UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the quarterly period ended March 31, 2008 |
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-51147
FirstBank Financial Services, Inc.
(Exact name of small business issuer as specified in its charter)
Georgia | | 20-2198785 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer
Identification No.) |
120 Keys Ferry Street McDonough, Georgia 30253
(Address of principal executive offices)
(678) 583-2265
(Issuer’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | | Accelerated filer o |
| | |
Non-accelerated filer o | | Smaller reporting company x |
(Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 9, 2008: 2,701,882 shares, $5.00 par value per share.
FIRSTBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIRSTBANK FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 AND DECEMBER 31, 2007
| | March 31, 2008 | | December 31, 2007 | |
| | (Unaudited) | | (Audited) | |
Assets | | | | | |
Cash and due from banks | | $ | 3,616,321 | | $ | 1,576,976 | |
Interest-bearing deposits in banks | | 4,078,845 | | 780,914 | |
Federal funds sold | | 81,891,000 | | 14,620,000 | |
Securities available for sale, at fair value | | 59,257,803 | | 54,645,511 | |
Restricted equity securities, at cost | | 2,913,056 | | 2,516,856 | |
| | | | | |
Loans, net of unearned income | | 254,732,845 | | 256,865,762 | |
Less allowance for loan losses | | 6,076,044 | | 7,141,996 | |
Loans, net | | 248,656,801 | | 249,723,766 | |
| | | | | |
Premises and equipment | | 7,697,993 | | 7,565,255 | |
Other real estate owned | | 9,517,547 | | 2,556,179 | |
Other assets | | 14,805,726 | | 11,672,636 | |
Total assets | | $ | 432,435,092 | | $ | 345,658,093 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Deposits | | | | | |
Noninterest-bearing | | $ | 8,827,427 | | $ | 9,852,593 | |
Interest-bearing | | 346,636,646 | | 265,093,731 | |
Total deposits | | 355,464,073 | | 274,946,324 | |
Other borrowings | | 40,000,000 | | 34,000,000 | |
Subordinated debentures | | 8,248,000 | | 8,248,000 | |
Other liabilities | | 2,821,595 | | 2,596,846 | |
Total liabilities | | 406,533,668 | | 319,791,170 | |
| | | | | |
Commitments and contingencies | | | | | |
| | | | | |
Stockholders’ equity | | | | | |
Preferred stock, no par value per share, 2,000,000 shares authorized; -0- shares issued and outstanding | | — | | — | |
Common stock, par value $5; 10,000,000 shares authorized; 2,701,882 and 2,696,882 shares issued and outstanding, respectively | | 13,509,410 | | 13,484,410 | |
Surplus | | 11,147,122 | | 11,139,662 | |
Retained earnings | | 491,481 | | 1,046,207 | |
Restricted stock- unearned compensation | | (27,500 | ) | — | |
Accumulated other comprehensive income | | 780,911 | | 196,644 | |
Total stockholders’ equity | | 25,901,424 | | 25,866,923 | |
Total liabilities and stockholders’ equity | | $ | 432,435,092 | | $ | 345,658,093 | |
See notes to consolidated financial statements.
1
FIRSTBANK FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2008 | | 2007 | |
Interest income | | | | | |
Loans, including fees | | $ | 4,249,016 | | $ | 4,849,224 | |
Taxable securities | | 686,346 | | 435,231 | |
Tax-exempt securities | | 67,429 | | 51,694 | |
Deposits in banks | | 32,895 | | 28,812 | |
Federal funds sold | | 100,948 | | 131,167 | |
Total interest income | | 5,136,634 | | 5,496,128 | |
| | | | | |
Interest expense | | | | | |
Deposits | | 3,147,906 | | 2,732,535 | |
Other borrowings | | 508,456 | | 378,879 | |
Total interest expense | | 3,656,362 | | 3,111,414 | |
Net interest income | | 1,480,272 | | 2,384,714 | |
Provision for loan losses | | 855,719 | | 210,000 | |
Net interest income after provision for loan losses | | 624,553 | | 2,174,714 | |
| | | | | |
Other income | | | | | |
Service charges on deposit accounts | | 98,231 | | 111,661 | |
Gain (loss) on sale of securities available for sale | | 33,851 | | (20,024 | ) |
Other operating income | | 93,201 | | 27,740 | |
Total other income | | 225,283 | | 119,377 | |
| | | | | |
Other expenses | | | | | |
Salaries and employee benefits | | 866,166 | | 764,254 | |
Equipment and occupancy expenses | | 272,135 | | 205,652 | |
Loss on sale of assets | | 19,126 | | 3,956 | |
Loss on sale of other real estate owned | | 70,622 | | — | |
Other operating expenses | | 621,401 | | 564,782 | |
Total other expenses | | 1,849,450 | | 1,538,644 | |
Income (loss) before income taxes | | (999,614 | ) | 755,447 | |
Income tax (benefit) expense | | (444,888 | ) | 279,931 | |
Net income (loss) | | $ | (554,726 | ) | $ | 475,516 | |
| | | | | |
Basic earnings (losses) per share | | $ | (0.21 | ) | $ | 0.17 | |
Diluted earnings (losses) per share | | $ | (0.21 | ) | $ | 0.16 | |
Cash dividends per share | | $ | — | | $ | — | |
See notes to consolidated financial statements.
2
FIRSTBANK FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
| | 2008 | | 2007 | |
Net income (loss) | | $ | (554,726 | ) | $ | 475,516 | |
| | | | | |
Other comprehensive income: | | | | | |
| | | | | |
Net unrealized holding gains (losses) arising during period, net of tax (benefit) | | 341,139 | | (17,605 | ) |
| | | | | |
Reclassification adjustment for (gains) losses on securities available for sale realized in net income (loss), net of (tax) benefit | | (20,988 | ) | 12,415 | |
| | | | | |
Net unrealized holding gains on interest rate floors arising during period, net of tax | | 264,116 | | 16,591 | |
| | | | | |
Other comprehensive income | | 584,267 | | 11,401 | |
| | | | | |
Comprehensive income | | $ | 29,541 | | $ | 486,917 | |
See notes to consolidated financial statements.
3
FIRSTBANK FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
| | 2008 | | 2007 | |
OPERATING ACTIVITIES | | | | | |
Net income (loss) | | $ | (554,726 | ) | $ | 475,516 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Loss on sale of assets | | 19,126 | | 3,956 | |
Loss on sale of other real estate owned | | 70,622 | | — | |
(Gain) loss on sale of securities available for sale | | (33,851 | ) | 20,024 | |
Depreciation and amortization | | 127,734 | | 112,845 | |
Stock compensation expense | | 2,460 | | 69,557 | |
Provision for loan losses | | 855,719 | | 210,000 | |
(Increase) decrease in interest receivable | | 16,019 | | (141,659 | ) |
Increase (decrease) in interest payable | | 334,078 | | (145,094 | ) |
Net other operating activities | | 10,845 | | (193,917 | ) |
Net cash provided by operating activities | | 848,026 | | 411,228 | |
| | | | | |
INVESTING ACTIVITIES | | | | | |
Net (increase) decrease in interest-bearing deposits in banks | | (3,297,931 | ) | 73,518 | |
Purchases of securities available for sale | | (11,463,555 | ) | (5,117,623 | ) |
Proceeds from maturities of securities available for sale | | 5,384,724 | | 1,345,161 | |
Proceeds from sales of securities available for sale | | 2,016,762 | | 1,477,500 | |
Net (increase) decrease in restricted equity securities | | (396,200 | ) | 126,700 | |
Net increase in federal funds sold | | (67,271,000 | ) | (1,233,000 | ) |
Net increase in loans | | (8,270,839 | ) | (20,119,406 | ) |
Proceeds from sales of other real estate owned | | 165,652 | | — | |
Proceeds from sale of assets | | 57,232 | | 22,000 | |
Purchase of bank owned life insurance | | (2,000,000 | ) | — | |
Purchase of premises, equipment and software | | (253,775 | ) | (951,495 | ) |
Net cash used in investing activities | | (85,328,930 | ) | (24,376,645 | ) |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Net increase in deposits | | 80,517,749 | | 29,033,319 | |
Net increase (decrease) in borrowings | | 6,000,000 | | (2,000,000 | ) |
Issuance of restricted stock | | 2,500 | | — | |
Net cash provided by financing activities | | 86,520,249 | | 27,033,319 | |
Net increase in cash and due from banks | | 2,039,345 | | 3,067,902 | |
Cash and due from banks at beginning of period | | 1,576,976 | | 4,047,726 | |
Cash and due from banks at end of period | | $ | 3,616,321 | | $ | 7,115,628 | |
| | | | | |
Supplemental schedule of noncash investing and financing activities - | | | | | |
Change in accumulated other comprehensive loss | | $ | 584,267 | | $ | 11,401 | |
Loans transferred to other real estate owned | | $ | 7,353,518 | | $ | 1,021,811 | |
| | | | | |
Supplemental disclosures of cash flow information - | | | | | |
Cash paid during the period for interest | | $ | 3,322,284 | | $ | 3,256,508 | |
Cash paid during the period for income taxes | | $ | — | | $ | 60,854 | |
Financed sales of other real estate owned | | $ | 218,253 | | $ | — | |
See notes to consolidated financial statements.
4
FIRSTBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
FirstBank Financial Services, Inc. (the “Company”) is a bank holding company whose business is conducted by its wholly-owned commercial bank, FirstBank Financial Services, formerly First Bank of Henry County, (the “Bank”). The Bank is a commercial bank located in McDonough, Henry County, Georgia, with a branch in Stockbridge, Georgia, another branch also in McDonough known as the Bank’s South Point branch and a branch in Morrow, Clayton County, Georgia.
The accompanying consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the annual report on Form 10-K for the year ended December 31, 2007, which was filed with the Securities and Exchange Commission.
The financial information included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to a fair presentation of the Company’s financial position and results for the interim period ended March 31, 2008.
The preparation of consolidated 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 months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year.
NOTE 2. Stock Compensation Plans
At March 31, 2008, the Company has two stock-based compensation plans which include certain employees and directors. The Company accounts for these plans under FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2007, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2007, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R).
At March 31, 2008, there was approximately $19,678 of unrecognized compensation cost related to stock-based payments, which is expected to be recognized over a weighted-average period of 1.25 years. Stock based compensation expense recognized in earnings totaled $2,460 and $69,557 as of March 31, 2008 and 2007, respectively.
5
NOTE 3. Earnings (Losses) Per Common Share
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 (losses) per common share.
| | Three Months Ended March 31, | |
| | 2008 | | 2007 | |
Basic earnings (losses) per share: | | | | | |
Weighted average common shares outstanding | | 2,701,882 | | 2,831,676 | |
Net income (loss) | | $ | (554,726 | ) | $ | 475,516 | |
Basic earnings (losses) per share | | $ | (0.21 | ) | $ | 0.17 | |
| | | | | |
Diluted earnings (losses) per share: | | | | | |
Weighted average common shares outstanding | | 2,701,882 | | 2,831,676 | |
Net effect of the assumed exercise of stock options based on the treasury stock method using average market prices for the year | | — | | 172,443 | |
Total weighted average common shares and common stock equivalents outstanding | | 2,701,882 | | 3,004,119 | |
Net income (loss) | | $ | (554,726 | ) | $ | 475,516 | |
Diluted earnings (losses) per share | | $ | (0.21 | ) | $ | 0.16 | |
NOTE 4. Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161) — an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 161 is intended to improve financial reporting transparency regarding derivative instruments and hedging activities by providing investors with a better understanding of their effects on financial position, financial performance, and cash flows. SFAS 161 applies to all entities and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 with early adoption encouraged.
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NOTE 5. Interest Rate Derivatives
The Company maintains an overall interest rate risk-management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. One interest rate derivative is used to hedge variable-rate deposits. This instrument is reflected in other liabilities at March 31, 2008 at a fair value of $87,031. The Company has two interest rate floors, one with a notional value of $40 million and a 7.50% strike and the other with a notional value of $30 million and an 8.50% strike. The fair value of these instruments at March 31, 2008 is $677,780 and is reflected in other assets. The Company also has two interest rate swaps with a notional value totaling $20 million. The Company receives a fixed rate of interest from the counterparty and pays a floating rate tied to prime to the counterparty. These instruments are more fully described in the Company’s annual report on Form 10-K dated December 31, 2007.
NOTE 6. Fair Value Measurement
On January 1, 2008, the Company adopted FASB No. 157, Fair Value Measurements. FASB No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
FASB No. 157 emphasizes that fair value is market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
7
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.
| | Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total | |
Assets | | | | | | | | | |
Available for sale investment securities | | $ | — | | $ | 59,257,803 | | $ | — | | $ | 59,257,803 | |
Interest rate floors | | — | | 677,780 | | — | | 677,780 | |
Total assets at fair value | | $ | — | | $ | 59,935,583 | | $ | — | | $ | 59,935,583 | |
NOTE 7. Reclassification
Certain items on the statements of operations and cash flows for the period ended March 31, 2007 have been reclassified to be consistent with the classifications adopted for the period ended March 31, 2008. The items reclassified are gain (loss) on sale of securities available for sale and loss on sale of other assets. Net income was not impacted due to the reclassifications.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is our discussion and analysis of certain significant factors which have affected the financial position and operating results of FirstBank Financial Services, Inc. (the “Company”) during the periods included in the accompanying consolidated financial statements.
Forward Looking Statements
Certain of the statements made herein under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) 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 the words such as “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “may” 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:
· the effects of future economic conditions;
· governmental monetary and fiscal policies, as well as legislative and regulatory changes;
· 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;
· changes in the interest rate environment which could reduce anticipated or actual margins;
· 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;
· changes occurring in business conditions and inflation;
· changes in monetary and tax policies;
· changes in technology;
· the level of allowance for loan loss;
· the rate of delinquencies and amounts of charge-offs;
· the rates of loan growth;
· adverse changes in asset quality and resulting credit risk-related losses and expenses;
· changes in the securities market; and
· other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.
9
Introduction
The Company, through its banking subsidiary, performs banking services customary for full service banks of similar size and character. The Company offers personal and business checking accounts, interest-bearing checking accounts, savings accounts and various types of certificates of deposit. The Company also offers commercial loans, installment and other consumer loans, home equity loans, home equity lines of credit, construction loans and mortgage loans. In addition, the Company provides such services as official bank checks, traveler’s checks, direct deposit and United States Savings Bonds. The Company provides other customary banking services including ATM services, safe deposit facilities, money transfers, and individual retirement accounts.
Overview
Management monitors the financial condition of the Company in order to protect depositors, increase undivided profits and protect current and future earnings. Further discussion of significant items affecting the Company’s financial condition are discussed in detail below.
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 statement of FirstBank Financial Services, Inc. Our significant accounting policies are described in the footnotes to the financial statements for FirstBank Financial Services, Inc. at December 31, 2007 as filed in our annual report on Form 10-K, which was filed with the Securities and Exchange Commission.
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.
Another of our critical accounting policies involves stock-based compensation. The assumptions used in the determination of the fair value of stock options granted ultimately determine the recognition of stock-based compensation expense. The short-cut method was used to determine the expected life of the options. This method, as prescribed by SAB Topic 14.D.2, calculates the expected term based on the midpoint between the vesting date of the option and the end of the contractual term. Expected volatility was based upon the historical volatility of the Company’s stock. Risk-free interest rates for periods
10
within the contractual life of the option are based upon the U.S. Treasury yield curve in effect at the time of the grant. Because of the need to retain capital for expected growth and past history, the expected dividend rate is 0%. These assumptions have a significant impact on the amount of expense recognized for stock-based compensation.
Asset Quality
A major key to long-term earnings growth is the maintenance of a high-quality loan portfolio. The Company’s directive in this regard is carried out through its policies and procedures for extending credit to the Company’s customers. The goal and result 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. The amount of the loan loss provision is determined by an evaluation of the level of loans outstanding, the level of non-performing loans, historical loan loss experience, delinquency trends, the amount of actual losses charged to the allowance in a given period, and assessment of present and anticipated economic conditions. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio.
A provision for loan losses of $855,719 was made during the first quarter of 2008 as compared to $210,000 in the first quarter of 2007 resulting in an increase of $645,719 on a comparative basis. The amounts provided are due primarily to our assessment of inherent risk in the loan portfolio and the increase in problem and potential problem loans. We can make no assurances that the Company will not see a further deterioration in credit quality which would require additional reserves. The allowance for loan losses as a percentage of total loans was 2.39% at March 31, 2008 as compared to 2.78% at December 31, 2007. Based upon our evaluation of the loan portfolio, we believe the allowance for loan losses to be adequate to absorb losses on existing loans that may become uncollectible.
During the first quarter of 2008, the Company foreclosed on the properties related to loans totaling approximately $7,354,000 with immediate write-downs totaling approximately $1,347,000. These loans were included in non-accrual loans as of December 31, 2007 and the related losses provided for in the final December 31, 2007 allowance for loan losses. Management does not anticipate any additional losses in the disposition of these properties. During the first quarter, the Company also sold five lots and two new single family detached homes for approximately $384,000 resulting in a net loss of approximately $71,000.
11
The following table presents the aggregate of nonperforming assets for the categories indicated.
| | March 31,
2008 | | December 31,
2007 | |
| | (Dollars in Thousands) | |
Nonaccrual loans | | $ | 41,981 | | $ | 48,804 | |
Loans contractually past due ninety days or more as to interest or principal payments and still accruing | | 2,927 | | 1,637 | |
Restructured loans | | — | | — | |
Total nonperforming loans | | 44,908 | | 50,441 | |
| | | | | |
Other real estate | | 9,518 | | 2,556 | |
Total nonperforming assets | | $ | 54,426 | | $ | 52,997 | |
Summarized below is a list of other real estate acquired through foreclosure totaling $9,518,000 as of March 31, 2008 detailed by collateral type and location:
· $1,941,000 in loans secured by five new construction single family detached homes in various stages of completion located in Forsyth, Monroe County, Georgia;
· $1,502,000 secured by four completed new construction single family detached homes in Stockbridge, Henry County, Georgia;
· $1,500,000 in loans secured by two developed residential lots on Lake Spivey in Jonesboro, Clayton County, Georgia;
· $1,424,000 in loans secured by six new construction single family detached homes in various stages of completion located in McDonough, Henry County, Georgia;
· $887,000 secured by two new construction single family detached homes in various stages of completion in Oxford, Newton County, Georgia.
· $566,000 in loans secured by a condo unit at the Atlanta Motor Speedway in Hampton, Henry County, Georgia;
· $450,000 in loans secured by ten developed residential lots in Forsyth, Monroe County, Georgia;
· $276,000 secured by two new construction single family detached homes in various stages of completion in Jackson, Butts County, Georgia;
· $265,000 in loans secured by seven developed residential lots in McDonough, Henry County, Georgia;
· $230,000 in loans secured by two new construction single family detached homes in various stages of completion located in Luthersville, Meriweather County, Georgia;
· $176,000 in loans secured by two developed residential lots in Stockbridge, Henry County, Georgia;
· $151,000 in loans secured by seven developed residential lots in Luthersville, Meriweather County, Georgia;
· $94,000 secured by one new construction single family detached home in Monticello, Jasper County, Georgia;
· $56,000 secured by two developed residential lots in Riverdale, Clayton County, Georgia;
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Subsequent to March 31, 2008, other real estate acquired through foreclosure totaling approximately $439,000 was sold with a resulting gain on the sale of approximately $14,000.
Summarized below are nonaccrual loans totaling $41,981,000 as of March 31, 2008. This information is provided to give detail as to the collateral type and location of our nonaccrual loans and to assist in the assessment of possible collateral concentrations.
· $8,895,000 in loans secured by three residential A & D projects in various stages of completion located in McDonough, Henry County, Georgia;
· $5,079,000 in loans secured by thirty-six new construction single family detached homes in various stages of completion located in McDonough, Henry County, Georgia;
· $4,650,000 in loans secured by three residential A & D projects in various stages of completion located in Stockbridge, Henry County, Georgia;
· $4,529,000 in loans secured by one residential A & D project located in Lovejoy, Clayton County, Georgia;
· $1,808,000 in loans secured by commercial property in Covington, Newton County, Georgia;
· $1,687,000 in loans secured by seventeen new construction single family detached homes in various stages of completion located in Covington, Newton County, Georgia;
· $1,686,000 in loans secured by one residential A & D project located in Forsyth, Monroe County, Georgia;
· $1,565,000 in loans secured by developed residential lots located in Hampton, Henry County, Georgia;
· $1,515,000 in loans secured by various developed residential lots in McDonough, Henry County, Georgia;
· $1,365,000 in loans secured by one residential A & D project located in Barnesville, Lamar County, Georgia;
· $1,041,000 in loans secured by two commercial land parcels located in McDonough, Henry County, Georgia;
· $1,024,000 in loans secured by eleven new construction single family detached homes in various stages of completion located in Griffin, Spalding County, Georgia;
· $1,000,000 in loans secured by a car wash facility located in Stockbridge, Henry County, Georgia;
· $915,000 in loans secured by twenty new construction single family detached homes in various stages of completion located in Palmetto, Fulton County, Georgia;
· $763,000 in loans secured by six new construction single family detached homes in various stages of completion in Hampton, Clayton County, Georgia;
· $714,000 in loans secured by six new construction single family detached homes in various stages of completion in College Park, Fulton County, Georgia;
· $628,000 in loans secured by five new construction single family detached homes in various stages of completion located in Barnesville, Lamar County, Georgia;
· $465,000 in loans secured by commercial property in Lithonia, DeKalb County, Georgia;
· $443,000 in loans secured by three new construction single family detached homes in various stages of completion located in Hampton, Henry County, Georgia;
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· $368,000 in loans secured by various equipment;
· $367,000 in loans secured by three new construction single family detached homes in various stages of completion located in Jackson, Butts County, Georgia;
· $341,000 in loans secured by three single family rental properties located in Griffin, Spalding County, Georgia;
· $204,000 in loans secured by one new family rental properties located in Morrow, Clayton County, Georgia;
· $197,000 in loans secured by two single family rental properties located in Morrow, Clayton County, Georgia;
· $143,000 in loans secured by other bank stock;
· $124,000 in loans secured by one new construction single family detached home located in Monroe, Walton County, Georgia;
· $93,000 in loans secured by a single family rental property located in McDonough, Henry County, Georgia;
· $92,000 in loans secured by a single family rental property located in Riverdale, Clayton County, Georgia;
· $84,000 in loans secured by a single family detached home located in Covington, Newton County, Georgia;
· $75,000 in loans secured by assignments on accounts receivables contracts;
· $54,000 in loans secured by a single family detached home located in Henry County, Georgia;
· $41,000 in loans secured by a single family detached home under construction located in Locust Grove, Henry County, Georgia;
· $14,000 in loans secured by a single family detached home located in Stockbridge, Henry County, Georgia;
· $12,000 in loans secured by three vehicles.
The allowance for loan losses on these loans is determined based on fair value estimates (net of selling costs) of the respective collateral. The actual losses on these loans could differ significantly if the fair value of the collateral is different from the estimates used in determining the allocated allowance. Most of our collateral dependent impaired loans are secured by real estate. The fair value of these real estate properties is generally determined based upon appraisals performed by a certified or licensed appraiser. Management also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals. The allowance for loan losses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, and review of specific problem loans, concentrations and current
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economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that have been evaluated for impairment. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
Information with respect to nonaccrual, past due and restructured loans is as follows:
| | March 31,
2008 | | December 31,
2007 | | March 31,
2007 | |
| | (Dollars in Thousands) | |
Nonaccrual loans | | $ | 41,981 | | $ | 48,804 | | $ | — | |
Potential problem loans | | 12,461 | | 7,516 | | 2,321 | |
Loans contractually past due ninety days or more as to interest or principal payments and still accruing | | 2,927 | | 1,637 | | 23 | |
Restructured loans | | — | | — | | — | |
Other criticized/watch loans | | 27,545 | | 18,046 | | 3,577 | |
Interest income that would have been recorded on non- accrual and restructured loans under original terms | | 752 | | 1,694 | | — | |
Interest income that was recorded on nonaccrual and restructured loans | | — | | — | | — | |
| | | | | | | | | | |
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.
Other criticized /watch loans are defined as loans that may possess credit deficiencies which may require management’s attention to monitor the borrower’s ability to comply with the present loan repayment terms and to detect any further credit deterioration of the borrower.
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It is our policy to discontinue the accrual of interest income when, in the opinion of management, collection of interest becomes doubtful. We will generally discontinue the accrual of interest when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, 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 which management reasonably expects will materially impact future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.
Information regarding certain loans and allowance for loan loss data is as follows:
| | Three Months Ended
March 31, | |
| | 2008 | | 2007 | |
| | (Dollars in Thousands) | |
Average amount of loans outstanding | | $ | 257,506 | | $ | 217,403 | |
Balance of allowance for loan losses at beginning of period | | $ | 7,142 | | $ | 2,392 | |
Loans charged off: | | | | | |
Commercial and financial | | (524 | ) | — | |
Real estate mortgage | | (1,407 | ) | — | |
Installment | | (23 | ) | (6 | ) |
| | (1,954 | ) | (6 | ) |
Loans recovered: | | | | | |
Commercial and financial | | 29 | | — | |
Real estate mortgage | | — | | — | |
Installment | | 3 | | — | |
| | 32 | | — | |
Net charge-offs | | (1,922 | ) | (6 | ) |
Additions to allowance charged to operating expense during period | | 856 | | 210 | |
Balance of allowance for loan losses at end of period | | $ | 6,076 | | $ | 2,596 | |
Ratio of net loans charged off during the period to average loans outstanding | | 0.75 | % | 0.00 | % |
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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 the ability of the Company to meet those needs. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Company maintains relationships with correspondent banks, which could provide funds on short notice, if needed. At March 31, 2008 the Company had no federal funds purchased.
The liquidity and capital resources of the Company are monitored daily by management, and monthly by the Company’s Board-authorized Asset and Liability Management Committee, and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s liquidity ratios at March 31, 2008 were considered satisfactory. At that date, the Company’s short-term investments and available federal funding were adequate to cover any reasonably anticipated immediate need for funds. At March 31, 2008, the Company had an unused available unsecured federal fund line of $5 million and unused Federal Home Loan Bank borrowing capacity of approximately $29.4 million. Management prefunded future brokered certificates of deposit maturities totaling approximately $81.2 million with a weighted average life of forty months in an effort to stabilize the Company’s liquidity needs. The funding plan provided the increase in liquidity and balance sheet growth for the quarter. As the brokered certificates of deposit mature, the balance sheet will contract. The Company is aware of no other events or trends likely to result in a material change in liquidity.
The consolidated financial statements, as of March 31, 2008, evidenced an increased liquidity position. Cash and due from banks, interest-bearing deposits in banks and federal funds sold totaled $89,586,166 as of March 31, 2008 as compared to $16,977,890 as of December 31, 2007. Total cash and due from banks amounted to $3,616,321 representing .84% of total assets.
Total brokered deposits amounted to $214.3 million as of March 31, 2008 as compared to $127.2 million at December 31, 2007, an increase of approximately $87.1 million. These deposits are readily obtainable at rates consistently lower than rates we pay on deposits in our local market. The Company’s ability to maintain and expand its deposit base and borrowing capabilities is a source of liquidity. For the three-month period ended March 31, 2008, total deposits increased from $274.9 million at December 31, 2007 to $355.5 million at March 31, 2008. Due to an expected decline in the Company’s rating which is used to determine deposit pricing and the Company’s level of accessibility to the brokered deposit market and the volume of brokered deposit maturities within the next twelve months, management implemented a prefunding plan to reduce volatility in the brokered deposit portfolio by extending the maturities of the prefunded deposits and to ensure the Company can meet its future funding needs. Excess funds were placed in federal funds sold at quarter end. The funds have subsequently been invested in securities available for sale and bank owned certificates of deposit with the maturities of the instruments matching the maturities of the upcoming brokered 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.
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The minimum capital requirements and the actual capital ratios for the Company and the Bank at March 31, 2008 are as follows:
| | Company | | Bank | | Minimum
Regulatory
Requirement | |
Leverage capital ratios | | 9.34 | % | 8.63 | % | 4.00 | % |
Risk-based capital ratios: | | | | | | | |
Tier I capital | | 10.58 | % | 9.87 | % | 4.00 | % |
Total capital | | 11.84 | % | 11.13 | % | 8.00 | % |
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, 2008 | |
Commitments to extend credit | | $ | 29,040,000 | |
Letters of credit | | 712,000 | |
| | $ | 29,752,000 | |
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.
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Financial Condition
Our total assets grew by 25% for the first three months of 2008 in part due to the implementation of our prefunding plan as explained in the Liquidity and Capital Resources section of this report. Deposit growth of approximately $80.52 million and additional Federal Home Loan Bank borrowings of $6 million was used to fund loan growth of approximately $8.27 million with the remainder being primarily invested in securities or maintained in cash and due from banks and federal funds sold. Our loan to available funds ratio has remained steady during January and February 2008, holding in the 80% range. The loan to available funds ratio decreased to 64% in March 2008 due to the implementation of our prefunding plan. In general, economic activity in the housing sector continued to slow during the first quarter of 2008. Although we do not make sub-prime loans, we are impacted by them as evidenced by the slowness of the metro-Atlanta real estate market. Advances from the Federal Home Loan Bank increased by $6 million for the three months ended March 31, 2008. The net increase is the result of a $5 million advance maturing and the subsequent borrowings of an additional $11 million in advances.
Stockholders’ equity has increased by $34,501 due to net losses of $554,726 offset by unrealized gain on securities available-for-sale, net of tax, of $320,151, unrealized gain on derivatives, net of tax, of $264,116, net earned restricted stock of $2,500 and including recognition of share based payments transactions as required by SFAS 123(R) of $2,460.
The Company opened two branches during 2006 in Henry County and one branch in 2007 in Clayton County. The Company continues to look for opportunities to expand its footprint and to increase franchise value through organic growth.
Results of Operations For The Three Months Ended March 31, 2008 and 2007
Following is a summary of our operations for the periods indicated.
| | Three Months Ended
March 31, | |
| | 2008 | | 2007 | |
| | (Dollars in Thousands) | |
Interest income | | $ | 5,136 | | $ | 5,496 | |
Interest expense | | (3,656 | ) | (3,111 | ) |
Net interest income | | 1,480 | | 2,385 | |
Provision for loan losses | | (856 | ) | (210 | ) |
Other income | | 225 | | 119 | |
Other expense | | (1,849 | ) | (1,539 | ) |
Pretax income (loss) | | (1,000 | ) | 755 | |
Income tax (benefit) expense | | (445 | ) | 280 | |
Net income (loss) | | $ | (555 | ) | $ | 475 | |
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Net Interest Income
Our net interest income decreased approximately $905,000 for the first quarter of 2008 as compared to the same period in 2007. Our net interest margin decreased to 1.79% during the first three months of 2008 as compared to 3.49% for the first three months of 2007. The decrease in net interest income is due primarily to the increased volume of nonperforming assets and the negative impact of the cumulative 300 basis point rate decreases since March 2007. Our cost of funds decreased to 4.73% for the first three months of 2008 as compared to 5.11% for the first three months of 2007.
Noninterest Income
Noninterest income increased approximately $106,000 for the first quarter of 2008 as compared to the same period in 2007. The increase in the first quarter of 2008 consists of a $13,000 decrease in service charges on deposit accounts, a $54,000 gain on sale of securities available for sale, and a $65,000 increase in other income.
Noninterest Expenses
Noninterest expenses increased approximately $310,000 for the first quarter of 2008. This increase consists of an increase of $102,000 in salaries and employee benefits, $66,000 in equipment and occupancy, $15,000 in losses on sale of assets, $71,000 in losses on sale of other real estate owned and $56,000 in other operating expenses. The increase in salaries and employee benefits represents normal increases in salaries and an increase in the number of full time equivalent employees. Equipment and occupancy expenses have increased due to the need for additional equipment for employees and for the new branches. The increases in other operating expenses are due primarily to our overall growth. The Company leases its operations center facilities under an operating lease agreement for approximately $70,000 a year in rental expense. The Company also has a ground lease for its Covington branch for approximately $96,000 a year in rental expense. The construction of the Covington branch has been temporarily postponed.
Income Taxes
We have recorded an income tax benefit of $445,000 for the three months ended March 31, 2008 as compared to a tax provision of $280,000 for the same period in 2007. The decrease in our income tax provision was $725,000 for the three months ended March 31, 2008 compared to the same period in 2007. The decrease in our income tax provision is due primarily to the decrease in net income, decrease of expense related to the permanent non-deductibility of incentive stock options that have been expensed in the amount of $0 for 2008 as compared to $54,000 for the same period in 2007, income from bank owned life insurance totaling $58,000 and an increase in tax exempt interest income totaling $16,000.
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Regulatory Matters
From time to time, various bills are introduced in the United States Congress with respect to the regulation of financial institutions. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. We cannot predict whether any of these proposals will be adopted or, if adopted, how these proposals would affect us.
We are not aware of any current recommendation by our regulatory authorities which, if implemented, would have a material effect on our liquidity, capital resources, or results of operations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Pursuant to the revised disclosure requirements for smaller public companies, no disclosure under this item is required.
ITEM 4T. Controls and Procedures
As of the end of the period covered by this report, 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. Based on this evaluation, our Chief Executive 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, within the time periods specified in the SEC’s rules and forms. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company required to be included in our periodic SEC filings. In connection with the new rules, we are in the process of further reviewing and documenting 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 the Company’s internal control over financial reporting during the three months ended March 31, 2008, or, to the Company’s knowledge, other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.
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.
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PART II — OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding (nor is any property of the Company subject to any legal proceeding) other than routine litigation that is incidental to the business.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, you should consider the factors discussed in Part 1, “Item 1 — Description of Business” in our Annual Report on Form 10-K for the year ended December 31, 2007.
There have been no material changes in the risk factors relating to the Company or its business during the three months ended March 31, 2008.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
31.1 Certification of the Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
32 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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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.
| | | | | FIRSTBANK FINANCIAL SERVICES, INC. | |
| | | | | (Registrant) | |
| | | | | | |
May 15, 2008 | | | | | /s/ Thaddeus M. Williams | |
Date | | | | | Thaddeus M. Williams, President and C.E.O. | |
| | | | | (Principal Executive Officer) | |
| | | | | | |
May 15, 2008 | | | | | /s/ Lisa J. Maxwell | |
Date | | | | | Lisa J. Maxwell, C.F.O. | |
| | | | | (Principal Financial and Accounting Officer) | |
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