þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 52-1652138 | |
(State of other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company þ |
2
March 31, 2009 | December 31, 2008 | |||||||
Assets |
||||||||
Cash and due from banks |
$ | 10,645,837 | $ | 5,071,614 | ||||
Federal Funds sold |
1,026,721 | 989,754 | ||||||
Interest-bearing deposits with banks |
5,279,627 | 8,413,164 | ||||||
Securities available for sale, at fair value |
17,219,424 | 14,221,674 | ||||||
Securities held to maturity, at amortized cost |
104,792,078 | 108,712,281 | ||||||
Federal Home Loan Bank and Federal Reserve Bank stock at cost |
6,439,200 | 6,453,000 | ||||||
Loans held for sale |
16,624,790 | | ||||||
Loans receivable net of allowance for loan losses of $5,667,203 and $5,145,673,
respectively |
548,168,828 | 542,977,138 | ||||||
Premises and equipment, net |
12,591,741 | 12,235,999 | ||||||
Accrued interest receivable |
2,867,907 | 2,965,813 | ||||||
Investment in bank owned life insurance |
10,627,543 | 10,526,286 | ||||||
Other assets |
3,858,877 | 4,118,187 | ||||||
Total Assets |
$ | 740,142,573 | $ | 716,684,910 | ||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Deposits |
||||||||
Non-interest-bearing deposits |
$ | 48,333,699 | $ | 50,642,273 | ||||
Interest-bearing deposits |
505,934,792 | 474,525,293 | ||||||
Total deposits |
554,268,491 | 525,167,566 | ||||||
Short-term borrowings |
406,497 | 1,522,367 | ||||||
Long-term debt |
99,952,643 | 104,963,428 | ||||||
Guaranteed preferred beneficial interest in junior subordinated debentures |
12,000,000 | 12,000,000 | ||||||
Accrued expenses and other liabilities |
5,550,442 | 5,917,130 | ||||||
Total Liabilities |
672,178,073 | 649,570,491 | ||||||
Stockholders Equity |
||||||||
Fixed Rate Cumulative Perpetual Preferred Stock, Series A par value $1,000;
authorized 15,540; issued 15,540 |
15,540,000 | 15,540,000 | ||||||
Fixed Rate Cumulative Perpetual Preferred Stock, Series B par value $1,000;
authorized 777; issued 777 |
777,000 | 777,000 | ||||||
Common stock par value $.01; authorized 15,000,000 shares; issued
2,956,180 and 2,947,759 shares, respectively |
29,562 | 29,478 | ||||||
Additional paid in capital |
16,580,883 | 16,517,649 | ||||||
Retained earnings |
34,918,814 | 34,280,719 | ||||||
Accumulated other comprehensive income |
442,835 | 229,848 | ||||||
Unearned ESOP shares |
(324,594 | ) | (260,275 | ) | ||||
Total Stockholders Equity |
67,964,500 | 67,114,419 | ||||||
Total Liabilities and Stockholders Equity |
$ | 740,142,573 | $ | 716,684,910 | ||||
3
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
INTEREST INCOME: |
||||||||
Interest and fees on loans |
$ | 7,877,391 | $ | 8,077,166 | ||||
Taxable interest and dividends on investment securities |
1,325,495 | 1,394,524 | ||||||
Interest on deposits with banks |
190 | 36,093 | ||||||
Total interest income |
9,203,076 | 9,507,783 | ||||||
INTEREST EXPENSE: |
||||||||
Interest on deposits |
3,173,365 | 3,330,240 | ||||||
Interest on short-term borrowings |
23,866 | 81,034 | ||||||
Interest on long-term debt |
1,062,840 | 1,240,215 | ||||||
Total interest expenses |
4,260,071 | 4,651,489 | ||||||
NET INTEREST INCOME |
4,943,005 | 4,856,294 | ||||||
PROVISION FOR LOAN LOSSES |
532,885 | 160,224 | ||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
4,410,120 | 4,696,070 | ||||||
4
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
NONINTEREST INCOME: |
||||||||
Loan appraisal, credit, and miscellaneous charges |
$ | 115,678 | $ | 110,263 | ||||
Gain on sale of asset |
| 2,041 | ||||||
Income from bank owned life insurance |
101,257 | 97,218 | ||||||
Service charges |
369,522 | 377,929 | ||||||
Total noninterest income |
586,457 | 587,451 | ||||||
NONINTEREST EXPENSE: |
||||||||
Salary and employee benefits |
2,150,776 | 2,010,210 | ||||||
Occupancy |
404,527 | 363,176 | ||||||
Advertising |
130,112 | 170,443 | ||||||
Data processing |
226,175 | 45,890 | ||||||
Legal and professional fees |
157,609 | 114,167 | ||||||
Depreciation of furniture, fixtures, and equipment |
148,142 | 132,402 | ||||||
Telephone communications |
33,275 | 23,631 | ||||||
ATM expenses |
86,713 | 83,765 | ||||||
Office supplies |
49,712 | 39,484 | ||||||
FDIC Insurance |
89,664 | 53,485 | ||||||
Other |
337,457 | 314,890 | ||||||
Total noninterest expenses |
3,814,162 | 3,351,543 | ||||||
INCOME BEFORE INCOME TAXES |
1,182,415 | 1,931,978 | ||||||
Income tax expense |
412,575 | 615,737 | ||||||
NET INCOME |
769,840 | 1,316,241 | ||||||
OTHER COMPREHENSIVE INCOME NET OF TAX |
||||||||
Net unrealized holding gains arising during period |
212,987 | 294,520 | ||||||
COMPREHENSIVE INCOME |
$ | 982,827 | $ | 1,610,761 | ||||
INCOME PER COMMON SHARE |
||||||||
Basic |
$ | 0.19 | $ | 0.45 | ||||
Diluted |
$ | 0.19 | $ | 0.42 |
5
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 769,840 | $ | 1,316,241 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||
Provision for loan losses |
532,885 | 160,224 | ||||||
Gain on sale of asset |
| (2,041 | ) | |||||
Depreciation and amortization |
287,453 | 254,522 | ||||||
Loans originated for resale |
(16,624,790 | ) | | |||||
Net amortization of premium/discount on investment securities |
(23,561 | ) | (16,934 | ) | ||||
Increase in cash surrender of bank owned life insurance |
(101,257 | ) | (97,218 | ) | ||||
Deferred income tax benefit |
(338,331 | ) | (275,965 | ) | ||||
Decrease in accrued interest receivable |
97,906 | 175,691 | ||||||
Increase in deferred loan fees |
(45,180 | ) | (50,873 | ) | ||||
(Decrease) increase in accounts payable, accrued expenses, other liabilities |
(366,688 | ) | 97,601 | |||||
Decrease in other assets |
487,920 | 751,889 | ||||||
Net cash provided by operating activities |
15,323,803 | 2,313,137 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchase of investment securities available for sale |
(2,765,018 | ) | (4,845,569 | ) | ||||
Proceeds from sale, redemption or principal payments of investment securities
available for sale |
138,530 | 8,896 | ||||||
Purchase of investment securities held to maturity |
| (3,848,771 | ) | |||||
Proceeds from maturities or principal payments of investment securities held to
maturity |
3,895,210 | 1,954,175 | ||||||
Net increase (decrease) of FHLB and Federal Reserve stock |
13,800 | (894,800 | ) | |||||
Loans originated or acquired |
(57,178,523 | ) | (43,559,605 | ) | ||||
Principal collected on loans |
51,499,129 | 28,791,732 | ||||||
Proceeds from disposal of premises and equipment |
| 2,041 | ||||||
Purchase of premises and equipment |
(643,196 | ) | (902,418 | ) | ||||
Net cash used in investing activities |
(5,040,068 | ) | (23,294,319 | ) | ||||
6
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net increase in deposits |
$ | 29,100,925 | $ | 15,776,760 | ||||
Proceeds from long-term borrowings |
| 24,000,000 | ||||||
Payments of long-term borrowings |
(5,010,785 | ) | (5,010,363 | ) | ||||
Net decrease in short term borrowings |
(1,115,870 | ) | (1,241,347 | ) | ||||
Exercise of stock options |
60,775 | 717,861 | ||||||
Excess tax benefits on stock-based compensation |
2,543 | 4,250 | ||||||
Dividends paid |
(131,745 | ) | | |||||
Net change in unearned ESOP shares |
(64,319 | ) | 25,592 | |||||
Redemption of common stock |
| (730,700 | ) | |||||
Net cash provided by financing activities |
22,841,524 | 33,542,053 | ||||||
DECREASE IN CASH AND CASH EQUIVALENTS |
2,477,653 | 12,560,871 | ||||||
CASH AND CASH EQUIVALENTS JANUARY 1 |
14,474,532 | 11,426,637 | ||||||
CASH AND CASH EQUIVALENTS MARCH 31 |
$ | 16,952,185 | $ | 23,987,508 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: |
||||||||
Cash paid during the three months for: |
||||||||
Interest |
$ | 4,648,905 | $ | 4,738,834 | ||||
Income taxes |
$ | | $ | | ||||
7
1. | BASIS OF PRESENTATION | |
General The consolidated financial statements of Tri-County Financial Corporation (the Company) and its wholly owned subsidiary, Community Bank of Tri-County (the Bank) included herein are unaudited. However, they reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Companys financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2008 have been derived from audited financial statements. There have been no significant changes to the Companys accounting policies as disclosed in the 2008 Annual Report. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period. Certain previously reported amounts have been restated to conform to the 2009 presentation. | ||
It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Companys Annual Report for the year ended December 31, 2008. | ||
2. | NATURE OF BUSINESS | |
The Company, through its bank subsidiary, provides domestic financial services primarily in Southern Maryland. The primary financial services include real estate, commercial and consumer lending, as well as traditional demand deposits and savings products. | ||
3. | FAIR VALUE MEASUREMENTS | |
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans). | ||
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. | ||
The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. | ||
Under SFAS 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These hierarchy levels are: |
8
Level 1 inputs Unadjusted quoted process in active markets for identical assets or liabilities that the 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 and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. | ||
Level 3 inputs Unobservable inputs for determining the fair values of assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. | ||
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value: | ||
Investment Securities Available for Sale | ||
Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over- the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets. | ||
Loans | ||
The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represents loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At December 31, 2008, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. | ||
Foreclosed Assets | ||
Foreclosed assets are adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value and fair value. Fair value is based upon independent market prices, appraised value of the collateral or managements estimation of the value of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset at nonrecurring Level 3. |
9
Assets and Liabilities Recorded At Fair Value on a Recurring Basis: | ||
The table below presents the recorded amount of assets and liabilities, as of March 31, 2009 measured at fair value on a recurring basis. |
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
Description of Asset | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Available-for-Sale Securities |
$ | 17,219,424 | $ | | $ | 17,219,424 | $ | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis: | ||
The Company may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of March 31, 2009 are included in the table below: |
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
Description of Asset | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Impaired loans |
$ | 2,693,451 | $ | | $ | 2,693,451 | $ | |
4. | INCOME TAXES | |
The Company uses the liability method of accounting for income taxes as required by SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred-tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences reverse. The Company also adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007. | ||
5. | EARNINGS PER SHARE | |
Earnings per common share are computed by dividing net income less dividends on preferred shares, by the weighted average number of common shares outstanding during the period. Diluted net income available to common shareholders is divided by the weighted average number of common shares outstanding during the period, including any potential dilutive common shares outstanding, such as options and warrants. As of March 31, 2009 and 2008, there were 190,479 and 21,811 shares excluded from the diluted net income per share computation because inclusion of these options would be anti-dilutive, respectively. Basic and diluted earnings per share, have been computed based on weighted-average common and common equivalent shares outstanding as follows: |
10
Quarter Ended March 31, | ||||||||
2009 | 2008 | |||||||
Net Income |
$ | 769,840 | $ | 1,316,241 | ||||
Less: Dividends payable on preferred stock |
(211,733 | ) | | |||||
Net income available to common shareholders |
$ | 558,108 | $ | 1,316,241 | ||||
Average number of common shares outstanding |
2,951,122 | 2,932,699 | ||||||
Effect of dilutive options |
38,982 | 149,794 | ||||||
Average number of shares used to calculate earnings per share
outstanding |
2,990,103 | 3,082,493 | ||||||
6. | STOCK-BASED COMPENSATION | |
The Company has stock option and incentive plans to attract and retain key personnel in order to promote the success of the business. These plans are described in Note 13 to the financial statements included in our Annual Report to Stockholders for the year ended December 31, 2008. No compensation related expense related to stock options was recognized in the quarter ended March 31, 2009 or 2008. | ||
The Company and the Bank currently maintain incentive plans which provide for payments to be made in either cash or stock options. The Company has accrued the full amounts due under these plans, but currently it is not possible to identify the portion that will be paid out in the form of stock options. | ||
A summary of the Companys stock option plans as of March 31, 2009, and changes during the three-month period then ended is presented below: |
Weighted | Weighted-Average | |||||||||||||||
Average | Aggregate | Contractual Life | ||||||||||||||
Exercise | Intrinsic | Remaining In | ||||||||||||||
Shares | Price | Value (1) | Years | |||||||||||||
Outstanding at December 31,
2008 |
353,217 | $ | 15.49 | |||||||||||||
Granted at fair value |
| | ||||||||||||||
Exercised |
(10,557 | ) | 7.88 | 36,465 | ||||||||||||
Expired |
| | ||||||||||||||
Forfeited |
(1 | ) | 7.88 | |||||||||||||
Outstanding at March 31, 2009 |
342,659 | $ | 15.73 | $ | 540,919 | 2.6 | ||||||||||
Exercisable at March 31, 2009 |
342,659 | $ | 15.73 | $ | 540,919 | 2.6 | ||||||||||
7. | GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES | |
On June 15, 2005, Tri-County Capital Trust II (Capital Trust II), a Delaware business trust formed, funded and wholly owned by the Company, issued $5,000,000 of capital securities with an interest rate based on the 90-day LIBOR rate plus 1.70%. The Trust used the proceeds from this issuance to purchase $5.2 million of the Companys junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital Trust IIs obligations with respect to the |
11
capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures. Both the capital securities of Capital Trust II and the junior subordinated debentures are scheduled to mature on June 15, 2035, unless called by the Company not earlier than June 15, 2010. |
On July 22, 2004, Tri-County Capital Trust I (Capital Trust I), a Delaware business trust formed, funded and wholly owned by the Company, issued $7,000,000 of capital securities with an interest rate based on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this issuance to purchase $7.2 million of the Companys junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital Trust Is obligations with respect to the capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures. Both the capital securities of Capital Trust I and the junior subordinated debentures are scheduled to mature on July 22, 2034, unless called by the Company not earlier than July 22, 2009. | ||
Costs associated with the issuance of the trust-preferred securities were less than $10,000 and were expensed as period costs. | ||
8. | PREFERRED STOCK | |
On December 19, 2008, the United States Department of the Treasury (the Treasury), acting under the authority granted to it by the Troubled Asset Relief Programs Capital Purchase Program purchased $15,540,000 of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock) from the Company. The preferred stock has a perpetual life, has liquidation priority over the Companys common shareholders, and is cumulative. The dividend rate is 5% for the first five years, rising to 9% thereafter. The Series A Preferred Stock may not be redeemed for three years unless the Company has sold an equal amount of common or preferred shares for cash, has redeemed all Series B Preferred Stock, and has paid all dividends accumulated. As condition to the issuance of the Series A Preferred Stock the Company agreed to accept restrictions on the repurchase of its common stock, the payment of dividends, and certain compensation practices. | ||
At the same time the Company issued its Series A Preferred Stock, it issued to the Treasury warrants to purchase Fixed Rate Cumulative Perpetual Preferred Stock, Series B Preferred Stock (Preferred B) in the amount of 5% of the Preferred A shares or 777 shares with a par value of $777,000. The warrants had an exercise price of $.01 per share. These Preferred B shares have the same rights, preferences, and privileges as the Series A Preferred Shares. The Series B Preferred Shares have a dividend rate of 9%. These warrants were immediately exercised. The Company believes that it is in compliance with all terms of the Preferred Stock purchase agreement. | ||
9. | CHANGE IN ACCOUNTING PRINCIPLE | |
In September 2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 requires the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods as defined in SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The EITF reached a consensus that Bank Owned Life Insurance policies purchased for this purpose do not effectively settle the entitys obligation to the employee in this regard and thus the entity must record compensation cost and the related liability. Entities should recognize the effects of applying this Issue through either, (a) a change in accounting principle through a cumulative effect adjustment to retained earnings or to other components of equity or net assets in the balance sheet as of the beginning of the year of adoption, or (b) a change in accounting principle through retrospective application to all prior periods. This issue is effective for fiscal years beginning after December 15, 2007. The effects of this guidance have been applied as a change in accounting principle through a cumulative effect adjustment to retained earnings of $314,847 during the first quarter of 2008. |
12
10. | SUBSEQUENT EVENT | |
On May 1, 2009, Silverton Bank, N.A., Atlanta, GA was closed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Company was named receiver. The FDIC created a bridge bank to take over the operations of Silverton Bank, N.A. The newly created bank is Silverton Bridge Bank, N.A. The creation of the bridge bank allows its client banks to transition their correspondent banking needs to other providers with the least amount of disruptions. Silverton Bridge Bank N.A. will continue to operate business as usual through July 29, 2009. As a result of this announcement, it is highly unlikely that we will recover any portion of our investment of $118,744 in the stock of Silverton Bank, N.A.s holding company, Silverton Financial Services, Inc. Accordingly, the Bank will record an other-than-temporary impairment charge in the second quarter of 2009. Because this is a capital loss, there will be no tax benefit associated with this loss. | ||
11. | NEW ACCOUNTING STANDARDS | |
Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations (SFAS 141(R)). During December 2007, the FASB issued SFAS 141(R). SFAS 141(R) recognizes and measures the goodwill acquired in the business combination and defines a bargain purchase, and requires the acquirer to recognize that excess as a gain attributable to the acquirer. In contrast, Statement 141 required the negative goodwill amount to be allocated as a pro rata reduction of the amounts assigned to assets acquired. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after December 15, 2008. The Company adopted SFAS No. 141R effective March 31, 2009, and adoption did not have a material impact on the Companys consolidated financial statements. | ||
Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). During December 2007, the FASB issued SFAS 160 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statement, but separate from the parents equity. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management adopted this Statement effective March 31, 2009, and adoption did not have a material impact on the Companys consolidated financial condition or results of operations. | ||
Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivative, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of SFAS No. 141R did not have a material impact on the consolidated financial statements. | ||
Statement of Financial Accounting Standards, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). During May 2008, the FASB issued SFAS 162. This Statement identifies the sources of account principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. Adoption of SFAS 162 was not a change in the Companys current accounting practices; therefore, it did not have a material impact on the Companys consolidated financial condition or results of operations. | ||
FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment |
13
Transactions are Participating Securities (FSP EITF 03-6-1) . FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and requires a company to retrospectively adjust its earning per share data. The Company adopted FSP EITF 03-6-1 effective March 31, 2009, and adoption did not have a material effect on consolidated results of operations or earnings per share. | ||
FASB Staff Positions FAS 107-1 and APB 28-1, FAS 157-4, FAS 115-2 and FAS 124-2, Other Than Temporary Impairment. FASB has issued FSPs to address concerns regarding (1) determining whether a market is not active and a transaction is not orderly, (2) recognition and presentation of other-than-temporary impairments and (3) interim disclosures of fair values of financial instruments. The FSPs will be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt the FSPs effective for the period ending June 30, 2009, but does not anticipate that adoption will result in a material effect on consolidated results of operations. |
14
15
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Condensed Income Statement: |
||||||||
Interest Income |
$ | 9,203,076 | $ | 9,507,783 | ||||
Interest Expense |
4,260,071 | 4,651,489 | ||||||
Net Interest Income |
4,943,005 | 4,856,294 | ||||||
Provision for Loan Loss |
532,885 | 160,224 | ||||||
Non-interest Income |
586,457 | 587,451 | ||||||
Non-interest Expense |
3,814,162 | 3,351,543 | ||||||
Income Before Income Taxes |
1,182,415 | 1,931,978 | ||||||
Income Taxes |
412,575 | 615,737 | ||||||
Net Income |
769,840 | 1,316,241 | ||||||
Per Common Share: |
||||||||
Basic Earnings |
$ | 0.19 | $ | 0.45 | ||||
Diluted Earnings |
$ | 0.19 | $ | 0.42 | ||||
Book Value |
$ | 17.47 | $ | 17.04 |
16
Three Months Ended | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
NONINTEREST INCOME: |
||||||||||||||||
Loan appraisal, credit, and miscellaneous charges |
$ | 115,678 | $ | 110,263 | $ | 5,415 | 4.91 | % | ||||||||
Gain on sale of assets |
| 2,041 | (2,041 | ) | (100.00 | )% | ||||||||||
Income from bank owned life insurance |
101,257 | 97,218 | 4,039 | 4.15 | % | |||||||||||
Service charges |
369,522 | 377,929 | (8,407 | ) | (2.22 | )% | ||||||||||
Total noninterest income |
$ | 586,457 | $ | 587,451 | $ | (994 | ) | (0.17 | )% | |||||||
Three Months Ended March 31, | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
NON-INTEREST EXPENSE: |
||||||||||||||||
Salary and employee benefits |
$ | 2,150,776 | $ | 2,010,210 | $ | 140,566 | 6.99 | % | ||||||||
Occupancy |
404,527 | 363,176 | 41,351 | 11.39 | % | |||||||||||
Advertising |
130,112 | 170,443 | (40,331 | ) | (23.66 | )% | ||||||||||
Data processing |
226,175 | 45,890 | 180,285 | 392.86 | % | |||||||||||
Legal and professional fees |
157,609 | 114,167 | 43,442 | 38.05 | % | |||||||||||
Depreciation |
148,142 | 132,402 | 15,740 | 11.89 | % | |||||||||||
Telephone communications |
33,275 | 23,631 | 9,644 | 40.81 | % | |||||||||||
ATM expenses |
86,713 | 83,765 | 2,948 | 3.52 | % | |||||||||||
Office supplies |
49,712 | 39,484 | 10,228 | 25.90 | % | |||||||||||
Office equipment |
89,664 | 53,485 | 36,179 | 67.64 | % | |||||||||||
Other |
337,457 | 314,890 | 22,567 | 7.17 | % | |||||||||||
Total non-interest expenses |
$ | 3,814,162 | $ | 3,351,543 | $ | 462,619 | 13.80 | % | ||||||||
17
March 31, 2009 | December 31, 2008 | $ change | % Change | |||||||||||||
Cash and due from banks |
$ | 10,645,837 | $ | 5,071,614 | $ | 5,574,223 | 109.91 | % | ||||||||
Federal Funds sold |
1,026,721 | 989,754 | 36,967 | 3.73 | % | |||||||||||
Interest-bearing deposits with banks |
5,279,627 | 8,413,164 | (3,133,537 | ) | (37.25 | )% | ||||||||||
Securities available for sale, at fair value |
17,219,424 | 14,221,674 | 2,997,750 | 21.08 | % | |||||||||||
Securities held to maturity, at amortized cost |
104,792,078 | 108,712,281 | (3,920,203 | ) | (3.61 | )% | ||||||||||
Federal Home Loan Bank and Federal Reserve Bank
stock |
6,439,200 | 6,453,000 | (13,800 | ) | (0.21 | )% | ||||||||||
Loans held for sale |
16,624,790 | | 16,624,790 | 100 | % | |||||||||||
Loans receivable net of allowance for loan losses |
548,168,828 | 542,977,138 | 5,191,690 | 0.96 | % | |||||||||||
Premises and equipment, net |
12,591,741 | 12,235,999 | 355,742 | 2.91 | % | |||||||||||
Accrued interest receivable |
2,867,907 | 2,965,813 | (97,906 | ) | (3.30 | )% | ||||||||||
Investment in bank owned life insurance |
10,627,543 | 10,526,286 | 101,257 | 0.96 | % | |||||||||||
Other assets |
3,858,877 | 4,118,187 | (259,310 | ) | (6.30 | )% | ||||||||||
$ | 740,142,573 | $ | 716,684,910 | $ | 23,457,663 | 3.27 | % | |||||||||
18
March 31, 2009 | December 31, 2008 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Real Estate Loans: |
||||||||||||||||
Commercial |
$ | 245,549,749 | 44.31 | % | $ | 236,409,990 | 43.11 | % | ||||||||
Residential first mortgages |
101,165,369 | 18.26 | % | 104,607,136 | 19.07 | % | ||||||||||
Residential construction |
58,763,453 | 10.61 | % | 57,564,710 | 10.50 | % | ||||||||||
Second mortgage loans |
25,126,379 | 4.53 | % | 25,412,415 | 4.63 | % | ||||||||||
Commercial lines of credit |
100,167,867 | 18.08 | % | 101,935,520 | 18.59 | % | ||||||||||
Consumer loans |
1,821,722 | 0.33 | % | 2,045,838 | 0.37 | % | ||||||||||
Commercial equipment |
21,507,200 | 3.88 | % | 20,458,092 | 3.73 | % | ||||||||||
554,101,739 | 100.00 | % | 548,433,701 | 100.00 | % | |||||||||||
Less: |
||||||||||||||||
Deferred loan fees |
265,708 | 0.05 | % | 310,890 | 0.06 | % | ||||||||||
Allowance for loan loss |
5,667,203 | 1.02 | % | 5,145,673 | 0.94 | % | ||||||||||
5,932,911 | 5,456,563 | |||||||||||||||
Loans receivable, net |
$ | 548,168,828 | $ | 542,977,138 | ||||||||||||
Three Months Ended | Three Months Ended | |||||||
March 31, 2008 | March 31, 2008 | |||||||
Beginning Balance |
$ | 5,145,673 | $ | 4,482,483 | ||||
Charge Offs |
11,355 | 26,519 | ||||||
Recoveries |
| | ||||||
Net Charge Offs |
11,355 | 26,519 | ||||||
Provision for Loan Losses |
532,885 | 160,224 | ||||||
Balance at the end of the Period |
$ | 5,667,203 | $ | 4,616,188 | ||||
Balances as of | Balances as of | |||||||
March 31, 2009 | December 31, 2008 | |||||||
Restructured Loans |
$ | | $ | | ||||
Accruing loans which are contractually
past due 90 days or more: |
$ | | $ | | ||||
Loans accounted for on a nonaccrual basis |
$ | 7,671,052 | $ | 4,936,000 | ||||
Total non-performing loans |
$ | 7,671,052 | $ | 4,936,000 | ||||
Non-performing loans to total loans |
1.38 | % | 0.90 | % | ||||
Allowance for loan losses to non- performing loans |
73.88 | % | 104.25 | % | ||||
19
March 31, 2009 | December 31, 2008 | $ change | % Change | |||||||||||||
Deposits |
||||||||||||||||
Non-interest-bearing deposits |
$ | 48,333,699 | $ | 50,642,273 | $ | (2,308,574 | ) | (4.56 | )% | |||||||
Interest-bearing deposits |
505,934,792 | 474,525,293 | 31,409,499 | 6.62 | % | |||||||||||
Total deposits |
554,268,491 | 525,167,566 | 29,100,925 | 5.54 | % | |||||||||||
Short-term borrowings |
406,497 | 1,522,367 | (1,115,870 | ) | (73.30 | )% | ||||||||||
Long-term debt |
99,952,643 | 104,963,428 | (5,010,785 | ) | (4.77 | )% | ||||||||||
Guaranteed preferred beneficial interest
in junior subordinated debentures |
12,000,000 | 12,000,000 | | 0.00 | % | |||||||||||
Accrued expenses and other liabilities |
5,550,442 | 5,917,130 | (366,688 | ) | (6.20 | )% | ||||||||||
Total liabilities |
$ | 672,178,073 | $ | 649,570,491 | $ | 22,607,582 | 3.48 | % | ||||||||
March 31, 2009 | December 31, 2008 | $ change | % Change | |||||||||||||
Fixed Rate Cumulative Perpetual Preferred
Stock, Series A par value $1,000;
authorized 15,540; issued 15,540 |
$ | 15,540,000 | $ | 15,540,000 | $ | | | |||||||||
Fixed Rate Cumulative Perpetual Preferred
Series B par value $1,000;
authorized 777; issued 777 |
777,000 | 777,000 | | | ||||||||||||
Common stock par value $.01;
authorized 15,000,000 shares; issued
2,956,180 and 2,947,759 shares, respectively |
29,562 | 29,478 | 84 | 0.28 | % | |||||||||||
Additional paid in capital |
16,580,883 | 16,517,649 | 63,234 | 0.38 | % | |||||||||||
Retained earnings |
34,918,814 | 34,280,719 | 638,095 | 1.86 | % | |||||||||||
Accumulated other comprehensive income |
442,835 | 229,848 | 212,987 | 92.66 | % | |||||||||||
Unearned ESOP shares |
(324,594 | ) | (260,275 | ) | (64,319 | ) | 24.71 | % | ||||||||
Total Stockholders Equity |
$ | 67,964,500 | $ | 67,114,419 | $ | 850,081 | 1.27 | % | ||||||||
20
21
22
23
(a) | Not applicable | ||
(b) | Not applicable | ||
(c) | The Company did not repurchase any shares of common stock in the quarter ended March 31, 2009. On September 25, 2008, Tri-County Financial Corporation announced a repurchase program under which it would repurchase up to 5% of its outstanding common stock or approximately 147,435 shares. However, as part of the Companys participation in the Capital Repurchase Program of the U.S. Department of Treasurys Troubled Asset Repurchase Program, prior to the earlier of (a) December 19, 2018 or (b) the date on which the Series A preferred stock and the Series B preferred stock has been redeemed in full or the Treasury has transferred all of the Series A preferred stock and the Series B preferred stock to non-affiliates, the Company, without the consent of the Treasury, cannot repurchase any shares of its common stock or other capital stock or equity securities or trust preferred securities. These repurchase restrictions do not apply in certain limited circumstances, including the repurchase of common stock in connection with the administration of any employee benefit plan in the ordinary course of business and consistent with past practice. In addition, during the period beginning on December 19, 2018 and ending on the date on which the Series A preferred stock and the Series B preferred stock have been redeemed in full or the Treasury has transferred all of the Series A preferred stock and the Series B preferred stock to non-affiliates, the Company cannot repurchase any shares of its common stock or other capital stock or equity securities or trust preferred securities without the consent of the Treasury. |
Exhibit 31 | Rule 13a-14(a) Certifications |
|
Exhibit 32 | Section 1350 Certifications |
24
TRI-COUNTY FINANCIAL CORPORATION |
||||||
Date: | May 12, 2009 | By: | /s/ Michael L. Middleton | |||
Michael L. Middleton, President, Chief | ||||||
Executive Officer and Chairman of the Board | ||||||
Date: | May 12, 2009 | By: | /s/ William J. Pasenelli | |||
William J. Pasenelli, Executive Vice | ||||||
President and Chief Financial Officer |
25