First Guaranty Bancshares, Inc. - Quarter Report: 2009 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the Quarter Ended March 31, 2009
Commission
File Number 000-52748
FIRST
GUARANTY BANCSHARES, INC.
(Exact
name of registrant as specified in its charter)
Louisiana
|
26-0513559
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
400
East Thomas Street
|
|
Hammond,
Louisiana
|
70401
|
(Address
of principal executive office)
|
(Zip
Code)
|
(985)
345-7685
(Telephone
number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] 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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes [X] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer * Accelerated
filer * Non-accelerated
filer * Smaller
reporting company T
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [
] No [X]
As of
March 31, 2009, the registrant had 5,559,644 shares of $1 par value common stock
which were issued and outstanding.
- 1
-
PART
I. FINANCIAL
INFORMATION
Item
1. Consolidated
Financial Statements
FIRST
GUARANTY BANCSHARES, INC. AND SUBSIDIARY
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
(dollars
in thousands, except share data)
|
||||||||
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
(unaudited)
|
|||||||
Cash
and cash equivalents:
|
||||||||
Cash
and due from banks
|
$ | 18,040 | $ | 77,159 | ||||
Interest-earning
demand deposits with banks
|
45,230 | 20 | ||||||
Federal
funds sold
|
50,533 | 838 | ||||||
Cash
and cash equivalents
|
113,803 | 78,017 | ||||||
Interest-earning
time deposits with banks
|
18,766 | 21,481 | ||||||
Investment
securities:
|
||||||||
Available
for sale, at fair value
|
235,816 | 114,406 | ||||||
Held
to maturity, at cost (estimated fair value of
|
||||||||
$20,272
and $24,936, respectively)
|
20,159 | 24,756 | ||||||
Investment
securities
|
255,975 | 139,162 | ||||||
Federal
Home Loan Bank stock, at cost
|
946 | 944 | ||||||
Loans
held for sale
|
56 | - | ||||||
Loans,
net of unearned income
|
591,473 | 606,369 | ||||||
Less:
allowance for loan losses
|
6,444 | 6,482 | ||||||
Net
loans
|
585,029 | 599,887 | ||||||
Premises
and equipment, net
|
16,077 | 16,141 | ||||||
Goodwill
|
1,980 | 1,980 | ||||||
Intangible
assets, net
|
2,007 | 2,078 | ||||||
Other
real estate, net
|
720 | 568 | ||||||
Accrued
interest receivable
|
5,390 | 4,611 | ||||||
Other
assets
|
8,089 | 6,563 | ||||||
Total
Assets
|
$ | 1,008,838 | $ | 871,432 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Deposits:
|
||||||||
Noninterest-bearing
demand
|
$ | 118,008 | $ | 118,255 | ||||
Interest-bearing
demand
|
247,042 | 180,230 | ||||||
Savings
|
42,873 | 41,357 | ||||||
Time
|
503,899 | 440,530 | ||||||
Total
deposits
|
911,822 | 780,372 | ||||||
Short-term
borrowings
|
18,482 | 9,767 | ||||||
Accrued
interest payable
|
4,226 | 3,033 | ||||||
Long-term
borrowings
|
5,871 | 8,355 | ||||||
Other
liabilities
|
3,732 | 3,275 | ||||||
Total
Liabilities
|
944,133 | 804,802 | ||||||
Stockholders'
Equity
|
||||||||
Common
stock:
|
||||||||
$1
par value - authorized 100,600,000 shares; issued and
|
||||||||
outstanding
5,559,644 shares
|
5,560 | 5,560 | ||||||
Surplus
|
26,459 | 26,459 | ||||||
Retained
earnings
|
37,989 | 37,769 | ||||||
Accumulated
other comprehensive loss
|
(5,303 | ) | (3,158 | ) | ||||
Total
Stockholders' Equity
|
64,705 | 66,630 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 1,008,838 | $ | 871,432 | ||||
See
Notes to Consolidated Financial Statements.
|
- 2
-
FIRST
GUARANTY BANCSHARES, INC. AND SUBSIDIARY
|
||||||||
CONSOLIDATED
STATEMENTS OF INCOME (unaudited)
|
||||||||
(dollars
in thousands, except per share data)
|
||||||||
Three
Months
|
||||||||
Ended
March 31,
|
||||||||
2009
|
2008
|
|||||||
Interest
Income:
|
||||||||
Loans
(including fees)
|
$ | 8,657 | $ | 10,858 | ||||
Loans
held for sale
|
1 | 21 | ||||||
Deposits
with other banks
|
225 | 9 | ||||||
Securities
(including FHLB stock)
|
2,074 | 1,519 | ||||||
Federal
funds sold
|
17 | 316 | ||||||
Total
Interest Income
|
10,974 | 12,723 | ||||||
Interest
Expense:
|
||||||||
Demand
deposits
|
434 | 968 | ||||||
Savings
deposits
|
41 | 56 | ||||||
Time
deposits
|
3,592 | 3,582 | ||||||
Borrowings
|
62 | 109 | ||||||
Total
Interest Expense
|
4,129 | 4,715 | ||||||
Net
Interest Income
|
6,845 | 8,008 | ||||||
Provision
for loan losses
|
648 | 202 | ||||||
Net
Interest Income after Provision for Loan Losses
|
6,197 | 7,806 | ||||||
Noninterest
Income:
|
||||||||
Service
charges, commissions and fees
|
980 | 1,013 | ||||||
Net
gains on sale of securities
|
- | 3 | ||||||
Net
gains on sale of loans
|
79 | 83 | ||||||
Other
|
278 | 343 | ||||||
Total
Noninterest Income
|
1,337 | 1,442 | ||||||
Noninterest
Expense:
|
||||||||
Salaries
and employee benefits
|
2,826 | 2,601 | ||||||
Occupancy
and equipment expense
|
683 | 699 | ||||||
Net
cost from other real estate & repossessions
|
110 | 42 | ||||||
Other
|
2,215 | 2,330 | ||||||
Total
Noninterest Expense
|
5,834 | 5,672 | ||||||
Income
Before Income Taxes
|
1,700 | 3,576 | ||||||
Provision
for income taxes
|
590 | 1,250 | ||||||
Net
Income
|
$ | 1,110 | $ | 2,326 | ||||
Per
Common Share:
|
||||||||
Earnings
|
$ | 0.20 | $ | 0.42 | ||||
Cash
dividends paid
|
$ | 0.16 | $ | 0.16 | ||||
Average
Common Shares Outstanding
|
5,559,644 | 5,559,644 | ||||||
See
Notes to Consolidated Financial Statements
|
- 3
-
FIRST
GUARANTY BANCSHARES, INC. AND SUBSIDIARY
|
||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
|
||||||||||||||||||||
(dollars
in thousands, except per share data)
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Common
|
Other
|
|||||||||||||||||||
Stock
|
Retained
|
Comprehensive
|
||||||||||||||||||
$1
Par
|
Surplus
|
Earnings
|
Loss
|
Total
|
||||||||||||||||
Balance
December 31, 2007
|
$ | 5,560 | $ | 26,459 | $ | 35,578 | $ | (335 | ) | $ | 67,262 | |||||||||
Net
income
|
- | - | 2,326 | - | 2,326 | |||||||||||||||
Change
in unrealized loss
|
||||||||||||||||||||
on
available for sale securities,
|
||||||||||||||||||||
net
of reclassification adjustments and taxes
|
- | - | - | (169 | ) | (169 | ) | |||||||||||||
Comprehensive
income
|
2,157 | |||||||||||||||||||
Cash
dividends on common stock ($0.16 per share)
|
- | - | (889 | ) | - | (889 | ) | |||||||||||||
Balance
March 31, 2008 (unaudited)
|
$ | 5,560 | $ | 26,459 | $ | 37,015 | $ | (504 | ) | $ | 68,530 | |||||||||
Balance
December 31, 2008
|
$ | 5,560 | $ | 26,459 | $ | 37,769 | $ | (3,158 | ) | $ | 66,630 | |||||||||
Net
income
|
- | - | 1,110 | - | 1,110 | |||||||||||||||
Change
in unrealized loss
|
||||||||||||||||||||
on
available for sale securities,
|
||||||||||||||||||||
net
of reclassification adjustments and taxes
|
- | - | - | (2,145 | ) | (2,145 | ) | |||||||||||||
Comprehensive
income
|
(1,035 | ) | ||||||||||||||||||
Cash
dividends on common stock ($0.16 per share)
|
- | - | (890 | ) | - | (890 | ) | |||||||||||||
Balance
March 31, 2009 (unaudited)
|
$ | 5,560 | $ | 26,459 | $ | 37,989 | $ | (5,303 | ) | $ | 64,705 | |||||||||
See
Notes to Consolidated Financial Statements
|
- 4
-
FIRST
GUARANTY BANCSHARES, INC. AND SUBSIDIARY
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
|
||||||||
(in
thousands)
|
||||||||
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows From Operating Activities
|
||||||||
Net
income
|
$ | 1,110 | $ | 2,326 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Provision
for loan losses
|
648 | 202 | ||||||
Depreciation
and amortization
|
351 | 365 | ||||||
Amortization
of discount on investments
|
(233 | ) | (298 | ) | ||||
Gain
on call of securities
|
- | (3 | ) | |||||
Gain
on sale of assets
|
(78 | ) | (83 | ) | ||||
ORE
writedowns and loss on disposition
|
82 | 15 | ||||||
FHLB
stock dividends
|
(2 | ) | (17 | ) | ||||
Net
(increase) decrease in loans held for sale
|
(56 | ) | 3,122 | |||||
Change
in other assets and liabilities, net
|
(386 | ) | 2,677 | |||||
Net
Cash Provided By Operating Activities
|
1,436 | 8,306 | ||||||
Cash
Flows From Investing Activities
|
||||||||
Proceeds
from maturities and calls of HTM securities
|
4,597 | 1,954 | ||||||
Proceeds
from maturities, calls and sales of AFS securities
|
438,825 | 244,909 | ||||||
Funds
invested in AFS securities
|
(563,251 | ) | (229,861 | ) | ||||
Proceeds
from sale of Federal Home Loan Bank stock
|
- | 505 | ||||||
Proceeds
from maturities of time deposits with banks
|
2,715 | 2,089 | ||||||
Net
decrease (increase) in loans
|
13,919 | (16,577 | ) | |||||
Purchase
of premises and equipment
|
(192 | ) | (97 | ) | ||||
Proceeds
from sales of other real estate owned
|
56 | 84 | ||||||
Net
Cash (Used In) Provided By Investing Activities
|
(103,331 | ) | 3,006 | |||||
Cash
Flows From Financing Activities
|
||||||||
Net
increase (decrease) in deposits
|
131,450 | (18,428 | ) | |||||
Net
increase (decrease) in federal funds purchased and short-term
borrowings
|
8,715 | (968 | ) | |||||
Repayment
of long-term borrowings
|
(2,484 | ) | - | |||||
Dividends
paid
|
- | (889 | ) | |||||
Net
Cash Provided By (Used In) Financing Activities
|
137,681 | (20,285 | ) | |||||
Net
Increase (Decrease) In Cash and Cash Equivalents
|
35,786 | (8,973 | ) | |||||
Cash
and Cash Equivalents at the Beginning of the Period
|
78,017 | 58,677 | ||||||
Cash
and Cash Equivalents at the End of the Period
|
$ | 113,803 | $ | 49,704 | ||||
Noncash
Activities:
|
||||||||
Loans
transferred to foreclosed assets
|
$ | 290 | $ | - | ||||
Cash
Paid During The Period:
|
||||||||
Interest
on deposits and borrowed funds
|
$ | 2,936 | $ | 4,154 | ||||
Income
taxes
|
$ | 1,700 | $ | - | ||||
See
Notes to Consolidated Financial Statements
|
- 5
-
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1. Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles. The consolidated financial
statements and the footnotes of First Guaranty Bancshares, Inc. (the “Company”)
thereto should be read in conjunction with the audited financial statements and
note disclosures for the Company previously filed with the Securities and
Exchange Commission in the Company’s Annual Report filed on Form 10-K for the
year ended December 31, 2008.
The
consolidated financial statements include the accounts of First Guaranty
Bancshares, Inc. and its wholly owned subsidiary, First Guaranty
Bank. All significant intercompany balances and transactions have
been eliminated in consolidation.
In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
consolidated financial statements. Those adjustments are of a normal recurring
nature. The results of operations for the three-month periods ended March 31,
2009 and 2008 are not necessarily indicative of the results expected for the
full year.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates. Material
estimates that are susceptible to significant change in the near term are the
allowance for loan losses, valuation of goodwill, intangible assets and other
purchase accounting adjustments.
Note
2. Fair Value
Effective
January 1, 2008, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” for financial
assets and liabilities. SFAS 157 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. A fair value measurement assumes that
the transaction to sell the asset or transfer the liability occurs in the
principal market for the asset or liability or, in the absence of a principal
market, the most advantageous market for the asset or liability. Valuation
techniques use certain inputs to arrive at fair value. Inputs to valuation
techniques are the assumptions that market participants would use in pricing the
asset or liability. They may be observable or unobservable. SFAS 157 establishes
a fair value hierarchy for valuation inputs that gives the highest priority to
quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
Level 1
Inputs – Unadjusted quoted market prices in active markets for identical assets
or liabilities that the reporting entity has the ability to access at the
measurement date.
Level 2
Inputs – Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability
(such as interest rates, volatilities, prepayment speeds or credit risks) or
inputs that are derived principally from or corroborated by market data by
correlation or other means.
Level 3
Inputs – Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity’s own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.
A
description of the valuation methodologies used for instruments measured at fair
value follows, as well as the classification of such instruments within the
valuation hierarchy.
Securities Available for
Sale. Securities classified as available for sale are reported
at fair value utilizing Level 1, Level 2 and Level 3 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, market yield curves,
prepayment speeds, credit information and the instrument’s contractual terms and
conditions, among other things.
Impaired
Loans. Certain financial assets such as impaired loans are
measured at fair value on a nonrecurring basis; that is, the instruments are not
measured at fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances, such as when there is evidence of
impairment. The fair value of impaired loans was $6.7 million at March 31, 2009.
The fair value of impaired loans is measured by either the obtainable market
price (Level 1), the fair value of the collateral as determined by appraisals or
independent valuation (Level 2), or the present value of expected future cash
flows discounted at the effective interest rate of the loan (Level
3).
Certain
non-financial assets and non-financial liabilities are measured at fair value on
a non-recurring basis including assets and liabilities related to reporting
units measured at fair value in the testing of goodwill impairment, as well as
intangible assets and other non-financial long-lived assets measured at fair
value for impairment assessment.
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of March 31, 2009, segregated by the level
of the valuation inputs within the fair value hierarchy utilized to measure fair
value:
- 6
-
Fair
Value Measurements at
|
||||
March
31, 2009, Using
|
||||
Quoted
|
||||
Prices
In
|
||||
Active
|
||||
Markets
|
Significant
|
|||
Assets/Liabilities
|
For
|
Other
|
Significant
|
|
Measured
at Fair
|
Identical
|
Observable
|
Unobservable
|
|
Value
|
Assets
|
Inputs
|
Inputs
|
|
(Dollars
in thousands)
|
March
31, 2009
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Securities
available for sale
|
$
235,816
|
$ 132,568
|
$
103,248
|
$ -
|
Gains and losses (realized and
unrealized) included in earnings (or changes in net assets) for the first three
months of 2009 on a recurring basis are reported in noninterest income or other
comprehensive income as follows:
Other
|
||||||||
Noninterest
|
Comprehensive
|
|||||||
Income
|
Income
|
|||||||
(in
thousands)
|
||||||||
Total
gains included in earnings
|
- | - | ||||||
(or
changes in net assests)
|
||||||||
Increase
in unrealized losses relating to assets
|
- | 2,145 | ||||||
still
held at March 31, 2009
|
The
Company did not record any assets or liabilities at fair value for which
measurement of the fair value was made on a nonrecurring basis during the three
months ended March 31, 2009.
Note
3. Loans and Allowance for Loan Losses
Loans, net of unearned income, totaled
$591.5 million at March 31, 2009 and $606.4 million at December 31, 2008. The
Company also held $56,000 in loans held for sale at March 31, 2009. No loans
were held for sale at December 31, 2008. The loan portfolio is the
largest component of assets with total loans, net of allowance for loan losses,
accounting for 58.6% and 69.6% of total assets as of March 31, 2009 and December
31, 2008, respectively. The loan portfolio consists solely of
domestic loans.
Total
loans at March 31, 2009 (unaudited) and December 31, 2008 were as
follows:
- 7
-
March
31,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
|||||||||||||||
As
% of
|
As
% of
|
|||||||||||||||
Balance
|
Category
|
Balance
|
Category
|
|||||||||||||
(dollars
in thousands)
|
||||||||||||||||
Real
estate
|
||||||||||||||||
Construction
& land development
|
$ | 85,450 | 14.4 | % | $ | 92,029 | 15.2 | % | ||||||||
Farmland
|
15,396 | 2.6 | % | 16,403 | 2.7 | % | ||||||||||
1-4
Family
|
72,778 | 12.3 | % | 79,285 | 13.1 | % | ||||||||||
Multifamily
|
10,691 | 1.8 | % | 15,707 | 2.6 | % | ||||||||||
Non-farm
non-residential
|
288,381 | 48.7 | % | 261,744 | 43.0 | % | ||||||||||
Total
real estate
|
472,696 | 79.8 | % | 465,168 | 76.6 | % | ||||||||||
Agricultural
|
16,988 | 2.9 | % | 18,536 | 3.0 | % | ||||||||||
Commercial
and industrial
|
86,024 | 14.5 | % | 105,555 | 17.4 | % | ||||||||||
Consumer
and other
|
16,573 | 2.8 | % | 17,926 | 3.0 | % | ||||||||||
Total
loans before unearned income
|
592,281 | 100.0 | % | 607,185 | 100.0 | % | ||||||||||
Less:
unearned income
|
(808 | ) | (816 | ) | ||||||||||||
Total
loans after unearned income
|
$ | 591,473 | $ | 606,369 | ||||||||||||
The following table sets forth the maturity distribution of the loan portfolio and the allocation of fixed and floating rate loans:
March
31, 2009
|
||||||||||||
Fixed
|
Floating
|
Total
|
||||||||||
(in
thousands)
|
||||||||||||
One
year or less
|
$ | 159,769 | $ | 193,573 | $ | 353,342 | ||||||
One
to five years
|
160,134 | 29,729 | 189,863 | |||||||||
Five
to 15 years
|
23,034 | 208 | 23,242 | |||||||||
Over
15 years
|
17,924 | - | 17,924 | |||||||||
Subtotal
|
360,861 | 223,510 | 584,371 | |||||||||
Nonaccrual
loans
|
7,102 | |||||||||||
Total
loans after unearned income
|
$ | 360,861 | $ | 223,510 | $ | 591,473 | ||||||
The
allowance for loan losses is reviewed by Management on a monthly basis and
additions thereto are recorded in order to maintain the allowance at an adequate
level. In assessing the adequacy of the allowance, Management
considers a variety of internal and external factors that might impact the
performance of individual loans. These factors include, but are not
limited to, economic conditions and their impact upon borrowers’ ability to
repay loans, respective industry trends, borrower estimates and independent
appraisals. Periodic changes in these factors impact Management’s
assessment of each loan and its overall impact on the adequacy of the allowance
for loan losses.
The allowance for loan losses totaled
$6.4 million or 1.09% of total loans at March 31, 2009 and $6.5 million or 1.07%
of total loans at December 31, 2008. Changes in the allowance for
loan losses for the three months ended March 31, 2009 (unaudited) and the year
ended December 31, 2008 are as follows:
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Balance
beginning of period
|
$ | 6,482 | $ | 6,193 | ||||
Provision
charged to expense
|
648 | 1,634 | ||||||
Loans
charged-off
|
(738 | ) | (1,613 | ) | ||||
Recoveries
|
52 | 268 | ||||||
Allowance
for loan losses
|
$ | 6,444 | $ | 6,482 | ||||
The
following table sets forth, for the periods indicated, the allowance for loan
losses, amounts charged-off and recoveries of loans previously
charged-off:
- 8
-
Three
Months Ended
|
||||||||
March
31,
|
March
31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Balance
at beginning of period
|
$ | 6,482 | $ | 6,193 | ||||
Charge-offs:
|
||||||||
Real
estate loans:
|
||||||||
One-
to four- family residential
|
(153 | ) | - | |||||
Non-farm
non-residential
|
(356 | ) | - | |||||
Commercial
and industrial loans
|
(50 | ) | (180 | ) | ||||
Consumer
and other
|
(179 | ) | (104 | ) | ||||
Total
charge-offs
|
(738 | ) | (284 | ) | ||||
Recoveries:
|
||||||||
Real
estate loans:
|
||||||||
Construction
and land development
|
1 | 1 | ||||||
Farmland
|
1 | - | ||||||
One-
to four- family residential
|
10 | 4 | ||||||
Commercial
and industrial loans
|
3 | 4 | ||||||
Consumer
and other
|
37 | 54 | ||||||
Total
recoveries
|
52 | 63 | ||||||
Net
charge-offs
|
(686 | ) | (221 | ) | ||||
Provision
for loan losses
|
648 | 202 | ||||||
Balance
at end of period
|
$ | 6,444 | $ | 6,174 | ||||
Ratios:
|
||||||||
Net
loan charge-offs to average loans
|
0.11 | % | 0.04 | % | ||||
Net
loan charge-offs to loans at end of period
|
0.12 | % | 0.04 | % | ||||
Allowance
for loan losses to loans at end of period
|
1.09 | % | 1.04 | % | ||||
Net
loan charge-offs to allowance for loan losses
|
10.65 | % | 3.58 | % | ||||
Net
loan charge-offs to provision charged to expense
|
105.82 | % | 109.19 | % |
During
the first quarter of 2009, charged off one-to-four family residential real
estate loans totaled $0.2 million and comprised of several small
loans.
During
the same period, charged off non-farm non-residential loans totaled $0.4 million
and was the result of one loan secured by commercial real estate. The
performance of this loan was primarily supported by the cash flows of the
business. The borrower of the commercial loan is a lumber milling and
distributing company that had been in business for many years. The loan
performed in accordance with its terms until the death of its owner. The
distress of the lumber loan resulted from a decrease in lumber prices during
2007 which adversely and significantly affected the borrower’s
business. In January 2008, the Company was able to liquidate
receivables and repay a portion of the lumber loan reducing the principle
balance from approximately $1.0 million to $0.8 million. The property has been
liquidated and the balance of the loan has been fully charged off.
In
some instances, loans are placed on nonaccrual status. All accrued but
uncollected interest related to a loan is deducted from income in the period the
loan is assigned a nonaccrual status. During the period a loan is in nonaccrual
status, any cash receipts are first applied to the principal balance. Once the
principal balance has been fully recovered, any residual amounts are applied to
expenses resulting from the collection of the payment and to the recovery of any
reversed interest income and interest income that would have been due had the
loan not been placed on nonaccrual status. As of March 31, 2009 and
December 31, 2008 the Company had loans totaling $7.1 million and $9.1 million,
respectively, on which the accrual of interest had been
discontinued.
Note 4. Goodwill and Other Intangible
Assets
The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests in accordance with the provision of SFAS No. 142. Other intangible assets continue to be amortized over their useful lives. Goodwill was $2.0 million at March 31, 2009 and December 31, 2008.
The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests in accordance with the provision of SFAS No. 142. Other intangible assets continue to be amortized over their useful lives. Goodwill was $2.0 million at March 31, 2009 and December 31, 2008.
- 9
-
Mortgage
servicing rights totaled $41,000 and core deposit intangibles totaled $8.0
million at March 31, 2009. The mortgage servicing rights and core deposit
intangibles are both subject to amortization. The core deposits reflect the
value of deposit relationships, including the beneficial rates, which arose from
the purchase of other financial institutions and the purchase of various banking
center locations from one single financial institution. The following table
summarizes the Company’s purchased accounting intangible assets subject to
amortization.
As
of March 31, 2009
|
As
of December 31, 2008
|
|||||||||||||||||||||||
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
|||||||||||||||||||
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
|||||||||||||||||||
(in
thousands, unaudited)
|
||||||||||||||||||||||||
Core
deposit intangibles
|
$ | 7,997 | $ | 6,025 | $ | 1,972 | $ | 7,997 | $ | 5,948 | $ | 2,049 | ||||||||||||
Mortgage
servicing rights
|
41 | 6 | 35 | 32 | 3 | 29 | ||||||||||||||||||
Total
|
$ | 8,038 | $ | 6,031 | $ | 2,007 | $ | 8,029 | $ | 5,951 | $ | 2,078 | ||||||||||||
Note 5. Borrowings
During
the first quarter of 2009, total assets increased to the extent that it resulted
in a reduction of regulatory capital ratios. As a result, in March 2009 the
Company borrowed $6.0 million on its available line of credit and injected the
$6.0 million into the First Guaranty Bank to enhance capital. The interest rate
on the line of credit is a floating rate and is set at prime less 100 basis
points with a floor of four percent (4.00%). The Company intends to repay the
debt in full by December 31, 2009. Long term borrowings decreased in 2009 to
$5.9 million from $8.4 million at December 31, 2008.
The Company is in default of one
covenant imposed on its line of credit. The covenant requires the Company to
maintain a return on average assets (“ROAA”) of 0.60%. As of March 31, 2009, the
Company’s ROAA was 0.47%. The Company will request a waiver of this covenant but
has currently not received approval.
Note
6. Income Taxes
The
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN48) clarifies the accounting for uncertainty in income taxes
recognized in accordance with SFAS No. 109, Accounting for Income Taxes,
and prescribes a recognition threshold and measurement attribute for the
consolidated financial statements recognition and measurement of a tax position
taken or expected to be taken in a tax return. The Company does not believe it
has any unrecognized tax benefits included in its consolidated financial
statements. The Company has not had any settlements in the current period with
taxing authorities, nor has it recognized tax benefits as a result of a lapse of
the applicable statute of limitations.
The
Company recognizes interest and penalties accrued related to unrecognized tax
benefits in noninterest expense. During the quarters ended March 31, 2009 and
2008, the Company has not recognized any interest or penalties in its
consolidated financial statements, nor has it recorded an accrued liability for
interest or penalty payments.
At this
time, no tax years are under examination. With few exceptions, the Company is no
longer subject to U.S. federal, state or local income tax examinations for years
before 2005.
Note
7. Recent Accounting Pronouncements
In April 2009, the Financial Accounting
Standards Board (“FASB”) issued FASB Staff Position (FSP) 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
affirms that the objective of fair value when the market for an asset is not
active is the price that would be received to sell the asset in an orderly
transaction; includes additional factors for determining whether there has been
a significant decrease in market activity for an asset when the market is
inactive; eliminates the presumption that all transactions are distressed unless
proven otherwise requiring an entity to base its conclusion on the weight of
evidence; and requires an entity to disclose a change in valuation technique
resulting from application of the FSP and to quantify its effects, if
practicable. FSP 157-4 is effective for interim and annual periods ending after
June 15, 2009 with early adoption permitted for periods ending after March 15,
2009. The Company has not chosen to adopt FSP 157-4 early. The
Company is assessing the provisions of FSP 157-4, but does not expect the impact
to be material to the Company’s financial condition or results of
operations.
In April
2009, the FASB issued FSP 115-2 and FSP 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP changes existing guidance for
determining whether an impairment is other than temporary to debt securities;
replaces the existing requirement that the entity’s management assert it has
both the intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have the intent to sell the
security and (b) it is more likely than not it will not have to sell the
security before recovery of its cost basis; requires that an entity recognize
noncredit losses on held-to-maturity debt securities in other comprehensive
income and amortize the amount over the remaining life of the security in a
prospective manner by offsetting the recorded value of the asset unless the
security is subsequently sold or there are credit losses; requires an entity to
present the total other-than-temporary impairment in the statement of earnings
with an offset for the amount recognized in other comprehensive income; and at
adoption, requires an entity to record a cumulative-effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a
previously recognized other-than-temporary impairment from retained earnings to
accumulated other comprehensive income if the entity does not intend to sell the
security and it is more likely than not that the entity will be required to sell
the security before recovery. FSP 115-2 and FSP 124-2 are effective for interim
and annual periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. The Company has chosen not to adopt
FSP115-2 and FSP 124-2 early. We anticipate the adoption of FSP 115-2 and FSP
124-2 will not have a significant impact to the Company’s financial condition or
results of operations.
- 10
-
In April
2009, the FASB issued FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. Under this FSP, a publicly traded company shall
include disclosures about the fair value of its financial instruments whenever
it issues summarized financial information for interim reporting periods. In
addition, an entity shall disclose in the body or in the accompanying notes of
its summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position. FSP
107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009
with early adoption permitted for periods ending after March 15, 2009. The
Company is assessing the provisions of FSP 107-1 and APB 28-1, but does not
expect the impact to be material to the Company’s financial condition or results
of operations.
In
February 2009, the FASB issued FSP 141(R)-a, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise from Contingencies,
amends provisions related to the initial recognition and measurement,
subsequent measurement and disclosure of assets and liabilities arising from
contingencies in a business combination. The FSP is effective for all 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
impact on the Company’s financial condition or results of operations is
dependent on the extent of future business combinations.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The
following management discussion and analysis is intended to highlight the
significant factors affecting the Company's financial condition and results of
operations presented in the consolidated financial statements included in this
Form 10-Q. This discussion is designed to provide readers with a more
comprehensive view of the operating results and financial position than would be
obtained from reading the consolidated financial statements alone. Reference
should be made to those statements for an understanding of the following review
and analysis. The financial data for the three months ended March 31, 2009 and
2008 have been derived from unaudited consolidated financial statements and
include, in the opinion of management, all adjustments (consisting of normal
recurring accruals and provisions) necessary to present fairly the Company's
financial position and results of operations for such periods.
Special
Note Regarding Forward-Looking Statements
Congress
passed the Private Securities Litigation Act of 1995 in an effort to encourage
corporations to provide information about a company’s anticipated future
financial performance. This act provides a safe harbor for such disclosure,
which protects us from unwarranted litigation, if actual results are different
from Management expectations. This discussion and analysis contains
forward-looking statements and reflects Management’s current views and estimates
of future economic circumstances, industry conditions, company performance and
financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,”
“plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are subject to a number of factors and uncertainties, which could
cause our actual results and experience to differ from the anticipated results
and expectations, expressed in such forward-looking statements.
First
Quarter Overview
Financial highlights for the first
quarter of 2009 compared with the first quarter of 2008 are as
follows:
·
|
For
the first quarter of 2009, the Company had net income totaling $1.1
million. Net income totaled $2.3 million for the first quarter of
2008.
|
·
|
Net
interest income for the first quarter of 2009 and 2008 was $6.8 million
and $8.0 million, respectively. Net interest income decreased
primarily as a result of the decline in market interest rates, as both our
net interest margin and net interest spread were lower during the three
months ended March 31, 2009 compared to the same period in 2008. The net
interest margin was also impacted by the sudden significant increase in
volume of interest-bearing liabilities and the ability to redeploy these
monies in higher interest-earning assets in a timely fashion. The net
interest margin was 3.1% for the first quarter 2009 and 4.3% for the first
quarter 2008.
|
·
|
The
provision for loan losses for the first quarter of 2009 was $0.6 million
compared to $0.2 million for the first quarter of 2008. The increase in
the provision was primarily a result of increased charge-offs during the
first quarter of 2009 when compared to the same period of
2008.
|
·
|
Total
assets as of March 31, 2009 were $1.0 billion, an increase of $137.5
million or 15.8% when compared to $871.4 million at December 31, 2008 with
the largest increases in cash and cash equivalents and investment
securities, partially offset with decreases in interest-earning time
deposits with banks and net loans.
|
·
|
Cash
and cash equivalents totaled $113.8 million at March 31, 2009, an increase
of $35.8 million when compared to $78.0 million at December 31, 2008. The
increase in cash and cash equivalents was a result of additional cash from
increases in deposits.
|
- 11
-
·
|
Investment
securities totaled $256.0 million at March 31, 2009, an increase of $116.8
million when compared to $139.2 million at December 31, 2008. The increase
in securities was a result of deploying additional cash from increases in
deposits. At March 31, 2009, available for sale securities, at fair value
totaled $235.8 million, an increase of $121.4 million when compared to
December 31, 2008. Held to maturity securities, at cost, totaled $20.2
million, a decrease of $4.6 million when compared to $24.8 million at
December 31, 2008.
|
·
|
The
net loan portfolio at March 31, 2009 totaled $585.0 million, a decrease of
$14.9 million or 2.5% from the December 31, 2008 level of $599.9 million.
Net loans reflect a reduction for the allowance for loan losses which
totaled $6.4 million for March 31, 2009 and $6.5 million for December 31,
2008.
|
·
|
Total
deposits increased $131.5 million or 16.8% in 2009 when compared to
December 31, 2008. Individual and business deposits increased by $32.4
million and deposits from public fund deposits increased by $99.1
million.
|
·
|
Stockholders’
equity totaled at $64.7 million at March 31, 2009, a decrease of $1.9
million when compared to December 31, 2008. The decrease in equity
resulted from the change in accumulated other comprehensive income of $2.1
million and dividends paid on common stock totaling $0.9 million,
partially offset by net income of $1.1
million.
|
·
|
As
of March 31, 2009, the year-to-date return on average assets (“ROAA”) and
return on average equity (“ROAE”) were 0.47% and 6.75% respectively. The
year-to-date ROAA and ROAE were 1.18% and 13.74% for the same period in
2008.
|
·
|
The
Company’s Board of Directors declared cash dividends of $0.16 per common
share for the first quarter in 2008 and
2009.
|
Financial
Condition
Changes
in Financial Condition from December 31, 2008 to March 31, 2009
General. Total assets as of
March 31, 2009 were $1.0 billion, an increase of $137.5 million or 15.8% when
compared to $871.4 million at December 31, 2008. The increase in assets resulted
from increases in cash and cash equivalents and investment securities, with
decreases in interest-earning time deposits with banks and loans. Other assets
also increased in 2009. The increases in cash and cash equivalents
and securities reflects management’s intent to forego higher yielding, longer
term investments during the current low interest recessional
economy. Management believes the composition of assets will provide
the Company with the flexibility to take advantage of market opportunity once
the economic recovery begins.
Cash and Cash
Equivalents. Cash
and cash equivalents at March 31, 2009 totaled $113.8 million, an increase of
$35.8 million when compared to $78.0 million at December 31, 2008. Cash and due
from banks decreased $59.1 million, interest-earning demand deposits with banks
increased $45.2 million and federal funds sold increased
$49.7million.
Investment
Securities. Securities classified as available for sale are measured at
fair market value and securities classified as held to maturity are measured at
book value. The Company obtains fair value measurements from an independent
pricing service to value securities classified as available for sale. The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, market yield curves, prepayment speeds, credit
information and the instrument’s contractual terms and conditions, among other
things.
Investment
securities at March 31, 2009 totaled $256.0 million, an increase of $116.8
million when compared to $139.2 million at December 31, 2008. The net
change in securities was primarily a result of the Company investing cash
received from increased deposits into investment securities.
The
securities portfolio consisted principally of U.S. Government agency securities,
mortgage-backed obligations, asset-backed securities, corporate debt securities
and mutual funds or other equity securities. The securities portfolio provides
us with a relatively stable source of income and provides a balance to interest
rate and credit risks as compared to other categories of assets.
At March
31, 2009, $130.1 million or 50.7% of securities (including Federal Home Loan
Bank of Dallas stock) and mutual funds and other equity securities were
scheduled to mature in less than one year. This includes $123.5 million in
discount notes that are being used solely for pledging purposes. When excluding
these securities, only 2.6% of securities mature in less than one year.
Securities with maturity dates over 15 years totaled 2.1% of the total
portfolio. The average maturity of the securities portfolio was 2.6
years.
At March
31, 2009, securities totaling $235.8 million were classified as available for
sale and $20.2 million were classified as held to maturity, compared to $114.4
million classified as available for sale and $24.8 million classified as held to
maturity at December 31, 2008. Management periodically assesses the
quality of our investment holdings using procedures similar to those used in
assessing the credit risks inherent in the loan portfolio. At March 31, 2009,
management analyzed the investment portfolio for impairment on securities that
had an amortized cost greater than their recoverable value and concluded that no
charge was needed for the first quarter of 2008.
Average securities as a percentage of
average interest-earning assets were 24.7% for the three-month period ended
March 31, 2009 and 16.8% for the same period in 2008. All securities held at
March 31, 2009 qualified as pledgeable securities, except $79.1 million of debt
securities and $0.8 million of equity securities. Securities pledged at March
31, 2009 totaled $175.8 million.
Mortgage Loans
Held for Sale. Loans held for sale totaled
$56,000 at March 31, 2009. We had no loans held for sale at December
31, 2008.
- 12
-
Loans. The
origination of loans is our primary use of our financial resources and
represents the largest component of earning assets. Total loans accounted for
58.6% of total assets at March 31, 2009, compared to 69.6% of total assets at
December 31, 2008. There are no significant concentrations of credit to any
borrower or industry. As of March 31, 2009, 79.8% of our loan portfolio was
secured primarily or secondarily by real estate. The largest portion of our loan
portfolio is non-farm non-residential loans secured by real estate, which
accounts for 48.7% of our total portfolio.
Our net loan portfolio at March 31,
2009 totaled $585.0 million, a decrease of approximately $14.9 million from the
December 31, 2008 level of $599.9 million. Net loans include $42.6 million in
assignments purchased on non-real estate commercial and industrial loans and
real estate secured loans, net of paydowns. The loan assignments purchased meet
the same underwriting criteria used when making in-house loans. Net loans
include the reduction for the allowance for loan losses which totaled $6.4
million at March 31, 2009 and $6.5 million at December 31, 2008. Fixed rate
loans increased from $309.6 million or 51.05% of the total loan portfolio at
December 31, 2008 to $360.9 million, or 61.0% of the total loan portfolio at
March 31, 2009. Loan charge-offs totaled $0.7 million during the first three
months of 2009, compared to $0.3 million during the same period of
2008. Recoveries totaled $0.1 million during the first three months
of 2009 and 2008.
Nonperforming
Assets.
Nonperforming assets consist of loans on which interest is no longer
accrued, certain restructured loans where the interest rate or other terms have
been renegotiated and real estate acquired through foreclosure (other real
estate).
The
accrual of interest is discontinued on loans when management believes there is
reasonable uncertainty about the full collection of principal and interest or
when the loan is contractually past due ninety days or more and not fully
secured. If the principal amount of the loan is adequately secured, then
interest income on such loans is subsequently recognized only in periods in
which actual payments are received.
The table below sets forth the amounts
and categories of our non-performing assets at March 31, 2009 (unaudited) and
December 31, 2008. At the dates indicated we had no troubled debt
refinancing.
- 13
-
March
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Non-accrual
loans:
|
||||||||
Real
estate loans:
|
||||||||
Construction
and land development
|
$ | 2,149 | $ | 1,644 | ||||
Farmland
|
110 | 182 | ||||||
One-
to four- family residential
|
1,516 | 1,445 | ||||||
Non-farm
non-residential
|
2,270 | 5,263 | ||||||
Non-real
estate loans:
|
||||||||
Commercial
and industrial
|
868 | 275 | ||||||
Consumer
and other
|
189 | 320 | ||||||
Total
non-accrual loans
|
7,102 | 9,129 | ||||||
Loans
90 days and greater delinquent
|
||||||||
and
still accruing:
|
||||||||
Real
estate loans:
|
||||||||
Construction
and land development
|
259 | - | ||||||
One-
to four- family residential
|
260 | 185 | ||||||
Non-real
estate loans:
|
||||||||
Commercial
and industrial
|
- | 17 | ||||||
Consumer
and other
|
2 | 3 | ||||||
Total
loans 90 days greater
|
||||||||
delinquent
and still accruing
|
521 | 205 | ||||||
Total
non-performing loans
|
7,623 | 9,334 | ||||||
Real
estate owned:
|
||||||||
Real
estate loans:
|
||||||||
Construction
and land development
|
259 | 89 | ||||||
One-
to four- family residential
|
331 | 223 | ||||||
Non-farm
non-residential
|
130 | 256 | ||||||
Total
real estate owned
|
720 | 568 | ||||||
Total
non-performing assets
|
$ | 8,343 | $ | 9,902 | ||||
Ratios:
|
||||||||
Non-performing
assets to total loans
|
1.41 | % | 1.63 | % | ||||
Non-performing
assets to total assets
|
0.83 | % | 1.14 | % |
Nonperforming
assets totaled $8.3 million or 0.8% of total assets at March 31, 2009, a
decrease of $1.6 million from December 31, 2008. Management has
not identified additional information on any loans not already included in the
nonperforming asset total that indicates possible credit problems that could
cause doubt as to the ability of borrowers to comply with the loan repayment
terms in the future.
Nonaccrual
loans decreased $2.0 million from December 31, 2008 to March 31, 2009, largely
due to a decrease in non-farm non-residential and partially offset with
increases in nonaccrual construction and land development real estate loans and
nonaccrual commercial and industrial loans.
Non-farm
non-residential nonaccrual loans decreased $3.0 million from December 31, 2008
to March 31, 2009. The decrease was primarily the result of the loan secured by
real estate. The borrowers were able to put together a viable plan which was
confirmed by a bankruptcy trustee. The borrower had been making adequate
protection payments to the Company for several months prior to the plan being
confirmed. The Company also received a lump sum payment totaling $50,000 to
apply toward the indebtedness upon confirmation of the plan. Monthly
amortization payments began immediately after confirmation and are being paid as
agreed.
The
increase in nonaccrual construction and land development loans is related to one
loan for $522,000 secured by a subdivision development. The Company is currently
in foreclosure and does not anticipate any loss.
- 14
-
Non-real
estate commercial and industrial nonaccrual loans increased $0.6 million from
December 31, 2008 to March 31, 2009. This increase was primarily the result of
three loans. The first loan had a balance of $123,000 and is secured by account
receivables. The borrower had a construction contract that he was not able to
collect and is currently in litigation to resolve the issue. The Company is
currently working to obtain real estate to secure this loan. The second loan had
a balance of $197,000 and is secured by the guarantor’s ownership interest in a
real estate development project. The Company is currently in negotiations with
the guarantor to work out an arrangement. The third loan had a
balance of $158,000 and is secured by equipment. The Company is currently in the
process of seizing and liquidating the equipment.
Allowance for
Loan Losses. The
Company maintains its allowance for loan losses at a level it considers
sufficient to absorb potential losses embedded in the loan portfolio. The
allowance is increased by the provision for anticipated loan losses as well as
recoveries of previously charged-off loans and is decreased by loan charge-offs.
The provision is the necessary charge to current expense to provide for current
loan losses and to maintain the allowance at an adequate level commensurate with
Management's evaluation of the risks inherent in the loan portfolio. Various
factors are taken into consideration when the Company determines the amount of
the provision and the adequacy of the allowance. These factors include but are
not limited to:
§ Past due
and nonperforming assets;
§ Specific
internal analysis of loans requiring special attention;
§ The
current level of regulatory classified and criticized assets and the associated
risk factors with each;
§ Changes
in underwriting standards or lending procedures and policies;
§ Charge-off
and recovery practices;
§ National
and local economic and business conditions;
§ Nature
and volume of loans;
§ Overall
portfolio quality;
§ Adequacy
of loan collateral;
§ Quality
of loan review system and degree of oversight by its Board of
Directors;
§ Competition
and legal and regulatory requirements on borrowers;
§ Examinations
and review by the Company's internal loan review department, independent
accountants and third-party independent loan review personnel;
and
§ Examinations
of the loan portfolio by federal and state regulatory agencies.
The data collected from all sources in
determining the adequacy of the allowance is evaluated on a regular basis by
Management with regard to current national and local economic trends, prior loss
history, underlying collateral values, credit concentrations and industry risks.
An estimate of potential loss on specific loans is developed in conjunction with
an overall risk evaluation of the total loan portfolio. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as new information becomes available.
The allowance consists of specific,
general and unallocated components. The specific component relates to loans that
are classified as doubtful, substandard or special mention. For such loans that
are also classified as impaired, an allowance is established when the discounted
cash flows (or collateral value or observable market price) of the impaired loan
is lower than the carrying value of that loan. The general component
covers non-classified loans and is based on historical loss experience adjusted
for qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect Management’s estimate of probable losses. The
unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
Provisions are necessary to
maintain the allowance at an adequate level based on loan risk factors and the
levels of net loan charge-offs. The provisions made in the first three
months of 2009 were taken to provide for current loan losses, including net
charge-offs, and to maintain the allowance at an adequate level commensurate
with Management’s evaluation of the risks inherent in the loan portfolio.
Provisions made pursuant to these processes totaled $0.6 million in the first
three months of 2009 as compared to $0.2 million for the same period in
2008. The increase in the provision was primarily a result of increased
charge-offs. Total charge-offs were $0.7 million for first three months of 2009
as compared to total charge-offs of $0.3 million for the same period in 2008.
Recoveries were $0.1 million for the first three months of 2009 and
2008.
The allowance at March 31, 2009 was
$6.4 million or 1.09% of total loans and 77.2% of nonperforming assets.
Management believes that the current level of the allowance is adequate to cover
losses in the loan portfolio given the current economic conditions, expected net
charge-offs and nonperforming asset levels.
Other information relating to loans,
the allowance for loan losses and other pertinent statistics
follows.
- 15
-
|
March
31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands, unaudited)
|
||||||||
Loans:
|
||||||||
Average
outstanding balance
|
$ | 597,607 | $ | 581,108 | ||||
Balance
at end of period
|
$ | 591,473 | 591,612 | |||||
Allowance
for Loan Losses:
|
||||||||
Balance
at beginning of year
|
$ | 6,482 | $ | 6,193 | ||||
Provision
charged to expense
|
648 | 202 | ||||||
Provision
from acquisition
|
- | 0 | ||||||
Loans
charged-off
|
(738 | ) | (284 | ) | ||||
Recoveries
|
52 | 63 | ||||||
Balance
at end of period
|
$ | 6,444 | $ | 6,174 | ||||
Deposits. Managing the mix and pricing the maturities of deposit liabilities is an important factor that affects our ability to maximize the net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. In this regard, management regularly assesses our funding needs, deposit pricing and interest rate outlooks. From December 31, 2008 to March 31, 2009, total deposits increased $131.5 million, or 16.8%, to $911.8 million at March 31, 2009 from $780.4 million at December 31, 2008. During 2009, consumer deposits increased $33.8 million, public fund deposits increased $99.2 million and business deposits decreased $1.5 million. Noninterest-bearing demand deposits decreased by $0.2 million and interest-bearing deposits increased by $131.7 million. As of March 31, 2009, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $305.0 million.
Average
noninterest-bearing deposits decreased to $116.3 million for the three-month
period ended March 31, 2009 from $118.7 million for the three-month period ended
March 31, 2008. Average noninterest-bearing deposits represented 13.5% and 16.7%
of average total deposits for the three-month periods ended March 31, 2009 and
2008, respectively.
As we
seek to maintain a strong net interest margin and improve our earnings,
attracting core non-interest bearing deposits will remain a primary emphasis.
Core deposits are internally defined as total deposits less public fund
deposits. Management will continue to evaluate and update our product mix in its
efforts to attract additional core customers. We currently offer a
number of noninterest-bearing deposit products that are competitively priced and
designed to attract and retain customers with primary emphasis on core deposits.
We have also offered several different time deposit promotions in an effort to
increase our core deposits and to increase liquidity. At March 31,
2009, our core deposits totaled $586.9 million or 64.4% of total
deposits.
The
following table sets forth the composition of the Company’s deposits at March
31, 2009 (unaudited) and December 31, 2008.
March
31,
|
December
31,
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
Amount
|
Percent
|
|||||||||||||
(dollars
in thousands)
|
||||||||||||||||
Deposits:
|
||||||||||||||||
Noninterest-bearing
demand
|
$ | 118,008 | $ | 118,255 | $ | (247 | ) | -0.2 | % | |||||||
Interest-bearing
demand
|
247,042 | 180,230 | 66,812 | 37.1 | % | |||||||||||
Savings
|
42,873 | 41,357 | 1,516 | 3.7 | % | |||||||||||
Time
|
503,899 | 440,530 | 63,369 | 14.4 | % | |||||||||||
Total
deposits
|
$ | 911,822 | $ | 780,372 | $ | 131,450 | 16.8 | % | ||||||||
Borrowings.
The Company maintains borrowing relationships with other financial
institutions as well as the Federal Home Loan Bank on a short- and long-term
basis to meet liquidity needs. At March 31, 2009, short term borrowings totaled
$18.5 million compared to $9.8 million at December 31,
2008. Short-term borrowings included $12.5 million in repurchase
agreements at March 31, 2009 and $9.8 million in repurchase agreements at
December 31, 2008.
During
the first quarter of 2009, total assets increased to the extent that it resulted
in a reduction of regulatory capital ratios. As a result, in March 2009 the
Company borrowed $6.0 million on its available line of credit and injected the
$6.0 million into the First Guaranty Bank to enhance capital. The interest rate
on the line of credit is a floating rate and is set at prime less 100 basis
points with a floor of four percent (4.00%). The Company intends to repay the
debt in full by December 31, 2009. Long term borrowings decreased in 2009 to
$5.9 million from $8.4 million at December 31, 2008.
The Company is in default of one
covenant imposed on its line of credit. The covenant requires the Company to
maintain a return on average assets (“ROAA”) of 0.60%. As of March 31, 2009, the
Company’s ROAA was 0.47%. The Company will request a waiver for this
covenant.
The
average amount of total borrowings for the three months ended March 31, 2009 was
$21.6 million, compared to $10.9 million for the three months ended March 31,
2008. At March 31, 2009, the Company had $165.0 million in Federal Home
Loan Bank letters of credit outstanding obtained solely for collateralizing
public deposits.
- 16
-
Equity.
Total equity decreased to $64.7 million as of March 31, 2009 from $66.6
million as of December 31, 2008. The change in equity resulted from net income
of $1.1 million for the three months ended March 31, 2009 less $2.1 million for
the increase in unrealized loss on available for sale securities and $0.9
million in quarterly dividend payments on common stock. Cash dividends paid were
$0.16 per share for the three-month periods ending March 31, 2009 and
2008.
Results
of Operations for the Three Months Ended March 31, 2009
Net income. For the quarter ending
March 31, 2009, First Guaranty Bancshares, Inc. had consolidated net income of
$1.1 million, a $1.2 million decrease from the $2.3 million of net income
reported for the first quarter of 2008. The decrease in net income
was primarily attributable to the decrease in net interest income, with a $1.7
million decrease in interest income and a $0.6 million decrease in interest
expense. Net interest income decreased primarily as a result of the
decline in market interest rates, as both our net interest margin and net
interest spread were lower during the three months ended March 31, 2009 compared
to the same period in 2008. The net interest margin was also impacted by the
sudden significant increase in volume of interest-bearing liabilities and the
ability to redeploy these monies in higher interest-earning assets in a timely
fashion. Noninterest income decreased $0.1 million during the first three month
of 2009 compared to the same period in 2008. Noninterest expense increased $0.2
million due primarily to an increase in salaries and employee benefits during
the first three month of 2009 compared to the same period in 2008.
Net interest income. Net interest income is the largest component of our
earnings. It is calculated by subtracting the cost of interest-bearing
liabilities from the income earned on interest-earning assets and represents the
earnings from our primary business of gathering deposits and making loans and
investments. Our long-term objective is to manage our net interest
income to provide the largest possible amount of income while balancing interest
rate, credit and liquidity risks.
A financial
institution’s asset and liability structure is substantially different from that
of an industrial company, in that virtually all assets and liabilities are
monetary in nature. Accordingly, changes in interest rates, which are generally
impacted by inflation rates, may have a significant impact on a financial
institution’s performance. The impact of interest rate changes depends on the
sensitivity to change of our interest-earning assets and interest-bearing
liabilities.
Net interest
income for the quarter ended March 31, 2009 was $6.8 million, a decrease of $1.2
million when compared to $8.0 million for the first quarter in
2008. The decrease in net interest income reflected a decrease in net
interest spread and net interest margin as the yield on our interest-earning
assets decreased more than the cost of our interest-bearing
liabilities.
The net
interest margin shown below in the average balance sheet is calculated by
dividing net interest income by average interest-earning assets and is a measure
of the efficiency of the earnings from balance sheet activities. It is affected
by changes in the difference between interest on interest-earning assets and
interest-bearing liabilities and the percentage of interest-earning assets
funded by interest-bearing liabilities (leverage). Leverage for the three months
ending March 31, 2009 was 84.3%, compared to 80.6% for the same period in
2008.
The following
table sets forth average balance sheets, average yields and costs, and certain
other information for the three months ended March 31, 2009 and 2008,
respectively. No tax-equivalent yield adjustments were made, as the effect
thereof was not material. All average balances are daily average balances.
Nonaccrual loans were included in the computation of average balances, but have
been reflected in the table as loans carrying a zero yield. The yields earned
and rates paid set forth below include the effect of deferred fees, discounts
and premiums that are amortized or accreted to interest income or
expense.
- 17
-
Three
Months Ended March 31,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Average
|
Yield/
|
Average
|
Yield/
|
|||||||||||||||||||||
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
|||||||||||||||||||
(dollars
in thousands)
|
||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Interest-earning
deposits with banks
|
$ | 42,137 | $ | 225 | 2.2 | % | $ | 880 | $ | 9 | 4.0 | % | ||||||||||||
Securities
(including FHLB stock)
|
224,576 | 2,074 | 3.7 | % | 125,792 | 1,519 | 4.9 | % | ||||||||||||||||
Federal
funds sold
|
45,640 | 17 | 0.2 | % | 39,080 | 316 | 3.3 | % | ||||||||||||||||
Loans
held for sale
|
139 | 1 | 3.4 | % | 1,090 | 21 | 7.7 | % | ||||||||||||||||
Loans,
net of unearned income
|
597,607 | 8,657 | 5.9 | % | 581,108 | 10,858 | 7.5 | % | ||||||||||||||||
Total
interest-earning assets
|
910,099 | 10,974 | 4.9 | % | 747,950 | 12,723 | 6.8 | % | ||||||||||||||||
Noninterest-earning
assets:
|
||||||||||||||||||||||||
Cash
and due from banks
|
19,788 | 25,682 | ||||||||||||||||||||||
Premises
and equipment, net
|
16,240 | 16,150 | ||||||||||||||||||||||
Other
assets
|
9,073 | 4,973 | ||||||||||||||||||||||
Total
|
$ | 955,200 | $ | 794,755 | ||||||||||||||||||||
Liabilities
and Stockholders' Equity
|
||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Demand
deposits
|
$ | 229,394 | 434 | 0.8 | % | $ | 205,050 | 968 | 1.9 | % | ||||||||||||||
Savings
deposits
|
41,323 | 41 | 0.4 | % | 45,929 | 56 | 0.5 | % | ||||||||||||||||
Time
deposits
|
474,532 | 3,592 | 3.1 | % | 340,797 | 3,582 | 4.2 | % | ||||||||||||||||
Borrowings
|
21,594 | 62 | 1.2 | % | 10,907 | 109 | 4.0 | % | ||||||||||||||||
Total
interest-bearing liabilities
|
766,843 | 4,129 | 2.2 | % | 602,683 | 4,715 | 3.1 | % | ||||||||||||||||
Noninterest-bearing
liabilities:
|
||||||||||||||||||||||||
Demand
deposits
|
116,258 | 118,713 | ||||||||||||||||||||||
Other
|
5,458 | 5,281 | ||||||||||||||||||||||
Total
liabilities
|
888,559 | 726,677 | ||||||||||||||||||||||
Stockholders'
equity
|
66,641 | 68,078 | ||||||||||||||||||||||
Total
|
$ | 955,200 | $ | 794,755 | ||||||||||||||||||||
Net
interest income
|
$ | 6,845 | $ | 8,008 | ||||||||||||||||||||
Net
interest rate spread (1)
|
2.7 | % | 3.7 | % | ||||||||||||||||||||
Net
interest-earning assets
(2)
|
$ | 143,256 | $ | 145,267 | ||||||||||||||||||||
Net
interest margin (3)
|
3.1 | % | 4.3 | % | ||||||||||||||||||||
Average
interest-earning assets to
|
||||||||||||||||||||||||
interest-bearing
liabilities
|
118.7 | % | 124.1 | % | ||||||||||||||||||||
(1) Net
interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing
liabilities.
(2) Net
interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.
(3) Net
interest margin represents net interest income divided by average total
interest-earning assets.
- 18
-
Provision for Loan Losses. Management assesses the allowance
for loan losses on a quarterly basis and makes provisions for loan losses as
deemed appropriate in order to maintain an adequate allowance for loan losses.
Increases to the allowance are made to the provision as loan losses and charged
against income.
Provisions
are necessary to maintain the allowance at an adequate level based on loan risk
factors and the levels of net loan charge-offs. The provisions made in the
first three months of 2009 and 2008 were taken to provide for current loan
losses, including net charge-offs, and to maintain the allowance at an adequate
level commensurate with Management’s evaluation of the risks inherent in the
loan portfolio. Provisions made pursuant to these processes totaled $0.6 million
for the quarter ended March 31, 2009, an increase of $0.4 million when compared
to the same quarter in 2008. This increase in provision was primarily
a result of increased charge-offs. Total charge-offs were $0.7 million for the
first three months of 2009 as compared to $0.3 million for the same period in
2008. Recoveries were $0.1 million for the first three months of 2009 and
2008.
Noninterest Income. Noninterest
income includes deposit service charges, return check charges, bankcard fees,
other commissions and fees, gains and/or losses on sales of securities and
loans, and various other types of income.
Noninterest
income for the first quarter 2009 was $1.3 million, down $0.1 million when
compared to the same period in 2008. This decrease in noninterest income
resulted primarily from decreases in service charges, commissions and fees and
in other income.
Noninterest Expense. Noninterest
expense includes salaries and employee benefits, occupancy and equipment
expense, net cost from other real estate and repossessions and other types of
expenses. Noninterest expense for the first quarter in 2009 totaled $5.8
million, an increase of $0.2 million from the same period in 2008. The largest
increases in noninterest expense were reflected in salaries and employee
benefits and in net cost from other real estate and repossessions. The $0.2
million increase in salaries and employee benefits resulted from an increase in
the number of employees in 2009 when compared to the same period in 2008.
At March 31, 2009, our full time equivalent employees were 228.5, compared
to 222 full time equivalent employees during the same period of 2008. Net cost
of other real estate and repossessions increased $68,000 when comparing the
three month periods ending 2009 and 2008. Other noninterest expense reflects a
decrease of $115,000 when comparing the three month periods ended 2009 and
2008.
The table
below presents the components of other noninterest expense as of the three
months ended March 31, 2009 and 2008.
Three
Months Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Other
noninterest expense:
|
||||||||
Legal
and professional fees
|
$ | 291 | $ | 436 | ||||
Data
processing
|
439 | 496 | ||||||
Marketing
and public relations
|
195 | 279 | ||||||
Regulatory
assessment
|
228 | 87 | ||||||
Insurance
|
103 | 54 | ||||||
Taxes
- sales and capital
|
163 | 172 | ||||||
Operating
supplies
|
121 | 137 | ||||||
Travel
and lodging
|
94 | 110 | ||||||
Other
|
581 | 559 | ||||||
Total
other expense
|
$ | 2,215 | $ | 2,330 | ||||
Income
Taxes. The provision for income taxes totaled $0.6 million and $1.3
million for the quarters ended March 31, 2009 and 2008, respectively. The
decrease in the provision for income taxes reflected lower income
during the first quarter 2009, primarily due to a reduction in net interest
income. In each of the three months ended March 31, 2009 and 2008, the income
tax provision approximated the normal statutory rate. The effective
rates were 34.7% and 35.0%, respectively.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability
Management and Market Risk
Asset/LiabilityManagement. Our asset/liability management (ALM) process
consists of quantifying, analyzing and controlling interest rate risk (IRR) to
maintain reasonably stable net interest income levels under various interest
rate environments. The principal objective of ALM is to maximize net interest
income while operating within acceptable limits established for interest rate
risk and maintain adequate levels of liquidity.
- 19
-
The majority
of our assets and liabilities are monetary in nature. Consequently, one of our
most significant forms of market risk is interest rate risk. Our assets,
consisting primarily of loans secured by real estate, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability Committee
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior Management monitors the
level of interest rate risk on a regular basis and the Asset/Liability
Committee, which consists of executive Management and other bank personnel
operating under a policy adopted by the Board of Directors, meets as needed to
review our asset/liability policies and interest rate risk
position.
The interest
spread and liability funding discussed below are directly related to changes in
asset and liability mixes, volumes, maturities and re-pricing opportunities for
interest-earning assets and interest-bearing liabilities. Interest-sensitive
assets and liabilities are those which are subject to being re-priced in the
near term, including both floating or adjustable rate instruments and
instruments approaching maturity. The interest sensitivity gap is the difference
between total interest-sensitive assets and total interest-sensitive
liabilities. Interest rates on our various asset and liability categories do not
respond uniformly to changing market conditions. Interest rate risk is the
degree to which interest rate fluctuations in the marketplace can affect net
interest income.
To maximize
our margin, we attempt to be somewhat more asset sensitive during periods of
rising rates and more liability sensitive during periods of falling rates. The
need for interest sensitivity gap management is most critical in times of rapid
changes in overall interest rates. We generally seek to limit our exposure to
interest rate fluctuations by maintaining a relatively balanced mix of rate
sensitive assets and liabilities on a one-year time horizon. The mix is
relatively difficult to manage. Because of the significant impact on net
interest margin from mismatches in re-pricing opportunities, the asset-liability
mix is monitored periodically depending upon Management’s assessment of current
business conditions and the interest rate outlook. Exposure to interest rate
fluctuations is maintained within prudent levels by the use of varying
investment strategies.
We monitor
interest rate risk using an interest sensitivity analysis set forth on the
following table. This analysis, which we prepare monthly, reflects the maturity
and re-pricing characteristics of assets and liabilities over various time
periods. The gap indicates whether more assets or liabilities are subject to
re-pricing over a given time period. The interest sensitivity analysis at March
31, 2009 reflects an asset-sensitive position with a positive cumulative gap on
a one-year basis.
Interest
Sensitivity Within
|
||||||||||||||||||||
3
Months
|
Over
3 Months
|
Total
|
Over
|
|||||||||||||||||
Or
Less
|
thru
12 Months
|
One
Year
|
One
Year
|
Total
|
||||||||||||||||
(dollars
in thousands)
|
||||||||||||||||||||
Earning
Assets:
|
||||||||||||||||||||
Loans
(including loans held for sale)
|
$ | 306,152 | $ | 98,975 | $ | 405,127 | $ | 186,402 | $ | 591,529 | ||||||||||
Securities
(including FHLB stock)
|
125,690 | 4,458 | 130,148 | 126,773 | 256,921 | |||||||||||||||
Federal
funds sold
|
50,533 | - | 50,533 | - | 50,533 | |||||||||||||||
Other
earning assets
|
45,230 | 18,766 | 63,996 | - | 63,996 | |||||||||||||||
Total
earning assets
|
527,605 | 122,199 | 649,804 | 313,175 | $ | 962,979 | ||||||||||||||
Source
of Funds:
|
||||||||||||||||||||
Interest-bearing
accounts:
|
||||||||||||||||||||
Demand
deposits
|
185,987 | - | 185,987 | 61,055 | 247,042 | |||||||||||||||
Savings
|
10,718 | - | 10,718 | 32,155 | 42,873 | |||||||||||||||
Time
deposits
|
176,139 | 185,478 | 361,617 | 142,282 | 503,899 | |||||||||||||||
Short-term
borrowings
|
12,482 | 6,000 | 18,482 | - | 18,482 | |||||||||||||||
Long-term
borrowings
|
- | 5,871 | 5,871 | - | 5,871 | |||||||||||||||
Noninterest-bearing,
net
|
- | - | - | 144,812 | 144,812 | |||||||||||||||
Total
source of funds
|
385,326 | 197,349 | 582,675 | 380,304 | $ | 962,979 | ||||||||||||||
Period
gap
|
142,279 | (75,150 | ) | 67,129 | (67,129 | ) | ||||||||||||||
Cumulative
gap
|
$ | 142,279 | $ | 67,129 | $ | 67,129 | $ | - | ||||||||||||
Cumulative
gap as a
|
||||||||||||||||||||
percent
of earning assets
|
14.77 | % | 6.97 | % | 6.97 | % | ||||||||||||||
Liquidity
and Capital Resources
Liquidity.
Liquidity refers to the ability or flexibility to manage future cash
flows to meet the needs of depositors and borrowers and fund operations.
Maintaining appropriate levels of liquidity allows the Company to have
sufficient funds available to meet customer demand for loans, withdrawal of
deposit balances and maturities of deposits and other liabilities. Liquid assets
include cash and due from banks, interest-earning demand deposits with banks,
federal funds sold and available for sale investment securities. Including
securities pledged to collateralize public fund deposits, these assets represent
34.7% and 22.1% of the total liquidity base at March 31, 2009 and December
31, 2008, respectively. In addition, the Company maintained borrowing
availability with the Federal Home Loan Bank totaling $221.8
million and $226.5 million at March 31, 2009 and December 31, 2008,
respectively. As of March 31, 2009, the net availability at the
Federal Home Loan Bank was $51.0 million, compared to $63.1 million at December
31, 2008 with the decrease resulting from a drop in blanket lien availability of
$5.4 million, the increase of $10.0 million in letters of credit used solely to
pledge to public fund deposits partially offset with the decrease in outstanding
advances. We also maintain federal funds lines of credit at three other
correspondent banks with borrowing capacity of $78.2 million at March 31, 2009
and December 31, 2008. As of March 31, 2009, the Company had $6.0 million
outstanding on these lines of credit. At December 31, 2008, the Company did not
have an outstanding balance on these lines of credit. Management believes there
is sufficient liquidity to satisfy current operating needs.
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During the
first quarter of 2009, total assets increased to the extent that it resulted in
a reduction of regulatory capital ratios. As a result, in March 2009 the Company
borrowed $6.0 million on its available line of credit and injected the $6.0
million into the Bank to enhance capital. The interest rate on the line of
credit is a floating rate and is set at prime less 100 basis points with a floor
of four percent (4.00%). The Company intends to repay the debt in full by
December 31, 2009. As a result of this additional debt, the Company’s
interest expense will likely increase in future periods.
Capital
Resources. The Company’s capital position is reflected in
stockholders’ equity, subject to certain adjustments for regulatory purposes.
Further, our capital base allows us to take advantage of business opportunities
while maintaining the level of resources we deem appropriate to address business
risks inherent in daily operations.
Stockholders’
equity ended at $64.7 million at March 31, 2009, a decrease of $1.9 million when
compared to December 31, 2008. The change in equity resulted from 2009 net
income of $1.1 million, which was offset by the change in accumulated other
comprehensive income of $2.1 million and dividends paid on common stock totaling
$0.9 million.
Regulatory Capital.
Risk-based capital regulations adopted by the FDIC require banks to
achieve and maintain specified ratios of capital to risk-weighted
assets. Similar capital regulations apply to bank holding
companies. The risk-based capital rules are designed to measure “Tier
1” capital (consisting of common equity, retained earnings and a limited amount
of qualifying perpetual preferred stock and trust preferred securities, net of
goodwill and other intangible assets and accumulated other comprehensive income)
and total capital in relation to the credit risk of both on and off balance
sheet items. Under the guidelines, one of its risk weights is applied to the
different on balance sheet items. Off-balance sheet items, such as loan
commitments, are also subject to risk weighting. All bank holding companies and
banks must maintain a minimum total capital to total risk weighted assets ratio
of 8.00%, at least half of which must be in the form of core or Tier 1 capital.
These guidelines also specify that bank holding companies that are experiencing
internal growth or making acquisitions will be expected to maintain capital
positions substantially above the minimum supervisory levels.
At March 31,
2009, we satisfied the minimum regulatory capital requirements and were “well
capitalized” within the meaning of federal regulatory requirements.
Item
4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As defined by
the Securities and Exchange Commission in Exchange Act Rules 13a-14(c) and
15d-14(c), a company’s “disclosure controls and procedures” means controls and
other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
time periods specified in the Commission’s rules and forms. The Company
maintains such controls designed to ensure this material information is
communicated to Management, including the Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), as appropriate, to allow timely decision
regarding required disclosure.
Management,
with the participation of the CEO and CFO, have evaluated the effectiveness of
our disclosure controls and procedures as of the end of the period covered by
this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO
have concluded that the disclosure controls and procedures as of the end of the
period covered by this quarterly report are effective. There were no changes in
the Company’s internal control over financial reporting during the last fiscal
quarter in the period covered by this quarterly report that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
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PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
The Company
is subject to various other legal proceedings in the normal course of business
and otherwise. It is management's belief that the ultimate resolution of such
other claims will not have a material adverse effect on the Company's financial
position or results of operations.
Item
1A. Risk Factors
There have
been no other material changes in the risk factors disclosed by the Company in
its Annual Report filed on Form 10-K with the Securities and Exchange
Commission.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Item 2 is
non-applicable and is therefore not included.
Item
3. Defaults Upon Senior Securities
Item 3 is
non-applicable and is therefore not included.
Item
4. Submission of Matters to a Vote of Security Holders
Item 4 is
non-applicable and is therefore not included.
Item
5. Other Information
Item 5 is
non-applicable and is therefore not included.
Item
6. Exhibits
1. Consolidated financial
statements
The
information required by this item is included as Part I herein.
2. Consolidated financial statements
schedules
The
information required by this item is not applicable and therefore is not
included.
3. Exhibits
Exhibit Number | Exhibit |
31.1 |
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
32.1 |
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
32.2 |
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
FIRST GUARANTY BANCSHARES,
INC.
Date: May
15,
2009 By:
/s/ Michael R.
Sharp
Michael R. Sharp
President and
Chief Executive Officer
Date: May
15,
2009 By:
/s/ Michele E.
LoBianco
Michele E. LoBianco
Chief Financial Officer
Secretary and
Treasurer
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