UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2009
¨
|
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 000-23261
SECURITY BANK CORPORATION
(Exact name of registrant as specified in its
charter)
|
|
|
GEORGIA
|
|
58-2107916
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
4219 Forsyth Road, Macon, Georgia
|
|
31210
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
(478) 722-6200
(Registrants Telephone Number, Including Area Code)
N/A
(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.
x
Yes
¨
No
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨
Yes
¨
No
Indicate by check mark 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
|
|
¨
|
|
Accelerated filer
|
|
x
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
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
x
No
Indicate the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:
|
|
|
Class
|
|
Outstanding at May 8, 2009
|
Nonvoting Common Stock, $1.00 par value
|
|
shares
|
Common Stock, $1.00 par value
|
|
23,274,639 shares
|
SECURITY BANK CORPORATION AND SUBSIDIARIES
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1.
|
Financial Statements
|
SECURITY BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
|
|
|
|
|
|
|
|
|
March 31,
2009
(Unaudited)
|
|
December 31,
2008
|
Cash and Due from Banks
|
|
$
|
34,955
|
|
$
|
37,216
|
Federal Funds Sold
|
|
|
525
|
|
|
1,508
|
Interest-Bearing Deposits With Other Banks
|
|
|
251,664
|
|
|
275,964
|
Investment Securities
|
|
|
390,924
|
|
|
393,681
|
Federal Home Loan Bank Stock
|
|
|
13,765
|
|
|
13,662
|
Loans Receivable, Net
|
|
|
1,789,137
|
|
|
1,922,039
|
Loans Held for Sale
|
|
|
86,076
|
|
|
|
Premises and Equipment
|
|
|
41,235
|
|
|
43,215
|
Premises and Equipment Held For Sale
|
|
|
2,054
|
|
|
|
Other Real Estate
|
|
|
105,581
|
|
|
94,717
|
Core Deposit Intangible, net
|
|
|
3,038
|
|
|
3,241
|
Accrued Interest Receivable
|
|
|
12,701
|
|
|
13,457
|
Other Assets
|
|
|
54,494
|
|
|
47,354
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,786,149
|
|
$
|
2,846,054
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
(Unaudited)
|
|
|
December 31,
2008
|
|
Deposits
|
|
$
|
2,320,616
|
|
|
$
|
2,438,136
|
|
Deposits Held by Branches to be Sold
|
|
|
81,853
|
|
|
|
|
|
Borrowed Money
|
|
|
289,673
|
|
|
|
300,621
|
|
Other Liabilities
|
|
|
28,073
|
|
|
|
22,589
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred Stock, no par value; 2,000,000 Shares Authorized, Zero Shares Issued and Outstanding in 2009 and 2008, Respectively
|
|
|
|
|
|
|
|
|
Nonvoting Common Stock, Par Value $1 per Share; 10,000,000 Shares Authorized, Zero Shares Issued and Outstanding in 2009 and 2008,
Respectively
|
|
|
|
|
|
|
|
|
Common Stock, Par Value $1 per Share; 80,000,000 Shares Authorized, 23,274,639 Shares Issued and Outstanding in 2009 and 2008
|
|
|
23,275
|
|
|
|
23,275
|
|
Paid-In Capital
|
|
|
252,490
|
|
|
|
252,349
|
|
Accumulated Deficit
|
|
|
(212,572
|
)
|
|
|
(194,120
|
)
|
Restricted Stock Unearned Compensation
|
|
|
(33
|
)
|
|
|
(41
|
)
|
Accumulated Other Comprehensive Income, Net of Tax
|
|
|
2,774
|
|
|
|
3,245
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
65,934
|
|
|
|
84,708
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
2,786,149
|
|
|
$
|
2,846,054
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
SECURITY BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Interest Income
|
|
|
|
|
|
|
|
|
Loans, Including Fees
|
|
$
|
23,891
|
|
|
$
|
37,027
|
|
Investment Securities
|
|
|
3,307
|
|
|
|
3,269
|
|
Federal Funds Sold and Deposits with Other Banks
|
|
|
146
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,344
|
|
|
|
40,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,562
|
|
|
|
23,945
|
|
Subordinated Debentures
|
|
|
580
|
|
|
|
739
|
|
Federal Home Loan Bank Advances
|
|
|
1,114
|
|
|
|
672
|
|
Federal Funds Purchased and Repurchase Agreements
|
|
|
13
|
|
|
|
348
|
|
Notes Payable and Other
|
|
|
1,168
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,437
|
|
|
|
25,943
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
3,907
|
|
|
|
14,799
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
12,108
|
|
|
|
42,199
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense After Provision for Loan Losses
|
|
|
(8,201
|
)
|
|
|
(27,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
Service Charges on Deposits
|
|
|
1,915
|
|
|
|
2,287
|
|
Mortgage Origination and Related Fees
|
|
|
22
|
|
|
|
1,002
|
|
Securities Gains
|
|
|
2,626
|
|
|
|
2,034
|
|
Other
|
|
|
286
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,849
|
|
|
|
5,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits
|
|
|
6,255
|
|
|
|
8,736
|
|
Occupancy and Equipment
|
|
|
1,751
|
|
|
|
1,549
|
|
Foreclosed Property
|
|
|
4,472
|
|
|
|
1,647
|
|
FDIC Assessments
|
|
|
519
|
|
|
|
391
|
|
Professional Fees
|
|
|
1,812
|
|
|
|
654
|
|
Marketing Expense
|
|
|
403
|
|
|
|
405
|
|
Amortization Core Deposit Intangible
|
|
|
203
|
|
|
|
246
|
|
Other
|
|
|
1,496
|
|
|
|
3,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,911
|
|
|
|
16,907
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(20,263
|
)
|
|
|
(38,445
|
)
|
Income Taxes
|
|
|
(1,811
|
)
|
|
|
(14,247
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(18,452
|
)
|
|
$
|
(24,198
|
)
|
|
|
|
|
|
|
|
|
|
Basic Loss Per Share
|
|
$
|
(0.79
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
Diluted Loss Per Share
|
|
$
|
(0.79
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
Cash Dividends Per Share
|
|
$
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,274,639
|
|
|
|
19,813,046
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
23,274,639
|
|
|
|
19,814,589
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
SECURITY BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Net Loss
|
|
$
|
(18,452
|
)
|
|
$
|
(24,198
|
)
|
Other Comprehensive Income (Loss), Net of Income Tax
|
|
|
|
|
|
|
|
|
Losses on Securities Arising During the Period
|
|
|
(1,740
|
)
|
|
|
(1,181
|
)
|
Reclassification Adjustment
|
|
|
1,707
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) on Securities
|
|
|
(33
|
)
|
|
|
141
|
|
Change in Fair Value of Derivative Used for Cash Flow Hedge
|
|
|
|
|
|
|
719
|
|
Amortization of Unrealized Gain on Termination of Cash Flow Hedge
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(18,924
|
)
|
|
$
|
(23,338
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
SECURITY BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Nonvoting
Common
Stock
|
|
Common
Shares
|
|
Common
Stock
|
|
Paid-In
Capital
|
|
Retained
Earnings
(Deficit)
|
|
|
Restricted
Stock-
Unearned
Compensation
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
Balance, December 31, 2007
|
|
$
|
|
|
$
|
|
|
18,912
|
|
$
|
18,912
|
|
$
|
220,504
|
|
$
|
63,011
|
|
|
$
|
(39
|
)
|
|
$
|
4,305
|
|
|
$
|
306,693
|
|
Cumulative Effect of Change in Accounting Principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
Stock-Based Compensation Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Amortization of Unearned Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Shares Issued to Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
11
|
|
|
11
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
Shares Issued in Rights Offering
|
|
|
|
|
|
|
|
4,311
|
|
|
4,311
|
|
|
23,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,134
|
|
Change in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
860
|
|
|
|
860
|
|
Cash Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,655
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,655
|
)
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,198
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
$
|
|
|
$
|
|
|
23,234
|
|
$
|
23,234
|
|
$
|
244,444
|
|
$
|
37,065
|
|
|
$
|
(32
|
)
|
|
$
|
5,165
|
|
|
$
|
309,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
|
|
$
|
|
|
23,275
|
|
$
|
23,275
|
|
$
|
252,349
|
|
$
|
(194,120
|
)
|
|
$
|
(41
|
)
|
|
$
|
3,245
|
|
|
$
|
84,708
|
|
Stock-Based Compensation Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Amortization of Unearned Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Change in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(471
|
)
|
|
|
(471
|
)
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,452
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
$
|
|
|
$
|
|
|
23,275
|
|
$
|
23,275
|
|
$
|
252,490
|
|
$
|
(212,572
|
)
|
|
$
|
(33
|
)
|
|
$
|
2,774
|
|
|
$
|
65,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
SECURITY BANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(18,452
|
)
|
|
$
|
(24,198
|
)
|
Adjustments to Reconcile Net Loss to Net Cash Provided (Used) from Operating Activities
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
|
|
|
141
|
|
|
|
57
|
|
Depreciation, Amortization and Accretion
|
|
|
1,808
|
|
|
|
1,155
|
|
Provision for Loan Losses
|
|
|
12,108
|
|
|
|
42,199
|
|
Securities Gains
|
|
|
(2,626
|
)
|
|
|
(2,034
|
)
|
Loss on Sale of Other Real Estate
|
|
|
852
|
|
|
|
245
|
|
Provision for Other Real Estate Losses
|
|
|
1,670
|
|
|
|
30
|
|
Loss on Disposal of Assets
|
|
|
8
|
|
|
|
2
|
|
Loss (Gain) on Sales of Loans
|
|
|
508
|
|
|
|
62
|
|
Net Change in Mortgage Loans Held for Sale
|
|
|
|
|
|
|
1,846
|
|
Payable for Purchased Securities
|
|
|
|
|
|
|
7,998
|
|
Termination of Cash Flow Hedge
|
|
|
|
|
|
|
6,333
|
|
Net Change in Other Assets
|
|
|
884
|
|
|
|
(13,067
|
)
|
Net Change in Other Liabilities
|
|
|
531
|
|
|
|
1,585
|
|
Other, Net
|
|
|
(2,100
|
)
|
|
|
(2,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,668
|
)
|
|
|
20,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of Investment Securities Available for Sale
|
|
|
(369,352
|
)
|
|
|
(207,125
|
)
|
Proceeds from Disposition of Investment Securities
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
373,847
|
|
|
|
209,793
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Stock, Net
|
|
|
(104
|
)
|
|
|
(936
|
)
|
Loans to Customers, Net of Repayments
|
|
|
14,973
|
|
|
|
(37,352
|
)
|
Premises and Equipment, Net
|
|
|
(676
|
)
|
|
|
(728
|
)
|
Proceeds from Sales of Other Real Estate
|
|
|
6,231
|
|
|
|
5,875
|
|
Other, Net
|
|
|
(382
|
)
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,537
|
|
|
|
(29,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Interest-Bearing Customer Deposits
|
|
|
(30,604
|
)
|
|
|
4,883
|
|
Noninterest-Bearing Customer Deposits
|
|
|
(5,064
|
)
|
|
|
6,083
|
|
Dividends Paid
|
|
|
|
|
|
|
(1,655
|
)
|
Federal Funds Purchased and Repurchase Agreements
|
|
|
(10,845
|
)
|
|
|
(37,089
|
)
|
Borrowed Money, Net
|
|
|
(900
|
)
|
|
|
829
|
|
Issuance of Common Stock
|
|
|
|
|
|
|
28,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,413
|
)
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(27,544
|
)
|
|
|
(8,492
|
)
|
Cash and Cash Equivalents, Beginning
|
|
|
314,688
|
|
|
|
105,271
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Ending
|
|
$
|
287,144
|
|
|
$
|
96,779
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
7
SECURITY BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The condensed consolidated financial statements include Security Bank Corporation (the Company) and its wholly owned subsidiaries: Security Interim
Holding Corporation (SBKC Interim); Security Bank of Bibb County located in Macon, Georgia; Security Bank of Houston County located in Perry, Georgia; Security Bank of Jones County located in Gray, Georgia; Security Bank of North Metro located in
Woodstock, Georgia; Security Bank of North Fulton located in Alpharetta, Georgia; Security Bank of Gwinnett County located in Suwanee, Georgia; and Security Real Estate Services, Inc., formerly Fairfield Financial Services, Inc., a subsidiary of
Security Bank of Bibb County. The term the Banks collectively refers to Security Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, Security Bank of North Fulton and
Security Bank of Gwinnett County. All significant intercompany accounts have been eliminated in consolidation. SBKC Interim was formed for the purpose of issuing $40.0 million of subordinated notes and conducts no operations.
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated balance
sheet as of December 31, 2008, has been derived from audited financial statements. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and
results of operations for the periods covered by this Quarterly Report on Form 10-Q have been included. The accompanying condensed consolidated financial statements should be read in conjunction with the Security Bank Corporation consolidated
financial statements and related notes appearing in the Annual Report on Form 10-K for the year ended December 31, 2008.
Recently Adopted
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations,
which replaces SFAS
No. 141. SFAS No. 141(R) retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and that an acquirer is identified for each business combination. The scope of SFAS
No. 141(R) is broader than SFAS No. 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the same method of accounting the acquisition method to all
transactions and other events in which one entity obtains control over one or more other businesses, the FASB believes that SFAS No. 141(R) will improve the comparability of the information about business combinations provided in financial
reports. SFAS No. 141(R) is effective for 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 adoption of SFAS No. 141(R)
on January 1, 2009 did not have an impact on the Companys financial statements.
In December 2007, the FASB issued SFAS
No. 160,
Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51.
SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS No. 160 changes the way the consolidated income statement is presented; it requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.
SFAS No. 160 also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 is effective for annual
periods beginning after December 15, 2008. The adoption of SFAS No. 160 on January 1, 2009 did not have an impact on the Companys financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities an Amendment of SFAS
No. 133.
SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about
credit-risk related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The
adoption of SFAS No. 161 on January 1, 2009 did not have an impact on the Companys financial statements.
8
SECURITY BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Recently Issued Accounting Pronouncements
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments.
This FSP amends SFAS
No. 157,
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. This
FSP also amends APB Opinion No. 28,
Interim Financial Reporting
, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 if the entity also elects to early adopt FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly
and FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments
. The FSP does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. Management will evaluate the impact on the Companys financial
statements upon adoption.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other
Than-Temporary Impairments.
This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. If an entity elects to early adopt either FSP FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
, or FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairment,
then the entity must also
early adopt this FSP
.
Additionally, if an entity elects to early adopt this FSP, it is required to adopt FSP FAS 157-4
.
The FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. Management will evaluate the impact on the Companys financial statements upon adoption.
In April 2009, the FASB issued FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly.
This FSP provides additional guidance for estimating fair value in accordance with SFAS No. 157,
Fair Value Measurements,
when the volume and level of
activity for the asset or liability have significantly decreased. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques(s)
used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants at the measurement date under current market conditions. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for
periods ending after March 15, 2009. If an entity elects to early adopt either FSP FAS 115-2 and FAS 124-2 or FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments,
the entity is also required to early
adopt this FSP
.
Additionally, if an entity elects to early adopt this FSP, FSP FAS 115-2 and FAS 124-2 also must be adopted early
.
The FSP does not require disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. Management will evaluate the impact on the Companys financial statements upon adoption.
A variety of other proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various
regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Companys consolidated financial
statements.
Reclassifications
Certain
reclassifications have been made to conform prior period amounts to the current period presentation.
(2) Going Concern
The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company sustained net losses of $18.5
million during the three months ended March 31, 2009. Due to the regulatory capital position of the Company and the Banks, certain operating restrictions have been imposed by the federal and state banking authorities as
9
discussed in Note 14. These restrictions create an uncertainty about the Companys ability to meet its obligations coming due in 2009. Failure to meet
regulatory capital requirements may expose the Company and the Banks to additional regulatory sanctions including mandatory asset disposition and seizure.
See also Note 14 regarding Orders to Cease and Desist entered into by five of the Banks with the Federal Deposit Insurance Corporation (the FDIC) and the Georgia Department of Banking and Finance (the
Department).
The Company has retained the services of investment bankers to review all strategic opportunities available to
the Company and the Banks. Additionally, the Company continues to work on reducing loans receivable and enhancing its liquidity position, most recently through the deferral of interest payments on certain borrowings. There can be no assurances that
the Companys actions referred to above will be successful. These events raise substantial doubt about the Companys ability to continue as a going concern.
(3) Branches Held for Sale
On March 30, 2009, the Company announced a definitive agreement to
sell its two Glynn County branches, located in Brunswick and St. Simons Island, Georgia to The Heritage Bank (Heritage). Following the closing of the transaction, the Brunswick and St. Simons branches of Security Bank will become branch offices of
Heritage. The Company plans to sell its premises and equipment and certain loans to Heritage. In addition, Heritage will assume certain deposits of the Company and will pay a premium on such deposits of approximately $1.6 million. In accordance with
SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the assets to be purchased and deposits to be assumed by Heritage Bank are classified separately in the Companys Consolidated Balance Sheet as of
March 31, 2009. The results of operations and cash flows from the branches held for sale are not material to the Companys consolidated financial statements. The transaction is subject to regulatory approval and other closing conditions
and is expected to be completed in the second quarter of 2009.
(4) Investment Securities
Investment securities as of March 31, 2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
(Dollars in Thousands)
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Backed
|
|
$
|
385,898
|
|
$
|
2,494
|
|
$
|
(572
|
)
|
|
$
|
387,820
|
State, County and Municipal
|
|
|
2,195
|
|
|
|
|
|
(118
|
)
|
|
|
2,077
|
Other Securities
|
|
|
1,941
|
|
|
23
|
|
|
(937
|
)
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
390,034
|
|
$
|
2,517
|
|
$
|
(1,627
|
)
|
|
$
|
390,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities as of December 31, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
(Dollars in Thousands)
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Backed
|
|
$
|
388,484
|
|
$
|
2,076
|
|
$
|
(367
|
)
|
|
$
|
390,193
|
State, County and Municipal
|
|
|
2,315
|
|
|
|
|
|
(158
|
)
|
|
|
2,157
|
Other Securities
|
|
|
1,941
|
|
|
25
|
|
|
(635
|
)
|
|
|
1,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
392,740
|
|
$
|
2,101
|
|
$
|
(1,160
|
)
|
|
$
|
393,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains, net of tax, on securities available for sale of $0.6 million have been
credited to shareholders equity as of March 31, 2009 and December 31, 2008.
10
(5) Loans Receivable, Net
Loans receivable are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
|
(Dollars in Thousands)
|
|
Construction, Land and Land Development
|
|
$
|
914,278
|
|
|
$
|
993,864
|
|
Real Estate-Other
|
|
|
726,288
|
|
|
|
769,344
|
|
Commercial and Industrial
|
|
|
143,424
|
|
|
|
157,799
|
|
Consumer
|
|
|
58,607
|
|
|
|
60,431
|
|
Agricultural
|
|
|
1,054
|
|
|
|
1,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,843,651
|
|
|
|
1,982,555
|
|
Allowance for Loan Losses
|
|
|
(53,545
|
)
|
|
|
(59,437
|
)
|
Unearned Interest and Fees
|
|
|
(969
|
)
|
|
|
(1,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,789,137
|
|
|
$
|
1,922,039
|
|
|
|
|
|
|
|
|
|
|
(6) Allowance for Loan Losses
The following table presents the Companys loan loss experience on all loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(Dollars in Thousands)
|
|
Balance beginning of period
|
|
$
|
59,437
|
|
|
$
|
31,698
|
|
Charge-Offs
|
|
|
(18,418
|
)
|
|
|
(24,443
|
)
|
Recoveries
|
|
|
418
|
|
|
|
295
|
|
Provision for Loan Losses
|
|
|
12,108
|
|
|
|
42,199
|
|
|
|
|
|
|
|
|
|
|
Balance end of period
|
|
$
|
53,545
|
|
|
$
|
49,749
|
|
|
|
|
|
|
|
|
|
|
(7) Deposits
Components of deposits are as follows:
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
(Dollars in Thousands)
|
Time Deposits, $100,000 and Over
|
|
$
|
1,006,924
|
|
$
|
1,086,149
|
Other Time Deposits
|
|
|
803,363
|
|
|
787,266
|
Interest-Bearing Demand
|
|
|
351,859
|
|
|
398,425
|
Demand
|
|
|
144,000
|
|
|
153,006
|
Savings
|
|
|
14,470
|
|
|
13,290
|
|
|
|
|
|
|
|
|
|
$
|
2,320,616
|
|
$
|
2,438,136
|
|
|
|
|
|
|
|
(8) Borrowed Money
Borrowed money is comprised of the following:
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
(Dollars in Thousands)
|
Federal Home Loan Bank Advances
|
|
$
|
189,795
|
|
$
|
190,695
|
Subordinated Debentures (Trust Preferred Securities)
|
|
|
41,817
|
|
|
41,238
|
Notes Payable, Net of Discount
|
|
|
32,062
|
|
|
31,844
|
Repurchase Agreements
|
|
|
25,999
|
|
|
36,844
|
|
|
|
|
|
|
|
Total Borrowed Money
|
|
$
|
289,673
|
|
$
|
300,621
|
|
|
|
|
|
|
|
11
In February 2009, the Company received notice from the FHLB of Atlanta that the FHLB had frozen our
borrowing availability for four of our banks (Security Bank of Bibb County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County) to the amount outstanding. Advances that mature may be renewed; however, no
new advances may be obtained.
In connection with the issuance of trust preferred securities, the Company formed trust subsidiaries.
Interest income on the Companys trusts totaled $17,274 and $22,407 for the three-month periods ended March 31, 2009 and 2008, respectively. Interest expense on the trusts totaled $579,929 and $739,461 for the three-month periods ended
March 31, 2009 and 2008, respectively. During the quarter ended March 31, 2009, the Company exercised its right under all three of its subordinated debentures agreements, and the related trust preferred securities agreements to extend the
interest payment periods and therefore did not make the interest payments due for the first payment periods of 2009. The Company presently anticipates that it will exercise this right on the remaining interest payments in 2009 as well.
In February 2009, the Company notified the affiliates of the FSI Group, LLC that it would defer the March 31, 2009 interest payment on the Notes
issued in April 2008. The deferred interest was added to the principal balance and future interest payments will be calculated on the increased principal balance.
(9) Share-Based Compensation Plans
A summary of option transactions for the three months ended March 31, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Under
Incentive Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-
average
Remaining
Contractual
Life
|
Outstanding, December 31, 2008
|
|
1,454,499
|
|
$
|
18.23
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2009
|
|
1,454,499
|
|
$
|
18.23
|
|
$
|
|
|
6.82
|
|
|
|
|
|
|
|
|
|
|
|
Eligible to be Exercised, March 31, 2009
|
|
462,443
|
|
$
|
14.43
|
|
$
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
(10) Earnings (Loss) Per Share
Due to the net loss in 2009, basic shares were used to calculate diluted loss per share. Adding common stock equivalents to the denominator would result
in anti-dilution. For the three months ended March 31, 2009, the effects of the assumed exercise of 1.5 million stock options and 6.1 million stock warrants were excluded from the calculation of diluted loss per share because they would have an
anti-dilutive effect.
The following presents loss per share for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Basic Loss Per Share
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share
|
|
$
|
(0.79
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
23,274,639
|
|
|
|
19,813,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Loss Per Share
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share and Common Equivalent Share
|
|
$
|
(0.79
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares and Common Stock Equivalents
|
|
|
23,274,639
|
|
|
|
19,814,589
|
|
|
|
|
|
|
|
|
|
|
The assumed exercise of stock options is included in the diluted earnings per share computation
using the treasury stock method and assuming an average market price for the Companys stock of $7.4202 for the three-month period ended March 31, 2008. The Companys stock is quoted on the Nasdaq Global Select Market under the symbol
SBKC.
12
(11) Regulatory Matters
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. The amounts and ratios as defined in regulations are presented hereafter.
The Companys and Banks
actual ratios as of March 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital Ratio
|
|
|
Total Capital Ratio
|
|
|
Leverage Ratio
|
|
Minimum Ratio for Adequately Capitalized
|
|
4.00
|
%
|
|
8.00
|
%
|
|
4.00
|
%
|
Minimum Ratio for Well Capitalized
|
|
6.00
|
%
|
|
10.00
|
%
|
|
5.00
|
%
|
|
|
|
|
Security Bank Corporation (Consolidated)
|
|
4.00
|
%
|
|
7.89
|
%
|
|
2.87
|
%
|
Security Bank of Bibb County
|
|
5.59
|
%
|
|
6.86
|
%
|
|
4.48
|
%
|
Security Bank of Houston County
|
|
8.77
|
%
|
|
10.03
|
%
|
|
5.10
|
%
|
Security Bank of Jones County
|
|
9.18
|
%
|
|
10.43
|
%
|
|
5.77
|
%
|
Security Bank of North Metro
|
|
2.73
|
%
|
|
4.00
|
%
|
|
1.98
|
%
|
Security Bank of North Fulton
|
|
7.09
|
%
|
|
8.35
|
%
|
|
4.38
|
%
|
Security Bank of Gwinnett County
|
|
1.50
|
%
|
|
2.79
|
%
|
|
1.12
|
%
|
At March 31, 2009, the Banks respective regulatory capital levels met the criteria of
the following categories, subject to the regulatory capital provisions included in the Orders to Cease and Desist:
|
|
|
Well Capitalized Security Bank of Houston County and Security Bank of Jones County;
|
|
|
|
Adequately Capitalized Security Bank of North Fulton;
|
|
|
|
Undercapitalized Security Bank of Bibb County;
|
|
|
|
Significantly Undercapitalized Security Bank of North Metro; and
|
|
|
|
Critically Undercapitalized Security Bank of Gwinnett County
|
See Note 14 regarding the Orders to Cease and Desist entered into by five of the Banks with the FDIC and the Department.
(12) Derivative Financial Instruments
On June 29, 2007, the Company executed an interest rate swap with an aggregate
notional amount of $100.0 million, which was accounted for as a cash flow hedge. The Companys objective in using the derivative was to add stability to interest income and to manage the Companys exposure to adverse changes in interest
rates. The interest rate swap agreement, with a maturity date of July 1, 2010, effectively converts the variable interest receipts on $100.0 million of prime-based loans to a fixed rate of 8.145% plus any credit spread, if applicable, over the
life of the agreement.
The interest rate swap was terminated in March 2008 and the $6.3 million received upon termination is included in
other comprehensive income (loss) and is being amortized to earnings, as interest income over the remaining term of the hedged item. The cash received as a result of the termination is classified, in the statement of cash flows, in the same category
as the cash flows relating to the items being hedged.
(13) Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted FASB Statement No. 157,
Fair Value Measurements
(SFAS No. 157), which provides a
framework for measuring fair value under generally accepted accounting principles. SFAS No. 157 applies to all financial elements that are being measured and reported on a fair value basis.
13
Assets Measured at Fair Value on a Recurring Basis
The following table presents the fair value measurements of assets measured at fair value on a recurring basis as of March 31, 2009, aggregated by
the level in the fair value hierarchy within which those measurements fall.
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
Prices in active
markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In thousands)
|
Investment Securities Available for Sale
|
|
$
|
|
|
$
|
390,924
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table presents the fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis as of March 31,
2009, aggregated by the level in the fair value hierarchy within which those measurements fall.
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
Prices in active
markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
Loans Held For Sale
|
|
$
|
86,076
|
|
$
|
|
|
$
|
|
Impaired Loans
|
|
|
|
|
|
236,402
|
|
|
|
Premises and Equipment Held For Sale
|
|
|
2,054
|
|
|
|
|
|
|
Other Real Estate
|
|
|
|
|
|
105,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,130
|
|
$
|
341,983
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits Held by Branches to be Sold
|
|
$
|
81,853
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The assets and liabilities associated with the pending sale transaction with The Heritage Bank are
included in the table above at fair value, which is equal to book value. These amounts are considered Level 1, as the fair value is equal to the sales price.
(14) Subsequent Events
Orders to Cease and Desist with Banks
In April 2009, five of the Banks, Security Bank of Bibb County, Security Bank of Gwinnett County, Security Bank of Jones County, Security Bank of North
Metro and Security Bank of Houston County entered into an Order to Cease and Desist (the Orders) with the FDIC and the Department. The final Orders are specific to each Bank, but contain many similar provisions and requirements, some of
which are summarized below. The summary descriptions of the Orders set forth below are qualified in their entirety by the actual Orders, which are filed as Exhibits 10.1 through 10.5 to the Current Report on Form 8-K, as filed April 24, 2009,
and are incorporated by reference herein in their entirety.
Under the terms of the Orders, each of the Banks referenced above has agreed,
among other things, to some or all of the following provisions:
|
|
|
Increase participation of the Board of Directors in the affairs of the Bank and establish a Board committee to oversee the Banks compliance with the Order.
|
|
|
|
Have and retain qualified management.
|
14
|
|
|
Increase and maintain capital levels.
|
|
|
|
Review the adequacy of the allowance for loan and lease losses (ALLL) and establish a comprehensive policy for determining the adequacy of the ALLL.
|
|
|
|
Review, revise and adopt a written liquidity, contingency funding and funds management policy; implement adequate models for managing liquidity; and calculate
monthly the liquidity and dependency ratios for Board review.
|
|
|
|
Take specified actions with regard to brokered deposits.
|
|
|
|
Refrain from paying cash dividends without the prior written consent of the FDIC.
|
|
|
|
Take specific actions to reduce the level of assets classified Substandard.
|
|
|
|
Refrain from extending any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged
off or classified in a certain specified manner and is uncollected.
|
|
|
|
Revise, adopt, and implement a written lending, underwriting and collection policy and adopt and implement a policy limiting the use of loan interest reserves.
|
|
|
|
Take specified actions to reduce certain concentrations of credit.
|
|
|
|
Prepare and submit to its supervisory authorities its written strategic plan consisting of long-term goals and strategies.
|
|
|
|
Eliminate and/or correct all violations of law, regulations and contraventions of FDIC Statements of Policy as discussed in applicable reports and take all
necessary steps to ensure future compliance.
|
|
|
|
Furnish quarterly progress reports to the banking regulators.
|
Withdrawal of TARP Application
On November 14, 2008, the Company filed an application to
participate in the Capital Purchase Program administered by the U.S. Department of the Treasury under the Troubled Asset Relief Program. Because of the issuance of the Orders and the changes in the Capital Purchase Program, the Company withdrew its
application to participate in the Capital Purchase Program on April 23, 2009.
Written Agreement with the Federal Reserve Bank of
Atlanta
On May 6, 2009, Security Bank Corporation and Security Interim Holding Corporation (the Companies) entered
into a Written Agreement with the Federal Reserve Bank of Atlanta (the Federal Reserve) and the Georgia Department of Banking and Finance (the Department). The Written Agreement contains several provisions intended to
increase the financial soundness of the Companies so that the Companies may serve as a source of strength to the Banks.
The summary
description of the Written Agreement set forth below is qualified in its entirety by the actual Written Agreement, which is attached as Exhibit 10.6 and is incorporated by reference herein.
Under the terms of the Written Agreement, each of the Companies has agreed to the following provisions (among others detailed in the Written Agreement):
|
|
|
Submit a written plan to strengthen risk management practices and assist the Banks in meeting the requirements of supervisory actions imposed on them by their
federal or state regulators.
|
|
|
|
Refrain from paying dividends or receiving dividends from the Banks without the prior written approval of the Federal Reserve and the Department.
|
|
|
|
Refrain from making payments of interest or principal on subordinated debt or trust preferred securities without the prior written approval of the Federal Reserve
and the Department.
|
|
|
|
Refrain from incurring, increasing or guaranteeing any debt without the prior written approval of the Federal Reserve and the Department.
|
|
|
|
Submit a written plan to maintain sufficient capital at the Companies and each of the Banks.
|
|
|
|
Refrain from increasing or imposing any new fees on the Banks without prior written approval of the Federal Reserve.
|
|
|
|
Furnish quarterly progress reports to the regulators.
|
The restrictions and reporting obligations under the Written Agreement are similar to the restrictions placed on the Banks pursuant to the previously reported enforcement actions. The Written Agreement supersedes the
Board Resolution passed by the Board of Directors in February 2008.
15
ITEM 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following narrative presents managements discussion and analysis of the Company and its subsidiaries financial condition and results of
operations as of and for the three-month periods ended March 31, 2009 and 2008. The historical financial statements of the Company are set forth elsewhere herein. This discussion should be read in conjunction with those financial statements and
the other financial information included in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements discuss future expectations, describe future plans
and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as
anticipate, assume, believe, continue, could, would, endeavor, estimate, expect, forecast, goal, intend,
may, objective, plan, potential, predict, project, seek, should, target, will and other similar words and expressions of future
intent.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe
that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause
actual results and performance to differ from those expressed in our forward-looking statements we make or incorporate by reference in this Quarterly Report on Form 10-Q include, but are not limited to:
|
|
|
the effects of the current global economic crisis, including, without limitation, the dramatic deterioration of real estate values, the subprime mortgage, credit
and liquidity markets, as well as the Federal Reserves actions with respect to interest rates, may lead to a further deterioration in credit quality, thereby requiring continued increases in our provision for loan losses, or a reduced demand
for credit, which will continue to negatively impact our earnings;
|
|
|
|
the imposition of enforcement orders, capital directives or other enforcement actions by our regulators, including restrictions and limitations placed on the Banks
pursuant to the Orders;
|
|
|
|
possible changes in trade, monetary and fiscal policies, as well as legislative and regulatory changes, including changes in accounting standards and banking,
securities and tax laws and regulations and governmental intervention in the U.S. financial system, as well as changes affecting financial institutions ability to lend and otherwise do business with consumers;
|
|
|
|
increases in our nonperforming assets, or our inability to recover or absorb losses created by such nonperforming assets;
|
|
|
|
our ability to effectively manage liquidity risk, interest rate risk and other market risk, credit risk and operational risk
|
|
|
|
our ability to manage negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and
on the businesses of our customers as well as other financial institutions with which we have commercial relationships;
|
|
|
|
the continuation of the recent unprecedented volatility in the credit markets and overall economy;
|
|
|
|
possible changes in the quality or composition of our loans or investment portfolios, including further adverse developments in the real estate markets, the
borrowers industries or in the repayment ability of individual borrowers or issuers;
|
|
|
|
changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact interest margins and
may impact prepayments on the mortgage-backed securities portfolio;
|
|
|
|
our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to
support our business;
|
|
|
|
the failure of our assumptions underlying the establishment of allowances for loan losses and other estimates, or dramatic changes in those underlying assumptions
or judgments in future periods, that, in either case, render the allowance for loan losses inadequate or require that further provisions for loan losses be made;
|
|
|
|
unexpected outcomes of existing or new litigation;
|
16
|
|
|
the threat or occurrence of war or acts of terrorism and the existence or exacerbation of general geopolitical instability and uncertainty;
|
|
|
|
managements ability to develop and execute plans to effectively respond to the Orders and any unexpected events in the future; and
|
|
|
|
other factors and information contained in this Quarterly Report on Form 10-Q and other reports that we file with the Securities and Exchange Commission (SEC) under
the Exchange Act.
|
The cautionary statements in this Quarterly Report on Form 10-Q also identify important factors and
possible events that involve risk and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements speak only as of the date on which the statements
were made. We do not intend, and undertake no obligation, to update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of differences in actual results, changes in assumptions or changes in
other factors affecting such statements, except as required by law.
Readers should carefully review all disclosures we file from time to
time with the SEC.
Unless indicated otherwise, references in this Quarterly Report on Form 10-Q to we, us,
our, SBKC or the Company refer to Security Bank Corporation and its consolidated subsidiaries, Security Interim Holding Corporation, Security Bank of Bibb County, Security Bank of Houston County, Security Bank of
Jones County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County. Together, the consolidated subsidiary banks are referred to as the Banks.
Overview
Security Bank Corporation was incorporated
on February 10, 1994 for the purpose of becoming a bank holding company. We are subject to extensive federal and state banking laws and regulations, including the Bank Holding Company Act of 1956, as amended, and the bank holding company laws
of Georgia. We own six subsidiary banksSecurity Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County. We also own
Security Real Estate Services, Inc. (SRES), an interim real estate and development lender, which functions as an operating subsidiary of Security Bank of Bibb County. Through 2007, we offered land acquisition and development and construction loans
from SRES, but SRES no longer offers these loans. SRES did continue to originate residential mortgage loans until the fourth quarter of 2008, when we contracted with Envoy Mortgage, an independent residential mortgage company based in Houston,
Texas, to offer mortgage loans to our customers. As part of the agreement, all employees of SRESs traditional residential mortgage origination business were retained by Envoy Mortgage and continue to originate mortgages in the Companys
offices. The Banks are also subject to various federal and state banking laws and regulations. SBKC Interim, a wholly owned subsidiary of Security Bank Corporation, was formed in April 2008 for the purpose of issuing $40.0 million of subordinated
notes and conducts no operations. On March 30, 2009, the Company announced a definitive agreement to sell two Glynn County branches, located in Brunswick and St. Simons Island, to The Heritage Bank. Following the closing of the transaction, the
Brunswick and St. Simons branches of Security Bank of Bibb County would become branch offices of The Heritage Bank. The transaction is subject to regulatory approval and other closing conditions and is expected to be completed in the second quarter
of 2009.
The Banks each operate as a separate legal entity under the corporate umbrella of the Company. As a result, each Bank has its own
board of directors and management comprised of persons known in the local community in which each Bank operates. We provide significant assistance and oversight to the Banks in areas such as budgeting, marketing, human resource management, credit
administration, operations and funding.
As of March 31, 2009 we had 388 employees on a full-time equivalent basis.
Like most financial institutions, our profitability depends largely upon net interest income, which is the difference between the interest received on
earning assets, such as loans and investment securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Our results of operations are also affected by our provision for loan losses; noninterest expenses,
such as salaries, employee benefits and occupancy expenses; and noninterest income, such as mortgage loan fees and service charges on deposit accounts.
17
Recent Events
As a result of these unprecedented and difficult times, the regulatory capital level of our Banks has decreased significantly and our sources of funding have diminished. Currently, the Company is making all efforts to retain and increase
its capital ratios and liquidity. As part of those efforts, in the first quarter of 2009, we exercised our rights under all three of our trust preferred securities agreements to extend the interest payment periods and therefore did not make the
payments due for the first payment periods of 2009. We presently anticipate that we will exercise this right on the remaining interest payments in 2009 as well. Also, in February 2009, the Company notified the affiliates of the FSI Group, LLC that
it would defer the March 31, 2009 interest payment on the Notes issued in April 2008. The deferred interest was added to the principal balance and future interest payments will be calculated on the increased principal balance.
In addition, the Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Banks. As
part of such plan of action, in January 2009, the Company applied to the FDIC to consolidate its six banking charters into a single banking charter. Subsequent to the filing of the application, the Company received notice that several of our Banks
were undercapitalized as of December 31, 2008. In April 2009, we withdrew the application to consolidate our banking charters.
Several of the Banks are subject to Section 337 of the FDIC Rules and Regulations. Under this section, these banks may no longer accept, renew or rollover maturing brokered deposits. During the quarter ended March 31, 2009, $66.1
million in brokered deposits matured which decreased our liquidity position. During the remainder of 2009, another $603.4 million in brokered deposits will mature. If we are unable to replace these matured brokered deposits, then our liquidity
position will be negatively and severely impacted and we likely will not be able to fund our operations in the future.
In April 2009, five
of our Banks entered into Orders with the FDIC and the Department. The Orders set forth requirements for the Banks to take actions to address capital levels and lending policies, and place restrictions on the issuance of dividends by the Banks to
the Company and restrictions on brokered deposits, among other items. Four of the Orders entered into by Security Bank of Gwinnett County, Security Bank of Bibb County, Security Bank of Jones County and Security Bank of North Metro, assert that the
Banks are: operating with a Board that has failed to provide adequate supervision over and direction to the management of the Bank; operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its
deposits; operating with a large volume of poor quality loans; following hazardous lending and tax collection policies and practices; operating in such a manner as to produce operating losses; operating with inadequate equity capital in relation to
the volume and quality of assets held by the Bank; operating with inadequate provisions for liquidity and funds management; operating with inadequate allowance for loan and lease losses; and operating in violation of laws and/or regulations, and in
contravention of statements of policy. The fifth Order entered into by Security Bank of Houston County asserts that the Bank is: operating with inadequate supervision and direction over the financial affairs of the Bank; operating with an
inadequate level of capital based upon the level of risk identified; operating with an excessive volume of assets subject to adverse classification, resulting from engaging in inadequate credit administration and underwriting practices; operating
with an excessive volume of credit concentrations which reflect a lack of diversity in the loan portfolio; operating with an excessive volume of nonearning assets; operating with marginal liquidity; and engaging in violations of applicable federal
and state regulations.
The Orders entered into by Security Bank of Jones County and Security Bank of North Metro require the Banks to
increase their capital to a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 30 days of the effective date of the Order. The Orders entered into by Security Bank of Bibb County and
Security Bank of Gwinnett County require the Banks to increase their capital to a minimum Tier 1 Capital Ratio of 8.0% within 30 days of the effective date of the Order. The Order entered into by Security Bank of Houston County requires the Bank to
increase its capital to a minimum Tier 1 Capital Ratio of 8.0% within 90 days of the effective date of the Order. Each Bank consented to the Orders without admitting to or denying the allegations.
Pursuant to the Orders, the Banks have created a Directors Committee to ensure compliance with the Orders and report to the Board of Directors. In
addition, each Bank is required to provide a quarterly written progress report to the Department and the FDIC detailing the form and manner of any actions taken and the results of such actions, to secure compliance with the Orders.
On November 14, 2008, the Company filed an application to participate in the Capital Purchase Program administered by the U.S. Department of the
Treasury under the Troubled Asset Relief Program. Because of the issuance of the Orders and the changes in the Capital Purchase Program, the Company withdrew its application to participate in the Capital Purchase Program on April 23, 2009.
On May 6, 2009, Security Bank Corporation and Security Interim Holding Corporation (the Companies) entered into a Written
Agreement with the Federal Reserve Bank of Atlanta (the Federal Reserve) and the Georgia Department of Banking and Finance (the Department). The Written Agreement contains several provisions intended to increase the financial
soundness of the Companies so that the Companies may serve as a source of strength to the Banks.
The summary description of the Written
Agreement set forth below is qualified in its entirety by the actual Written Agreement, which is attached as Exhibit 10.6 and is incorporated by reference herein.
Under the terms of the Written Agreement, each of the Companies has agreed to the following provisions (among others detailed in the Written Agreement):
|
|
|
Submit a written plan to strengthen risk management practices and assist the Banks in meeting the requirements of supervisory actions imposed on them by their
federal or state regulators.
|
|
|
|
Refrain from paying dividends or receiving dividends from the Banks without the prior written approval of the Federal Reserve and the Department.
|
|
|
|
Refrain from making payments of interest or principal on subordinated debt or trust preferred securities without the prior written approval of the Federal Reserve
and the Department.
|
|
|
|
Refrain from incurring, increasing or guaranteeing any debt without the prior written approval of the Federal Reserve and the Department.
|
|
|
|
Submit a written plan to maintain sufficient capital at the Companies and each of the Banks.
|
|
|
|
Refrain from increasing or imposing any new fees on the Banks without prior written approval of the Federal Reserve.
|
|
|
|
Furnish quarterly progress reports to the regulators.
|
The restrictions and reporting obligations under the Written Agreement are similar to the restrictions placed on the Banks pursuant to the previously reported enforcement actions.
Liquidity Plan
Our Liquidity Task Force continues to
meet weekly to review liquidity-related issues such as forecasted sources and uses of funds, loan pipelines, deposit pricing and deposit and borrowing maturities, among others. The Companys investment portfolio
18
provides a ready means to raise cash if liquidity needs arise. As of March 31, 2009, we held $390.9 million in bonds at current market value in our
available for sale portfolio with $298.7 million or 76% pledged to secure various public funds deposits, federal funds lines and repurchase agreements and for other purposes.
We have established multiple borrowing sources to augment our funds management. Borrowing capacity exists through the membership of our Banks in the FHLB
program. Our Banks have also established overnight borrowing lines for federal funds purchased through various correspondent banks. At March 31, 2009, the Company had availability from these borrowing sources of $91.5 million. In February 2009,
the Company received notice from the FHLB of Atlanta that the FHLB had frozen our borrowing availability for four of our Banks (Security Bank of Bibb County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett
County) to the amount outstanding. Advances that mature may be renewed; however, no new advances may be obtained.
Financial Condition
At March 31, 2009, our total assets were $2.79 billion compared to $2.85 billion at December 31, 2008. The decrease in total
assets compared to December 31, 2008 is primarily due to decreases in loans receivable, interest-bearing deposits with other banks and investment securities offset by increases in other real estate and other assets.
Assets
The composition of our assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
March 31,
2009
|
|
December 31,
2008
|
|
$ Change
|
|
|
% Change
|
|
Cash and Due From Banks
|
|
$
|
34,955
|
|
$
|
37,216
|
|
$
|
(2,261
|
)
|
|
-6.1
|
%
|
Federal Funds Sold
|
|
|
525
|
|
|
1,508
|
|
|
(983
|
)
|
|
-65.2
|
%
|
Interest-Bearing Deposits With Other Banks
|
|
|
251,664
|
|
|
275,964
|
|
|
(24,300
|
)
|
|
-8.8
|
%
|
Investment Securities
|
|
|
390,924
|
|
|
393,681
|
|
|
(2,757
|
)
|
|
-0.7
|
%
|
Federal Home Loan Bank Stock
|
|
|
13,765
|
|
|
13,662
|
|
|
103
|
|
|
0.8
|
%
|
Loans Receivable, Net
|
|
|
1,789,137
|
|
|
1,922,039
|
|
|
(132,902
|
)
|
|
-6.9
|
%
|
Loans Held For Sale
|
|
|
86,076
|
|
|
|
|
|
86,076
|
|
|
100.0
|
%
|
Premises and Equipment
|
|
|
41,235
|
|
|
43,215
|
|
|
(1,980
|
)
|
|
-4.6
|
%
|
Premises and Equipment Held For Sale
|
|
|
2,054
|
|
|
|
|
|
2,054
|
|
|
100.0
|
%
|
Other Real Estate
|
|
|
105,581
|
|
|
94,717
|
|
|
10,864
|
|
|
11.5
|
%
|
Core Deposit Intangible, net
|
|
|
3,038
|
|
|
3,241
|
|
|
(203
|
)
|
|
-6.3
|
%
|
Accrued Interest Receivable
|
|
|
12,701
|
|
|
13,457
|
|
|
(756
|
)
|
|
-5.6
|
%
|
Other Assets
|
|
|
54,494
|
|
|
47,354
|
|
|
7,140
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,786,149
|
|
$
|
2,846,054
|
|
$
|
(59,905
|
)
|
|
-2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
The decrease of $27.5 million is due primarily to the reduction in deposit balances related to maturing brokered deposits and deteriorating economic
conditions, offset by the proceeds from the sale of other real estate. See the Condensed Consolidated Statement of Cash Flows for a detail of the sources and uses of cash and cash equivalents during the three months ended March 31, 2009 and
2008.
Investment Securities
The composition of the investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also
provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for
certain deposits.
During the three-month period ended March 31, 2009, in an effort to maintain capital levels, the Company sold U.S.
Government Agency securities and reinvested the proceeds into similar U.S. Government Agency securities. Compared to December 31, 2008, investment securities remained relatively consistent, as the balance decreased $2.8 million or 0.7%. At
March 31, 2009 and December 31, 2008, the securities portfolio accounted for approximately 14.0% and 13.8%, respectively, of total assets.
The investment securities portfolio primarily consists of U.S. Government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, and municipal securities. Mortgage-backed securities rely
on the underlying pools of mortgage
19
loans to provide a cash flow of principal and interest. Substantially all of our mortgage-backed and collateralized mortgage obligation bonds are Government
National Mortgage Association issued and we do not have any bonds secured by subprime mortgages. The actual maturities of these securities will differ from the contractual maturities because loans underlying the securities may prepay. Decreases in
interest rates will generally cause an acceleration of prepayment levels. In a declining interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate
environment, the opposite occurs. Prepayments tend to slowdown and the weighted average life extends. This is referred to as extension risk which can lead to lower levels of liquidity due to the delay of timing of cash receipts and can result in the
holding of a below market yielding asset for a longer time period.
Loans Receivable, Net
Loans receivable, net (including loans held for sale) decreased approximately $46.8 million from December 31, 2008. Due to the substantial decline in
real estate markets and the overall economy, we continue to significantly slow the growth of our loan portfolio. Furthermore, the Companys commitment to reduce the level of nonperforming assets in its loan portfolio has also contributed to the
decline in the loan balance.
Assets Held For Sale
The balances of $86.1 million and $2.1 million represent the loans and premises and equipment, respectively, to be sold to The Heritage Bank in conjunction with the sale of our two Glynn County branches, located in
Brunswick and St. Simons Island.
Risk Elements and Allowance for Loan Losses (ALL)
Nonperforming assets consist of nonaccrual loans, loans 90 days past due and accruing and other real estate, which is real estate acquired through
foreclosure and repossession. Nonperforming assets increased significantly to $390.9 million or 14.0% of total assets at March 31, 2009 compared to $327.3 million or 11.5% of total assets at December 31, 2008.
The following table presents our nonperforming assets as of the dates indicated:
|
|
|
|
|
|
|
(In Thousands)
|
|
March 31,
2009
|
|
December 31,
2008
|
Nonaccrual Loans
|
|
$
|
285,308
|
|
$
|
232,436
|
Loans 90 Days Past Due and Accruing
|
|
|
|
|
|
146
|
Other Real Estate
|
|
|
105,581
|
|
|
94,717
|
|
|
|
|
|
|
|
Total Nonperforming Assets
|
|
$
|
390,889
|
|
$
|
327,299
|
|
|
|
|
|
|
|
The increase in nonperforming assets is primarily attributable to the unprecedented economic and
credit conditions that began in late summer of 2007 and has continued through the first quarter of 2009. A significant portion of the loan portfolios of our metropolitan Atlanta Banks and SRES is concentrated in loans to residential builders and
developers. With the significant slowing of home and land sales, the prices of homes and land have declined precipitously. Therefore, many of our customers who develop and sell residential real estate cannot service their loans because they are not
generating any revenue.
At March 31, 2009, the 10 largest nonaccrual loans comprise $126.7 million or 44.4% of the total. Of these 10
loans, six are residential development loans, three are commercial real estate loans and one loan is mixed use. A detail of the activity in nonperforming loans for the three-month periods ended March 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
Nonaccrual loans at beginning of period
|
|
$
|
232,436
|
|
|
$
|
50,635
|
|
Activity during the period:
|
|
|
|
|
|
|
|
|
Additions, net
|
|
|
91,417
|
|
|
|
173,600
|
|
Foreclosures
|
|
|
(19,142
|
)
|
|
|
(13,567
|
)
|
Charge-offs, net
|
|
|
(18,000
|
)
|
|
|
(24,148
|
)
|
Principal collections
|
|
|
(1,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans at end of period
|
|
$
|
285,308
|
|
|
$
|
186,520
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009, the 10 largest other real estate owned properties comprise $43.8 million
or 41.5% of the total. Six of these properties are residential in nature, three of the properties are mixed use, and one property is commercial. Of total other real
20
estate owned, the largest component is residential lots at 37.1% followed by single family homes at 26.6%, raw land at 33.3% and commercial property at 3.0%.
A detail of the activity in other real estate for the three-month periods ended March 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
Other real estate at beginning of period
|
|
$
|
94,717
|
|
|
$
|
28,175
|
|
Activity during the period:
|
|
|
|
|
|
|
|
|
Foreclosures
|
|
|
19,142
|
|
|
|
13,567
|
|
Sales
|
|
|
(6,701
|
)
|
|
|
(5,779
|
)
|
Provisions for loss
|
|
|
(1,670
|
)
|
|
|
|
|
Other
|
|
|
93
|
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
Other real estate at end of period
|
|
$
|
105,581
|
|
|
$
|
35,749
|
|
|
|
|
|
|
|
|
|
|
Our management assesses the adequacy of the ALL quarterly. This assessment includes procedures to
estimate the allowance and test the adequacy and appropriateness of the resulting balance. The ALL consists of two components: (1) a specific amount representative of identified credit exposures that are readily predictable by the current
performance of the borrower and underlying collateral (SFAS No. 114 component); and (2) a general amount based upon historical losses that is then adjusted for various stress factors representative of various economic factors and
characteristics of the loan portfolio (SFAS No. 5 component). Even though the ALL is composed of two components, the entire ALL is available to absorb any credit losses.
We establish the specific amount by examining impaired loans. Under generally accepted accounting principles, we may measure the loss either by
(1) the observable market price of the loan; or (2) the present value of expected future cash flows discounted at the loans effective interest rate; or (3) the fair value of the collateral if the loan is collateral dependent.
Because the majority of our impaired loans are collateral dependent, nearly all of our specific allowances are calculated based on the fair value of the collateral.
We establish the general amount by taking the remaining loan portfolio (excluding those impaired loans discussed above) with allocations based on historical losses in the total loan portfolio. The calculation of the
general amount is then subjected to stress factors that are somewhat subjective. The amount due to stress testing attempts to correlate the historical loss rates with current economic factors and current risks in the portfolio. The stress factors
consist of: (1) economic factors including such matters as changes in the local or national economy; (2) the depth or experience in the lending staff; (3) any concentrations of credit (such as commercial real estate) in any particular
industry group; (4) new banking laws or regulations; (5) the credit grade of the loans in our unsecured consumer loan portfolio; and (6) additional risks resulting from the level of speculative real estate loans in the portfolio.
After we assess the applicable factors, we evaluate the remaining amount based on managements experience.
Finally, we compare the
level of the ALL with historical trends and peer information as a reasonableness test. Management then evaluates the result of the procedures performed, including the result of our testing, and makes a conclusion regarding the appropriateness of the
ALL in its entirety.
In assessing the adequacy of the ALL, we also rely on an ongoing independent credit administration review process. We
undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our credit administration
review process includes the judgment of management, the input of our internal loan review function and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. The Credit Quality Committee, which
is a committee comprised of members of the Boards of Directors of the Company and its subsidiaries, regularly reviews the ALL process and results.
Other Assets
Other Assets increased largely as a result of increases in income taxes receivable (due to our
operating losses) and prepaid regulatory fees resulting from substantial increases in FDIC fees.
21
Liabilities
The composition of liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
March 31,
2009
|
|
December 31,
2008
|
|
$ Change
|
|
|
% Change
|
|
Deposits
|
|
$
|
2,320,616
|
|
$
|
2,438,136
|
|
$
|
(117,520
|
)
|
|
-4.8
|
%
|
Deposits Held by Branches to be Sold
|
|
|
81,853
|
|
|
|
|
|
81,853
|
|
|
100.0
|
%
|
Borrowed Money
|
|
|
289,673
|
|
|
300,621
|
|
|
(10,948
|
)
|
|
-3.6
|
%
|
Other Liabilities
|
|
|
28,073
|
|
|
22,589
|
|
|
5,484
|
|
|
24.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,720,215
|
|
$
|
2,761,346
|
|
$
|
(41,131
|
)
|
|
-1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
The decrease in total deposits (including deposits held by branches to be sold) of approximately $35.7 million is due primarily to the decrease in interest bearing demand accounts of $35.8 million and a decrease in
brokered deposits of $66.1 million, offset by an increase in wholesale certificates of deposit of $69.8 million. The decrease in interest-bearing demand balances is due primarily to economic conditions, as funds are being drawn more frequently by
account holders to meet obligations. The increase in wholesale certificates of deposit and decrease in brokered deposits are related to the undercapitalized regulatory capital status of several of the Banks. Per applicable regulatory guidelines,
these banks may not accept, renew or rollover brokered deposits, which has resulted in the decrease in brokered certificates of deposit and increase in the use of wholesale certificates of deposit. The deposits held by branches to be sold balance of
$81.9 million represents the deposits to be assumed by The Heritage Bank in conjunction with the sale of our two Glynn County branches, located in Brunswick and St. Simons Island.
Further discussion of our use of brokered and wholesale certificates of deposit is included in the
Liquidity
section of this discussion.
Borrowed Money
The decrease in
borrowed money is primarily related to a $10.8 million decrease in repurchase agreements. The Company utilizes these sources as necessary to meet funding needs. At the request of the Federal Reserve Bank of Atlanta, in February 2008 our Board of
Directors approved a resolution stating that we will not incur additional debt at the holding company without the prior written approval of the Federal Reserve Bank of Atlanta.
Other Liabilities
The increase in other liabilities is largely a result of decreases in
accrued expenses.
Equity
At
March 31, 2009, total equity was $65.9 million or 2.4% of total assets compared to $84.7 million or 3.0% of total assets as of December 31, 2008. The decrease in equity is due primarily to the net loss of $18.5 million incurred during the
quarter ended March 31, 2009.
At the request of the Federal Reserve Bank of Atlanta, in February 2008 our Board of Directors passed a
resolution stating that we will not declare or pay any dividends to our shareholders without the prior written approval of the Federal Reserve Bank of Atlanta. In addition, pursuant to the Orders, five of our Banks may not pay cash dividends without
the prior written consent of the FDIC and the Department.
Results of Operations
Net Loss
Net loss for the three-month periods ended March 31, 2009 and 2008 was $18.5
million or $0.79 diluted loss per share compared to $24.2 million or $1.22 diluted loss per share, respectively. The decrease in the net loss for the three-month period ended March 31, 2009 is primarily attributable to a decrease in the
provision for loan losses of $30.1 million offset by reductions in net interest income and income tax benefit of $10.9 million and $12.4 million, respectively.
Net Interest Income
The net interest margin of the Company was 0.60% for the three-month period ended March 31,
2009 compared to 2.33% for the same three-month period of the preceding year. Total interest income decreased to $27.4 million for the three-month period ended March 31, 2009, from $40.8 million during the comparable prior year period. The
decrease in total interest income is due primarily to a $13.0 million decrease in interest generated from loans receivable, which resulted from a 180 basis point decline in the yield on these assets and a decrease in the average balance of $238.4
million. The decline in the yield on loans receivable is the result of rate
22
decreases of 400 basis points during 2008 and forfeited interest from nonperforming assets and reversal of interest on nonaccrual loans, which reduced the
yield by 77 and 22 basis points, respectively. The decrease in the average loan balance is related to the Companys commitment to reduce the level of nonperforming assets in its loan portfolio. Total interest expense decreased $2.5 million to
$23.4 million as a result of a decrease of $3.4 million in interest expense on deposits, offset by an increase of $0.9 million in the interest expense on borrowed funds.
The average cost of interest-bearing deposits decreased by 84 basis points and the average balance increased by $153.4 million. Time deposits, the largest category of deposits, increased by $284.3 million primarily
due to the increased use of brokered and internet-based certificates of deposit. These types of deposits historically have provided a means of generating deposits to meet our funding needs, but our access to this funding source may be limited in the
future. The increase in the average balance of time deposits is offset with a 100 basis-point decrease resulting from market interest rate decreases during 2008.
The average balance of interest-bearing demand accounts decreased $130.9 million, with a corresponding decline in the cost of such deposits of 104 basis points related to market interest rate decreases during 2008.
The interest expense on borrowed funds during the first quarter of 2009 increased by $0.9 million when compared to the corresponding
period in 2008. This increase is related to an increase of $120.6 million in the average balance of borrowed funds offset by a decrease of 64 basis points in the average costs of borrowings. The increase in the average balance is related to the
$40.0 million of subordinated notes issued in April 2008 and an increase in the average balance of FHLB advances of $77.0 million borrowed in an effort to bolster on-balance sheet liquidity. The decrease in the average cost of these borrowings is
the result of a 100 basis point decline in the cost of FHLB advances, and a 296 basis point decrease in the cost of repurchase agreements, related to market rate decreases during 2008. These cost decreases are offset by the cost of the subordinated
notes.
23
The following table represents the effective yields and costs of funds for the three-month periods ended
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
(Dollars in thousands)
|
|
Average
Balances
|
|
Income/
Expense
|
|
Yields/
Rates
|
|
|
Average
Balances
|
|
Income/
Expense
|
|
Yields/
Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net of Unearned Income
|
|
$
|
1,955,732
|
|
$
|
23,891
|
|
4.95
|
%
|
|
$
|
2,194,092
|
|
$
|
36,935
|
|
6.75
|
%
|
Mortgage Loans Held for Sale
|
|
|
|
|
|
|
|
|
|
|
|
5,896
|
|
|
92
|
|
6.26
|
|
Investment Securities-Taxable
|
|
|
398,987
|
|
|
3,282
|
|
3.34
|
|
|
|
288,514
|
|
|
3,176
|
|
4.42
|
|
Investment Securities- Tax-Exempt, Tax Equivalent Basis
|
|
|
2,085
|
|
|
38
|
|
7.48
|
|
|
|
7,881
|
|
|
143
|
|
7.28
|
|
Interest-Bearing Deposits With Other Banks
|
|
|
292,048
|
|
|
125
|
|
0.17
|
|
|
|
4,042
|
|
|
35
|
|
3.47
|
|
Federal Funds Sold
|
|
|
8,724
|
|
|
4
|
|
0.19
|
|
|
|
49,966
|
|
|
389
|
|
3.12
|
|
Other Interest-Earning Assets
|
|
|
1,238
|
|
|
17
|
|
5.57
|
|
|
|
1,238
|
|
|
22
|
|
7.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets
|
|
|
2,658,814
|
|
|
27,357
|
|
4.17
|
|
|
|
2,551,629
|
|
|
40,792
|
|
6.41
|
|
|
|
|
|
|
|
|
Noninterest-Earning Assets
|
|
|
187,659
|
|
|
|
|
|
|
|
|
266,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,846,473
|
|
|
|
|
|
|
|
$
|
2,818,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, Money Market and Savings
|
|
$
|
377,679
|
|
$
|
1,655
|
|
1.78
|
%
|
|
$
|
508,552
|
|
$
|
3,575
|
|
2.82
|
%
|
Time Deposits
|
|
|
1,921,980
|
|
|
18,907
|
|
3.99
|
|
|
|
1,637,728
|
|
|
20,370
|
|
4.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Deposits
|
|
|
2,299,659
|
|
|
20,562
|
|
3.63
|
|
|
|
2,146,280
|
|
|
23,945
|
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Advances
|
|
|
189,865
|
|
|
1,114
|
|
2.38
|
|
|
|
71,312
|
|
|
672
|
|
3.78
|
|
Subordinated Debentures
|
|
|
41,325
|
|
|
580
|
|
5.69
|
|
|
|
41,238
|
|
|
739
|
|
7.19
|
|
Federal Funds Purchased and Repurchase Agreements
|
|
|
32,641
|
|
|
13
|
|
0.16
|
|
|
|
44,745
|
|
|
348
|
|
3.12
|
|
Notes Payable and Other
|
|
|
31,921
|
|
|
1,168
|
|
14.84
|
|
|
|
17,829
|
|
|
239
|
|
5.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings
|
|
|
295,752
|
|
|
2,875
|
|
3.94
|
|
|
|
175,124
|
|
|
1,998
|
|
4.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities
|
|
|
2,595,411
|
|
|
23,437
|
|
3.66
|
|
|
|
2,321,404
|
|
|
25,943
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Liabilities
|
|
|
172,670
|
|
|
|
|
|
|
|
|
183,583
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
78,392
|
|
|
|
|
|
|
|
|
313,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
2,846,473
|
|
|
|
|
|
|
|
$
|
2,818,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Spread
|
|
|
|
|
|
|
|
0.51
|
%
|
|
|
|
|
|
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
$
|
3,920
|
|
|
|
|
|
|
|
$
|
14,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
0.60
|
%
|
|
|
|
|
|
|
|
2.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a detailed analysis of the changes in interest income and interest
expense due to changes in rate and volume for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. Changes in the average balances outstanding for interest earning assets and interest bearing liabilities
are volume changes and changes in the interest rates earned and paid on such assets and liabilities are rate changes. Changes resulting from a combination of changes in volume and rate have been included in the rate changes.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes From March 31, 2008 to
March 31, 2009
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
|
|
(Dollars in Thousands)
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Net of Unearned Income
|
|
$
|
(3,968
|
)
|
|
$
|
(9,076
|
)
|
|
$
|
(13,044
|
)
|
Mortgage Loans Held For Sale
|
|
|
(91
|
)
|
|
|
(1
|
)
|
|
|
(92
|
)
|
Investment Securities - Taxable
|
|
|
1,203
|
|
|
|
(1,097
|
)
|
|
|
106
|
|
Investment Securities - Tax-Exempt
|
|
|
(104
|
)
|
|
|
(1
|
)
|
|
|
(105
|
)
|
Interest-Bearing Deposits With Other Banks
|
|
|
2,466
|
|
|
|
(2,376
|
)
|
|
|
90
|
|
Federal Funds Sold and Other
|
|
|
(318
|
)
|
|
|
(72
|
)
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
(812
|
)
|
|
|
(12,623
|
)
|
|
|
(13,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, Money Market and Savings
|
|
|
(910
|
)
|
|
|
(1,010
|
)
|
|
|
(1,920
|
)
|
Time Deposits
|
|
|
3,497
|
|
|
|
(4,960
|
)
|
|
|
(1,463
|
)
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Advances
|
|
|
1,105
|
|
|
|
(663
|
)
|
|
|
442
|
|
Subordinated Debentures
|
|
|
2
|
|
|
|
(161
|
)
|
|
|
(159
|
)
|
Federal Funds Purchased and Repurchase Agreements
|
|
|
187
|
|
|
|
(522
|
)
|
|
|
(335
|
)
|
Notes Payable and Other
|
|
|
1,105
|
|
|
|
(176
|
)
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
4,986
|
|
|
|
(7,492
|
)
|
|
|
(2,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
(5,798
|
)
|
|
$
|
(5,131
|
)
|
|
$
|
(10,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level, which is deemed
to be appropriate by management. The amount of this provision is based upon an assessment of prior loss experience, the volume and type of lending presently being conducted by the Company, industry standards, past due loans, economic conditions of
the Companys market area and other factors related to the collectibility of the loans in our loan portfolio.
The following table
presents our loan loss experience on all loans for the three-month periods ended March 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Balance, beginning of period
|
|
$
|
59,437
|
|
|
$
|
31,698
|
|
Charge-Offs
|
|
|
|
|
|
|
|
|
Construction, Land and Land Development
|
|
|
(16,326
|
)
|
|
|
(23,586
|
)
|
Commercial, Financial and Agricultural
|
|
|
(262
|
)
|
|
|
(331
|
)
|
Real Estate Other
|
|
|
(1,323
|
)
|
|
|
(247
|
)
|
Consumer
|
|
|
(507
|
)
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,418
|
)
|
|
|
(24,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Construction, Land and Land Development
|
|
|
67
|
|
|
|
3
|
|
Commercial, Financial and Agricultural
|
|
|
105
|
|
|
|
68
|
|
Real Estate Other
|
|
|
66
|
|
|
|
50
|
|
Consumer
|
|
|
180
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Net Charge-Offs
|
|
|
(18,000
|
)
|
|
|
(24,148
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
12,108
|
|
|
|
42,199
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
53,545
|
|
|
$
|
49,749
|
|
|
|
|
|
|
|
|
|
|
As a result of the dramatic changes in our real estate markets, we incurred net charge-offs of
$18.0 million and $24.1 million during the three-month periods ended March 31, 2009 and 2008, respectively. The allowance for loan losses on March 31, 2009 was 2.78% of loans receivable compared to 3.00% at December 31, 2008.
Although management utilizes its best judgment in providing for inherent losses in our loan portfolio, there can be no assurance that we
will not have to increase the provision for loan losses in the future as a result of future increases in nonperforming loans or for other reasons which could adversely affect our results of operations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance for loan losses based on their judgments of information that is available to them at
the time of their examination.
25
Noninterest Income and Expense
The composition of noninterest income for the first quarters of 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
% Change
|
|
Service Charges on Deposits
|
|
$
|
1,915
|
|
$
|
2,287
|
|
$
|
(372
|
)
|
|
-16.3
|
%
|
Mortgage Origination and Related Fees
|
|
|
22
|
|
|
1,002
|
|
|
(980
|
)
|
|
-97.8
|
%
|
Securities Gains
|
|
|
2,626
|
|
|
2,034
|
|
|
592
|
|
|
29.1
|
%
|
Other
|
|
|
286
|
|
|
539
|
|
|
(253
|
)
|
|
-47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,849
|
|
$
|
5,862
|
|
$
|
(1,013
|
)
|
|
-17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease of $1.0 million or 17.3% in noninterest income is due primarily to the following:
|
|
|
decrease of $0.3 million in bounce protection fees;
|
|
|
|
decrease of $0.1 million in commission fees earned by CFS Wealth Management, LLC (CFS) professionals. The Company sold CFS during the first quarter of 2008 and
therefore did not generate any fees during 2009;
|
|
|
|
reduction in mortgage originations and related fees generated by SRES of $1.0 million. SRES ceased originating residential mortgage loans in the fourth quarter of
2008;
|
|
|
|
loss on the termination of our relationship with CFS of $0.5 million incurred during the first quarter of 2008. There were no such charges during the first quarter
of 2009; and
|
|
|
|
increase in gain on sales of securities of $0.6 million
|
The composition of noninterest expense for the first quarters of 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
% Change
|
|
Salaries and Employee Benefits
|
|
$
|
6,255
|
|
$
|
8,736
|
|
$
|
(2,481
|
)
|
|
-28.4
|
%
|
Occupancy and Equipment
|
|
|
1,751
|
|
|
1,549
|
|
|
202
|
|
|
13.0
|
%
|
Foreclosed Property
|
|
|
4,472
|
|
|
1,647
|
|
|
2,825
|
|
|
171.5
|
%
|
FDIC Assessments
|
|
|
519
|
|
|
391
|
|
|
128
|
|
|
32.7
|
%
|
Professional Fees
|
|
|
1,812
|
|
|
654
|
|
|
1,158
|
|
|
177.1
|
%
|
Marketing
|
|
|
403
|
|
|
405
|
|
|
(2
|
)
|
|
-0.5
|
%
|
Amortization-Core Deposit Intangible
|
|
|
203
|
|
|
246
|
|
|
(43
|
)
|
|
-17.5
|
%
|
Other
|
|
|
1,496
|
|
|
3,279
|
|
|
(1,783
|
)
|
|
-54.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,911
|
|
$
|
16,907
|
|
$
|
4
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense was consistent when compared to the first quarter of 2008. Changes in the
various expense categories include:
|
|
|
decrease of $2.5 million in salaries and employee benefits due to reductions of: $1.1 million in salaries due to our reduction in force of approximately 23% during
the second half of 2008, $0.3 million in mortgage loan commissions due to exiting that line of business during the fourth quarter of 2008; $0.3 million in bonus and incentive plan expense resulting from the Companys decreased financial
performance; and a net reduction of $0.8 million in other compensation costs, including 401k expense ($0.3 million) and group insurance ($0.3 million);
|
|
|
|
increase of $2.8 million in foreclosed property expense, which includes fees and expenses of legal counsel and other professionals, as a result of the increase in
OREO from the first quarter 2008 levels to first quarter 2009 levels. We expect this elevated level of foreclosed property expenses to continue as we work through our problem assets;
|
|
|
|
increase of $1.2 million in professional fees due largely to higher legal costs resulting from increased litigation and claims with borrowers, guarantors and
co-lenders in connection with loans and loan participations. The increase in professional fees is also related to amounts paid to investment bankers and other organizations in connection with our capital raising initiatives; and
|
26
|
|
|
decrease in other noninterest income resulting from the reversal of liability of $0.9 million during the first quarter of 2009. In 2008, we accrued for a potential
legal settlement that was subsequently settled at no cost to the Company in 2009.
|
Income Taxes
Income tax benefit totaled $1.8 million and $14.2 million for the three-month periods ended March 31, 2009 and 2008, respectively. The effective tax
rates for the 2009 and 2008 quarters were approximately 8.9% and 37.1%, respectively. The effective tax rate has historically been at or just below the maximum corporate federal and state income tax rates due to the relatively small percentage of
tax-free investments carried on the consolidated balance sheets. The lower effective rate in 2009 results from the impairment of our deferred tax assets which reduces the tax benefit from our pretax loss.
Capital Adequacy
The Federal Reserve Board
measures capital adequacy for bank holding companies by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. The minimum ratio of total risk-based capital to risk-adjusted assets is 8%, of which
4% must be Tier 1 capital. Our total risk-based capital ratio was 7.89% at March 31, 2009. Our Tier 1 risk-based capital ratio was 4.00% at March 31, 2009.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. Those guidelines provide for a minimum leverage ratio of 3% for financial institutions that meet
certain criteria, including that they maintain the highest regulatory rating. All other financial institutions are required to maintain a leverage ratio of 4%. Our leverage ratio was 2.87% at March 31, 2009.
The Federal Deposit Insurance Corporation Improvement Act established minimum capital requirements for all depository institutions and imposes
significant restrictions on the operations of a bank that is not at least adequately capitalized. A depository institutions capital tier will depend upon where its capital levels are in relation to various other capital measures that include a
risk-based capital measure, a leverage ratio capital measure and other factors. Under regulations adopted, for an institution to be well capitalized, it must have a total risk-based capital ratio of at least 10%, a Tier 1 risk-based
capital ratio of at least 6% and a Tier 1 leverage ratio of at least 5%. Also, the institution may not be subject to any specific capital order or directive.
At March 31, 2009, the Banks respective regulatory capital levels met the criteria of the following categories, subject to the regulatory capital provisions included in the Orders to Cease and Desist:
|
|
|
Well Capitalized Security Bank of Houston County and Security Bank of Jones County;
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Adequately Capitalized Security Bank of North Fulton;
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Undercapitalized Security Bank of Bibb County;
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Significantly Undercapitalized Security Bank of North Metro; and
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Critically Undercapitalized Security Bank of Gwinnett County
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Banks that are not well capitalized can be subject to higher rates for FDIC insurance and other restrictions and limitations.
Under Section 29 of the FDIA and Section 337.6 of the FDIC Rules and Regulations, several of our Banks may not accept, renew or rollover brokered deposits. As such, the payment of these deposits will greatly
diminish the liquidity position of the Company and raise substantial doubt about our ability to continue as a going concern. For additional information on our liquidity management and position, please see the
Liquidity
section below.
Liquidity
Primarily through
the actions of our Banks, we manage our liquidity to ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds. Liquidity needs are met through loan repayments, cash flows received from pay downs on
mortgage-backed securities, net interest and fee income and the sale or maturity of existing assets. In addition, liquidity is continuously provided through the acquisition of new deposits, the renewal of maturing deposits and external borrowings.
Management regularly monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits as needed. Historically, to the extent needed, traditional local deposit funding sources are supplemented by the use of FHLB
borrowings, brokered deposits and other wholesale deposit sources outside our immediate market area, including an Internet-based national certificate of deposit service.
As discussed in the preceding paragraphs, because several of our Banks cannot accept, renew or rollover brokered deposits, paying off these deposits as they mature will greatly diminish the liquidity position of the
Company. As a result, we may not be able to fund our business operations in the future.
Our Liquidity Task Force (LTF) continues to meet
weekly to review liquidity-related issues such as forecasted sources and uses of funds, loan pipelines, deposit pricing and deposit and borrowing maturities, among others. Our Liquidity Contingency Plan establishes Early Warning Indicators that
result from predetermined levels of and changes in various funding sources and ratios that incorporate those sources. We have built up our liquidity to a level that exceeds our current needs because of brokered deposits that
27
will mature during 2009, the freeze on our FHLB borrowing and the negative publicity surrounding both the banking industry and the Company. The banking
industry has come under significant scrutiny due to government funding through the Emergency Economic Stabilization Act of 2008 and TARP. The Company has endured adverse publicity due to our increasing levels of nonperforming assets, goodwill
impairment during 2008, significant drop in stock price during 2008 and our net loss in 2008. Due to the limitations on the use of brokered deposits as a funding source discussed previously our liquidity will be adversely and significantly affected,
and we may not be able to fund our operations or continue as a going concern. Additionally, the current volatility and disruptions in the capital markets will impact the Companys ability to access alternative liquidity sources in the same
manner as the Company had in the past.
The Companys investment portfolio provides a ready means to raise cash if liquidity needs
arise. As of March 31, 2009 we held $390.9 million in bonds at current market value in our available for sale portfolio with $298.7 million or 76% pledged to secure various public funds deposits, federal funds lines and repurchase agreements
and for other purposes.
Management continues to emphasize programs to generate local core deposits as our primary funding source. The
stability of our core deposit base is an important factor in our liquidity position. A large percentage of the deposit base is comprised of accounts of individuals and small businesses with comprehensive banking relationships and limited volatility.
At March 31, 2009 and December 31, 2008, our Banks had $1.00 billion and $1.09 billion, respectively, in certificates of deposit of
$100,000 or more. These larger deposits represented 43% and 48% of respective total interest-bearing deposits. Management seeks to monitor and control the use of these larger certificates, which tend to be more volatile in nature, to ensure an
adequate supply of funds as needed. The Company compares relative interest costs to attract local core relationships to the cost associated with market rates of interest on various external deposit sources to help minimize our overall cost of funds.
In response to rate decreases on time deposits and reduced demand deposit balances, our Banks have increased deposit sources with brokered
deposits and wholesale certificates of deposit. As of March 31, 2009 and December 31, 2008 the Banks reported $1.05 billion, or 44% of total deposits and $798.2 million, or 33% of total deposits in brokered and wholesale certificates of
deposit, respectively.
We have established multiple borrowing sources to augment our funds management. Borrowing capacity exists through
the membership of our Banks in the FHLB program. Our Banks have also established overnight borrowing lines for federal funds purchased through various correspondent banks. At March 31, 2009, the Company had availability from these borrowing
sources of $91.5 million. In February 2009, the Company received notice from the FHLB of Atlanta that the FHLB had frozen our borrowing availability for four of our Banks (Security Bank of Bibb County, Security Bank of North Metro, Security Bank of
North Fulton and Security Bank of Gwinnett County) to the amount outstanding. Advances that mature may be renewed; however, no new advances may be obtained.
The current economic situation in the United States and our current liquidity level and potential negative impacts on liquidity discussed above, in addition to the Orders entered into by the Banks, raise substantial
doubt about our ability to continue as a going concern for the foreseeable future.
Interest Rate Risk Management
The management of interest rate risk is the primary goal of our ALCO Committee. We attempt to achieve consistent growth in net interest income while
limiting volatility from changes in interest rates. Management seeks to accomplish this goal by balancing the maturity and repricing characteristics of various assets and liabilities. ALCO meets regularly and has responsibility for approving
asset/liability management policies, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing our interest rate sensitivity.
To help us manage fluctuations in our net interest income, we use simulation modeling to estimate the impact on net interest income of both the current
level of market interest rates and for changes to the current level of market interest rates. We measure the projected changes in market interest rates in terms of rate shifts of plus or minus 100, 200 and 300 basis points over the
current levels of market interest rates. We assume rate shifts occur ratably over a 12-month measurement horizon. We base projected pricing for maturing and repricing assets and liabilities upon actual pricing experience over the period immediately
preceding the projection period. We believe that our elevated levels of nonperforming assets will continue to have an adverse impact on our net interest margin through 2009 and we have included these levels in our modeling.
28
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These
financial instruments primarily include unfulfilled loan commitments and standby letters of credit. Our exposure to credit loss in the event of nonperformance by the counter party to the financial instrument for unfulfilled loan commitments and
standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet transactions. We include loan
commitments and letters of credit in our projections for future liquidity and capital requirements.
Unfulfilled loan commitments are
arrangements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Historically, many
commitments expire without being drawn upon; therefore, the following total commitment amounts are not necessarily indicative of future funding requirements. Unfulfilled loan commitments as of March 31, 2009 and December 31, 2008
approximated $163.4 million and $188.8 million, respectively.
Standby letters of credit are conditional commitments issued by us to
guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers, and letters of credit are collateralized when deemed necessary.
We had commitments under financial and performance standby letters of credit of $10.9 million as of March 31, 2009 and $11.5 million as of December 31, 2008.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying
these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which,
in the case of the determination of our ALL, intangible assets, income taxes and stock-based compensation have been critical to the determination of our financial position and results of operations. See
Provision for Loan Losses
section
included herein and
Critical Accounting Policies
section included in our Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 3.
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Quantitative and Qualitative Disclosures About Market Risk
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The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above. See Managements Discussion and Analysis of Financial Condition and Results of Operations- Liquidity
and Interest Rate Risk Management.
ITEM 4.
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Controls and Procedures
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As of the end of the
period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of
1934. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There were no changes in our internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect internal control over financial reporting subsequent
to the date of this evaluation.
PART II. OTHER INFORMATION
ITEM 1.
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Legal Proceedings
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The Company and its subsidiaries
are parties to various legal proceedings arising from the normal course of business. During the last several years, the Company and its subsidiaries have financed several residential real estate projects. Many of these loans have been sold, or
participated, either in whole or in part to several different banks primarily in the state of Georgia. As the residential real estate market has experienced a growing depression and the local and national economies have suffered during 2008 and
2009, the Company has experienced an increase in the number of ordinary course lawsuits that fall into two general categories:
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1.
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Participant Suits. These suits and assertions include: breach of obligations and duties under the participation agreement, specific performance, negligence/intentional breach of
covenant of good faith and fair dealings, failure to manage the loan in accordance with that standard of care applicable to lending institutions. These suits have been filed in the Superior Court of Bibb County. The plaintiffs are asking that we buy
back their loans and pay legal and other costs. The Company believes these suits have no merit, and we are vigorously defending them.
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2.
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Borrower Counter-Claims. These suits and assertions include: fraudulent inducement, constructive fraud, negligent misrepresentation, and economic duress, breach of
contract, promissory estoppel, and fraud in the inducement of
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29
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contractual relationships. These suits have been filed in various state courts in Georgia and Florida. These suits have been brought by borrowers whose loans
have become nonperforming and the Company is attempting to foreclose on the underlying collateral and/or enforce the borrowers guarantees. The Company believes these suits have no merit, and we are vigorously defending them.
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It is possible that an unfavorable resolution of one or more of such litigation proceedings could in the future
materially affect our liquidity, consolidated financial position and/or results of operations.
In addition to other information set
forth in this Quarterly Report on Form 10-Q, the risk factors discussed in Item 1A to Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2008 contain valuable information concerning factors that could materially
affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and/or operating results.
Five of our Banks have stipulated to Cease
and Desist Orders with the Department and the FDIC and we have entered into a Written Agreement with the Federal Reserve Bank of Atlanta, which place significant restrictions on our operations.
Under applicable laws, the FDIC, as our deposit insurer, and the Department as our chartering authority, have the ability to impose substantial sanctions,
restrictions and requirements on us if they determine, upon examination or otherwise, violations of laws with which we must comply, or weaknesses or failures with respect to general standards of safety and soundness. Applicable law prohibits
disclosure of specific examination findings by the institution, although formal enforcement actions are routinely disclosed by the regulatory authorities.
As a result of recent examinations, the Department and the FDIC, issued the Banks the Orders. In April 2009, each Bank stipulated to the Orders. The Orders set forth requirements for the Banks to take actions to
address capital levels and lending policies, and place restrictions on the issuance of dividends by the Banks to the Company and restrictions on brokered deposits, among other items. Four of the Orders entered into by Security Bank of Gwinnett
County, Security Bank of Bibb County, Security Bank of Jones County and Security Bank of North Metro, state that the Banks are: operating with a Board that has failed to provide adequate supervision over and direction to the management of the Bank;
operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; operating with a large volume of poor quality loans; following hazardous lending and tax collection policies and practices;
operating in such a manner as to produce operating losses; operating with inadequate equity capital in relation to the volume and quality of assets held by the Bank; operating with inadequate provisions for liquidity and funds management; operating
with inadequate allowance for loan and lease losses; and operating in violation of laws and/or regulations, and in contravention of statements of policy. The fifth Order entered into by Security Bank of Houston County states that the Bank is:
operating with inadequate supervision and direction over the financial affairs of the Bank; operating with an inadequate level of capital based upon the level of risk identified; operating with an excessive volume of assets subject to adverse
classification, resulting from engaging in inadequate credit administration and underwriting practices; operating with an excessive volume of credit concentrations which reflect a lack of diversity in the loan portfolio; operating with an excessive
volume of nonearning assets; operating with marginal liquidity; and engaging in violations of applicable federal and state regulations. Each Bank consented to the Orders without admitting to or denying the allegations.
The Orders entered into by Security Bank of Jones County and Security Bank of North Metro require the Banks to increase their capital to a minimum Tier 1
Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 30 days of the effective date of the Order. The Orders entered into by Security Bank of Bibb County and Security Bank of Gwinnett County require the
Banks to increase their capital to a minimum Tier 1 Capital Ratio of 8.0% within 30 days of the effective date of the Order. The Order entered into by Security Bank of Houston Country requires the Bank to increase its capital to a minimum Tier 1
Capital Ratio of 8.0% within 90 days of the effective date of the Order.
In the event we are in material non-compliance with the terms of
the Orders and the Written Agreement, our regulators have the authority to subject us to the terms of more restrictive enforcement orders, to impose civil money penalties on us and our directors and officers, and to remove directors and officers
from their positions. In addition, due to the imposition of the Orders and the Written Agreement, we will be subject to heightened scrutiny by regulatory authorities and could suffer damage to our reputation in the marketplace.
An inability to improve our regulatory capital position could adversely affect our operations and future prospects.
Our success and ongoing viability is dependent on our ability to raise sufficient capital or reduce our assets to improve our regulatory capital position.
At March 31, 2009, one of our subsidiary Banks was classified as undercapitalized, one of our subsidiary Banks was classified as significantly undercapitalized and one of our subsidiary Banks was classified as
critically undercapitalized, which restricts our operations.
30
Our ability to comply with the regulatory capital provisions of the Orders is contingent on current and
future economic conditions and on our financial performance, which will require us to raise additional capital. Capital market conditions are currently unfavorable, and we do not anticipate any material improvement in these markets in the near term.
If we are unable to raise sufficient amounts of capital, our financial condition and future prospects will be materially and adversely affected and further regulatory actions may be implemented, including ultimately placing our subsidiary banks in
receivership or conservatorship.
If our allowance for loan losses is not sufficient to cover actual loan losses, we will incur additional losses.
The market value of the real estate securing our loans as collateral has been significantly and adversely affected by the deteriorating
economy and unfavorable changes in economic conditions in our market areas and may be further adversely affected in the future. As of March 31, 2009, approximately 89% of our loans receivable were secured by real estate. As a result of a
difficult real estate market, we have increased our allowance from $49.7 million as of March 31, 2008 to $53.5 million as of March 31, 2009. We expect to continue to increase our allowance in 2009; however, we can make no assurance that
our allowance will be adequate to cover future loan losses given current and future market conditions.
Pursuant to the Orders, five of our
Banks are required to review the adequacy of our allowance for loan and lease losses on a quarterly basis. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for
loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies would have a negative effect on
our operating results and capital position.
31
ITEM 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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None.
ITEM 3.
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Defaults Upon Senior Securities
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None.
ITEM 4.
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Submission of Matters to a Vote of Security Holders
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None.
ITEM 5.
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Other Information
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On May 6, 2009, Security
Bank Corporation and Security Interim Holding Corporation (the Companies) entered into a Written Agreement with the Federal Reserve Bank of Atlanta (the Federal Reserve) and the Georgia Department of Banking and Finance (the
Department). The Written Agreement contains several provisions intended to increase the financial soundness of the Companies so that the Companies may serve as a source of strength to the Banks.
The summary description of the Written Agreement set forth below is qualified in its entirety by the actual Written Agreement, which is attached as
Exhibit and is incorporated by reference herein.
Under the terms of the Written Agreement, each of the Companies
has agreed to the following provisions (among others detailed in the Written Agreement):
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Submit a written plan to strengthen risk management practices and assist the Banks in meeting the requirements of supervisory actions imposed on them by their
federal or state regulators.
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Refrain from paying dividends or receiving dividends from the Banks without the prior written approval of the Federal Reserve and the Department.
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Refrain from making payments of interest or principal on subordinated debt or trust preferred securities without the prior written approval of the Federal Reserve
and the Department.
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Refrain from incurring, increasing or guaranteeing any debt without the prior written approval of the Federal Reserve and the Department.
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Submit a written plan to maintain sufficient capital at the Companies and each of the Banks.
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Refrain from increasing or imposing any new fees on the Banks without prior written approval of the Federal Reserve.
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Furnish quarterly progress reports to the regulators.
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The restrictions and reporting obligations under the Written Agreement are similar to the restrictions placed on the Banks pursuant to the previously reported enforcement actions.
32
(a) The following is a list of exhibits including
items incorporated by reference:
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Exhibit No
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Description
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3.1
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Amended and Restated Articles of Incorporation, (incorporated by reference to Exhibit 3.1 to registrants Form 8-K (File No. 000-23261) filed with the SEC on December 30,
2008).
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3.2
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Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to registrants Form 10-Q (File No. 000-23261) filed with the SEC on August 8, 2008).
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10.1
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Order to Cease and Desist between Security Bank of Bibb County and the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance (incorporated by reference as
Exhibit 10.1 to the registrants Form 8-K (File No. 000-23261), filed on April 24, 2009).
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10.2
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Order to Cease and Desist between Security Bank of Gwinnett County and the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance (incorporated by reference as
Exhibit 10.2 to the registrants Form 8-K (File No. 000-23261), filed on April 24, 2009).
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10.3
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Order to Cease and Desist between Security Bank of Jones County and the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance (incorporated by reference as
Exhibit 10.3 to the registrants Form 8-K (File No. 000-23261), filed on April 24, 2009).
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10.4
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Order to Cease and Desist between Security Bank of North Metro and the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance (incorporated by reference as
Exhibit 10.4 to the registrants Form 8-K (File No. 000-23261), filed on April 24, 2009).
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10.5
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Order to Cease and Desist between Security Bank of Houston County and the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance (incorporated by reference as
Exhibit 10.5 to the registrants Form 8-K (File No. 000-23261), filed on April 24, 2009).
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10.6*
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Written Agreement between Security Bank Corporation, Security Interim Holding Corporation, the Federal Reserve Bank of Atlanta and the Banking Commissioner of the State of
Georgia.
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31.1*
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Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1*
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Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Security Bank Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
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SECURITY BANK CORPORATION
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/s/ Tony E. Collins
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Tony E. Collins
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: May 11, 2009
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/s/ James R. McLemore
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James R. McLemore
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Executive Vice President and Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Date: May 11, 2009
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34
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