Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 3, 2017)
  • 10-Q (Aug 4, 2017)
  • 10-Q (May 5, 2017)
  • 10-Q (Nov 4, 2016)
  • 10-Q (Aug 4, 2016)
  • 10-Q (May 6, 2016)

 
8-K

 
Other

SOUTH STATE Corp 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Graphic
  7. Graphic

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2009

 

OR

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

 

Commission file number 001-12669

 

GRAPHIC

 

SCBT FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

South Carolina

(State or other jurisdiction of incorporation)

 

57-0799315

(IRS Employer Identification No.)

 

520 Gervais Street

Columbia, South Carolina

(Address of principal executive offices)

 


29201

(Zip Code)

 

(800) 277-2175

(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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer o

 

Accelerated Filer x

 

 

 

Non-Accelerated Filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x

 

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of July 31, 2009

Common Stock, $2.50 par value

 

12,705,275

 

 

 



Table of Contents

 

SCBT Financial Corporation and Subsidiaries

June 30, 2009 Form 10-Q

 

INDEX

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2009, December 31, 2008 and June 30, 2008

1

 

 

 

 

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008

2

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2009 and 2008

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5-22

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23-40

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

41

 

 

 

Item 1A.

Risk Factors

41

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3.

Defaults Upon Senior Securities

42

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

42-43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

44

 



Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

 

SCBT Financial Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

 

 

(Unaudited)

 

(Note 1)

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Cash and due from banks

 

$

 80,822

 

$

 47,024

 

$

 59,805

 

Interest-bearing deposits with banks

 

220

 

1,441

 

382

 

Federal funds sold and securities purchased under agreements to resell

 

40,050

 

1,000

 

44,351

 

Money market mutual funds

 

36,000

 

 

 

Total cash and cash equivalents

 

157,092

 

49,465

 

104,538

 

Investment securities:

 

 

 

 

 

 

 

Securities held to maturity
(fair value of $21,748, $23,577 and $24,697, respectively)

 

22,356

 

24,228

 

25,017

 

Securities available for sale, at fair value

 

153,643

 

183,220

 

215,834

 

Other investments

 

15,416

 

14,779

 

15,540

 

Total investment securities

 

191,415

 

222,227

 

256,391

 

Loans held for sale

 

53,853

 

15,742

 

19,015

 

Loans

 

2,236,162

 

2,316,076

 

2,246,353

 

Less allowance for loan losses

 

(32,431

)

(31,525

)

(28,760

)

Loans, net

 

2,203,731

 

2,284,551

 

2,217,593

 

Premises and equipment, net

 

73,404

 

66,392

 

57,698

 

Goodwill

 

62,888

 

62,888

 

62,888

 

Other assets

 

64,926

 

65,445

 

56,264

 

Total assets

 

$

 2,807,309

 

$

 2,766,710

 

$

 2,774,387

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

 322,270

 

$

 303,689

 

$

 322,209

 

Interest-bearing

 

1,858,096

 

1,849,585

 

1,734,637

 

Total deposits

 

2,180,366

 

2,153,274

 

2,056,846

 

Federal funds purchased and securities sold under agreements to repurchase

 

187,677

 

172,393

 

322,682

 

Other borrowings

 

144,430

 

177,477

 

160,249

 

Other liabilities

 

15,084

 

18,638

 

13,147

 

Total liabilities

 

2,527,557

 

2,521,782

 

2,552,924

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock - $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding

 

 

 

 

Common stock - $2.50 par value; authorized 40,000,000 shares; 12,696,849, 11,250,603 and 10,203,497 shares issued and outstanding

 

31,742

 

28,127

 

25,509

 

Surplus

 

195,181

 

166,815

 

141,439

 

Retained earnings

 

60,550

 

59,171

 

59,147

 

Accumulated other comprehensive loss

 

(7,721

)

(9,185

)

(4,632

)

Total shareholders’ equity

 

279,752

 

244,928

 

221,463

 

Total liabilities and shareholders’ equity

 

$

 2,807,309

 

$

 2,766,710

 

$

 2,774,387

 

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

1



Table of Contents

 

SCBT Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

 (Dollars in thousands, except per share data)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

 33,373

 

$

 35,016

 

$

 67,090

 

$

 71,801

 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

2,144

 

2,696

 

4,514

 

5,596

 

Tax-exempt

 

231

 

493

 

466

 

921

 

Federal funds sold and securities purchased under agreements to resell

 

84

 

269

 

166

 

658

 

Money market funds

 

21

 

 

65

 

 

Deposits with banks

 

4

 

15

 

4

 

47

 

Total interest income

 

35,857

 

38,489

 

72,305

 

79,023

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

8,188

 

11,850

 

17,929

 

25,296

 

Federal funds purchased and securities sold under agreements to repurchase

 

118

 

1,350

 

243

 

3,677

 

Other borrowings

 

1,532

 

1,727

 

3,116

 

3,574

 

Total interest expense

 

9,838

 

14,927

 

21,288

 

32,547

 

Net interest income

 

26,019

 

23,562

 

51,017

 

46,476

 

Provision for loan losses

 

4,521

 

2,332

 

9,564

 

3,577

 

Net interest income after provision for loan losses

 

21,498

 

21,230

 

41,453

 

42,899

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

3,819

 

4,032

 

7,404

 

7,837

 

Mortgage banking income

 

2,134

 

1,240

 

3,395

 

2,270

 

Bankcard services income

 

1,290

 

1,276

 

2,472

 

2,432

 

Trust and investment services income

 

671

 

681

 

1,362

 

1,377

 

Securities gains (losses), net

 

 

340

 

 

340

 

Total other-than-temporary impairment losses

 

(2,482

)

 

(2,482

)

 

Portion of impairment losses recognized in other comprehensive loss

 

1,938

 

 

1,938

 

 

Net impairment losses recognized in earnings

 

(544

)

 

(544

)

 

Other

 

391

 

558

 

803

 

1,376

 

Total noninterest income

 

7,761

 

8,127

 

14,892

 

15,632

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

9,517

 

10,863

 

20,036

 

22,084

 

Net occupancy expense

 

1,559

 

1,494

 

3,142

 

2,992

 

Furniture and equipment expense

 

1,499

 

1,573

 

3,059

 

3,090

 

Information services expense

 

1,286

 

1,141

 

2,728

 

2,320

 

FDIC assessment and other regulatory charges

 

2,333

 

437

 

3,517

 

897

 

OREO expense and loan related

 

1,367

 

184

 

2,041

 

533

 

Advertising and marketing

 

571

 

1,092

 

1,221

 

2,011

 

Professional fees

 

557

 

507

 

991

 

1,041

 

Amortization of intangibles

 

132

 

145

 

263

 

289

 

Other

 

2,217

 

2,259

 

4,227

 

4,567

 

Total noninterest expense

 

21,038

 

19,695

 

41,225

 

39,824

 

Earnings:

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

8,221

 

9,662

 

15,120

 

18,707

 

Provision for income taxes

 

2,836

 

3,513

 

5,215

 

6,595

 

Net income

 

5,385

 

6,149

 

9,905

 

12,112

 

Preferred stock dividends

 

450

 

 

1,115

 

 

Accretion on preferred stock discount

 

3,410

 

 

3,559

 

 

Net income available to common shareholders

 

$

 1,525

 

$

 6,149

 

$

 5,231

 

$

 12,112

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

 0.13

 

$

 0.61

 

$

 0.45

 

$

 1.20

 

Diluted

 

$

 0.13

 

$

 0.60

 

$

 0.45

 

$

 1.18

 

Dividends per common share

 

$

 0.17

 

$

 0.17

 

$

 0.34

 

$

 0.34

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

11,827

 

10,110

 

11,516

 

10,105

 

Diluted

 

11,871

 

10,253

 

11,560

 

10,239

 

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

2



Table of Contents

 

SCBT Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Six Months Ended June 30, 2009 and 2008

 (Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Surplus

 

Earnings

 

Loss

 

Total

 

Balance, December 31, 2007

 

 

$

 

10,160,432

 

$

25,401

 

$

140,652

 

$

50,499

 

$

(1,487

)

$

215,065

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

12,112

 

 

12,112

 

Change in net unrealized loss on securities available for sale, net of tax

 

 

 

 

 

 

 

(3,145

)

(3,145

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,967

 

Cash dividends declared at $.34 per share

 

 

 

 

 

 

(3,464

)

 

(3,464

)

Stock options exercised

 

 

 

4,419

 

11

 

87

 

 

 

98

 

Employee stock purchases

 

 

 

5,972

 

15

 

145

 

 

 

160

 

Restricted stock awards

 

 

 

34,964

 

88

 

(88

)

 

 

 

Common stock repurchased

 

 

 

(2,290

)

(6

)

(66

)

 

 

(72

)

Share-based compensation expense

 

 

 

 

 

709

 

 

 

709

 

Balance, June 30, 2008

 

 

$

 

10,203,497

 

$

25,509

 

$

141,439

 

$

59,147

 

$

(4,632

)

$

221,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

 

 

$

 

11,250,603

 

$

28,127

 

$

166,815

 

$

59,171

 

$

(9,185

)

$

244,928

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

9,906

 

 

9,906

 

Change in pension liability for plan curtailment, net of tax

 

 

 

 

 

 

 

1,283

 

1,283

 

Change in net unrealized gain on securities available for sale, net of tax

 

 

 

 

 

 

 

1,382

 

1,382

 

Noncredit portion of other-than-temporary impairment losses recognized in earnings, net of tax

 

 

 

 

 

 

 

(1,201

)

(1,201

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,370

 

Cash dividends on Series T preferred stock at annual dividend rate of 5%

 

 

3,559

 

 

 

 

(4,674

)

 

(1,115

)

Cash dividends declared at $.34 per share

 

 

 

 

 

 

(3,853

)

 

(3,853

)

Issuance of Series T preferred stock, net of issuance costs

 

64,779

 

61,220

 

 

 

3,412

 

 

 

64,632

 

Repurchase of Series T preferred stock and warrants

 

(64,779

)

(64,779

)

 

 

(1,400

)

 

 

(66,179

)

Employee stock purchases

 

 

 

9,089

 

23

 

139

 

 

 

162

 

Restricted stock awards

 

 

 

86,560

 

217

 

(217

)

 

 

 

Common stock repurchased

 

 

 

(5,903

)

(16

)

(163

)

 

 

(179

)

Share-based compensation expense

 

 

 

 

 

753

 

 

 

753

 

Common stock issued in public offering

 

 

 

1,356,500

 

3,391

 

25,842

 

 

 

29,233

 

Balance, June 30, 2009

 

 

$

 

12,696,849

 

$

31,742

 

$

195,181

 

$

60,550

 

$

(7,721

)

$

279,752

 

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

3



Table of Contents

 

SCBT Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

 9,906

 

$

 12,112

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,388

 

2,449

 

Provision for loan losses

 

9,564

 

3,577

 

Other-than-temporary impairment on securities

 

544

 

 

Gain on sale of securities

 

 

(340

)

Share-based compensation expense

 

753

 

709

 

Net accretion of investment securities

 

(207

)

(143

)

Net change in loans held for sale

 

(38,112

)

(1,664

)

Net change in miscellaneous assets and liabilities

 

(1,997

)

(4,420

)

Net cash provided by (used in) operating activities

 

(16,161

)

12,280

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

 

2,012

 

Proceeds from maturities and calls of investment securities held to maturity

 

1,870

 

3,140

 

Proceeds from maturities and calls of investment securities available for sale

 

39,244

 

52,945

 

Proceeds from sales of other investment securities

 

451

 

1,216

 

Purchases of investment securities held to maturity

 

 

(6,679

)

Purchases of investment securities available for sale

 

(9,709

)

(52,345

)

Purchases of other investment securities

 

(1,088

)

(2,944

)

Net decrease (increase) in customer loans

 

71,257

 

(164,693

)

Purchases of premises and equipment

 

(4,588

)

(4,314

)

Net cash provided by (used in) investing activities

 

97,437

 

(171,662

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

27,093

 

128,957

 

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings

 

(5,443

)

22,515

 

Proceeds from FHLB advances

 

 

170,400

 

Repayment of FHLB advances

 

(18,000

)

(150,007

)

Issuance of preferred stock and warrants, net of issuance costs

 

64,632

 

 

Repurchase of preferred stock and warrants

 

(66,179

)

 

Common stock issuance

 

29,395

 

160

 

Common stock repurchased

 

(179

)

(72

)

Dividends paid on preferred stock

 

(1,115

)

 

Dividends paid on common stock

 

(3,853

)

(3,464

)

Stock options exercised

 

 

98

 

Net cash provided by financing activities

 

26,351

 

168,587

 

Net increase in cash and cash equivalents

 

107,627

 

9,205

 

Cash and cash equivalents at beginning of period

 

49,465

 

95,333

 

Cash and cash equivalents at end of period

 

$

 157,092

 

$

 104,538

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

 22,244

 

$

 32,969

 

Income taxes

 

$

 5,154

 

$

 6,907

 

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

4



Table of Contents

 

SCBT Financial Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 1 – Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported.  Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

 

The condensed consolidated balance sheet at December 31, 2008, has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.

 

The information contained in the consolidated financial statements and accompanying notes included in SCBT Financial Corporation’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2008 should be referenced when reading these unaudited condensed consolidated financial statements.

 

Subsequent events have been evaluated through August 10, 2009, which is the date of financial statement issuance.

 

Note 2 – Recent Accounting Pronouncements

 

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement No. 165, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The Company adopted the provisions of Statement 165 during the period ended June 30, 2009 which did not impact its financial statements.  The Company evaluated all events or transactions that occurred after June 30, 2009, through August 10, 2009, the date the Company issued these financial statements.  During this period the Company did not have any material recognizable subsequent events that required recognition in the Company’s disclosures to the June 30, 2009 financial statements.

 

In April 2009, the FASB issued a FASB Staff Position (“FSP”) 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  The FSP allows an entity to determine whether a market is not active for a financial asset, considered in relation to normal market activity for that asset, using a list of factors provided in the FSP to aid in making that assessment.  If, after evaluating the relevant factors, the evidence indicates the market is not active, the entity would determine whether a quoted price in that market is associated with a distressed transaction.  The determination of whether transactions are distressed should be based on the weight of the available evidence.  The FSP provides illustrative circumstances that could indicate that a transaction is not orderly (i.e., distressed).  More weight should be placed on transactions that are orderly and less weight placed on transactions that are not orderly.  The FSP requires new disclosures relating to fair value measurement inputs and valuation techniques (including changes in inputs and valuation techniques).  The FSP is effective for periods ending after June 15, 2009 with early adoption permitted.  The Company had previously determined that transactions in the market for it’s pooled trust preferred securities were disorderly using guidance from FSP FAS 157-3, Determining the Fair Value of a Financial Asset when the market for that Asset is not Active. Therefore the adoption of FSP FAS 157-4 did not have a material impact on the Company’s results of operations.

 

5



Table of Contents

 

Note 2 – Recent Accounting Pronouncements (continued)

 

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.  The guidance in this FSP will change (1) the method for determining whether an other-than-temporary impairment exists for debt securities and (2) the amount of an impairment charge to be recorded in earnings.  To determine whether an other-than-temporary impairment exists, an entity will assess the likelihood of selling the security prior to recovering its cost basis.  This is a change from the current requirement for an entity to assess whether it has the intent and ability to hold a security to recovery.  If the entity intends to sell the debt security or it is more-likely-than-not that the entity will be required to sell the debt security prior to recovering its cost basis, the security should be written down to fair value with the full charge recorded in earnings.  If the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there are credit losses associated with the security. In that case:  (1) where credit losses exist, the portion of the impairment related to those credit losses should be recognized in earnings;  (2) any remaining difference between the fair value and the cost basis should be recognized as part of other comprehensive income.  The entity will be required to present on the face of the income statement both the total of any other-than-temporary impairment loss, and the noncredit portion recorded in other comprehensive income as an adjustment thereto.  The entity is required to provide enhanced disclosures, including its methodology and key inputs used for determining the amount of credit losses recorded in earnings.  On adoption, the noncredit portion of an other-than-temporary impairment previously recognized in retained earnings should be reclassified to other comprehensive income as a cumulative effect adjustment if the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the security prior to recovery.  The impairment model for equity securities is unaffected by this FSP.  The FSP is effective for periods ending after June 15, 2009 with early adoption permitted.  See Note 3 – Investment Securities for the effect of the adoption of FSP No. FAS 115-2 and FAS 124-2.

 

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.  The FSP will increase the frequency of fair value disclosures from annual only to quarterly to provide financial statement users with more timely information about the effects of current market conditions on their financial instruments. The FSP requires public entities to disclose in their interim financial statements the fair value of all financial instruments within the scope of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, as well as the method(s) and significant assumptions used to estimate the fair value of those financial instruments.  The FSP is effective for periods ending after June 15, 2009 with early adoption permitted.  While the Company expanded its disclosure in accordance with FSP FAS 107-1 and APB 28-1, its adoption did not have a material impact on the Company’s results of operations.

 

In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from ContingenciesThe FSP amends and clarifies the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies.  Assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period.  If fair value can not be determined, companies should typically account for the acquired contingencies using existing guidance.  Contingent consideration arrangements of an acquiree assumed by the acquirer as part of a business combination will be accounted for as contingent consideration by the acquirer.  The guidance is effective for fiscal years beginning after December 15, 2008.  The Company will prospectively apply the FSP to all business combinations completed on or after January 1, 2009.  The Company has no business combinations currently scheduled.

 

In June 2008, the FASB issued a FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.  The guidance in this FSP applies to the calculation of earnings per share (“EPS”) under Statement 128 for share-based payment awards with rights to dividends or dividend equivalents.  Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method.  This FSP is effective for financial statements issued in fiscal years beginning after December 15, 2008.  Adoption of FSP EITF 03-6-1 did not have a significant impact on the Company’s EPS calculation and related disclosures.

 

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Adoption of FSP 142-3 will be prospective on any future acquisitions by the Company.

 

6



Table of Contents

 

Note 2 – Recent Accounting Pronouncements (continued)

 

In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157.  FSP FAS 157-2 deferred the effective date of the disclosure requirement for nonfinancial assets and nonfinancial liabilities by FAS 157 until the beginning the first quarter of 2009.  The Company has adopted FAS 157-2 (see Note 10 – Fair Value).

 

Note 3 – Investment Securities

 

The following is the amortized cost and fair value of investment securities held to maturity:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2009:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

22,356

 

$

88

 

$

(696

)

$

21,748

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

24,228

 

$

84

 

$

(735

)

$

23,577

 

 

The values are based on data, which often reflect transactions of relatively small size and are not necessarily indicative of the value of the securities when traded in large volumes.

 

The following is the amortized cost and fair value of investment securities available for sale:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2009:

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises debt *

 

$

11,477

 

$

246

 

$

 

$

11,723

 

State and municipal obligations

 

19,146

 

70

 

(1,100

)

18,116

 

Mortgage-backed securities **

 

109,736

 

4,003

 

 

113,739

 

Trust preferred (collateralized debt obligations)

 

16,447

 

 

(6,745

)

9,702

 

Corporate stocks

 

369

 

208

 

(214

)

363

 

 

 

$

157,175

 

$

4,527

 

$

(8,059

)

$

153,643

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises debt *

 

$

28,207

 

$

465

 

$

 

$

28,672

 

State and municipal obligations

 

11,449

 

8

 

(899

)

10,558

 

Mortgage-backed securities **

 

130,009

 

3,510

 

(14

)

133,505

 

Trust preferred (collateralized debt obligations)

 

17,011

 

 

(6,928

)

10,083

 

Corporate stocks

 

369

 

35

 

(2

)

402

 

 

 

$

187,045

 

$

4,018

 

$

(7,843

)

$

183,220

 

 


* - Government-sponsored enterprises are comprised of debt securities offered by Federal Home Loan Mortgage Corporation (“FHLMC”) or Freddie Mac, Federal National Mortgage Association (“FNMA”) or Fannie Mae, Federal Home Loan Bank (“FHLB”), and Federal Farm Credit Banks (“FFCB”).

** - Mortgage-backed securities are issued by government-sponsored enterprises.

 

The amortized cost and fair value of investment securities at June 30, 2009 by contractual maturity are detailed below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

 

 

 

Held to Maturity

 

Available for Sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

1,551

 

$

1,579

 

$

4,292

 

$

4,388

 

Due after one year through five years

 

748

 

755

 

16,172

 

16,592

 

Due after five years through ten years

 

3,635

 

3,676

 

34,871

 

36,146

 

Due after ten years

 

16,422

 

15,738

 

101,840

 

96,517

 

 

 

$

22,356

 

$

21,748

 

$

157,175

 

$

153,643

 

 

7



Table of Contents

 

Note 3 – Investment Securities (continued)

 

Information pertaining to the Company’s securities available for sale with gross unrealized losses at June 30, 2009 and December 31, 2008, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:

 

 

 

Less Than Twelve Months

 

Twelve Months or More

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Losses

 

Value

 

Losses

 

Value

 

June 30, 2009:

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

696

 

$

16,747

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises debt

 

$

 

$

 

$

 

$

 

State and municipal obligations

 

1,100

 

14,520

 

 

 

Mortgage-backed securities

 

 

 

 

 

Trust preferred (collateralized debt obligations)

 

 

 

6,745

 

9,702

 

Corporate stocks

 

214

 

163

 

 

 

 

 

$

1,314

 

$

14,683

 

$

6,745

 

$

9,702

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

735

 

$

17,944

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Government-sponsored enterprises debt

 

$

 

$

 

$

 

$

 

State and municipal obligations

 

899

 

10,014

 

 

 

Mortgage-backed securities

 

11

 

2,767

 

3

 

1,503

 

Trust preferred (collateralized debt obligations)

 

3,408

 

6,452

 

3,522

 

3,949

 

 

 

$

4,318

 

$

19,233

 

$

3,525

 

$

5,452

 

 

The following table presents a rollforward of the amount of credit losses on the Company’s investment securities recognized in earnings for the six months ended June 30, 2009:

 

(Dollars in thousands)

 

 

 

Beginning balance of credit losses previously recognized in earnings

 

$

 

Amount related to credit loss for securities which an other-than-temporary impairment was not previously recognized in earnings

 

 

Amount related to credit loss for securities which an other-than-temporary impairment was recognized in earnings

 

544

 

Ending balance of cumulative credit losses recognized in earnings

 

$

544

 

 

During the three months ended June 30, 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-than-Temporary Impairment, which requires that credit related other-than-temporary impairment (“OTTI”) on debt securities be recognized in earnings while noncredit related OTTI on debt securities not expected to be sold be recognized in other comprehensive income (“OCI”).  As a result of its analysis, the Company recorded $544,000 in credit-related OTTI charges in earnings.  This OTTI charge in earnings was taken on two pooled trust preferred collateralized debt obligations (“TRUPs”) that are classified as available for sale securities.  In addition, the Company recognized $1.2 million, or $1.9 million on a pre-tax basis, for the non-credit impairment associated with the same two TRUPs in OCI (in equity).

 

8



Table of Contents

 

Note 3 – Investment Securities (continued)

 

On at least a quarterly basis, the Company reviews its investment portfolio for indications of impairment.  This review includes analyzing the length of time and the extent to which fair value has been lower than the cost, the financial condition and near-term prospects of the issuers, including any specific events which may influence the operations of the issuers.  The Company evaluates its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, including consideration of our investment strategy, our cash flow needs, liquidity position, capital adequacy and interest rate risk position.  Additionally, the risk of further OTTI charges may be influenced by additional bank failures, prolonged recession of the U.S. economy, changes in real estate values, interest deferrals, and whether the federal government continues to provide financial assistance to financial institutions.

 

The TRUPs represent beneficial interests in securitized financial assets that the Company analyzes within the scope of EITF 99-20 (as amended), and are evaluated for OTTI using management’s best estimates of future cash flows.  If these estimated cash flows determine that it is probable an adverse change in the discounted present value of future cash flows has occurred, then an OTTI charge would be recognized in accordance with FSP FAS 115-2 and FAS 124-2.  There is risk that this quarterly review could result in the Company recording OTTI charges in the future.

 

At June 30, 2009, the book value of the Company’s TRUPs totaled $16.4 million with an estimated fair value of $9.7 million.  One of these securities is a senior tranche (MMCaps I A) and the remaining seven securities are mezzanine tranches.  As of March 31, 2009, all of these securities were downgraded by both Moody’s and Fitch, except for the MMCaps I A security which is rated A3/AAA.  There have been no further changes in the securities ratings as of June 30, 2009.

 

As of June 30, 2009, the following table provides detail of the Company’s pooled TRUPs, which all have been in an unrealized loss position greater than twelve months:

 

(Dollars in
thousands)

 

Class

 

#
of
Issuers

 

Book
Value

 

Fair
Value

 

Unrealized
Loss

 

Credit
Ratings (1)

 

Receiving
Principal /
Interest
Contractually? (2)

 

Deferral /

Defaults
% of Total
Collateral
Balance (3)

 

Excess
Subordination
as a %
of Current
Performing
Collateral (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PreTSL IX B-3

 

Mezzanine

 

51

 

$

2,983

 

$

1,529

 

$

(1,454

)

Ca / CC

 

Yes / Yes

 

22.3

%

10.6

%

PreTSL X B-1

 

Mezzanine

 

58

 

3,073

 

1,553

 

(1,520

)

Ca / CC

 

Yes / Yes

(5)

24.7

%

3.6

%

PreTSL X B-3

 

Mezzanine

 

58

 

862

 

445

 

(417

)

Ca / CC

 

Yes / Yes

(5)

24.7

%

3.6

%

PreTSL XVI C