Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the Quarterly Period Ended
March 31, 2010
|
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Transition Period from
to
Commission
file number 000-53655
TOUCHMARK
BANCSHARES, INC.
(Exact name of issuer as specified in its
charter)
Georgia
|
|
20-8746061
|
(State
or other jurisdiction
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|
(I.R.S.
Employer
|
of
incorporation)
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|
Identification
No.)
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3651
Old Milton Parkway
Alpharetta,
Georgia 30005
(Address
of principal executive offices)
(770)
407-6700
(Issuers
telephone number)
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
o
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 (Section 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).
o
YES
o
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
o
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|
Accelerated
filer
o
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|
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|
Non-accelerated
filer
o
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Smaller
reporting company
x
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(Do
not check if a smaller reporting company)
|
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
YES
x
NO
Indicate the number of
shares outstanding of each of the registrants classes of common equity, as of
the latest practicable date:
3,465,391
shares of common stock, par value $.01 per share, outstanding as of April 30,
2010.
Table of
Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TOUCHMARK
BANCSHARES, INC.
AND
SUBSIDIARY
Condensed Consolidated Balance Sheets
March 31,
2010 and December 31, 2009
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|
unaudited
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|
|
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March 31,
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December 31,
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2010
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2009
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ASSETS
|
|
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|
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|
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Cash
and due from banks
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$
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1,937,366
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$
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1,695,884
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Federal
funds sold
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2,425,000
|
|
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Interest-bearing
accounts with other banks
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3,884,820
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3,073,627
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Investment
securities:
|
|
|
|
|
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Securities
available for sale
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52,270,828
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43,230,785
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Securities
held to maturity, fair value approximates $6,817,224, and $4,579,310,
respectively
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6,818,971
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4,619,299
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Restricted
stock
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1,397,350
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1,365,750
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Loans
held for sale
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792,797
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1,832,412
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Loans,
less allowance for loan losses of $1,642,878, and $1,445,522, respectively
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71,805,074
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66,609,313
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Accrued
interest receivable
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734,549
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543,334
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Premises
and equipment
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2,971,606
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3,043,646
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Foreclosed
real estate
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291,377
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Land
held for sale
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2,409,023
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2,409,023
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Other
assets
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766,183
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839,402
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|
Total
assets
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$
|
148,504,944
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$
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129,262,475
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|
|
|
|
|
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LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
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|
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Liabilities:
|
|
|
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Deposits:
|
|
|
|
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Non-interest
bearing demand
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$
|
5,033,670
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$
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3,489,983
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Interest-bearing
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91,916,047
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72,553,691
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Total
deposits
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96,949,717
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76,043,674
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Accrued
interest payable
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88,847
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60,624
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Federal
Home Loan Bank advances
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11,400,000
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11,400,000
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Other
borrowings
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10,000,000
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12,525,000
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Other
liabilities
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1,098,828
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599,935
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Total
liabilities
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119,537,392
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100,629,233
|
|
|
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Shareholders
Equity
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Preferred
stock, no par value, 10,000,000 shares authorized, none issued
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Common
stock, $.01 par value, 50,000,000 shares authorized, 3,465,391 issued and
outstanding
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34,654
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34,654
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Paid
in capital
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35,887,678
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35,827,141
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Accumulated
deficit
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|
(7,391,820
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)
|
(7,471,431
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)
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Accumulated
other comprehensive income
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|
437,040
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|
242,878
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|
Total
shareholders equity
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|
28,967,552
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28,633,242
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|
|
|
|
|
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|
Total
liabilities and shareholders equity
|
|
$
|
148,504,944
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$
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129,262,475
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|
See
notes to the condensed consolidated financial statements.
3
Table of Contents
TOUCHMARK
BANCSHARES, INC.
AND
SUBSIDIARY
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss)
Three
Months Ended March 31, 2010 and 2009
(Unaudited)
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Three
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Three
|
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|
Months
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Months
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Ended
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Ended
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March 31,
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March 31,
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2010
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2009
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Interest
income:
|
|
|
|
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Loans,
including fees
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|
$
|
1,126,848
|
|
$
|
530,065
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Investment
income
|
|
541,013
|
|
412,754
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|
Federal
funds sold
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484
|
|
980
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|
Total
interest income
|
|
1,668,345
|
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943,799
|
|
|
|
|
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|
Interest
expense:
|
|
|
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Deposits
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442,390
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310,475
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Federal
Home Loan Bank advances
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69,862
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69,862
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Other
borrowings
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8,101
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|
249
|
|
Total
interest expense
|
|
520,353
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|
380,586
|
|
|
|
|
|
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Net
interest income
|
|
1,147,992
|
|
563,213
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Provision
for loan losses
|
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197,356
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|
103,265
|
|
Net
interest income after provision for loan losses
|
|
950,636
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|
459,948
|
|
|
|
|
|
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|
Noninterest
income:
|
|
|
|
|
|
Service
charges on deposit accounts and other fees
|
|
25,518
|
|
3,859
|
|
Gain
on sale of securities available for sale
|
|
65,351
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|
129,644
|
|
Gain
on sale of loans held for sale
|
|
414,830
|
|
|
|
Other
noninterest income
|
|
7,817
|
|
|
|
Total
noninterest income
|
|
513,516
|
|
133,503
|
|
|
|
|
|
|
|
Noninterest
expense:
|
|
|
|
|
|
Salaries
and employee benefits
|
|
729,475
|
|
689,272
|
|
Occupancy
and equipment
|
|
185,004
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|
151,553
|
|
Other
operating expense
|
|
470,062
|
|
291,931
|
|
Total
noninterest expense
|
|
1,384,541
|
|
1,132,756
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
79,611
|
|
$
|
(539,305
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
Unrealized
holding gains arising during the period
|
|
355,145
|
|
452,564
|
|
Reclassification
adjustment for gain realized in net income
|
|
(65,351
|
)
|
(129,644
|
)
|
Tax
effect
|
|
(95,632
|
)
|
(106,563
|
)
|
Other
comprehensive income
|
|
194,162
|
|
216,357
|
|
Comprehensive
income (loss)
|
|
$
|
273,773
|
|
$
|
(322,948
|
)
|
Basic
earnings (loss) per share
|
|
$
|
0.02
|
|
$
|
(0.16
|
)
|
Diluted
earnings per share
|
|
$
|
0.02
|
|
$
|
(0.16
|
)
|
Dividends
per share
|
|
$
|
|
|
$
|
|
|
See
notes to the condensed consolidated financial statements.
4
Table of
Contents
TOUCHMARK
BANCSHARES, INC.
AND
SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three
Months Ended March 31, 2010 and 2009
(Unaudited)
|
|
Three
|
|
Three
|
|
|
|
Months
|
|
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
79,611
|
|
$
|
(539,305
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided (used) by operating
activities
|
|
|
|
|
|
Depreciation
|
|
73,364
|
|
56,549
|
|
Accretion
of discount
|
|
(1,042
|
)
|
(1,284
|
)
|
Provision
for loan losses
|
|
197,356
|
|
103,265
|
|
Gain
on sale of securities available for sale
|
|
(65,351
|
)
|
(129,644
|
)
|
Proceeds
from sale of loans held for sale
|
|
1,163,068
|
|
|
|
Gain
on sale of loans held for sale
|
|
(414,830
|
)
|
|
|
Stock
compensation expense
|
|
60,537
|
|
44,106
|
|
Decrease
(increase) in interest receivable
|
|
(191,215
|
)
|
21,207
|
|
Increase
in interest payable
|
|
28,223
|
|
74,159
|
|
Decrease
(increase) in other assets
|
|
73,219
|
|
(31,831
|
)
|
Increase
(decrease) in other liabilities
|
|
403,261
|
|
(239,935
|
)
|
|
|
|
|
|
|
Net
cash provided (used) by operating activities
|
|
1,406,201
|
|
(642,713
|
)
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
Purchase
of federal funds sold
|
|
(2,425,000
|
)
|
(629,000
|
)
|
Increase
in interest bearing deposits
|
|
(811,193
|
)
|
(435,813
|
)
|
Purchase
of securities held to maturity
|
|
(2,201,465
|
)
|
(4,031,812
|
)
|
Purchase
of securities available for sale
|
|
(12,202,425
|
)
|
(11,167,885
|
)
|
Proceeds
from maturities of securities held to maturity
|
|
|
|
500,000
|
|
Proceeds
from paydowns and maturities of securities available for sale
|
|
982,362
|
|
694,110
|
|
Proceeds
from sales of securities available for sale
|
|
2,538,000
|
|
8,939,983
|
|
Purchase
of restricted stock
|
|
(31,600
|
)
|
(73,950
|
)
|
Net
increase in loans
|
|
(5,393,117
|
)
|
(8,298,845
|
)
|
Purchase
of premises and equipment
|
|
(1,324
|
)
|
(17,394
|
)
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
(19,545,762
|
)
|
(14,520,606
|
)
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
Net
increase in deposits
|
|
20,906,043
|
|
16,220,214
|
|
Repayment
of line of credit
|
|
(2,525,000
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
18,381,043
|
|
16,220,214
|
|
|
|
|
|
|
|
Net
change in cash
|
|
241,482
|
|
1,056,895
|
|
|
|
|
|
|
|
Cash
at the beginning of the period
|
|
1,695,884
|
|
1,029,163
|
|
|
|
|
|
|
|
Cash
at the end of the period
|
|
$
|
1,937,366
|
|
$
|
2,086,058
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information -
|
|
|
|
|
|
Interest
paid
|
|
$
|
492,130
|
|
$
|
306,427
|
|
Transfer
of loan principal to foreclosed real estate
|
|
$
|
(291,377
|
)
|
$
|
|
|
See
notes to the condensed consolidated financial statements.
5
Table of
Contents
TOUCHMARK
BANCSHARES, INC.
AND
SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
March 31,
2010
(unaudited)
1.
BASIS OF
PRESENTATION
The consolidated financial
information included for Touchmark Bancshares, Inc. herein is unaudited;
however, such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. These statements should be read in
conjunction with the financial statements and related notes included in the
Companys Annual Report on Form 10-K for the year ended December 31,
2009.
The results of operations
for the three month period ended March 31, 2010 are not necessarily
indicative of the results to be expected for the full year.
2.
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Touchmark Bancshares, Inc.
(the Company, we, usor ours), a Georgia corporation, was established on
April 3, 2007 for the purpose of organizing and managing Touchmark
National Bank (the Bank). The Company
is a one-bank holding company with respect to its subsidiary, Touchmark
National Bank. The Bank is a national
bank which began operations on January 28, 2008, headquartered in Fulton
County, Georgia with the purpose of providing community banking services to
Gwinnett, DeKalb, north Fulton and south Forsyth counties and surrounding areas
in Georgia.
Basis of
Accounting:
The accounting and reporting policies of the Company
conform to accounting principles generally accepted in the United States of
America. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, shareholders equity and net income (loss). Actual results may
differ significantly from those estimates. The Company uses the accrual basis
of accounting by recognizing revenues when they are earned and expenses in the
period incurred, without regard to the time of receipt or payment of cash.
Allowance
for Loan Losses
: Arriving at an appropriate level of allowance for
loan losses involves a high degree of judgment. The Companys allowance for
loan losses provides for probable losses based upon evaluations of known and
inherent risks in the loan portfolio. Due to our limited operating history, the
loans in our loan portfolio and our lending relationships are of very recent
origin. In general, loans do not begin to show signs of credit deterioration or
default until they have been outstanding for some period of time, a process
known as seasoning. As a result, a portfolio of older loans will usually behave
more predictably than a newer portfolio. Because our loan portfolio is new, the
current level of delinquencies and defaults may not be representative of the
level that will prevail when the portfolio becomes more seasoned, which may be
higher than current levels. If delinquencies and defaults increase, we may be
required to increase our provision for loan losses, which would adversely
affect our results of operations and financial condition. The allowance for
loan losses is increased by provisions for loan losses and by recoveries of
loans previously charged-off and reduced by loans charged-off.
The process of reviewing the
adequacy of the allowance for loan losses requires management to make numerous
judgments and assumptions about future events and subjective judgments,
6
Table of Contents
including the likelihood of
loan repayment, risk evaluation, actual losses and the extrapolation of
historical losses of similar banks and other qualitative factors. If these
assumptions prove to be incorrect, charge-offs in future periods could exceed
the allowance for loan losses.
Stock Based Compensation:
The Company has adopted the
fair value recognition provisions of Financial Accounting Standards Board
Accounting Standards Codification (FASB ASC) 718,
Stock
Compensation
. Upon issuance of the Director and Organizer warrants,
compensation cost was recognized in the consolidated financial statements of
the Company for all share-based payments granted, based on the grant date fair
value as estimated in accordance with the provisions of FASB ASC 718, which
requires recognition of expense equal to the fair value of the warrant over the
vesting period of the warrant.
The
fair value of each warrant grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the assumptions listed in the table
below. Expected volatility for the period has been determined by a
combination of a calculated value based on expected volatility of similar
entities, and on the historical volatility of the Companys stock. The
expected term of warrants granted is based on the short-cut method and
represents the period of time that the warrants granted are expected to be
outstanding. Expected dividends are based on dividend trends and the
market price of the Companys stock at grant. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
The
Company recorded compensation expense related to the warrants of $8,900 and
$8,900 for the three months ended March 31, 2010 and 2009, respectively.
At
March 31, 2010, there was $29,667 of unrecognized compensation cost
related to warrants, which is expected to be recognized over a weighted-average
period of 2.2 years at December 31, 2009. The weighted average remaining
contractual life of the warrants outstanding as of March 31, 2010 was
approximately 7.8 years. The Company had 452,500 warrants exercisable as of March 31,
2010.
Through
March 31, 2010, the Company issued 149,822 options to purchase common
stock to employees of the Company and the Bank and issued 10,000 options to
purchase common stock to a new director.
No options were issued during first quarter 2010. Upon issuance of
options, compensation cost was recognized in the consolidated financial
statements of the Company for all options granted, based on the grant date fair
value as estimated in accordance with the provisions of FASB ASC 718, which
requires recognition of expense equal to the fair value of the option over the
vesting period of the option.
7
Table of
Contents
The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the assumptions listed in the table
below. Expected volatility for the period has been determined by a
combination of a calculated value based on expected volatility of similar
entities, and on the historical volatility of the Companys stock. The
expected term of options granted is based on the short-cut method and
represents the period of time that the options granted are expected to be
outstanding. Expected dividends are based on dividend trends and the
market price of the Companys stock price at grant. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
|
For Options Issued
|
|
|
|
Year Ended
|
|
|
|
March 31, 2010
|
|
Risk-free interest rate
|
|
1.55
|
%
|
Expected life (years)
|
|
6.50
|
|
Expected annual volatility
|
|
47.99
|
%
|
Expected dividends
|
|
0.00
|
%
|
Expected Forfeiture rate
|
|
5.00
|
%
|
Weighted average fair value of options granted
|
|
$
|
4.86
|
|
|
|
|
|
|
The
Company recorded stock-based compensation expense related to the options of
$51,637 and $35,206 during the three months ended March 31, 2010 and 2009,
respectively.
At
March 31, 2010, there was $280,809 of unrecognized compensation cost
related to options outstanding, which is expected to be recognized over a
weighted-average period of 1.29 years. The weighted average remaining
contractual life of the options outstanding as of March 31, 2010 was
approximately 8.27 years. The Company had 75,814 options exercisable as of March 31,
2010.
Income
Taxes:
Deferred income tax assets and liabilities
are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset
or liability is determined based on the tax effects of the differences between
the book and tax bases of the various balance sheet assets and liabilities, and
gives current recognition to changes in tax rates and laws. A valuation allowance for deferred tax assets
is required when it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
In assessing the realization of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income (in the near-term based on current projections), and tax
planning strategies.
The following summarizes the components of deferred
taxes at March 31, 2010 and December 31, 2009.
|
|
March 31,
2010
|
|
December 31,
2009
|
|
Deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
446,708
|
|
$
|
363,245
|
|
Pre-opening
expenses
|
|
442,381
|
|
450,998
|
|
Net
operating loss carryforward
|
|
1,389,647
|
|
1,482,913
|
|
Depreciation
|
|
(175,108
|
)
|
(202,035
|
)
|
Stock
options
|
|
488,415
|
|
488,415
|
|
Deferred
loan fees
|
|
85,253
|
|
78,897
|
|
Other
|
|
|
|
1,505
|
|
Securities
available for sale
|
|
(215,258
|
)
|
(119,626
|
)
|
|
|
2,459,038
|
|
2,544,312
|
|
Less
valuation allowance
|
|
(2,674,296
|
)
|
(2,663,938
|
)
|
Deferred
tax asset, net
|
|
$
|
(215,258
|
)
|
$
|
(119,626
|
)
|
8
Table of Contents
Statement
of Cash Flows:
The statement of cash flows was prepared using the
indirect method. Under this method, net income (loss) was reconciled to net cash
flows (used) provided by operating activities by adjusting for the effects of
operating activities.
Cash and
Cash Equivalents:
For purposes of presentation in the statement of
cash flows, cash and cash equivalents are defined as those amounts included in
the balance sheet caption cash and due from banks. Cash flows from deposits,
federal funds purchased and sold, and originations, renewals and extensions of
loans are reported net.
3.
SECURITIES
The amortized cost, gross
unrealized gains and losses, and estimated fair value of securities at March 31,
2010 are summarized as follows:
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
U.S Government-sponsored enterprises (GSEs)
|
|
$
|
20,727,736
|
|
$
|
18,539
|
|
$
|
(40,088
|
)
|
$
|
20,706,187
|
|
Corporate
bonds
|
|
14,257,289
|
|
539,334
|
|
(3,750
|
)
|
14,792,873
|
|
Mortgage-backed
GSE residential
|
|
16,633,505
|
|
140,958
|
|
(2,695
|
)
|
16,771,768
|
|
|
|
$
|
51,618,530
|
|
$
|
698,831
|
|
$
|
(46,533
|
)
|
$
|
52,270,828
|
|
|
|
|
|
|
|
|
|
|
|
Held
to Maturity Securities Municipal bonds
|
|
$
|
6,818,971
|
|
$
|
26,271
|
|
$
|
(28,018
|
)
|
$
|
6,817,224
|
|
The amortized cost, gross
unrealized gains and losses, and estimated fair value of securities at December 31,
2009, are summarized as follows:
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprises (GSEs)
|
|
$
|
13,740,026
|
|
$
|
3,451
|
|
$
|
(169,114
|
)
|
$
|
13,574,363
|
|
Corporate bonds
|
|
11,471,708
|
|
529,381
|
|
|
|
12,001,089
|
|
Mortgage-backed
GSE residential
|
|
17,656,547
|
|
55,162
|
|
(56,376
|
)
|
17,655,333
|
|
|
|
$
|
42,868,281
|
|
$
|
587,994
|
|
$
|
(225,490
|
)
|
$
|
43,230,785
|
|
|
|
|
|
|
|
|
|
|
|
Held
to Maturity Securities Municipal bonds
|
|
$
|
4,619,299
|
|
$
|
2,637
|
|
$
|
(42,626
|
)
|
$
|
4,579,310
|
|
The
amortized cost and estimated fair value of investment securities available for
sale and held to maturity at March 31, 2010, by contractual maturity are
shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
9
Table of Contents
|
|
Securities Available
|
|
Securities Held
|
|
|
|
For Sale
|
|
To Maturity
|
|
|
|
|
|
Estimated
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
5,098,160
|
|
$
|
5,159,310
|
|
$
|
|
|
$
|
|
|
Due after one year but less than five years
|
|
11,838,544
|
|
12,157,309
|
|
|
|
|
|
Due after five years but less than ten years
|
|
10,459,655
|
|
10,738,591
|
|
3,860,515
|
|
3,845,737
|
|
Due
after ten years
|
|
24,222,171
|
|
24,215,618
|
|
2,958,456
|
|
2,971,487
|
|
|
|
$
|
51,618,530
|
|
$
|
52,270,828
|
|
$
|
6,818,971
|
|
$
|
6,817,224
|
|
For the purpose of the
maturity table, mortgage-backed securities, which are not due at a single
maturity date, have been allocated over maturity groupings based on the
weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature
earlier than their weighted-average contractual maturities because of principal
prepayments.
Information pertaining to
securities with gross unrealized losses at March 31, 2010 aggregated by
investment category and length of time that individual securities have been in
a continuous loss position, follows:
|
|
Less than
|
|
More than
|
|
|
|
Twelve Months
|
|
Twelve Months
|
|
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
$
|
(40,088
|
)
|
$
|
6,955,989
|
|
$
|
|
|
$
|
|
|
Mortgage-backed
securities GSE residential
|
|
(2,695
|
)
|
1,011,696
|
|
|
|
|
|
Corporate
bonds
|
|
(3,750
|
)
|
996,250
|
|
|
|
|
|
|
|
$
|
(46,533
|
)
|
$
|
8,963,935
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity Municipal bonds
|
|
$
|
(28,018
|
)
|
$
|
2,285,239
|
|
$
|
|
|
$
|
|
|
Information pertaining to
securities with gross unrealized losses at December 31, 2009 aggregated by
investment category and length of time that individual securities have been in
a continuous loss position, follows:
|
|
Less
than
|
|
More
than
|
|
|
|
Twelve
Months
|
|
Twelve
Months
|
|
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
$
|
(169,114
|
)
|
$
|
10,572,409
|
|
$
|
|
|
$
|
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
GSE
residential
|
|
(56,376
|
)
|
12,083,366
|
|
|
|
|
|
|
|
$
|
(225,490
|
)
|
$
|
22,655,775
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity Municipal bonds
|
|
$
|
(42,626
|
)
|
$
|
3,748,851
|
|
$
|
|
|
$
|
|
|
Management evaluates
securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant such evaluation.
10
Table of Contents
At
March 31,2010, fifteen (15) debt securities have unrealized losses with
aggregate depreciation of 0.66% from the Companys amortized cost basis. In
analyzing an issuers financial condition, management considers whether the
securities are issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and industry analysts
reports. Although some of the issuers have shown declines in earnings and/or a
weakened financial condition as a result of the weakened economy, no credit
issues have been identified that cause management to believe the declines in
market value are other than temporary. As management has the ability to hold
debt securities until maturity, or for the foreseeable future if classified as
available for sale, no declines are deemed to be other than temporary.
GSE debt securities.
The
unrealized losses on the five investments in GSEs were caused by interest rate
increases. The contractual cash flows of those investments are guaranteed by an
agency of the U.S. Government. Accordingly, it is expected that the securities
would not be settled at a price less than the amortized cost bases of the
Companys investments. Because the Company has no immediate plans to sell the
investments, and because it is not more likely than not that the Company will
be required to sell the investments before recovery of their amortized cost bases,
which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at March 31 2010.
Municipal bonds.
The Companys
unrealized losses on five investments in municipal bonds relates to interest
rate increases. The Company currently does not believe it is probable that it
will be unable to collect all amounts due according to the contractual terms of
the investments. Because the Company does not plan to sell the investments, and
because it is not more likely than not that the Company will be required to
sell the investments before recovery of its par value, which may be maturity,
it does not consider these investments to be other-than-temporarily impaired at
March 31, 2010.
Mortgage-backed securities GSE
residential.
The unrealized losses on the Companys
investment in four residential GSE mortgage-backed securities were caused by
interest rate increases. The contractual cash flows of those investments are
guaranteed by an agency of the U.S. Government. Accordingly, it is expected
that the securities would not be settled at a price less than the amortized
cost bases of the Companys investments. Because the decline in market value is
attributable to changes in interest rates and not credit quality, and because
the Company has no immediate plans to sell the investments, and because it is
not more likely than not that the Company will be required to sell the
investments before recovery of their amortized cost bases, which may be
maturity, the Company does not consider those investments to be
other-than-temporarily impaired at March 31, 2010.
Corporate bonds.
The
Companys unrealized loss on one corporate bond relates to interest rate
increases. The Company currently does not believe it is probable that it will
be unable to collect all amounts due according to the contractual terms of the
investments. Because the Company does not plan to sell the investment, and
because it is not more likely than not that the Company will be required to
sell the investment before recovery of its par value, which may be maturity, it
does not consider this investment to be other-than-temporarily impaired at March 31,
2010.
4.
FAIR VALUE
MEASUREMENTS
ASC
Topic 820,
Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. FASB ASC 820-10 applies
to reported balances that are required or permitted to be measured at fair
value under existing accounting pronouncements; accordingly, the standard does
not require any new fair value measurements of reported balances.
FASB
ASC 820-10 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market
participant assumptions in fair value measurements, GAAP establishes a fair
value hierarchy that distinguishes between market participant assumptions based
on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entitys own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).
Level
1 inputs utilize quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access. Level 2
inputs are inputs other than quoted prices
11
Table of
Contents
included
in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs may include quoted prices for similar assets and
liabilities in active markets, as well as inputs that are observable for the
asset or liability (other than quoted prices), such as interest rates, foreign
exchange rates and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability,
which are typically based on an entitys own assumptions, as there is little,
if any, related market activity. In instances where the determination of the fair
value measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Companys assessment of the
significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or
liability.
12
Table of
Contents
The
table below presents the Companys assets and liabilities measured at fair
value on a recurring basis as of March 31, 2010 and December 31,
2009, aggregated by the level in the fair value hierarchy within which those
measurements fall.
Assets as of
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
March 31,
2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale
|
|
$
|
|
|
$
|
52,270,828
|
|
$
|
|
|
$
|
52,270,828
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
237,106
|
|
237,106
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
|
|
|
792,797
|
|
792,797
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
$
|
52,270,828
|
|
$
|
1,029,903
|
|
$
|
53,300,731
|
|
Assets as of
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
December 31, 2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale
|
|
$
|
|
|
$
|
43,230,785
|
|
$
|
|
|
$
|
43,230,785
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
281,599
|
|
281,599
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
|
|
|
1,832,412
|
|
1,832,412
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
$
|
43,230,785
|
|
$
|
2,114,011
|
|
$
|
45,344,796
|
|
Securities
classified as available-for-sale are reported at fair value utilizing Level 2
inputs. For these securities, the Company obtains fair value measurements from
an independent pricing service. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and the bonds terms and
conditions, among other things. The investments in the Companys portfolio are
generally not quoted on an exchange but are actively traded in the secondary
institutional markets.
The
derivative instrument held by the Company is reported at fair value utilizing
Level 3 inputs. The valuation of this instrument is determined using
widely accepted valuation techniques including discounted cash flow analysis on
the expected cash flows of each derivative. This analysis reflects the
contractual term of the derivative, including the period to maturity, and uses
observable market-based inputs, including interest rate curves and implied
volatilities. The fair values of interest rate options are determined using the
market standard methodology of discounting the future expected cash receipts
that would occur if variable interest rates fell below (rise above) the strike
rate of the floors (caps) during the covered period. The variable interest
rates used in the calculation of projected receipts on the floor (cap) are
based on an expectation of future interest rates derived from observable market
interest rate curves and volatilities. To comply with the provisions of ASC
820, the Company incorporates credit valuation adjustments to appropriately
reflect both its own nonperformance risk and the respective counterpartys
nonperformance risk in the fair value measurements. In adjusting the fair value
of its derivative contracts for the effect of nonperformance risk, the Company
has considered the impact of netting
13
Table of Contents
any
applicable credit enhancements, such as collateral postings, thresholds, mutual
puts, and guarantees.
Loans
held-for-sale are measured at the lower of cost or fair value. The fair value
of loans held for sale are evaluated on an on-going basis by monitoring what
secondary markets are offering for loans and portfolios with similar
characteristics.
The
following is a reconciliation of the beginning and ending balances of recurring
fair value measurements recognized in the accompanying balance sheet using
significant unobservable (Level 3) inputs.
|
|
Loans Held
|
|
Derivative
|
|
|
|
For Sale
|
|
Instruments
|
|
Balance, January 1, 2010
|
|
1,832,412
|
|
281,599
|
|
Sales of loans held for sale
|
|
(748,238
|
)
|
|
|
Loan foreclosure
|
|
(291,377
|
)
|
|
|
Mark to market gain
|
|
|
|
(44,493
|
)
|
Balance, March 31, 2010
|
|
792,797
|
|
237,106
|
|
The
following table presents the assets that are measured at fair value on a
non-recurring basis by level within the fair value hierarchy as reported on the
consolidated statements of financial position at March 31, 2010 and December 31,
2009.
As of March 31, 2010
|
|
Quoted Prices in
Active Markets for
Identical Securities
Level 1
|
|
Significant Other
Observable Inputs
Level 2
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Total
|
|
Impaired
loans
|
|
$
|
|
|
$
|
|
|
$
|
5,897,235
|
|
$
|
5,897,235
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2009
|
|
Quoted
Prices in
Active Markets for
Identical Securities
Level 1
|
|
Significant
Other
Observable Inputs
Level 2
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Total
|
|
Impaired
loans
|
|
$
|
|
|
$
|
|
|
$
|
5,897,235
|
|
$
|
5,897,235
|
|
At March 31, 2010 and December 31,
2009, in accordance with the provisions of the loan impairment guidance (FASB
ASC 310-10-35), individual loans with a carrying amount of $5,897,235 were
considered impaired after partial charge-offs amounting to $752,125. There was
no change to the allowance for impaired loans at March 31, 2010. The charge-off of $752,125 was recognized at
December 31, 2009 in conjunction with a certain commercial real estate-secured
loan. The amount had previously been
reserved in our allowance for loan loss, but the write-down of the loan balance
and the corresponding reduction of the reserve allowance was made effective
December 31, 2009. There were no
charge-offs recorded during the quarter ended March 31, 2010. Impaired loans
are evaluated and valued at the time the loan is identified as impaired, at the
lower of cost or fair value. Fair value is measured based on the value of the
collateral securing these loans and is classified at a Level 3 in the fair
value hierarchy. Collateral may include real estate, or business assets
including equipment, inventory and accounts receivable. The value of real
estate collateral is determined based on an appraisal by qualified licensed
appraisers hired by the Company. The value of business equipment is based on an
appraisal by qualified licensed appraisers hired by the Company if significant,
or the equipments net book value on the business financial statements.
Inventory and accounts receivable collateral are valued based on independent
field examiner review or aging reports. Appraised and reported values may be
discounted based on managements historical knowledge, changes in market
conditions from the time of the valuation, and managements expertise and
knowledge of the client and clients business. Impaired loans are evaluated on
at least a quarterly basis for additional impairment and adjusted accordingly.
Fair
Value of Financial Instruments
The following methods and assumptions that were used by
the Company in estimating fair values
14
Table of Contents
of financial instruments are disclosed herein:
Cash,
federal funds sold, and interest bearing deposits with other banks.
The carrying amounts of cash and short-term
instruments approximate their fair value due to the relatively short period to
maturity of instruments.
Investment
securities available-for-sale and held-to-maturity
. Fair values for securities, excluding
restricted equity securities, are based predominately on quoted market prices.
If quoted market prices are not available, fair values are based on quoted
market prices of similar instruments.
Restricted
stock.
The carrying values of restricted equity securities approximate fair
values.
Loans Held for Sale.
Loans held for
sale are carried at the lower of cost or market value. Fair value is currently
based on what secondary markets are offering for loans and portfolios with
similar characteristics.
Loans
receivable.
For
variable-rate loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. Fair values for fixed
rate loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair values
for impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
Deposit
liabilities.
The fair
values disclosed for demand deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying amounts). The
carrying amounts of variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair values at the reporting
date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Federal
Home Loan Bank (FHLB) advances and other borrowings.
Fair values of
fixed rate FHLB advances and other borrowings are estimated using discounted
cash flow analyses based on the Banks current incremental borrowing rates for
similar types of borrowing arrangements. The carrying values of variable rate
FHLB advances and other borrowings approximate fair value.
Accrued
interest.
The carrying
amounts of accrued interest approximate their fair values.
Derivative instruments.
The fair values
of these instruments are determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs,
including interest rate curves and implied volatilities.
Off-balance-sheet instruments.
Fair
values for off-balance-sheet lending commitments are based on the current
carrying value and adjusted, if appropriate, for material changes in pricing
currently charged to enter into similar agreements. Remaining terms of the
agreements and counter parties credit standings are taken into account when
making this evaluation.
The Companys carrying
amounts and estimated fair values of financial instruments as of March 31,
2010 and December 31, 2009 (in thousands) were as follows:
15
Table of Contents
|
|
March 31
|
|
December 31
|
|
|
|
2010
|
|
2009
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,937
|
|
$
|
1,937
|
|
$
|
1,696
|
|
$
|
1,696
|
|
Federal funds sold
|
|
2,425
|
|
2,425
|
|
|
|
|
|
Interest-bearing accounts
with other banks
|
|
3,885
|
|
3,885
|
|
3,074
|
|
3,074
|
|
Securities available for sale
|
|
52,271
|
|
52,271
|
|
43,231
|
|
43,231
|
|
Securities held to maturity
|
|
6,819
|
|
6,817
|
|
4,619
|
|
4,579
|
|
Restricted stock
|
|
1,397
|
|
1,397
|
|
1,366
|
|
1,366
|
|
Loan held for sale
|
|
793
|
|
793
|
|
1,832
|
|
1,832
|
|
Loans receivable
|
|
69,645
|
|
67,196
|
|
66,609
|
|
67,196
|
|
Accrued interest receivable
|
|
735
|
|
735
|
|
543
|
|
543
|
|
Derivative instruments
|
|
237
|
|
237
|
|
282
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
96,950
|
|
97,248
|
|
76,044
|
|
76,139
|
|
Accrued interest payable
|
|
89
|
|
89
|
|
61
|
|
61
|
|
FHLB advances
|
|
11,400
|
|
11,012
|
|
11,400
|
|
11,823
|
|
Other borrowing
|
|
10,000
|
|
10,000
|
|
12,525
|
|
12,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
EARNINGS (LOSS) PER SHARE
Basic loss per share is
computed by dividing net income (loss) by the weighted average number of shares
of common stock outstanding. Diluted income (loss) per share is computed by
dividing net income (loss) by the sum of the weighted average number of shares
of common stock outstanding and potential common shares. Potential common
shares consist of stock options and warrants. Weighted average shares
outstanding for the three months ended March 31, 2010 and 2009 were 3,
465,391 and 3,470,391, respectively. Basic earnings (loss) per share for the
three months ended March 31, 2010 and 2009 was $0.02 and $(0.16),
respectively. Fully diluted weighted average shares outstanding for the three
months ended March 31, 2010 was 3,465,391, and diluted earnings per share
for the period was $0.02. Diluted loss per share is (0.16) at March 31,
2009, as the net loss would result in an anti-dilutive calculation.
6.
DERIVATIVE INSTRUMENT
During September 2009,
the Company entered into an interest rate corridor transaction. An interest
rate corridor is composed of a long interest rate cap position and a short
interest rate cap position. The buyer of the corridor purchases a cap with a
lower strike while selling a second cap with a higher strike. The premium
earned on the second cap then reduces the cost of the structure as a whole. The
buyer of the corridor is then protected from rates rising above the first caps
strike, but exposed again if they rise past the second caps strike.
This
series of transactions consists of purchasing an interest rate cap at 0.75%
based on the 1 month LIBOR rate.
Additionally, the Company sold an interest rate cap with the strike at
2.50% based on the 1 month LIBOR rate. Each of these transactions are forward
start transactions with an effective date of July 1, 2010 and a
termination date of July 1, 2013.
The notional amount for each is $10,000,000. The interest rate corridor transaction is
considered a standalone derivative instrument, and as such will be recorded in
the financial statements at fair value, with changes in fair value included in
net income (loss). Additionally, this
transaction has a net settlement feature, and the effects of the net settlement
will be included in interest income or expense as appropriate. The fair values as of March 31, 2010 and
December 31, 2009 were $237,106 and $281,599, respectively, and were
included in other assets.
16
Table of Contents
7.
ACCOUNTING STANDARDS UPDATES
In February 2010, the
FASB issued Accounting Standards Update No. 2010-09,
Subsequent Events: Amendments to Certain Recognition
and Disclosure Requirements
(ASC No. 2010-09). ASU No. 2010-09
removes some contradictions between the requirements of GAAP and the filing rules of
the Securities and Exchange Commission (SEC). SEC filers are required to evaluate
subsequent events through the date the financial statements are issued, and
they are no longer required to disclose the date through which subsequent
events have been evaluated. This guidance was effective upon issuance except
for the use of the issued date for conduit debt obligors, and it is not
expected to have a material impact on the Companys results of operations,
financial position or disclosures.
In March 2010, the FASB
issued Accounting Standards Update No. 2010-11,
Derivatives and Hedging: Scope Exception Related to Embedded Credit
Derivatives
(ASU No. 2010-11)
.
ASU No. 2010-11 clarifies the type of embedded credit
derivative that is exempt from embedded derivative bifurcation requirements, by
resolving a potential ambiguity about the breadth of the embedded credit
derivative scope exception with regard to some types of contracts, such as
collateralized debt obligations (CDOs) and synthetic CDOs. The scope
exception will no longer apply to some contracts that contain an embedded credit
derivative feature that transfers credit risk. The ASU is effective for fiscal
quarters beginning after June 15, 2010, and is not expected to have a
material impact on the Companys results of operations, financial position or
disclosures.
In April 2010, the FASB
issued Accounting Standards Update No. 2010-13,
Effect of Denominating the Exercise Price of a Share-based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades
(ASU No. 2010-13). ASU No. 2010-13 clarifies that
an employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of an entitys equity
securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. This
guidance is effective for fiscal years and interim periods within those fiscal
years, beginning on or after December 15, 2010. It is not expected to have
a material impact on the Companys results of operations, financial position or
disclosures.
In April 2010, the FASB
issued Accounting Standards Update No. 2010-18,
Effect of a Loan Modification When the Loan Is Part of a Pool That
Is Accounted for as a Single Asset
(ASU No. 2010-18). ASU No. 2010-18
provides guidance on the accounting for loan modifications when the loan is
part of a pool of loans accounted for as a single asset such as acquired loans
that have evidence of credit deterioration upon acquisition that are accounted
for under the guidance in ASC 310-30. ASU No. 2010-18 addresses diversity
in practice on whether a loan that is part of a pool of loans accounted for as
a single asset should be removed from that pool upon a modification that would
constitute a troubled debt restructuring or remain in the pool after
modification. ASU No. 2010-18 clarifies that modifications of loans that
are accounted for within a pool under ASC 310-30 do not result in the removal
of those loans from the pool even if the modification of those loans would
otherwise be considered a troubled debt restructuring. An entity will continue
to be required to consider whether the pool of assets in which the loan is
included is impaired if the expected cash flows for the pool change. The
amendments in this update do not require any additional disclosures and are
effective for modifications of loans accounted for within pools under ASC
310-30 occurring in the first interim or annual period ending on or after July 15,
2010. ASU 2010-18 is not expected to have a material impact on the Companys
results of operations, financial position or disclosures.
Item 2.
Managements Discussion and
Analysis of Financial Condition and Results of Operations
The
following discussion reviews our results of operations and assesses our
financial condition. You should read the following discussion and analysis in
conjunction with the accompanying condensed consolidated financial statements.
The commentary should be read in conjunction with the discussion of
forward-looking statements, the consolidated financial statements, and the
related notes and the other
17
Table of Contents
statistical
information included in this report and our Annual Report on Form 10-K for
the year ended December 31, 2009.
DISCUSSION OF FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements relating to, without limitation,
future economic performance, plans and objectives of management for future
operations, and projections of revenues and other financial items that are
based on the beliefs of our management, as well as assumptions made by and
information currently available to management. The words expect, estimate, anticipate,
and believe, as well as similar expressions, are intended to identify
forward-looking statements. Our actual results may differ materially from the
results discussed in the forward-looking statements, and our operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in our filings with the Securities and Exchange Commission
(the SEC), including, without limitation:
|
·
|
significant
increases in competitive pressure in the banking and financial services
industries;
|
|
|
|
|
·
|
changes
in the interest rate environment which could reduce anticipated or actual
margins;
|
|
|
|
|
·
|
changes
in political conditions or the legislative or regulatory environment;
|
|
|
|
|
·
|
general
economic conditions, either nationally or regionally and especially in our
primary service area, becoming less favorable than expected, resulting in,
among other things, a deterioration in credit quality;
|
|
|
|
|
·
|
changes
occurring in business conditions and inflation;
|
|
|
|
|
·
|
changes
in technology;
|
|
|
|
|
·
|
the
level of our allowance for loan losses and the lack of seasoning of our loan
portfolio;
|
|
|
|
|
·
|
the
rate of delinquencies and amounts of charge-offs;
|
|
|
|
|
·
|
the
rates of loan growth;
|
|
|
|
|
·
|
adverse
changes in asset quality and resulting credit risk-related losses and
expenses;
|
|
|
|
|
·
|
changes
in monetary and tax policies;
|
|
|
|
|
·
|
loss
of consumer confidence and economic disruptions resulting from terrorist
activities;
|
|
|
|
|
·
|
changes
in the securities markets; and
|
|
|
|
|
·
|
other
risks and uncertainties detailed from time to time in our filings with the
SEC.
|
18
Table of Contents
Company Overview
The following report
describes our results of operations for the three months ended March 31,
2010 and 2009 and also analyzes our financial condition as of March 31,
2010 and December 31, 2009.. Like most community banks, we
expect to derive most of our income from interest that we receive on our loans
and investments. As we grow, our primary source of funds for making these loans
and investments is our deposits, on the majority of which we pay interest.
Consequently, one of the key measures of our success is our level of net
interest income, which is the difference between the income on our
interest-earning assets, such as loans and investments, and the expense on our
interest-bearing liabilities, such as deposits and borrowings. Another key
measure is the spread between the yield we earn on interest-earning assets and
the rate we pay on interest-bearing liabilities. As we increase the size of our
balance sheet, our net interest income will increase until revenue exceeds cash
and non-cash expenses. At that point the Bank will operate profitably. Our results for the three months ended March 31,
2010 and 2009 as well as the years ended December 31, 2009 and December 31,
2008 have included significant gains recorded on the sale of investment assets.
There are risks inherent in
all loans, so we maintain an allowance for loan losses to absorb probable
losses on existing loans that may become uncollectible. We establish and
maintain this allowance by charging a provision for loan losses against our
earnings. We have included a detailed discussion of this process Under the
subsection entitled Provision and Allowance for Loan Losses below.
In addition to earning
interest on our loans and investments, we earn income through fees and other
charges to our customers. We have also included a discussion of the
various components of this noninterest income, as well as of our noninterest
expense.
Industry
Overview
The first three months of
2010 have provided some market stabilization from the tumultuous economic
conditions experienced since the onset of the 2007 financial crisis. Market conditions, however, continue to have
a severe impact on asset valuations. Increased credit losses from the weakened
economy have negatively affected the capital and earnings of many financial
institutions. Financial institutions
have experienced significant declines in the value of collateral for real
estate loans and serious deterioration in the credit quality of their loan
portfolios. These factors have resulted in record levels of
non-performing assets, charge-offs and foreclosures. The State of
Georgia and the Atlanta metropolitan area in particular have gained the unfortunate
distinction of experiencing the highest incidences of bank closures nationwide
since the onset of the 2007 financial crisis.
Treasury, the FDIC and other
governmental agencies continue to evolve regulations to implement and manage
the Emergency Economic Stabilization Act of 2008 (EESA), the Troubled Asset
Relief Program (TARP), the Financial Stability Plan, the American Recovery
and Reinvestment Act (ARRA) and related economic recovery programs, many of
which curtail the activities of financial institutions. During 2009,
we declined to participate in the TARP Capital Purchase
Program. While TARP has been a valuable element in the efforts to
stabilize the banking system, we felt that our capital levels were substantial
and precluded the need for us to expose ourselves to additional regulatory
controls. While we are grateful for the support provided to troubled
financial institutions and have noted a stabilizing benefit for those
institutions thus far, we are even more grateful that we have not required any
such support and the ensuing regulation that accompanies it.
We expect that difficult
economic conditions will continue through the fourth quarter of 2010. Reduced
levels of commercial activity will continue to challenge prospects for stable
balance sheet growth and earning asset yields at a time when the market for
profitable commercial banking relationships is intensely competitive. As a
result, financial institutions in general will continue to experience pressure
on earning asset yields, operating expenses, liquidity and capital.
19
Table of Contents
Results of Operations for the Three Months Ended March 31,
2010 and 2009
We
reported net income (loss) of $79,611 and $(539,305) for the three months ended
March 31, 2010 and 2009, respectively.
For the three months ended March 31, 2010, we realized $1,668,345
in interest income, consisting primarily of $1,126,848 from loan activities and
$541,497 from investment activities. For the three months ended March 31,
2009, we realized $943,799 in interest income, consisting primarily of $530,065
from investment activities and $413,734 from loan activities. The provision for
loan loss was $197,356 for the quarter ended March 31, 2010, and $103,265
for the quarter ended March 31, 2009. We anticipate that loan growth in
future quarters will drive our overall growth in assets and interest income,
but we will continue to augment our performance with income from
investment-grade securities and non-interest income when appropriate. During the first quarter of 2010, we
benefitted from the sale of two loan participations which we had purchased
during the fourth quarter of 2009 at a significant discount. The loans were sold at a gain of $414,830.
The
primary sources of funding for our loan portfolio are deposits and Federal Home
Loan advances. We incurred interest expense of $442,390 related to deposit
accounts, $69,862 related to Federal Home Loan Bank advances, and $8,101
related to other borrowings during the three months ended March 31, 2010.
For the three months ended March 31, 2009, we incurred interest expense of
$310,475 related to deposit accounts and $69,862 of interest expense related to
Federal Home Loan Bank advances, and $249 related to other borrowings. Growth
of a diversified, low-cost deposit base is a key priority toward reaching
sustainable profitability.
We
incurred non-interest expenses of $1,384,541 and $1,132,756 during the three
months ended March 31, 2010 and 2009, respectively. Included in
non-interest expense for the three months ended March 31, 2010 is $729,475
in salaries and employee benefits, $185,004 of occupancy and equipment
expenses, and $470,062 in other expense. The primary components in the other
operating expense category for the three months ended March 31, 2010 were
$69,315 in professional fees, $76,387 in data processing and IT related
services, and $50,989 in loan collection expenses.
The
non-interest expense incurred in the three months ended March 31, 2009 was
$1,132,756. Included in non-interest expense was $689,272 in salaries and
employee benefits, $151,553 of occupancy and equipment expenses, and $291,931
in other operating expenses.
The
following tables calculate the net yield on earning assets as of March 31,
2010 and 2009. Net yield on earning assets, defined as net interest income
annualized, divided by average interest earning assets, was at 3.78% for the
first three months of 2010. The net yield increased from 2.95% at March 31,
2009 to 3.78% at March 31, 2010. The improvement in our earning asset
yield is attributable to growth in performing assets as a percentage of total
assets as well as a decline in our overall borrowing costs.
For
the Period Ended March 31, 2010
(Dollars
in thousands)
Description
|
|
Avg.
Assets/Liabilities
|
|
Interest
Income/Expense
|
|
Yield/Cost
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
Federal
Funds Sold
|
|
$
|
1,291
|
|
$
|
1
|
|
0.31
|
%
|
Securities
|
|
55,176
|
|
541
|
|
3.92
|
%
|
Loans
(1)
|
|
65,096
|
|
1,126
|
|
6.92
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,563
|
|
1,668
|
|
5.49
|
%
|
|
|
|
|
|
|
|
|
Interest
Bearing Liabilities
|
|
|
|
|
|
|
|
Interest
Bearing Demand Deposits
|
|
$
|
31,565
|
|
156
|
|
1.98
|
%
|
Time
Deposits
|
|
50,473
|
|
286
|
|
2.27
|
%
|
Other
Borrowings
|
|
21,570
|
|
78
|
|
1.45
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,608
|
|
520
|
|
2.01
|
%
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
$
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on earning assets
|
|
|
|
|
|
3.78
|
%
|
(1) Average non-accrual loans of $7,566,133 were
deducted from average loans.
20
Table of Contents
For
the Period Ended March 31, 2009
(Dollars
in thousands)
Description
|
|
Avg.
Assets/Liabilities
|
|
Interest
Income/Expense
|
|
Yield/Cost
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
Federal
Funds Sold
|
|
$
|
1,437
|
|
$
|
1
|
|
0.28
|
%
|
Securities
|
|
28,058
|
|
370
|
|
5.27
|
%
|
Loans
(1)
|
|
35,437
|
|
530
|
|
5.98
|
%
|
Other
|
|
11,580
|
|
43
|
|
1.49
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,512
|
|
944
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
Interest
Bearing Liabilities
|
|
|
|
|
|
|
|
Interest
Bearing Demand Deposits
|
|
$
|
19,833
|
|
158
|
|
3.19
|
%
|
Time
Deposits
|
|
18,257
|
|
152
|
|
3.33
|
%
|
Other
Borrowings
|
|
11,556
|
|
70
|
|
2.42
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,646
|
|
380
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
$
|
564
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on earning assets
|
|
|
|
|
|
2.95
|
%
|
(1) There were no loans in non-accrual status at
March 31, 2009.
21
Table of Contents
Assets and Liabilities
General
At
March 31, 2010, we had total assets of $148,504,944, consisting
principally of $71,805,704 in net loans, $52,270,828 in securities available
for sale, $6,818,971 in securities held to maturity, $3,884,820 in
interest-bearing accounts with other banks, and $2,971,606 in premises and equipment.
Total assets increased $19,242,469 since December 31, 2009 when we had
total assets of $129,262,475. Increasing
our earning assets is a key priority toward reaching sustainable
profitability. Assets at December 31,
2009 consisted of cash and deposits due from banks of $1,695,884,
interest-bearing accounts with other banks of $3,073,627, securities available
for sale of $43,230,785, securities held to maturity $4,619,299, premises and
equipment of $3,043,646, net loans of $66,609,313, accrued interest receivable
$543,334, restricted stock of $1,365,750 and other assets of $839,402.
Liabilities at March 31, 2010 totaled $119,537,392 consisting principally
of $96,949,717 in deposits, $11,400,000 in Federal Home Loan Bank advances, and
$10,000,000 in other borrowings. Liabilities increased $18,908,159 from December 31,
2009. Our liabilities at December 31, 2009 were $100,629,233 and consisted
of deposits of $76,043,674, FHLB advances of $11,400,000 and other borrowings
of $12,525,000. At March 31, 2010, shareholders equity was
$28,967,552. Continued growth of a
diversified deposit base is also a key priority in funding our asset growth and
reaching sustainable profitability.
Shareholders equity at December 31, 2009 was $28,633,242.
Investments
At
March 31, 2010, the carrying value of our securities and restricted stock
amounted to $60,487,149. This included $16,771,768 in mortgage backed
securities, $14,792,873 in corporate bonds, and $20,706,187 in government
agencies, $6,818,971 in municipals and $1,397,350 in restricted equity
securities. The restricted equity securities are comprised of stock in the
Federal Reserve Bank of Atlanta and the Federal Home Loan Bank of Atlanta. The
carrying value of securities and restricted stock increased by $11,271,315 from
December 31, 2009 to March 31, 2010. As of December 31, 2009,
the carrying value of our securities and restricted stock amounted to
$49,215,834.
Loans
Since
loans typically provide higher interest yields than other types of interest
earning assets, we ultimately intend to invest a substantial percentage of our
earning assets in our loan portfolio as we build out the balance sheet. At March 31,
2010, our loan portfolio consisted of $16,199,000 of construction and land
development loans, $49,552,000 in other real estate loans, $1,886,000 in
consumer loans, $5,618,000 in commercial and industrial loans, and $193,000 in
other loans. The interest on loans is discontinued when, in managements
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received. Loans are returned to accrual status when all the principal and
interest amounts contractually due are reasonably assured of repayment within a
reasonable time frame. The Bank had $5,870,000 in nonaccrual loans at March 31,
2010. Additionally, the Bank has not had to charge-off any loan amounts during
the quarter ended March 31, 2010.
22
Table of Contents
Total
loans less allowance for loan losses increased during the three months ended March 31,
2010 by $5,195,761 or 7.8%, to $71,805,074 at March 31, 2010 from
$66,609,313 at December 31, 2009.
We had no loans more than 90 days past due that were still accruing
interest and we had no Troubled Debt Restructurings at March 31, 2010. Total
non-performing loans at March 31, 2010 amounted to $6,690,033 of which $792,797
are loans purchased with intent to resell and are characterized as loans held
for sale on our balance sheet. Included
in non-performing loans at March 31, 2010 are $5,897,235 of impaired loans, which
are comprised of four loans concentrated in two borrowing relationships. Total non-performing loans at December 31,
2009 amounted to $6,981,410 of which $1,084,175were loans purchased with intent
to resell.
The
following table summarizes average loan balances for the quarter determined
using the daily average balance, changes in the allowance for loan losses and
the ratio of net charge-offs to period average loans.
|
|
March 31, 2010
|
|
March 31, 2009
|
|
|
|
|
|
|
|
Average amount of loans outstanding
|
|
$
|
71,869,458
|
|
$
|
35,436,938
|
|
Balance of allowance for loan losses at beginning
of period
|
|
1,445,522
|
|
401.890
|
|
Loans recovered
|
|
|
|
|
|
Additions to the allowance during the period
|
|
197,356
|
|
103,265
|
|
Balance of allowance for loan losses at the end of
the period
|
|
1,642,878
|
|
$
|
401,890
|
|
|
|
|
|
|
|
Ratio of net loans charged off during the period to
average loans outstanding
|
|
0.00
|
%
|
0.00
|
%
|
|
|
|
|
|
|
|
|
Provision and Allowance for Loan Losses
We
have established an allowance for loan losses through a provision for loan
losses charged to expense on our consolidated statement of operations. The
allowance for loan losses was $1,642,878 as of March 31, 2010, an increase
of $197,356 from December 31, 2009 when the allowance for loan losses was
$1,445,522. Our allowance for loan loss
amounted to 2.24% of our loan portfolio at March 31, 2010 and 2.08% of the
loan portfolio at December 31, 2009.
Our allowance for loan loss as a percentage of the total portfolio has
risen due to increased reserve levels across various loan types in our portfolio. As a result of our analysis of credit and
lending conditions during the first quarter of 2010, we increased reserve
levels across several categories of our loan portfolio. The allowance for loan losses represents an
amount which we believe will be adequate to absorb probable losses on existing
loans that may become uncollectible. Our judgment as to the adequacy of the
allowance for loan losses is based on a number of assumptions regarding current
portfolio and economic conditions, which we believe to be reasonable, but which
may or may not prove to be accurate. Over time, we will periodically determine
the amount of the allowance based on our consideration of several factors,
including an ongoing review of the quality, mix and size of our overall loan
portfolio, our historical loan loss experience, evaluation of economic
conditions and other qualitative factors, specific problem loans and
commitments that may affect the borrowers ability to pay. Following is a
category detail of our allowance percentage and reserve balance by loan type at
March 31, 2010 and December 31, 2009.
|
|
March 31, 2010
|
|
March 31, 2010
|
|
December 31, 2009
|
|
December 31, 2009
|
|
|
|
Calculated
|
|
Reserve
|
|
Calculated
|
|
Reserve
|
|
Loan Group Description
|
|
Reserves
|
|
%
|
|
Reserves
|
|
%
|
|
1-4 Family Construction
|
|
8,314
|
|
1.60
|
%
|
4,815
|
|
1.45
|
%
|
Other Const., Land & Development
|
|
232,232
|
|
1.90
|
%
|
188,424
|
|
1.80
|
%
|
HELOCs
|
|
19,961
|
|
1.00
|
%
|
16,499
|
|
1.00
|
%
|
1-4 Fam Non-rev.+Multi-Fam Res.
|
|
60,636
|
|
1.10
|
%
|
55,376
|
|
1.00
|
%
|
Owner Occupied Non Family Non Residential
|
|
88,542
|
|
1.25
|
%
|
87,342
|
|
1.20
|
%
|
Other Non Family/Non Residential
|
|
350,570
|
|
1.35
|
%
|
305,856
|
|
1.30
|
%
|
Commercial and Industrial
|
|
55,989
|
|
1.30
|
%
|
61,947
|
|
1.25
|
%
|
Consumer
|
|
27,912
|
|
1.60
|
%
|
21,556
|
|
1.20
|
%
|
Other
|
|
3,507
|
|
1.75
|
%
|
1,769
|
|
1.25
|
%
|
Convenience Store Loans
|
|
470,947
|
|
8.40
|
%
|
465,979
|
|
8.40
|
%
|
SBA Loans
|
|
24,873
|
|
3.23
|
%
|
|
|
|
|
Classified Credits
|
|
299,395
|
|
14.29
|
%
|
235,959
|
|
9.76
|
%
|
Total Allowance for Loan Loss
|
|
$
|
1,642,878
|
|
2.24
|
%
|
1,445,522
|
|
2.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Periodically,
we will adjust the amount of the allowance based on changing circumstances. We
will charge recognized losses to the allowance and add subsequent recoveries
back to the allowance for loan losses. There can be no assurance that
charge-offs of loans in future periods will not exceed the allowance for loan
losses as estimated at any point in time or that provisions for loan losses
will not be significant to a particular accounting period.
Deposits
Our
primary source of funds for loans and securities are customer deposits and
Federal Home Loan Bank advances. At March 31, 2010, we had $96,949,717 in
deposits which consisted primarily of $5,033,670 in non-interest bearing demand
deposit accounts, $53,542,968 in time deposits, and $38,373,079 of other
interest bearing accounts. Deposits increased $20,906,043 from December 31,
2009 when deposits were $76,043,674 consisting primarily of $3,489,983 in
non-interest bearing demand deposit accounts,
23
Table of Contents
$45,134,483
in time deposits, and $27,419,208 of other interest bearing accounts. The primary driver of our deposit increase
has been promotional rates that we have offered on money market accounts and
certificates of deposit in our local market.
Liquidity
Liquidity
represents the ability of a company to convert assets into cash or cash
equivalents without significant loss, and the ability to raise additional funds
by increasing liabilities. For an operating bank, liquidity represents the
ability to provide steady sources of funds for loan commitments and investment
activities, as well as to maintain sufficient funds to cover deposit
withdrawals and payment of debt and operating obligations. Liquidity management
involves monitoring our sources and uses of funds in order to meet our
day-to-day cash flow requirements, while maximizing profits. Liquidity
management is made more complicated because different balance sheet components
are subject to varying degrees of management control. For example, the timing
of maturities of our investment portfolio is fairly predictable and subject to
a high degree of control at the time investment decisions are made. However,
net deposit inflows and outflows are far less predictable and are not subject
to the same degree of control.
Our
primary sources of liquidity are deposits, borrowings, scheduled repayments on
our loans, and interest on and maturities of our securities. We plan to meet
our future cash needs through the liquidation of temporary investments and the
generation of deposits. Occasionally, we might sell securities in connection
with the management of our interest sensitivity gap or to manage cash
availability. We may also utilize our cash and due from banks, security
repurchase agreements, and federal funds sold to meet liquidity requirements as
needed. In addition, we have the ability, on a short-term basis, to purchase
federal funds from other financial institutions. As of March 31, 2010, our
primary source of liquidity included our securities portfolio, lines of credit
available with correspondent banks totaling $23,000,000, and a line of credit
with the Federal Home Loan Bank of Atlanta. We believe our liquidity levels are
adequate to meet our operating needs.
Off-Balance Sheet Risk
Through
the operations of the Bank, we have made contractual commitments to extend
credit in the ordinary course of our business activities. These commitments are
legally binding agreements to lend money to our customers at predetermined
interest rates for a specified period of time. At March 31, 2010 and December 31,
2009, we had issued commitments to extend credit of approximately $10,634,000
through various types of lending arrangements. We evaluate each customers
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by us upon extension of credit, is based on our credit
evaluation of the borrower. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, and commercial and
residential real estate. We manage the credit risk on these commitments by
subjecting them to normal underwriting and risk management processes.
Capital Resources
Total
shareholders equity increased from $28.6 million at December 31, 2009 to
$29.0 million at March 31, 2010.
The increase is primarily attributable to a gain in the value of our
securities portfolio and the net profit that we accomplished for the quarter.
The
Federal Reserve and bank regulatory agencies require bank holding companies and
depository institutions to maintain regulatory capital requirements at adequate
levels based on a percentage of assets and off-balance sheet exposures.
However, under the Federal Reserve Boards guidelines, we believe we are a small
bank holding company, and thus qualify for an exemption from the consolidated
risk-based and leverage capital adequacy guidelines applicable to bank holding
companies with assets of $500 million or more. Regardless, we still maintain
levels of capital on a consolidated basis which qualify us as well capitalized
under the Federal Reserves capital guidelines.
Nevertheless,
the bank is subject to regulatory capital requirements. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the bank
must
24
Table of Contents
meet
specific capital guidelines that involve quantitative measures of the banks
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The banks capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Under
the capital adequacy guidelines, the bank is required to maintain a certain
level of Tier 1 and total risk-based capital to risk-weighted assets. At least
half of the banks total risk-based capital must be comprised of Tier 1
capital, which consists of common shareholders equity, excluding the
unrealized gain or loss on securities available for sale, minus certain
intangible assets. The remainder may consist of Tier 2 capital, which is
subordinated debt, other preferred stock and the general reserve for loan
losses, subject to certain limitations. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100% based on the risks
believed to be inherent in the type of asset. The bank is also required to
maintain capital at a minimum level based on total average assets, which is
known as the Tier 1 leverage ratio.
To
be considered adequately capitalized under the various regulatory capital
requirements administered by the federal banking agencies, the bank must
maintain a minimum total risk-based capital of 8%, with at least 4% being Tier
1 capital. In addition, the bank must maintain a minimum Tier 1 leverage ratio
of at least 4%. To be considered well-capitalized, the bank must maintain
total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a
leverage ratio of at least 5%. For the first three years of operation, during
the banks de novo period, the bank will be required to maintain a leverage
ratio of at least 8%. The bank exceeded its minimum regulatory capital ratios
as of March 31, 2010 and December 31, 2009, as well as the ratios to
be considered well capitalized.
The
following table sets forth the Banks various capital ratios at March 31,
2010.
|
|
Bank
|
|
Total
risk-based capital
|
|
23.08
|
%
|
|
|
|
|
Tier
1 risk-based capital
|
|
21.81
|
%
|
|
|
|
|
Leverage
capital
|
|
17.59
|
%
|
We
believe that our capital is sufficient to fund the activities of the Bank and
that the rate of asset growth will not negatively impact the capital base. As
of March 31, 2010, there were no significant firm commitments outstanding
for capital expenditures.
Critical Accounting Policies
We
have adopted various accounting policies, which govern the application of
accounting principles generally accepted in the United States of America in the
preparation of our financial statements.
Certain
accounting policies involve significant judgments and assumptions by us that
may have a material impact on the carrying value of certain assets and liabilities.
We consider such accounting policies to be critical accounting policies. The
judgments and assumptions we use are based on historical experience and other
factors, which we believe are reasonable under the circumstances. Because of
the nature of the judgments and assumptions we make, actual results could
differ from these judgments and estimates that could have a material impact on
the carrying values of our assets and liabilities and our results of
operations.
Allowance for Loan Losses
. We believe that the
determination of the allowance for loan losses is the critical accounting
policy that requires the most significant judgments and estimates used in
preparation of
25
Table of Contents
our
consolidated financial statements. Refer to section Allowance for Loan Losses
in this report for a more detailed description of the methodology related to
the allowance for loan losses.
Item 3. Quantitative and
Qualitative Disclosure About Market Risk
Not applicable.
Item 4T.
Controls and Procedures Need to provide
update from controls and procedures documented in the 10-K.
As
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our current disclosure controls and procedures are
effective as of March 31, 2010. There have been no significant
changes in our internal controls over financial reporting during the fiscal
quarter ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
The
design of any system of controls and procedures is based in part upon certain
assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
Part II
Other Information
Item
6. Exhibits
Exhibit No.
|
|
Description of Exhibits
|
3.1
|
|
Articles of Incorporation
(incorporated by reference to the Registration Statement on Form SB-2).
|
|
|
|
3.2
|
|
Articles of Amendment to
Articles of Incorporation (incorporated by reference to the Post-Effective
Amendment No. 1 to the Registration Statement on Form SB-2).
|
|
|
|
3.3
|
|
Bylaws (incorporated by
reference to the Registration Statement on Form SB-2).
|
|
|
|
4.1
|
|
See Exhibits 3.1, 3.2 and
3.3 for provisions in Touchmark Bancshares, Inc. Articles of
Incorporation, as amended, and Bylaws defining the rights of holders of
common stock.
|
|
|
|
4.2
|
|
Form of certificate
of common stock (incorporated by reference to the Registration on
Form SB-2).
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification
of the Chief Executive Officer.
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification
of the Chief Financial Officer.
|
|
|
|
32
|
|
Section 1350
Certifications.
|
26
Table of Contents
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Touchmark Bancshares, Inc.
|
|
|
|
|
|
|
Date: May 17,
2010
|
|
By:
|
/s/ William R. Short
|
|
|
|
|
William R. Short
|
|
|
|
|
President and Chief
Executive Officer
|
|
|
|
|
(Principal Executive
Officer)
|
|
|
|
|
|
|
Date: May 17,
2010
|
|
By:
|
/s/ Robert D. Koncerak
|
|
|
|
|
Robert D. Koncerak
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
(Principal Financial
Officer and Principal Accounting Officer)
|
27
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