| SUSAN STOOPS ANCARROW |  | TROUTMAN SANDERS LLP | ||
| 804.697.1861 telephone | Attorneys at Law | |||
| 804.698.6015 facsimile | Troutman Sanders Building | |||
| susan.ancarrow@troutmansanders.com | 1001 Haxall Point | |||
| Richmond, Virginia 23219 | ||||
| 804.697.1200 telephone | ||||
| 804.697.1339 facsimile | ||||
| troutmansanders.com |
August 21, 2009
BY EDGAR
Mr. Mark Webb, Legal Branch Chief
Mr. Michael Seaman, Staff Attorney
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-4561
RE: | First Bankshares, Inc. | |
Preliminary Proxy Statement on Schedule 14A Filed July 2, 2009 Form 10-K for the Fiscal Year Ended December 31, 2008 Form 10-Q for the Quarterly Period Ended March 31, 2009 File No. 000-53380 ___________________________ |
Dear Messrs. Webb and Seaman:
On behalf of our client, First Bankshares, Inc. (the Corporation), we are transmitting herewith the Corporation’s responses to the remaining comments raised by the staff of the Division of Corporation Finance (the Staff) of the U.S. Securities and Exchange Commission (the Commission) in the comment letter dated July 29, 2009 (the Commission Comment Letter), addressed to Darrell G. Swanigan, President and Chief Executive Officer of the Corporation, relating to the Corporation’s Preliminary Proxy Statement on Schedule 14A filed by the Corporation on July 2, 2009 (the Preliminary Proxy Statement). On August 14, 2009, the Corporation filed with the Commission an amendment to the Preliminary Proxy Statement (the Amendment), along with its responses to the Staff’s comments 1-21 in a letter dated August 14, 2009 (the Initial Response Letter), and simultaneously mailed copies of the Amendment and the Initial Response Letter to the Staff.
For convenience of reference, each Staff comment is reprinted in italics as issued in the Commission Comment Letter, numbered to correspond with the paragraph numbers assigned in the Commission Comment Letter, and is followed by the corresponding response of the Corporation.
| ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY |
| RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC |
Mr. Mark Webb
Mr. Michael Seaman
United States Securities and Exchange Commission
August 21, 2009
Page 2
Form 10-K for the Fiscal Year Ended December 31, 2008
Form 10-Q for the Quarterly Period Ended March 31, 2009
General
| 22. | Comment: Please revise future filings to fully comply with the disclosure requirements of Guide 3. Specifically, please make sure your future filings include all the disclosure requirements in Sections I.C., II.B., III.C., and IV.A. and B. |
Response:
The Corporation acknowledges the Staff’s comment and will ensure that its “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its future reports will contain disclosure that complies fully with the disclosure requirements of Guide 3, as instructed. In addition, to the extent disclosure required by Guide 3 was inadvertently omitted from the Corporation’s annual report on Form 10-K for the year ended December 31, 2008 (the 2008 Form 10-K), the Corporation has provided inExhibit A hereto model disclosure to indicate the manner in which the Corporation intends to comply with the Guide 3 disclosure requirements in future filings, presented as would have been presented in the 2008 Form 10-K. Given its asset size as of December 31, 2008, the Corporation was required to provide certain Guide 3 information with respect to only its two most recent fiscal years (2008-2007) in the Corporation’s 2008 Form 10-K. If, due to the Corporation’s asset size at the end of the current or future fiscal years, Guide 3 requires such disclosure with regard to more than the then-most recent two fiscal years, the Corporation will expand its Guide 3 tables to provide the required scope of disclosure. In addition, to the extent disclosure required by Guide 3 was presented in Item 6. “Selected Financial Data” or Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in the Corporation’s 2008 Form 10-K, such required disclosure will be provided in the Corporation’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s future filings.
Notes to Consolidated Financial Statements
Securities
| 23. | Comment: Please revise future filings to include the disclosures required by paragraph 17.a of FASB Staff Position Nos FAS 115-1 and FAS 124-1 (as amended) concerning the duration investments have been in an unrealized loss position. Show us what your revision will look like in your response. |
Mr. Mark Webb
Mr. Michael Seaman
United States Securities and Exchange Commission
August 21, 2009
Page 3
Response:
The Corporation acknowledges the Staff’s comment and will revise future filings to include the disclosures required by paragraph 17.a of FASB Staff Position Nos. FAS 115-1 and FAS 124-1 (as amended) (Paragraph 17.a) concerning the duration that investments have been in an unrealized loss position. In addition, the Corporation has provided inExhibit B hereto model disclosure, in the form as would have been presented in the 2008 Form 10-K and in the form the Corporation intends to present in an amendment no. 1 to the Form 10-Q for the quarter ended June 30, 2009, to indicate the manner in which the Corporation intends to comply with the disclosure requirements of Paragraph 17.a in future filings. The Corporation anticipates providing disclosure similar to that inExhibit B in the note to its financial statements discussing its securities portfolio in its future filings, including future filings of its Preliminary Proxy Statement.
| 24. | Comment: We note significant unrealized losses in your mortgage backed securities and corporate securities portfolios. Please provide us with a detailed description of the other-than-temporary impairment analysis you performed on these securities as of December 31, 2008 and March 31, 2009. Please identify all of the evidence you considered, explain the relative significance of each piece of evidence, and identify the primary evidence on which you relied to support a realizable value equal or greater than the carrying value of the instrument. |
Response:
The Corporation acknowledges the Staff’s comment. In conducting the other-than-temporary-impairment (OTTI) analysis of the Corporation’s mortgage-backed securities (MBS) and corporate securities portfolios as of December 31, 2008, March 31, 2009 and June 30, 2009, management focused on (i) the Corporation’s intent and ability to hold the loss position securities until able to recover its cost basis, including to maturity if necessary, (ii) the intrinsic financial health of the issuers, as well as the probability of outside financial support, (iii) credit ratings, (iv) economic forecasts for the economy as a whole and the financial and real estate and housing sectors in specific, (v) the duration, severity and trend of the losses in the MBS and corporate securities portfolios and (vi) prevailing interest rate conditions and trends. Management considered the foregoing items collectively and did not formally or informally assign relative rankings or weights.
Management determined that the Corporation had the intent and ability to hold the loss position securities until able to recover its cost basis, including to maturity if necessary. Management’s judgment regarding the Corporation’s ability to hold these investments until able to recover its cost basis was based on available liquidity in excess of $20 million as of December 31, 2008 and in excess of $30 million as of March 31, 2009 and June 30, 2009, as well as management’s assessment of the credit risks posed by the loss position securities based on the factors discussed below.
Mr. Mark Webb
Mr. Michael Seaman
United States Securities and Exchange Commission
August 21, 2009
Page 4
Management also made a qualitative judgment of the intrinsic financial health, as well as the possibility or probability of outside financial support, of the issuers of the securities in its MBS portfolio (Ginnie Mae, Fannie Mae and Freddie Mac) and corporate securities portfolio (First Union Capital I (a subsidiary of Wells Fargo & Company) and NB Capital Trust IV (a subsidiary of Bank of America Corporation)). Given the government-owned or government-sponsored entity status of Ginnie Mae, Fannie Mae and Freddie Mac, and the related explicit or implicit promise of U.S. government financial support, management determined that the default risk of these issuers was minimal. Management also determined that the default risk posed by First Union Capital I and NB Capital Trust IV was minimal, due primarily to their investment grade credit ratings (A2 and Aa3 by Moody’s Investor Services (Moody’s), respectively, as of December 31, 2008, A1 and A2 by Moody’s, respectively, as of March 31, 2009, and A3 and Baa3 by Moody’s, respectively, as of June 30, 2009) and the participation of such issuers’ parent companies in the Treasury Department’s Troubled Asset Relief Program Capital Purchase Program.
When conducting the OTTI analysis for each of December 31, 2008, March 31, 2009 and June 30, 2009, management believed that economic forecasts at those times, on balance, indicated that the general economy would likely improve through the course of 2009. In particular, management believed that economic forecasts for the financial sector and the real estate and housing sector, on balance, also indicated a steadying of conditions in those sectors and future improvement through 2009 and 2010. Based on the foregoing, management believed it likely that the loss positions in its corporate securities portfolio and its MBS portfolio would likely decrease in the near term.
Management also assessed the duration, severity and trend of the losses in the MBS and corporate securities portfolios. As of December 31, 2008, unrealized losses in the Corporation’s MBS portfolio were limited to the variable-rate portion of the portfolio and totaled $(184,529), or 2.02% of the $9,153,315 book value of the variable-rate MBS portfolio at that time. Of the $(184,529) unrealized loss, only $(75,493), or 40.91%, in losses had been in a continuous loss position for greater than 12 months. The absolute amount of unrealized losses in the variable-rate MBS portfolio, and the percentage of the total book value of the variable-rate MBS portfolio those unrealized losses represented, as of December 31, 2008, had increased from September 30, 2008 by $14,250 and 0.29%. Given the size of the unrealized losses compared to the total book value of the variable-rate MBS portfolio, the short duration of a majority of the unrealized losses and the immaterial increase in unrealized losses since September 30, 2008, management believed the foregoing factors indicated that the Corporation would be able to hold the loss position variable-rate MBS securities until able to recover its cost basis and, therefore, that such securities were not other-than-temporarily impaired as of December 31, 2008.
Mr. Mark Webb
Mr. Michael Seaman
United States Securities and Exchange Commission
August 21, 2009
Page 5
As of March 31, 2009, unrealized losses in the Corporation’s MBS portfolio were still limited to the variable-rate portion of the portfolio and totaled $(7,371), or 0.08% of the $8,720,563 book value of the variable-rate MBS portfolio at that time, with $(6,683), or 90.67%, of those unrealized losses having been in a continuous loss position for greater than 12 months. Given the size of the unrealized losses compared to the total book value of the variable rate portfolio and the marked decrease in unrealized losses since December 31, 2008, management believed the foregoing factors indicated that the Corporation would be able to hold the loss position variable-rate MBS securities until able to recover its cost basis and, therefore, that such securities were not other-than-temporarily impaired as of March 31, 2009.
As of June 30, 2009, unrealized losses in the Corporation’s MBS portfolio totaled $(1,660) and consisted of unrealized losses of $(252) in the fixed-rate portion of the portfolio and $(1,408) in the variable-rate portion of the portfolio. The aggregate unrealized loss of $(1,660) is 0.01% of the $14,232,021 book value of the fixed-rate and variable-rate MBS portfolio. Of the aggregate unrealized loss, $(1,408), or 84.8%, had been in a continuous loss position for greater than 12 months as of June 30, 2009. Given the size of the unrealized losses compared to the total book value of the MBS portfolio and the decrease in unrealized losses since March 31, 2009, management believed the foregoing factors indicated that the Corporation would be able to hold the loss position MBS securities until able to recover its cost basis and, therefore, that such securities were not other-than-temporarily impaired as of June 30, 2009.
With respect to its corporate securities portfolio, management relied less on quarterly trends in unrealized losses in assessing the impairment status of the component securities due to recent volatility in the market value of such securities and the stock market as a whole. While the holdings in the Corporation’s corporate securities portfolio have not changed, the related unrealized losses have oscillated recently as follows: $(323,199) as of July 31, 2008, $(1,226,505) as of September 30, 2008, $(886,603) as of December 31, 2008, $(2,015,789) as of March 31, 2009 and $(736,911) as of June 30, 2009. Given this volatility, the Company relied more heavily on the other factors described herein when conducting its OTTI analysis of the corporate securities portfolio.
With respect to the MBS portfolio, management also considered the prevailing low-interest rate environment and the related expected increase in home mortgage loan refinancings. Management assessed the impact that an increase in refinancings would have on pre-payment rates and accelerated return of capital on the value of the loss position securities in its MBS portfolio.
Please direct any questions to Darrell G. Swanigan (telephone: (757) 934-6385; fax: (757) 934-1888) or to the undersigned (telephone: (804) 697-1861; fax: (804) 698-6015).
| Very truly yours, |
/s/ Susan Stoops Ancarrow |
| Susan Stoops Ancarrow |
| cc: | Darrell G. Swanigan, First Bankshares, Inc. |
Jacob A. Lutz, III, Esq.
Exhibit A
Allocation of the Allowance for Loan Losses
A breakdown by loan category of the allocation of the allowance for loan losses as of December 31 for each of the years indicated and the ratio of related outstanding loan balances to total loans, are as follows:
Allocation of the Allowance for Loan Losses
As of December 31, 2008 and 2007
| 2008 | 2007 | ||||||||||||
| Amount | Percent of loans in each category to total loans | Amount | Percent of loans in each category to total loans | ||||||||||
Balance at end of period applicable to: | |||||||||||||
Commercial - real estate | $ | 863,536 | 51.18 | % | $ | 597,056 | 63.39 | % | |||||
Commercial - other | 588,957 | 34.91 | % | 208,762 | 22.17 | % | |||||||
Real estate - residential land | 13,861 | 0.82 | % | 12,283 | 1.30 | % | |||||||
Real estate - residential construction | 4,913 | 0.29 | % | 9,117 | 0.97 | % | |||||||
Real estate - mortgage, 1-4 family | 168,876 | 10.01 | % | 98,874 | 10.50 | % | |||||||
Installment loans to individuals | 32,930 | 1.95 | % | 39,304 | 4.17 | % | |||||||
Unallocated | 14,211 | 0.84 | % | (23,576 | ) | (2.50 | )% | ||||||
Total allowance | $ | 1,687,284 | 100.00 | % | $ | 941,820 | 100.00 | % | |||||
Analysis of the Allowance for Loan Losses
The following table presents the Corporation’s loan loss experience for the years indicated:
Analysis of the Allowance for Loan Losses
For the years ended December 31, 2008 and 2007
| 2008 | 2007 | |||||||
Balance at the beginning of period | $ | 941,820 | $ | 826,595 | ||||
Charge-offs: | ||||||||
Commercial - real estate | — | — | ||||||
Commercial - other | 79,032 | 3,950 | ||||||
Real estate - residential land | — | — | ||||||
Real estate - residential construction | — | — | ||||||
Real estate - mortgage, 1-4 family | — | — | ||||||
Installment loans to individuals | 10,660 | 1,418 | ||||||
Total charge-offs | 89,692 | 5,368 | ||||||
Recoveries: | ||||||||
Commercial - real estate | — | — | ||||||
Commercial - other | 6,312 | 3,949 | ||||||
Real estate - residential land | — | — | ||||||
Real estate - residential construction | — | — | ||||||
Real estate - mortgage, 1-4 family | — | — | ||||||
Installment loans to individuals | 188 | 575 | ||||||
Total recoveries | 6,500 | 4,524 | ||||||
Net charge-offs | 83,192 | 844 | ||||||
Additions to the Allowance for Loan Losses | 828,656 | 116,069 | ||||||
Balance at end of period | $ | 1,687,284 | $ | 941,820 | ||||
Ratio of net charge-offs during the period to average loans outstanding during the period | 0.07 | % | 0.00 | % | ||||
Average Deposits and Rates Paid
The following table presents the average balances and average rates paid, by deposit category, for the years indicated:
Average Deposits and Rates Paid
| For the years ended December 31, | ||||||||||||
| 2008 | 2007 | |||||||||||
| Amount | Rate | Amount | Rate | |||||||||
Noninterest-bearing demand deposits | $ | 14,212,300 | $ | 14,176,354 | ||||||||
Interest-bearing deposits: | ||||||||||||
Checking (NOW accounts) | 4,266,732 | 0.89 | % | 3,646,307 | 0.71 | % | ||||||
Money market accounts | 1,978,869 | 1.77 | % | 2,045,067 | 1.27 | % | ||||||
Savings accounts | 2,620,795 | 1.19 | % | 2,257,350 | 1.21 | % | ||||||
Time deposits $100,000 or greater [1] | 27,091,313 | 4.44 | % | 19,181,042 | 4.97 | % | ||||||
Time deposits less than $100,000 | 76,577,954 | 4.37 | % | 61,791,035 | 4.94 | % | ||||||
Total interest-bearing | 112,535,663 | 4.14 | % | 88,920,801 | 4.59 | % | ||||||
Total average deposits | $ | 126,747,963 | 3.67 | % | $ | 103,097,155 | 3.96 | % | ||||
| ||||||||||||
| [1] | Includes some brokered deposits. |
Average Balances, Interest Income/Expense and Average Yields/Rates
The following table shows average balances of total interest-earning assets and total-interest bearing liabilities for the years indicated, showing the average distribution of assets, liabilities, stockholders’ equity and related income, expense and corresponding weighted average yields and rates. The average balances used in these tables and other statistical data were calculated using daily average balances. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield if income taxes were paid using the federal corporate income tax rate of 34% in each year presented).
Average Balances, Interest Income/Expense and Average Yields/Rates
For the years ended December 31, 2008 and 2007
(Dollars in Thousands)
| 2008 | Interest | 2007 | ||||||||||||||||||||||
| Average Balances [1] | Interest Income/ Expense | Yields/ Rates | Income/ Expense Difference | Average Balances [1] | Interest Income/ Expense | Yields/ Rates | ||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Federal funds sold | $ | 4,745 | $ | 60 | 1.26 | % | $ | (4 | ) | $ | 1,306 | $ | 64 | 4.90 | % | |||||||||
Investment securities [6] | 46,402 | 2,825 | 6.09 | % | 1,031 | 34,116 | 1,794 | 5.26 | % | |||||||||||||||
Loans [2] | 113,433 | 7,348 | 6.48 | % | 654 | 87,550 | 6,694 | 7.65 | % | |||||||||||||||
Total interest-earning assets | 164,580 | 10,233 | 6.22 | % | 1,681 | 122,972 | 8,552 | 6.95 | % | |||||||||||||||
Noninterest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 2,996 | 3,282 | ||||||||||||||||||||||
Premises and equipment | 5,728 | 3,840 | ||||||||||||||||||||||
Other assets | 1,990 | 1,463 | ||||||||||||||||||||||
Allowance for loan losses | (1,050 | ) | (871 | ) | ||||||||||||||||||||
Total noninterest-earning assets | 9,664 | 7,714 | ||||||||||||||||||||||
Total Assets | $ | 174,244 | $ | 130,686 | ||||||||||||||||||||
Liabilities and Shareholders’ Equity: | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 6,246 | $ | 73 | 1.17 | % | $ | 21 | $ | 5,691 | $ | 52 | 0.91 | % | ||||||||||
Savings deposits | 2,621 | 31 | 1.18 | % | 4 | 2,257 | 27 | 1.20 | % | |||||||||||||||
Time deposits | 103,669 | 4,551 | 4.39 | % | 546 | 80,972 | 4,005 | 4.95 | % | |||||||||||||||
Federal funds purchased and borrowed funds | 30,075 | 903 | 3.00 | % | 457 | 10,229 | 446 | 4.36 | % | |||||||||||||||
Total interest-bearing liabilities | 142,611 | 5,558 | 3.90 | % | 1,028 | 99,149 | 4,530 | 4.57 | % | |||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Noninterest demand deposits | 14,212 | 14,176 | ||||||||||||||||||||||
Other liabilities | 1,284 | 1,192 | ||||||||||||||||||||||
Shareholders’ equity | 16,137 | 16,169 | ||||||||||||||||||||||
Total Liabilities and Shareholders’ | ||||||||||||||||||||||||
Equity | $ | 174,244 | $ | 130,686 | ||||||||||||||||||||
Interest Rate Spread [3] | 2.32 | % | 2.38 | % | ||||||||||||||||||||
Net Interest Income [4] | $ | 4,675 | $ | 4,022 | ||||||||||||||||||||
Net Interest Margin [5] | 2.84 | % | 3.27 | % | ||||||||||||||||||||
| [1] | Average balances are computed on a daily basis. |
| [2] | Nonaccrual loans have been included in the computations of average loan balances. |
| [3] | Interest rate spread is the average yield earned on interest-earning assets, less the average rate incurred on interest-bearing liabilities. |
| [4] | Net interest income is interest income on average interest-earning assets, less interest expense on average interest-bearing liabilities. |
| [5] | Net interest margin is net interest income, expressed as a percentage of average earning assets. |
| [6] | Includes non-taxable investments with an average balance of $436 thousand and interest income of $17 thousand in 2008. |
There were no non-taxable investments in 2007.
Book Value of Securities Greater Than 10% of Stockholders’ Equity
The following tables show the aggregate book value and fair value, as of December 31, 2008 and 2007, of the securities for which the aggregate book value exceeds 10% of stockholders’ equity:
Book Value of Securities Greater than 10% of Stockholders’ Equity
As of December 31, 2008
| Book Value | Fair Value | Book Value as a Percentage of Stockholders’ Equity | |||||||
U.S. agencies | |||||||||
- Federal Home Loan Mortgage Corporation | $ | 20,660,000 | $ | 20,850,091 | 123.64 | % | |||
- Federal National Mortgage Association | 1,998,025 | 2,091,821 | 11.96 | % | |||||
Mortgage-backed securities | |||||||||
- Federal Home Loan Mortgage Corporation | 15,539,622 | 15,875,725 | 93.00 | % | |||||
- Federal National Mortgage Association | 8,831,948 | 8,824,289 | 52.85 | % | |||||
Other securities | |||||||||
- First Union Capital I | 2,268,584 | 1,767,128 | 13.58 | % | |||||
- NB Capital Trust IV | 2,270,980 | 1,885,834 | 13.59 | % | |||||
Total securities | $ | 51,569,159 | $ | 51,294,888 | 308.62 | % | |||
Book Value of Securities Greater than 10% of Stockholders’ Equity
As of December 31, 2007
| Book Value | Fair Value | Book Value as a Percentage of Stockholders’ Equity | |||||||
U.S. agencies | |||||||||
- Federal Farm Credit Bank | $ | 9,924,125 | $ | 10,099,990 | 59.40 | % | |||
- Federal Home Loan Bank | 31,939,255 | 31,920,867 | 191.18 | % | |||||
Mortgage-backed securities | |||||||||
- Federal Home Loan Mortgage Corporation | 3,239,331 | 3,247,412 | 19.39 | % | |||||
- Federal National Mortgage Association | 10,471,941 | 10,397,019 | 62.68 | % | |||||
Other securities | |||||||||
- First Union Capital I | 2,276,619 | 2,277,000 | 13.63 | % | |||||
- NB Capital Trust IV | 2,281,822 | 2,291,225 | 13.66 | % | |||||
Total securities | $ | 60,133,093 | $ | 60,233,513 | 359.94 | % | |||
Loans Receivable Portfolio
The following table presents information pertaining to the composition of loans as of December 31 for each of the years indicated:
Loans Receivable Portfolio
As of December 31, 2008 and 2007
| 2008 | 2007 | |||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||
Commercial - real estate | $ | 70,342,337 | 60.87 | % | $ | 61,325,033 | 59.09 | % | ||||||
Commercial - other | 16,732,138 | [1] | 14.48 | % | 17,273,911 | [2] | 16.64 | % | ||||||
Real estate - residential land | 1,732,627 | 1.50 | % | 1,535,430 | 1.48 | % | ||||||||
Real estate - residential construction | 948,190 | 0.82 | % | 1,567,400 | 1.51 | % | ||||||||
Real estate - mortgage, 1-4 family | 25,052,986 | 21.68 | % | 20,318,830 | 19.58 | % | ||||||||
Installment loans to individuals | 2,439,017 | 2.11 | % | 2,707,311 | 2.61 | % | ||||||||
Total Loans | 117,247,295 | 101.46 | % | 104,727,915 | 100.91 | % | ||||||||
Less: Allowance for Loan Losses | (1,687,284 | ) | (1.46 | )% | (941,820 | ) | (0.91 | )% | ||||||
Net Loans | $ | 115,560,011 | 100.00 | % | $ | 103,786,095 | 100.00 | % | ||||||
| ||||||||||||||
| [1] | As of December 31, 2008, 71% of commercial real estate loans were secured by business locations, 14% were secured by rental properties, 9% were secured by churches, 1% were secured by farms, and 5% were secured by other real estate. |
| [2] | As of December 31, 2007, 57% of commercial real estate loans were secured by business locations, 29% were secured by rental properties, 7% were secured by churches, 1% were secured by farms, and 6% were secured by other real estate. |
Maturity Analysis of Loan Portfolio
The following table presents information regarding the maturity of loans as of December 31, 2008:
Maturity Analysis of Loan Portfolio
As of December 31, 2008
| Variable Rate | Fixed Rate | |||||||||||||||||||||||
| Within 1 year | 1 to 5 years | After 5 years | Total | 1 to 5 years | After 5 years | Total | Total Maturities | |||||||||||||||||
Commercial | ||||||||||||||||||||||||
- Real estate [1] | $ | 26,835,670 | $ | 16,385,605 | $ | — | $ | 16,385,605 | $ | 24,201,503 | $ | 2,479,093 | $ | 26,680,596 | $ | 69,901,871 | ||||||||
- Other | 6,587,425 | 1,287,076 | — | 1,287,076 | 8,555,474 | 10,754 | 8,566,228 | 16,440,729 | ||||||||||||||||
Real estate | ||||||||||||||||||||||||
- Residential land | 326,300 | — | — | — | 641,144 | 765,183 | 1,406,327 | 1,732,627 | ||||||||||||||||
- Residential construction | 927,887 | — | — | — | 20,303 | — | 20,303 | 948,190 | ||||||||||||||||
- Mortgage, 1-4 family | 2,765,791 | 5,295,136 | 326,649 | 5,621,785 | 6,695,910 | 9,934,480 | 16,630,390 | 25,017,966 | ||||||||||||||||
Installment loans to individuals | 777,333 | 187,720 | 49,618 | 237,338 | 1,305,305 | 38,933 | 1,344,238 | 2,358,909 | ||||||||||||||||
Overdrafts | 10,859 | — | — | — | — | — | — | 10,859 | ||||||||||||||||
Total loans | $ | 38,231,265 | $ | 23,155,537 | $ | 376,267 | $ | 23,531,804 | $ | 41,419,639 | $ | 13,228,443 | $ | 54,648,082 | $ | 116,411,151 | ||||||||
| [1] | Excludes $676,566 in nonaccrual variable-rate loans. |
Maturities of Large Denomination Certificates of Deposit
The following table presents the maturities of certificates of deposit with balances of $100,000 or more as of December 31, 2008:
Maturities of Large Denomination Certificates of Deposit[1] [2]
| Within 3 Months | 3-6 Months | 6-12 Months | Over 12 Months | Total | Percent of Total Deposits | |||||||||||||
As of December 31, 2008 | $ | 7,584,531 | $ | 1,691,756 | $ | 13,590,147 | $ | 569,428 | $ | 23,435,862 | 17.99 | % | ||||||
| [1] | Certificates issued in denominations of $100,000 or greater |
| [2] | Includes some brokered deposits |
The Corporation had no other time deposits with balances of $100,000 or greater as of December 31, 2008.
Scheduled Maturities of Available-for-Sale Securities
The following tables present information pertaining to the composition of the securities portfolio by contractual maturity as of December 31 for each of the years indicated. Interest on tax-exempt securities is presented on a taxable-equivalent basis (which converts the income on investments for which no income taxes are paid to the equivalent yield if income taxes were paid using the federal corporate income tax rate of 34% in each year presented).
Scheduled Maturities of Available-for-Sale Securities
As of December 31, 2008
| Within 1 Year | Weighted Average Yield | After 1 Year Through 5 Years | Weighted Average Yield | After 5 Years Through 10 Years | Weighted Average Yield | After 10 Years | Weighted Average Yield | Total | Weighted Average Yield | |||||||||||||||||||||
U.S. agencies | $ | — | 0.00 | % | $ | — | 0.00 | % | $ | — | 0.00 | % | $ | 23,960,625 | 5.20 | % | $ | 23,960,625 | 5.20 | % | ||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||||
- Fixed rate | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | 8,993,426 | 5.48 | % | 8,993,426 | 5.48 | % | |||||||||||||||
- Variable rate [1] | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | 16,284,963 | 4.48 | % | 16,284,963 | 4.48 | % | |||||||||||||||
Municipals | ||||||||||||||||||||||||||||||
- Tax exempt | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | — | 5.59 | % | 5.59 | % | ||||||||||||||||
Other securities | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | 4,173,697 | 7.40 | % | 4,173,697 | 7.40 | % | |||||||||||||||
Total securities | $ | — | 0.00 | % | $ | — | 0.00 | % | $ | — | 0.00 | % | $ | 53,412,711 | 5.35 | % | $ | 53,412,711 | 5.35 | % | ||||||||||
[1] Includes $8,993,426 in variable-rate MBS that reset within one to ten years.
Scheduled Maturities of Available-for-Sale Securities As of December 31, 2007
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| Within 1 Year | Weighted Average Yield | After 1 Year Through 5 Years | Weighted Average Yield | After 5 Years Through 10 Years | Weighted Average Yield | After 10 Years | Weighted Average Yield | Total | Weighted Average Yield | |||||||||||||||||||||
U.S. agencies | $ | 27,970,867 | 4.45 | % | $ | — | 0.00 | % | $ | — | 0.00 | % | $ | 15,052,733 | 5.96 | % | $ | 43,023,600 | 4.98 | % | ||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||||
- Fixed rate | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||
- Variable rate [2] | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | 14,450,967 | 4.83 | % | 14,450,967 | 4.83 | % | |||||||||||||||
CMOs | — | 0.00 | % | — | 0.00 | % | 11,624 | 2.91 | % | — | 0.00 | % | 11,624 | 2.91 | % | |||||||||||||||
Other securities | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | 4,568,225 | 7.20 | % | 4,568,225 | 7.20 | % | |||||||||||||||
Total securities | $ | 27,970,867 | 4.45 | % | $ | — | 4.45 | % | $ | 11,624 | 2.91 | % | $ | 34,071,925 | 5.65 | % | $ | 62,054,416 | 5.10 | % | ||||||||||
[2] Includes $14,450,967 in variable-rate MBS that reset within one to ten years. |
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Nonperforming Assets
The following table summarizes nonperforming assets as of December 31 for each of the years indicated:
Nonperforming Assets
As of December 31, 2008 and 2007
| 2008 | 2007 | |||||||
Nonaccrual loans | $ | 676,566 | $ | — | ||||
Restructured loans | — | — | ||||||
Loans past due 90 days and accruing interest | — | — | ||||||
Total nonperforming loans | 676,566 | — | ||||||
Other real estate owned | — | — | ||||||
Total nonperforming assets | $ | 676,566 | $ | — | ||||
Nonperforming assets to total loans and other real estate owned | 0.57 | % | N/A | |||||
Allowance for loan losses to nonaccrual loans | 249.39 | % | N/A | |||||
Net charge-offs to average loans for the year | 0.08 | % | 0.00 | % | ||||
Allowance for loan losses to year end loans | 1.44 | % | 0.90 | % | ||||
Foregone gross interest income on nonaccrual loans [1] | $ | 48,563 | N/A | |||||
| [1] | No interest income was received on nonaccrual loans in 2008. |
Short-Term Borrowings
The following table summarizes the year-end balance, highest month-end balance, average balance and weighted average rate of short-term borrowings for each of the years indicated:
Short-Term Borrowings
| For the years ended December 31, | ||||||||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||||||
| Year-end Balance | Highest Month- End Balance | Average Balance | Weighted Average Rate | Year-end Balance | Highest Month- End Balance | Average Balance | Weighted Average Rate | |||||||||||||||||
Federal funds purchased | $ | — | $ | 2,270,000 | $ | 374,164 | 2.76 | % | $ | 2,547,000 | $ | 3,951,000 | $ | 1,057,507 | 5.00 | % | ||||||||
Other borrowings | 16,000,000 | 21,000,000 | 11,006,284 | 3.77 | % | 45,000,000 | 45,000,000 | 9,164,110 | 4.29 | % | ||||||||||||||
Total short-term borrowings | $ | 16,000,000 | $ | 23,270,000 | $ | 11,380,448 | 3.74 | % | $ | 47,547,000 | $ | 48,951,000 | $ | 10,221,617 | 4.36 | % | ||||||||
Exhibit B
Proposed Form of Disclosure in Forms 10-K
The following tables show the unrealized losses and related fair values in the Corporation’s securities portfolio, with the information aggregated by investment category and by the length of time that individual securities have been in continuous unrealized loss positions, as of December 31, 2008 and December 31, 2007, respectively.
| Less than 12 months | More than 12 months | Total | ||||||||||||||||||||
| As of December 31, 2008 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||
Mortgage-backed securities | $ | 3,954,961 | $ | (109,036 | ) | $ | 2,346,183 | $ | (75,492 | ) | $ | 6,301,144 | $ | (184,528 | ) | |||||||
- Variable rate | ||||||||||||||||||||||
Municipals | ||||||||||||||||||||||
- Tax exempt | 520,735 | (5,198 | ) | — | — | 520,735 | (5,198 | ) | ||||||||||||||
Other securities | 3,652,962 | (886,603 | ) | — | — | 3,652,962 | (886,603 | ) | ||||||||||||||
Total securities | $ | 8,128,658 | $ | (1,000,837 | ) | $ | (2,346,183 | ) | $ | (75,492 | ) | $ | 10,474,841 | $ | (1,076,329 | ) | ||||||
| Less than 12 months | More than 12 months | Total | ||||||||||||||||||||
| As of December 31, 2007 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||
U.S. agencies | $ | 24,967,153 | $ | (23,880 | ) | $ | — | $ | — | $ | 24,967,153 | $ | (23,880 | ) | ||||||||
Mortgage-backed securities | (184,528 | ) | ||||||||||||||||||||
- Fixed rate | — | — | 520,055 | (17,156 | ) | 520,055 | (17,156 | |||||||||||||||
- Variable rate | 700,064 | (2,535 | ) | 6,667,136 | (141,823 | ) | 7,367,200 | (144,358 | ) | |||||||||||||
CMO’s | — | — | 11,624 | (45 | ) | 11,624 | (45 | ) | ||||||||||||||
Total securities | $ | 25,667,217 | $ | (26,415 | ) | $ | 7,198,815 | $ | (159,024 | ) | $ | 32,866,032 | $ | (185,439 | ) | |||||||
Proposed Form of Disclosure in Forms 10-Q
The following tables show the unrealized losses and related fair values in the Corporation’s securities portfolio, with the information aggregated by investment category and by the length of time that individual securities have been in continuous unrealized loss positions, as of June 30, 2009 and December 31, 2008, respectively.
| As of June 30, 2009 | Less than 12 months | More than 12 months | Total | ||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||
U.S. agencies | $ | 20,893,772 | $ | (766,228 | ) | $ | — | $ | — | $ | 20,893,772 | $ | (766,228 | ) | |||||||
Mortgage-backed securities | |||||||||||||||||||||
- Fixed rate | 517,111 | (252 | ) | — | — | 517,111 | (252 | ) | |||||||||||||
- Variable rate | — | — | 314,072 | (1,409 | ) | 314,072 | (1,409 | ) | |||||||||||||
Other securities | — | — | 3,795,000 | (736,911 | ) | 3,795,000 | (736,911 | ) | |||||||||||||
Total securities | $ | 21,410,883 | $ | (766,480 | ) | $ | 4,109,072 | $ | (738,320 | ) | $ | 25,519,955 | $ | (1,504,800 | ) | ||||||
| As of December 31, 2008 | Less than 12 months | More than 12 months | Total | ||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||
Mortgage-backed securities | |||||||||||||||||||||
- Variable rate | $ | 3,954,961 | $ | (109,036 | ) | $ | 2,346,183 | $ | (75,492 | ) | $ | 6,301,144 | $ | (184,528 | ) | ||||||
Municipals | |||||||||||||||||||||
- Tax exempt | 520,735 | (5,198 | ) | — | — | 520,735 | (5,198 | ) | |||||||||||||
Other securities | 3,652,962 | (886,603 | ) | — | — | 3,652,962 | (886,603 | ) | |||||||||||||
Total securities | $ | 8,128,658 | $ | (1,000,837 | ) | $ | 2,346,183 | $ | (75,492 | ) | $ | 10,474,841 | $ | (1,076,329 | ) | ||||||