U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2009
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 000-52453
PIEDMONT COMMUNITY BANK GROUP, INC.
(Exact name of small business issuer as
specified in its charter)
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Georgia
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20-8264706
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.)
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110 Bill Conn Parkway, Gray, Georgia 31032
(Address of principal executive offices)
(478) 986-5900
(Issuer’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has
submitted and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 11, 2009:1,630,734 shares, no par value per share.
PIEDMONT COMMUNITY BANK GROUP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Item 1.
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CONSOLIDATED FINANCIAL STATEMENTS
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PIEDMONT COMMUNITY BANK GROUP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2009 and December 31, 2008
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March 31, 2009
(unaudited)
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December 31, 2008
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ASSETS
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Cash and due from banks
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$
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2,348,537
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$
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2,450,217
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Interest-bearing deposits in banks
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3,126,532
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3,802,160
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Federal funds sold
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471,000
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7,198,000
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Securities held to maturity, at cost
(fair value of $2,202,497 and $2,464,937, respectively)
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2,522,250
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2,522,250
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Securities available for sale, at fair value
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33,802,864
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24,786,543
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Restricted equity securities, at cost
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1,463,123
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1,516,723
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Loans, less allowance for loan losses of $3,055,798 and $2,948,204, respectively
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188,783,351
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190,016,311
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Accrued interest receivable
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1,795,173
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2,215,265
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Premises and equipment, net
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8,310,819
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8,418,500
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Other real estate owned
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8,131,431
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8,845,275
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Long-lived assets held for sale
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681,707
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681,707
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Bank owned life insurance
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3,723,890
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3,682,410
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Other assets
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2,227,282
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1,972,615
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Total assets
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$
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257,387,959
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$
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258,107,976
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Deposits:
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Noninterest-bearing
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$
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5,577,961
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$
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4,901,699
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Interest-bearing
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215,576,513
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216,177,748
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Total deposits
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221,154,474
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221,079,447
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Accrued interest payable
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1,267,234
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1,079,576
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Other borrowings
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19,147,931
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19,736,933
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Other liabilities
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17,215
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144,045
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Total liabilities
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241,586,854
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242,040,001
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Shareholders’ equity:
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Preferred stock, no par value, 5,000,000 shares authorized:
4,000 shares issued and outstanding
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100,000
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—
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Common stock, no par value, 10,000,000 shares authorized;
1,630,734 shares issued and outstanding
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16,268,345
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16,334,059
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Undivided profits
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(648,562
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)
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(470,431
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)
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Accumulated other comprehensive income
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81,322
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204,347
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Total shareholders’ equity
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15,801,105
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16,067,975
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Total liabilities and shareholders’ equity
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$
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257,387,959
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$
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258,107,976
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See accompanying notes to unaudited consolidated financial statements
3
PIEDMONT COMMUNITY BANK GROUP, INC.
AND SUBSIDIARY
Consolidated
Statements of Income and Other Comprehensive Income
For the Three Months Ended March 31, 2009 and 2008
(unaudited)
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March 31,
2009
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March 31,
2008
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Interest and dividend income:
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Loans, including fees
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$
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2,496,063
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$
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3,230,342
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Securities available for sale
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275,596
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114,136
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Securities held to maturity
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25,330
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21,579
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Interest-bearing deposits in banks
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37,549
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30,885
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Federal funds sold
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1,160
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17,002
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Dividends
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—
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13,686
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2,835,698
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3,427,630
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Interest expense:
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Deposits
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1,783,312
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2,044,925
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Other borrowings
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212,130
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159,317
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1,995,442
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2,204,245
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Net interest income
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840,256
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1,223,385
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Provision for loan losses
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462,000
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274,500
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Net interest income after provision for loan losses
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378,256
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948,885
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Noninterest income:
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Service charges on deposit accounts
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58,879
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37,374
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Mortgage origination income
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1,681
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30,906
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Gain on sales of securities
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243,541
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63,812
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Other
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49,195
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105,498
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353,296
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237,590
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Noninterest expense:
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Salaries and employee benefits
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408,352
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661,828
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Equipment and occupancy
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141,654
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116,705
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Other operating
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556,152
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381,925
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1,106,158
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1,160,458
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Income before provision for income taxes (benefits)
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(374,606
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)
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26,017
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Provision for income taxes (benefits)
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(196,475
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)
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(3,649
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)
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Net income (loss)
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(178,131
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)
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29,666
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Other comprehensive income (loss):
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Unrealized gains (losses) on securities available for sale arising during period, net of tax
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37,712
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37,251
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Reclassification adjustment for realized gains on sales of securities available for sale, net of tax
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(160,737
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)
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(42,116
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)
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Comprehensive income (loss)
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$
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(301,156
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)
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$
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24,801
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Income per share:
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Basic
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$
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(0.11
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)
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$
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0.02
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Diluted
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$
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(0.11
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)
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$
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0.02
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See accompanying notes to unaudited consolidated financial statements
4
PIEDMONT COMMUNITY BANK GROUP, INC.
AND SUBSIDIARY
Consolidated
Statements of Cash Flows
For the Three Months Ended March 31, 2009 and 2008
(unaudited)
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March 31,
2009
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March 31,
2008
|
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Cash flow from operating activities:
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Net income (loss)
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$
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(178,131
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)
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$
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29,666
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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150,995
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96,408
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Provision for loan losses
|
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462,000
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274,500
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Increase in cash surrender value of life insurance
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(41,480
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)
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(42,549
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)
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Share based compensation cost
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(65,714
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)
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69,246
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Deferred taxes
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(49,316
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)
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(59,595
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)
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Decrease in accrued interest receivable
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420,092
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21,353
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Increase in accrued interest payable
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187,658
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244,693
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Loss on sale of other real estate
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—
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599
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Gains on foreclosure
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—
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(58,138
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)
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Gain on sale of securities available for sale
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(243,541
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)
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(63,812
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)
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Net other operating activities
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(179,834
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)
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(109,283
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)
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Net cash flow provided by (used in) operating activities
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462,729
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403,088
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Cash flow from investing activities:
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Net decrease (increase) in loans
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422,555
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(10,837,923
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)
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Net decrease in federal funds sold
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6,727,000
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306,000
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Net decrease (increase) in interest-bearing deposits in banks
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675,628
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(870,122
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)
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Proceeds from sale of restricted equity securities
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53,600
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|
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—
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Purchases of restricted equity securities
|
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—
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(210,600
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)
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Purchases of securities available for sale
|
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(11,834,255
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)
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(4,549,357
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)
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Purchase of treasury bill
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(7,699,709
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)
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—
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Proceeds from sale of securities available for sale
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9,737,098
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2,999,675
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Proceeds from maturities of securities available for sale
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1,053,803
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|
|
|
2,570,698
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Purchase of securities held to maturity
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|
—
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—
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Proceeds from maturities of securities held to maturity
|
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—
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5,000
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Purchases of premises and equipment
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—
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|
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(983,221
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)
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Proceeds from sale of other real estate
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|
|
713,844
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266,921
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Net cash flow used in investing activities
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|
|
(150,436
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)
|
|
|
(11,302,929
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)
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Cash flow from financing activities:
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Net increase in deposits
|
|
|
75,027
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|
|
|
8,063,682
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|
Proceeds from preferred stock offering
|
|
|
100,000
|
|
|
|
—
|
|
|
Proceeds from Federal Home Loan Bank advances
|
|
|
—
|
|
|
|
1,800,000
|
|
|
Repayments of Federal Home Loan Bank
|
|
|
(1,900,000
|
)
|
|
|
—
|
|
|
Proceeds from other borrowings
|
|
|
1,336,000
|
|
|
|
1,971,622
|
|
|
Repayment of other borrowings
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by financing activities
|
|
|
(413,973
|
)
|
|
|
11,835,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and due from banks
|
|
|
(101,680
|
)
|
|
|
935,463
|
|
|
Cash and due from banks at beginning of period
|
|
|
2,450,217
|
|
|
|
1,570,492
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of period
|
|
$
|
2,348,537
|
|
|
$
|
2,505,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing activities –
|
|
|
|
|
|
|
|
|
|
Change in accumulated other comprehensive loss
|
|
$
|
123,025
|
|
|
$
|
4,865
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate
|
|
$
|
348,405
|
|
|
$
|
1,694,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information – Cash paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,807,784
|
|
|
$
|
1,959,522
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
30,658
|
|
|
$
|
70,223
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
5
PIEDMONT COMMUNITY BANK GROUP, INC.
AND SUBSIDIARY
Notes to
Consolidated Financial Statements
(unaudited)
Piedmont Community
Bank Group, Inc. (the “Company”) is a one-bank holding company with respect to its wholly-owned subsidiary bank, Piedmont Community Bank (the “Bank”). The Company was organized on April 26, 2006 and consummated the
acquisition of all of the outstanding common stock of the Bank in exchange for 1,358,968 shares of $5 par value common stock on February 7, 2007. In accounting for the transaction, the $5 par value common stock of the Bank became no par value
common stock of the holding company. The formation and reorganization was approved by the stockholders during the fourth quarter of 2006.
The Bank is a commercial bank headquartered in Gray, Jones County, Georgia. The Bank provides a full range of banking services in its primary market areas of Jones, Bibb, Monroe, Houston, Putnam and the surrounding counties.
The accompanying consolidated financial statements of the Company are unaudited. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.
All significant intercompany
transactions and balances have been eliminated in consolidation. The financial information included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair
presentation of the Company’s financial position and results of operations for the interim period ended March 31, 2009.
The
preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and income and expense amounts. Actual results could differ from those estimates. The results of
operations for the three month period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year.
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2.
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Stock Compensation Plan
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At March 31,
2009, the Company had a stock-based employee/director compensation plan which is more fully described in Note 1 of the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2008. A total of 383,502
shares have been reserved under the Plan. As of March 31, 2009, the Company had 322,364 options outstanding.
Due to the forfeiture of
options in 2008 and 2009, the company adjusted its estimated forfeiture rate which resulted in a decrease of stock based compensation cost of $65,714 during the first quarter of 2009. At March 31, 2009, there were no unrecognized compensation
cost related to stock-based payments.
No options have been granted or exercised in 2009. As of March 31, 2009, 321,964 options were
exercisable with a weighted-average exercise price of $11.67 per share.
6
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3.
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Earnings Per Common Share
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SFAS
No. 128,
Earnings Per Share
, establishes standards for computing and presenting basic and diluted earnings per share. In this regard, the Company is required to report earnings per common share with and without the dilutive effects of
potential common stock issuances from instruments such as options, convertible securities and warrants on the face of the statements of income. Earnings per common share are based on the weighted average number of common shares outstanding during
the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share. Additionally, the Company must reconcile the amounts used in the computation of both basic earnings per share and
diluted earnings per share.
Presented below is a summary of the components used to calculate basic and diluted earnings per common share.
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Three Months Ended
March 31,
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2009
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2008
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Basic earnings per share:
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Weighted average common shares outstanding
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1,630,734
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1,630,734
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Net income
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$
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(178,131
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)
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$
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29,666
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Basic earnings per share
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$
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(0.11
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)
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$
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0.02
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Diluted earnings per share:
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Weighted average common shares outstanding
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1,630,734
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1,630,734
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Net effect of the assumed exercise of stock options based on the treasury stock method using average market prices for the
period
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—
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—
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Total weighted average common shares and common stock equivalents outstanding
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1,630,734
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1,630,734
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Net income
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$
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(178,131
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)
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$
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29,666
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Diluted earnings per share
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$
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(0.11
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)
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$
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0.02
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The composition of loans is
summarized as follows:
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March 31,
2009
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December 31,
2008
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Commercial
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20,635,872
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$
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16,227,382
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Real estate-construction
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28,263,890
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34,735,791
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Real estate – mortgage
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19,394,682
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19,694,402
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Real estate – commercial
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121,460,148
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120,225,378
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Consumer installment and other
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2,067,800
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2,077,490
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191,822,392
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192,960,443
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Deferred loan costs
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16,757
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4,072
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Allowance for loan losses
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(3,055,798
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)
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(2,948,204
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)
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Loans, net
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$
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188,783,351
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$
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190,016,311
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5.
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Fair Value Measurement
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SFAS No. 157,
Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value
measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
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Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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•
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Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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•
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Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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7
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement.
Assets and liabilities measured at fair value basis are summarized
below:
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March 31,
2009
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Fair value measurements using:
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Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
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Significant
other
observable
inputs
(Level
2)
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Significant
unobservable
inputs
(Level
3)
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(In thousands)
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Recurring
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Securities available for sale
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Government sponsored agencies
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$
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11,573,213
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$
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—
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$
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11,573,213
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$
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—
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Mortgage-backed securities
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22,229,651
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—
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22,229,651
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—
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$
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33,802,864
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$
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—
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$
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33,802,864
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$
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—
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Nonrecurring
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Impaired loans
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$
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26,362,434
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$
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—
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$
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—
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$
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26,362,434
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December 31,
2008
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Fair value measurements using:
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Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
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Significant
other
observable
inputs
(Level
2)
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Significant
unobservable
inputs
(Level
3)
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(In thousands)
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Recurring
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Securities available for sale
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Government sponsored agencies
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$
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4,896,891
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$
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—
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$
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4,896,891
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$
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—
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Mortgage-backed securities
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19,889,652
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—
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19,889,652
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—
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$
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24,786,543
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$
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—
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$
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24,786,543
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$
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—
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Nonrecurring
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Impaired loans
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$
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23,275,979
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$
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—
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$
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—
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$
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23,275,979
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Following is a description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Assets
Securities
Where quoted prices are
available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then
fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy,
included certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of
the valuation hierarchy. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and the Company employs
combinations of these approaches for its valuation methods depending on the asset class.
Impaired loans
SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114,
Accounting by Creditors for
Impairment of a Loan,
including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). When fair value of the loan’s collateral is
determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.
8
Nonfinancial assets and liabilities measured at fair value are summarized below:
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March 31,
2009
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Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
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Significant
other
observable
inputs
(Level 2)
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Significant
unobservable
inputs
(Level
3)
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(In thousands)
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Other real estate owned
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$
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8,131,431
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$
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—
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$
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—
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$
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8,131,431
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Other real estate owned is valued at the time the loan is foreclosed upon and the asset is
transferred to other real estate owned. The value is based primarily on third party appraisals, less costs to sell. The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time
of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Other real estate
owned is reviewed and evaluated on at least an annual basis for additional impairment and adjusted accordingly, based on the same factors identified above.
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6.
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Recent Accounting Pronouncements
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SFAS No. 141, Business Combinations (Revised 2007).
SFAS No. 141R replaces SFAS No. 141,
Business Combinations
, and applies to all transactions and other events in which one entity obtains control over one
or more other businesses. SFAS No. 141R requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any noncontrolling interest in the acquiree at fair value as of the acquisition
date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair
value approach replaces the cost-allocation process required under SFAS No. 141 whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS No.
141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS No. 141. Under SFAS No. 141R, the
requirements of SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
, would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be
recognized at fair value, unless it is a noncontractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable
recognition criteria of SFAS No. 5,
Accounting for Contingencies
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SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement No. 51.
SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements
, to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership
interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS No. 160 requires consolidated net income to be reported at amounts that include
the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statements of income, of the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS No. 160 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial statements.
SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles
. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States
(the GAAP hierarchy). The hierarchical guidance provided by SFAS 162 did not have an impact on the Company’s consolidated financial statements
In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157
. This FSP delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The impact of adoption on
January 1, 2009, was not material.
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In April, 2009, the FASB issued FSP 115-2 & 124-2
Recognition and Presentation of Other-Than
Temporary Impairments.
The FSP eliminates the requirement for the issuer to evaluate whether it has the intent and ability to hold an impaired investment until maturity. Conversely, the new FSP requires the issuer to recognize an OTTI in the
event that the issuer intends to sell the impaired security or in the event that it is more likely than not that the issuer will sell the security prior to recovery. In the event that the sale of the security in question prior to its maturity is not
probable but the entity does not expect to recover its amortized cost basis in that security, then the entity will be required to recognize an OTTI. In the event that the recovery of the security’s cost basis prior to maturity is not probable
and an OTTI is recognized, the FSP provides that any component of the OTTI relating to a decline in the creditworthiness of the debtor should be reflected in earnings, with the remainder being recognized in Other Comprehensive Income. Conversely, in
the event that the issuer intends to sell the security before the recovery of its cost basis or if it is more likely than not that the Company will have to sell the security before recovery of its cost basis, then the entire OTTI will be recognized
in earnings. The FSP is effective for interim and annual reporting periods ending after June 15, 2009. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of
operations or cash flows.
In April, 2009, the FASB issued FSP 157-4
Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
. The FSP provides additional guidance for determining fair value based on observable transactions. The FSP provides that if evidence suggests that
an observable transaction was not executed in an orderly way that little, if any, weight should be assigned to this indication of an Asset or Liability’s fair value. Conversely, if evidence suggests that the observable transaction was executed
in an orderly way, the transaction price of the observable transaction may be appropriate to use in determining the fair value of the Asset/Liability in question, with appropriate weighting given to this indication based on facts and circumstances.
Finally, if there is no way for the entity to determine whether the observable transaction was executed in an orderly way, relatively less weight should be ascribed to this indicator of fair value. The FSP is effective for interim and annual
reporting periods ending after June 15, 2009. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In April 2009, the FASB issued FSP-107-1 & APB 28-1
Interim Disclosures about Fair Value of Financial Instruments
. The FSP provides that
publicly traded companies shall provide information concerning the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial adoption. The FSP is effective for interim reporting periods ending after June 15, 2009.
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7.
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Preferred Stock Offering
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We are currently
offering up to $4 million in preferred stock through a private placement offering. Features of the stock include a 12 % cumulative dividend and the ability to convert to common stock after one year. The offering commenced on March 6, 2009
and as of March 31, 2009, we had $100,000 in subscriptions and approximately $400,000 in commitments to purchase. Proceeds from the sale of the stock will be used by our holding company to service debt and for capital injections into the Bank
as necessary to maintain the Bank in a well-capitalized status.
On May 1, 2009,
Silverton Bank, a correspondent bank based in Atlanta, Georgia, was closed by the Office of the Comptroller of the Currency and the FDIC was named Receiver. The FDIC created a bridge bank to take over the operations of Silverton. The
creation of the bridge bank allows Silverton’s financial institution clients to transition their correspondent banking needs to other providers with the least amount of disruptions. Subject to further developments, the bridge bank is
scheduled to continue to operate business as usual through July 29, 2009.
As a result of this development, we believe that it is highly
unlikely that we will recover any portion of our investment in the stock of Silverton Bank’s holding company, Silverton Financial Services, Inc. Accordingly, we have recorded an other-than-temporary impairment charge of $380,723 with
respect to these securities. This impairment charge, which was recognized in the second quarter and will be reflected in our second quarter results, reduced the carrying value of our investment to zero.
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Item 2.
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Management’s Discussion and Analysis or Plan of Operations
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The following is our discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements.
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Forward Looking Statements
Certain of the statements made herein are forward-looking statements for purposes of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”), and as such may involve
known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking
statements. Such forward looking statements include statements using words such as “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,”
“estimate,” “continue,” or “intend,” or other similar words and expressions of the future. Our actual results may differ significantly from the results we discuss in these forward-looking statements.
These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, without limitation:
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the effects of future economic conditions;
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governmental monetary and fiscal policies, as well as legislative and regulatory changes;
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the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and other
interest-sensitive assets and liabilities;
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changes in the interest rate environment which could reduce anticipated or actual margins;
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the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally, and internationally, together with such competitors
offering banking products and services by mail, telephone, computer, and the Internet;
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changes occurring in business conditions and inflation;
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changes in monetary and tax policies;
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the level of allowance for loan loss;
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the rate of delinquencies and amounts of charge-offs;
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the rates of loan growth;
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adverse changes in asset quality and resulting credit risk-related losses and expenses;
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changes in the securities market; and
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other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.
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Introduction
Through our bank subsidiary we perform banking services
customary for full service banks of similar size and character. We offer personal and business checking accounts, interest-bearing checking accounts, savings accounts and various types of certificates of deposit. We also offer commercial loans,
installment and other consumer loans, home equity loans, home equity lines of credit, construction loans and mortgage loans. In addition, we provide such services as official bank checks and traveler’s checks, direct deposit and United States
Savings Bonds. We provide other customary banking services including ATM services, safe deposit facilities, money transfers, and individual retirement accounts.
Overview
First quarter 2009 results were marked by a leveling off of loans and deposits and continued pressure on our net interest margin.
We incurred a net loss of $178,131 for the quarter, compared to net income of $29,666 for the first quarter of 2008. Due to weakening real estate markets, we continue to experience significant amounts in other real estate, which consists of
foreclosed properties, totaling approximately $8,845,000 at December 31, 2008 and approximately $8,131,000 million at March 31, 2009. The level of our delinquent loans greater than 30 days increased from approximately $27 million at
December 31, 2008 to approximately $29 million at March 31, 2009. The lost interest income from our increasing levels of other real estate and non-performing loans contributed to a decline in out net interest margin, which was 1.48% for
the first quarter of 2009.
The real estate markets that we serve have experienced significant weakness over the last several quarters. Sales volumes and
new housing starts continue to slow substantially. Real estate prices have also declined, although the decline in prices
11
has so far been less dramatic. The weakness in real estate markets is particularly prevalent in the commercial and construction areas, where we have heavy
concentrations. In recent quarters we have also seen, both locally and nationally, a general decline in lending activities by financial institutions in connection with the overall market turmoil. Many of our borrowers are developers who depend on
end-users to purchase their projects as a source of repayment. The ability of our borrowers to timely repay our loans, therefore, will be negatively impacted to the extent that these end-users are unable to obtain financing to purchase the
underlying real estate projects.
As a result of these trends, the level of our loans has declined marginally over the last six months and could decline
further over the next several months. In addition, we expect that our level of other real estate will continue to increase in 2009 as we anticipate foreclosing on properties at a faster rate than we are able to dispose of such properties. Therefore,
we believe that our level of non-performing assets will increase and that our level of net interest margin and profitability will be negatively impacted in the short term. We also expect further deterioration in our loan portfolio as economic
conditions continue to weaken. The combination of these forces could produce losses over the foreseeable future.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States of America in
the preparation of our consolidated financial statements. Our significant accounting policies are described in the footnotes to the consolidated financial statements at December 31, 2008 as filed in our annual report on Form 10-K.
Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities.
We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of
the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our
consolidated financial statements. Refer to the portion of this discussion that addresses asset quality for a description of our processes and methodology for determining our allowance for loan losses.
Recent Impairment of Securities
On May 1, 2009, Silverton Bank,
a correspondent bank based in Atlanta, Georgia, was closed by the Office of the Comptroller of the Currency and the FDIC was named Receiver. The FDIC created a bridge bank to take over the operations of Silverton. The creation of the
bridge bank allows Silverton’s financial institution clients to transition their correspondent banking needs to other providers with the least amount of disruptions. Subject to further developments, the bridge bank is scheduled to continue
to operate business as usual through July 29, 2009.
As a result of this development, we believe that it is highly unlikely that we will recover any
portion of our investment in the stock of Silverton Bank’s holding company, Silverton Financial Services, Inc. Accordingly, we have recorded an other-than-temporary impairment charge of $380,723 with respect to these
securities. This impairment charge, which was recognized in the second quarter and will be reflected in our second quarter results, reduced the carrying value of our investment to zero.
Asset Quality
A major key to long-term earnings growth is the
maintenance of a high-quality loan portfolio. Our directive in this regard is carried out through our policies and procedures for extending credit to our customers. The goal of these policies and procedures is to provide a sound basis for new credit
extensions and an early recognition of problem assets to allow the most flexibility in their timely disposition. Additions to the allowance for loan losses will be made periodically to maintain the allowance at an appropriate level based upon
management’s analysis of potential risk in the loan portfolio.
Our management assesses the adequacy of the allowance for loan losses quarterly. This
assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The allowance for loan loss consists of two components: (1) a specific amount representative of identified credit
exposures that are readily predictable by the current performance of the borrower and underlying collateral; and (2) a general amount based upon historical losses that is then adjusted for various stress factors representative of various
economic factors and characteristics of the loan portfolio. Even though the allowance for loan losses is composed of two components, the entire allowance is available to absorb any credit losses.
12
We establish the specific amount by examining impaired loans which are defined as containing one or more of the following
characteristics: collectability of principal and interest from the borrower is in question, the loan is on non-accrual or the loan has been restructured. Under generally accepted accounting principles, we may measure the loss either by (1) the
observable market price of the loan; or (2) the present value of expected future cash flows discounted at the loan’s effective interest rate; or (3) the fair value of the collateral if the loan is collateral dependent. Because the
majority of our impaired loans are collateral dependent, nearly all of our specific allowances are calculated based on the fair value of the collateral. As of March 31, 2009, we had approximately $683,000 in specific loss allocations against
specific loans in our evaluation of the allowance for loan losses.
We establish the general amount by taking the remaining loan portfolio (excluding those
loans discussed above) with allocations based on historical losses in the total portfolio. The calculation of the general amount is then subjected to stress factors that are particularly subjective. The amount due to stress testing takes into
consideration factors such as (1) the current economic condition and its impact on the industry; (2) the depth or experience in the lending staff; (3) any concentrations of credit (such as commercial real estate) in any particular
industry group; (4) new banking laws or regulations; (5) past due trends; and (6) changes in lending policy or the quality of loan review. Risk ratings are applied to these factors to determine the amount of loan loss reserve
necessary to adequately cover the potential losses which the bank could incur. The calculation is then reviewed and evaluated by management, who will use their best judgment to ensure the appropriateness of the reserve.
In assessing the adequacy of the allowance for loan losses, we also rely on an ongoing independent credit administration review process. We undertake this process both
to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our credit administration review process includes the
judgment of management, the input of our internal loan review function, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process.
Our provision for loan losses was $462,000 for the first quarter of 2009 as compared to $274,500 for the first quarter of 2008. The large majority of the increase was related to reserves needed for the downturn in the
economy and to our assessment of the inherent risk in the portfolio. Amounts charged off during the first quarter of 2009 totaled $354,406 as compared to $180,009 in the first quarter of 2008. Based upon our evaluation of the loan portfolio, we
believe our allowance for loan losses is adequate to meet any potential losses in the loan portfolio.
Information with respect to nonaccrual, past due and
restructured loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollars in Thousands)
|
|
Nonaccrual loans
|
|
$
|
12,028
|
|
$
|
535
|
|
Loans contractually past due ninety days or more as to interest or principal payments and still accruing
|
|
|
—
|
|
|
752
|
|
Restructured loans
|
|
|
3,439
|
|
|
—
|
|
Potential problem loans
|
|
|
27,046
|
|
|
2,583
|
|
Interest income that would have been recorded on nonaccrual and restructured loans under original terms
|
|
|
299
|
|
|
24
|
|
Interest income that was recorded on nonaccrual and restructured loans
|
|
|
335
|
|
|
12
|
Potential problem loans are defined as loans about which we have serious doubts as to the ability of the borrower
to comply with the present loan repayment terms and which may cause the loan to be placed on nonaccrual status, to become past due more than ninety days, or to be restructured.
It is our policy to discontinue the accrual of interest income when, in the opinion of management, collection of interest becomes doubtful. The collection of interest becomes doubtful when there is a significant
deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected unless the loan is both well-secured and in the process of collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or result
from trends or uncertainties that management reasonably expects will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent material credits about which we are aware of any information
that causes us to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.
13
Information regarding certain loans and allowance for loan loss data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(Dollars in Thousands)
|
|
|
Average amount of loans outstanding
|
|
$
|
192,318
|
|
|
$
|
185,871
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan losses at beginning of period
|
|
|
2,948
|
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
Commercial and financial
|
|
|
(354
|
)
|
|
|
(180
|
)
|
|
Real estate mortgage
|
|
|
—
|
|
|
|
—
|
|
|
Installment
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans recovered:
|
|
|
|
|
|
|
|
|
|
Commercial and financial
|
|
|
—
|
|
|
|
—
|
|
|
Real estate mortgage
|
|
|
—
|
|
|
|
—
|
|
|
Installment
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(354
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Additions to allowance charged to operating expense during period
|
|
|
462
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan losses at end of period
|
|
$
|
3,056
|
|
|
$
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net loans charged off during the period to average loans outstanding
|
|
|
0.18
|
%
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs, and our ability to meet those needs. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance we have in
short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, we maintain relationships with correspondent banks, which could provide funds to the Bank on short notice, if needed.
Our liquidity and capital resources are monitored daily by management and on a periodic basis by state and federal regulatory authorities. As determined
under guidelines established by these regulatory authorities, our liquidity ratio at March 31, 2009 was considered satisfactory. At that date, our short-term investments and available Federal Funding were adequate to cover any reasonably
anticipated immediate need for funds. At March 31, 2009, we had unused available Federal Fund lines of $11,900,000 and unused Federal Home Loan Bank borrowing capacity of approximately $2,500,000.
As of March 31, 2009 we had an decreased liquidity position as total cash and due from banks amounted to $2.3 million, representing 0.91% of total assets as
compared to 0.95% as of December 31, 2008. Investment securities available-for-sale totaled to $33.8 million and interest-bearing deposits in banks amounted to $3.1 million, representing 13.13% and 1.21% of total assets, respectively. These
securities and interest bearing deposits in banks provide a secondary source of liquidity since they can be converted into cash in a timely manner.
Our
ability to maintain and expand our deposit base and borrowing capabilities is a source of liquidity. For the three months ended March 31, 2009, total deposits remain constant from $221.1 million at December 31, 2008 to $221.2 million at
March 31, 2009. Of this total, however, approximately $142.9 million, or 64.6%, represent time deposits that are scheduled to mature within one year. Brokered deposits totaled approximately $50 million at March 31, 2009 or 23% of total
deposits. Our objective is to continue to build our core deposit base and lessen our reliance on brokered funding sources. However, we intend to continue to rely heavily on short-term time deposits as a primary source of funding for the foreseeable
future. If we are unable to offer a competitive rate as these deposits mature, we could lose a substantial amount of deposits within a short period of time, which would strain our liquidity. While we consider this scenario to be unlikely, our net
interest income and profitability would be negatively affected if we have to increase rates to maintain deposits.
Management is committed to maintaining
capital at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements. Our capital ratios, which had declined over the last couple of years due to our growth, experienced additional
stress during the first quarter of 2009 because of the losses we sustained. To bolster our capital, we are currently offering up to $4 million in preferred stock through a private placement offering. Features of the
14
preferred stock include a 12% cumulative dividend and the ability to convert to common stock after one year. We expect that our capital ratios will improve
if we are successful in raising proceeds from this offering. However, any further deterioration in our loan portfolio would cause our capital ratios to decline. The table below illustrates our bank’s regulatory capital ratios at March 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
Piedmont
Community
Bank
|
|
|
Regulatory
Minimum
Requirements
(Well
Capitalized)
|
|
|
Leverage capital ratios
|
|
7.43
|
%
|
|
5.00
|
%
|
|
Risk-based capital ratios:
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
8.81
|
|
|
6.00
|
|
|
Total capital
|
|
10.06
|
|
|
10.00
|
|
As of March 31, 2009 our bank’s total capital ratio was only six basis points above the level required
to maintain “well capitalized” status. If we lose our “well capitalized” status our bank would be unable to accept, renew or rollover any brokered deposits without a waiver from the FDIC. Even if we are able to maintain the
required ratios, our bank will not qualify as a “well capitalized” institution if it becomes subject to a written order or capital directive. Under applicable laws, the Federal Reserve Board, the FDIC as our deposit insurer, and the
Georgia Department of Banking and Finance, as our chartering authority, have the ability to impose substantial sanctions, restrictions, and requirement on us if they determine upon examination or otherwise, violations of laws with which we must
comply, or weaknesses or failures with respect to general standards of safety and soundness, are present. Applicable law prohibits our disclosures of specific examination findings, but formal enforcement actions are generally disclosed by the
regulatory authorities after these actions become effective. These actions typically require certain corrective steps, impose limits on activities, prescribe lending parameters (such as loan types, volumes and terms) and require additional capital
to be raised. Failure to adhere to the requirements of any action, once issued, can result in more severe penalties. If our bank becomes subject to such an enforcement action it will, among other things, lose its “well capitalized” status,
which could in turn place a liquidity strain on our bank due to the inability to accept, renew or rollover brokered deposits without a waiver.
Off-Balance Sheet Risk
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount
recognized in the balance sheets.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. A
summary of our commitments is as follows:
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
Commitments to extend credit
|
|
$
|
13,739,000
|
|
Letters of credit
|
|
|
20,000
|
|
|
|
|
|
|
|
|
$
|
13,759,000
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed
necessary by us upon extension of credit, is based on our credit evaluation of the customer.
Standby letters of credit are conditional commitments issued
by us to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral is required in instances which we deem necessary.
15
Financial Condition
Our total assets declined by 0.28% for the first three months of 2009. Loans decreased by approximately $1.1 million. Deposit growth was relatively flat. Cash on hand was used to purchase investment securities and to payoff Federal Home
Loan Bank advances. Our loan to deposit ratio remained relatively unchanged at approximately 87%. Shareholder equity decreased by $267,000 due to net loss for the quarter of $178,000, decrease in the unrealized gains on investment securities of
$123,000 and adjustment to stock based employee compensation cost for change in forfeiture estimate of $66,000 offset by proceeds of $100,000 from our preferred stock offering.
Results of Operations For The Three Months Ended March 31, 2009 and 2008
Interest Income and Interest
Expense
Our results of operations are determined by our ability to manage interest income and expense effectively, to minimize loan and investment
losses, to generate non-interest income, and to control operating expenses. Because interest rates are determined by market forces and economic conditions beyond our control, our ability to generate net interest income is dependent upon our ability
to obtain an adequate net interest spread between the rate we pay on interest-bearing liabilities and the rate we earn on interest-earning assets.
Our net
interest margin was 1.48% for the three months ended March 31, 2009, compared to 2.44% for the same period in 2008, a decrease of 89 basis points. The decrease was caused by lost interest income from nonaccrual loans and compression
attributable to the declining rate environment. The total earning assets yield decreased to 5.08% for the first three months of 2009 from 6.77% for the first three months of 2008. The total interest bearing liability yield decreased to 3.39% for the
first three months of 2009 from 4.54% for the first three months of 2008.
The following tables set forth the amount of our interest income and interest
expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average
interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Interest
|
|
Rate
|
|
|
Interest
|
|
Rate
|
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans (1)
|
|
$
|
2,496
|
|
5.20
|
%
|
|
$
|
3,230
|
|
7.05
|
%
|
|
Interest on taxable securities
|
|
|
301
|
|
4.26
|
%
|
|
|
136
|
|
4.92
|
%
|
|
Interest on federal funds sold
|
|
|
1
|
|
0.16
|
%
|
|
|
17
|
|
3.42
|
%
|
|
Interest on deposits in banks
|
|
|
38
|
|
4.09
|
%
|
|
|
31
|
|
3.93
|
%
|
|
Interest on other securities
|
|
|
—
|
|
—
|
%
|
|
|
13
|
|
4.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,836
|
|
5.00
|
%
|
|
|
3,427
|
|
6.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on interest-bearing demand and savings
|
|
|
159
|
|
1.46
|
%
|
|
|
515
|
|
3.49
|
%
|
|
Interest on time deposits
|
|
|
1,624
|
|
3.78
|
%
|
|
|
1,530
|
|
5.18
|
%
|
|
Interest on other borrowings
|
|
|
212
|
|
4.60
|
%
|
|
|
159
|
|
4.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,995
|
|
3.41
|
%
|
|
|
2,204
|
|
4.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
$
|
841
|
|
|
|
|
$
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
1.59
|
%
|
|
|
|
|
2.24
|
%
|
|
Net interest margin
|
|
|
|
|
1.48
|
%
|
|
|
|
|
2.44
|
%
|
|
(1)
|
Interest and fees on loans include $27,000 and $59,000 of loan fee income for the three months ended March 31, 2009 and 2008, respectively. Interest income recognized on
nonaccrual loans during 2008 and 2007 was insignificant.
|
16
Provisions for Loan Losses
Our provision for loan losses was $462,000 for the first quarter of 2009. Our allowance for loan losses increased $107,594 from $2,948,204 as of December 31, 2008 to $3,055,798 as of March 31, 2009. The increase is due to the
provisions of $462,000 recorded in the first three months of 2009 as a result of increases in problem loans as compared to December 31, 2008 offset by increased net charge-offs.
Noninterest Income
Non-interest income consists of service charges on deposit accounts, income on bank owned life
insurance, gains on foreclosures and the disposition of other real estate, gains on the sale of securities, mortgage origination income and other miscellaneous income.
Noninterest income increased by approximately $116,000 for the first quarter of 2009 as compared to the same period in 2008. The increase is primarily due to an increase of $180,000 in gains on securities offset by a
decrease in income on the sale of other real estate owned (“OREO”) of approximately $58,000.
Noninterest Expenses
Non-interest expenses for the first quarter of 2009 and 2008 consist of salaries and employee benefits of $408,000 and $662,000, equipment and occupancy expenses of
$142,000 and $117,000, and other operating expenses of $556,000 and $382,000, respectively. The decrease in salaries and employee benefits of $254,000 over the first quarter of 2008 is primarily due to cuts in personnel. The increase in equipment
and occupancy expenses of $25,000 over the first quarter of 2008 is due primarily to increased depreciation of $21,000 and increased maintenance contracts of $5,000 from opening of a branch in mid 2008. The increase in other operating expenses of
$174,000 over the first quarter of 2008 is due primarily to increased data processing expense of $15,000, increased insurance of $5,000, increase in OREO expense of $72,000, increased legal expense of $17,000 and increase in regulatory fees of
$61,000 due to the increase in FDIC insurance assessments.
Income Taxes
We have recorded an income tax benefit of $196,475 for the three months ended March 31, 2009. This represents 52.5% of net loss before income tax benefits for the three months ended March 31, 2009. The
increase in our effective tax rate as compared to the same period in 2008 is primarily due to the nontaxable income related to bank owned life insurance and our net losses incurred for the period. The comparable effective tax rate for the same
period in 2008 was 14.0%.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
This
disclosure required under this Item is not applicable since we qualify as a smaller reporting company.
17
|
ITEM 4T.
|
Controls and Procedures
|
We carried out an evaluation, under the
supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information that we are required to disclose in the reports we file under the Securities Exchange Act of 1934. We continually review our disclosure controls and procedures, including our internal controls and procedures for
financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that our systems evolve with our business.
There have been no changes in our internal control over financial reporting during the first quarter 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
PART II - OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
None other than routine litigations that is
incidental to our business.
This disclosure required under this Item is not
applicable since we qualify as a smaller reporting company.
|
ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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The
information contained in our Current Report on Form 8-K filed with the SEC on March 12, 2009 (File No. 000-52453) is incorporated herein by reference. Through March 31, 2009, we had sold 4,000 shares of Series A Preferred Stock in our
private placement offering for gross proceeds of $100,000.
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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None
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ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
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ITEM 5.
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OTHER INFORMATION
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None
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31.1
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Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
|
|
|
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31.2
|
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Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
|
|
|
|
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32
|
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Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PIEDMONT COMMUNITY BANK GROUP, INC.
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|
|
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(Registrant)
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|
|
|
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May 15, 2009
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|
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/s/ Drew Hulsey
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|
Date
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|
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|
Drew Hulsey, C.E.O.
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|
|
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(Principal Executive Officer)
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May 15, 2009
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/s/ Julie Simmons
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Date
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|
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|
Julie Simmons, C.F.O.
|
|
|
|
|
|
(Principal Financial and Accounting Officer)
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19
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