UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
FORM
10-K
|
|
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
For
the fiscal year ended December 31, 2008
|
|
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
Commission
File Number: 001-33009
|
|
Britton
& Koontz Capital Corporation
|
(Exact
name of registrant as specified in its charter)
|
|
|
|
Mississippi
|
64-0665423
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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|
|
500
Main Street
|
Natchez,
Mississippi 39120
|
(Address
of principal executive offices) (Zip Code)
|
|
(601)
445-5576
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(Registrant’s
Telephone Number, Including Area
Code)
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Securities
registered pursuant to Section 12(b) of the Exchange
Act:
|
Title
of each class
|
Common
Stock, $2.50 Par Value
|
Name
of each exchange on which registered
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The
NASDAQ Capital Market
|
|
Securities
registered pursuant to Section 12(g) of the Exchange
Act:
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None
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
[ ]
Yes [X]
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. [ ] Yes[X]
No
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form10-K or any amendment to this
Form 10-K. [ ]
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 [ ]
(Do
not check if a smaller reporting company)
|
Smaller
reporting company [X]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ]
Yes [X]
No
The
aggregate market value of the registrant’s common equity held by non-affiliates
at March 3, 2009, computed by reference to the price of $12.85 per share, the
price at which the registrant’s common equity was last sold as of June 30, 2008,
is $24,227,326.
The
registrant had 2,126,466 shares of common stock outstanding as of March 13,
2009.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Definitive Proxy Statement of Britton & Koontz Capital Corporation
with respect to its 2009 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
C
ROSS REFERENCE INDEX
TO
FORM
10-K
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Page
No.
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ITEM 1.
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*
Included herein.
**
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Incorporated
by reference from Britton & Koontz Capital Corporation’s Definitive
Proxy Statement for its 2009 Annual Meeting of Shareholders in accordance
with Instruction G(3) of Form
10-K.
|
PART I
This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although
Britton & Koontz Capital Corporation (the “Company”) believes that the
expectations reflected in such forward-looking statements are reasonable, such
forward-looking statements are based on numerous assumptions (some of which may
prove to be incorrect) and are subject to risks and uncertainties which could
cause the actual results to differ materially from the Company’s
expectations. Such statements are based on management’s beliefs as
well as assumptions made by and information currently available to
management. When used in the Company’s documents or oral
presentations, the words “anticipate,” “estimate,” “expect,” “objective,”
“projection,” “forecast,” “goal” and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the Company’s actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, increased competition, regulatory factors,
economic conditions, changing market conditions, availability or cost of
capital, employee workforce factors, costs and other effects of legal and
administrative proceedings, and changes in federal, state or local legislative
requirements. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of changes in actual
results or changes in assumptions or on account of other factors affecting such
statements.
The
information set forth in this Annual Report on Form 10-K is as of March 13,
2009, unless otherwise indicated herein.
I
tem 1. Business.
General
The
Company
Britton
& Koontz Capital Corporation was organized as a Mississippi business
corporation in July 1982. Later that year, the Company became a
one-bank holding company registered under the Bank Holding Company Act of 1956,
as amended, when it acquired all of the issued and outstanding shares of Britton
& Koontz Bank, National Association, a national banking association
headquartered in Natchez, Mississippi (the “Bank”). The Bank is a
wholly-owned subsidiary of the Company, and stock of the Bank is the Company’s
most significant asset.
The
Company’s major source of income in 2008 was dividends from the Bank in the
amount of $2.8 million. The Company expects that dividends from the
Bank will continue to be the Company’s major source of income in
2009. As of December 31, 2008, the Company had total consolidated
assets of approximately $413 million and total consolidated stockholders’ equity
of approximately $40 million. Financial information about the
Company, including information with respect to revenues from external customers,
profit and loss and total assets for 2008, 2007 and 2006, is contained in Item
8, Financial Statements and Supplementary Data.
The Company has entered into a Trust
Services Agreement with National Independent Trust Company, a national banking
association doing business as Argent Trust Company, headquartered in Ruston,
Louisiana. Effective January 1, 2007, Argent Trust Company assumed
all responsibilities associated with the Bank’s trust services, having been duly
appointed successor trustee for all Bank trust accounts. Argent Trust
Company performs certain fiduciary services for customers transferred from and
referred by the Bank to Argent Trust Company. In return, the
Bank receives a specified percentage of the fee income generated by Argent
Trust Company.
The
Bank
The Bank
provides commercial and consumer banking to customers in Adams and Warren
Counties, Mississippi, and East Baton Rouge Parish, Louisiana, and the adjoining
counties and parishes in Mississippi and Louisiana. The Bank conducts
its full-service banking business from its main office and two branch offices in
Natchez, Adams County, Mississippi, two branches in Vicksburg, Warren County,
Mississippi, and one branch office in Baton Rouge, East Baton Rouge Parish,
Louisiana. The geographical area serviced by the Bank is economically
diverse and includes public and private sector industries, including government
service, manufacturing, tourism, agriculture and oil and gas
exploration. The Bank is not dependent on any one customer or group
of customers in any of its activities, and it has no foreign
operations.
The products and services offered by
the Bank include personal and commercial checking accounts, money market deposit
accounts, savings accounts, automated clearinghouse services, safe deposit box
facilities, and brokerage services. The Bank also offers access to
automated teller machines and cash management services including remote deposit,
money transfer, direct deposit payroll and sweep accounts. The Bank
is a full-service residential and commercial mortgage lender and engages in
other commercial and consumer lending activities, including, among other things,
the issuance of VISA credit cards and letters of
credit.
Income
from the Bank’s lending activities, including loan interest and fees, represent
the largest component of the Bank’s total operating revenue. This
source accounted for 61%, 71% and 71% of the Bank’s total operating revenue
during 2008, 2007 and 2006, respectively, and the Company expects that income
from lending activities will continue in 2009 to be the leading source of income
related to the Bank’s activities. In addition to business and
consumer lending, the bank invests a portion of its total assets in the
securities market in order to earn a higher return compared to overnight
positions. Investment security purchases are monitored closely and
managed on a monthly basis by an asset liability committee comprised of three
non-employee directors along with the Bank’s Chief Executive Officer and Chief
Financial Officer. Investment income represents the second largest
source of revenue for the Bank. For the 2008, 2007 and 2006 fiscal
years, revenue in this segment amounted to 28%, 21% and 20% of the Bank’s total
operating revenue, respectively. The bulk of the remainder of the
Bank’s revenue in each of the last three years was fees related to deposit
services.
Competition
There is
significant competition among banks and bank holding companies in the Bank’s
market areas and throughout Mississippi and Louisiana. The Bank
competes with both national and state banks, savings and loan associations and
credit unions for loans and deposits. The Bank also competes with
large national banks from the principal cities in Louisiana and Mississippi for
certain commercial loans. All of these numerous institutions,
including the Bank, compete in the delivery of products and services on the
basis of availability, quality and pricing. Most institutions track
total deposits as an appropriate measure of penetration in each
market. As of June 30, 2008, the last date such data is available,
the Bank’s market share, in relation to total deposits, was approximately 32.6%
and 4.12% for Adams and Warren Counties in Mississippi, respectively, and .29%
in East Baton Rouge Parish in Louisiana.
The
deregulation of depository institutions as well as the increased ability of
non-banking financial institutions, such as finance companies, investment
companies, insurance companies, brokerage companies and several governmental
agencies, to provide services previously reserved to commercial banks has
further intensified competition. Accordingly, the Bank now competes
with these non-banking financial institutions, all of which are engaged in
marketing various types of loans, commercial paper, short-term obligations,
investments and other services. Because non-banking financial
institutions are not subject to the same regulatory restrictions as banks and
bank holding companies, in many instances they may operate with greater
flexibility. The continued deregulation of the financial services
industry may have a detrimental effect on the Bank’s long-term growth and
profitability.
In
addition to the deregulation of the financial services industry, the increasing
liberalization of the laws and regulations affecting the conduct of interstate
banking activities makes it possible that competition in the Bank’s geographical
market area will increase. If large, regional bank holding companies
acquire branches in the Bank’s market area, they may offer a wider range of
services than are currently offered by the Bank. Some of these
regional competitors may take full advantage of the powers of “financial holding
companies,” as defined in the Gramm-Leach-Bliley Financial Services
Modernization Act of 1999, which is described below in the “Supervision and
Regulation” section of this Item 1. In addition, these competitors
are likely to be better capitalized than the Bank and the Company.
Employees
As of
December 31, 2008, the Company had three full-time employees, who are
also employees of the Bank and compensated by the Bank.
The Bank’s employees
decreased from 102 full-time and 11 part-time
employees at December
31, 2007, to 99 full-time and 11 part-time employees at December 31,
2008. The employees are not represented by a collective bargaining
agreement. The Company believes that its relationship with its
employees is good.
Supervision
and Regulation
General
The
banking industry is extensively regulated under federal and state
law. As a bank holding company, the Company is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and to
supervision by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). Pursuant to the BHCA, the Company may not
directly or indirectly acquire the ownership or control of more than 5% of any
class of voting shares or substantially all of the assets of any other company,
including a bank, without the prior approval of the Federal
Reserve. The BHCA further limits the activities of both the Company
and the Bank to the business of banking and activities closely related or
incidental to banking.
As a
national bank, the Bank is subject to supervision and regular examination by the
Office of the Comptroller of the Currency (the “Comptroller”). The
examinations are undertaken to ensure the protection of the Deposit Insurance
Fund (the “DIF”). In February, 2006, President George W. Bush signed
The Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”) into
law. The Reform Act contains technical and conforming changes to
implement deposit insurance reform, as well as a number of study and survey
requirements. Among the highlights of this law was merging the Bank
Insurance Fund and the Savings Association Insurance Fund into the new
fund. This change was made effective March 31, 2006. The
FDIC maintains the DIF by assessing depository institutions an insurance
premium. The amount each institution is assessed is based on the
balance of the insured deposits as well as on the degree of risk the institution
poses to the insurance fund.
In 1991,
Congress enacted the Federal Deposit Insurance Corporation Improvement Act
(“FDICIA”), which, among other things, substantially revised the depository
institution regulatory and funding provisions of the FDIA. FDICIA
also expanded the regulatory and enforcement powers of bank regulatory
agencies. Most significantly, FDICIA mandates annual examinations of
banks by their primary regulators and requires the federal banking agencies to
take prompt “corrective action” whenever financial institutions do not meet
minimum capital requirements. FDICIA establishes five capital tiers:
“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.” A depository
institution’s capitalization status will depend on how well its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation. As of December 31, 2008, the Bank
maintained a capital level which qualified it as being “well capitalized” under
such regulations.
FDICIA
also prohibits a depository institution from making any capital distribution
(including payment of a dividend) or paying any management fee to its holding
company if the depository institution would thereafter be
“undercapitalized.”
The
banking industry is affected by the policies of the Federal
Reserve. An important function of the Federal Reserve is to regulate
the national supply of bank credit to moderate recessions and to curb
inflation. Among the instruments of monetary policy used by the
Federal Reserve to implement its objectives are: open-market operations in U.S.
Government securities, changes in the discount rate on bank borrowings and
changes in reserve requirements on bank deposits. Changes in any of these
policies can affect how the Bank operates and generates revenues.
Finally,
the Company elected not to participate in the U.S. Treasury Department’s Capital
Purchase Program, which is part of the federal government’s Troubled Asset
Relief Program. Thus, it will not be subject to any of the
regulations enacted (and to be enacted) with respect to such
program. The Company has, however, opted to participate in the FDIC’s
Transaction Account Guarantee Program, which is a part of the FDIC’s Temporary
Liquidity Guarantee Program. Management does not expect that the
regulations the Company is subject to on account of its participation in this
program will have a material effect on the Company’s business or
operations.
Interstate
Banking and Branching Legislation
Federal
Law
. In 1994, Congress passed the Riegle-Neal Interstate
Banking and Branching Efficiency Act (“Riegle-Neal”), which affected the
interstate banking and branching abilities of bank holding companies and
banks. Riegle-Neal authorizes a national bank domiciled in one state
to establish branches in any other state as long as neither state has opted out
of interstate branching between the date of enactment of Riegle-Neal and May 31,
1997. Riegle-Neal, however, does allow states to preserve certain
restrictions on the entry of out-of-state banks, such as the fashion in which
entry can be made, an age requirement for a bank being merged or acquired, and a
deposit cap. Under Riegle-Neal, once a bank has established a branch
in another state, it may exercise the same rights in that state as national and
state banks enjoy in that state, including the ability to branch
intra-state.
Riegle-Neal
also permits states to allow banks to enter the state by establishing a de novo
branch in that state. In order to allow de novo entry into a
particular state, that state’s banking laws must expressly provide for de novo
branching. Once a bank has established a branch in a host state
through de novo branching, it may exercise the same rights in that state as
national and state banks enjoy, including the ability to branch
intra-state. If a state opts out of interstate branching, no bank
domiciled in that state may establish branches in other states, and no bank
domiciled in another state may establish branches in that state.
Mississippi
Law
. On March 29, 1996, the Governor of Mississippi signed
into law a bill in which Mississippi elected to opt in to interstate branching,
effective May 1, 1997. As enacted, the bill (1) allows all
Mississippi banks to establish branches in any other state pursuant to the entry
rules in the potential host state, and (2) allows out-of-state banks to
establish branches in Mississippi pursuant to Mississippi’s entry
rules. The bill does not authorize de novo branching into
Mississippi. An out-of-state bank can establish branches in
Mississippi only by (1) merging with a Mississippi-domiciled bank, (2) buying
all of the assets of a Mississippi-domiciled bank, or (3) buying all of the
assets in Mississippi of an out-of-state bank which has branches in
Mississippi. All interstate branching transactions require
appropriate regulatory approval.
On
December 1, 2000, the Bank acquired its first interstate branch office in Baton
Rouge, Louisiana. Under applicable law, the Bank, with the approval
of the Comptroller, can establish additional de novo branch offices within the
States of Mississippi and Louisiana. The Company from time to time
evaluates merger and acquisition opportunities, as well as opportunities to
establish additional branch offices, and it anticipates that it will continue to
evaluate such opportunities.
Financial
Modernization
The
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLB Act”)
was enacted into law on November 12, 1999. The GLB Act potentially
affects every facet of a depository institution’s operations. The GLB
Act does three fundamental things affecting the banking industry: (a) repeals
key provisions of the Glass-Steagall Act to permit commercial banks to affiliate
with securities firms, insurance companies and other financial service
providers; (b) establishes a statutory framework pursuant to which full
affiliations can occur between these entities; and (c) provides financial
services organizations with flexibility in structuring these new financial
affiliations through a new entity called a “financial holding company” or
through a financial subsidiary.
As a
result of the GLB Act, banks will be able to offer customers a wide range of
financial products and services without the restraints of previous legislation.
In addition, bank holding companies and other financial services providers will
be able to commence new activities or new affiliations much more readily. To
take advantage of the new provisions of the GLB Act, a bank holding company must
elect to become a financial holding company. The Company has elected to become a
financial holding company.
Anti-Money
Laundering
The USA
PATRIOT Act of 2001 contains the International Money Laundering Abatement
and Financial Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA
substantially broadens existing anti-money laundering legislation and the
extraterritorial jurisdiction of the United States, imposes new compliance and
due diligence obligations, creates new crimes and penalties, compels the
production of documents located both inside and outside the United States,
including those of foreign institutions that have a correspondent relationship
in the United States, and clarifies the safe harbor from civil liability to
customers. The U.S. Treasury Department has issued a number of
regulations implementing the USA PATRIOT Act that apply certain of its
requirements to financial institutions such as the Bank. The
regulations impose new obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing. The IMLAFA requires all
“financial institutions,” as defined, to establish anti-money laundering
compliance and due diligence programs. Such programs must include,
among other things, adequate policies, the designation of a compliance officer,
employee training programs, and an independent audit function to review and test
the program. The Company believes that it has complied with the
IMLAFA requirements as currently in effect.
Further
Changes in Regulatory Requirements
The
United States Congress and the Mississippi legislature have periodically
considered and adopted legislation that has adversely affected the profitability
of the banking industry. See “Competition” above. Future
legislation could further modify or eliminate geographic and other business
restrictions on banks and bank holding companies and current prohibitions
affecting other financial institutions, including mutual funds, securities
brokerage firms, insurance companies, banks from other states and investment
banking firms. In addition, the United States in general, and the
financial services industry in particular, is currently experiencing an economic
downturn. It is possible that new legislation (or regulations)
affecting the Company or the Bank will be adopted to address this downturn, or
to address the perceived causes of such downturn. The Company cannot
accurately predict what legislation or regulations might be enacted in the
future and the effects of any such legislation or regulations on the business of
the Company or the Bank.
Restrictions
on Dividends
The
Company is a legal entity separate and distinct from the Bank, and substantially
all of the Company’s revenues result from amounts paid by the Bank, as
dividends, to the Company. The payment of dividends by the Bank is,
of course, dependent upon its earnings and financial condition. The
Bank, however, as a national bank, is also subject to legal limitations on the
amount of its earnings that it may pay as dividends. Under federal
law, the directors of a national bank, after making proper deduction for all
expenses and other deductions required by the Comptroller, may credit net
profits to the Bank’s undivided profits account and may declare a dividend from
that account of so much of the net profits as they judge
expedient. The Comptroller and the Federal Reserve have each
indicated that banking organizations should generally pay dividends only out of
current operating earnings.
Further,
in connection with the Company’s acquisition of Natchez First Federal in 1993,
the Bank assumed a liquidation account of approximately $2.8 million which has
the effect of prohibiting the payment of dividends if the Bank’s net worth would
thereby be reduced below $2.8 million.
Corporate
Governance
The
Sarbanes-Oxley Act of 2002 (the “Sarbanes Act”) requires publicly traded
companies to adhere to several directives designed to prevent corporate
misconduct. Additional duties have been placed on officers,
directors, auditors and attorneys of public companies. The Sarbanes
Act requires certifications regarding financial statement accuracy and internal
control adequacy by the chief executive officer and chief financial officer of
the Company in periodic and annual reports filed with the Securities and
Exchange Commission (the “SEC”). The Sarbanes Act also accelerates
insider reporting obligations under Section 16 of the Securities Exchange Act of
1934, as amended, restricts certain executive officer and director transactions,
imposes new obligations on corporate audit committees and provides for enhanced
review by the SEC.
Item
1A. Risk Factors.
No disclosure is required hereunder as
the Company is a “smaller reporting company,” as defined in Item 10(f) of
Regulation S-K.
I
tem 1B. Unresolved Staff Comments.
Not applicable.
Ite
m 2. Properties.
The
Company has its principal offices in its headquarters building at 500 Main
Street, Natchez, Adams County, Mississippi 39120, which is owned and occupied by
the Bank. The Bank owns the property on four additional branches and
leases the property for one of its branches. In the judgment of
management, the facilities of the Company and the Bank are generally suitable,
adequately insured and provide for the continuing needs of the Company and the
Bank. All branches operated are full service and the list below
describes the locations and general character of the properties owned and leased
by the Company and the Bank:
Location
|
Own/Lease
|
Use
|
Approximate
Office
Space (square feet)
|
Natchez
|
|
|
|
500
Main Street
Natchez,
Mississippi 39120
|
Owned
|
Main
Office
|
33,790
|
411
Highway 61 N.
Natchez,
Mississippi 39120
|
Owned
|
Branch
Office
|
1,671
|
|
|
|
|
55A
Sgt. Prentiss Drive
Natchez,
Mississippi 39120
|
Owned
|
Branch
Office
|
10,720
|
Vicksburg
|
|
|
|
2059
Highway 61 N.
Vicksburg,
Mississippi 39183
|
Owned
|
Branch
Office
|
3,050
|
|
|
|
|
2150
S. Frontage Road
Vicksburg,
Mississippi 39180
|
Owned
|
Branch
Office
|
4,570
|
Baton
Rouge
|
|
|
|
8810
Bluebonnet
Suites
A & B
Baton
Rouge, Louisiana 70810
|
Lease
|
Branch
Office
|
5,112
|
The lease for the Company’s branch
located at 8810 Bluebonnet Boulevard, in Baton Rouge, Louisiana is for a ten
year period, which commenced October 1, 2003.
Ite
m 3. Legal Proceedings.
The
Company and the Bank are currently not involved in any material pending legal
proceedings.
Ite
m 4. Submission of Matters to a Vote of Security
Holders.
There
were no matters submitted to the Company’s shareholders during the fourth
quarter of 2008.
PART II
Item 5.
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Information
Regarding our Common Stock
The Company’s common stock is listed on
The NASDAQ Capital Market (“NASDAQ”), and trades under the symbol
“BKBK.” The table below sets forth dividends per share and the high
and low sales price ranges for the common stock, as reported by NASDAQ, for the
last two fiscal years
.
|
Dividends
Per
Share
|
|
High
|
|
Low
|
2008
|
|
|
|
|
|
4th
Quarter
|
$ .18
|
|
$13.49
|
|
$10.10
|
3rd
Quarter
|
.18
|
|
16.00
|
|
11.05
|
2nd
Quarter
|
.18
|
|
16.40
|
|
12.00
|
1st
Quarter
|
.18
|
|
18.00
|
|
15.32
|
|
|
|
|
|
|
|
Dividends
Per
Share
|
|
High
|
|
Low
|
2007
|
|
|
|
|
|
4th
Quarter
|
$ .18
|
|
$17.69
|
|
$15.55
|
3rd
Quarter
|
.18
|
|
17.99
|
|
15.90
|
2nd
Quarter
|
.18
|
|
19.67
|
|
17.75
|
1st
Quarter
|
.18
|
|
20.50
|
|
18.56
|
|
|
|
|
|
|
On March 13, 2009, there were 472
shareholders of record of the Company’s common stock, and the price of the
Company’s common stock was $9.21.
Historically the Company has declared
dividends on a quarterly basis. Funds for the payment of cash dividends are
obtained from dividends received by the Company from the
Bank. Accordingly, the declaration and payment of cash dividends by
the Company depends upon the Bank’s earnings, financial condition, general
economic conditions, compliance with regulatory requirements and other
factors. Restrictions on the Bank’s ability to transfer funds to the
Company in the form of cash dividends exist under federal and state law and
regulations. See Note N, “Regulatory Matters”, in the Notes to the
Consolidated Financial Statements of the Company in Item 8, Financial Statements
and Supplementary Data, for a discussion of these restrictions. These
restrictions do not, and are not expected in the future to, materially limit the
Company’s ability to pay dividends to its shareholders.
Please
refer to the information under “Equity Compensation Plan Information” in Item
12, Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, for a discussion of the securities authorized for issuance
under the Company’s equity compensation plans.
The
Company did not repurchase any equity securities during the 4
th
quarter
of 2008.
Item
6. Selected Financial Data.
No disclosure is required hereunder as
the Company is a “smaller reporting company,” as defined in Item 10(f) of
Regulation S-K.
Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
This discussion presents a review of
the major factors that have affected the financial condition, changes in
financial condition and results of operations of Britton & Koontz Capital
Corporation (the “Company”) and its subsidiaries, principally Britton &
Koontz Bank, N.A. (the “Bank”), as of and for the three years ended December 31,
2008.
Summary
In 2008, the Company reported net income of $3.5 million, or $1.65 per basic and
diluted share, representing an increase of 16.5%, or $497 thousand, compared to
net income of $3.0 million, or $1.42 per basic and diluted share, reported at
December 31, 2007, and a 2.1% decrease compared to net income of $3.6 million,
or $1.69 per basic and diluted share, reported at December 31,
2006. Return on average equity for the years 2008, 2007 and 2006 was
9.57%, 8.80% and 11.10%, respectively. Net interest margins remained
relatively stable at 3.82% at December 31, 2008, 3.82% at December 31, 2007 and
3.78% at December 31, 2006. The Company’s asset quality declined in
2008, primarily as a result of the effects of the economic downturn affecting
the United States as a whole and the local markets in which we
operate. Further, we expect that the actions the Company will be
required to take in 2009 to maintain an adequate allowance for loan losses and
otherwise to address asset quality issues will have a greater impact on the
Company’s earnings in 2009 than in prior periods. Finally, the
Company decided not to participate in the U.S. Treasury Department’s Capital
Purchase Plan, which is part of the federal government’s Troubled Asset Relief
Program. After discussions with our Board of Directors, we concluded
that, because of the costs and restrictions associated with the plan, as well as
our strong capital position, participation was not in the best interest of the
Company or its shareholders.
We believe that the Company’s current levels of capital as well as its
conservative track record of loan growth should provide us with the necessary
financial strength to weather the economic downturn currently affecting our
local economies and the United States economy as a whole while continuing to
engage in prudent lending activity and to expand our franchise in 2009,
particularly in the Baton Rouge, Louisiana market.
Financial
Condition
Earning
Assets
During
2008, total assets increased $45 million to $413 million at December 31, 2008,
compared to $368 million at December 31, 2007. The change is due
primarily to increases in the investment portfolio as the Company experienced
wider interest rate spreads in the credit markets in 2008. During
2007, total assets of $368 million were stable compared to $369 million at
December 31, 2006. Investment portfolio increases were offset by loan
declines from 2006 to 2007.
Average Earning
Assets.
Interest income from earning assets represents the
Company’s main source of revenue. Average earning assets for the year
ended December 31, 2008, totaled $367 million, a $17 million, or 5%, increase
compared to December 31, 2007. The increase was due to the Company’s
purchase of investment securities which grew average investment securities
by $32 million. These increases were offset by decreases in average
loans of $12 million. Average earning assets for the period ended
December 31, 2006, totaled $357 million. The average earning asset
mix shifted during 2008 compared to 2007. In 2008, loans comprised
61% of average earning assets compared to 68% in 2007, while investments
increased to 38% of average earning assets from 31% in 2007. The
balance, in short-term funds, remained relatively unchanged.
Investment Securities.
The Company’s securities at
December 31, 2008, consist primarily of mortgage-backed securities, municipal
investments and equity securities. Securities deemed to be
held-to-maturity (“HTM”) are accounted for by the amortized cost method and
represented approximately 32% of total securities at December 31,
2008. Securities designated as available-for-sale (“AFS”) are
accounted for at fair value with valuation adjustments recorded in the equity
section of the Company’s balance sheet through other comprehensive
income/(loss). AFS securities comprised approximately 66% of total
investment securities at December 31, 2008. There were no securities
categorized as trading at December 31, 2008. Equity securities
accounted for the remaining 2%. Classification of securities is
determined at acquisition.
In 2006, the flat interest rate yield curve discouraged reinvestment of cash
flows from investment securities; instead, these cash flows were used to reduce
borrowings. However, as the loan portfolio contracted in 2007, and
changes to the interest rate yield curve made purchases of investment securities
more attractive, the Company directed these cash flows back into
securities. Reinvestment and pre-funding of current and future cash
flows continued in 2008. The Company also used borrowings from
the Federal Home Loan Bank (the “FHLB”) to facilitate its purchases of
investment securities. Total investment securities increased $45
million, or 36%, to $171 million at December 31, 2008, from $126 million at
December 31, 2007 and $107 million at December 31, 2006.
In the first quarter of 2008, the
Company sold its portfolio of approximately $20 million in trading securities at
a gain of $148 thousand. Proceeds from the sale of these securities
were used to pay down borrowed funds and callable brokered
deposits. Remaining proceeds were reinvested in HTM
securities. The Company does not currently intend to classify any
securities purchased in the future as trading.
Equity securities at December 31, 2008, are comprised primarily of Federal
Reserve Bank stock of $522 thousand, FHLB stock of $3.2 million, the Company’s
$155 thousand interest in its B&K Bank Statutory Trust and ECD Investments,
LLC membership interests of $99 thousand. These securities increased
$1.5 million to $4.0 million in 2008 from $2.5 million in 2007, primarily due to
the purchase of additional FHLB stock. The securities decreased $1.8
million to $2.5 million at December 31, 2007, from $4.3 million at December 31,
2006, primarily due to mandatory redemptions of FHLB stock.
The
amortized cost of the Bank’s investment securities at December 31, 2008, 2007
and 2006, are summarized below:
|
|
|
|
|
Amortized
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
Obligations
of other U.S. Government
|
|
|
|
|
|
|
|
|
|
Agencies
and Corporations
|
|
$
|
123,834,755
|
|
|
$
|
84,741,030
|
|
|
$
|
68,015,850
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
|
39,529,246
|
|
|
|
38,004,634
|
|
|
|
36,175,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
163,364,001
|
|
|
$
|
122,745,664
|
|
|
$
|
104,191,430
|
|
The amortized cost and approximate market value of the Company’s investment debt
securities (including mortgage-backed securities) at December 31, 2008, by
contractual maturity, is set forth in Note B, “Investment Securities,” in the
Notes to the Consolidated Financial Statements of the Company, in Item 8,
Financial Statements and Supplementary Data.
Loans.
Loans represent the Company’s largest source of
revenue. Total loans at December 31, 2008, were $225.5 million, an
increase of $2.2 million compared to December 31, 2007. Total loans
at December 31, 2007 were $223.4 million, a decrease of $20.2 million compared
to December 31, 2006. Loan balances increased from 2007 to 2008 in
commercial loans and home equity lines of credit by $9.7 million and $1.4
million, respectively. The increases were offset by declines of $9.2
million and $1.9 million in the Company’s 1-4 family residential and installment
lending areas.
Other than in the Company’s Baton Rouge, Louisiana market, demand for loans from
both businesses and households continued to weaken in 2008. Loan
growth in the Company’s Baton Rouge market, which is the Company’s primary
growth market, was $14 million in 2008, compared to $11 million of loan growth
in 2007. Total loans in Baton Rouge were approximately $111 million
at December 31, 2008, compared to $97 million at December 31, 2007 and $85
million at December 31, 2006. Total loans in the Natchez, Mississippi
market declined $9 million and ended December 31, 2008, at $82 million compared
to $91 million in 2007 and $89 million at December 31, 2006. Total
loans in the Vicksburg, Mississippi market declined to $29 million at December
31, 2008, compared to $33 million at December 31, 2007 and $42 million at
December 31, 2006.
The total 1-4 family residential
portfolio declined $9 million during 2008. The Company generally does
not hold these loans in its loan portfolio. Rather, the Company
focuses on originating 1-4 family residential mortgage loans that can be sold in
the secondary market. As a result, its existing portfolio of
residential loans has continued to liquidate during 2008. Total
residential loans originated and sold during 2008 were $24 million, down
slightly from $26 million in 2007.
In 2009, loan growth in the Baton
Rouge market is expected to lessen as economic activity throughout our markets
and the United States as a whole continues to contract. Maintaining
the present level of loans in the Natchez and Vicksburg markets will be a
challenge for the Company in light of worsening economic
conditions.
The composition of the Bank’s loan
portfolio, including loans held for sale, at the end of the last five years is
presented below. The Company has no foreign loan
activities.
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
|
12/31/04
|
|
Commercial,
financial and agricultural
|
|
$
|
25,128,000
|
|
|
$
|
25,884,000
|
|
|
$
|
28,385,000
|
|
|
$
|
32,868,000
|
|
|
$
|
31,589,000
|
|
Real
estate-construction
|
|
|
30,910,000
|
|
|
|
45,097,000
|
|
|
|
44,592,000
|
|
|
|
30,069,000
|
|
|
|
18,360,000
|
|
Real
estate-residential
|
|
|
74,923,000
|
|
|
|
72,438,000
|
|
|
|
83,256,000
|
|
|
|
98,488,000
|
|
|
|
92,889,000
|
|
Real
Estate-other
|
|
|
88,341,000
|
|
|
|
72,123,000
|
|
|
|
76,473,000
|
|
|
|
70,875,000
|
|
|
|
63,685,000
|
|
Installment
|
|
|
6,038,000
|
|
|
|
7,550,000
|
|
|
|
10,680,000
|
|
|
|
12,478,000
|
|
|
|
14,229,000
|
|
Other
|
|
|
171,000
|
|
|
|
261,000
|
|
|
|
203,000
|
|
|
|
306,000
|
|
|
|
249,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
225,511,000
|
|
|
$
|
223,353,000
|
|
|
$
|
243,589,000
|
|
|
$
|
245,084,000
|
|
|
$
|
221,001,000
|
|
The following table sets forth as of December 31, 2008, (1) the periods in which
the Bank’s commercial, financial and agricultural loans and its real
estate-construction loans mature or reprice and (2) the total amount of all such
loans due after one year having (a) predetermined interest rates and (b)
floating or adjustable rates. Loan maturities are based upon contract
terms and specific maturity dates. Loans with balloon payments and
longer amortizations are often repriced and extended beyond the initial maturity
when credit conditions remain satisfactory. Demand loans, loans with
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less.
|
|
|
|
|
Due
after
|
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
one
year
|
|
|
|
|
|
|
|
|
|
one
year
|
|
|
through
|
|
|
Due
after
|
|
|
|
|
|
|
or
less
|
|
|
five
years
|
|
|
five
years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial and agricultural
|
|
$
|
15,844,000
|
|
|
$
|
9,201,000
|
|
|
$
|
83,000
|
|
|
$
|
25,128,000
|
|
Real
estate-construction
|
|
|
27,043,000
|
|
|
|
3,686,000
|
|
|
|
181,000
|
|
|
|
30,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,887,000
|
|
|
$
|
12,887,000
|
|
|
$
|
264,000
|
|
|
$
|
56,038,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined
interest rates
|
|
|
|
|
|
$
|
12,861,000
|
|
|
$
|
264,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
or adjustable interest rates
|
|
|
|
|
|
$
|
26,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality
Management continually monitors the diversification of the loan portfolio
and assesses loan quality. When the assessment of an individual loan
relationship indicates that the borrower has a defined weakness in the ability
to repay and collection of all outstanding principal and/or interest is in
doubt, the debt is placed on non-accrual. By placing loans on non-accrual
the Company recognizes a problem credit, foregoes interest that is likely
uncollectible, and adjusts the carried loan balance to reflect the collection
amount expected. When problem credits are transferred to non-accrual
status, the accrual of interest income is discontinued and all previously
accrued and uncollected interest for the year is reversed against interest
income. A non-accrual loan may be restored to accrual status when it
is no longer delinquent and management no longer doubts the collectibility of
interest and principal.
Several key measures are used to evaluate and monitor the Company’s asset
quality. These measures include the levels and percentages of total
nonperforming assets, loan delinquencies, non-accrual loans, foreclosed assets
and charge-offs. Nonperforming assets, consisting of non-accrual
loans, loans past due 90 days or more and other real estate owned, increased to
$5.0 million at December 31, 2008, compared to $2.1 million at December 31, 2007
and $2.7 million at December 31, 2006. Non-performing assets as a
percent of average assets increased to 1.31% in 2008 compared to .56% in 2007
and .71% in 2006. Nonperforming loans as a percent of total loans,
net of unearned income and loans held for sale, increased to 1.81% at December
31, 2008, compared to .59% at December 31, 2007 and 2006. Net
charge-offs as a percent of average loans increased to .34% at December 31,
2008, from .15% at December 31, 2007 and .21% at December 31, 2006.
Despite
these increases, management believes that the Company’s asset quality exceeds
industry and peer levels, based on FDIC year-end call report
data.
The increase in nonperforming assets, consisting of loans 90 days past due,
nonaccrual loans, and other real estate, in 2008 is generally due to the
deepening national recession and the decline of economic activity in the
Company’s markets. The majority of the Company’s nonperforming assets
are located in the Natchez and Vicksburg markets, where the impact of the
recession has been greater as compared to the Company’s Baton Rouge
market. Of the $4.1 million in nonaccrual and loans 90 days past
due at December 31, 2008, approximately 80% were concentrated in the
Company’s Mississippi markets.
A
breakdown of nonperforming loans at the end of each of the last five years is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
|
12/31/04
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual
loans by type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
$
|
3,364
|
|
|
$
|
992
|
|
|
$
|
829
|
|
|
$
|
413
|
|
|
$
|
532
|
|
Installment
|
|
|
86
|
|
|
|
87
|
|
|
|
13
|
|
|
|
72
|
|
|
|
26
|
|
Commercial
and all other loans
|
|
|
118
|
|
|
|
223
|
|
|
|
351
|
|
|
|
574
|
|
|
|
214
|
|
Total
non-accrual loans
|
|
|
3,568
|
|
|
|
1,302
|
|
|
|
1,193
|
|
|
|
1,059
|
|
|
|
772
|
|
Loans
past due 90 days or more
|
|
|
518
|
|
|
|
12
|
|
|
|
232
|
|
|
|
201
|
|
|
|
129
|
|
Total
nonperforming loans
|
|
|
4,086
|
|
|
|
1,314
|
|
|
|
1,425
|
|
|
|
1,260
|
|
|
|
901
|
|
Other
real estate owned (net)
|
|
|
919
|
|
|
|
747
|
|
|
|
1,257
|
|
|
|
1,471
|
|
|
|
1,320
|
|
Total
nonperforming assets
|
|
$
|
5,005
|
|
|
$
|
2,061
|
|
|
$
|
2,682
|
|
|
$
|
2,731
|
|
|
$
|
2,221
|
|
Nonperforming
loans as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
loans, net of unearned interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
loans held for sale
|
|
|
1.81
|
%
|
|
|
.59
|
%
|
|
|
.59
|
%
|
|
|
.51
|
%
|
|
|
.41
|
%
|
Additional
interest income foregone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
non-accrual loans
|
|
$
|
191
|
|
|
$
|
36
|
|
|
$
|
31
|
|
|
$
|
24
|
|
|
$
|
38
|
|
Loan
classification is an on-going, dynamic process, and the migration of loans into
an impaired status cannot be predicted with total accuracy, especially in light
of the current economic climate in the United States. As of
December 31, 2008, the table above reflects all loans that the Company had
doubts as to the ability of the borrower to comply with current repayment
terms. However, subsequent to year end, one commercial credit in the
amount of $2.8 million was added to nonperforming loans. There were
no loans in any of the reported periods above classified as “troubled debt
restructurings” as defined in Statement of Financial Accounting Standards No.
15, “Accounting by Debtors and Creditors for Troubled Debt
Restructurings.” As of December 31, 2008, if non-accrual loans had been
current in accordance with their terms, interest in the amount of approximately
$191,000 would have accrued on such loans. Approximately $158,000 in
interest income on such loans was included in net income for 2008.
In 2009, the economic environment in the Company’s three markets is expected to
continue to contract, or at least remain flat, in keeping with national
trends. Thus far in 2009, the Company has seen additional increases
in its nonperforming assets, primarily in the Mississippi
markets. One commercial credit in the amount of $2.8 million was
added to nonperforming loans in 2009. This credit is located in our
Vicksburg, Mississippi market. Collection efforts on problem credits have
been vigorous, but resolution of loans secured by real estate has been impeded
by the decreasing demand and falling prices for both commercial and residential
real estate. The Company expects these circumstances to persist
throughout 2009. While asset quality has deteriorated since year-end,
overall problem loan levels in the present environment remain relatively low for
the Company, while its capital is very strong.
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated through a
provision for loan losses charged against operations and is maintained at a
level that management considers adequate to absorb losses in the loan
portfolio. The allowance is subject to change as management
re-evaluates the adequacy of the allowance on a quarterly
basis. Management’s judgment in determining the adequacy of the
allowance is inherently subjective and is based on the evaluation of individual
loans, the known and inherent risk characteristics and size of the loan
portfolios, the assessment of current economic and real estate market
conditions, estimates of the current value of underlying collateral, past loan
loss experience, review of regulatory authority examination reports and
evaluations of specific loans and other relevant factors. The
Bank risk rates each loan at the initiation of the transaction and risk ratings
are reviewed and changed, when necessary, during the life of the
loan.
The
allowance consists of specific, general and unallocated
components. Loan loss reserve factors are multiplied against the
balances in each risk rating category to arrive at the appropriate level for the
allowance for loan losses. Loans assigned higher risk ratings are monitored more
closely by management. The specific component relates to loans that
are considered impaired. The general component of the allowance for
loan losses groups loans with similar characteristics and allocates a percentage
based upon historical losses and the inherent risks within each
category. The unallocated portion of the allowance reflects
management’s estimate of probable but undetected losses inherent in the
portfolio; such estimates are influenced by uncertainties in economic
conditions, delays in obtaining information, including unfavorable information
about a borrower’s financial condition, difficulty in identifying triggering
events that correlate to subsequent loss rates, and risk factors that have not
yet manifested themselves in loss allocation factors. The methodology
for determining the adequacy of the allowance for loan losses is consistently
applied; however, revisions may be made to the methodology and assumptions based
on historical information related to charge-off and recovery experience and
management’s evaluation of the current loan portfolio.
The Company increased the
allowance for probable loan losses by $730 thousand in 2008, which nearly
offset net charge-offs of $763 thousand for 2008. The $730 thousand
in provision expense included an additional $250 thousand in the fourth quarter
of 2008 to maintain the overall adequacy of the allowance for loan losses, which
ended December 31, 2008, 2007 and 2006 at 1.06%, 1.09% and .96% of loans,
respectively. At December 31, 2008, management believed the allowance
for loan losses of $2.4 million, which equals 1.06% of gross loans held to
maturity, was adequate, under prevailing economic conditions, to absorb probable
losses on existing loans.
Since
year end, further increases in nonperforming assets have prompted management to
increase its provisioning to maintain the adequacy of the allowance
account.
At December 31, 2008,
total reserves included specific reserves of $669 thousand, general reserves of
$1.2 million and unallocated reserves of $500 thousand. At
December 31, 2007, the allowance for loan losses was
$2.4 million, or 1.09%, of gross loans held to maturity, which was composed
of specific reserves of $948 thousand, general reserves of $1.0 million and
unallocated reserves of $483 thousand. At December 31, 2006, the
allowance for loan losses was $2.3 million, or .96%, of gross loans held to
maturity, which was composed of specific reserves of $603 thousand, general
reserves of $1.3 million and unallocated reserves of $489 thousand.
Activity in the
allowance for loan losses for the last five years is presented
below.
(Dollars
in thousands)
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
|
12/31/04
|
|
Balance
at beginning of year
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
|
$
|
2,237
|
|
|
$
|
2,070
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial & agricultural
|
|
|
(541
|
)
|
|
|
(87
|
)
|
|
|
(571
|
)
|
|
|
(54
|
)
|
|
|
(108
|
)
|
Real
Estate-construction
|
|
|
(166
|
)
|
|
|
(25
|
)
|
|
|
(3
|
)
|
|
|
(0
|
)
|
|
|
(22
|
)
|
Real
Estate-residential
|
|
|
(410
|
)
|
|
|
(257
|
)
|
|
|
(5
|
)
|
|
|
(40
|
)
|
|
|
(29
|
)
|
Real
Estate-other
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(109
|
)
|
|
|
(62
|
)
|
Installment
and other
|
|
|
(39
|
)
|
|
|
(136
|
)
|
|
|
(64
|
)
|
|
|
(48
|
)
|
|
|
(47
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial & agricultural
|
|
|
190
|
|
|
|
110
|
|
|
|
26
|
|
|
|
22
|
|
|
|
23
|
|
Real
Estate-construction
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Real
Estate-residential
|
|
|
83
|
|
|
|
5
|
|
|
|
26
|
|
|
|
22
|
|
|
|
0
|
|
Real
Estate-other
|
|
|
34
|
|
|
|
-
|
|
|
|
51
|
|
|
|
14
|
|
|
|
3
|
|
Installment
and other
|
|
|
87
|
|
|
|
39
|
|
|
|
31
|
|
|
|
34
|
|
|
|
17
|
|
Net
(charge-offs) / recoveries
|
|
|
(763
|
)
|
|
|
(353
|
)
|
|
|
(509
|
)
|
|
|
(159
|
)
|
|
|
(223
|
)
|
Provision
charged to operations
|
|
|
730
|
|
|
|
440
|
|
|
|
475
|
|
|
|
300
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of year
|
|
$
|
2,398
|
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
|
$
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
loans, net of unearned interest and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
held for sale
|
|
|
1.06
|
%
|
|
|
1.09
|
%
|
|
|
.96
|
%
|
|
|
.97
|
%
|
|
|
1.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs as a percent of average loans
|
|
|
.34
|
%
|
|
|
.15
|
%
|
|
|
.21
|
%
|
|
|
.07
|
%
|
|
|
.10
|
%
|
In establishing the amounts of
provision for each year charged to operating expense, management uses the basic
methodologies described above. The allocation of the allowance for
loan losses applicable to each loan category for the previous five years is
presented below. Approximately $300 thousand of unallocated reserves
is included in the other category as of December 31, 2008.
|
|
Amounts
as of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
$
|
536
|
|
|
$
|
473
|
|
|
$
|
426
|
|
|
$
|
502
|
|
|
$
|
452
|
|
Real
estate-construction
|
|
|
241
|
|
|
|
265
|
|
|
|
187
|
|
|
|
77
|
|
|
|
60
|
|
Real
estate-residential
|
|
|
225
|
|
|
|
353
|
|
|
|
248
|
|
|
|
162
|
|
|
|
149
|
|
Real
Estate-other
|
|
|
842
|
|
|
|
735
|
|
|
|
663
|
|
|
|
787
|
|
|
|
764
|
|
Installment
|
|
|
247
|
|
|
|
335
|
|
|
|
331
|
|
|
|
354
|
|
|
|
361
|
|
Other
|
|
|
307
|
|
|
|
270
|
|
|
|
489
|
|
|
|
496
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
2,398
|
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
|
$
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of loans in each category to total loans
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
11.14
|
%
|
|
|
11.59
|
%
|
|
|
11.65
|
%
|
|
|
13.41
|
%
|
|
|
14.29
|
%
|
Real
estate-construction
|
|
|
13.71
|
|
|
|
20.19
|
|
|
|
18.31
|
|
|
|
12.27
|
|
|
|
8.31
|
|
Real
estate-residential
|
|
|
33.22
|
|
|
|
32.29
|
|
|
|
34.18
|
|
|
|
40.18
|
|
|
|
42.03
|
|
Real
Estate-other
|
|
|
39.17
|
|
|
|
32.43
|
|
|
|
31.40
|
|
|
|
28.92
|
|
|
|
28.82
|
|
Installment
|
|
|
2.68
|
|
|
|
3.38
|
|
|
|
4.38
|
|
|
|
5.09
|
|
|
|
6.44
|
|
Other
|
|
|
.08
|
|
|
|
.12
|
|
|
|
.08
|
|
|
|
.13
|
|
|
|
.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Real Estate
The
balance of other real estate (ORE) increased $172 thousand to $919 thousand in
2008 from $747 thousand in 2007. The ORE balance was $1.3 million at
December 31, 2006. Activity during 2008, set forth below, includes
write-downs/reserves of $140 thousand, proceeds from sales of $990 thousand and
foreclosures of $1.3 million. The balance at December 31, 2008,
included one residential property and one commercial real estate property, both
of which are located in Mississippi. As reflected in the table below,
liquidation of ORE properties largely kept pace with new additions in
2008.
Balance
at December 31, 2007
|
|
|
|
|
$
|
747
|
|
Write-downs/Reserves
|
|
|
(140
|
)
|
|
|
|
|
Proceeds
from sales, net of gains and losses
|
|
|
(990
|
)
|
|
|
|
|
Foreclosures
|
|
|
1,302
|
|
|
|
172
|
|
Balance
at December 31, 2008
|
|
|
|
|
|
$
|
919
|
|
Funding
Deposits.
Deposits
are the Company’s primary source of funding for earning assets. Total
deposits increased to $257 million at December 31, 2008, compared to $246
million at December 31, 2007, and $254 million at December 31,
2006. Non-interest bearing deposits increased to $51 million at
December 31, 2007 compared to $47 million at December 31, 2007, and $50 million
at December 31, 2006.
The
increase in deposits in 2008 was primarily due to a favorable bid with the
Natchez Adams County School System which added $25 million in
deposits. This increase was offset by declines in other wholesale
funding avenues such as higher cost Jumbo and Brokered Certificate of Deposits
which are considered non-core deposits. During 2008, deposits that
the Bank considers core deposits increased approximately $3.8
million.
The Company maintains wholesale deposit funding sources to provide additional
liquidity if necessary. The Company belongs to a network that allows
access to national deposits and has the ability to gather these deposits as
needed. It also has joined the Certificate of Deposit Account
Registry Service (“CDARS”), a deposit placement network. Deposits in
the CDARS program are federally insured and are considered
brokered. These deposits have remained relatively stable over the
past three years ending at $8.5 million at December 31, 2008, $8.8 million at
December 31, 2007, and $8.3 million at December 31, 2006.
Maturities of certificates of deposits of $100,000 or more at December 31, 2008,
and 2007, are summarized below.
|
|
12/31/08
|
|
|
12/31/07
|
|
Time
remaining until maturity:
|
|
|
|
|
|
|
Three
months or less
|
|
$
|
21,104,104
|
|
|
$
|
13,693,963
|
|
Over
three through six months
|
|
|
10,266,988
|
|
|
|
16,183,305
|
|
Over
six through twelve months
|
|
|
12,796,081
|
|
|
|
18,119,579
|
|
Over
twelve months
|
|
|
3,417,858
|
|
|
|
4,210,503
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,585,031
|
|
|
$
|
52,207,350
|
|
|
|
|
|
|
|
|
|
|
Deposits
at December 31, 2008, 2007 and 2006, consist of the following:
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing demand deposits
|
|
$
|
51,119,827
|
|
|
$
|
47,305,927
|
|
|
$
|
50,345,279
|
|
NOW
accounts
|
|
|
48,338,323
|
|
|
|
24,056,081
|
|
|
|
24,555,009
|
|
Money
market deposit accounts
|
|
|
33,662,518
|
|
|
|
34,449,399
|
|
|
|
37,101,457
|
|
Savings
accounts
|
|
|
17,736,516
|
|
|
|
17,310,284
|
|
|
|
18,082,839
|
|
Certificates
of deposit
|
|
|
106,357,236
|
|
|
|
123,272,459
|
|
|
|
123,672,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,214,420
|
|
|
$
|
246,394,150
|
|
|
$
|
253,757,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings.
In addition to the deposit base described
above, the Company utilizes short and long-term borrowings as an additional
funding source. Short-term borrowings include overnight funding
through established lines of credit with correspondent banks, customer
repurchase agreements and advances maturing in one year or less from the
FHLB. The Company collateralizes short-term funding from the FHLB
with a portion of the Bank’s one-to-four family residential mortgage portfolio,
certain secured commercial loans and certain investment securities in accordance
with the Advance Security and Collateral Agreement with the FHLB.
Also included in short-term
borrowings are the Company’s junior subordinated debentures. See Note I,
“Borrowings,” in the Notes to the Consolidated Financial Statements of the
Company, in Item 8, Financial Statements and Supplementary
Data. These instruments have a quarterly call feature that began in
March 2008 and are included in short-term borrowings at December 31, 2008 and
December 31, 2007. The Company will consider calling the debentures
if it determines they are not needed as a capital base to support the asset
growth of the Company.
Total short-term borrowings at December 31, 2008, 2007 and 2006 are presented
below:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Year-end
balance
|
|
$
|
71,563,000
|
|
|
$
|
39,964,000
|
|
|
$
|
39,393,000
|
|
Maximum
month-end balance
|
|
|
86,688,000
|
|
|
|
67,385,000
|
|
|
|
49,510,000
|
|
Year
to date average balance
|
|
|
60,190,000
|
|
|
|
50,488,000
|
|
|
|
38,091,000
|
|
Weighted
average rate
|
|
|
2.39
|
%
|
|
|
5.07
|
%
|
|
|
4.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
provides information regarding our short-term FHLB borrowings for 2008, 2007 and
2006.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Year-end
balance
|
|
$
|
54,929,000
|
|
|
$
|
26,735,000
|
|
|
$
|
26,244,000
|
|
Maximum
month-end balance
|
|
|
68,864,000
|
|
|
|
48,153,000
|
|
|
|
34,493,000
|
|
Year
to date average balance
|
|
|
44,533,000
|
|
|
|
36,378,000
|
|
|
|
27,255,000
|
|
Weighted
average rate
|
|
|
1.98
|
%
|
|
|
4.67
|
%
|
|
|
4.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings in 2006 of $40 million primarily consisted of advances from the FHLB
with a maturity date greater than one year from the reporting
period. The longer-term funding sources during 2007 were Structured
Repurchase Agreements with JPMorgan Chase Bank, N.A. which ended the year at $42
million. The Company continued this long-term debt structure into
2008 ending the year at $40 million. The purpose of the realignment
of the long-term borrowings into these agreements was to provide leverage of
capital and a measure of protection against rising interest rates beyond a one
year range. See Note M, “Securities Sold Under Repurchase Agreements”
in the Notes to the Consolidated Financial Statements.
Average
Balances and Yield Analysis
The following table presents the Bank’s average balance sheets during 2008, 2007
and 2006. Dividing income or expense by the average balance of assets
and liabilities, respectively, derives yields and costs. Average
non-accrual loans of $2.5 million, $1.4 million and $949 thousand at December
31, 2008, 2007 and 2006, respectively, are included in loans for yield
computations. Loan fees and late charges in the amount of
approximately $956 thousand for 2008, $841 thousand for 2007 and $1.1 million
for 2006 are included in both income and yield computations in
loans. Income and expense resulting from interest rate caps and swaps
used to manage interest rate risk are included appropriately in loans and
certificates of deposit. No tax-equivalent adjustments have been
made. All averages are derived from monthly average
balances.
|
Average
Balances and Yield Analysis
|
|
|
(dollars
in thousands)
|
|
|
|
Twelve
Months Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
225,633
|
|
|
$
|
15,713
|
|
|
|
6.96
|
%
|
|
$
|
237,512
|
|
|
$
|
19,010
|
|
|
|
8.00
|
%
|
|
$
|
242,910
|
|
|
$
|
18,443
|
|
|
|
7.59
|
%
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Backed Securities
|
|
|
98,987
|
|
|
|
5,234
|
|
|
|
5.29
|
%
|
|
|
67,345
|
|
|
|
3,514
|
|
|
|
5.22
|
%
|
|
|
66,425
|
|
|
|
3,045
|
|
|
|
4.58
|
%
|
State
& municipal-non taxable
|
|
|
37,341
|
|
|
|
1,668
|
|
|
|
4.47
|
%
|
|
|
36,367
|
|
|
|
1,654
|
|
|
|
4.55
|
%
|
|
|
35,146
|
|
|
|
1,641
|
|
|
|
4.67
|
%
|
State
& municipal-taxable
|
|
|
945
|
|
|
|
57
|
|
|
|
6.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Other
|
|
|
3,086
|
|
|
|
94
|
|
|
|
3.05
|
%
|
|
|
4,959
|
|
|
|
271
|
|
|
|
5.47
|
%
|
|
|
10,887
|
|
|
|
479
|
|
|
|
4.40
|
%
|
Total
investment securities
|
|
|
140,359
|
|
|
|
7,054
|
|
|
|
5.03
|
%
|
|
|
108,671
|
|
|
|
5,439
|
|
|
|
5.01
|
%
|
|
|
112,458
|
|
|
|
5,166
|
|
|
|
4.59
|
%
|
Interest
bearing bank balances
|
|
|
1,026
|
|
|
|
27
|
|
|
|
2.62
|
%
|
|
|
3,045
|
|
|
|
140
|
|
|
|
4.61
|
%
|
|
|
1,435
|
|
|
|
69
|
|
|
|
4.83
|
%
|
Federal
funds sold
|
|
|
218
|
|
|
|
5
|
|
|
|
2.17
|
%
|
|
|
306
|
|
|
|
15
|
|
|
|
4.86
|
%
|
|
|
604
|
|
|
|
30
|
|
|
|
4.91
|
%
|
Total
earning assets
|
|
|
367,236
|
|
|
|
22,799
|
|
|
|
6.21
|
%
|
|
|
349,534
|
|
|
|
24,605
|
|
|
|
7.04
|
%
|
|
|
357,407
|
|
|
|
23,708
|
|
|
|
6.63
|
%
|
Allowance
for loan losses
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,440
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,444
|
)
|
|
|
|
|
|
|
|
|
Cash
& due from banks, non-interest bearing
|
|
|
5,968
|
|
|
|
|
|
|
|
|
|
|
|
6,435
|
|
|
|
|
|
|
|
|
|
|
|
7,419
|
|
|
|
|
|
|
|
|
|
Bank
premises & equipment
|
|
|
7,067
|
|
|
|
|
|
|
|
|
|
|
|
7,565
|
|
|
|
|
|
|
|
|
|
|
|
7,901
|
|
|
|
|
|
|
|
|
|
Cash
Value Life Insurance and other
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
957
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,257
|
|
|
|
|
|
|
|
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
5,386
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
383,163
|
|
|
|
|
|
|
|
|
|
|
$
|
366,765
|
|
|
|
|
|
|
|
|
|
|
$
|
376,626
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
17,778
|
|
|
$
|
148
|
|
|
|
0.83
|
%
|
|
$
|
18,207
|
|
|
$
|
186
|
|
|
|
1.02
|
%
|
|
$
|
20,623
|
|
|
$
|
249
|
|
|
|
1.21
|
%
|
Interest
bearing checking
|
|
|
27,744
|
|
|
|
270
|
|
|
|
0.97
|
%
|
|
|
25,028
|
|
|
|
408
|
|
|
|
1.63
|
%
|
|
|
23,711
|
|
|
|
334
|
|
|
|
1.41
|
%
|
Money
rate savings
|
|
|
35,495
|
|
|
|
689
|
|
|
|
1.94
|
%
|
|
|
36,380
|
|
|
|
1,049
|
|
|
|
2.88
|
%
|
|
|
38,709
|
|
|
|
968
|
|
|
|
2.50
|
%
|
Certificates
of deposit and other time deposits
|
|
|
112,731
|
|
|
|
4,228
|
|
|
|
3.75
|
%
|
|
|
129,857
|
|
|
|
6,066
|
|
|
|
4.67
|
%
|
|
|
123,198
|
|
|
|
4,918
|
|
|
|
3.99
|
%
|
Total
interest bearing deposits
|
|
|
193,748
|
|
|
|
5,335
|
|
|
|
2.75
|
%
|
|
|
209,472
|
|
|
|
7,708
|
|
|
|
3.68
|
%
|
|
|
206,241
|
|
|
|
6,469
|
|
|
|
3.14
|
%
|
Short
term borrowed funds
|
|
|
60,190
|
|
|
|
1,439
|
|
|
|
2.39
|
%
|
|
|
50,488
|
|
|
|
2,560
|
|
|
|
5.07
|
%
|
|
|
38,091
|
|
|
|
1,623
|
|
|
|
4.26
|
%
|
Long
term debt
|
|
|
40,989
|
|
|
|
1,980
|
|
|
|
4.83
|
%
|
|
|
22,865
|
|
|
|
997
|
|
|
|
4.36
|
%
|
|
|
46,241
|
|
|
|
2,114
|
|
|
|
4.57
|
%
|
Total
interest bearing liabilities
|
|
|
294,927
|
|
|
|
8,754
|
|
|
|
2.97
|
%
|
|
|
282,825
|
|
|
|
11,265
|
|
|
|
3.98
|
%
|
|
|
290,542
|
|
|
|
10,206
|
|
|
|
3.51
|
%
|
Non-interest
bearing deposits
|
|
|
47,355
|
|
|
|
|
|
|
|
|
|
|
|
45,598
|
|
|
|
|
|
|
|
|
|
|
|
49,472
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
4,262
|
|
|
|
|
|
|
|
|
|
|
|
4,188
|
|
|
|
|
|
|
|
|
|
|
|
4,364
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
36,619
|
|
|
|
|
|
|
|
|
|
|
|
34,153
|
|
|
|
|
|
|
|
|
|
|
|
32,248
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$
|
383,163
|
|
|
$
|
8,754
|
|
|
|
|
|
|
$
|
366,765
|
|
|
$
|
11,265
|
|
|
|
|
|
|
$
|
376,626
|
|
|
$
|
10,206
|
|
|
|
|
|
Interest
income and rate earned
|
|
|
|
|
|
$
|
22,799
|
|
|
|
6.21
|
%
|
|
|
|
|
|
$
|
24,605
|
|
|
|
7.04
|
%
|
|
|
|
|
|
$
|
23,708
|
|
|
|
6.63
|
%
|
Interest
expense and rate paid
|
|
|
|
|
|
|
8,754
|
|
|
|
2.97
|
%
|
|
|
|
|
|
|
11,265
|
|
|
|
3.98
|
%
|
|
|
|
|
|
|
10,206
|
|
|
|
3.51
|
%
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
NET
INTEREST INCOME & NET YIELD ON AVERAGE EARNINGS ASSETS
|
|
|
|
|
|
$
|
14,045
|
|
|
|
3.82
|
%
|
|
|
|
|
|
$
|
13,340
|
|
|
|
3.82
|
%
|
|
|
|
|
|
$
|
13,502
|
|
|
|
3.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s capital base remains
strong at $39.5 million as of December 31, 2008, compared to $35.8 million at
December 31, 2007 and $33.6 million at December 31, 2006. The change
in stockholders equity from 2007 to 2008 is due to net income of $3.5 million in
2008 and an increase of accumulated other comprehensive income of $1.7 million
offset by dividend payments totaling $1.5 million. The change in
stockholders equity from 2006 to 2007 is due to net income of $3.0 million in
2007 and an increase of accumulated other comprehensive income of $1.1 million
offset by dividend payments totaling $1.5 million and a $412 thousand transfer
of unrealized losses in the AFS portfolio at December 31, 2006, directly to
retained earnings due to the adoption of SFAS 159.
Other
comprehensive income is the result of unrealized gains or losses on AFS
securities and the recognition of the fair value of certain derivative
instruments. The Company’s AFS portfolio, representing approximately
66% of total investment securities, is marked to market each month, and the
result of these unrealized gains or losses, net of deferred taxes, is reported
as a component of comprehensive income in stockholders’
equity. Stockholders’ equity to assets ratio at December 31, 2008,
remained stable at 9.6% compared to 9.7% at December 31, 2007 and 9.1% at
December 31, 2006.
The Company's operations are nearing the capacity of its branch office, and the
Company has determined that an additional Baton Rouge branch is necessary in
order to continue our growth in that market. Management intends to use
excess capital to fund expansion opportunities in the Baton Rouge market in 2009
and to make a target dividend payout in a per share amount consistent with the
Company’s per share dividend payout in 2008. Currently, fixed assets
are $6.9 million, or 18% of stockholders' equity. Additional capital
expenditures for the Company’s expansion over the next 12 months are expected
to result in the addition of a new branch location, which will increase our
fixed assets costs.
Capital levels for the Company and the Bank substantially exceeded the minimum
requirements of the regulatory agencies for well-capitalized institutions in all
three categories in both 2008 and 2007. Both the Company and the Bank
maintain levels in total capital to risk-weighted assets, Tier 1 capital to
risk-weighted assets and a leverage ratio (Tier 1 capital to average assets) in
excess of the minimum requirements of 10.00%, 6.00% and 5.00%,
respectively.
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Company
|
|
|
Bank
|
|
|
Company
|
|
|
Bank
|
|
Risk-based
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,283
|
|
|
$
|
39,335
|
|
|
$
|
42,217
|
|
|
$
|
38,285
|
|
Tier
1
|
|
|
41,885
|
|
|
|
36,937
|
|
|
|
39,786
|
|
|
|
35,854
|
|
Leverage
|
|
|
41,885
|
|
|
|
36,937
|
|
|
|
39,786
|
|
|
|
35,854
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
average assets
(1)
|
|
|
399,321
|
|
|
|
394,715
|
|
|
|
362,493
|
|
|
|
364,418
|
|
Risk-weighted
assets
|
|
|
255,841
|
|
|
|
255,619
|
|
|
|
258,194
|
|
|
|
257,968
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
|
17.31
|
%
|
|
|
15.39
|
%
|
|
|
16.36
|
%
|
|
|
14.84
|
%
|
Tier
1 risk-based capital
|
|
|
16.37
|
%
|
|
|
14.45
|
%
|
|
|
15.42
|
%
|
|
|
13.90
|
%
|
Leverage
|
|
|
10.49
|
%
|
|
|
9.36
|
%
|
|
|
10.98
|
%
|
|
|
9.84
|
%
|
(1)
|
Excludes
disallowed assets
|
Pursuant
to Mississippi law, the Company’s Board of Directors may authorize the Company
to pay cash dividends to its shareholders. The only limitation on
such a dividend is that no distribution may be made if, after giving effect to
the distribution (a) the Company would not be able to pay its debts as they come
due in the usual course of business, or (b) the Company's total assets would be
less than the sum of its total liabilities plus the amount that would be needed,
if the Company were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of any shareholders whose preferential
rights are superior to those receiving the distribution.
The principal source of the Company’s cash revenues are dividends from the
Bank. There are certain limitations on the Bank’s ability to pay
dividends to the Company. See the disclosures under the heading
“Liquidity.”
Dividends for the last three fiscal years have remained the same at $.72 per
share. Historical dividend payout ratios, expressed as a percentage
of net income, for 2006, 2007 and 2008 were 42.60%, 50.70% and 43.64%,
respectively.
The declaration of future dividends is at the discretion of the Company and
generally will be dependent upon the earnings of the Bank, the assessment of
capital requirements, considerations of safety and soundness, applicable law and
regulation and other factors. Subject to the limitations referenced
above, it is the present policy of the Board of Directors of the Company to
continue the declaration of cash dividends on the Company’s common stock on a
quarterly basis, to the extent practicable.
Retained earnings of the Bank available for payment of cash dividends under
applicable dividend regulations was $5.5 million, $5.3 million and $5.3 million
as of December 31, 2008, December 31, 2007, and December 31, 2006,
respectively. The Bank intends to retain most of these funds for
capital and not pay them out as dividends.
RESULTS
OF OPERATIONS
The following are measurements of the
Company’s earnings in relation to assets, equity and earnings per share for the
past three years.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
.91
|
%
|
|
|
.82
|
%
|
|
|
.95
|
%
|
Return
on average equity
|
|
|
9.57
|
%
|
|
|
8.80
|
%
|
|
|
11.09
|
%
|
Dividend
payout ratio
|
|
|
43.64
|
%
|
|
|
50.70
|
%
|
|
|
42.60
|
%
|
Average
equity to average assets
|
|
|
9.56
|
%
|
|
|
9.31
|
%
|
|
|
8.56
|
%
|
Net
interest margin
|
|
|
3.82
|
%
|
|
|
3.82
|
%
|
|
|
3.78
|
%
|
Basic
income per share
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
Diluted
income per share
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
Non-Interest
Income/Non-Interest Expense
Non-interest income primarily includes service charges on deposit accounts,
gains on sales of mortgage loans originated and sold in the secondary market,
revenues from the Company’s networking arrangements and other non-interest fee
generating services. The Company continues to seek to increase income
in this category by broadening its financial services, including offering
business Internet banking and commercial cash management services, such as
remote deposit, which allows Bank customers to make deposits electronically from
their offices.
Non-interest income for the year ended December 31, 2008, was $2.8 million
compared to $2.2 million in 2007 and $2.5 million in 2006. The
increase for the year ended December 31, 2008, is primarily related to losses on
the sale of approximately $35 million in available-for-sale securities during
2007, offset by gains recorded on the sale of the trading portfolio in 2008 and
increases in service charges on deposit accounts in 2008. The
decrease from 2007 compared to 2006 is due to the same
reason. Service charges on deposit accounts have increased each
year.
Non-interest expenses primarily
include personnel, occupancy and equipment costs along with other operating
expenses related to transacting the Company’s business. Total
non-interest expense of $11.3 million remained stable for both years ended
December 31, 2008 and 2007. These expenses in 2008 compared to 2007
include increases in employee salary and benefits along with additional audit
expense offset by lower other real estate costs and expenses. Total
non-interest expenses for the year ended December 31, 2007, amounted to $11.3
million, an increase of $561 thousand compared to the corresponding period in
2006. Write-downs of other real estate, which were higher than
expected, amounted to $326 thousand. Salary and employee benefits
increased $166 thousand primarily from recruitment in the lending and cash
management-treasury areas.
Net
Interest Income/Margins
Net
interest income, the amount by which interest income on loans, investments and
other interest earning assets exceeds interest expense on deposits and other
borrowed funds, is the largest component of the Company’s earnings and is
affected by several factors, including the volume of earning assets and costing
liabilities, the mix of these assets and liabilities, and interest
rates. Net Interest Margin represents net interest income expressed
as a percentage of average earning assets. Tax-equivalent margins
(“TEY”) are in parenthesis.
Net interest income increased $705 thousand, or 5.3%, for the year ended
December 31, 2008, to $14.0 million compared to the same period in
2007. The increase of net interest income for the year ended December
31, 2008, compared to 2007, was due to higher volumes of earning assets,
primarily attributable to a $32 million increase in the average investment
securities portfolio. While average loan volumes decreased $12
million from 2007 to 2008 due primarily to pay downs in the Company’s
residential mortgage portfolio, the investment securities portfolio increased on
average $32 million for the same period. These changes in volumes
attributed $142 thousand toward the increase in net interest income. The
remaining $563 thousand was due in large part to the lower interest rate
environment throughout the year. Funding cost decreased at a faster
pace than did yields on earning assets. The amount of net interest
income declined from 2006 to 2007 due to lower average earning assets offset by
a positive contribution from interest rates. Net interest margins for
2008, 2007 and 2006 were 3.82% (4.06% TEY), 3.82% (4.06% TEY) and 3.78% (4.01
TEY), respectively.
The following table presents the dollar amount of changes in interest income and
interest expense for the major components of the Company’s interest earning
assets and interest bearing liabilities. It distinguishes between the
changes related to outstanding balances and those due to changes in interest
rates. For each category of interest earning assets and interest
bearing liabilities, information is provided on changes attributable to (a)
changes in volume (i.e., changes in volume multiplied by the old rate) and (b)
changes in rates (i.e., changes in rates multiplied by the old
volume.) For purposes of this table, changes attributable to both
rate and volume have been allocated proportionately to the change due to volume
and the change due to rates.
|
|
Volume/Rate
Analysis
|
|
|
|
2008
change from 2007
|
|
|
2007
change from 2006
|
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(3,297
|
)
|
|
$
|
(916
|
)
|
|
$
|
(2,381
|
)
|
|
$
|
567
|
|
|
$
|
(416
|
)
|
|
$
|
983
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Backed Securities
|
|
|
1,721
|
|
|
|
1,673
|
|
|
|
48
|
|
|
|
469
|
|
|
|
43
|
|
|
|
426
|
|
State
& municipal-non taxable
|
|
|
14
|
|
|
|
44
|
|
|
|
(30
|
)
|
|
|
13
|
|
|
|
56
|
|
|
|
(43
|
)
|
State
& municipal-taxable
|
|
|
57
|
|
|
|
57
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(177
|
)
|
|
|
(82
|
)
|
|
|
(95
|
)
|
|
|
(208
|
)
|
|
|
(305
|
)
|
|
|
97
|
|
Total
investment securities
|
|
|
1,615
|
|
|
|
1,692
|
|
|
|
(77
|
)
|
|
|
274
|
|
|
|
(206
|
)
|
|
|
480
|
|
Interest
bearing bank balances
|
|
|
(114
|
)
|
|
|
(69
|
)
|
|
|
(45
|
)
|
|
|
71
|
|
|
|
74
|
|
|
|
(3
|
)
|
Federal
funds sold
|
|
|
(10
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
-
|
|
Total
earning assets
|
|
$
|
(1,806
|
)
|
|
$
|
704
|
|
|
$
|
(2,510
|
)
|
|
$
|
897
|
|
|
$
|
(563
|
)
|
|
$
|
1,460
|
|
Interest
bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(37
|
)
|
|
|
(4
|
)
|
|
|
(33
|
)
|
|
|
(64
|
)
|
|
|
(27
|
)
|
|
|
(37
|
)
|
Interest
bearing checking
|
|
|
(138
|
)
|
|
|
40
|
|
|
|
(178
|
)
|
|
|
74
|
|
|
|
19
|
|
|
|
55
|
|
Money
rate savings
|
|
|
(360
|
)
|
|
|
(25
|
)
|
|
|
(335
|
)
|
|
|
80
|
|
|
|
(61
|
)
|
|
|
141
|
|
Certificates
of deposit and other time deposits
|
|
|
(1,838
|
)
|
|
|
(737
|
)
|
|
|
(1,101
|
)
|
|
|
1,149
|
|
|
|
277
|
|
|
|
872
|
|
Total
interest bearing deposits
|
|
|
(2,373
|
)
|
|
|
(726
|
)
|
|
|
(1,647
|
)
|
|
|
1,239
|
|
|
|
208
|
|
|
|
1,031
|
|
Short
term borrowed funds
|
|
|
(1,121
|
)
|
|
|
423
|
|
|
|
(1,544
|
)
|
|
|
937
|
|
|
|
592
|
|
|
|
345
|
|
Long
term debt
|
|
|
983
|
|
|
|
865
|
|
|
|
118
|
|
|
|
(1,117
|
)
|
|
|
(1,023
|
)
|
|
|
(94
|
)
|
Total
interest bearing liabilities
|
|
$
|
(2,511
|
)
|
|
$
|
562
|
|
|
$
|
(3,073
|
)
|
|
$
|
1,059
|
|
|
$
|
(223
|
)
|
|
$
|
1,282
|
|
Change
in Interest Earning Assets
|
|
|
(1,806
|
)
|
|
|
704
|
|
|
|
(2,510
|
)
|
|
|
897
|
|
|
|
(563
|
)
|
|
|
1,460
|
|
Change
in Interest Bearing Liabilities
|
|
|
(2,511
|
)
|
|
|
562
|
|
|
|
(3,073
|
)
|
|
|
1,059
|
|
|
|
(223
|
)
|
|
|
1,282
|
|
Change
in Net Interest Income
|
|
$
|
705
|
|
|
$
|
142
|
|
|
$
|
563
|
|
|
$
|
(162
|
)
|
|
$
|
(340
|
)
|
|
$
|
178
|
|
Provision
for Loan Losses
The provision for loan losses is a charge to earnings to maintain the reserve
for loan losses at a level consistent with management’s assessment of the risk
of loss in the loan portfolio in light of current risk management strategies,
economic conditions and market trends. Net charge-offs increased
during 2008 to $763 thousand compared to $353 and $508 thousand for the years
ended December 31, 2007, and 2006, respectively. The Company
increased its provision for the twelve months ended December 31, 2008, to $730
thousand to cover the additional charge-offs, compared to $440 thousand in 2007
and $475 thousand in 2006.
As noted earlier, the current
economic climate for the Company and the industry as a whole is extremely
challenging. The Company anticipates 2009 net charge-offs within its
portfolio to equal and possibly exceed the level of
2008. Accordingly, it has budgeted provision expense for the first
quarter of 2009 at $700 thousand to maintain the adequacy of the allowance
account.
Liquidity
Liquidity is a measure of the
Company’s ability to fund loan commitments and meet deposit maturities and
withdrawals in a timely and cost-effective manner. These needs can be met by
generating profits, attracting new deposits, converting assets (including
short-term investments, mortgage loans held for sale and securities available
for sale) to cash through sales or securitizations, and increasing borrowings.
To minimize funding risks, management monitors liquidity monthly through reviews
of basic surplus which includes investment securities available for pledging or
borrowing offset by short-term liabilities, along with projections of loan and
deposits for the next 90 days.
Principal sources of liquidity, both
short and long-term, for the Company are asset cash flows, customer deposits and
the ability to borrow against investment securities and loans. The
Company’s cash and cash equivalents decreased from $8.7 million at December 31,
2007, to $7.0 million at December 31, 2008. At December 31, 2008,
cash provided by operating and financing activities was $23.9 and $38.4 million,
respectively, while $64.1 million was used by investing activities.
The Company’s deposit base increased
during 2008 providing adequate funding available for possible loan
commitments. In addition to the Company’s deposit base, management
believes that the current level of short-term investments and the higher level
of projected cash flows from earning assets and securities available for sale
are more than adequate to meet the Company’s current liquidity
needs. Additional sources of liquidity available to the Company
include the ability to issue additional retail brokered certificates of deposit
and the ability to sell or securitize a portion of the Company’s residential
first mortgage portfolio. The Company also has available federal
funds lines and its membership in the FHLB to further augment liquidity by
providing a readily accessible source of funds at competitive
rates.
The Company accepts funds from various local and state
governments. Total public deposits at December 31, 2008, increased to
$49.3 million compared to $28.1 million at December 31, 2007, and $31.1 million
at December 31, 2006. These deposits, considered non-core, generally
are accepted on a bid basis and tend to fluctuate from year to
year.
In the ordinary course of business, the Company enters into commitments to
extend credit to its customers. See Note O, “Commitments and
Contingencies,” in the Notes to the Consolidated Financial Statements of the
Company in Item 8, Financial Statements and Supplementary Data, for a discussion
of the Company’s commitments to extend credit as of December 31,
2008.
The Company’s liquidity and capital
resources are substantially dependent on the ability of the Bank to transfer
funds to the Company in the form of dividends, loans and
advances. Under federal law, the directors of a national bank, after
making proper deduction for all expenses and other deductions required by the
Comptroller of the Currency, may credit net profits to the bank’s undivided
profits account, and may declare a dividend from that account of so much of the
net profits as they judge expedient. The Comptroller and the Federal
Reserve Board have each indicated that banking organizations should generally
pay dividends only out of current operating earnings. The Bank’s
ability to pay dividends is also limited by prudence, statutory and regulatory
guidelines, and a variety of other factors.
Further, in connection with the acquisition of Natchez First Federal in 1993,
the Bank assumed a liquidation account of approximately $2.8 million which has
the effect of prohibiting the payment of dividends if the Bank’s net worth would
thereby be reduced below the amount required for the liquidation
account. Management does not anticipate that this restriction will
have a material adverse effect on the Bank’s ability to pay dividends to the
Company.
Certain restrictions exist on the ability of the Bank to transfer such funds to
the Company in the form of loans. Federal Reserve regulations limit
the amount the Bank may loan to the Company unless such loans are collateralized
by specific obligations. At December 31, 2008, the maximum amount
available for transfer from the Bank to the Company in the form of loans on a
secured basis was $4.7 million. There were no loans outstanding from
the Bank to the Company at December 31, 2008.
The Company’s asset/liability committee (“ALCO”) determines an appropriate level
of capital and liquidity adequate to respond to the needs of depositors and
borrowers. At December 31, 2008, the ALCO, in its report to the Board
of Directors, indicated that it believes that the Company’s current level of
liquidity is adequate to fund foreseeable asset growth or to meet unanticipated
deposit fluctuations.
OFF-BALANCE-SHEET
ARRANGEMENTS
The Bank enters into off-balance-sheet arrangements in the normal course of its
business. For a discussion of such arrangements, see Note A, “Summary
of Significant Accounting Policies − Off-Balance-Sheet Financial Instruments,”
“− Interest-Rate Cap Agreements,” and “Interest-Rate Swap Agreements,” Note O,
“Commitments and Contingencies,” and Note R, “Interest Rate Risk Management,” in
the Notes to the Consolidated Financial Statements of the Company, in Item 8,
Financial Statements and Supplementary Data. Such discussion is
incorporated by reference into this item.
Ite
m 7A. Quantitative and Qualitative Disclosures
About Market Risk.
No disclosure is required hereunder as the Company is a “smaller reporting
company,” as defined in Item 10(f) of Regulation S-K.
Item
8. Financial Statements and Supplementary
Data.
BRITTON
& KOONTZ CAPITAL CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007 AND 2006
CONTENTS
|
|
|
|
AUDITED
FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Britton & Koontz Capital Corporation (the “Company”) and its subsidiaries
has prepared the consolidated financial statements and other information in our
Annual Report on Form 10-K in accordance with generally accepted accounting
principles and is responsible for the accuracy of the financial statements and
other information. The financial statements necessarily include
amounts that are based on management’s best estimates and
judgments.
In
meeting its responsibility, management relies on internal accounting and related
control systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in the Company’s
financial records and to safeguard the Company’s assets from material loss or
misuse. Such assurance cannot be absolute because of inherent
limitations in any internal control system,
including the possibility
that a control can be circumvented or overridden, and misstatements due to error
or fraud may occur and not be detected. Also, because of changes in conditions,
internal control effectiveness may vary over time. The Company’s bank
subsidiary, Britton & Koontz Bank N.A., contracts with outside audit firms
to monitor compliance in areas such as Information Technology and Bank Secrecy
Act with the Company’s and Bank’s systems of internal controls and reports to
management and to the Audit Committee of the Board of Directors.
The Audit
Committee of the Company’s Board of Directors consists entirely of independent
directors. The Audit Committee meets periodically with the internal
auditor and the independent accountants to discuss audit, internal control,
financial reporting and related matters. The Company’s independent
accountants and the internal audit staff have direct access to the Audit
Committee.
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule
13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended, and further described in interpretive guidance regarding
management’s report on internal control over financial reporting issued by the
Securities and Exchange Commission on June 27, 2007. Under the
supervision and with the participation of the Company’s principal executive
officer and principal financial officer, management of the Company conducted an
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2008, based on criteria for effective internal control over
financial reporting described in
Internal Control – Integrated
Framework
, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our assessment included an assessment of the
design of the internal control system, a review of the documentation of controls
and tests of the effectiveness of internal controls. Based on this
assessment, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2008 and meets the criteria
described in
Internal Control
– Integrated Framework
.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
/s/ W. Page Ogden
/s/ William M. Salters
W. Page
Ogden
William M. Salters
President
and Chief Executive
Officer EVP
and Chief Financial Officer
R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders
Britton
& Koontz Capital Corporation and Subsidiaries
We have
audited the accompanying Consolidated Balance Sheets of Britton & Koontz
Capital Corporation and Subsidiaries as of December 31, 2008 and 2007, and the
related Consolidated Statements of Income, Changes in Stockholders' Equity, and
Cash Flows for each of the years in the three-year period ended December 31,
2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Britton & Koontz
Capital Corporation and Subsidiaries as of December 31, 2008 and 2007, and
the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Hannis T. Bourgeouis, LLP
Baton
Rouge, Louisiana
March 9,
2009
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 AND 2007
ASSETS
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
and Due from Banks:
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
6,752,462
|
|
|
$
|
6,102,837
|
|
Interest
bearing
|
|
|
199,081
|
|
|
|
2,629,470
|
|
|
|
|
|
|
|
|
|
|
Total
Cash and Due from Banks
|
|
|
6,951,543
|
|
|
|
8,732,307
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold
|
|
|
-
|
|
|
|
245,192
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
Trading
(amortized cost, in 2008 and 2007, of
0
and $19,144,678, respectively)
|
|
|
-
|
|
|
|
19,199,207
|
|
Available-for-sale
(amortized cost, in 2008 and 2007, of $108,548,988 and $63,612,681,
respectively)
|
|
|
111,895,476
|
|
|
|
63,983,146
|
|
Held-to-maturity
(market value, in 2008 and 2007, of $54,843,091 and
$40,639,894, respectively)
|
|
|
54,815,013
|
|
|
|
39,988,305
|
|
Equity
securities
|
|
|
4,009,938
|
|
|
|
2,521,000
|
|
Loans, less allowance for loan losses of $2,397,802 in 2008 and $2,430,936
in 2007
|
|
|
223,113,495
|
|
|
|
220,921,727
|
|
Bank
premises and equipment, net
|
|
|
6,922,835
|
|
|
|
7,357,785
|
|
Other
real estate, net of reserves of $198,390 and $58,350 in 2008 and
2007, respectively
|
|
|
919,204
|
|
|
|
746,796
|
|
Accrued
interest receivable
|
|
|
2,080,693
|
|
|
|
2,294,235
|
|
Cash
surrender value of life insurance
|
|
|
1,055,627
|
|
|
|
1,013,683
|
|
Core
deposits, net
|
|
|
558,042
|
|
|
|
665,658
|
|
Other
assets
|
|
|
754,959
|
|
|
|
676,231
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
413,076,825
|
|
|
$
|
368,345,272
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
51,119,827
|
|
|
$
|
47,305,927
|
|
Interest
bearing
|
|
|
206,094,593
|
|
|
|
199,088,223
|
|
Total
Deposits
|
|
|
257,214,420
|
|
|
|
246,394,150
|
|
|
|
|
|
|
|
|
|
|
Securities
sold under repurchase agreements
|
|
|
51.633.835
|
|
|
|
48,229,299
|
|
Federal
Home Loan Bank advances
|
|
|
54,939,931
|
|
|
|
29,160,730
|
|
Junior
subordinated debentures
|
|
|
5,155,000
|
|
|
|
5,155,000
|
|
Accrued
interest payable (Includes $264,954 on securities sold under repurchase
agreements at December 31, 2008)
|
|
|
1,167,525
|
|
|
|
2,070,075
|
|
Advances
from borrowers for taxes and insurance
|
|
|
313,810
|
|
|
|
359,501
|
|
Accrued
taxes and other liabilities
|
|
|
3,111,235
|
|
|
|
1,175,652
|
|
Total
Liabilities
|
|
|
373,535,756
|
|
|
|
332,544,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
Common
stock, $2.50 par value per share; 12,000,000 shares authorized; 2,132,466
issued and 2,117,966 outstanding, at December 31, 2008, and December 31,
2007
|
|
|
5,331,165
|
|
|
|
5,331,165
|
|
Additional
paid-in capital
|
|
|
7,319,282
|
|
|
|
7,305,970
|
|
Retained
earnings
|
|
|
25,049,749
|
|
|
|
23,071,921
|
|
Accumulated
other comprehensive income/(loss)
|
|
|
2,098,248
|
|
|
|
349,184
|
|
|
|
|
39,798,444
|
|
|
|
36,058,240
|
|
Less: Treasury
stock, 14,500 shares, at cost
|
|
|
(257,375
|
)
|
|
|
(257,375
|
)
|
Total
Stockholders’ Equity
|
|
|
39,541,069
|
|
|
|
35,800,865
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
413,076,825
|
|
|
$
|
368,345,272
|
|
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
15,713,335
|
|
|
$
|
19,010,095
|
|
|
$
|
18,443,069
|
|
Interest
on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
interest income
|
|
|
5,412,107
|
|
|
|
3,927,411
|
|
|
|
3,593,781
|
|
Exempt
from federal income taxes
|
|
|
1,668,378
|
|
|
|
1,652,143
|
|
|
|
1,641,361
|
|
Other
interest income
|
|
|
4,735
|
|
|
|
14,853
|
|
|
|
29,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
|
22,798,555
|
|
|
|
24,604,502
|
|
|
|
23,707,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
5,334,619
|
|
|
|
7,707,969
|
|
|
|
6,468,890
|
|
Interest
on Federal Home Loan Bank advances
|
|
|
926,113
|
|
|
|
2,181,459
|
|
|
|
2,915,388
|
|
Interest
on trust preferred securities
|
|
|
328,470
|
|
|
|
432,118
|
|
|
|
417,930
|
|
Interest
on securities sold under repurchase agreements
|
|
|
2,164,355
|
|
|
|
943,146
|
|
|
|
403,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
|
8,753,557
|
|
|
|
11,264,692
|
|
|
|
10,206,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
14,044,998
|
|
|
|
13,339,810
|
|
|
|
13,501,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
730,000
|
|
|
|
440,000
|
|
|
|
475,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
13,314,998
|
|
|
|
12,899,810
|
|
|
|
13,026,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
1,777,096
|
|
|
|
1,633,181
|
|
|
|
1,430,164
|
|
Income
from fiduciary activities
|
|
|
2,484
|
|
|
|
3,996
|
|
|
|
38,202
|
|
Income
from networking arrangements
|
|
|
160,913
|
|
|
|
231,261
|
|
|
|
179,457
|
|
Net
gain on sales of loans
|
|
|
229,001
|
|
|
|
278,505
|
|
|
|
313,327
|
|
Net
gain (loss) on sale of securities
|
|
|
148,116
|
|
|
|
(558,770
|
)
|
|
|
(30,481
|
)
|
Net
gain on trading securities
|
|
|
-
|
|
|
|
144,892
|
|
|
|
-
|
|
Other
|
|
|
460,740
|
|
|
|
495,227
|
|
|
|
520,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
2,778,350
|
|
|
|
2,228,292
|
|
|
|
2,450,761
|
|
Income
before Other Expenses
|
|
|
16,093,348
|
|
|
|
15,128,102
|
|
|
|
15,477,573
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
5,425,241
|
|
|
|
5,157,330
|
|
|
|
5,003,831
|
|
Employee
benefits
|
|
|
730,614
|
|
|
|
760,415
|
|
|
|
747,685
|
|
Director
fees
|
|
|
166,050
|
|
|
|
203,425
|
|
|
|
198,012
|
|
Net
occupancy expense
|
|
|
946,737
|
|
|
|
975,203
|
|
|
|
977,511
|
|
Equipment
expense
|
|
|
1,141,943
|
|
|
|
1,147,655
|
|
|
|
1,102,240
|
|
Other
real estate, net
|
|
|
127,159
|
|
|
|
351,962
|
|
|
|
65,333
|
|
FDIC
assessment
|
|
|
49,590
|
|
|
|
30,787
|
|
|
|
32,526
|
|
Advertising
|
|
|
219,544
|
|
|
|
165,531
|
|
|
|
207,834
|
|
Stationery
and supplies
|
|
|
172,059
|
|
|
|
184,719
|
|
|
|
188,057
|
|
Amortization
|
|
|
107,616
|
|
|
|
107,616
|
|
|
|
107,616
|
|
Audit
expense
|
|
|
219,877
|
|
|
|
183,333
|
|
|
|
186,485
|
|
Other
|
|
|
1,974,161
|
|
|
|
1,998,097
|
|
|
|
1,887,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Expenses
|
|
|
11,280,591
|
|
|
|
11,266,073
|
|
|
|
10,705,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAX EXPENSE
|
|
|
4,812,757
|
|
|
|
3,862,029
|
|
|
|
4,772,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
1,309,994
|
|
|
|
856,248
|
|
|
|
1,193,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
3,502,763
|
|
|
$
|
3,005,781
|
|
|
$
|
3,578,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted shares outstanding
|
|
|
2,117,966
|
|
|
|
2,117,966
|
|
|
|
2,117,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted shares outstanding
|
|
|
2,117,966
|
|
|
|
2,119,566
|
|
|
|
2,121,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
BR
ITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(loss)
|
|
|
Stock
|
|
|
Total
|
|
BALANCE,
December 31, 2005
|
|
|
|
2,116,316
|
|
|
$
|
5,327,040
|
|
|
$
|
7,254,113
|
|
|
$
|
19,949,100
|
|
|
$
|
(1,012,720
|
)
|
|
$
|
(257,375
|
)
|
|
$
|
31,260,158
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,578,583
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,578,583
|
|
Other
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes of $ 169,535
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284,982
|
|
|
|
-
|
|
|
|
284,982
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives, net of taxes of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$28,235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,462
|
)
|
|
|
-
|
|
|
|
(47,462
|
)
|
Total
Comprehensive Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,816,103
|
|
Cash
dividends ($0.72 per share)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,619
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,619
|
)
|
Fair
Value unexercised stock options
|
|
|
|
|
|
|
|
|
|
|
|
10,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,003
|
|
Issuance
of common stock
|
|
|
|
1,650
|
|
|
|
4,125
|
|
|
|
31,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,244
|
|
BALANCE,
December 31, 2006
|
|
|
|
2,117,966
|
|
|
|
5,331,165
|
|
|
|
7,295,235
|
|
|
|
22,003,063
|
|
|
|
(775,200
|
)
|
|
|
(257,375
|
)
|
|
|
33,596,888
|
|
Adjustment
to the opening balance, net
of
tax for the adoption of SFAS No.159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(411,987
|
)
|
|
|
|
|
|
|
|
|
|
|
(411,987
|
)
|
Adjusted
opening balance, Jan. 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,591,076
|
|
|
|
|
|
|
|
|
|
|
|
33,184,901
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,005,781
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,005,781
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes of $571,276,
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
960,279
|
|
|
|
-
|
|
|
|
960,279
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives, net of taxes of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
97,625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164,105
|
|
|
|
-
|
|
|
|
164,105
|
|
Total
Comprehensive Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,130,165
|
|
Fair
value of unexercised stock options
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,735
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,735
|
|
Cash
dividends ($0.72 per share)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,936
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,936
|
)
|
BALANCE,
December 31, 2007
|
|
|
|
2,117,966
|
|
|
$
|
5,331,165
|
|
|
$
|
7,305,970
|
|
|
$
|
23,071,921
|
|
|
$
|
349,184
|
|
|
$
|
(257,375
|
)
|
|
$
|
35,800,865
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,502,763
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,502,763
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes of $1,110,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,865,967
|
|
|
|
-
|
|
|
|
1,865,967
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives, net of tax benefit of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
(69,545)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(116,903
|
)
|
|
|
-
|
|
|
|
(116,903
|
)
|
Total
Comprehensive Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,251,827
|
|
Fair
value of unexercised stock options
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,312
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,312
|
|
Cash
Dividends ($0.72 per share)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1,524,935
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,935
|
)
|
BALANCE
at December 31, 2008
|
|
|
|
2,117,966
|
|
|
$
|
5,331,165
|
|
|
$
|
7,319,282
|
|
|
$
|
25,049,749
|
|
|
$
|
2,098,248
|
|
|
$
|
(257,375
|
)
|
|
$
|
39,541,069
|
|
The
accompanying notes are an integral part of these financial
statements.
BRI
TTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,502,763
|
|
|
$
|
3,005,781
|
|
|
$
|
3,578,583
|
|
Adjustments
to reconcile net income to
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
(171,022
|
)
|
|
|
(131,765
|
)
|
|
|
(114,945
|
)
|
Provision
for loan losses
|
|
|
730,000
|
|
|
|
440,000
|
|
|
|
475,000
|
|
Provision
for depreciation
|
|
|
764,645
|
|
|
|
791,330
|
|
|
|
798,221
|
|
Provision
for losses on foreclosed real estate
|
|
|
140,040
|
|
|
|
58,350
|
|
|
|
-
|
|
Stock
dividends received
|
|
|
(61,600
|
)
|
|
|
(167,300
|
)
|
|
|
(192,200
|
)
|
Write-down
of other real estate
|
|
|
-
|
|
|
|
312,859
|
|
|
|
22,178
|
|
Write-down
of other repossessed assets
|
|
|
-
|
|
|
|
15,000
|
|
|
|
-
|
|
(Gain)
on sale of loans
|
|
|
(229,001
|
)
|
|
|
(278,505
|
)
|
|
|
(313,327
|
)
|
(Gain)
Loss on sale of other repossessed assets
|
|
|
22,000
|
|
|
|
(1,000
|
)
|
|
|
-
|
|
(Gain)
Loss on disposition of premises and equipment
|
|
|
3,980
|
|
|
|
-
|
|
|
|
-
|
|
(Gain)
Loss on valuation of trading securities
|
|
|
-
|
|
|
|
(144,892
|
)
|
|
|
-
|
|
(Gain)
Loss on sale of securities
|
|
|
(148,116
|
)
|
|
|
558,770
|
|
|
|
30,480
|
|
(Gain)
Loss on sale of other real estate
|
|
|
(84,195
|
)
|
|
|
3,850
|
|
|
|
(11,032
|
)
|
(Gain)
Loss on sale of other securities
|
|
|
1,285
|
|
|
|
-
|
|
|
|
-
|
|
Net
amortization (accretion) of securities
|
|
|
(99,897
|
)
|
|
|
(48,185
|
)
|
|
|
139,519
|
|
Amortization
of acquisition premium
|
|
|
107,616
|
|
|
|
107,616
|
|
|
|
107,616
|
|
Purchase
of investment securities held for trading
|
|
|
-
|
|
|
|
(21,149,030
|
)
|
|
|
-
|
|
Proceeds
from sales, principal paydowns and maturities
of
investment securities held for trading
|
|
|
19,349,806
|
|
|
|
1,692,087
|
|
|
|
-
|
|
Net
change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
-
|
|
|
|
54,810
|
|
|
|
116,390
|
|
Accrued
interest receivable
|
|
|
213,542
|
|
|
|
143,152
|
|
|
|
(179,162
|
)
|
Cash
surrender value of life insurance
|
|
|
(41,944
|
)
|
|
|
(40,471
|
)
|
|
|
(36,834
|
)
|
Other
assets
|
|
|
(977,867
|
)
|
|
|
80,663
|
|
|
|
198,704
|
|
Accrued
interest payable
|
|
|
(902,549
|
)
|
|
|
283,786
|
|
|
|
347,452
|
|
Accrued
taxes and other
liabilities
|
|
|
1,778,759
|
|
|
|
(8,922
|
)
|
|
|
(558,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by/ (Used in) Operating Activities
|
|
|
23,898,245
|
|
|
|
(14,422,014
|
)
|
|
|
4,407,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in federal funds sold
|
|
|
245,192
|
|
|
|
59,376
|
|
|
|
96,570
|
|
Proceeds
from sales, principal paydowns and maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
of
investment securities held-to-maturity
|
|
|
4,058,669
|
|
|
|
6,036,959
|
|
|
|
1,149,236
|
|
Proceeds
from sales, principal paydowns and maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
of
investment securities available-for-sale
|
|
|
10,661,369
|
|
|
|
59,245,635
|
|
|
|
19,446,947
|
|
Proceeds
from redemption of Federal Home Loan
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
stock
|
|
|
945,400
|
|
|
|
2,013,600
|
|
|
|
1,354,200
|
|
Purchases
of investment securities held-to-maturity
|
|
|
(18,918,362
|
)
|
|
|
(7,418,525
|
)
|
|
|
(1,774,002
|
)
|
Purchases
of investment securities available-for-sale
|
|
|
(55,467,275
|
)
|
|
|
(57,793,573
|
)
|
|
|
(5,286,957
|
)
|
Purchase
of other equity securities
|
|
|
(2,374,000
|
)
|
|
|
(27,600
|
)
|
|
|
-
|
|
Net
(increase)/decrease in loans
|
|
|
(4,024,927
|
)
|
|
|
19,583,636
|
|
|
|
1,013,155
|
|
Proceeds
from sales of other repossessed assets
|
|
|
8,000
|
|
|
|
5,000
|
|
|
|
22,626
|
|
Proceeds
from sale of other real estate
|
|
|
1,073,908
|
|
|
|
653,948
|
|
|
|
334,461
|
|
Purchases
of premises and equipment
|
|
|
(333,675
|
)
|
|
|
(430,328
|
)
|
|
|
(470,831
|
)
|
Proceeds
from sales of premises and equipment
|
|
|
-
|
|
|
|
491
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by/ (Used in) Investing Activities
|
|
|
(64,125,701
|
)
|
|
|
21,928,619
|
|
|
|
15,885,405
|
|
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(continued)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in customer deposits
|
|
|
17,219,779
|
|
|
|
(6,508,063
|
)
|
|
|
(4,961,586
|
)
|
Net
increase (decrease) in brokered deposits
|
|
|
(6,399,507
|
)
|
|
|
(855,062
|
)
|
|
|
1,341,951
|
|
Net
increase (decrease) in Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
advances
|
|
|
25,779,200
|
|
|
|
(36,507,241
|
)
|
|
|
(18,528,095
|
)
|
Net
increase (decrease) in securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
3,404,536
|
|
|
|
40,080,283
|
|
|
|
116,295
|
|
Increase
(decrease) in advances from borrowers
|
|
|
|
|
|
|
|
|
|
|
|
|
for
taxes and insurance
|
|
|
(45,691
|
)
|
|
|
(42,177
|
)
|
|
|
(35,544
|
)
|
Cash
dividends paid
|
|
|
(1,524,936
|
)
|
|
|
(1,524,936
|
)
|
|
|
(1,524,619
|
)
|
Cash
received from stock options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
35,244
|
|
Fair
value of unexercised stock options
|
|
|
13,312
|
|
|
|
10,735
|
|
|
|
10,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by/(Used in) Financing Activities
|
|
|
38,446,693
|
|
|
|
(5,346,461
|
)
|
|
|
(23,546,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS
|
|
|
(1,780,763
|
)
|
|
|
2,160,144
|
|
|
|
(3,253,296
|
)
|
CASH
AND DUE FROM BANKS AT BEGINNING OF YEAR
|
|
|
8,732,306
|
|
|
|
6,572,163
|
|
|
|
9,825,459
|
|
CASH
AND DUE FROM BANKS AT END OF YEAR
|
|
$
|
6,951,543
|
|
|
$
|
8,732,307
|
|
|
$
|
6,572,163
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
payments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
615,136
|
|
|
$
|
950,750
|
|
|
$
|
1,609,528
|
|
Interest
on deposits and borrowings
|
|
$
|
9,656,107
|
|
|
$
|
10,980,905
|
|
|
$
|
9,858,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
to other real estate/other repossessed assets
|
|
$
|
1,302,159
|
|
|
$
|
523,192
|
|
|
$
|
169,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized (gains) losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
available-for-sale
|
|
$
|
2,976,024
|
|
|
$
|
1,531,555
|
|
|
$
|
454,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in the deferred tax effect in unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on securities available-for-sale
|
|
$
|
1,110,057
|
|
|
$
|
571,276
|
|
|
$
|
169,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains on derivatives
|
|
$
|
(186,448
|
)
|
|
$
|
261,730
|
|
|
$
|
(75,697
|
)
|
Change
in the deferred tax effect in unrealized gains on
derivatives
|
|
$
|
(69,545
|
)
|
|
$
|
97,625
|
|
|
$
|
(28,235
|
)
|
The
accompanying notes are an integral part of these financial
statements.
N
OTE A. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of
Consolidation
The
consolidated financial statements include the accounts of Britton & Koontz
Capital Corporation (the “Company”) and its wholly owned subsidiaries, Britton
& Koontz Bank, National Association (the “Bank”) and B & K Title
Insurance Agency, Inc. (the “Agency”). All material inter-company
profits, balances and transactions have been eliminated.
Nature of Operations
The Bank
operates under a national bank charter and provides full banking services,
including trust services. The primary area served by the Bank is the
southwest region of Mississippi and East Baton Rouge Parish in
Louisiana. Services are provided at three locations in Natchez,
Mississippi, two locations in Vicksburg, Mississippi, and one location in Baton
Rouge, Louisiana. The Agency’s operations were discontinued during
2006.
Use of Estimates
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties.
While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank’s allowance for loan
losses. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination. Because of these factors, it is
reasonably possible that the allowance for loan losses may change materially in
the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
Investment Securities
Management
determines the appropriate classification of securities at the time of
purchase. If management has the positive intent and the Bank has the
ability at the time of purchase to hold debt securities until maturity, they are
classified as held-to-maturity and carried at cost, adjusted for amortization of
premiums and accretion of discounts using methods approximating the interest
method. Available-for-sale securities include securities that
management intends to use as part of its asset and liability management strategy
and that may be sold in response to changes in interest rates, resultant
prepayment risk and other factors related to interest
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
rates and
resultant prepayment risk changes. These securities are carried at
fair value. Trading securities include securities purchased and
classified as trading in connection with the Company’s adoption of Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“Statement”) No. 157, “Fair Value Measurements” (“SFAS 157”), and Statement No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”). These securities are also carried at fair
value. Equity securities primarily include stock in the Federal
Reserve Bank and the Federal Home Loan Bank (“FHLB”), which are restricted and
are carried at cost.
Realized
gains and losses on dispositions of investment securities are based on the net
proceeds and the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment securities
available-for-sale are based on the difference between book value and fair value
of each security. These unrealized gains and losses are reported as a
component of comprehensive income in stockholders’ equity, net of the related
deferred tax effect. The Bank marks to market its trading portfolio
at the end of each quarter with gains or losses reported to net
income. Such changes in the fair value due to market changes may
contribute to volatility in quarterly earnings. The Bank sold its
portfolio of trading securities in early 2008 and does not currently intend to
classify future securities purchases into this category.
Loans
Loans are
stated at the amount of principal outstanding, reduced by unearned income and an
allowance for loan losses. Unearned income on certain installment
loans is recognized as income over the terms of the loans by a method which
approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Loans are ordinarily placed on
non-accrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more; however, management may
elect to continue the accrual when the estimated net realizable value of
collateral is sufficient to cover the principal balance and the accrued
interest. Any unpaid interest previously accrued on non-accrual loans
is reversed from income. Interest income, generally, is not
recognized on specific impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied as a
reduction of the loan principal balance. Interest income on other
non-accrual loans is recognized only to the extent of interest payments
received.
Loans Held-for-Sale
Loans
held-for-sale primarily consist of ten, fifteen and thirty-year fixed-rate,
one-to-four family real estate loans which are valued at the lower of cost or
market, as determined by outstanding commitments from investors or current
investor yield requirements, calculated on an individual basis. These
loans are originated with the intent of selling them in the secondary
market.
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Unrealized
losses on loans held-for-sale are charged against income in the period of
decline. Such declines are recorded in a valuation allowance account and
deducted from the cost basis of the loans. Gains on loans
held-for-sale are recognized when realized.
Allowance for Loan Losses
The
allowance is an amount that management believes will be adequate to absorb
probable losses inherent in the loan portfolio as of the balance sheet date
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower’s ability to pay. A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan
agreement. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash
flows. Credits deemed uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans
previously charged off are adjusted to the allowance. Past due status
is determined based on contractual terms.
Bank Premises and
Equipment
Bank
premises and equipment are stated at cost, less accumulated depreciation.
Depreciation expense is computed by the straight-line method and is charged to
expense over the estimated useful lives of the assets, which range from 3 to 40
years.
Other Real Estate
Properties
acquired through foreclosure or in settlement of loans and in lieu of loan
foreclosures are classified as foreclosed properties and are valued at the lower
of the loan value or estimated fair value of the property acquired less
estimated selling costs. At the time of foreclosure, the excess, if
any, of the loan value over the estimated fair value of the property acquired
less estimated selling costs, is charged to the allowance for loan
losses. Additional decreases in the carrying values of foreclosed
properties or changes in estimated selling costs, subsequent to the time of
foreclosure, are recognized through provisions charged to
operations. Revenues and expenses from operations and gains and
losses on dispositions of such assets are recorded in earnings in the period
incurred.
The fair
value of foreclosed properties is determined based upon appraised value,
utilizing either the estimated replacement cost, the selling price of properties
utilized for similar purposes, or discounted cash flow analyses of the
properties’ operations.
Compensated Absences
Employees
of the Bank are entitled to paid vacation, emergency and sick days off,
depending on length of service in the banking industry. Vacation,
emergency and sick days are granted on an annual basis to eligible
employees. Unused vacation and emergency days expire on December 31
of each year. Unused sick days expire on each employee’s employment
anniversary date each year.
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The
estimated amount of compensation for future absences is deemed immaterial to the
consolidated financial statements; accordingly, no liability has been recorded
in the accompanying financial statements. The Bank’s policy is to
recognize the cost of compensated absences when actually paid to
employees.
Income Taxes
The
provision for income taxes is based on amounts reported in the statements of
income after exclusion of nontaxable income such as interest on state and
municipal securities. Also, certain items of income and expenses are
recognized in different time periods for financial statement purposes than for
income tax purposes. Thus, provisions for deferred taxes are recorded
in recognition of such temporary differences.
Deferred
taxes are determined utilizing a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
The
Company and its subsidiaries file a consolidated federal income tax return.
Consolidated income tax expense is allocated on the basis of each company’s
income adjusted for permanent differences.
On
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting
for uncertainty in income taxes recognized in financial statements in accordance
with Statement No. 109, “Accounting for Income Taxes.” The Company
does not believe it has any unrecognized tax benefits included in its
consolidated financial statements. The Company has not recognized any
interest or penalties in the consolidated financial statements, nor has it
recorded an accrued liability for interest or penalty payments.
Earnings Per Share
Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of shares of common stock outstanding during the
period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. All shares held by the Employee Stock Ownership Plan are
treated as outstanding in computing the earnings per share. Stock
options are used in the calculation of diluted earnings per share if they are
dilutive. Earnings per common share has been computed as
follows:
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Basic
weighted average shares outstanding
|
|
|
2,117,966
|
|
|
|
2,117,966
|
|
|
|
2,117,529
|
|
Dilutive
effect of stock options
|
|
|
0
|
|
|
|
1,600
|
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
weighted average shares outstanding
|
|
|
2,117,966
|
|
|
|
2,119,566
|
|
|
|
2,121,846
|
|
Net
income
|
|
$
|
3,502,763
|
|
|
$
|
3,005,781
|
|
|
$
|
3,578,583
|
|
Net
income per share-basic
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
Net
income per share-dilutive
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
|
$
|
1.69
|
|
The
Company has granted options to purchase various amounts of the Company’s common
stock at various prices ranging from $14.50 to $19.02 per
share. Those options whose exercise price exceeded the average market
price of the common shares are not included in the options adjustment for
diluted earnings per share.
Off-Balance-Sheet Financial
Instruments
In
the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of interest-rate swap and cap agreements,
commitments to extend credit and standby letters of credit. Financial
instruments related to loans are recorded in the financial statements when they
become payable.
Statement of Cash Flows
For
purposes of the statements of cash flows, the Company considers only cash and
due from banks to be cash equivalents.
Advertising Costs
Advertising
and marketing costs are recorded as expenses in the year in which they are
incurred. Advertising and marketing costs charged to operations
during 2008, 2007 and 2006 were $219,544, $165,531 and $207,834,
respectively.
Interest-Rate Cap
Agreements
The
Company uses these financial instruments to manage interest rate
risk. The only caps currently used are embedded in either FHLB
borrowings or Structured Repurchase Agreements as an increase in the interest
rate.
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Interest-Rate
Swap Agreements
The Bank
enters into interest-rate swap agreements to modify the interest rate
characteristics of its assets and liabilities. These agreements may
involve the receipt or payment of fixed rate amounts in exchange for floating
rate interest receipts or payments over the life of the agreement without an
exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest income or expense. The related amount payable
to or receivable from counter-parties is included in other liabilities or
assets. There were no interest-rate swap agreements in place at
December 31, 2008.
Amortization of Core
Deposits
During
1999, the Company acquired certain assets and liabilities of three Union
Planters, N.A. branches in Natchez and Vicksburg, Mississippi, which were
accounted for as a purchase. The Bank paid a premium for the
depositor relationship of $1,614,210. This premium is included in
other assets and is being amortized over 15 years, which is the estimated life
of the customer base.
Stock Compensation Plans
In
December 2004, FASB issued Statement No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123(R)”). Under SFAS 123(R), a public entity is
required to measure the cost of employee services received in exchange for an
award of equity based instruments based on the grant-date fair value of the
award and to recognize the cost over the period during which an employee is
required to provide service in exchange for the award. In March 2005,
the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin
No. 107 (“SAB 107”) which expressed the views of the staff regarding the
interaction between SFAS 123(R) and certain SEC rules and regulations and the
valuation of share based payment arrangements for public
companies. SAB 107 provided that the effective date for
implementation of SFAS 123(R) was the first fiscal year beginning on or after
June 15, 2005. The Company has applied the principles set forth in
SFAS 123(R) beginning in the 2006 fiscal year. Note J below sets
forth information regarding the Company’s application of SFAS 123(R) with
respect to stock options outstanding in 2008.
Comprehensive
Income
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance sheet,
such items, along with net income, are components of comprehensive
income.
NOTE
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Recent Accounting Pronouncements
The
Financial Accounting Standards Board (FASB) issued SFAS 141 (revised 2007),
“Business Combinations.” This revised standard expands the types of
transactions or other events that qualify as business combinations and requires
that in all business combinations all assets and liabilities of the acquired
business shall be recorded at their fair values, with limited exceptions. Other
provisions of this standard require that certain contingent assets and
liabilities be recognized at their fair values on the acquisition date and that
acquisition-related transaction and restructuring costs be expensed rather than
treated as part of the cost of the acquisition. SFAS 141(R) applies
to all business combinations completed on or after January 1, 2009.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51.” SFAS
160 establishes new accounting and reporting standards for noncontrolling
interests in a subsidiary. The standard requires entities to classify
noncontrolling interests as a component of stockholders’ equity and requires
subsequent changes in ownership interests in a subsidiary to be accounted for as
an equity transaction. SFAS 160 also requires entities to recognize a
gain or loss upon the loss of control of a subsidiary and to remeasure any
ownership interest retained at fair value on that date. This
statement also requires expanded disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective on a prospective basis
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure
requirements, which are required to be applied retrospectively. The
Company does not anticipate this guidance to have a material effect on the
operating results, financial position, or liquidity of the Company.
In March
2008, the FASB issued SFAS 161, “Disclosure about Derivative Instruments and
Hedging Activities – An Amendment of FASB Statement No. 133.” This
standard calls for enhanced disclosures to help users of financial statements
better understand how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how these
instruments and hedged items affect the entity’s financial position, financial
performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company does not anticipate that the adoption of this
standard will have a material effect on the operating results, financial
position, or liquidity of the Company.
Certain
reclassifications have been made to the 2007 and 2006 consolidated financial
statements in order to conform to the classifications adopted for reporting in
2008.
NOTE
B. INVESTMENT SECURITIES
The
amortized cost and approximate market value of investment securities classified
as held-to-maturity at December 31, 2008, are summarized as
follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
$
|
39,529,246
|
|
|
$
|
573,387
|
|
|
$
|
(842,953
|
)
|
|
$
|
39,259,680
|
|
Mortgage-Backed
Securities
|
|
|
15,285,767
|
|
|
|
297,645
|
|
|
|
-
|
|
|
|
15,583,412
|
|
Total
|
|
$
|
54,815,013
|
|
|
$
|
871,032
|
|
|
$
|
(842,953
|
)
|
|
$
|
54,843,091
|
|
The
amortized cost and approximate market value of investment securities classified
as available-for-sale at December 31, 2008, are summarized as
follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Mortgage-Backed
Securities
|
|
$
|
108,548,988
|
|
|
$
|
3,365,814
|
|
|
$
|
(19,325
|
)
|
|
$
|
111,895,476
|
|
Total
|
|
$
|
108,548,988
|
|
|
$
|
3,365,814
|
|
|
$
|
(19,325
|
)
|
|
$
|
111,895,476
|
|
There
were no investment securities classified as trading at December 31,
2008.
NOTE
B.
INVESTMENT
SECURITIES (Continued)
The
amortized cost and approximate market value of investment securities classified
as held-to-maturity at December 31, 2007, are summarized as
follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
$
|
38,004,634
|
|
|
$
|
926,882
|
|
|
$
|
(286,861
|
)
|
|
$
|
38,644,655
|
|
Mortgage-Backed
Securities
|
|
|
1,983,671
|
|
|
|
11,568
|
|
|
|
-
|
|
|
|
1,995,239
|
|
Total
|
|
$
|
39,988,305
|
|
|
$
|
938,451
|
|
|
$
|
(286,861
|
)
|
|
$
|
40,639,894
|
|
The
amortized cost and approximate market value of investment securities classified
as available-for-sale at December 31, 2007, are summarized as
follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Mortgage-Backed
Securities
|
|
$
|
63,612,681
|
|
|
$
|
376,987
|
|
|
$
|
(6,522
|
)
|
|
$
|
63,983,146
|
|
Total
|
|
$
|
63,612,681
|
|
|
$
|
376,987
|
|
|
$
|
(6,522
|
)
|
|
$
|
63,983,146
|
|
The
amortized cost and approximate market value of investment securities classified
as trading at December 31, 2007, are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Mortgage-Backed
Securities
|
|
$
|
19,144,678
|
|
|
$
|
65,250
|
|
|
$
|
(10,721
|
)
|
|
$
|
19,199,207
|
|
Total
|
|
$
|
19,144,678
|
|
|
$
|
65,250
|
|
|
$
|
(10,721
|
)
|
|
$
|
19,199,207
|
|
The
aggregate fair value and aggregate unrealized losses on securities whose fair
values are below book values as of December 31, 2008, are summarized
below. Due to the nature of the investment and current market prices,
these unrealized losses are considered a temporary impairment of the
securities.
NOTE
B.
INVESTMENT
SECURITIES (Continued)
As of
December 31, 2008, there were thirty-eight securities included in
held-to-maturity and two securities included in available-for-sale.
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions
(38)
|
|
$
|
10,348,081
|
|
|
$
|
(541,309
|
)
|
|
$
|
2,897,458
|
|
|
$
|
(301,645
|
)
|
|
$
|
13,245,539
|
|
|
$
|
(842,954
|
)
|
Total
|
|
$
|
10,348,081
|
|
|
$
|
(541,309
|
)
|
|
$
|
2,897,458
|
|
|
$
|
(301,645
|
)
|
|
$
|
13,245,539
|
|
|
$
|
(842,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgaged-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
(2)
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
Total
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
The
aggregate fair value and aggregate unrealized losses on securities whose fair
values are below book values as of December 31, 2007, are summarized
below. Due to the nature of the investment and current market prices,
these unrealized losses are considered a temporary impairment of the
securities. As of December 31, 2007, there were twenty-five
securities included in held-to-maturity and one security included in
available-for-sale.
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions
(25)
|
|
$
|
7,167,727
|
|
|
$
|
(205,231
|
)
|
|
$
|
1,683,047
|
|
|
$
|
(81,630
|
)
|
|
$
|
8,850,774
|
|
|
$
|
(286,861
|
)
|
Total
|
|
$
|
7,167,727
|
|
|
$
|
(205,231
|
)
|
|
$
|
1,683,047
|
|
|
$
|
(81,630
|
)
|
|
$
|
8,850,774
|
|
|
$
|
(286,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgaged-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
289,977
|
|
|
$
|
(6,522
|
)
|
|
$
|
289,977
|
|
|
$
|
(6,522
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
289,977
|
|
|
$
|
(6,522
|
)
|
|
$
|
289,977
|
|
|
$
|
(6,522
|
)
|
NOTE B.
INVESTMENT
SECURITIES (Continued)
The
unrealized losses in the Company’s investment portfolio, caused by interest rate
increases, are not credit issues and are deemed to be temporary. Cash
flows from the mortgage-backed securities are guaranteed by the full faith and
credit of the United States or by an agency of the United States
government. The Company also has the ability and intent to hold
these securities until maturity and thus is not required to record any loss on
the securities.
Equity
securities at December 31, 2008 and 2007, include the following: FHLB stock of
$3,186,700 and $1,696,500 for 2008 and 2007, respectively; Federal Reserve Bank
stock of $521,700 for 2008 and 2007; First National Bankers Bank stock in the
amount of $47,800 for 2008 and 2007; an investment in ECD Investments, LLC of
$98,738 in 2008 and $100,000 in 2007 and a $155,000 investment in B&K
Statutory Trust for both years. Redemptions of stock in the FHLB during 2008 and
2007 were $945,000 and $2,013,600, respectively. The FHLB, Federal
Reserve Bank and First National Bankers Bank stocks are considered restricted
stock as only banks, which are members of these organizations, may acquire or
redeem them. The stock is redeemable at its face value; therefore,
there are no gross unrealized gains or losses associated with these
investments.
Investment
securities with an amortized cost of approximately $115,847,000 (approximate
market value $117,909,000) at December 31, 2008, and approximately $94,064,000
(approximate market value $95,138,000) at December 31, 2007, were pledged to
collateralize public deposits and for other purposes as required or permitted by
law or agreement. The increase from year to year is due to additional
public funds received in 2008.
The
amortized cost and approximate market value of investment debt securities at
December 31, 2008, by contractual maturity (including mortgage-backed
securities), are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Yields on tax-exempt
municipal securities have been computed on a book equivalent basis which takes
into account the coupon rate paid by the issuer adjusted by any premium paid or
discount received on the security at settlement date.
NOTE B.
INVESTMENT
SECURITIES (Continued)
|
|
Securities
held-to-maturity
|
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Market
Value
|
|
Due
in One Year or Less
|
|
|
5.935
|
%
|
|
$
|
405,000
|
|
|
$
|
406,717
|
|
Due
After One Year through Five Years
|
|
|
7.277
|
%
|
|
|
4,384,500
|
|
|
|
4,476,587
|
|
Due
After Five Years through Ten Years
|
|
|
6.807
|
%
|
|
|
20,892,895
|
|
|
|
21,228,772
|
|
Due
After Ten Years
|
|
|
5.934
|
%
|
|
|
29,132,618
|
|
|
|
28,731,015
|
|
|
|
|
6.377
|
%
|
|
$
|
54,815,013
|
|
|
$
|
54,843,091
|
|
|
|
Securities
available-for-sale
|
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Market
Value
|
|
Due
in One Year or Less
|
|
|
0.000
|
%
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
After One Year through Five Years
|
|
|
0.000
|
%
|
|
|
-
|
|
|
|
-
|
|
Due
After Five Years through Ten Years
|
|
|
0.000
|
%
|
|
|
-
|
|
|
|
-
|
|
Due
After Ten Years
|
|
|
5.526
|
%
|
|
|
108,548,988
|
|
|
|
111,895,476
|
|
|
|
|
5.526
|
%
|
|
$
|
108,548,988
|
|
|
$
|
111,895,476
|
|
NOTE B.
INVESTMENT
SECURITIES (Continued)
During
the first quarter of 2007, the Company elected early adoption of SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”), and SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”)on approximately $20
million of its investment securities. The extent of the election and
the cumulative-effect adjustment to retained earnings are as
follows:
Description
|
|
Balance
Sheet at January 1, 2007, Prior to Adoption
|
|
|
Net
Loss Upon Adoption
|
|
|
Balance
Sheet At January 1, 2007, After Adoption of Fair Value
Option
|
|
Investment
Securities
|
|
$
|
20,387,696
|
|
|
$
|
(657,080
|
)
|
|
$
|
19,730,616
|
|
Increase
in Deferred Tax Asset
|
|
|
|
|
|
|
245,091
|
|
|
|
|
|
Cumulative
Effect of the adoption of the Fair Value Option (charged to retained
earnings)
|
|
|
|
|
|
$
|
(411,989
|
)
|
|
|
|
|
On April
12, 2007, the Company sold the $20 million of the securities it had transferred
to trading in connection with the adoption of SFAS 157 and SFAS 159, along with
an additional $35 million of its available-for-sale securities
(“AFS”). The net proceeds from this sale were reinvested back into
longer-term higher yielding mortgage backed securities in order to reduce
short-term cash flows and mitigate increasing asset sensitivity of the Company’s
asset/liability position in the face of an inverted interest rate yield curve
environment extending to 10 year maturities. The average duration of
the new investment securities is 3.93 years. The Company classified
$20 million of the new securities as trading and the remaining $35 million as
AFS. During 2008, the Company sold its $20 million of securities
classified as trading.
The
following provides the fair value hierarchy table set forth in SFAS 157
supplemented with information regarding the income statement changes in fair
value of assets (for which the fair value option has been elected):
NOTE B.
INVESTMENT
SECURITIES (Continued)
Fair
Value Measurements at December 31, 2008:
Description
|
|
Fair
Value Measurements at December 31, 2008
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
Significant
Unobservable Inputs
(Level
3)
|
Available-for-sale
|
|
$
|
111,895,476
|
|
|
|
$
|
111,895,476
|
|
|
Level
1
includes the most
reliable sources, and includes quoted prices in active markets. Level
2
includes
observable inputs. Observable inputs are defined in SFAS 159 to
include “inputs other than quoted prices that are observable for the asset or
liability (for example, interest rates and yield curves at commonly quoted
intervals, volatilities, prepayment speeds, loss severities, credit risks, and
default rates)” as well as “inputs that are derived principally from or
corroborated by observable market data by correlation or other means
(market-corroborated inputs).” Level 3
includes unobservable
inputs and should be used only when observable inputs are
unavailable.
NOTE
C. LOANS
The
Bank’s loan portfolio (rounded to the nearest thousand) at December 31, 2008 and
2007, consists of the following:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Commercial,
Financial and Agricultural
|
|
$
|
25,128,000
|
|
|
$
|
25,884,000
|
|
Real
Estate-Construction
|
|
|
30,910,000
|
|
|
|
45,097,000
|
|
Real
Estate-Mortgage
|
|
|
163,264,000
|
|
|
|
144,561,000
|
|
Installment
|
|
|
6,038,000
|
|
|
|
7,550,000
|
|
Overdrafts
|
|
|
171,000
|
|
|
|
261,000
|
|
Total
loans
|
|
$
|
225,511,000
|
|
|
$
|
223,353,000
|
|
|
|
|
|
|
|
|
|
|
Loans on
which accrual of interest has been discontinued or reduced were approximately
$3,568,000 and $1,302,000 at December 31, 2008, and 2007, respectively. If
interest on these nonperforming loans had been accrued, the income would have
approximated $191,000 in 2008, $36,000 in 2007, and $31,000 in
2006. The related allowance amount on impaired loans at December 31,
2008, was approximately $408,073 compared to $333,000 at December 31,
2007. Loans which are contractually 90 days or more past due as of
December 31, 2008 and 2007, were approximately $517,779 and $12,302,
respectively.
NOTE
C. LOANS (Continued)
In the
ordinary course of business, the Bank makes loans to its executive officers,
principal stockholders, directors and to companies in which these borrowers are
principal owners. Loans outstanding to such borrowers (including
companies in which they are principal owners) amounted to $1,394,093 and
$2,406,672 at December 31, 2008 and 2007, respectively. These loans
were made on substantially the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of collectibility or
present other unfavorable features.
The
aggregate amount of loans to such related parties for 2008 and 2007 is as
follows:
|
|
2008
|
|
|
2007
|
|
Balance
at January 1
|
|
$
|
2,406,672
|
|
|
$
|
3,255,659
|
|
New
Loans
|
|
|
949,898
|
|
|
|
840,313
|
|
Repayments
|
|
|
(1,616,796
|
)
|
|
|
(1,689,300
|
)
|
Transfers
out
|
|
|
(345,681
|
)
|
|
|
-
|
|
Balance
at December 31
|
|
$
|
1,394,093
|
|
|
$
|
2,406,672
|
|
NOTE
D. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan
losses is as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
at January 1
|
|
$
|
2,430,936
|
|
|
$
|
2,344,434
|
|
|
$
|
2,377,840
|
|
Credits
charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate – Mortgage
|
|
|
(582,756
|
)
|
|
|
(283,733
|
)
|
|
|
(7,501
|
)
|
Commercial,
Financial and Agricultural
|
|
|
(541,228
|
)
|
|
|
(86,854
|
)
|
|
|
(570,717
|
)
|
Installment
Loans
|
|
|
(38,590
|
)
|
|
|
(136,380
|
)
|
|
|
(64,488
|
)
|
Total
Charge-Offs
|
|
|
(1,162,574
|
)
|
|
|
(506,967
|
)
|
|
|
(642,706
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate - Mortgage
|
|
|
89,052
|
|
|
|
4,703
|
|
|
|
77,198
|
|
Commercial,
Financial and Agricultural
|
|
|
223,462
|
|
|
|
109,714
|
|
|
|
25,991
|
|
Installment
Loans
|
|
|
86,926
|
|
|
|
39,052
|
|
|
|
31,111
|
|
Total
Recoveries
|
|
|
399,440
|
|
|
|
153,469
|
|
|
|
134,300
|
|
Net
Credits Charged Off
|
|
|
(763,134
|
)
|
|
|
(353,498
|
)
|
|
|
(508,406
|
)
|
Provision
for Loan Losses
|
|
|
730,000
|
|
|
|
440,000
|
|
|
|
475,000
|
|
Balance
at December 31
|
|
$
|
2,397,802
|
|
|
$
|
2,430,936
|
|
|
$
|
2,344,434
|
|
NOTE
E. LOAN SERVICING
Loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans were
approximately $9,555,670, $12,691,665 and $12,830,831 in 2008, 2007 and 2006,
respectively.
NOTE F.
BANK PREMISES AND
EQUIPMENT
A summary
of Bank premises and equipment is as follows:
|
|
2008
|
|
|
2007
|
|
Buildings
and Improvements
|
|
$
|
7,440,015
|
|
|
$
|
7,403,176
|
|
Furniture
and Equipment
|
|
|
5,225,219
|
|
|
|
5,582,038
|
|
|
|
|
12,665,234
|
|
|
|
12,985,214
|
|
Less:
Accumulated Depreciation
|
|
|
(6,856,953
|
)
|
|
|
(6,741,982
|
)
|
Land
|
|
|
1,114,553
|
|
|
|
1,114,553
|
|
Bank
Premises and Equipment, Net
|
|
$
|
6,922,835
|
|
|
$
|
7,357,785
|
|
The
provision for depreciation charged to operating expenses was $764,645, $791,330
and $798,221 for the years ended December 31, 2008, 2007 and 2006,
respectively.
NOTE
G. TRUST DEPARTMENT ASSETS
Property
(other than cash deposits) held by the Bank in fiduciary or agency capacities
for its customers are not included in the accompanying consolidated balance
sheets as such items are not assets of the Bank. Trust fees are
reported on the cash basis. The difference between cash basis and the accrual
basis is immaterial.
The
Company has entered into a Trust Services Agreement with National Independent
Trust Company, a national banking association doing business as Argent Trust
Company, headquartered in Ruston, Louisiana. Effective January 1,
2007, Argent Trust Company assumed all responsibilities associated with trust
services, having been duly appointed successor trustee for all trust
accounts. Argent Trust Company performs certain fiduciary services
for customers transferred from and referred by the Bank to Argent Trust
Company. In return the Bank receives a specified percentage of
fee income paid to Argent Trust Company by those customers.
NOTE
H. DEPOSITS
Deposits
at December 31, 2008 and 2007, consisted of the following:
|
|
2008
|
|
|
2007
|
|
Non-Interest
Bearing Demand Deposits
|
|
$
|
51,119,827
|
|
|
$
|
47,305,927
|
|
NOW
Accounts
|
|
|
48,338,323
|
|
|
|
24,056,081
|
|
Money
Market Deposit Accounts
|
|
|
33,662,518
|
|
|
|
34,449,399
|
|
Savings
Accounts
|
|
|
17,736,516
|
|
|
|
17,310,284
|
|
Certificates
of Deposit
|
|
|
106,357,236
|
|
|
|
123,272,459
|
|
|
|
$
|
257,214,420
|
|
|
$
|
246,394,150
|
|
Maturities
of certificates of deposit of $100,000 or more outstanding at December 31, 2008
and 2007, are summarized as follows:
|
|
2008
|
|
|
2007
|
|
Time
Remaining Until Maturity:
|
|
|
|
|
|
|
Three
Months or Less
|
|
$
|
21,104,104
|
|
|
$
|
13,693,963
|
|
Over
Three Through Six Months
|
|
|
10,266,988
|
|
|
|
16,183,305
|
|
Over
Six Through Twelve Months
|
|
|
12,796,081
|
|
|
|
18,119,579
|
|
Over
Twelve Months
|
|
|
3,417,858
|
|
|
|
4,210,503
|
|
|
|
$
|
47,585,031
|
|
|
$
|
52,207,350
|
|
The
approximate scheduled maturities of certificates of deposits for each of the
next five years are:
2009
|
|
$
|
95,658,656
|
|
2010
|
|
|
5,832,395
|
|
2011
|
|
|
1,145,611
|
|
2012
|
|
|
1,776,546
|
|
2013
|
|
|
1,944,028
|
|
|
|
$
|
106,357,236
|
|
Interest
expense on certificates of deposit greater than $100,000 was approximately
$1,901,000, $2,430,000 and $2,486,000 for the years ended December 31, 2008,
2007 and 2006, respectively. The public fund deposits were
$49,346,709 and $28,121,213 at December 31, 2008 and 2007,
respectively.
NOTE
I. BORROWINGS
Federal
Home Loan Bank Advances:
During
2008 and 2007, the Bank received advances from and remitted payments to the
FHLB. These advances are collateralized by a portion of the Bank’s
one-to-four family residential mortgage portfolio, certain secured commercial
loans and certain investment securities in accordance with the
Advance
Security and Collateral Agreement with the FHLB. The following
provides information regarding outstanding FHLB advances:
Advances
outstanding at December 31, 2008, consist of
two amortizable
fixed-rate loans totaling $829,931 with interest rates ranging from 3.997% to
4.963%. The maturities on these loans range from June 1, 2009, to
September 1, 2010.
In
addition to the term advances, the Company had overnight borrowings in the
amount of $54,110,000.
Advances
outstanding at December 31, 2007, consist of: four amortizable fixed-rate loans
totaling $4,160,731 with interest rates ranging from 2.377% to
4.963%. The maturities on these loans range from May 1, 2008, to
September 1, 2010. Two variable-rate loans, tied to 3 month Libor,
totaling $25,000,000 with interest rates, including margins and adjusting
quarterly, ranging from 4.37% to 5.059% and caps established at the strike price
of 4.00% and 5.50%. The maturities on these loans are February 4, 2008 and
August 15, 2008.
There
were no overnight borrowings at December 31, 2007.
Annual
maturities for the next two years as of December 31, 2008, are as
follows:
2009
|
|
$
|
54,929,107
|
|
2010
|
|
|
10,824
|
|
|
|
$
|
54,939,931
|
|
Junior
Subordinated Debentures:
In 2003,
the Company issued $5,000,000 of junior subordinated
debentures. These junior subordinated debentures qualify as Tier 1
capital for regulatory capital purposes but are classified as a liability under
accounting principles generally accepted in the United States of
America. These securities carry an interest rate of LIBOR + 3.15%,
adjusted quarterly, with interest paid quarterly in arrears and mature in March,
2033. Since March 26, 2008, and quarterly thereafter, the Company has
the option of calling these debentures.
NOTE
J. EMPLOYEE BENEFIT PLANS
The Bank
has an employee stock ownership plan which is designed to invest primarily in
employer stock. All employees of the Bank with one year of service
and who are at least 21 years old are covered, and are fully vested after six
years of service. Employer contributions are determined annually in
the discretion of the Board of Directors and are allocated among participants on
the basis of their total annual compensation. Dividends on stock
owned by the plan are recorded as a reduction of retained
earnings. There were no Company contributions to the plan for the
years 2008, 2007, or 2006.
NOTE
J. EMPLOYEE BENEFIT PLANS (Continued)
The plan
owned 79,527 and 87,296 shares of Britton & Koontz Capital Corporation
stock, as of December 31, 2008 and 2007, respectively.
The
overall cost to the plan for the years ended December 31, 2008, 2007 and 2006,
was $9.14, $7.94 and $8.00 per share, respectively.
Employees
age 21 and older are eligible to participate in a 401(k) plan established by the
Bank. Under this plan, employees may defer a percentage of their
salaries, subject to limits based on federal tax laws. These deferrals are
immediately vested. Employer matching and profit sharing
contributions are non-mandatory and 100% vested after six
years. Employer contributions to the plan are made at the discretion
of the Board of Directors and aggregated $126,654, $121,691 and $123,816 for the
years ended December 31, 2008, 2007 and 2006, respectively.
The
Company maintains a long-term incentive plan, the Britton Koontz Capital
Corporation 2007 Long-Term Incentive Compensation Plan (the “2007 LTIP”), in
which all employees of the Company and its subsidiaries may participate.
The plan is administered
by a committee of at least two non-employee directors appointed by the full
Board of Directors. The 2007 LTIP was approved by the Company’s
shareholders on April 24, 2007, and replaced the Company’s 1996 Long-Term
Incentive Plan (the “1996 LTIP”), which was effective as of May 16, 1996 and
expired as of May 16, 2006, after which no grants or awards could be
made. There were 86,630 shares remaining available for grant or award
under the 1996 LTIP at the time of its expiration that have been added to the
shares available for grant or award under the 2007 LTIP. The Company
has granted options to purchase a total of 112,643 shares, including 98,643 from
the 1996 LTIP and 14,000 from the 2007 LTIP. An aggregate of 87,880
shares remained available for grant or award at December 31, 2008, under the
2007 LTIP. Options to acquire 27,120 shares were outstanding and
exercisable as of December 31, 2008.
The
summary of stock option activity is shown below:
|
|
|
|
|
Weighted
|
|
|
|
Options
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Exercise
Price
|
|
December
31, 2006
|
|
|
28,370
|
|
|
$
|
17.51
|
|
Options
granted
|
|
|
14,000
|
|
|
|
19.02
|
|
Options
expired
|
|
|
(12,500
|
)
|
|
|
19.94
|
|
Options
forfeited
|
|
|
(2,000
|
)
|
|
|
14.50
|
|
December
31, 2007
|
|
|
27,870
|
|
|
$
|
17.40
|
|
Options
granted
|
|
|
-
|
|
|
|
-
|
|
Options
expired
|
|
|
-
|
|
|
|
-
|
|
Options
forfeited
|
|
|
(750
|
)
|
|
|
14.50
|
|
December
31, 2008
|
|
|
27,120
|
|
|
$
|
17.48
|
|
NOTE
J. EMPLOYEE BENEFIT PLANS (Continued)
The
following table summarizes information about stock options outstanding at
December 31, 2008:
Exercise
Price
|
Options
Outstanding
|
Remaining
Contractual Life
|
$
19.02
|
14,000
|
3.4
years
|
14.50
|
8,120
|
2.9
years
|
18.00
|
5,000
|
1.3
years
|
The fair
value of each option is estimated on the grant date using the Black-Scholes
option pricing model. The following assumptions were made in
estimating fair values in 2007. No options were granted in 2006 or
2008.
Assumption
|
2007
|
|
|
Dividend
yield
|
3.76%
|
Risk
free rate
|
5.06%
|
Expected
life
|
5
years
|
Expected
volatility
|
21.23%
|
SFAS
123(R) requires measurement for share-based transactions at the fair value of
the equity instrument issued. Net income after tax for 2008, 2007 and
2006 was reduced by $13,000, $11,000 and $10,000, respectively, due to valuing
stock options
The Bank
maintains a salary continuation agreement with its chief executive
officer. The agreement provides equal annual benefits for a period of
15 years following the later of (1) his attainment of age 65, or (2) his
retirement. The amount of the benefit is fixed and is based on the
chief executive’s age when his employment ceases; the maximum annual benefit
that he may receive under the plan is $40,000. One-half of the chief
executive’s benefit vested upon his attainment of age 55; the remaining benefit
will fully vest upon his attainment of age 62. If the chief executive
dies while he is employed, his beneficiaries will be paid an annual benefit
equal to $40,000 during the 15-year period following his date of
death. If he dies after his installment payments have commenced, his
beneficiaries will receive the remaining payments. The benefit under
the Salary Continuation Agreement is subject to forfeiture if the chief
executive is terminated for cause. The agreement also contains a
non-competition covenant during the three-year period after his employment
ceases for any reason. If he breaches this covenant, the Bank may
cease all further payments. The Bank is also currently paying
benefits to a retired executive officer pursuant to a salary continuation
agreement. The financial statements for the years ended December 31,
2008, 2007 and 2006 include salary continuation expenses of $35,388, $33,630 and
$33,478, respectively.
NOTE
K. LEASES
The Bank
leases one branch office as well as parking space under operating leases which
expire in various years through 2014. Rent expense was $106,992,
$107,172 and $103,277 in 2008, 2007 and 2006, respectively.
The
future minimum rental commitments for these leases at December 31, 2008, are as
follows:
2009
|
|
$
|
105,792
|
|
2010
|
|
|
105,792
|
|
2011
|
|
|
105,792
|
|
2012
|
|
|
105,792
|
|
2013
|
|
|
83,844
|
|
Thereafter
|
|
|
13,500
|
|
|
|
$
|
520,512
|
|
NOTE
L. INCOME TAXES
The
provision/(benefit) for income taxes included in the consolidated statements of
income is as follows for the years ended December 31, 2008, 2007 and
2006:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current
|
|
$
|
1,481,016
|
|
|
$
|
988,013
|
|
|
$
|
1,308,927
|
|
Deferred
|
|
|
(171,022
|
)
|
|
|
(131,765
|
)
|
|
|
(114,945
|
)
|
|
|
$
|
1,309,994
|
|
|
$
|
856,248
|
|
|
$
|
1,193,982
|
|
The
provision for federal income taxes differs from that computed by applying the
federal statutory rate of 34% in 2008, 2007 and 2006 as indicated in the
following analysis:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Based on Statutory Rate
|
|
$
|
1,636,337
|
|
|
$
|
1,313,090
|
|
|
$
|
1,622,672
|
|
State
Taxes
|
|
|
153,470
|
|
|
|
129,291
|
|
|
|
108,971
|
|
Effect
of Tax-Exempt Income
|
|
|
(571,665
|
)
|
|
|
(568,290
|
)
|
|
|
(565,412
|
)
|
Other
|
|
|
91,852
|
|
|
|
(17,843
|
)
|
|
|
27,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,309,994
|
|
|
$
|
856,248
|
|
|
$
|
1,193,982
|
|
NOTE
L. INCOME TAXES (Continued)
The net
deferred tax liability of $1,396,998 in 2008 and $527,508 in 2007 is included in
accrued taxes and other liabilities. Net deferred tax assets of
$9,620 in 2006 are included in other assets. The net deferred tax
asset and liabilities consist of the following components at December 31, 2008,
2007 and 2006:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Deferred
Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on available-for-sale securities
|
|
$
|
(1,248,240
|
)
|
|
$
|
(138,183
|
)
|
|
$
|
-
|
|
Unrealized
gain on derivatives
|
|
|
-
|
|
|
|
(69,545
|
)
|
|
|
-
|
|
Depreciation
|
|
|
(916,118
|
)
|
|
|
(954,487
|
)
|
|
|
(978,128
|
)
|
Federal
Home Loan Bank dividends
|
|
|
(129,121
|
)
|
|
|
(160,248
|
)
|
|
|
(271,687
|
)
|
Mark
to Market trading securities
|
|
|
-
|
|
|
|
(54,045
|
)
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,869
|
)
|
|
|
|
(2,293,479
|
)
|
|
|
(1,376,508
|
)
|
|
|
(1,256,685
|
)
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
433,083
|
|
Unrealized
loss on derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
28,080
|
|
Provision
for loan losses
|
|
|
604,579
|
|
|
|
616,938
|
|
|
|
584,673
|
|
Other
real estate
|
|
|
111,635
|
|
|
|
59,400
|
|
|
|
19,463
|
|
Voluntary
severance
|
|
|
-
|
|
|
|
-
|
|
|
|
35,293
|
|
Other
|
|
|
180,267
|
|
|
|
172,662
|
|
|
|
165,713
|
|
|
|
|
896,481
|
|
|
|
849,000
|
|
|
|
1,266,305
|
|
Net
Deferred Tax Asset/(Liability)
|
|
$
|
(1,396,998
|
)
|
|
$
|
(527,508
|
)
|
|
$
|
9,620
|
|
A summary
of the changes in the net deferred tax asset (liability) for the years ended
December 31, 2008, 2007 and 2006, is as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
at beginning of year
|
|
$
|
(527,508
|
)
|
|
$
|
9,620
|
|
|
$
|
35,974
|
|
Deferred
tax expense, charged to operations
|
|
|
171,022
|
|
|
|
131,764
|
|
|
|
114,945
|
|
Other
comprehensive income, charged to equity
|
|
|
(1,040,512
|
)
|
|
|
(668,892
|
)
|
|
|
(141,299
|
)
|
Balance
at end of year
|
|
$
|
(1,396,998
|
)
|
|
$
|
(527,508
|
)
|
|
$
|
9,620
|
|
NOTE
M. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At
December 31, 2008 and 2007, the Bank had sold various investment securities with
an agreement to repurchase these securities at various times. The
underlying securities are U.S. Government obligations and obligations of other
U.S. Government agencies and corporations carried on the balance sheet at
approximately $63 million, with an approximate market value of $65
million. These securities generally remain under the Bank's control
and are included in investment securities. At December 31, 2008,
these securities had coupon rates ranging from 5.00% to 5.50% and maturity dates
ranging from 2018 to 2037.
The
related liability to repurchase these securities, included in securities sold
under repurchase agreements, was $52 million at December 31, 2008, and $48
million at December 31, 2007. During 2007, the Company entered into
two $20 million transactions with JPMorgan Chase Bank, N.A.
(“Chase”). Details of these transactions can be found in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed
with the SEC. The remaining liability of $12 million in 2008 and $8
million in 2007 primarily includes agreements that the Company has entered into
with local customers for overnight sweep accounts and term repurchase agreements
with rates ranging from .25% to 3.00%. The maximum amount of
outstanding agreements at any month-end was $54 million and $50 million during
2008 and 2007, respectively. The monthly average amount of
outstanding agreements was $51 million and $21 million during 2008 and 2007,
respectively.
NOTE
N.
REGULATORY
MATTERS
The
primary source of the Company’s revenue is dividends from the
Bank. Federal banking regulations place certain restrictions on
dividends paid and loans or advances made by the Bank to the
Company. Under federal law, the directors of a national bank, after
making proper deduction for all expenses and other deductions required by the
Comptroller of the Currency, may credit net profits to the bank’s undivided
profits account, and may declare a dividend from that account of so much of the
net profits as they judge expedient. The Comptroller and the Federal
Reserve Board have each indicated that banking organizations should generally
pay dividends only out of current operating earnings. The Bank’s
ability to pay dividends is also limited by prudence, statutory and regulatory
guidelines, and a variety of other factors. At December 31, 2008,
$5.5 million was available for dividends out of current operating
earnings.
Federal
Reserve regulations limit the amount the Bank may loan to the Company unless
such loans are collateralized by specific obligations. At December
31, 2008, the maximum amount available for transfer from the Bank to the Company
in the form of loans on a secured basis was $4.7 million. There were
no loans outstanding from the Bank to the Company at December 31,
2008. Any such distribution is also subject to the requirements
described in the following paragraphs.
In
accordance with Office of Thrift Supervision regulations, a special “Liquidation
Account” has been established for the benefit of certain Qualifying Depositors
of Natchez First Federal Savings Bank (acquired by the Bank in 1993) in an
initial amount of approximately $2.8 million. The Liquidation Account
serves as a restriction on the distribution of stockholders’ equity in the Bank
and no cash dividend may be paid on its capital stock if the effect thereof
would be to cause the regulatory capital of the Bank to be reduced below an
amount equal to the adjusted Liquidation Account balance.
NOTE N. REGULATORY
MATTERS (Continued)
In the
event of a complete liquidation of the Bank, each Qualifying Depositor would be
entitled to his or her pro rata interest in the Liquidation
Account. Such claims would be paid before payment to the Company as
the Bank’s sole shareholder. A merger, consolidation, purchase of
assets and assumption of deposits and/or other liabilities or similar
transaction, with an FDIC-insured institution, would not be a complete
liquidation for the purpose of paying the Liquidation Account. In
such a transaction, the Liquidation Account would be required to be assumed by
the surviving institution.
The
Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and Bank’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions
are not applicable to bank holding companies.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total capital and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 2008, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
The most
recent regulatory notification categorized the Bank as well capitalized under
the regulatory capital framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the Bank’s category.
The
Company’s (consolidated) and the Bank’s actual capital amounts and ratios as of
December 31, 2008 and 2007, are presented in the following table.
NOTE
N. REGULATORY MATTERS (Continued)
|
|
Actual
|
|
|
Minimum
Capital Requirement
|
|
|
Minimum
To Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
44,283
|
|
|
|
17.31
|
%
|
|
$
|
20,467
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
39,335
|
|
|
|
15.39
|
%
|
|
$
|
20,450
|
|
|
|
8.00
|
%
|
|
$
|
25,562
|
|
|
|
10.00
|
%
|
Tier
I Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
41,885
|
|
|
|
16.37
|
%
|
|
$
|
10,234
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
36,937
|
|
|
|
14.45
|
%
|
|
$
|
10,225
|
|
|
|
4.00
|
%
|
|
$
|
15,337
|
|
|
|
6.00
|
%
|
Tier
I Capital (to Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
41,885
|
|
|
|
10.49
|
%
|
|
$
|
15,973
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
36,937
|
|
|
|
9.36
|
%
|
|
$
|
15,789
|
|
|
|
4.00
|
%
|
|
$
|
19,736
|
|
|
|
5.00
|
%
|
|
|
Actual
|
|
|
Minimum
Capital Requirement
|
|
|
Minimum
To Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
42,217
|
|
|
|
16.36
|
%
|
|
$
|
20,643
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
38,285
|
|
|
|
14.84
|
%
|
|
$
|
20,637
|
|
|
|
8.00
|
%
|
|
$
|
25,797
|
|
|
|
10.00
|
%
|
Tier
I Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
39,786
|
|
|
|
15.42
|
%
|
|
$
|
10,321
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
35,854
|
|
|
|
13.90
|
%
|
|
$
|
10,319
|
|
|
|
4.00
|
%
|
|
$
|
15,478
|
|
|
|
6.00
|
%
|
Tier
I Capital (to Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
39,786
|
|
|
|
10.98
|
%
|
|
$
|
14,500
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
35,854
|
|
|
|
9.84
|
%
|
|
$
|
14,577
|
|
|
|
4.00
|
%
|
|
$
|
18,221
|
|
|
|
5.00
|
%
|
NOTE O.
COMMITMENTS AND
CONTINGENCIES
The Bank
is a party to financial instruments with off-balance-sheet risk entered into in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit, which are not included in the accompanying
consolidated financial statements.
Commitments
to extend credit are agreements to lend money at fixed and variable rates with
fixed expiration dates or termination clauses. The Bank applies the
same credit standards used in the lending process when extending these
commitments, and periodically reassesses the customer’s creditworthiness through
ongoing credit reviews. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Collateral is obtained based on
the Bank’s assessment of the transaction. At December 31, 2008 and
2007, the Bank’s commitments to extend credit totaled $52,133,219 and
$58,418,706, respectively.
Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. The credit risk and
collateralization policy involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. The Bank
had total unfunded letters of credit of $3,575,427 and $2,808,717 as of December
31, 2008 and 2007, respectively.
The Bank
is required to maintain average reserves at the Federal Reserve
Bank. This requirement approximated $275,000 at December 31,
2008. The Bank is in compliance with this requirement.
There
were no loans held for sale at December 31, 2008 or December 31,
2007.
The Bank
has outstanding lines of credit with several of its correspondent banks
available to assist in the management of short-term liquidity. At
December 31, 2008, the total available lines of credit were $44 million with an
outstanding balance of $ -0- as reflected on the consolidated balance
sheet.
The
Company and its wholly owned subsidiaries, the Bank and the Agency, are involved
in certain litigation incurred in the normal course of business. In
the opinion of management and legal counsel, liabilities arising from such
claims, if any, would not have a material effect upon the Company's consolidated
financial statements.
NOTE
P. CONCENTRATIONS OF CREDIT
Substantially
all of the Bank’s loans, commitments, and standby letters of credit have been
granted to customers in the Bank’s market area. The majority of
investments in state and municipal securities involve governmental entities in
and around the Bank's market area. The concentrations of credit by
type of loan are set forth in Note C, and there are no other concentrations of
credit other than those in the categories set forth in Note C. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit are granted primarily to
commercial borrowers. The Bank maintains deposit accounts and federal
funds sold with correspondent banks which may, periodically, exceed the
federally insured amount.
NOTE
Q. DIVIDENDS
The Bank
paid dividends to the Company amounting to $2,800,000 in each of the years ended
2008 and 2007, respectively.
NOTE
R. INTEREST RATE RISK MANAGEMENT
There
were no interest rate swaps at December 31, 2008.
NOTE
S. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the
fair value estimates may not be realized in an immediate settlement of the
instrument. FASB Statement No. 107, “Disclosures about Fair Value of Financial
Instruments,” excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented may not necessarily represent the underlying fair
value of the Company.
The
following methods and assumptions were used by the Company in estimating fair
value disclosures for financial instruments:
Cash and
Due From Banks - Fair value equals the carrying value of such
assets.
Federal
Funds Sold - Due to the short-term nature of this asset, the carrying value of
this item approximates its fair value.
Investment
Securities - Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
Cash
Surrender Value of Life Insurance - The fair value of this item approximates its
carrying value.
Loans,
Net - For variable-rate loans which are repricing immediately, fair values are
based on carrying values. Other variable-rate loans, fixed-rate commercial
loans, installment loans, and mortgage loans are valued using discounted cash
flows. The discount rates used to determine the present value of
these loans are based on interest rates currently being charged by the Bank on
loans with comparable credit risk and terms.
Deposits
- The fair values of demand deposits are equal to the carrying value of such
deposits. Demand deposits include non-interest bearing demand
deposits, savings accounts, NOW accounts, and money market demand
accounts. Discounted cash flows have been used to value fixed rate
term deposits. The discount rate used is based on interest rates
currently being offered by the Bank on deposits with comparable amounts and
terms.
NOTE
S. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Long-Term
Borrowings - The fair values of the Company’s long-term borrowings are estimated
using discounted cash flow analysis based on the Company’s current incremental
borrowing ratio for similar types of borrowing arrangements.
Federal
Funds Purchased and Securities Sold Under Repurchase Agreements - The fair value
of these items approximates their carrying values.
Off-Balance
Sheet Instruments - Loan commitments are negotiated at current market rates and
are relatively short-term in nature. Therefore, the estimated value
of loan commitments approximates the face amount. Fair values for interest rate
swaps and caps are based on quoted market prices where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
The
estimated fair values of the Company's financial instruments, rounded to the
nearest thousand, are as follows:
NOTE
S. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
(dollars
in Thousands)
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
6,951
|
|
|
$
|
6,951
|
|
|
$
|
8,732
|
|
|
$
|
8,732
|
|
Federal
funds sold
|
|
|
-
|
|
|
|
-
|
|
|
|
245
|
|
|
|
245
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
54,815
|
|
|
|
54,843
|
|
|
|
39,988
|
|
|
|
40,640
|
|
Available-for-sale
|
|
|
111,895
|
|
|
|
111,895
|
|
|
|
63,983
|
|
|
|
63,983
|
|
Trading
|
|
|
-
|
|
|
|
-
|
|
|
|
19,199
|
|
|
|
19,199
|
|
Equity
securities
|
|
|
4,010
|
|
|
|
4,010
|
|
|
|
2,521
|
|
|
|
2,521
|
|
Cash
surrender value of life insurance
|
|
|
1,056
|
|
|
|
1,056
|
|
|
|
1,014
|
|
|
|
1,014
|
|
Loans,
net
|
|
|
223,114
|
|
|
|
224,428
|
|
|
|
220,922
|
|
|
|
234,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
257,214
|
|
|
|
258,320
|
|
|
|
246,394
|
|
|
|
246,659
|
|
Short-term
borrowings
|
|
|
54,121
|
|
|
|
54,107
|
|
|
|
26,735
|
|
|
|
26,738
|
|
Long-term
borrowings
|
|
|
819
|
|
|
|
825
|
|
|
|
2,426
|
|
|
|
2,423
|
|
Securities
sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
11,634
|
|
|
|
11,638
|
|
|
|
8,229
|
|
|
|
7,122
|
|
Structured
|
|
|
40,000
|
|
|
|
44,185
|
|
|
|
40,000
|
|
|
|
41,581
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
$
|
52,133
|
|
|
$
|
52,133
|
|
|
$
|
58,419
|
|
|
$
|
58,419
|
|
Standby
letters of credit
|
|
|
3,575
|
|
|
|
3,575
|
|
|
|
2,808
|
|
|
|
2,808
|
|
Interest
rate swap
|
|
|
-
|
|
|
|
-
|
|
|
|
186
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
T.
CONDENSED FINANCIAL INFORMATION OF
BRITTON & KOONTZ CAPITAL
CORPORATION
The
financial information of Britton & Koontz Capital Corporation, parent
company only, is as follows:
BALANCE
SHEETS
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
4,659,463
|
|
|
$
|
3,681,391
|
|
Investment
in subsidiaries
|
|
|
39,903,724
|
|
|
|
37,179,848
|
|
Other
assets
|
|
|
136,849
|
|
|
|
70,154
|
|
TOTAL
ASSETS
|
|
$
|
44,700,036
|
|
|
$
|
40,931,393
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Junior
subordinated debentures
|
|
$
|
5,155,000
|
|
|
$
|
5,155,000
|
|
Other
liabilities
|
|
|
3,967
|
|
|
|
(24,472
|
)
|
TOTAL
LIABILITIES
|
|
|
5,158,967
|
|
|
|
5,130,528
|
|
STOCKHOLDERS’
EQUITY
|
|
|
39,541,069
|
|
|
|
35,800,865
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’
|
|
|
|
|
|
|
|
|
EQUITY
|
|
$
|
44,700,036
|
|
|
$
|
40,931,393
|
|
STATEMENTS
OF INCOME
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
Dividends
Received:
|
|
|
|
|
|
|
|
|
|
Britton
& Koontz Bank, N.A.
|
|
$
|
2,800,000
|
|
|
$
|
2,800,000
|
|
|
$
|
2,500,000
|
|
Other
income
|
|
|
3,633
|
|
|
|
3,058
|
|
|
|
3,308
|
|
|
|
|
2,803,633
|
|
|
|
2,803,058
|
|
|
|
2,503,308
|
|
EXPENSES
|
|
|
439,234
|
|
|
|
558,952
|
|
|
|
675,339
|
|
|
|
|
2,364,399
|
|
|
|
2,244,106
|
|
|
|
1,827,969
|
|
INCOME
TAX EXPENSE (BENEFIT)
|
|
|
(163,551
|
)
|
|
|
(208,344
|
)
|
|
|
(273,332
|
)
|
|
|
|
2,527,950
|
|
|
|
2,452,450
|
|
|
|
2,101,301
|
|
EQUITY
IN UNDISTRIBUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Britton
& Koontz Bank, N.A.
|
|
|
975,255
|
|
|
|
542,479
|
|
|
|
1,464,176
|
|
B&K
Title Insurance Agency, Inc.
|
|
|
(442
|
)
|
|
|
10,852
|
|
|
|
13,106
|
|
NET
INCOME
|
|
$
|
3,502,763
|
|
|
$
|
3,005,781
|
|
|
$
|
3,578,583
|
|
NOTE
T.
CONDENSED
FINANCIAL INFORMATION OF
BRITTON & KOONTZ CAPITAL CORPORATION (Continued)
STATEMENTS
OF CASH FLOWS
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
3,502,763
|
|
|
$
|
3,005,781
|
|
|
$
|
3,578,583
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
on undistributed earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
and
losses of affiliates
|
|
|
(974,813
|
)
|
|
|
(553,331
|
)
|
|
|
(1,477,282
|
)
|
(Increase)
decrease in other assets
|
|
|
2,781
|
|
|
|
25,403
|
|
|
|
184,413
|
|
Increase
in other liabilities
|
|
|
(41,035
|
)
|
|
|
(61,123
|
)
|
|
|
30,061
|
|
Net
Cash Provided by Operating Activities
|
|
|
2,489,696
|
|
|
|
2,416,730
|
|
|
|
2,315,775
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
(1,524,936
|
)
|
|
|
(1,524,936
|
)
|
|
|
(1,524,619
|
)
|
Fair
value of stock options
|
|
|
13,312
|
|
|
|
10,735
|
|
|
|
10,003
|
|
Cash
received from stock options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
35,244
|
|
Net
Cash (Used in) Financing Activities
|
|
|
(1,511,624
|
)
|
|
|
(1,514,201
|
)
|
|
|
(1,479,372
|
)
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
978,072
|
|
|
|
902,529
|
|
|
|
836,403
|
|
CASH
AT BEGINNING OF YEAR
|
|
|
3,681,391
|
|
|
|
2,778,862
|
|
|
|
1,942,459
|
|
CASH
AT END OF YEAR
|
|
$
|
4,659,463
|
|
|
$
|
3,681,391
|
|
|
$
|
2,778,862
|
|
Item 9.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
(1)
None.
Item 9A(T).
Controls and Procedures.
The
Company carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer of the Company (“CEO”) and the
Chief Financial Officer of the Company (“CFO”), of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of December 31, 2008. Based on this
evaluation, the CEO and CFO concluded that as of December 31, 2008 the Company’s
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in the Company’s SEC
reports.
Management’s
Annual Report on Internal Control over Financial Reporting is contained in Item
8, Financial Statements and Supplementary Data, and is incorporated herein by
reference. There were no changes to internal control over financial
reporting during the fourth quarter of 2008 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B.
Other Information.
None.
PART III
Item 10.
Directors, Executive Officers and Corporate
Governance.
The
following tables set forth the names and principal occupations of each director
and executive officer of the Company.
DIRECTORS
|
|
Robert
R. Punches
|
Partner,
Gwin, Lewis & Punches, LLP
|
Chairman,
Britton & Koontz Capital Corporation
|
|
|
W.
W. Allen, Jr.
|
President,
Allen Petroleum Services, Inc
Vice
Chairman, Britton & Koontz Capital Corporation
|
|
W.
Page Ogden
|
President
& Chief Executive Officer
|
Britton
& Koontz Capital Corporation
Britton
& Koontz Bank, National Association
|
|
Craig
A. Bradford, D.M.D.
|
Pediatric
Dentist
|
|
|
George
R. Kurz
|
Principal,
Kurz & Hebert
|
|
Bethany
L. Overton
|
President,
Lambdin-Bisland Realty Co.
|
|
|
Vinod
K. Thukral, Ph.D.
|
Retired
University Professor
|
|
|
|
EXECUTIVE
OFFICERS
|
|
W.
Page Ogden
|
President
& Chief Executive Officer
|
Britton
& Koontz Capital Corporation
Britton
& Koontz Bank, National Association
|
|
William
M. Salters
|
Treasurer,
Chief Financial & Accounting Officer
|
Britton
& Koontz Capital Corporation
Britton
& Koontz Bank, National Association
|
Jarrett
E. Nicholson
|
Credit
Policy Officer and Chief Operations Officer
|
Britton
& Koontz Capital Corporation
|
Britton
& Koontz Bank, National
Association
|
The
additional information required in response to this item is incorporated into
this report by reference to the material under the headings “Stock Ownership,”
“Board of Directors,” “Committees of the Board of Directors” and “Executive
Officers” in the Company’s Definitive Proxy Statement for its 2009 Annual
Meeting of Shareholders (the “2009 Proxy Statement”).
Code
of Ethics
The Board
of Directors has adopted a code of business conduct and ethics in compliance
with Item 406 of Regulation S-K that applies to the principal executive officer,
principal financial officer, principal accounting officer and controller of the
Company and the Bank. Access to the Company’s Code of Ethics is
available to shareholders of the Company and customers of the Bank through the
Bank’s website at www.bkbank.com under “investor relations.” Amendments to or
waivers from provisions of the Company’s Code of Ethics will be disclosed on the
Company’s website.
Item
11. Executive Compensation.
The
information required in response to this item is incorporated into this report
by reference to the material under the headings “Board of Directors” and
“Executive Compensation” in the 2009 Proxy Statement.
Item 12
. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
Equity
Compensation Plan Information
The
following table summarizes our equity compensation plan information as of
December 31, 2008. The Britton & Koontz Capital Corporation 2007
Long-Term Incentive Compensation Plan (the “2007 LTIP”) was approved by the
Company’s shareholders on April 24, 2007 and replaced the Company’s 1996
Long-Term Incentive Plan (the “1996 LTIP”), which was effective as of May 16,
1996 and expired during 2006. As of December 31, 2008, an aggregate
of 13,120 options granted under the 1996 LTIP remain outstanding and are
exercisable in accordance with their terms.
Plan category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of outstanding options,
warrants and rights
|
|
|
Number
of securities remaining available
for future
issuance
|
|
Equity
compensation plans approved by security holders
(1)
|
|
|
27,120
|
|
|
$
|
17.48
|
|
|
|
87,880
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
27,120
|
|
|
$
|
17.48
|
|
|
|
87,880
|
|
_________________________
(1)
|
An
aggregate of 115,000 shares of common stock are authorized for issuance
under the 2007 LTIP. This amount includes 28,370 newly-reserved
shares and 86,630 shares that remained available for grant or award under
the 1996 LTIP at the time of its
expiration.
|
Additional
information required in response to this item is incorporated into this report
by reference to the material under the heading “Stock Ownership” in the 2009
Proxy Statement.
Item 13
. Certain Relationships and Related
Transactions, and Director Independence.
The
information required in response to this item is incorporated into this report
by reference to the material under the heading “Board of Directors” in the 2009
Proxy Statement.
Item 14
. Principal Accounting Fees and
Services.
The
information required in response to this item is incorporated into this report
by reference to the material under the heading “Independent Registered Public
Accountants” in the 2009 Proxy Statement.
PART IV
Item 15
. Exhibits, Financial Statement
Schedules.
1.
|
Consolidated
Financial Statements and Supplementary Information for Years Ended
December 31, 2008, 2007 and 2006, which include the
following:
|
(a)
|
Management’s
Annual Report on Internal Control over Financial
Reporting
|
(b)
|
Report
of Independent Registered Public Accounting
Firm
|
(c)
|
Consolidated
Balance Sheets
|
(d)
|
Consolidated
Statements of Income
|
(e)
|
Consolidated
Statements of Changes in Stockholders’
Equity
|
(f)
|
Consolidated
Statement of Cash Flows
|
(g)
|
Notes
to the Consolidated Financial
Statements
|
2.
|
Financial
Statement Schedules
|
None
3. Exhibits
required by Item 601 of Regulation S-K
Exhibit
|
|
Description of Exhibit
|
|
|
|
3.1
|
*
|
Amended
and Restated Articles of Incorporation of Britton & Koontz Capital
Corporation, incorporated by reference to Exhibit 3.01 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission (“Commission”) on February 20, 2009.
|
|
|
|
3.2
|
*
|
By-Laws
of Britton & Koontz Capital Corporation, as amended, incorporated by
reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 22,
2008.
|
|
|
|
4.1
|
*
|
Shareholder
Rights Agreement dated June 1, 1996 between Britton & Koontz Capital
Corporation and Britton & Koontz First National Bank, as Rights Agent,
incorporated by reference to Exhibit 4.3 to Registrant’s Registration
Statement on Form S-8, Registration No. 333-20631, filed with the
Commission on January 29, 1997, as amended by Amendment No. 1 to Rights
Agreement dated as of August 15, 2006, incorporated by reference to
Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the
Commission on August 17, 2006.
|
|
|
|
10.01
|
*†
|
Employment
Agreement dated February 17, 2009, between Britton & Koontz
Capital Corporation and W. Page Ogden, incorporated by reference to
Exhibit 10.01 to Registrant’s Current Report on Form 8-K filed with the
Commission on February 20, 2009.
|
|
|
|
10.02
|
*†
|
Britton
& Koontz Capital Corporation Long-Term Incentive Compensation Plan and
Amendment, incorporated by reference to Exhibit 4.4 to Registrant’s
Registration Statement on Form S-8, Registration No. 333-20631, filed with
the Commission on January 29, 1997.
|
|
|
|
10.03
|
*†
|
Britton
& Koontz Capital Corporation 2007 Long-Term Incentive Compensation
Plan, incorporated by reference to Appendix B to Registrant’s Definitive
Proxy Statement filed with the Commission on March 21,
2007.
|
|
|
|
10.04
|
*†
|
Salary
Continuation Agreement dated December 18, 2007, between Britton &
Koontz Bank, N.A. and W. Page Ogden, incorporated by reference to Exhibit
10.04 to Registrant’s Current Report on Form 8-K filed with the Commission
on February 27, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
As
indicated in the column entitled “Description of Exhibit,” this exhibit is
incorporated by reference to another filing or
document.
|
†
|
Management
contract or compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10-K pursuant to Item 15 of Form
10-K.
|
The
Company does not have any un-registered long-term debt exceeding ten percent of
the total assets of the Company and its subsidiaries on a consolidated
basis. The Company will file with the SEC, upon request, a copy of
all long-term debt instruments.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
BRITTON & KOONTZ CAPITAL
CORPORATION
Date:
March 17,
2009 By:
/s/ Robert R.
Punches
Robert R.
Punches
Chairman of the Board
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
/s/
Robert R. Punches
|
|
|
|
|
Robert
R. Punches
|
|
Chairman
and Director
|
|
March
17, 2009
|
/s/
W. W. Allen, Jr.
|
|
|
|
|
W.
W. Allen, Jr.
|
|
Vice
Chairman and Director
|
|
March
17, 2009
|
/s/
W. Page Ogden
|
|
|
|
|
W.
Page Ogden
|
|
Principal
Executive Officer and
|
|
March
17, 2009
|
|
|
Director
|
|
|
/s/
Craig A. Bradford, DMD
|
|
|
|
|
Craig
A. Bradford, DMD
|
|
Director
|
|
March
17, 2009
|
/s/
Bethany L. Overton
|
|
|
|
|
Bethany
L. Overton
|
|
Director
|
|
March
17, 2009
|
/s/
George R. Kurz
|
|
|
|
|
George
R. Kurz
|
|
Director
|
|
March
17, 2009
|
/s/
Vinod K. Thukral, Ph.D.
|
|
|
|
|
Vinod
K. Thukral, Ph.D.
|
|
Director
|
|
March
17, 2009
|
/s/
William M. Salters
|
|
|
|
|
William
M. Salters
|
|
Treasurer,
Principal Financial
Officer
and Principal Accounting Officer
|
|
March
17, 2009
|
Exhibit
|
|
Description
of Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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