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 Quarterly Period Ended March 31, 2010 Commission File No. 000-29640
COMMUNITY FIRST BANCORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 58-2322486
--------------------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
449 HIGHWAY 123 BYPASS
SENECA, SOUTH CAROLINA 29678
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(Address of principal executive offices, zip code)
(864) 886-0206
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(Registrant's 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 [ ] No [ ] (Not yet applicable to Registrant)
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, no par
or stated value, 3,784,159 Shares Outstanding on April 1, 2010.
COMMUNITY FIRST BANCORPORATION
FORM 10-Q
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets .................................................................... 3
Consolidated Statements of Income .............................................................. 4
Consolidated Statements of Changes in Shareholders' Equity ..................................... 5
Consolidated Statements of Cash Flows .......................................................... 6
Notes to Unaudited Consolidated Financial Statements ........................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 15
Item 4T. Controls and Procedures ........................................................................ 22
PART II - OTHER INFORMATION
Item 6. Exhibits ....................................................................................... 22
SIGNATURE ........................................................................................................ 23
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2010 2009
---- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................. $ 2,060 $ 1,463
Interest bearing deposits due from banks ................................................ 58,402 46,020
--------- ---------
Cash and cash equivalents ........................................................... 60,462 47,483
Securities available-for-sale ........................................................... 164,413 141,710
Securities held-to-maturity (fair value $8,877 for 2010
and $9,476 for 2009) ................................................................ 8,345 9,024
Other investments ....................................................................... 1,307 1,307
Loans ................................................................................... 267,504 267,248
Allowance for loan losses ........................................................... (6,184) (6,052)
--------- ---------
Loans - net ...................................................................... 261,320 261,196
Premises and equipment - net ............................................................ 8,388 8,470
Accrued interest receivable ............................................................. 3,052 2,424
Foreclosed assets ....................................................................... 6,187 6,078
Bank-owned life insurance ............................................................... 9,381 9,289
Other assets ............................................................................ 4,947 5,916
--------- ---------
Total assets ..................................................................... $ 527,802 $ 492,897
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................. $ 47,323 $ 47,067
Interest bearing .................................................................... 422,448 389,581
--------- ---------
Total deposits ................................................................... 469,771 436,648
Accrued interest payable ................................................................ 2,596 2,043
Long-term debt .......................................................................... 8,000 8,000
Other liabilities ....................................................................... 1,561 1,388
--------- ---------
Total liabilities ................................................................ 481,928 448,079
--------- ---------
Shareholders' equity
Preferred stock - Series A - non-voting 5% cumulative - $1,000 per share
liquidation preference; 5,000 shares authorized;
issued and outstanding - 3,150 shares ............................................... 3,126 3,126
Preferred stock - no par value; 9,995,000 shares authorized;
None issued and outstanding ......................................................... - -
Common stock - no par value; 10,000,000 shares authorized;
issued and outstanding - 3,784,159 for 2010 and
3,782,415 for 2009 .................................................................. 38,940 38,923
Additional paid-in capital .............................................................. 748 748
Retained earnings ....................................................................... 1,602 1,434
Accumulated other comprehensive income .................................................. 1,458 587
--------- ---------
Total shareholders' equity ....................................................... 45,874 44,818
--------- ---------
Total liabilities and shareholders' equity ....................................... $ 527,802 $ 492,897
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2010 2009
---- ----
(Dollars in thousands,
except per share)
Interest income
Loans, including fees .............................................................. $ 4,004 $ 4,049
Interest bearing deposits due from banks ........................................... 38 16
Securities
Taxable .......................................................................... 1,285 1,506
Tax-exempt ....................................................................... 199 209
Other investments .................................................................. - -
Federal funds sold ................................................................. - 3
------- -------
Total interest income .......................................................... 5,526 5,783
------- -------
Interest expense
Time deposits $100M and over ....................................................... 733 1,093
Other deposits ..................................................................... 1,419 1,816
Long-term debt ..................................................................... 76 91
------- -------
Total interest expense ......................................................... 2,228 3,000
------- -------
Net interest income ..................................................................... 3,298 2,783
Provision for loan losses ............................................................... 1,125 750
------- -------
Net interest income after provision ..................................................... 2,173 2,033
------- -------
Other income
Service charges on deposit accounts ................................................ 301 323
Debit card transaction fees ........................................................ 136 140
Credit life insurance commissions .................................................. 4 6
Increase in value of bank-owned life insurance ..................................... 92 92
Other income ....................................................................... 3 10
------- -------
Total other income ............................................................. 536 571
------- -------
Other expenses
Salaries and employee benefits ..................................................... 1,119 1,181
Net occupancy expense .............................................................. 145 135
Furniture and equipment expense .................................................... 90 93
Amortization of computer software .................................................. 112 95
FDIC insurance expense ............................................................. 398 70
Debit card transaction expenses .................................................... 100 113
Other expense ...................................................................... 521 410
------- -------
Total other expenses ........................................................... 2,485 2,097
------- -------
Income before income taxes .............................................................. 224 507
Income tax expense ...................................................................... 17 93
------- -------
Net income .............................................................................. 207 414
Deductions for amounts not available to common shareholders:
Dividends declared or accumulated on preferred stock ............................... (59) -
------- -------
Net income available to common shareholders ............................................. $ 148 $ 414
======= =======
Per common share*
Net income ......................................................................... $ 0.04 $ 0.11
Net income, assuming dilution ...................................................... 0.04 0.11
-------
* Per share information has been retroactively adjusted to reflect a 5% stock
dividend effective December 15, 2009. See accompanying notes to unaudited
consolidated financial statements.
4
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Accumulated
Shares of Additional Other
Common Preferred Common Paid-in Retained Comprehensive
Stock Stock Stock Capital Earnings Income (Loss) Total
----- ----- ----- ------- -------- ------------- -----
(Dollars in thousands)
Balance, January 1, 2009 .............. 3,564,279 $ - $ 37,084 $ 748 $ 1,769 $ 327 $ 39,928
--------
Comprehensive income:
Net income ......................... - - - - 414 - 414
--------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $23 .............. - - - - - (40) (40)
--------
Total other comprehensive income (40)
--------
Total comprehensive income ... 374
--------
Exercise of employee stock options .... 45,532 - 486 - - - 486
--------- -------- -------- -------- -------- -------- --------
Balance, March 31, 2009 ............... 3,609,811 $ - $ 37,570 $ 748 $ 2,183 $ 287 $ 40,788
========= ======== ======== ======== ======== ======== ========
Balance, January 1, 2010 .............. 3,782,415 $ 3,126 $ 38,923 $ 748 $ 1,434 $ 587 $ 44,818
--------
Comprehensive income:
Net income ......................... - - - - 207 - 207
--------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $487 ............. - - - - - 871 871
--------
Total other comprehensive income 871
--------
Total comprehensive income ... 1,078
--------
Dividends paid on preferred stock ..... - - - - (39) - (39)
--------
Exercise of employee stock options .... 1,744 - 17 - - - 17
--------- -------- -------- -------- -------- -------- --------
Balance, March 31, 2010 ............... 3,784,159 $ 3,126 $ 38,940 $ 748 $ 1,602 $ 1,458 $ 45,874
========= ======== ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2010 2009
---- ----
(Dollars in thousands)
Operating activities
Net income .............................................................................. $ 207 $ 414
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ........................................................ 1,125 750
Depreciation ..................................................................... 97 112
Amortization of net loan fees and costs .......................................... (13) 8
Securities accretion and premium amortization .................................... 294 228
Gain on sale of foreclosed assets ................................................ (2) -
Increase in cash surrender value of bank-owned life insurance .................... (92) (91)
(Increase) decrease in interest receivable ....................................... (628) 17
Increase in interest payable ..................................................... 553 869
Decrease in prepaid expenses and other assets .................................... 482 58
Increase in other accrued expenses ............................................... 173 217
-------- --------
Net cash provided by operating activities .................................... 2,196 2,582
-------- --------
Investing activities
Purchases of available-for-sale securities .............................................. (47,927) (72,212)
Maturities, calls and paydowns of securities available-for-sale ......................... 26,289 35,645
Maturities, calls and paydowns of securities held-to-maturity ........................... 678 709
Proceeds of sales of available-for-sale securities ...................................... - 2,043
Purchases of other investments .......................................................... - (125)
Disposals of other investments .......................................................... - 5
Net increase in loans made to customers ................................................. (1,491) (6,150)
Purchases of premises and equipment ..................................................... (15) (134)
Additional investment in foreclosed assets .............................................. (29) (209)
Proceeds of sale of foreclosed assets ................................................... 177 30
-------- --------
Net cash used by investing activities ........................................ (22,318) (40,398)
-------- --------
Financing activities
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts ................................... 1,629 3,117
Net increase in certificates of deposit and other
time deposits ....................................................................... 31,494 4,027
Cash paid in lieu of issuing fractional common shares ................................... - (3)
Cash dividends paid on preferred stock .................................................. (39) -
Exercise of employee stock options ...................................................... 17 486
-------- --------
Net cash provided by financing activities .................................... 33,101 7,627
-------- --------
Increase (decrease) in cash and cash equivalents ............................................. 12,979 (30,189)
Cash and cash equivalents, beginning ......................................................... 47,483 40,966
-------- --------
Cash and cash equivalents, ending ............................................................ $ 60,462 $ 10,777
======== ========
See accompanying notes to unaudited consolidated financial statements.
6
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows - continued
(Unaudited)
Three Months Ended
March 31,
2010 2009
---- ----
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for
Interest ..................................... $ 1,675 $ 2,131
Income taxes ................................. - -
Net transfers from loans to foreclosed assets .... 255 187
Noncash investing and financing activities:
Other comprehensive income (loss) ............ 871 (40)
COMMUNITY FIRST BANCORPORATION
Notes to Unaudited Consolidated Financial Statements
(Dollar amounts in thousands, except per share)
Accounting Policies - A summary of significant accounting policies is included
in Community First Bancorporation's (the "Company," "our," "we," "us," and
similar references) Annual Report on Form 10-K for the year ended December 31,
2009 filed with the Securities and Exchange Commission. Certain amounts in the
2009 financial statements have been reclassified to conform to the current
presentation. Such reclassifications had no effect on net income or retained
earnings for any period.
Management Opinion - In the opinion of management, the accompanying unaudited
consolidated financial statements of Community First Bancorporation reflect all
adjustments necessary for a fair presentation of the results of the periods
presented. Such adjustments were of a normal, recurring nature.
Investment Securities - The following table presents information about amortized
cost, unrealized gains, unrealized losses, and estimated fair values of
securities:
7
March 31, 2010 December 31, 2009
-------------- -----------------
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
(Dollars in thousands)
Available-for-sale
Mortgage-backed securities
issued by US Government agencies ...... $ 1,354 $ 67 $ - $ 1,421 $ 1,426 $ 49 $ - $ 1,475
Government sponsored
enterprises (GSEs) .................... 111,321 898 144 112,075 87,143 643 823 86,963
Mortgage-backed securities
issued by GSEs ........................ 29,955 1,299 1 31,253 32,707 1,005 10 33,702
State, county and municipal ................ 19,508 290 134 19,664 19,517 241 188 19,570
-------- -------- -------- -------- -------- -------- -------- --------
Total ........................... $162,138 $ 2,554 $ 279 $164,413 $140,793 $ 1,938 $ 1,021 $141,710
======== ======== ======== ======== ======== ======== ======== ========
Held-to-maturity
Mortgage-backed securities
issued by US Government agencies ...... $ - $ - $ - $ - $ - $ - $ - $ -
Government sponsored
enterprises ........................... - - - - - - - -
Mortgage-backed securities
issued by GSEs ........................ 8,345 532 - 8,877 9,024 452 - 9,476
State, county and municipal ................ - - - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Total ........................... $ 8,345 $ 532 $ - $ 8,877 $ 9,024 $ 452 $ - $ 9,476
======== ======== ======== ======== ======== ======== ======== ========
The amortized cost and estimated fair value of securities by contractual
maturity are shown below:
8
March 31, 2010
--------------
Due after one Due after five
Due within one through five through ten Due after ten
Available-for-sale at fair value year years years years Total
---- ----- ----- ----- -----
(Dollars in thousands)
Non-mortgage-backed securities issued by GSEs ......... $ 1,508 $ 26,092 $ 37,010 $ 47,465 $112,075
State, county and municpal issuers .................... 301 1,230 2,437 15,696 19,664
-------- -------- -------- -------- --------
1,809 27,322 39,447 63,161 131,739
Mortgage-backed securities issued by:
US Government agencies ........................... 1,421
GSEs ............................................. 31,253
--------
Total available-for-sale ...................... $164,413
========
Held-to-maturity at amortized cost
Mortgage-backed securities issued by:
GSEs ............................................. $ 8,345
--------
Total held-to-maturity ........................ $ 8,345
========
December 31, 2009
-----------------
Due after one Due after five
Due within one through five through ten Due after ten
Available-for-sale at fair value year years years years Total
---- ----- ----- ----- -----
(Dollars in thousands)
Non-mortgage-backed securities issued by GSEs ......... $ 1,520 $ 10,032 $ 32,832 $ 42,579 $ 86,963
State, county and municpal issuers .................... 301 1,000 2,656 15,613 19,570
-------- -------- -------- -------- --------
1,821 11,032 35,488 58,192 106,533
Mortgage-backed securities issued by:
US Government agencies ........................... 1,475
GSEs ............................................. 33,702
--------
Total available-for-sale ...................... $141,710
========
Held-to-maturity at amortized cost
Mortgage-backed securities issued by:
GSEs ............................................. $ 9,024
--------
Total held-to-maturity ........................ $ 9,024
========
The estimated fair values and gross unrealized losses of all of the Company's
investment securities whose fair values were less than amortized cost as of
March 31, 2010 which had not been determined to be other-than-temporarily
impaired are presented below. The Company evaluates all available-for-sale
securities and all held-to-maturity securities for impairment as of each balance
sheet date. The securities have been segregated in the table by investment
category and the length of time that individual securities have been in a
continuous unrealized loss position.
9
March 31, 2010
--------------
Continuously in Unrealized Loss Position for a Period of
--------------------------------------------------------
Less than 12 Months 12 Months or more Total
------------------- ----------------- -----
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Available-for-sale
US Government agencies ..................... $ - $ - $ - $ - $ - $ -
Government-sponsored
enterprises (GSEs) ....................... 26,494 144 - - 26,494 144
Mortgage-backed securities
issued by GSEs ........................... 450 1 - - 450 1
State, county and
municipal securities ..................... 4,152 134 - - 4,152 134
------- ------- ------- ------- ------- -------
Total .................... $31,096 $ 279 $ - $ - $31,096 $ 279
======= ======= ======= ======= ======= =======
Held-to-maturity
GSEs ....................................... $ - $ - $ - $ - $ - $ -
------- ------- ------- ------- ------- -------
Total .................... $ - $ - $ - $ - $ - $ -
======= ======= ======= ======= ======= =======
December 31, 2009
-----------------
Continuously in Unrealized Loss Position for a Period of
--------------------------------------------------------
Less than 12 Months 12 Months or more Total
------------------- ----------------- -----
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Available-for-sale
GSEs ....................................... $40,430 $ 823 $ - $ - $40,430 $ 823
Mortgage-backed securities
issued by GSEs ........................... 2,811 10 - - 2,811 10
State, county and
municipal securities ..................... 6,220 188 - - 6,220 188
------- ------- ------- ------- ------- -------
Total .................... $49,461 $ 1,021 $ - $ - $49,461 $ 1,021
======= ======= ======= ======= ======= =======
Held-to-maturity
GSEs ....................................... $ - $ - $ - $ - $ - $ -
------- ------- ------- ------- ------- -------
$ - $ - $ - $ - $ - $ -
======= ======= ======= ======= ======= =======
As of March 31, 2010, 33 securities had been continuously in an unrealized loss
position for less than 12 months and no securities had been continuously in an
unrealized loss position for 12 months or more. We do not consider these
investments to be other-than-temporarily impaired because the unrealized losses
involve primarily issuances of government-sponsored enterprises and state,
county and municipal government issuers. We also believe that the impairments
resulted from current credit market conditions. There have been no defaults or
failures by any of the issuers to remit periodic interest payments as required,
nor are we aware that any such issuer has given notice that it expects it will
be unable to make any such future payment according to the terms of its bond
agreement. Although we classify a majority of our investment securities as
available-for-sale, management has not determined that any specific securities
will be disposed of prior to maturity and believes that we have both the ability
and the intent to hold those investments until a recovery of fair value,
including until maturity. Furthermore, we do not believe that we will be
required to sell any such securities prior to recovery of the unrealized losses.
Substantially all of the state, county and municipal securities were rated at
least "investment grade" by either S&P or Moody's, or both, as of March 31,
2010.
Our subsidiary bank is a member of the Federal Home Loan Bank of Atlanta
("FHLB") and, accordingly, is required to own restricted stock in that
institution in amounts that may vary from time to time. These securities are
carried in the "other investments" category in the Consolidated Balance Sheets.
Because of the restrictions imposed, the stock may not be sold to other parties,
10
but is redeemable by the FHLB at the same price as that at which it was acquired
by the Company's subsidiary. We evaluate this security for impairment based on
the probability of ultimate recovery of the acquisition cost. No impairment has
been recognized based on this evaluation.
During the first three months of 2010, we did not sell any securities, nor were
there any transfers of available-for-sale securities to other categories.
Nonperforming Loans - As of March 31, 2010, there were $16,445 in nonaccrual
loans and no loans 90 days or more past due and still accruing interest.
Earnings Per Common Share - Basic earnings per common share is computed by
dividing net income applicable to common shares by the weighted average number
of common shares outstanding. Diluted earnings per common share is computed by
dividing applicable net income by the weighted average number of common shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive stock options are exercised at the beginning of
each period and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the period. All 2009 per share
information has been retroactively adjusted to give effect to a 5% stock
dividend effective December 15, 2009. Net income per common share and net income
per common share, assuming dilution, were computed as follows:
Three Months Ended
March 31,
---------
2010 2009
---- ----
(Dollars in thousands,
except per share amounts)
Net income per common share, basic
Numerator - net income available to common shareholders ............................. $ 148 $ 414
========= ==========
Denominator
Weighted average common shares issued and outstanding ............................. 3,783,287 3,763,879
========= ==========
Net income per common share, basic ..................................... $ .04 $ .11
========= ==========
Net income per common share, assuming dilution
Numerator - net income available to common shareholders ........................... $ 148 $ 414
========= ==========
Denominator
Weighted average common shares issued and outstanding ............................. 3,783,287 3,763,879
Effect of dilutive stock options .................................................. - -
--------- ----------
Total shares ........................................................... 3,783,287 3,763,879
========= ==========
Net income per common share, assuming dilution ......................... $ .04 $ .11
========= ==========
Stock-Based Compensation - Our 1998 stock option plan terminated on March 19,
2008 and no further options may be issued under the plan. A total of 362,267
unexpired and non-forfeited options outstanding under the plan remain
exercisable until their expiration dates.
Fair Value Measurements - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly fashion
between market participants at the measurement date. A three-level hierarchy is
used for fair value measurements based upon the transparency of the inputs to
the valuation of an asset or liability as of the measurement date. In developing
estimates of the fair values of assets and liabilities, no consideration of
large position discounts for financial instruments quoted in active markets is
allowed. However, an entity is required to consider its own creditworthiness
when valuing its liabilities. For disclosure purposes, fair values for assets
and liabilities are shown in the level of the hierarchy that correlates with the
lowest level input that is significant to the fair value measurement in its
entirety.
The three levels of the fair value input hierarchy are described as follows:
Level 1 inputs reflect quoted prices in active markets for identical assets or
liabilities.
11
Level 2 inputs reflect observable inputs that may consist of quoted market
prices for similar assets or liabilities, quoted prices that are not in an
active market, or other inputs that are observable in the market and can be
corroborated by observable market data for substantially the full term of the
assets or liabilities being valued.
Level 3 inputs reflect the use of pricing models and/or discounted cash flow
methodologies using other than contractual interest rates or methodologies that
incorporate a significant amount of management judgment, use of the entity's own
data, or other forms of unobservable data.
The following is a summary of the measurement attributes applicable to assets
and liabilities that are measured at fair value on a recurring basis:
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description March 31, 2010 (Level 1) (Level 2) (Level 3)
----------- -------------- --------- --------- ---------
Securities available-for-sale (Dollars in thousands)
Mortgage-backed securities
issued by US Government agencies ........................ $ 1,421 $ - $ 1,421 $ -
Government sponsored enterprises (GSEs) ................... 112,075 - 112,075 -
Mortgage-backed securities issued by GSEs ................. 31,253 - 31,253 -
State, county and municipal ............................... 19,664 - 19,664 -
-------- ----------- -------- -----------
Total securities available-for-sale ................... $164,413 $ - $164,413 $ -
======== =========== ======== ===========
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description December 31, 2009 (Level 1) (Level 2) (Level 3)
----------- ----------------- --------- --------- ---------
(Dollars in thousands)
Securities available-for-sale ............................ $141,710 $ - $141,710 $ -
Level 2 inputs for our securities available-for-sale are obtained from an
independent third-party that uses a process that may incorporate current market
prices, benchmark yields, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers, other reference data and industry
and economic events that a market participant would be expected to use in
valuing the securities. Not all of the inputs listed apply to each individual
security at each measurement date. The independent third party assigns specific
securities into an "asset class" for the purpose of assigning the applicable
level of the fair value hierarchy used to value the securities. At March 31,
2010, those securities were valued using Level 2 inputs, as described above.
The following is a summary of the measurement attributes applicable to assets
and liabilities measured at fair value on a non-recurring basis during the three
month period ended March 31, 2010 and the twelve month period ended December 31,
2009 and which remained outstanding at the end of each period:
12
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description March 31, 2010 (Level 1) (Level 2) (Level 3)
----------- -------------- --------- --------- ---------
(Dollars in thousands)
Collateral-dependent impaired loans ................... $2,006 $ - $2,006 $ -
Gains and (losses) recognized during the three months ended:
March 31, 2010
--------------
(Dollars in thousands)
Collateral-dependent impaired loans .... $ (301)
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description December 31, 2009 (Level 1) (Level 2) (Level 3)
----------- -------------- --------- --------- ---------
(Dollars in thousands)
Collateral-dependent impaired loans ................. $11,219 $ - $11,219 $ -
Foreclosed assets ................................... 6,078 - 6,078 -
The fair value measurements shown above were made to reduce cost-based
measurements to fair value measurements at initial recognition, or to adjust
fair value based measurements subsequent to initial recognition, due to changes
in the circumstances of individual assets during the period. For
collateral-dependent impaired loans, the measurements reflect our belief that we
will receive repayment solely from the liquidation of the underlying collateral.
As a practical expedient, such loans may be valued by comparing the fair value
of the collateral securing the loan with the loan's carrying value. If the
carrying value exceeds the fair value of the collateral, the excess is charged
to the allowance for loan losses. If the fair value of the collateral exceeds
the loan's carrying amount, no adjustment is made, the loan continues to be
carried at historical cost, and the loan is not included in the table.
The value of other real estate obtained through loan foreclosure is adjusted, if
needed, upon the acquisition of each property to the lower of the recorded
investment in the loan or the fair value of the property as determined by a
recently performed independent appraisal less the estimated costs to sell.
Similarly, the fair value of repossessions is measured by reference to dealers'
quotes or other market information believed to reliably reflect the value of the
specific property held. Immaterial adjustments may be made by management to
reflect property-specific factors such as age or condition. Losses recognized
when loans are initially transferred to or otherwise included in any of the
categories shown above are reported as loan losses. Subsequent to initial
recognition, changes in fair value measurements of other real estate and
repossessions are included in other income or other expenses, as applicable.
The following table presents the carrying amounts and fair values of our
financial instruments:
13
March 31, 2010 December 31, 2009
-------------- -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(Dollars in thousands)
Financial assets
Cash and due from banks ................................. $ 2,060 $ 2,060 $ 1,463 $ 1,463
Interest bearing deposits due from banks ................ 58,402 58,402 46,020 46,020
Securities available-for-sale ........................... 164,413 164,413 141,710 141,710
Securities held-to-maturity ............................. 8,345 8,877 9,024 9,476
Federal Home Loan Bank stock ............................ 1,307 1,307 1,307 1,307
Loans - net ............................................. 261,320 262,430 261,196 262,308
Accrued interest receivable ............................. 3,052 3,052 2,424 2,424
Financial liabilities
Deposits ................................................ 469,771 469,404 436,648 436,444
Accrued interest payable ................................ 2,596 2,596 2,043 2,043
Long-term debt .......................................... 8,000 8,005 8,000 8,005
The following is a summary of the notional or contractual amounts and estimated
fair values of our off-balance-sheet financial instruments:
March 31, 2010 December 31, 2009
-------------- -----------------
Notional/ Estimated Notional/ Estimated
Contract Fair Contract Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Off-balance sheet commitments
Loan commitments ..................................... $27,775 $ - $28,527 $ -
Standby letters of credit ............................ 823 - 873 -
New Accounting Pronouncements - In January 2010, the Financial Accounting
Standards Board ("FASB") updated Accounting Standards Codification ("ASC") Topic
820, "Fair Value Measurements and Disclosures," to require enhanced fair value
disclosures. Specifically, we are or will be required to provide additional
information about fair values and fair value measurements as follows: (1) We
must provide a description of the reasons for, and the amounts of, significant
transfers in and out of Level 1 or Level 2 fair value measurements, and (2) for
fair value measurements using significant unobservable (Level 3) inputs, we will
be required to present separately information about purchases, sales, issuances
and settlements (that is, on a gross basis rather than as one net number). The
update requires that we expand our fair value measurement disclosures to provide
information for each class of assets and liabilities. Classes are described as
subsets of line items that appear in our Consolidated Balance Sheets. The update
further requires that we provide additional disclosures about the valuation
techniques and inputs used to measure fair value for both recurring and
non-recurring fair value measurements when the measurement bases are either
Level 2 or Level 3 inputs. The requirements relative to presenting information
about purchases, sales, issuances and settlements of fair value measurements
using Level 3 inputs, will be effective for interim and annual periods of fiscal
years beginning after December 15, 2010. The other enhanced disclosures are
required to be presented in interim and annual periods beginning after December
15, 2009.
CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of
the securities laws. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements.
All statements that are not historical facts are statements that could
be "forward-looking statements." You can identify these forward-looking
statements through the use of words such as "may," "will," "should," "could,"
"would," "expect," "anticipate," "assume," indicate," "contemplate," "seek,"
"plan," "predict," "target," "potential," "believe," "intend," "estimate,"
14
"project," "continue," or other similar words. Forward-looking statements
include, but are not limited to, statements regarding the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, income, business operations and proposed services.
These forward-looking statements are based on current expectations,
estimates and projections about the banking industry, management's beliefs, and
assumptions made by management. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies, and
objectives concerning future financial and operating performance. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
results may differ materially from those expressed or forecasted in such
forward-looking statements. The risks and uncertainties include, but are not
limited to:
o future economic and business conditions;
o lack of sustained growth and disruptions in the economies of the
Company's market areas;
o government monetary and fiscal policies;
o the effects of changes in interest rates on the levels,
composition and costs of deposits, loan demand, and the values of
loan collateral, securities, and interest sensitive assets and
liabilities;
o the effects of competition from a wide variety of local,
regional, national and other providers of financial, investment,
and insurance services, as well as competitors that offer banking
products and services by mail, telephone, computer and/or the
Internet;
o credit risks;
o higher than anticipated levels of defaults on loans;
o perceptions by depositors about the safety of their deposits;
o capital adequacy;
o the failure of assumptions underlying the establishment of the
allowance for loan losses and other estimates, including the
value of collateral securing loans;
o ability to weather the current economic downturn;
o loss of consumer or investor confidence;
o availability of liquidity sources;
o the risks of opening new offices, including, without limitation,
the related costs and time of building customer relationships and
integrating operations as part of these endeavors and the failure
to achieve expected gains, revenue growth and/or expense savings
from such endeavors;
o changes in laws and regulations, including tax, banking and
securities laws and regulations;
o changes in the requirements of regulatory authorities;
o changes in accounting policies, rules and practices;
o cost and difficulty of implementing changes in technology and
products;
o the effects of war or other conflicts, acts of terrorism or other
catastrophic events that may affect general economic conditions
and economic confidence; and
o other factors and information described in this report and in any
of the other reports that we file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
All forward-looking statements are expressly qualified in their
entirety by this cautionary notice. We have no obligation, and do not undertake,
to update, revise or correct any of the forward-looking statements after the
date of this report. We have expressed our expectations, beliefs and projections
in good faith and believe they have a reasonable basis. However, there is no
assurance that these expectations, beliefs or projections will result or be
achieved or accomplished.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollar amounts, except per share data, are in thousands)
Changes in Financial Condition
During the first three months of 2010, our deposits increased by
$33,123, or 7.6%. We invested those funds primarily in available-for-sale
investment securities and liquid interest-earning accounts with other banks.
Market interest rates continue to be low and the yields we are realizing from
recent purchases of investment securities generally are lower than those we
realized from the securities held previously. We lengthened the maturity
structure of the recently purchased investments in order to obtain better yields
but also increased short-term investments in other banks to provide us with the
ability to reposition the portfolio in the event that interest rates begin to
rise in the future. Similarly, the lower interest rates paid on deposits in the
2010 period allowed us to decrease the overall rate on our interest-bearing
deposits compared with the same period last year. Meanwhile, loan demand
continues to be weak in our market areas. Loans outstanding increased by only
15
$256 during the first three months of 2010. Credit quality also continues to
present problems. Net loan charge-offs in the first quarter of 2010 totaled $993
compared with $755 for the 2009 three-month period.
Results of Operations
We recorded consolidated net income of $207 for the first three months
of 2010 compared with $414 for the same period of 2009. After deducting amounts
applicable to preferred stock and not available to common shareholders, net
income per common share was $.04 for the first three months of 2010 compared
with $.11 per common share for the first quarter of 2009. Net income per common
share, assuming dilution was $.04 for the 2010 three months and $.11 for the
2009 period. Net income per common share amounts for 2009 have been
retroactively adjusted to reflect a five percent stock dividend effective
December 15, 2009.
Summary Income Statement
------------------------
(Dollars in thousands)
Dollar Percentage
For the Three Months Ended March 31, 2010 2009 Change Change
---- ---- ------ ------
Interest income ............................................... $ 5,526 $ 5,783 $ (257) -4.4%
Interest expense .............................................. 2,228 3,000 (772) -25.7%
------- ------- ------
Net interest income ........................................... 3,298 2,783 515 18.5%
Provision for loan losses ..................................... 1,125 750 375 50.0%
Noninterest income ............................................ 536 571 (35) -6.1%
Noninterest expenses .......................................... 2,485 2,097 388 18.5%
Income tax expense ............................................ 17 93 (76) -81.7%
------- ------- ------
Net income .................................................... 207 414 (207) -50.0%
Preferred stock dividends paid or accumulated ................. (59) - (59) NA
------- ------- ------
Net income available to common shareholders ................... $ 148 $ 414 $ (266) -64.3%
======= ======= ======
Net Interest Income
Net interest income is the principal source of our earnings. For the
first quarter of 2010, net interest income totaled $3,298, an increase of $515
or 18.5% over the amount for the same period of 2009. The yield on interest
earning assets decreased to 4.51% for the 2010 period, compared with 5.05% for
the 2009 period, and the average rates paid for interest bearing liabilities
were 2.09% and 3.02%, respectively. We reduced the average cost of interest
bearing time deposits in the 2010 three-month period to 2.50% compared with
3.71% for the same period of 2009. As a result, the average interest rate spread
for the 2010 period was 39 basis points higher than for the 2009 period and net
yield on earning assets increased to 2.69% in the 2010 period from 2.43% for the
2009 period.
Average loans in the 2010 period were $266,325, a decrease of $6,054,
or 2.2%, from the amount for the same period of 2009. This volume decrease more
than offset a 7 basis point increase in the yield earned on loans and interest
income on loans decreased to $4,004 for the 2010 period from $4,049 for the 2009
period. Management estimates that approximately $220 of previously accrued
interest income related to nonaccrual loans was reversed against income during
the 2010 period.
Average taxable securities for the 2010 quarter were $1,586 more than
for the same period of 2009. A 68 basis point reduction in the rate earned on
such securities led to the $221 reduction in income from such securities for the
2010 period.
As mentioned previously, yields on other short-term investments such as
interest-bearing deposits due from banks and federal funds sold were extremely
low in both the 2010 and the 2009 periods. The Company did not sell federal
funds during the first quarter of 2010 and the yield on such instruments during
the 2009 quarter resulted in a yield of only .15%. Despite their current low
earning potential, we believe that it is prudent at this time to maintain
relatively large amounts of such assets that can be shifted into other
categories of earning assets when it is advantageous to do so.
Interest rates paid for interest-bearing deposits decreased to 2.06%
for the 2010 period, compared with 3.00% for the 2009 period due to our response
to prevailing lower rates generally. The majority of our time deposit accounts
16
are issued with original maturities of 12 months or less. Consequently, the
rates we pay for such deposits generally follow the trends of overall market
rates.
Average Balances, Yields and Rates
Three Months Ended March 31,
----------------------------
2010 2009
---- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates (1) Balances Expense Rates (1)
-------- ------- --------- -------- ------- ---------
(Dollars in thousands)
Assets
Interest-bearing deposits due from banks ............ $ 68,712 $ 38 0.22% $ 21,975 $ 16 0.30%
Securities
Taxable ........................................ 141,520 1,285 3.68% 139,934 1,506 4.36%
Tax exempt (2) ................................. 19,514 199 4.14% 20,488 209 4.14%
---------- ------- ---------- -------
Total investment securities ................ 161,034 1,484 3.74% 160,422 1,715 4.34%
Other investments ................................... 1,307 - 0.00% 1,221 - 0.00%
Federal funds sold .................................. - - 0.00% 8,034 3 0.15%
Loans (2) (3) (4) ................................... 266,325 4,004 6.10% 272,379 4,049 6.03%
---------- ------- ---------- -------
Total interest earning assets .............. 497,378 5,526 4.51% 464,031 5,783 5.05%
Cash and due from banks ............................. 1,987 8,568
Allowance for loan losses ........................... (5,969) (5,419)
Unrealized securities gains (losses) ................ 1,610 1,414
Premises and equipment .............................. 8,563 8,766
Other assets ........................................ 23,418 14,095
---------- ----------
Total assets ............................... $ 526,987 $ 491,455
========== ==========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts .......... $ 56,450 $ 84 0.60% $ 59,355 $ 98 0.67%
Savings ........................................ 36,235 27 0.30% 29,076 23 0.32%
Time deposits $100M and over ................... 141,530 733 2.10% 135,504 1,093 3.27%
Other time deposits ............................ 189,113 1,308 2.81% 169,246 1,695 4.06%
---------- ------- ---------- -------
Total interest bearing
deposits ................................. 423,328 2,152 2.06% 393,181 2,909 3.00%
Long-term debt ...................................... 8,000 76 3.85% 9,500 91 3.88%
---------- ------- ---------- -------
Total interest bearing
liabilities .............................. 431,328 2,228 2.09% 402,681 3,000 3.02%
Noninterest bearing demand deposits ................. 46,419 44,192
Other liabilities ................................... 4,036 4,004
Shareholders' equity ................................ 45,204 40,578
---------- ----------
Total liabilities and shareholders'
equity ......................................... $ 526,987 $ 491,455
========== ==========
Interest rate spread ................................ 2.42% 2.03%
Net interest income and net yield
on earning assets .............................. $ 3,298 2.69% $ 2,783 2.43%
Interest free funds supporting earning
assets ......................................... $ 66,050 $ 61,350
-----------------------------------------
(1) Yields and rates are annualized.
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent
basis.
(3) Nonaccruing loans are included in the loan balance and income from such
loans is recognized on a cash basis.
(4) Includes immaterial amounts of loan fees.
17
We continue to pursue strategies that we believe will increase our
market share in our local market areas in Anderson and Oconee Counties of South
Carolina. We serve Oconee County from four offices which are located in Seneca,
Walhalla and Westminster and the Anderson County market is served from offices
in Anderson and Williamston.
Provision and Allowance for Loan Losses
We provided $1,125 and $750 for loan losses in the first quarters of
2010 and 2009, respectively. As of March 31, 2010, the allowance for loan losses
was 2.31% of loans compared with 2.26% of loans at December 31, 2009 and 1.98%
as of March 31, 2009. During the 2010 three month period, net charge-offs
totaled $993, compared with $755 in net charge offs during the same period of
2009. As of March 31, 2010, nonaccrual loans totaled $16,445 and there were no
loans 90 days or more past due and still accruing interest. Approximately 82% of
those nonaccrual loans were secured by real estate. As of March 31, 2009,
nonaccrual loans totaled $14,634 and there were no loans 90 days or more past
due and still accruing interest. The activity in the allowance for loan losses
is summarized in the table below:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
2010 2009 2009
---- ---- ----
(Dollars in thousands)
Allowance at beginning of period ................................. $ 6,052 $ 5,475 $ 5,475
Provision for loan losses ........................................ 1,125 4,355 750
Net charge-offs .................................................. (993) (3,778) (755)
--------- --------- ---------
Allowance at end of period ....................................... $ 6,184 $ 6,052 $ 5,470
========= ========= =========
Allowance as a percentage of loans outstanding
at period end ................................................ 2.31% 2.26% 1.98%
Loans at end of period ........................................... $ 267,504 $ 267,248 $ 275,613
========= ========= =========
18
Non-Performing and Potential Problem Loans
90 Days or
More Past Due Total Percentage Percentage
Non-accrual and Still Non-Performing of Total Potential of Total
Loans Accruing Loans Loans Problem Loans Loans
----- -------- ----- ----- ------------- -----
(Dollars in thousands)
January 1, 2009 .................... $ 11,799 $ - $ 11,799 4.36% $ 6,910 2.56%
Net change ......................... 2,835 - 2,835 2,367
-------- -------- -------- -------
March 31, 2009 ..................... 14,634 - 14,634 5.31% 9,277 3.37%
Net change ......................... 2,882 - 2,882 (1,511)
-------- -------- -------- -------
June 30, 2009 ...................... 17,516 - 17,516 6.41% 7,766 2.84%
Net change ......................... (2,632) - (2,632) 3,490
-------- -------- -------- -------
September 30, 2009 ................. 14,884 - 14,884 5.52% 11,256 4.17%
Net change ......................... (1,014) - (1,014) (3,951)
-------- -------- -------- -------
December 31, 2009 .................. 13,870 - 13,870 5.19% 7,305 2.73%
Net change ......................... 2,575 - 2,575 (3,844)
-------- -------- -------- -------
March 31, 2010 ..................... $ 16,445 $ - $ 16,445 6.15% $ 3,461 1.29%
======== ======== ======== =======
Potential problem loans include loans, other than non-performing loans,
that management has identified as having possible credit problems sufficient to
cast doubt upon the abilities of the borrowers to comply with the current
repayment terms. However, the amount of potential problem loans does not reflect
management's expectations of losses, if any, that may be realized from those
loans. As of March 31, 2010, approximately 90% of the dollar amount of potential
problem loans had real estate as collateral, 9% had vehicles and other items as
collateral, and approximately 1% represented unsecured loans.
South Carolina's 12.2% unemployment rate was the sixth highest rate of
unemployment of the 50 states as of March 31, 2010 compared with 11.4% for March
2009. The unemployment rates for Oconee and Anderson Counties were each
approximately 13% for March 2010 compared with 14% and 12%, respectively, for
March 31, 2009. Worsening of this condition or a prolonged period at or near
current levels, significant increases in prices for fuel and food, continuing
declines in the values of homes and other real properties, declining demand for
products manufactured locally, and other events could continue to have adverse
effects on those areas and potentially lead to further deterioration of the
abilities of our loan customers to repay their debts. These events could lead to
higher amounts of nonaccrual, past due and potential problem loans and higher
loan losses, all of which could result in higher provisions for loan losses.
Noninterest Income
Noninterest income was $536 for the first quarter of 2010, compared
with $571 for the first quarter of 2009. Service charges on deposit accounts in
the 2010 period were $301 representing a decrease of $22 from the prior year
period. Debit card transaction fees for the 2010 period decreased by $4 from the
2009 amount. Other income for the 2010 period was $7 less than for the 2009
period. These decreases are the result of lower volumes of chargeable account
activity by our customers.
Noninterest Expenses
Noninterest expenses were $2,485 for the first quarter of 2010,
compared with $2,097 for the first quarter of 2009, representing an increase of
$388 or 18.5%. Salaries and employee benefits decreased by $62, or 5.2%, to
$1,119. We have chosen not to hire replacements for some departing employees
until general economic conditions begin to improve.
FDIC insurance expense increased to $398 for the 2010 period from $70
for the 2009 period due to significant changes in the FDIC's assessment bases
and the rates applied. Expenses related to FDIC insurance have increased in
recent periods due to a higher assessment base, increases in the assessment
rate, and special assessments imposed by the Federal Deposit Insurance
Corporation. We believe that future deposit insurance expenses will be higher
than we experienced previously.
Income tax expense for the first quarter of 2010 decreased by $76 from
the amount for the same period of 2009 due to lower net income before income
19
taxes and proportionally higher amounts of tax-exempt investment income.
Tax-exempt interest income was 88.8% of income before income taxes in the 2010
period compared with 41.2% of income before income taxes for the 2009 period.
Liquidity
Liquidity is the ability to meet current and future obligations through
the liquidation or maturity of existing assets or the acquisition of additional
liabilities. We manage both assets and liabilities to achieve appropriate levels
of liquidity. Cash and short-term investments are our primary sources of asset
liquidity. These funds provide a cushion against short-term fluctuations in cash
flow from both deposits and loans. Securities available-for-sale provide our
principal source of secondary asset liquidity. However, the availability of this
source is influenced by market conditions to a significant extent. Individual
and commercial deposits are the primary sources of funds for our credit
activities. We also have significant amounts of credit availability under our
FHLB lines of credit.
As of March 31, 2010, the ratio of loans to total deposits was 56.9%,
compared with 61.2% as of December 31, 2009. Total deposits as of March 31, 2010
were $469,771, an increase of $33,123 or 7.6% over the amount as of December 31,
2009. Management believes that we have liquidity sources sufficient to meet our
operating needs.
Capital Resources
Our capital base has increased by $1,056 since December 31, 2009 as the
result of net income of $207 for the first three months of 2010, plus an $871
change in net unrealized gains on available-for-sale securities, net of deferred
income tax effects, and $17 from the exercise of employee stock options, less
$39 cash dividends paid on our preferred stock.
The Company and its banking subsidiary (the "Bank") are subject to
regulatory risk-based capital adequacy standards. Under these standards, bank
holding companies and banks are required to maintain certain minimum ratios of
capital to risk-weighted assets and average total assets. Under the provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the capital position of an affected institution were to fall below certain
levels, increasingly stringent regulatory corrective actions are mandated.
The March 31, 2010 risk based capital ratios for the Company and the
Bank are presented in the following table, compared with the "well capitalized"
(Bank only) and minimum ratios under the regulatory definitions and guidelines:
Total
Tier 1 Capital Leverage
------ ------- --------
Community First Bancorporation ............ 14.2% 15.4% 8.5%
Community First Bank ...................... 12.6% 13.9% 7.5%
Minimum "well-capitalized" requirement .... 6.0% 10.0% 5.0%
Minimum requirement ....................... 4.0% 8.0% 4.0%
Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is a party to financial instruments
with off-balance-sheet risk including commitments to extend credit and standby
letters of credit. Such instruments have elements of credit risk in excess of
the amount recognized in the balance sheet. The exposure to credit loss in the
event of nonperformance by the other parties to the financial instruments for
commitments to extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. Generally, the same credit
policies used for on-balance-sheet instruments, such as loans, are used in
extending loan commitments and standby letters of credit.
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
March 31, 2010
(Dollars in
thousands)
----------
Loan commitments .............................. $ 27,775
Standby letters of credit ..................... 823
20
Loan commitments involve agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is the same as that involved in making loan
commitments to customers. Many letters of credit will expire without being drawn
upon and do not necessarily represent future cash requirements. The Bank
receives fees for loan commitments and standby letters of credit. The amount of
such fees was not material for the three months ended March 31, 2010.
As described under "Liquidity," management believes that its various sources of
liquidity provide the resources necessary for the Bank to fund the loan
commitments and to perform under standby letters of credit, if the need arises.
Neither the Company nor the Bank is involved in other off-balance sheet
contractual relationships or transactions that could result in liquidity needs
or other commitments or significantly impact earnings.
21
Item 4T. - Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the issuer's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the issuer's chief
executive officer and chief financial officer concluded such controls and
procedures, as of the end of the period covered by this report, were effective.
There has been no change in the Company's internal control over financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 6. - Exhibits
Exhibits 31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY FIRST BANCORPORATION
May 14, 2010 /s/ Frederick D. Shepherd, Jr.
----------------- ---------------------------------------------
Date Frederick D. Shepherd, Jr., Chief Executive
Officer and Chief Financial Officer
23
EXHIBIT INDEX
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
24