UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
or
[ ] 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: 000-51832
SBT Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Connecticut 20-4346972
- --------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
760 Hopmeadow Street, P.O. Box 248, Simsbury, CT 06070
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(Address of principal executive offices) (Zip Code)
(860) 408-5493
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
- 1 -
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of July 31, 2009, the registrant had outstanding 864,976 shares of its
Common Stock, no par value.
- 2 -
TABLE OF CONTENTS
SBT Bancorp, Inc.
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2009 and 2008 (unaudited)
and December 31, 2008 4
Condensed Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2009 and 2008 (unaudited) 5
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Six
Months Ended June 30, 2009 and 2008 (unaudited) 6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2009 and 2008 (unaudited) 7
Notes to Condensed Consolidated Financial Statements - (unaudited) 8 - 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4T. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits. 21
SIGNATURES 22
EXHIBIT INDEX 23
- 3 -
PART I - FINANCIAL INFORMATION
SBT BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)
ASSETS 6/30/09 12/31/08 6/30/08
- ------ ------- -------- -------
(Unaudited) (Unaudited)
Cash and due from banks $13,011 $ 11,392 $ 18,992
Interest-bearing deposits with the Federal Home Loan Bank 55 116 65
Federal funds sold 7,870 1,800 2,000
Money market mutual funds 8,882 3,027 287
------------- ------------ -------------
Cash and cash equivalents 29,818 16,335 21,344
Interest-bearing time deposits with other banks 5,398 7,320 -
Investments in available-for-sale securities (at fair value) 45,507 32,997 20,241
Federal Home Loan Bank stock, at cost 631 631 631
Loans outstanding 178,559 180,091 178,079
Less allowance for loan losses 2,132 2,017 2,036
------------- ------------ -------------
Loans, net 176,427 178,074 176,043
------------- ------------ -------------
Premises and equipment 747 846 1,083
Accrued interest receivable 921 836 766
Bank owned life insurance 3,759 1,204 1,181
Other assets 2,639 2,513 1,784
------------- ------------ -------------
Total other assets 8,066 5,399 4,814
------------- ------------ -------------
TOTAL ASSETS $265,847 $ 240,756 $ 223,073
============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand deposits $ 40,513 $ 38,288 $ 41,707
Savings and NOW deposits 108,505 98,264 97,266
Time deposits 93,898 84,327 60,616
----------- ------------ -------------
Total deposits 242,916 220,879 199,589
Federal Home Loan Bank advance - 1,000 500
Securities sold under agreements to repurchase 757 577 4,553
Other liabilities 1,096 1,454 899
----------- ------------ -------------
Total liabilities 244,769 223,910 205,541
----------- ------------ -------------
Stockholders' equity:
Preferred Stock - Class A 3,781 - -
Preferred Stock - Class B 228 - -
Common stock, no par value; authorized 2,000,000 shares;
issued and outstanding 864,976 shares on 6/30/09,
12/31/08 and 6/30/08 9,358 9,328 9,263
Retained earnings 7,766 7,543 8,812
Accumulated other comprehensive loss (55) (25) (543)
----------- ------------ -------------
Total stockholders' equity 21,078 16,846 17,532
----------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $265,847 $ 240,756 $ 223,073
============= ============ =============
See accompanying notes to the condensed consolidated financial statements
- 4 -
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except for per share amounts)
For the quarter ended For the six months ended
--------------------------- ---------------------------
6/30/09 6/30/08 6/30/09 6/30/08
------------- ------------- ----------- ---------------
Interest and dividend income
Interest and fees on loans $ 2,399 $ 2,414 $ 4,807 $ 4,808
Investment securities 478 269 900 585
Federal funds sold and overnight deposits 4 44 9 85
------------- ------------- ----------- ---------------
Total interest and dividend income 2,881 2,727 5,716 5,478
------------- ------------- ----------- ---------------
Interest expense
Deposits 729 696 1,544 1,544
Repurchase Agreements 1 22 4 33
Federal Home Loan Bank advances - - 7 2
------------- ------------- ----------- ---------------
Total interest expense 730 718 1,555 1,579
------------- ------------- ----------- ---------------
Net interest and dividend income 2,151 2,009 4,161 3,899
Provision for loan losses 78 100 130 200
------------- ------------- ----------- ---------------
Net interest and dividend income after provision for loan losses 2,073 1,909 4,031 3,699
------------- ------------- ----------- ---------------
Noninterest income
Service charges on deposit accounts 134 121 236 234
Gain on sales of available-for-sale securities - 10 - 10
Other service charges and fees 148 152 268 282
Increase in cash surrender value of life insurance policies 42 14 55 38
BOLI death benefit income - 328 - 328
Gain on loans sold 40 - 43 -
Investment Services fees and commissions 17 30 47 46
Other income 27 30 46 44
------------- ------------- ----------- ---------------
Total noninterest income 408 685 695 982
------------- ------------- ----------- ---------------
Noninterest expense
Salaries and employee benefits 1,022 1,010 2,069 2,041
Premises and equipment 363 368 736 777
Advertising and promotions 99 106 179 170
Forms and supplies 48 45 88 83
Professional fees 162 72 270 100
Directors' fees 33 34 66 67
Correspondent charges 73 59 139 112
Postage 24 30 49 58
Other expenses 351 301 618 507
------------- ------------- ----------- ---------------
Total noninterest expense 2,175 2,025 4,214 3,915
------------- ------------- ----------- ---------------
Income before taxes 306 569 512 766
Income tax provision 85 71 145 141
------------- ------------- ----------- ---------------
Net income $ 221 $ 498 $ 367 $ 625
============= ============= =========== ===============
Less: Preferred stock dividend and accretion $ 64 $ - $ 67 $ -
------------- ------------- ----------- ---------------
Net income available to common shareholders $ 157 $ 498 $ 300 $ 625
============= ============= =========== ===============
Average shares outstanding, basic 864,976 859,031 864,976 855,029
Net income available per common share, basic $ 0.18 $ 0.58 $ 0.35 $ 0.73
============= ============= =========== ===============
Average shares outstanding, assuming dilution 864,976 862,729 864,976 860,791
Net income available per common share, assuming dilution $ 0.18 $ 0.58 $ 0.35 $ 0.73
See accompanying notes to the condensed consolidated financial statements
- 5 -
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
Preferred Stock Preferred Stock Common Retained Comprehensive
- Class A - Class B Stock Earnings Loss Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2007 - - $ 8,975 $ 8,603 $ (260) $ 17,318
Comprehensive income:
Net income 625
Net change in unrealized holding loss on
available-for-sale securities, net of tax effect (283)
Comprehensive income 342
Recognition of stock-based compensation expense 60 60
Tax benefit on disqualified options exercised 33 33
Proceeds from exercise of stock options 195 195
Cash dividend paid (416) (416)
----------------------------------------------------------------------------
Balance, June 30, 2008 $ 9,263 $ 8,812 $ (543) $ 17,532
============================================================================
Balance, December 31, 2008 $ 9,328 $ 7,543 $ (25) $ 16,846
Comprehensive Income:
Net income 367
Net change in unrealized holding loss on
available-for-sale securities, net of tax effect (30)
Comprehensive income 337
Dividends Paid:
Common stock (105) (105)
Class A preferred stock (27) (27)
Class B preferred stock (3) (3)
Accretion of Class A preferred stock premium 11 (11)
Amortization of Class B preferred stock premium (2) 2
Preferred shares issued as part of Capital Purchase
Program 3,770 230 4,000
Recognition of stock-based compensation expense 30 30
----------------------------------------------------------------------------
Balance, June 30, 2009 $ 3,781 $228 $ 9,358 $ 7,766 $ (55) $ 21,078
============================================================================
See accompanying notes to the condensed consolidated financial statements
- 6 -
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the six months ended
-----------------------------------
6/30/09 6/30/08
------------------ --------------
Cash flows from operating activities:
Net income $367 $625
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization (accretion) of securities, net 48 (5)
Change in deferred loan costs, net 31 -
Provision for loan losses 130 200
Depreciation and amortization 138 173
Impairment of operating lease (30) -
Accretion on impairment of operating lease 7 -
Increase in other assets (177) (60)
(Increase) decrease in interest receivable (85) 42
Decrease in unearned income - (19)
Decrease (increase) in taxes receivable 92 (26)
Stock based compensation 30 60
Decrease in other liabilities (350) (342)
Increase in cash surrender value of bank owned life insurance (55) (38)
BOLI death benefit income - (328)
Increase (decrease) in interest payable 15 (229)
------------------ --------------
Net cash provided by operating activities 161 53
------------------ --------------
Cash flows from investing activities:
Proceeds from maturities of interest-bearing time deposits with
other banks 1,922 -
Purchases of available-for-sale securities (19,046) (3,945)
Proceeds from maturities of available-for-sale securities 6,438 6,684
Loan originations and principal collections, net 1,485 (12,459)
Redemptions of life insurance policies - 1,003
Purchase of life insurance policies (2,500) -
Capital expenditures (60) (31)
Recovery of previously charged-off loans 1 -
---------------- -------------
Net cash used in investing activities (11,760) (8,748)
---------------- -------------
Cash flows from financing activities:
Net increase in demand, NOW, money market and savings deposits 12,466 15,333
Net increase (decrease) in time deposits 9,571 (2,550)
Net change in short term advances from the Federal Home Loan Bank (1,000) (1,500)
Net increase in securities sold under agreements to repurchase 180 3,190
Cash dividends paid (135) (416)
Proceeds from issuance of preferred and warrant preferred stock 4,000 -
Proceeds from exercise of stock options - 228
---------------- -------------
Net cash provided by financing activities 25,082 14,285
---------------- -------------
Net increase in cash and cash equivalents 13,483 5,590
Cash and cash equivalents at beginning of period 16,335 15,754
---------------- -------------
Cash and cash equivalents at end of period $ 29,818 $ 21,344
================ =============
Supplemental disclosures:
Interest paid 1,540 1,808
Income taxes paid 53 135
See accompanying notes to the condensed consolidated financial statements
- 7 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
- ------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-Q, and accordingly
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements reflect all necessary adjustments, consisting of only normal
recurring accruals, to present fairly the financial position, results of
operations, cash flows and changes in stockholders' equity of SBT Bancorp, Inc.
(the "Company") for the periods presented. In preparing the interim financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. The interim results of operations are not
necessarily indicative of the results to be expected for the year ending
December 31, 2009.
While management believes that the disclosures presented are adequate so as
not to make the information misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes included in the Company's Form 10-K for the year ended
December 31, 2008.
NOTE 2 - STOCK BASED COMPENSATION
At June 30, 2009, the Company maintains a stock-based employee compensation
plan. Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004) "Share-Based Payments" ("SFAS
123R"). This Statement revised SFAS No. 123, "Accounting for Stock Based
Compensation" and superceded Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related implementation
guidance. SFAS 123R requires that the cost resulting from all share-based
payment transactions be recognized in the consolidated financial statements and
establishes fair value as the measurement objective in accounting for
share-based payment arrangements. During the six months ended June 30, 2009, the
Company recognized $30,000 in stock-based employee compensation expense. During
the six months ended June 30, 2008, the Company recognized $60,000 in
stock-based employee compensation expense.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) significantly changes the accounting
for business combinations. Under SFAS 141(R), an acquiring entity is required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. It also amends the
accounting treatment for certain specific items including acquisition costs and
non-controlling minority interests and includes a substantial number of new
disclosure requirements. SFAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. The
adoption of this statement did not have a material impact on the Company's
financial condition and results of operations.
In February 2008, the FASB issued FSP FAS 140-3, "Accounting for Transfers
of Financial Assets and Repurchase Financing Transactions." This FSP provides
guidance on how the transferor and transferee should separately account for a
transfer of a financial asset and a related repurchase financing if certain
criteria are met. This guidance will be effective January 1, 2009. The adoption
of this new FSP is not expected to have a material effect on the Company's
results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No. 133"
("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. The guidance in SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This Statement encourages,
but does not require, comparative disclosures for earlier periods at initial
adoption. The adoption of this statement did not have a material impact on the
Company's financial condition and results of operations.
- 8 -
In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful
Life of Intangible Assets." This FSP provides guidance as to factors considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142, "Goodwill and Other Intangible
Assets." This guidance will be effective January 1, 2009. The adoption is not
expected to have a material effect on the Company's results of operations or
financial position.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." This standard formalizes minor changes in
prioritizing accounting principles used in the preparation of financial
statements that are presented in conformity with GAAP. This standard became
effective November 18, 2008.
In April 2009, the FASB issued FASB Staff Position 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4). FSB FAS 157-4 provides additional guidance for estimating fair value
measurements in accordance with FASB Statement No. 157, "Fair Value
Measurements," when the volume and level of activity for the asset or liability
have significantly decreased. FSP FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. The Company is currently evaluating the
impact of the adoption of this FSP on its financial condition and results of
operations.
In April 2009, the FASB issued FASB Staff Position 107-1 and Accounting
Principles Board Opinion 28-1, "Interim Disclosures About Fair Value of
Financial Instruments" (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 amends FASB
Statement No. 107, "Disclosures About Fair Value of Financial Instruments," to
require entities to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in both interim and annual
financial statements. APB 28-1 amends APB Opinion No. 28, "Interim Financial
Reporting" to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim
and annual periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. An entity may early adopt this FSP only if
it also elects to early adopt FSP FAS 157-4. The adoption of this FSP did not
have a material impact on its financial condition and results of operations.
In April 2009, the FASB issued FASB Staff Position 115-2 and 124-2,
"Recognition and Presentation of Other-than-Temporary Impairments" (FSP FAS
115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 amends the
other-than-temporary impairment (OTTI) guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of OTTI
on debt and equity securities in the financial statements. This FSB does not
amend existing recognition and measurement guidance related to OTTI of equity
securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual
reporting periods after June 15, 2009 with early adoption permitted for periods
ending after March 15, 2009. The adoption of this FSP did not have a material
impact on its financial condition and results of operations.
NOTE 4 - FAIR VALUE MEASUREMENT DISCLOSURES
As of January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements," which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and enhances disclosures
about fair value measurements for financial assets and financial liabilities. In
accordance with Financial Accounting Standards Board ("FASB") Staff Position No.
157-2, "Effective Date of FASB Statement No. 157," the Company delayed the
application of SFAS No. 157 for nonfinancial assets, such as goodwill and real
property held for sale, and nonfinancial liabilities until January 1, 2009.
The fair value hierarchy established by SFAS No. 157 is based on observable
and unobservable inputs participants use to price an asset or liability. SFAS
No. 157 has prioritized these inputs into the following value hierarchy:
Level 1 Inputs - Unadjusted quoted prices in active markets for
identical assets or liabilities that are available at the measurement
date.
- 9 -
Level 2 Inputs - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability (such as
interest rates, volatilities, prepayment speeds, credit risks, etc.) or
inputs that are derived principally from or corroborated by market data
by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair value of
the assets or liability and are based on the entity's own assumption
about the assumptions that market participants would use to price the
asset or liability.
A description of the valuation methodologies used for instruments measured at
fair value, as well as the general clarification of such instruments pursuant
to the valuation hierarchy is set forth below. These valuation methodologies
were applied to all of the Company's financial assets and liabilities carried
at fair value effective January 1, 2008.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale. The fair value of the Company's available for
sale securities portfolio was estimated using Level 2 inputs. The Company
obtains fair value measurements from an independent pricing service. The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, market consensus prepayment speeds, credit
information, and bond's terms and conditions, among other factors. At June
30, 2009, the carrying value and estimated fair value, using Level 2 inputs,
of securities available-for-sale was $45.5 million.
Impaired Loans. The Company's impaired loans are reported at the fair value
of the underlying collateral if repayment is expected solely from the
collateral. Collateral values are estimated using Level 2 inputs based upon
appraisals of similar properties obtained from a third party. At June 30,
2009 the estimated fair value, using Level 2 inputs, of impaired loans was
$1,206,000.
The estimated fair values of the Company's financial instruments, all of
which are held or issued for purposes other than trading, are as follows as
of June 30, 2009 and December 31, 2008:
(Dollars in thousands)
June 30, 2009 December 31, 2008
---------------------------- ---------------------------
Carrying Fair value Carrying Fair value
amount amount
------------ ------------- ------------ ------------
Financial assets:
Cash and cash equivalents $ 29,818 $ 29,818 $ 16,335 $ 16,335
Interest-bearing time deposits with other banks 5,398 5,519 7,320 7,414
Available-for-sale securities 45,507 45,507 32,997 32,997
Federal Home Loan Bank stock 631 631 631 631
Loans, net 176,427 178,306 178,074 179,899
Accrued interest receivable 921 921 836 836
Financial liabilities:
Deposits 242,916 243,879 220,879 220,595
Federal Home Loan Bank advances - - 1,000 1,000
Securities sold under agreements to repurchase 757 757 577 577
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
- 10 -
The following information was used in the computation of EPS on both a
basic and diluted basis for the quarters ended June 30, 2009 and June 30, 2008:
(Dollars in thousands, except per share amounts)
For the three months ended
------------------------------
6/30/09 6/30/08
-------------- -------------
Basic EPS computation:
Net income $ 221 $ 498
Preferred stock net accretion (10) -
Preferred stock dividend paid (29) -
Cumulative preferred stock dividend earned (25) -
-------------- -------------
Net income available to common shareholders $ 157 $ 498
Weighted average shares outstanding, basic 864,976 859,031
Basic EPS $ 0.18 $ 0.58
============== =============
Diluted EPS computation:
Net income $ 221 $ 498
Preferred stock net accretion (10) -
Preferred stock dividend paid (29) -
Cumulative preferred stock dividend earned (25) -
-------------- -------------
Net income available to common shareholders $ 157 $ 498
Weighted average shares outstanding, assuming dilution 864,976 859,031
Dilutive potential shares - 3,698
-------------- -------------
864,976 862,729
Diluted EPS $ 0.18 $ 0.58
============== =============
(Dollars in thousands, except per share amounts)
For the six months ended
------------------------------
6/30/09 6/30/08
-------------- -------------
Basic EPS computation:
Net income $ 367 $ 625
Preferred stock net accretion (10) -
Preferred stock dividend paid (29) -
Cumulative preferred stock dividend earned (28) -
-------------- -------------
Net income available to common shareholders $ 300 $ 625
Weighted average shares outstanding, basic 864,976 855,029
Basic EPS $ 0.35 $ 0.73
============== =============
Diluted EPS computation:
Net income $ 367 $ 625
Preferred stock net accretion (10) -
Preferred stock dividend paid (29) -
Cumulative preferred stock dividend earned (28) -
-------------- -------------
Net income available to common shareholders $ 300 $ 625
Weighted average shares outstanding, assuming dilution 864,976 855,029
Dilutive potential shares - 5,762
-------------- -------------
864,976 860,791
Diluted EPS $ 0.35 $ 0.73
============== =============
- 11 -
NOTE 6 - OTHER THAN TEMPORARY IMPAIRMENT
The aggregate fair value and unrealized losses of securities that have been
in a continuous unrealized loss position for less than twelve months and for
twelve months or more, and are not other than temporarily impaired, are as
follows:
(Dollars in thousands)
-----------------------------------------------------------------------------
Less than 12 months 12 Months or longer Total
------------------------- ---------------------- --------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
value losses value losses value losses
----------- ------------ -------- ------------ --------- ---------------
June 30, 2009
Debt securities
issued by the U.S.
Treasury and other
U.S. govt
corporations and
agencies $ 6,422 $ 77 $ - $ - $ 6,422 $ 77
Obligations of
states and
municipalities 3,120 57 1,321 75 4,440 132
Corporate debt
securities - - - - - -
Mortgage-backed
securities 4,696 53 1,598 312 6,295 365
----------- ------------ -------- ------------ --------- ---------------
Total temporarily
impaired
securities $14,238 $187 $2,919 $387 $17,157 $574
=========== ============ ======== ============ ========= ===============
The investments in the Company's investment portfolio that are temporarily
impaired as of June 30, 2009 consist of debt issued by states of the United
States and political subdivisions of the states, U.S. corporations, and U.S.
government corporations and agencies. Company management considers investments
with an unrealized loss as of June 30, 2009 to be only temporarily impaired
because the impairment is attributable to changes in market interest rates and
current market inefficiencies. Company management anticipates that the fair
value of securities that are currently impaired will recover to cost basis. As
management has the ability to hold securities for the foreseeable future, no
declines are deemed to be other than temporary.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Forward-Looking Statements
When used in this quarterly report on Form 10-Q (the "Quarterly Report"),
the words "intends," "expects," "plans," "estimates," "projects," "believes,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. The Company has made and may continue to make various
forward-looking statements with respect to earnings, credit quality and other
financial and business matters for periods subsequent to the quarter ended June
30, 2009. The Company cautions that these forward-looking statements are not
guarantees of future performance and are subject to numerous assumptions, risks
and uncertainties, and that statements relating to subsequent periods are
subject to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
forward-looking statements. The following factors, among others, could cause
actual results to differ materially from such forward-looking statements:
competitive pressures on loan and deposit product pricing; actions of
competitors; changes in economic conditions; the extent and timing of actions of
the Federal Reserve Board ("Fed"); customer deposit disintermediation; changes
in customers' acceptance of our products and services; and the extent and timing
of legislative and regulatory actions and reforms.
Forward-looking statements included in this Quarterly Report speak only as
of the date hereof and the Company undertakes no obligation to revise or update
such statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events or circumstances.
- 12 -
General
Management's Discussion and Analysis of Financial Condition and Results of
Operations is designed to provide a better understanding of the significant
changes and trends related to the Company's financial condition, results of
operations, liquidity and capital resources. The discussion should be read in
conjunction with the consolidated financial statements of the Company. All
adjustments which, in the opinion of management, are necessary in order to make
the consolidated financial statements not misleading have been made.
The Company's only business is its investment in The Simsbury Bank & Trust
Company (the "Bank"), which is a community oriented financial institution
providing a variety of banking and investment services. The Bank offers a full
range of banking services including commercial loans, term real estate loans,
construction loans, SBA loans and a variety of consumer loans; checking,
savings, certificates of deposit and money market deposit accounts; safe deposit
and other customary non-deposit banking services to consumers and businesses in
north central Connecticut.
The Bank offers investment products and services to customers through SBT
Investment Services, Inc., a wholly-owned subsidiary of the Bank, and its
affiliation with the securities broker/dealer LPL Financial.
Disclosure of the Company's significant accounting policies is included in
Note 2 to the consolidated financial statements of the Company's Annual Report
on Form 10-K for the year ended December 31, 2008. Some of these policies are
particularly sensitive, requiring significant judgments, estimates and
assumptions to be made by management. One of these significant policies relates
to the provision for loan losses. See the heading "Provision for Loan Losses"
below for further details about the Bank's current provision.
Results of Operation
Overview
For the quarter ended June 30, 2009, the Company earned net income of
$221,000 and net income available to common shareholders of $157,000 or $0.18
per basic and diluted common share. For the six months ended June 30, 2009, net
income amounted to $367,000 and net income available to common shareholders
equaled $300,000 or $0.35 per basic and diluted common share.
Key items for the quarter include:
o Driven by strong deposit growth, total assets grew by $43 million, or
19%, compared to June 30, 2008 resulting in a 7% increase in net
interest income.
o While the Company's loan portfolio remains relatively low risk with
exposure to commercial real estate loans at a conservative level, the
Company's loan loss reserve coverage ratio was increased to 1.19% of
total loans and 152% of non-performing loans.
o The Company's capital position remained very strong, with capital
ratios well in excess of well-capitalized regulatory standards.
o An increase in FDIC insurance premiums negatively impacted operating
expenses.
o During the quarter, the Company paid its first preferred stock
dividend.
The Company's previous year's net income was impacted by non-recurring income of
$328,000 for Bank Owned Life Insurance death benefits. Excluding this item,
second quarter 2008 net income and net income available to common shareholders
would have been $170,000 or $0.20 per diluted share. The following table
compares 2009 to 2008 excluding this non-recurring item:
- 13 -
- ---------------------------------------------------------------------------------------------
Excluding 2008 Non-Recurring Item
- ---------------------------------------------------------------------------------------------
For the Quarter Ended Year to Date
- ---------------------------------------------------------------------------------------------
06/30/09 06/30/08 06/30/09 06/30/08
- ---------------------------------------------------------------------------------------------
Net Income (000) $221 $170 $367 $297
- ---------------------------------------------------------------------------------------------
Income Available to Common
Shareholders (000) $157 $170 $300 $297
- ---------------------------------------------------------------------------------------------
Diluted Income Per Share $0.18 $0.20 $0.35 $0.35
- ---------------------------------------------------------------------------------------------
On June 30, 2009, loans outstanding were $179 million, an increase of $1
million over a year ago. Since June 30, 2008, commercial loans increased by 8%
and residential mortgages by 2%. Mortgage loan growth does not reflect the $3.2
million in mortgages originated but sold as part of the Bank's asset / liability
management strategy. Sale of these mortgages resulted in a $43,000 contribution
to fee income. Asset quality continued to be stable. At June 30, 2009, loans 30
days or more past due, including non-performing loans, totaled $2.6 million, or
1.46% of total loans compared to $2.9 million, or 1.63% at March 31, 2009.
Non-performing loans were $1.4 million, or 0.78% of total loans compared to $911
thousand at March 31, 2009, or 0.50% of loans. Total exposure to builder and
land development loans and non-owner occupied commercial real estate remained
relatively low compared to many peer banks at $13.1 million on June 30, 2009,
equal to 7% of total loans and 62% of total capital. With a loan loss provision
of $78,000 during the quarter, the Company's allowance for loan losses at June
30, 2009 was $2.132 million or 1.19% of total loans compared to the previous
year's quarter-end allowance for loan losses of $2.036 million or 1.14% of total
loans and the March 31, 2009 total of $2.061 million or 1.14% of loans.
Core deposits (Demand, Savings, and NOW accounts) grew by $10 million or 7%
over the past twelve months. Total deposits ended the quarter at $243 million,
an increase of $43 million, or 22%, over a year ago. The Bank's deposit mix
continued to be favorable with 31% checking, 30% savings and 39% certificates of
deposit contributing to a relatively low cost of funds of 1.43%.
The Company's taxable-equivalent net interest margin (taxable-equivalent
net interest and dividend income divided by average earning assets) increased by
8 basis points from 3.49% in the first quarter of 2009 to 3.57% in the second
quarter of 2009. The margin declined by 48 basis points when compared to the
second quarter of 2008.
Total revenues, consisting of net interest and dividend income plus
non-interest income, were $2,559,000 in the second quarter of 2009. Revenues for
the second quarter of 2008 were impacted by non-recurring revenue of $328,000
for Bank Owned Life Insurance death benefit income. Excluding this item, second
quarter 2008 total revenues were $2,366,000. Compared to 2008, second quarter
2009 total revenues, excluding non-recurring items, increased by $193,000, or
8%. The primary contributor to revenue enhancement over this period was an
increase in net interest income resulting from deposit, loan, and investment
portfolio growth.
Total non-interest expenses for the second quarter was $2,175,000, an
increase of $150,000 or 7% over the second quarter of 2008 primarily due to an
increase in FDIC insurance premium and one-time professional fees related to
issuing preferred stock. Salary and benefit expenses increased 1% due to the
filling of open positions. Premises and equipment expenses have declined 5% year
to date.
Capital levels for the Simsbury Bank & Trust Company remain well in excess
of those required to meet the regulatory "well-capitalized" designation.
- 14 -
- ---------------------------------------------------------------------------------------------
Capital Ratios 6/30/09
- ---------------------------------------------------------------------------------------------
The Simsbury Bank & Regulatory Standard for Well-
Trust Company Capitalized Banks
- ---------------------------------------------------------------------------------------------
Tier 1 Leverage Capital Ratio 7.85% greater than or equal to 5.00%
- ---------------------------------------------------------------------------------------------
Tier 1 Risk-Based Capital Ratio 12.67% greater than or equal to 6.00%
- ---------------------------------------------------------------------------------------------
Total Risk-Based Capital Ratio 13.92% greater than or equal to 10.00%
- ---------------------------------------------------------------------------------------------
Net Interest Income and Net Interest Margin
The Company's earnings depend largely upon the difference between the
income received from its loan portfolio and investment securities and the
interest paid on its liabilities, including interest paid on deposits. This
difference is "net interest income." The net interest income, when expressed as
a percentage of average total interest-earning assets, is referred to as the net
yield on interest-earning assets. The Company's net interest income is affected
by the change in the level and the mix of interest-earning assets and
interest-bearing liabilities, referred to as volume changes. The Company's net
yield on interest-earning assets is also affected by changes in yields earned on
assets and rates paid on liabilities, referred to as rate changes. Interest
rates charged on the Bank's loans are affected principally by the demand for
such loans, the supply of money available for lending purposes and competitive
factors. These factors are in turn affected by general economic conditions and
other factors beyond the Bank's control, such as federal economic policies, the
general supply of money in the economy, legislative tax policies, governmental
budgetary matters, and the actions of the Federal Reserve Bank.
Net interest and dividend income plus noninterest income was $2,559,000 in
the second quarter of 2009 compared to $2,366,000 excluding non-recurring
revenue of $328,000 for Bank Owned Life Insurance death benefit income in the
second quarter of 2008. The Company's net interest margin, defined as the ratio
of taxable equivalent net interest and dividend income to interest-earning
assets or net yield on earning assets, decreased from 4.05% for the quarter
ending June 30, 2008 to 3.57% for the quarter ending June 30, 2009. The Bank's
net interest spread, defined as the difference between the yield on earning
assets and the cost of deposits and borrowings, decreased from 3.68% for the
quarter ending June 30, 2008 to 3.33% for the quarter ending June 30, 2009. The
Bank's yield on interest earning assets decreased during the second quarter of
2009 to 4.76% as compared to 5.47% for the second quarter of 2008, while the
cost of deposits and borrowings decreased from 1.77% for the second quarter of
2008 to 1.44% for the second quarter of 2009.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by management based on
such factors as historical experience, the volume and type of lending conducted
by the Bank, the amount of non-performing loans, regulatory policies, generally
accepted accounting principles, general economic conditions, and other factors
related to the collectability of loans in the Bank's portfolio.
Each month the Bank reviews the allowance for loan losses and makes
additional transfers to the allowance, as determined by the Company's
guidelines. The total allowance for loan losses at June 30, 2009 was $2,132,000
or 1.19% of outstanding loans as compared to $2,036,000 or 1.14% of outstanding
loans as of June 30, 2008. The provision for loan losses was $78,000 for the
quarter ended June 30, 2009. The Bank charged off two loans for $7,225 for the
second quarter of 2009 and five loans for $72,153 for the second quarter of
2008. During the second quarter of 2009 the Bank had recoveries of $920 and one
of $182 for the second quarter of 2008. The Bank believes the allowance for loan
losses is adequate.
Noninterest Income and Noninterest Expense
Total noninterest income for the first six months of 2009 was $695,000, an
increase of $41,000 compared to $654,000 (excluding non-recurring revenue of
$328,000 for Bank Owned Life Insurance death benefit income) in the first six
months of 2008. At June 30, 2009, the Bank had approximately 20,500 deposit
accounts, unchanged from the approximately 20,500 accounts at quarter end June
30, 2008 The major portion of noninterest income is derived from service and
overdraft charges.
- 15 -
Total noninterest expense for the first six months of 2009 was $4,214,000,
an increase of $299,000 over total noninterest expense of $3,915,000 for the
first six months of 2008. The ratio of annualized operating expenses to average
assets was 3.34% for the second quarter of 2009 compared to 3.71% for the second
quarter of 2008.
Salaries and employee benefits comprised approximately 49% and 52% of total
noninterest expense in the first six months for 2009 and 2008, respectively.
Other major categories included premises and equipment at approximately 17% and
20% in the first six months of 2009 and 2008, respectively; advertising and
promotions at approximately 4% in the first six months of 2009 and 2008 and
professional fees at approximately 6% and 3% in the first six months of 2009 and
2008, respectively.
Financial Condition
Investment Portfolio
In order to maintain a reserve of readily salable assets to meet the Bank's
liquidity and loan requirements, the Bank purchases United States Treasury
securities and other investments. Sales of "Federal Funds" (short-term loans to
other banks) are regularly utilized. Placement of funds in certificates of
deposit with other financial institutions may be made as alternative investments
pending utilization of funds for loans or other purposes.
Securities may be pledged to meet security requirements imposed as a
condition to receipt of deposits of public funds and repurchase agreements. At
June 30, 2009, the Bank had sixteen securities with a book value totaling
$5,381,735 pledged for such purposes. At June 30, 2008, the Bank had fifteen
securities with a book value totaling $5,023,550 pledged for such purposes.
As of June 30, 2009 and 2008, the Bank's investment portfolio consisted of
U.S. Government and Agency securities, municipal securities, corporate bonds,
mortgage-backed securities, money market securities and U.S. Government
sponsored Agency equity securities. The Bank's policy is to stagger the
maturities of its investments to meet overall liquidity requirements of the
Bank.
The fair market value of investments in available-for-sale securities was
$45,507,000 and $20,241,000 which are 0.2% and 4% below book value as of June
30, 2009 and June 30, 2008, respectively. Management has the ability to hold
debt securities until maturity, or for the foreseeable future if classified as
available-for-sale, and equity securities until recovery to cost basis occurs.
Management periodically reviews all investment securities with significant
declines in fair value for potential other-than-temporary impairment pursuant to
the guidance provided by SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". In November 2006, the Financial Accounting
Standards Board issued Staff Position ("FSP") FAS 115-1 and FAS 124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments". The FSP addressed the determination as to when an investment is
considered impaired, whether the impairment is other-than-temporary, and the
measurement of an impairment loss. It also included accounting considerations
subsequent to the recognition of an other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance in the FSP amended SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities, No. 124",
"Accounting for Certain Investments Held By Not-for-Profit Organizations", and
APB Opinion 18, "The Equity Method of Accounting for Investments in Common
Stock". Management evaluates the Company's investment portfolio on an on-going
basis. As of June 30, 2009, there were no investment securities in the
investment portfolio that management determined to be Other-than-Temporarily
Impaired.
Loan Portfolio
The Bank's commercial loans are made for the purpose of providing working
capital, financing the purchase of equipment or for other business purposes.
Such loans include loans with maturities ranging from thirty days to one year
and "term loans," which are loans with maturities normally ranging from one year
to twenty-five years (although currently the Bank has no loans with maturities
greater than twenty years). Short-term business loans are generally intended to
finance current transactions and typically provide for periodic principal
payments, with interest payable monthly. Term loans normally provide for fixed
or floating interest rates, with monthly payments of both principal and
interest.
- 16 -
The Bank's construction loans are primarily interim loans made by the Bank
to finance the construction of commercial and single family residential
property. These loans are typically short-term. The Bank will make loans for
speculative housing construction or for acquisition and development of raw land.
The Bank's other real estate loans consist primarily of loans made based on
the borrower's cash flow and are secured by deeds of trust on commercial and
residential property to provide another source of repayment in the event of
default. It is the Bank's policy to restrict real estate loans to no more than
50% to 80% of the lower of the appraised value or the purchase price of the
property depending on the type of property and its utilization. The Bank offers
both fixed and floating rate loans. Maturities on such loans typically range
from five to twenty years. However, loans guaranteed by the Small Business
Administration ("SBA") and certain other real estate loans easily sold in the
secondary market may be made for longer maturities. The Bank has been designated
a Certified Lender by the SBA. As an originator of SBA loan products, the Bank
can originate SBA loans including loans with guarantees which will mitigate the
Bank's risk on certain commercial loans. The Bank's SBA loans are categorized as
commercial or real estate-commercial depending on the underlying collateral.
Also, the Bank has been approved as an originator of loans that can be sold to
the Federal Home Loan Mortgage Corporation.
The Bank sold fifteen loans in the six months ended June 30, 2009 with a
combined principal balance of $3,173,800 which resulted in a gain of $43,478.
There were no sold loans in the second quarter of 2008. The Bank currently has
agreements in place to sell loans to Freddie Mac and SunTrust.
Consumer loans are made for the purpose of financing automobiles, various
types of consumer goods, and other personal purposes. Consumer loans generally
provide for the monthly payment of principal and interest. Most of the Bank's
consumer loans are secured by the personal property being purchased. The Bank
has an agreement with BCI Financial Corp ("BCI") to purchase auto loans from
BCI. As part of the agreement, BCI services the loans for the Bank. As of June
30, 2009, the Bank had approximately $1,944,000 in auto loans purchased from BCI
on its books as compared with June 30, 2008, at which time the Bank had
approximately $4,046,000 in auto loans purchased from BCI on its books.
The Bank is subject to certain lending limits. With certain exceptions, the
Bank is permitted under applicable law to make related extensions of credit to
any single borrowing entity of up to 15% of the Bank's capital and reserves.
Credit equaling an additional 10% of the Bank's capital and reserves may be
extended if the credit is fully secured by qualified collateral of limited
types. As of June 30, 2009, the Bank's lending limits were $3,378,414 and
$5,630,690, respectively. As of June 30, 2008, these lending limits were
$2,885,756 and $4,809,593, respectively. The Bank sells participations in its
loans when necessary to stay within lending limits.
The Bank does not have any concentrations in its loan portfolio by industry
or group of industries. However, as of June 30, 2009, approximately 71% of the
Bank's loans were secured by residential real property located in Connecticut
compared to 74% as of June 30, 2008.
Interest on performing loans is accrued and taken into income daily. Loans
over 90 days past due are deemed "non-performing" and are placed on a nonaccrual
status, unless the loan is well collateralized and in the process of collection.
Interest received on nonaccrual loans is credited to income only upon receipt
and in certain circumstances may be applied to principal until the loan has been
repaid in full, at which time the interest received is credited to income. The
Bank had nineteen nonaccrual loans at June 30, 2009 with a balance of
approximately $1,403,000. The Bank had three nonaccrual loans with a balance of
approximately $139,700 as of June 30, 2008.
When appropriate or necessary to protect the Bank's interests, real estate
taken as collateral on a loan may be taken by the Bank through foreclosure or a
deed in lieu of foreclosure. Real property acquired in this manner by the Bank
will be known as "other real estate owned" ("OREO"), and will be carried on the
books of the Bank as an asset at the lesser of the Bank's recorded investment or
the fair value less estimated costs to sell. As of June 30, 2009 and 2008, no
OREO was held by the Bank.
Nonpayment of loans is an inherent risk in the banking business. That risk
varies with the type and purpose of the loan, the collateral which is utilized
to secure payment, and ultimately, the creditworthiness of the borrower. In
order to minimize this credit risk, the Bank requires that most loans be
approved by at least two officers, one of whom must be an executive officer.
Commercial loans greater than $100,000 as well as other loans in certain
circumstances must be approved by the Loan Committee of the Bank's Board of
Directors.
- 17 -
The Bank also maintains a program of annual review of certain new and
renewed loans by an outside loan review consultant. Loans are graded from "pass"
to "loss," depending on credit quality, with "pass" representing loans that are
fully satisfactory as additions to the Bank's portfolio. These are loans which
involve a degree of risk that is not unwarranted given the favorable aspects of
the credit and which exhibit both primary and secondary sources of repayment.
Classified loans identified in the review process are added to the Bank's
Internal Watchlist and an allowance for credit losses is established for such
loans if appropriate. Additionally, the Bank is examined regularly by the
Federal Deposit Insurance Corporation and the State of Connecticut Department of
Banking at which times a further review of loans is conducted.
There were fifty-two classified loans with combined outstanding balances of
$8,805,187 as of June 30, 2009. There were thirty-four classified loans with a
combined outstanding balance of $7,149,713 as of June 30, 2008. The bank has no
exposure to sub-prime loans in its loan portfolio. The increase in classified
loans was due to the continued effects of a slower residential development
market in a segment of the Bank's portfolio. The Bank's overall asset quality
and loan loss reserves of 1.19% of loans compares very well to its peer banks.
The Bank maintains an allowance for loan losses to provide for potential
losses in the loan portfolio. Additions to the allowance are made by charges to
operating expenses in the form of a provision for loan losses. All loans that
are judged to be uncollectible are charged against the allowance while any
recoveries are credited to the allowance. Management conducts a critical
evaluation of the loan portfolio monthly. This evaluation includes an assessment
of the following factors: the results of the Bank's internal loan review, any
external loan review, any regulatory examination, loan loss experience,
estimated potential loss exposure on each credit, concentrations of credit,
value of collateral, any known impairment in the borrower's ability to repay,
and present and prospective economic conditions.
Deposits
Deposits are the Bank's primary source of funds. At June 30, 2009, the Bank
had a deposit mix of 31% checking, 30% savings and 39% certificates. The Bank's
net interest income is enhanced by its percentage of noninterest bearing
deposits. As of June 30, 2008, the deposit mix was 39% checking, 31% savings and
30% certificates. At June 30, 2009, seventeen percent of the total deposits of
$242.9 million were noninterest bearing as compared with June 30, 2008 at which
time twenty-one percent of the Bank's total deposits of $199.6 million were
noninterest bearing. As of June 30, 2009 and 2008, the Bank had $18,098,000 and
$8,561,000, respectively, in deposits from public sources.
The Bank's deposits are obtained from a cross-section of the communities it
serves. No material portion of the Bank's deposits has been obtained from or is
dependent upon any one person or industry. The Bank's business is not seasonal
in nature. The Bank accepts deposits in excess of $100,000 from customers. Those
deposits are priced to remain competitive.
The Bank is not dependent upon funds from sources outside the United States
and has not made loans to any foreign entities.
Liquidity and Asset-Liability Management
Liquidity management for banks requires that funds always be available to
pay anticipated deposit withdrawals and maturing financial obligations promptly
and fully in accordance with their terms. The balance of the funds required is
generally provided by payments on loans, sale of loans, liquidation of assets
and the acquisition of additional deposit liabilities. One method banks utilize
for acquiring additional liabilities is through the acceptance of "brokered
deposits" (defined to include not only deposits received through deposit
brokers, but also deposits bearing interest in excess of 75 basis points over
market rates), typically attracting large certificates of deposit at high
interest rates. The Bank is a member of Promontory Interfinancial Network LLC's
Certificate of Deposit Account Registry Service ("CDARS"). This allows the Bank
to offer its customers FDIC insurance on Certificates of Deposit in amounts
greater than $100,000 by placing the deposits in the CDARS network. Accounts
placed in this manner are considered brokered deposits. As of June 30, 2009 the
Bank had $6,415,000 deposits in the CDARS network and $101,000 as of June 30,
2008. The Bank had no other brokered deposits as of June 30, 2009 and June 30,
2008.
To meet liquidity needs, the Bank maintains a portion of its funds in cash
deposits in other banks, Federal Funds sold, and available-for-sale securities.
As of June 30, 2009, the Bank's liquidity ratio was 31.01%, defined as the sum
of $7.9 million in Federal Funds sold, $45.5 million in available-for-sale
securities, $13 million in cash and due from banks, $55,000 in interest-bearing
deposits with the Federal Home Loan Bank and $8.9 million in money market mutual
funds as a percentage of deposits. This ratio was 20.8% at June 30, 2008 defined
as the sum of $2 million in Federal Funds sold, $20.2 million in
available-for-sale securities, $19 million in cash and due from banks, $65,000
in interest-bearing deposits with Federal Home Loan Bank, and $287,000 in money
market mutual funds as a percentage of deposits.
- 18 -
The careful planning of asset and liability maturities and the matching of
interest rates to correspond with this maturity matching is an integral part of
the active management of an institution's net yield. To the extent maturities of
assets and liabilities do not match in a changing interest rate environment, net
yields may be affected. Even with perfectly matched repricing of assets and
liabilities, risks remain in the form of prepayment of assets, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates and basis risk. In its overall attempt to match assets and
liabilities, Management takes into account rates and maturities offered in
connection with its certificates of deposit and by offering variable rate loans.
The Bank has generally been able to control its exposure to changing interest
rates by maintaining floating interest rate loans and shorter term investments
and a majority of its time certificates in relatively short maturities.
The Executive Committee of the Company's Board of Directors meets at least
quarterly to monitor the Bank's investments and liquidity needs and oversee its
asset-liability management. In between meetings of the Committee, the Bank's
management oversees the Bank's liquidity.
Capital Requirements
The banking industry is subject to capital adequacy requirements based on
risk-adjusted assets. The risk-based guidelines are used to evaluate capital
adequacy, and are based on the institution's asset risk profile, including
investments and loans, and off-balance sheet exposures, such as unused loan
commitments and standby letters of credit. The guidelines require that a portion
of total capital be core, or Tier 1. Tier 1 capital is the aggregate of common
shareholders' equity and perpetual preferred stock, less goodwill and certain
other deductions. Total capital consists of Tier 1 capital plus the allowance
for loan losses subject to certain limitations. Leverage ratio is defined as
Tier 1 capital divided by average assets.
At June 30, 2009 and 2008, the Bank's capital exceeded all minimum
regulatory requirements and the Bank was considered to be "well capitalized" as
defined in the regulations issued by the FDIC.
Inflation
The impact of inflation on financial institutions may differ significantly
from the impact exerted on other companies. Banks, as financial intermediaries,
have many assets and liabilities that may move in concert with inflation both as
to interest rates and as to value. This is especially true for companies with a
high percentage of interest rate sensitive assets and liabilities, such as the
Bank. Banks seek to reduce the impact of inflation by managing the interest rate
sensitivity gap. The Bank attempts to manage its interest rate sensitivity gap
and to structure its mix of financial instruments in order to minimize the
potential adverse effects of inflation or other market forces on its net
interest income and therefore its earnings and capital.
Financial institutions are also affected by inflation's impact on
non-interest expenses, such as salaries and occupancy expenses. From 1992
through June 30, 2009, inflation has remained relatively stable, due primarily
to continuous management of the money supplied by the Fed. Based on the Bank's
interest rate sensitivity position, the Bank benefits in the short term from
rising interest rates and is adversely affected by falling interest rates. As
such, indirectly, the management of the money supply by the Fed to control the
rate of inflation has an impact on the earnings of the Bank. Also, the changes
in interest rates may have a corresponding impact on the ability of borrowers to
repay loans with the Bank.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
- 19 -
Item 4T. Controls and Procedures
The Company has initiatives in place to ensure compliance with the
Sarbanes-Oxley Act of 2002. The Company has an Internal Compliance Committee
that is responsible for the monitoring of and compliance with all federal
regulations. This committee makes reports on compliance matters to the Audit and
Compliance Committee of the Company's Board of Directors.
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of June 30, 2009. Based
upon this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of that date, the Company's disclosure controls
and procedures were effective at ensuring that required information will be
disclosed on a timely basis.
As used herein, "disclosure controls and procedures" mean controls and
other procedures of the Company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is accumulated and communicated to the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There was no change in the Company's internal control over financial
reporting during the quarter ended June 30, 2009 that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 1A. Risk Factors.
------------
Not required.
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.
----------------------------------------------------
In connection with its Annual Meeting of Shareholders, held May 12, 2009
(the "Annual Meeting"), the Company solicited by proxy the vote of its
shareholders on the following three items: (i) the re-election of three
directors to the SBT Bancorp Board of Directors, each to serve for a three year
term; (ii) the ratification of the appointment, by the Company's Board of
Directors, of Shatswell, MacLeod & Company, P.C., Certified Public Accountants,
as independent auditors for the fiscal year ended December 31, 2009; and (iii)
the non-binding approval of the Company's named executive officers compensation.
- 20 -
At the Annual Meeting, the following persons were re-elected to the Board
of Directors as Class I Directors: James T. Fleming, Edward J. Guarco, and Penny
R. Woodford. Martin J. Geitz, Gary R. Kevorkian, and George B. Odlum, Jr., DMD
continued in office as Class II Directors. Robert J. Bogino, Rodney R. Reynolds,
David W. Sessions and Lincoln S. Young continued in office as Class III
Directors.
The following table summarizes the voting for the Board of Directors:
For Withheld
--- --------
James T. Fleming 578,789 35,222
Edward J. Guarco 567,409 46,602
Penny R. Woodford 578,864 35,147
With respect to the ratification of the appointment of Shatswell, MacLeod &
Company, P.C., Certified Public Accountants, as the Company's independent
auditors for the fiscal year ended December 31, 2009, the appointment was
ratified by the Company's shareholders with 608,350 shares voting FOR the
ratification, 3,869 shares voting AGAINST ratification and 1,792 shares
ABSTAINING from the vote.
With respect to the non-binding approval of the compensation of the Company's
named executive officers as determined by the Personnel Committee, the Company's
shareholders approved the compensation with 527,847 shares voting FOR the
non-binding approval, 56,434 shares voting AGAINST the approval and 32,725
shares ABSTAINING from the vote.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits
--------
Exhibit No. Description
----------- -----------
3(i) Certificate of Incorporation (incorporated by
reference to Exhibit 3(i) of the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 2008)
3(ii) Bylaws (incorporated by reference to Exhibit
3.2 of the Company's Form 8K12G3 filed with
the Securities and Exchange Commission on
March 7, 2006)
31.1 Section Rule 13a-14(a)/15d-14(a) Certification
by Chief Executive Officer
31.2 Section Rule 13a-14(a)/15d-14(a) Certification
by Chief Financial Officer
32.1 Section 1350 Certification by Chief Executive
Officer
32.2 Section 1350 Certification by Chief Financial
Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SBT BANCORP, INC.
Date: August 14, 2009 By: /s/ Martin J. Geitz
--------------------------------------
Martin J. Geitz
Chief Executive Officer
Date: August 14, 2009 By: /s/ Anthony F. Bisceglio
--------------------------------------
Anthony F. Bisceglio
Chief Financial Officer
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EXHIBIT INDEX
3(i) Certificate of Incorporation (incorporated by reference to
Exhibit 3(i) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2008)
3(ii) Bylaws (incorporated by reference to Exhibit 3.2 of the
Company's Form 8K12G3 filed with the Securities and Exchange
Commission on March 7, 2006)
31.1 Section Rule 13a-14(a)/15d-14(a) Certification by Chief
Executive Officer
31.2 Section Rule 13a-14(a)/15d-14(a) Certification by Chief
Financial Officer
32.1 Section 1350 Certification by Chief Executive Officer
32.2 Section 1350 Certification by Chief Financial Officer
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