economic conditions. The Company seeks to maintain a strong
capital base to support its growth and expansion plans, provide stability to current operations and
promote public confidence in the Company.
The federal banking regulators have defined three tests for assessing the capital strength and
adequacy of banks, based on two definitions of capital. Tier 1 Capital is defined as a combination of
common and qualifying preferred stockholders equity less
29
goodwill. Tier 2 Capital
is defined as qualifying subordinated debt and a portion of the allowance for loan losses. Total
Capital is defined as Tier 1 Capital plus Tier 2 Capital.
Three risk-based capital ratios are computed using the above capital definitions, total assets
and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All
assets and off-balance sheet risk items are grouped into categories according to degree of risk and
assigned a risk-weighting and the resulting total is risk-weighted assets. Tier 1 Risk-based
Capital is Tier 1 Capital divided by risk-weighted assets. Total Risk-based Capital is Total
Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total
average assets.
At June 30, 2009, the Companys ratio of total capital to risk-weighted assets was 17.61%. The
ratio of Tier 1 Capital to risk-weighted assets was 16.48%, and the leverage ratio (Tier 1 capital
to average adjusted total assets) was 9.08%. All three ratios exceed capital adequacy guidelines
outlined by its regulator, and the Company is considered well-capitalized. At December 31, 2008,
the Companys ratio of total capital to risk-weighted assets was 20.00%. The ratio of Tier 1
Capital to risk-weighted assets was 18.92%, and the leverage ratio (Tier 1 capital to average
adjusted total assets) was 12.54%. In the fourth quarter of 2003, BOE issued trust preferred
subordinated debt that qualifies as regulatory capital. This trust preferred debt has a 30-year
maturity with a 5-year call option, was issued at a rate of three month LIBOR plus 3.00% and was
priced at 4.22% in the second quarter of 2009.
Liquidity
Liquidity represents the Companys ability to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of additional funds
through liability management. Liquid assets include cash, interest-bearing deposits with banks,
federal funds sold, and certain investment securities. As a result of the Companys management of
liquid assets and the ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its depositors requirements and
meet its customers credit needs.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its clients and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Companys exposure to credit loss in the event of nonperformance by the other party to the
financial instrument 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
commitments and conditional obligations as it does for on-balance-sheet instruments.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the risk of loss in a financial instrument arising from adverse changes in
market rates or prices such as interest rates, foreign currency exchange rates, commodity prices
and equity prices. The Companys primary market risk exposure is interest rate risk. The ongoing
monitoring and management of interest rate risk is an important component of the Companys
asset/liability management process, which is governed by policies established by its Board of
Directors that are reviewed and approved annually. The Board of Directors delegates responsibility
for carrying out asset/liability management policies to the Asset/Liability Committee (ALCO) of
the Bank. In this capacity, ALCO develops guidelines and strategies that govern the Companys
asset/liability management related activities, based upon estimated market risk sensitivity, policy
limits and overall market interest rate levels and trends.
Interest rate risk represents the sensitivity of earnings to changes in market interest rates.
As interest rates change, the interest income and expense streams associated with the Companys
financial instruments also change, affecting net interest income, the primary component of the
Companys earnings. ALCO uses the results of a detailed and dynamic simulation model to quantify
the estimated exposure of net interest income to sustained interest rate changes. While ALCO
routinely monitors simulated net interest income sensitivity over various periods, it also employs
additional tools to monitor potential longer-term interest rate risk.
30
The simulation model captures the impact of changing interest rates on the interest income
received and interest expense paid on all assets and liabilities reflected on the Companys balance
sheet. The simulation model is prepared and updated monthly. This sensitivity analysis is compared
to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure
over a one-year horizon, assuming no balance sheet growth, given a 200 basis point upward shift and
a 200 basis point downward shift in interest rates. A parallel shift in rates over a 12-month
period is assumed. The following table represents the change to net interest income given interest
rate shocks up and down 100 and 200 basis points at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
Change In Net Interest Income |
(dollers
in thousands) |
|
% |
|
$ |
Interest Rate Shock: |
|
|
|
|
|
|
|
|
+200 basic points |
|
|
2.37 |
% |
|
|
1,076 |
|
+100 basic points |
|
|
1.00 |
% |
|
|
455 |
|
No change |
|
|
0.00 |
% |
|
|
|
|
-100 basic points |
|
|
-2.19 |
% |
|
|
(996 |
) |
-200 basic points |
|
|
-2.83 |
% |
|
|
(1,286 |
) |
At June 30, 2009, the Companys interest rate risk model indicated that, in a rising rate
environment of 200 basis points over a 12 month period, net interest income could increase by
2.37%. For the same time period, the interest rate risk model indicated that in a declining rate
environment of 200 basis points, net interest income could decrease by 2.83%. While these
percentages are subjective based upon assumptions used within the model, management believes the
balance sheet is appropriately balanced with acceptable risk to changes in interest rates.
The preceding sensitivity analysis does not represent a forecast and should not be relied upon
as being indicative of expected operating results. These hypothetical estimates are based upon
numerous assumptions, including the nature and timing of interest rate levels such as yield curve
shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and
deposits, reinvestment or replacement of asset and liability cash flows. While assumptions are
developed based upon current economic and local market conditions, the Company cannot make any
assurances about the predictive nature of these assumptions, including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis, actual results
will also differ due to factors such as prepayment and refinancing levels likely deviating from
those assumed, the varying impact of interest rate change, caps or floors on adjustable rate
assets, the potential effect of changing debt service levels on customers with adjustable rate
loans, depositor early withdrawals and product preference changes, and other internal and external
variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in
response to, or in anticipation of, changes in interest rates.
|
|
|
Item 4. |
|
Controls and Procedures |
Disclosure Controls and Procedures
At the end of the period covered by this Form 10-Q, the Companys management, with the
participation of the Companys chief executive officer and chief financial officer, conducted
evaluations of the Companys disclosure controls and procedures. As defined under Section 13a-15(e)
of the Securities Exchange Act of 1934, as amended (the Exchange Act), the term disclosure
controls and procedures means controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuers management to allow timely decisions regarding
required disclosures.
Based on this evaluation, the Companys chief executive officer and chief financial officer
have concluded that the Companys disclosure controls and procedures were not effective to ensure
that material information is recorded, processed, summarized and reported by management of the
Company on a timely basis in order to comply with the Companys disclosure obligations under the
Exchange Act and the rules and regulations promulgated thereunder. The two issues that the Company
has identified in making this conclusion at the end of the second quarter of 2009 are the view that
the Companys financial and accounting department has not efficiently documented and assessed
accounting issues related to non-routine transactions, such as mergers and non-recurring items that
the Company has had to evaluate since May 2008, and the view that the Companys financial and
accounting department is understaffed.
31
These views reflect additional, and broader, considerations
that the Company has made to the conclusions that it made, and that
it disclosed in prior filings,
as of December 31, 2008 and March 31, 2009.
Additional information with respect to these issues is included in the discussion below.
Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over financial reporting
is a process designed under the supervision of the Companys chief executive officer and chief
financial officer to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Companys financial statements for external purposes in accordance with
generally accepted accounting principles. In the Annual Report on Form 10-K for the year ended
December 31, 2008, managements assessment of the effectiveness of the Companys internal control
over financial reporting reported a material weakness regarding the accounting for non-routine
transactions, as described below. While management is not required to re-assess the effectiveness
of internal control over financial reporting during the fiscal year, the Company has concluded that
this material weakness exists as of June 30, 2009. Specifically, the Companys financial and
accounting department has lacked sufficient resources and expertise to properly account for certain
non-routine transactions, the Companys policies and procedures have not provided for timely review
of significant non-routine transactions and related accounting entries and the Company has not
maintained sufficient documentation related to the application of GAAP to significant non-routine
transactions.
Subsequent to the filing of the Companys Quarterly Report on Form 10-Q for the period ended
September 30, 2008, management believed that it had identified errors related to the Companys
accounting for subsidiary costs that were applied in the Companys mergers with TFC and BOE. The
errors were believed to have been based on the failure of the Company to reconcile merger-related
goodwill on a regular basis and errors in the calculation of certain elements of goodwill and
resulted in the entry of an amount in excess of the actual accrued merger costs. This misstatement
was believed to have resulted in an overstatement of goodwill and retained earnings at
September 30, 2008. It was also believed to have resulted in an understatement of salaries and
employee benefits expense and an overstatement of net income, each by $375,000, for the three and
nine months ended September 30, 2008.
During the evaluation of these accounting errors, the Companys chief executive officer and
chief financial officer concluded that the errors were the result of a material weakness in the Companys
internal control over financial reporting with respect to the accounting for non-routine
transactions, as described above. A material weakness is a significant deficiency (as defined in
the Public Company Accounting Oversight Boards Auditing Standard No. 5), or combination of
deficiencies, such that there is a reasonable possibility that a material misstatement in the
annual or interim financial statements will not be prevented or detected on a timely basis by
employees in the normal course of their work.
Following
additional analysis and discussion, the Companys chief executive officer and chief financial officer have now concluded that there were no errors related to the
Companys accounting for subsidiary costs that were applied in the Companys mergers with TFC and
BOE. Due to the lack of such errors and the corresponding conclusion that there were no
overstatements or understatements in the relevant financial statements, the Company will not
restate the financial statements included in the Companys Quarterly Report on Form 10-Q for the
period ended September 30, 2008.
Despite this revised conclusion, however, the Company believes that a material weakness
regarding the accounting for non-routine transactions remains as of June 30, 2009. An example of
the existence of such a material weakness includes the uncertainty in the resolution of the
accounting errors described above. The Companys management had concluded as of December 31, 2008
that the errors were related to the accrual of certain costs related to the goodwill acquired
through the Companys mergers with TFC and BOE. Following additional review, management then
concluded as of March 31, 2009 that the errors related to accounting adjustments for subsidiary
costs that were applied in the Companys two mergers. Management has now concluded that no errors
exist. The Company also notes that it had to correct publicly its preliminary earnings release for the second
quarter of 2009 to make certain adjustments relating to the tax effect of its goodwill impairment
charge. This correction did not affect any of the Companys periodic filings.
Furthermore, while it has not identified any specific issues that could result in a
restatement of past financial statements, the Company acknowledges that its financial and
accounting documentation for non-routine transactions is less than satisfactory for the criteria
required for the framework for effective internal control over financial reporting.
In addition, the Companys financial and accounting department is currently understaffed for the
responsibilities that it has had in recent fiscal quarters. While the Company has a chief
financial officer and a chief accounting officer, the Company has not had a
32
bank controller since
April 2009. In addition, the Companys financial and accounting department has had to evaluate
numerous accounting issues in addition to the day-to-day fiscal operations of the Company and
periodic filings with the SEC. For example, the Company acquired the operations of SFSB in January
2009, and the on-going consolidation of those operations and analysis of unprecedented accounting issues relating to shared-loss agreements with the FDIC have strained
the resources presently available at the Company.
In acknowledging the existence of a material weakness and the specific issues associated with
it, the Company notes that it has not restated, and does not plan to restate, any past financial
statements and that the Companys financial and accounting department performs its responsibilities
with respect to the completion of complete and accurate financial information in its periodic
filings with the SEC.
Remediation Steps to Address Material Weakness
As a result of the material weakness described above, the Company continues to take
appropriate remediation steps. The Company continues to evaluate its financial accounting staff
levels and expertise and is implementing appropriate oversight and review procedures. The Company
engaged a public accounting firm to serve as its internal auditing firm beginning in April 2009.
The Company created and hired a new chief internal auditor, who reports directly to the Companys
Audit Committee, in June 2009, and the Company expects to fill its bank controller position in
the near future. The Company has also hired additional key members of management, including a
chief administrative officer, a chief credit officer and a general counsel, during the first six
months of 2009, and these individuals are actively assisting the Company in reviewing, assessing
and implementing, as appropriate, numerous policies and procedures applicable to the Company and
its operations. The Company believes that it is taking the necessary corrective actions to
eliminate the material weakness.
Except as may be described above, there were no changes in the Companys internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the
quarter ended June 30, 2009, that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
33
PART II. OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
There are no material pending legal proceedings, other than ordinary routine litigation
incidental to the Companys business, to which the Company, including its subsidiaries, is a party
or of which the property of the Company is subject.
At August 10, 2009, there were no material changes to the risk factors previously disclosed in
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
|
|
Item 3. |
|
Defaults upon Senior Securities |
None.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
The Companys annual meeting of stockholders was held on June 18, 2009. At the annual
meeting, the stockholders of the Company took the following actions:
|
|
|
The stockholders elected each of P. Emerson Hughes, Jr., George M. Longest, Jr.,
John C. Watkins and Robin Traywick Williams as directors for a three-year term. The
elections were approved by the following votes: |
|
|
|
|
|
|
|
|
|
Directors |
|
Votes For |
|
Votes Withheld |
P. Emerson Hughes, Jr. |
|
|
15,929,246 |
|
|
|
434,292 |
|
George M. Longest, Jr. |
|
|
15,922,823 |
|
|
|
440,715 |
|
John C. Watkins |
|
|
15,839,809 |
|
|
|
523,729 |
|
Robin Traywick Williams |
|
|
14,498,992 |
|
|
|
1,864,546 |
|
|
|
|
The stockholders approved an amendment to the Companys certificate of
incorporation to increase the number of authorized shares of common stock to
200,000,000. With respect to this action, there were 12,399,126 votes for,
3,834,998 votes against, and 129,414 abstentions. |
|
|
|
The stockholders approved the following advisory (non-binding) proposal: |
RESOLVED, that the stockholders approve the compensation of executive
officers as disclosed in the proxy statement for the Companys 2009 annual
meeting pursuant to the rules of the Securities and Exchange Commission.
|
|
|
With respect to this action, there were 13,290,569 votes for, 1,515,838 votes against,
and 1,557,131 abstentions. |
34
|
|
|
The stockholders approved the Community Bankers Trust Corporation 2009 Stock
Incentive Plan. With respect to this action, there were 12,228,729 votes for,
1,078,350 votes against, 467,902 abstentions and 2,588,557 broker non-votes. |
|
|
|
|
The stockholders ratified of the appointment of Elliott Davis, LLC as the
Companys independent registered public accounting firm for the 2009 year. With
respect to this action, there were 16,044,780 votes for, 77,068 votes against, and
241,690 abstentions. |
There were no other matters presented to the Companys stockholders during the quarter ended
June 30, 2009.
|
|
|
Item 5. |
|
Other Information |
None
|
|
|
Exhibit No. |
|
Description |
|
10.1
|
|
Community Bankers Trust Corporation 2009 Stock Incentive Plan (1) |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer* |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer* |
|
|
|
32.1
|
|
Section 1350 Certifications* |
|
|
|
* |
|
Filed herewith. |
|
(1) |
|
Incorporated by reference to the Companys Current Report on Form 8-K filed on
June 24, 2009 (File No. 001-32590). |
35
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.
|
|
|
|
|
|
COMMUNITY BANKERS TRUST CORPORATION
(Registrant)
|
|
|
/s/ George M. Longest, Jr.
|
|
|
George M. Longest, Jr. |
|
|
President and Chief Executive Officer |
|
|
Date: August 10, 2009 |
|
|
|
|
|
|
/s/ Bruce E. Thomas
|
|
|
Bruce E. Thomas |
|
|
Senior Vice President and Chief Financial Officer |
|
|
Date: August 10, 2009 |
|
|
36