x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
|
¨
|
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
|
Tennessee
|
62-1173944
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
835 Georgia Avenue Chattanooga, Tennessee
|
37402
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
423-385-3000
|
Not Applicable
|
|
(Registrant’s telephone number, including area code)
|
(Former name, former address and former fiscal
|
|
year, if changes since last report)
|
PART I –FINANCIAL INFORMATION
|
|
Item 1. Financial Statements (Unaudited)
|
4
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
31
|
Item 4T.Controls and Procedures
|
31
|
PART II – OTHER INFORMATION
|
|
Item 1. Legal Proceedings
|
32
|
Item 1A. Risk Factors
|
32
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
32
|
Item 3. Defaults Upon Senior Securities
|
32
|
Item 4. [Removed and Reserved]
|
32
|
Item 5. Other Information
|
32
|
Item 6. Exhibits
|
32
|
Unaudited
|
||||||||
March 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Cash and due from banks
|
$ | 1,508,964 | $ | 1,490,030 | ||||
Interest-bearing deposits at other financial institutions
|
39,921,667 | 21,491,922 | ||||||
Total cash and cash equivalents
|
41,430,631 | 22,981,952 | ||||||
Securities available for sale
|
100,788,157 | 108,250,434 | ||||||
Securities held to maturity (fair value approximates of $94,528 and $98,388 at March 31, 2011 and December 31, 2010, respectively)
|
92,064 | 95,702 | ||||||
Federal Home Loan Bank stock, at cost
|
2,322,900 | 2,322,900 | ||||||
Loans, net of allowance for loan losses of $7,913,933 at March 31, 2011 and $9,132,171 at December 31, 2010
|
265,835,680 | 276,114,617 | ||||||
Bank premises and equipment, net
|
5,961,127 | 8,047,370 | ||||||
Accrued interest receivable
|
1,430,772 | 1,326,480 | ||||||
Foreclosed assets
|
20,463,835 | 12,808,838 | ||||||
Other assets
|
9,214,836 | 9,551,121 | ||||||
Total Assets
|
$ | 447,540,002 | $ | 441,499,414 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Deposits:
|
||||||||
Noninterest-bearing demand deposits
|
$ | 33,529,178 | $ | 28,980,043 | ||||
Interest-bearing demand deposits
|
27,945,913 | 24,834,214 | ||||||
Savings deposits and money market accounts
|
34,775,755 | 34,041,672 | ||||||
Time deposits
|
241,235,748 | 247,591,161 | ||||||
Total deposits
|
337,486,594 | 335,447,090 | ||||||
Federal funds purchased and securities sold under agreements to repurchase
|
27,789,544 | 24,325,372 | ||||||
Federal Home Loan Bank advances and other borrowings
|
53,480,000 | 54,715,000 | ||||||
Accrued interest payable
|
211,452 | 176,761 | ||||||
Other liabilities
|
1,282,836 | 1,016,038 | ||||||
Total Liabilities
|
420,250,426 | 415,680,261 | ||||||
Stockholders' Equity:
|
||||||||
Preferred stock - no par value; 2,000,000 shares authorized; 148,920 shares issued and outstanding in 2011 and 114,540 shares issued and outstanding in 2010
|
3,579,085 | 2,727,424 | ||||||
Common stock - $l.00 par value; 20,000,000 shares authorized; 6,709,199 issued in 2011 and 2010; 6,500,396 outstanding in 2011 and 2010
|
6,500,396 | 6,500,396 | ||||||
Additional paid-in capital
|
21,257,083 | 21,237,298 | ||||||
Retained (deficit)
|
(4,064,855 | ) | (4,317,130 | ) | ||||
Accumulated other comprehensive income
|
17,867 | (328,835 | ) | |||||
Total Stockholders' Equity
|
27,289,576 | 25,819,153 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 447,540,002 | $ | 441,499,414 |
Unaudited
|
||||||||
Three months ended
|
||||||||
March 31,
|
||||||||
2011
|
2010
|
|||||||
INTEREST INCOME
|
||||||||
Loans, including fees
|
$ | 4,638,805 | $ | 5,948,246 | ||||
Investment securities
|
568,672 | 1,129,279 | ||||||
Federal funds sold & other earning assets
|
11,003 | 23,661 | ||||||
Total interest income
|
5,218,480 | 7,101,186 | ||||||
INTEREST EXPENSE
|
||||||||
Time deposits
|
1,052,449 | 1,684,027 | ||||||
Other deposits
|
92,612 | 97,723 | ||||||
Federal funds purchased and securities sold under agreements to repurchase
|
31,003 | 35,415 | ||||||
FHLB advances and other borrowings
|
579,658 | 779,197 | ||||||
Total interest expense
|
1,755,722 | 2,596,362 | ||||||
Net interest income before provision for loan losses
|
3,462,758 | 4,504,824 | ||||||
Provision for loan losses
|
15,000 | 1,015,000 | ||||||
Net interest income after the provision for loan losses
|
3,447,758 | 3,489,824 | ||||||
NONINTEREST INCOME
|
||||||||
Customer service fee
|
215,451 | 341,914 | ||||||
Other noninterest income
|
20,279 | 20,611 | ||||||
Net gains from sale of loans and other assets
|
34,027 | 41,137 | ||||||
Total noninterest income
|
269,757 | 403,662 | ||||||
NONINTEREST EXPENSE
|
||||||||
Salaries and employee benefits
|
1,542,702 | 1,633,344 | ||||||
Net occupancy and equipment expense
|
406,334 | 355,183 | ||||||
Depository insurance
|
322,655 | 269,740 | ||||||
Foreclosed assets, net
|
361,570 | 196,173 | ||||||
Other operating expense
|
783,354 | 945,558 | ||||||
Total noninterest expense
|
3,416,615 | 3,399,998 | ||||||
Income before provision for income taxes
|
300,900 | 493,488 | ||||||
Provision for income taxes
|
48,625 | 149,701 | ||||||
Net income
|
252,275 | 343,787 | ||||||
Preferred stock dividend requirements
|
71,588 | - | ||||||
Net income available to common shareholders
|
$ | 180,687 | $ | 343,787 | ||||
EARNINGS PER COMMON SHARE
|
||||||||
Basic net income per common share
|
$ | 0.03 | $ | 0.05 | ||||
Diluted net income per common share
|
$ | 0.03 | $ | 0.05 | ||||
DIVIDENDS DECLARED PER COMMON SHARE
|
$ | - | $ | - |
Additional
|
|
Other
|
Total
|
|||||||||||||||||||||||||
Comprehensive
|
Preferred
|
Common
|
Paid-in
|
Retained
|
Comprehensive
|
Stockholders'
|
||||||||||||||||||||||
Income
|
Stock
|
Stock
|
Capital
|
(Deficit)
|
Income
|
Equity
|
||||||||||||||||||||||
BALANCE, December 31, 2010
|
$ | 2,727,424 | $ | 6,500,396 | $ | 21,237,298 | $ | (4,317,130 | ) | $ | (328,835 | ) | $ | 25,819,153 | ||||||||||||||
Employee compensation stock option expense
|
- | - | 19,785 | - | - | 19,785 | ||||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock
|
851,661 | - | - | - | - | 851,661 | ||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||
Net income
|
$ | 252,275 | - | - | - | 252,275 | - | 252,275 | ||||||||||||||||||||
Other comprehensive income, net of tax:
|
||||||||||||||||||||||||||||
Unrealized holding gains on securities available for sale, net of reclassification adjusment
|
346,702 | - | - | - | - | 346,702 | 346,702 | |||||||||||||||||||||
Total comprehensive income
|
$ | 598,977 | ||||||||||||||||||||||||||
BALANCE, March 31, 2011
|
$ | 3,579,085 | $ | 6,500,396 | $ | 21,257,083 | $ | (4,064,855 | ) | $ | 17,867 | $ | 27,289,576 |
Unaudited
|
||||||||
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net income
|
$ | 252,275 | $ | 343,787 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
62,414 | 127,676 | ||||||
Provision for loan losses
|
15,000 | 1,015,000 | ||||||
Stock compensation expense
|
19,785 | 18,653 | ||||||
Net gains on sales of loans and other assets
|
(34,027 | ) | (41,137 | ) | ||||
Changes in other operating assets and liabilities:
|
||||||||
Net change in loans held for sale
|
(654,500 | ) | 359,000 | |||||
Accrued interest receivable
|
(104,292 | ) | (460,424 | ) | ||||
Accrued interest payable
|
34,691 | 36,627 | ||||||
Other assets and liabilities
|
458,737 | 765,491 | ||||||
Net cash provided by operating activities
|
50,083 | 2,164,673 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Proceeds from security transactions:
|
||||||||
Securities available for sale
|
8,014,091 | 14,324,849 | ||||||
Securities held to maturity
|
3,581 | 5,590 | ||||||
Purchase of securities available for sale
|
- | (39,859,220 | ) | |||||
Purchase of Federal Home Loan Bank stock
|
- | (93,700 | ) | |||||
Loan originations and principal collections, net
|
5,159,587 | 9,785,667 | ||||||
Purchase of bank premises and equipment
|
(6,392 | ) | (24,612 | ) | ||||
Proceeds from sale of bank premises and equipment
|
45,082 | 46,107 | ||||||
Proceeds from sale of other real estate and other assets
|
62,310 | 2,476,687 | ||||||
Net cash provided by (used in) investing activities
|
13,278,259 | (13,338,632 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Net increase in deposits
|
2,039,504 | 24,455,672 | ||||||
Net increase in federal funds purchased and securities sold under agreements to repurchase
|
3,464,172 | 3,664,399 | ||||||
Net payments on Federal Home Loan Bank advances and other borrowings
|
(1,235,000 | ) | (50,000 | ) | ||||
Issuance of preferred stock
|
851,661 | - | ||||||
Net cash provided by financing activities
|
5,120,337 | 28,070,071 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
18,448,679 | 16,896,112 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period
|
22,981,952 | 38,202,205 | ||||||
CASH AND CASH EQUIVALENTS, end of period
|
$ | 41,430,631 | $ | 55,068,317 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash paid during the period for interest
|
$ | 1,721,031 | $ | 2,559,735 | ||||
Cash paid during the period for taxes
|
- | - | ||||||
NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Acquisition of real estate through foreclosure
|
$ | 7,774,928 | $ | 460,000 |
Three Months Ended March 31,
|
||||||||
|
2011
|
2010
|
||||||
Basic earnings per common share calculation: | ||||||||
Numerator: Net income available to common shareholders
|
$ | 180,687 | $ | 343,787 | ||||
Denominator: Weighted avg. common shares outstanding
|
6,500,396 | 6,500,396 | ||||||
Effect of dilutive stock options
|
- | - | ||||||
Diluted shares
|
6,500,396 | 6,500,396 | ||||||
Basic earnings per common share
|
$ | 0.03 | $ | 0.05 | ||||
Diluted earnings per common share
|
$ | 0.03 | $ | 0.05 |
Weighted-
|
|||||||||||||
Average
|
|||||||||||||
Weighted
|
Contractual
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercisable
|
Term
|
Intrinsic
|
|||||||||||
Number
|
Price
|
(in years)
|
Value
|
||||||||||
Outstanding at December 31, 2010
|
520,900 | $ | 5.79 |
4.0 Years
|
$ | - | |||||||
Granted
|
208,000 | 1.70 |
9.9 Years
|
- | |||||||||
Exercised
|
- | - | |||||||||||
Forfeited
|
149,300 | 4.59 | |||||||||||
Outstanding at March 31, 2011
|
579,600 | $ | 4.63 |
6.5 Years
|
$ | - | |||||||
Options exercisable at March 31, 2011
|
296,915 | $ | 6.66 | - |
Dividend yield
|
0.0 | % | ||
Expected life
|
7.0 Years
|
|||
Expected volatility
|
43.11 | % | ||
Risk-free interest rate
|
2.81 | % |
Weighted-
|
|||||||||||||
Average
|
|||||||||||||
Weighted
|
Contractual
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercisable
|
Term
|
Intrinsic
|
|||||||||||
Number
|
Price
|
(in years)
|
Value
|
||||||||||
Outstanding at December 31, 2010
|
100,250 | $ | 9.42 |
5.7 Years
|
$ | - | |||||||
Granted
|
- | - | |||||||||||
Exercised
|
- | - | |||||||||||
Forfeited
|
- | - | |||||||||||
Outstanding at March 31, 2011
|
100,250 | $ | 9.42 |
5.4 Years
|
$ | - | |||||||
Options exercisable at March 31, 2011
|
100,250 | $ | 9.42 |
March 31, 2011
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
Debt securities available-for-sale: | ||||||||||||||||
U.S. Government agencies
|
$ | 4,331,601 | $ | 15,263 | $ | - | $ | 4,346,864 | ||||||||
State and municipal securities
|
20,857,684 | 231,403 | (211,651 | ) | 20,877,436 | |||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Residential mortgage guaranteed by GNMA
|
17,566,405 | 186,760 | - | 17,753,165 | ||||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies
|
57,985,415 | 86,279 | (261,002 | ) | 57,810,692 | |||||||||||
$ | 100,741,105 | $ | 519,705 | $ | (472,653 | ) | $ | 100,788,157 | ||||||||
Debt securities held to maturity:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Residential mortgage guaranteed by GNMA
|
$ | 92,064 | $ | 2,464 | $ | - | $ | 94,528 |
December 31, 2010
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
Debt securities available-for-sale: | ||||||||||||||||
U.S. Government agencies
|
$ | 4,571,444 | $ | 15,635 | $ | - | $ | 4,587,079 | ||||||||
State and municipal securities
|
20,868,771 | 191,429 | (323,988 | ) | 20,736,212 | |||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Residential mortgage guaranteed by GNMA
|
18,747,272 | 130,609 | (24,856 | ) | 18,853,025 | |||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies
|
64,575,092 | 135,479 | (636,453 | ) | 64,074,118 | |||||||||||
$ | 108,762,579 | $ | 473,152 | $ | (985,297 | ) | $ | 108,250,434 | ||||||||
Debt securities held to maturity:
|
||||||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Residential mortgage guaranteed by GNMA
|
$ | 95,702 | $ | 2,686 | $ | - | $ | 98,388 |
Securities Available-for-Sale
|
Securities Held to Maturity
|
|||||||||||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
Cost
|
Value
|
Cost
|
Value
|
|||||||||||||
Due in one year or less
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Due from one year to five years
|
599,502 | 605,613 | - | - | ||||||||||||
Due from five years to ten years
|
4,778,275 | 4,905,454 | - | - | ||||||||||||
Due after ten years
|
19,811,508 | 19,713,233 | - | - | ||||||||||||
25,189,285 | 25,224,300 | - | - | |||||||||||||
Mortgage-backed securities
|
75,551,820 | 75,563,857 | 92,064 | 94,528 | ||||||||||||
$ | 100,741,105 | $ | 100,788,157 | $ | 92,064 | $ | 94,528 |
As of March 31, 2011
|
||||||||||||||||||||||||
Less than 12 Months
|
12 Months or Greater
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Debt securities available for sale:
|
||||||||||||||||||||||||
State and municipal securities
|
$ | 5,062,238 | $ | (135,886 | ) | $ | 4,874,121 | $ | (75,765 | ) | $ | 9,936,359 | $ | (211,651 | ) | |||||||||
Mortgage-backed securities:
|
||||||||||||||||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies
|
31,103,403 | (261,002 | ) | - | - | 31,103,403 | (261,002 | ) | ||||||||||||||||
$ | 36,165,641 | $ | (396,888 | ) | $ | 4,874,121 | $ | (75,765 | ) | $ | 41,039,762 | $ | (472,653 | ) |
As of December 31, 2010
|
||||||||||||||||||||||||
Less than 12 Months
|
12 Months or Greater
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Debt securities available for sale:
|
||||||||||||||||||||||||
State and municipal securities
|
$ | 6,110,458 | $ | (154,802 | ) | $ | 6,440,892 | $ | (169,186 | ) | $ | 12,551,350 | $ | (323,988 | ) | |||||||||
Mortgage-backed securities:
|
||||||||||||||||||||||||
Residential mortgage guaranteed by GNMA
|
5,647,347 | (24,856 | ) | - | - | 5,647,347 | (24,856 | ) | ||||||||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies
|
34,694,782 | (636,453 | ) | - | - | 34,694,782 | (636,453 | ) | ||||||||||||||||
$ | 46,452,587 | $ | (816,111 | ) | $ | 6,440,892 | $ | (169,186 | ) | $ | 52,893,479 | $ | (985,297 | ) |
March 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Commercial real estate-mortgage:
|
||||||||
Owner-occupied
|
$ | 64,492 | $ | 64,971 | ||||
All other
|
59,303 | 64,060 | ||||||
Consumer real estate-mortgage
|
70,260 | 71,878 | ||||||
Construction and land development
|
30,599 | 29,848 | ||||||
Commercial and industrial
|
45,980 | 51,160 | ||||||
Consumer and other
|
3,116 | 3,330 | ||||||
Total loans
|
273,750 | 285,247 | ||||||
Less: Allowance for loan losses
|
(7,914 | ) | (9,132 | ) | ||||
Loans, net
|
$ | 265,836 | $ | 276,115 |
March 31, 2011
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Performing loans
|
$ | 116,351 | $ | 57,015 | $ | 29,786 | $ | 43,742 | $ | 3,116 | $ | 250,010 | ||||||||||||
Impaired loans
|
7,444 | 13,245 | 813 | 2,238 | - | 23,740 | ||||||||||||||||||
Total
|
$ | 123,795 | $ | 70,260 | $ | 30,599 | $ | 45,980 | $ | 3,116 | $ | 273,750 | ||||||||||||
December 31, 2010
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Performing loans
|
$ | 119,084 | $ | 61,455 | $ | 27,774 | $ | 50,492 | $ | 3,279 | $ | 262,084 | ||||||||||||
Impaired loans
|
9,947 | 10,423 | 2,074 | 668 | 51 | 23,163 | ||||||||||||||||||
Total
|
$ | 129,031 | $ | 71,878 | $ | 29,848 | $ | 51,160 | $ | 3,330 | $ | 285,247 |
March 31, 2011
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
|
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
||||||||||||||||||
Allowance related to: | ||||||||||||||||||||||||
Performing loans
|
$ | 2,234 | $ | 1,218 | $ | 1,153 | $ | 270 | $ | 19 | $ | 4,894 | ||||||||||||
Impaired loans
|
905 | 1,642 | - | 473 | - | 3,020 | ||||||||||||||||||
Total
|
$ | 3,139 | $ | 2,860 | $ | 1,153 | $ | 743 | $ | 19 | $ | 7,914 |
December 31, 2010
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
|
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
||||||||||||||||||
Allowance related to: | ||||||||||||||||||||||||
Performing loans
|
$ | 887 | $ | 691 | $ | 3,178 | $ | 588 | $ | 48 | $ | 5,392 | ||||||||||||
Impaired loans
|
906 | 2,420 | 60 | 337 | 17 | 3,740 | ||||||||||||||||||
Total
|
$ | 1,793 | $ | 3,111 | $ | 3,238 | $ | 925 | $ | 65 | $ | 9,132 |
March 31, 2011
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Beginning balance
|
$ | 1,793 | $ | 3,111 | $ | 3,238 | $ | 925 | $ | 65 | $ | 9,132 | ||||||||||||
Charged-off loans
|
(967 | ) | (353 | ) | (12 | ) | (15 | ) | (3 | ) | (1,350 | ) | ||||||||||||
Recovery of charge-offs
|
53 | 6 | 3 | 48 | 7 | 117 | ||||||||||||||||||
Provision for loan losses
|
2,260 | 96 | (2,076 | ) | (215 | ) | (50 | ) | 15 | |||||||||||||||
Ending balance
|
$ | 3,139 | $ | 2,860 | $ | 1,153 | $ | 743 | $ | 19 | $ | 7,914 |
December 31, 2010
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Beginning balance
|
$ | 1,189 | $ | 719 | $ | 3,179 | $ | 786 | $ | 32 | $ | 5,905 | ||||||||||||
Charged-off loans
|
(2,309 | ) | (562 | ) | (1,260 | ) | (443 | ) | (114 | ) | (4,688 | ) | ||||||||||||
Recovery of charge-offs
|
213 | 54 | 19 | 282 | 56 | 624 | ||||||||||||||||||
Provision for loan losses
|
2,700 | 2,900 | 1,300 | 300 | 91 | 7,291 | ||||||||||||||||||
Ending balance
|
$ | 1,793 | $ | 3,111 | $ | 3,238 | $ | 925 | $ | 65 | $ | 9,132 |
March 31, 2011
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Pass
|
$ | 99,732 | $ | 49,594 | $ | 26,710 | $ | 36,685 | $ | 3,017 | $ | 215,738 | ||||||||||||
Special mention
|
15,259 | 2,886 | 1,945 | 6,856 | 47 | 26,993 | ||||||||||||||||||
Substandard
|
1,360 | 4,535 | 1,131 | 201 | 52 | 7,279 | ||||||||||||||||||
Substandard-impaired
|
7,444 | 13,245 | 813 | 2,238 | - | 23,740 | ||||||||||||||||||
$ | 123,795 | $ | 70,260 | $ | 30,599 | $ | 45,980 | $ | 3,116 | $ | 273,750 |
December 31, 2010
|
Commercial
|
Consumer
|
Construction
|
Commercial
|
||||||||||||||||||||
Real Estate-
|
Real Estate-
|
and Land
|
and
|
Consumer
|
||||||||||||||||||||
Mortgage
|
Mortgage
|
Development
|
Industrial
|
and Other
|
Total
|
|||||||||||||||||||
Pass
|
$ | 97,692 | $ | 49,974 | $ | 24,401 | $ | 41,963 | $ | 3,215 | $ | 217,245 | ||||||||||||
Special mention
|
19,289 | 3,786 | 2,121 | 7,405 | 54 | 32,655 | ||||||||||||||||||
Substandard
|
2,103 | 7,695 | 1,252 | 1,124 | 10 | 12,184 | ||||||||||||||||||
Substandard-impaired
|
9,947 | 10,423 | 2,074 | 668 | 51 | 23,163 | ||||||||||||||||||
$ | 129,031 | $ | 71,878 | $ | 29,848 | $ | 51,160 | $ | 3,330 | $ | 285,247 |
March 31, 2011
|
Unpaid
|
Average
|
||||||||||
Principal
|
Related
|
Recorded
|
||||||||||
Balance
|
Allowance
|
Investment
|
||||||||||
Impaired loans with no recorded allowance
|
||||||||||||
Commercial real estate – mortgage
|
$ | 3,745 | $ | - | $ | 2,682 | ||||||
Consumer real estate – mortgage
|
5,790 | - | 4,227 | |||||||||
Construction and land development
|
813 | - | 896 | |||||||||
Commercial and industrial
|
674 | - | 817 | |||||||||
Consumer and other
|
- | - | - | |||||||||
Total
|
$ | 11,022 | $ | - | $ | 8,622 |
Impaired loans with a recorded allowance
|
||||||||||||
Commercial real estate – mortgage
|
$ | 3,699 | $ | 905 | $ | 6,014 | ||||||
Consumer real estate – mortgage
|
7,455 | 1,642 | 7,608 | |||||||||
Construction and land development
|
- | - | 547 | |||||||||
Commercial and industrial
|
1,564 | 473 | 636 | |||||||||
Consumer and other
|
- | - | 233 | |||||||||
Total
|
$ | 12,718 | $ | 3,020 | $ | 15,038 | ||||||
Total impaired loans
|
$ | 23,740 | $ | 3,020 | $ | 23,660 |
December 31, 2010
|
Unpaid
|
Average
|
||||||||||
Principal
|
Related
|
Recorded
|
||||||||||
Balance
|
Allowance
|
Investment
|
||||||||||
Impaired loans with no recorded allowance
|
||||||||||||
Commercial real estate – mortgage
|
$ | 1,663 | $ | - | $ | 2,747 | ||||||
Consumer real estate – mortgage
|
998 | - | 776 | |||||||||
Construction and land development
|
1,793 | - | 1,526 | |||||||||
Commercial and industrial
|
70 | - | 782 | |||||||||
Consumer and other
|
2 | - | 1 | |||||||||
Total
|
$ | 4,526 | $ | - | $ | 5,832 |
Impaired loans with a recorded allowance
|
||||||||||||
Commercial real estate – mortgage
|
$ | 8,284 | $ | 906 | $ | 8,494 | ||||||
Consumer real estate – mortgage
|
9,425 | 2,420 | 8,968 | |||||||||
Construction and land development
|
281 | 60 | 2,674 | |||||||||
Commercial and industrial
|
598 | 337 | 1,060 | |||||||||
Consumer and other
|
49 | 17 | 178 | |||||||||
Total
|
$ | 18,637 | $ | 3,740 | $ | 21,374 | ||||||
Total impaired loans
|
$ | 23,163 | $ | 3,740 | $ | 27,206 |
March 31, 2011
|
30-89 Days
|
Past Due 90
|
||||||||||||||||||||||
Past Due and
|
Days or More
|
Total
|
Current
|
Total
|
||||||||||||||||||||
Accruing
|
and Accruing
|
Nonaccrual
|
Past Due
|
Loans
|
Loans
|
|||||||||||||||||||
Commercial real estate:
|
|
|||||||||||||||||||||||
Owner-occupied
|
$ | 4,067 | $ | - | $ | - | $ | 4,067 | $ | 60,425 | $ | 64,492 | ||||||||||||
All other
|
- | - | 996 | 996 | 58,307 | 59,303 | ||||||||||||||||||
Consumer real estate-mortgage
|
3,430 | - | 4,826 | 8,256 | 62,004 | 70,260 | ||||||||||||||||||
Construction and land development
|
679 | - | 362 | 1,041 | 29,558 | 30,599 | ||||||||||||||||||
Commercial and industrial
|
227 | - | 49 | 276 | 45,704 | 45,980 | ||||||||||||||||||
Consumer and other
|
35 | - | 38 | 73 | 3,043 | 3,116 | ||||||||||||||||||
Total
|
$ | 8,438 | $ | - | $ | 6,271 | $ | 14,709 | $ | 259,041 | $ | 273,750 |
December 31, 2010
|
30-89 Days
|
Past Due 90
|
||||||||||||||||||||||
Past Due and
|
Days or More
|
Total
|
Current
|
Total
|
||||||||||||||||||||
Accruing
|
and Accruing
|
Nonaccrual
|
Past Due
|
Loans
|
Loans
|
|||||||||||||||||||
Commercial real estate:
|
|
|||||||||||||||||||||||
Owner-occupied
|
$ | 985 | $ | - | $ | 618 | $ | 1,603 | $ | 63,368 | $ | 64,971 | ||||||||||||
All other
|
203 | - | 7,808 | 8,011 | 56,049 | 64,060 | ||||||||||||||||||
Consumer real estate-mortgage
|
631 | - | 5,114 | 5,745 | 66,133 | 71,878 | ||||||||||||||||||
Construction and land development
|
317 | - | - | 317 | 29,531 | 29,848 | ||||||||||||||||||
Commercial and industrial
|
116 | - | 75 | 191 | 50,969 | 51,160 | ||||||||||||||||||
Consumer and other
|
54 | - | 18 | 72 | 3,258 | 3,330 | ||||||||||||||||||
Total
|
$ | 2,306 | $ | - | $ | 13,633 | $ | 15,939 | $ | 269,308 | $ | 285,247 |
Commitments to extend credit
|
$ | 31.6 million | ||
Standby letters of credit
|
$ | 3.3 million |
Quoted Prices in
|
Significant
|
Significant
|
||||||||||||||
Active Markets
|
Other
|
Other
|
||||||||||||||
Balance as of
|
for Identical
|
Observable
|
Unobservable
|
|||||||||||||
March 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
2011
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
Debt securities available for sale:
|
||||||||||||||||
U.S. Government agencies
|
$ | 4,346,864 | $ | - | $ | 4,346,864 | $ | - | ||||||||
State and municipal securities
|
20,877,436 | - | 20,877,436 | - | ||||||||||||
Mortgage-backed securities:
|
||||||||||||||||
Residential mortgage guaranteed by GNMA
|
17,753,165 | - | 17,753,165 | - | ||||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies
|
57,810,692 | - | 57,810,692 | - | ||||||||||||
Total securities available for sale
|
$ | 100,788,157 | $ | - | $ | 100,788,157 | $ | - | ||||||||
Cash surrender value of life insurance
|
$ | 1,142,062 | $ | - | $ | 1,142,062 | $ | - |
Quoted Prices in
|
Significant
|
Significant
|
||||||||||||||
Active Markets
|
Other
|
Other
|
||||||||||||||
Balance as of
|
for Identical
|
Observable
|
Unobservable
|
|||||||||||||
March 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
2011
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
Impaired loans
|
$ | 9,698 | $ | - | $ | 9,698 | $ | - | ||||||||
Foreclosed assets (OREO & Repossessions)
|
20,464 | - | 20,464 | - |
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
|
Estimated
|
Carrying
|
Estimated
|
|||||||||||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
|||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 41,431 | $ | 41,431 | $ | 22,982 | $ | 22,982 | ||||||||
Securities
|
100,880 | 100,883 | 108,346 | 108,349 | ||||||||||||
Federal Home Loan Bank stock
|
2,323 | 2,323 | 2,323 | 2,323 | ||||||||||||
Loans, net
|
265,836 | 267,013 | 276,115 | 277,796 | ||||||||||||
Cash surrender value of life insurance
|
1,142 | 1,142 | 1,114 | 1,114 | ||||||||||||
Accrued interest receivable
|
1,431 | 1,431 | 1,326 | 1,326 | ||||||||||||
Liabilities:
|
||||||||||||||||
Noninterest-bearing demand deposits
|
33,529 | 33,529 | 28,980 | 28,980 | ||||||||||||
Interest-bearing demand deposits
|
27,946 | 27,946 | 24,834 | 24,834 | ||||||||||||
Savings deposits and money market accounts
|
34,776 | 34,776 | 34,042 | 34,042 | ||||||||||||
Time deposits
|
241,236 | 243,093 | 247,591 | 249,990 | ||||||||||||
Federal funds purchased and securities sold under agreements to repurchase
|
27,790 | 27,790 | 24,325 | 24,325 | ||||||||||||
Federal Home Loan Bank advances and other borrowings
|
53,480 | 53,480 | 54,715 | 54,715 | ||||||||||||
Accrued interest payable
|
211 | 211 | 177 | 177 | ||||||||||||
Unrecognized financial instruments
(net of contract amount): |
||||||||||||||||
Commitments to extend credit
|
- | - | - | - | ||||||||||||
Letters of credit
|
- | - | - | - | ||||||||||||
Lines of credit
|
- | - | - | - |
Three Months Ended
|
||||||||
March 31,
|
||||||||
2011
|
2010
|
|||||||
Net income
|
$ | 252,275 | $ | 343,787 | ||||
Unrealized holding gains (losses) on securities available for sale, net of reclassification
|
346,702 | 382,978 | ||||||
Comprehensive income
|
$ | 598,977 | $ | 726,765 |
(Amounts in thousands)
|
Three months ended March 31 |
|||||||||||||||||||||||
Assets
|
2011 | 2010 | ||||||||||||||||||||||
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
|||||||||||||||||||
|
Balance
|
Expense
|
Rate
|
Balance
|
Expense
|
Rate
|
||||||||||||||||||
Earning assets: | ||||||||||||||||||||||||
Loans, net of unearned income
|
$ | 284,297 | $ | 4,639 | 6.62 | % | $ | 330,024 | $ | 5,948 | 7.31 | % | ||||||||||||
Investment securities
|
109,844 | 568 | 2.41 | % | 134,834 | 1,129 | 3.62 | % | ||||||||||||||||
Other earning assets
|
24,122 | 11 | 0.18 | % | 45,528 | 24 | 0.21 | % | ||||||||||||||||
Total earning assets
|
418,263 | $ | 5,218 | 5.14 | % | 510,386 | $ | 7,101 | 5.70 | % | ||||||||||||||
Allowance for loan losses
|
(9,071 | ) | (5,993 | ) | ||||||||||||||||||||
Cash and other assets
|
28,629 | 29,919 | ||||||||||||||||||||||
TOTAL ASSETS
|
$ | 437,821 | $ | 534,312 | ||||||||||||||||||||
Liabilities and Shareholders' Equity
|
||||||||||||||||||||||||
Interest bearing liabilities:
|
||||||||||||||||||||||||
Interest bearing demand deposits
|
$ | 27,590 | $ | 21 | 0.31 | % | $ | 27,908 | $ | 30 | 0.44 | % | ||||||||||||
Savings deposits
|
9,499 | 12 | 0.51 | % | 8,727 | 11 | 0.51 | % | ||||||||||||||||
MMDA's
|
24,437 | 60 | 1.00 | % | 23,718 | 57 | 0.97 | % | ||||||||||||||||
Time deposits
|
244,021 | 1,052 | 1.75 | % | 307,034 | 1,684 | 2.22 | % | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase
|
22,625 | 31 | 0.56 | % | 23,637 | 35 | 0.61 | % | ||||||||||||||||
Other borrowings
|
54,356 | 580 | 4.33 | % | 72,306 | 779 | 4.37 | % | ||||||||||||||||
Total interest bearing liabilities
|
382,528 | 1,756 | 1.86 | % | 463,330 | 2,596 | 2.27 | % | ||||||||||||||||
Net interest spread
|
$ | 3,462 | 3.28 | % | $ | 4,505 | 3.43 | % | ||||||||||||||||
Noninterest bearing demand deposits
|
28,964 | 48,211 | ||||||||||||||||||||||
Accrued expenses and other liabilities
|
(354 | ) | (5,897 | ) | ||||||||||||||||||||
Shareholders' equity
|
26,683 | 28,668 | ||||||||||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 437,821 | $ | 534,312 | ||||||||||||||||||||
Net yield on earning assets
|
3.44 | % | 3.64 | % | ||||||||||||||||||||
Taxable equivalent adjustment:
|
||||||||||||||||||||||||
Loans
|
- | - | ||||||||||||||||||||||
Investment securities
|
85 | 74 | ||||||||||||||||||||||
Total adjustment
|
85 | 74 |
2011-2010
|
||||||||||||||||
Three months
|
Percent
|
Dollar
|
||||||||||||||
ended March 31,
|
Increase
|
Amount
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
Interest income
|
$ | 5,218 | $ | 7,101 | (26.52 | )% | $ | (1,883 | ) | |||||||
Interest expense
|
1,755 | 2,596 | (32.40 | )% | (841 | ) | ||||||||||
Net interest income
|
||||||||||||||||
before provision for loan loss
|
3,463 | 4,505 | (23.13 | )% | (1,042 | ) | ||||||||||
Provision for loan loss
|
15 | 1,015 | (98.52 | )% | (1,000 | ) | ||||||||||
Net interest income after
|
||||||||||||||||
provision for loan loss
|
3,448 | 3,490 | (1.20 | )% | (42 | ) | ||||||||||
Total noninterest income
|
270 | 404 | (33.17 | )% | (134 | ) | ||||||||||
Total noninterest expense
|
3,417 | 3,400 | 0.50 | % | 17 | |||||||||||
Income before income taxes
|
301 | 494 | (39.07 | )% | (193 | ) | ||||||||||
Provision for income taxes
|
49 | 150 | (67.33 | )% | (101 | ) | ||||||||||
Net income
|
$ | 252 | $ | 344 | (26.74 | )% | $ | (92 | ) |
The Bank’s net interest income has been negatively impacted by a reduction in the Bank’s loan portfolio. As of March 31, 2010, the Bank’s total loans equaled approximately $325.9 million compared to approximately $273.7 million as of March 31, 2011. The reduction in loans is a result of increased loan competition in the Bank’s local market resulting in refinances and loans that have been transferred into the Bank’s other real estate owned asset category as a result of foreclosure. In response to the decrease in loans, the Bank’s Asset-Liability Committee is proactively managing the Bank’s interest-bearing deposits which enabled the Bank to reduce its interest expense by approximately $841 thousand or 32.40% from March 31, 2010 to March 31, 2011. Currently, the Bank is attempting to increase its loan portfolio and thereby improve its net interest income.
|
The Bank’s loan portfolio yield decreased to 6.62% for the three months ended March 31, 2011 compared to 7.31% for the three months ended March 31, 2010 and 6.90% for the year ended December 31, 2010.
|
For the three month periods ended March 31, 2011, the Bank’s investment portfolio yielded 2.41% compared to 3.62% for the same time period in 2010. The Bank decreased the amount of its investment portfolio from approximately $150.6 million as of March 31, 2010 to approximately $100.9 million as of March 31, 2011. The reduction in investments is due in part to a decrease in pledging requirements as the Bank has repaid $17 million in Federal Home Loan Bank advances since March 31, 2010. Further, the Bank liquidated the majority of its fixed rate mortgage backed securities during 2010. A portion of the proceeds from the securities sold were reinvested into variable rate mortgage backed securities. However, the Bank intends to increase its loan portfolio over the remainder of 2011, instead of reacquiring securities that would equal the 2010 portfolio amount of approximately $150.6 million.
|
2011-2010
|
||||||||||||
Three months ended
|
Percent
|
|||||||||||
March 31,
|
Increase
|
|||||||||||
2011
|
2010
|
(Decrease)
|
||||||||||
Service charges on deposit accounts
|
$ | 216 | $ | 342 | (36.84 | )% | ||||||
Net gains on sale of loans and other assets
|
34 | 41 | (17.07 | )% | ||||||||
Other noninterest income
|
20 | 21 | (4.76 | )% | ||||||||
Total noninterest income
|
$ | 270 | $ | 404 | (33.17 | )% |
The Bank has experienced a decrease in its service charges on deposit accounts during 2011 due to a continued reduction in customer overdraft charges.
|
The Bank exited the ACH payroll processing business during 2010 due to increased regulatory requirements and expects service charges on deposit accounts to drop $20 thousand a month as a result.
|
2011-2010
|
||||||||||||
Three months ended
|
Percent
|
|||||||||||
March 31,
|
Increase /
|
|||||||||||
2011
|
2010
|
(Decrease)
|
||||||||||
Salaries and employee benefits
|
$ | 1,543 | $ | 1,633 | (5.51 | )% | ||||||
Occupancy and equipment expense
|
406 | 355 | 14.37 | % | ||||||||
Foreclosed assets expense, net
|
362 | 196 | 84.69 | % | ||||||||
Depository insurance
|
323 | 270 | 19.63 | % | ||||||||
Other operating expense
|
783 | 946 | (17.23 | )% | ||||||||
Total noninterest expense
|
$ | 3,417 | $ | 3,400 | 0.50 | % |
Cornerstone reduced its employee expense by controlling cost of living adjustment raises over the last three years. The Bank anticipates employee expense will increase slightly as Cornerstone adds additional talent to handle the increasing regulatory documentation. The Bank expects employee expense to continue to climb into 2012 as employee benefits are resumed as the Bank’s performance improves.
|
As of March 31, 2011, the Bank had incurred $242 thousand in write-down of other real estate and repossessed assets. The majority of the write-down was centered on a houseboat that the Bank had owned for approximately one year. The Bank has subsequently sold the asset for approximately $100 thousand.
|
Depository insurance increased from approximately $270 thousand as of March 31, 2010 to approximately $323 thousand as of March 31, 2011. The increase in insurance assessment was the result of the Bank’s decline in regulatory risk ratings. However, as of March 31, 2011, these risk ratings have stabilized. Therefore, the Bank’s depository insurance assessment should decrease as the amount of deposits begins to decrease.
|
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Commercial real estate-mortgage
|
||||||||||||||||
Owner-occupied
|
$ | 64,492 | 23.56 | % | $ | 64,971 | 22.78 | % | ||||||||
All other
|
59,303 | 21.66 | % | 64,060 | 22.46 | % | ||||||||||
Consumer real estate-mortgage
|
70,260 | 25.67 | % | 71,878 | 25.20 | % | ||||||||||
Construction and land development
|
30,599 | 11.18 | % | 29,848 | 10.46 | % | ||||||||||
Commercial and industrial
|
45,980 | 16.80 | % | 51,160 | 17.94 | % | ||||||||||
Consumer and other
|
3,116 | 1.13 | % | 3,330 | 1.16 | % | ||||||||||
Total loans
|
273,750 | 100.00 | % | 285,247 | 100.00 | % | ||||||||||
Less: Allowance for loan losses
|
(7,914 | ) | (9,132 | ) | ||||||||||||
Loans, net
|
$ | 265,836 | $ | 276,115 |
During the first quarter of 2011, the Bank added minimal provision to the loan loss allowance. Management believes that it has established an allowance for loan losses that adequately accounts for the Bank’s identified loan impairment. However, additional provision to the loan loss allowance may be needed in future quarters as the Bank works its problem assets through the collection cycle. The Bank saw its past due loans surge during the first quarter as two large loans became delinquent, one of these loans will move toward foreclosure and the Bank has many interested investors for this income producing property.
|
March 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Balance, beginning of period
|
$ | 9,132 | $ | 5,905 | ||||
Loans charged-off
|
(1,350 | ) | (4,688 | ) | ||||
Recoveries of loans previously charged-off
|
117 | 624 | ||||||
Provision for loan losses
|
15 | 7,291 | ||||||
Balance, end of period
|
$ | 7,914 | $ | 9,132 | ||||
Total loans
|
$ | 273,750 | $ | 285,247 | ||||
Ratio of allowance for loan losses to loans outstanding at the end of the period
|
2.89 | % | 3.20 | % | ||||
Ratio of net charge-offs to total loans outstanding for the period
|
0.45 | % | 1.42 | % |
The Bank has experienced a stabilization in its loan quality as the Chattanooga, Tennessee Metropolitan Statistical Area begins to recover from a long economic downturn. The number and dollar amount of impaired loans remained consistent during the first quarter of 2011 even with the Bank continuing to systematically review its loan portfolio to proactively identify possible impaired loans. Management anticipates that its loan asset quality will improve as the economy recovers from the current economic recession.
|
March 31,
|
December 31,
|
September 30,
|
June 30,
|
|||||||||||||
2011
|
2010
|
2010
|
2010
|
|||||||||||||
Non-accrual loans
|
$ | 6,271 | $ | 13,633 | $ | 10,532 | $ | 13,030 | ||||||||
Foreclosed assets
|
20,464 | 12,809 | 13,427 | 10,212 | ||||||||||||
Total non-performing assets
|
$ | 26,735 | $ | 26,442 | $ | 23,959 | $ | 23,242 | ||||||||
30-89 days past due loans
|
$ | 8,438 | $ | 2,306 | $ | 1,595 | $ | 6,655 | ||||||||
Total loans outstanding
|
$ | 273,750 | $ | 285,247 | $ | 292,046 | $ | 318,796 | ||||||||
Allowance for loan losses
|
7,914 | 9,132 | 6,271 | 6,967 | ||||||||||||
Ratio of non-performing assets to total loans outstanding at the end of the period
|
9.77 | % | 9.27 | % | 8.20 | % | 7.29 | % | ||||||||
Ratio of non-performing assets to total allowance for loan losses at the end of the period
|
337.82 | % | 289.55 | % | 382.06 | % | 333.60 | % |
As of March 31, 2011, the Bank has experienced an increase in 30-89 days past due loans when compared to previous quarters of 2010. The increase is primarily attributable to two relationships. Both of these relationships are secured by income producing properties which should allow the loans to return to a current payment status or allow the Bank to process the properties through the collection cycle quickly.
|
Non-accrual loans decreased to approximately $6.3 million as of March 31, 2011 down from approximately $13.6 million as of December 31, 2010. The majority of non-accrual loans are concentrated in one loan relationship of approximately $4.6 million. The relationship is in bankruptcy and the courts are presently making payments on several income producing parcels of commercial real estate.
|
The Bank’s foreclosed assets increased from approximately $12.8 million as of December 31, 2010 to approximately $20.5 million as of March 31, 2011. During the first quarter of 2011, six properties totaling approximately $5.0 million were foreclosed on and recorded in the Bank’s foreclosed assets. Five of the properties are mini-warehouses in the Chattanooga, Tennessee area and are currently producing approximately $30 thousand per month in net income. Management believes that due to the income producing nature of these properties that the Bank will be able to liquidate these properties by the end of 2011.
|
The Bank is experiencing increasing interest in its properties and expects a material decrease in the amount of foreclosed assets. The Bank currently has approximately $3 million under contract to sell during the second quarter of 2011. Management expects further sales to finalize during the second quarter of 2011 as well.
|
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||
Core funding: | ||||||||||||||||
Non-interest bearing demand deposits
|
$ | 33,529 | 8.07 | % | $ | 28,980 | 7.07 | % | ||||||||
Interest-bearing demand deposits
|
27,946 | 6.73 | % | 24,834 | 6.06 | % | ||||||||||
Savings & money market accounts
|
34,776 | 8.37 | % | 34,042 | 8.31 | % | ||||||||||
Time deposits under $100,000
|
132,161 | 31.83 | % | 133,626 | 32.61 | % | ||||||||||
Total core funding
|
228,412 | 55.00 | % | 221,482 | 54.05 | % | ||||||||||
Non-core funding:
|
||||||||||||||||
Time deposit of $100,000 or more
|
$ | 109,075 | 26.27 | % | $ | 113,965 | 27.81 | % | ||||||||
Fed funds purchased and securities sold under agreements to repurchase
|
27,790 | 6.69 | % | 24,325 | 5.94 | % | ||||||||||
Federal Home Loan Bank advances
|
50,000 | 12.04 | % | 50,000 | 12.20 | % | ||||||||||
Total non-core funding
|
186,865 | 45.00 | % | 188,290 | 45.95 | % | ||||||||||
Total
|
$ | 415,277 | 100.00 | % | $ | 409,772 | 100.00 | % |
The Bank has seen relative stability in its core deposit base but has purposely reduced its certificates of deposit as the loan portfolio decreased. The Bank will continue to reduce its assets but will see future reduction primarily in cash and security balances. To offset these future reductions the Bank expects new reductions in its securities sold under agreements to repurchase account balances and continued reductions in certificates of deposit accounts and Federal Home Loan Bank borrowings.
|
Cornerstone’s stockholders’ equity increased $1.5 million during the first quarter of 2011. The increase in equity can be attributed to Cornerstone’s first quarter 2011 earnings of approximately $252,000, additional capital from Cornerstone’s preferred stock offering of approximately $852,000 and an increase in unrealized gain on securities available for sale of approximately $347,000. Following is a summary of the Bank’s capital ratios as of March 31, 2011:
|
Cornerstone has requested permission from the Federal Reserve Bank of Atlanta (the “Federal Reserve”) to pay its scheduled February 2011 dividend to its series A convertible preferred stock in the amount of $0.625 per share. Cornerstone is waiting for a final decision from the Federal Reserve authorizing the payment of the dividend.
|
Cornerstone had total outstanding borrowings of approximately $3.5 million as of March 31, 2011 with the Federal Deposit Insurance Corporation as Receiver for Silverton Bank, N.A.
|
Exhibit Number
|
Description
|
|
31
|
Certifications under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002.
|
Cornerstone Bancshares, Inc.
|
||
Date:
|
May 13, 2011
|
/s/ Nathaniel F. Hughes
|
Nathaniel F. Hughes,
|
||
President
|
||
(principal executive officer)
|
||
Date:
|
May 13, 2011
|
/s/ Gary W. Petty, Jr.
|
Gary W. Petty, Jr.
|
||
Senior Vice President and Chief Financial Officer
|
||
(principal financial officer and accounting officer)
|
Exhibit Number
|
Description
|
|
31
|
Certifications under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002.
|
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M5UILJ9-16#MM;=J>\U
1.
|
I have reviewed this quarterly report on Form 10-Q of Cornerstone Bancshares, Inc (the “Registrant”);
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as, and for, the periods presented in this quarterly report;
|
4.
|
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date: May 13, 2011
|
/s/ Nathaniel F. Hughes
|
Nathaniel F. Hughes
|
|
|
President |
(principal executive officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Cornerstone Bancshares, Inc (the “Registrant”);
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as, and for, the periods presented in this quarterly report;
|
4.
|
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date: May 13, 2011
|
/s/ Gary W. Petty, Jr.
|
Gary W. Petty, Jr.
|
|
|
Senior Vice President and Chief Financial Officer |
(principal financial and accounting officer)
|
/s/ Nathaniel F. Hughes
|
Nathaniel F. Hughes
|
President
(principal executive officer)
|
May 13, 2011
|
/s/ Gary W. Petty, Jr.
|
Gary W. Petty, Jr.
|
Senior Vice President and Chief Financial Officer
(principal financial officer and accounting officer)
|
May 13, 2011
|