-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
N8Od8fH4NsH8pqSGxzNjMc+1tSIuEWx1/XGYIYI+ccnIUpMIFXQ81WCeTzjuxlPG
53AX5vOeW+avvaqux+9/cg==
0001193125-05-192906.txt : 20050928
0001193125-05-192906.hdr.sgml : 20050928
20050928105342
ACCESSION NUMBER: 0001193125-05-192906
CONFORMED SUBMISSION TYPE: 10KSB
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20050630
FILED AS OF DATE: 20050928
DATE AS OF CHANGE: 20050928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SOUTHERN BANC CO INC
CENTRAL INDEX KEY: 0000946453
STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035]
IRS NUMBER: 631146351
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10KSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 033-93218
FILM NUMBER: 051106992
BUSINESS ADDRESS:
STREET 1: 221 S. 6TH STREET
CITY: GADSDEN
STATE: AL
ZIP: 35901-4102
BUSINESS PHONE: 2565433860
MAIL ADDRESS:
STREET 1: 221 S 6TH STREET
CITY: GADSDEN
STATE: AL
ZIP: 35901-4102
10KSB
1
d10ksb.htm
THE SOUTHERN BANC COMPANY, INC.
THE SOUTHERN BANC COMPANY, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2005
¨ |
TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 33-93218
THE SOUTHERN BANC COMPANY, INC.
(Name of Small Business Issuer in Its Charter)
|
|
|
Delaware |
|
63-1146351 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
221 S. 6th Street, Gadsden, Alabama |
|
35901 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Issuers
Telephone Number, Including Area Code: (256) 543-3860
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
Check whether the issuer: (1) filed all reports required by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or 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 ¨
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
Registrants revenues for the fiscal year ended June 30, 2005: $5,502,723
The aggregate market value of the 575,435 shares of Common Stock of the registrant issued and
outstanding held by non-affiliates was approximately $9.7 million based on the closing sales price of $16.80 per share of the registrants Common Stock on September 22, 2005 as listed on the OTC Bulletin Board® (OTCBB). For purposes of this calculation, it is assumed that
directors, executive officers and beneficial owners of more than 10% of the registrants outstanding voting stock are affiliates.
Number of shares of Common Stock outstanding as of September 22, 2005: 859,660
Transitional Small Business Disclosure
Format Yes ¨ No x
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the part of this report into
which the document is incorporated:
1. |
Portions of the Annual Report to Stockholders for the Fiscal Year Ended June 30, 2005 (the Annual Report). (Parts I and II) |
PART I
Item 1. Description of Business
General
The Southern Banc Company, Inc. The Southern Banc Company, Inc. (the Company) was incorporated under the laws of the State of Delaware in May 1995 at the direction of management of The Southern Bank
Company, formerly First Federal Savings and Loan Association of Gadsden (the Bank), for the purpose of serving as the holding company of the Bank upon the Companys acquisition of all of the capital stock issued by the Bank in
connection with the Banks conversion from mutual to stock form.
The holding company structure permits the Company to expand the financial services offered through the Bank. As a holding company, the Company has greater flexibility than the Bank to diversify its business activities through existing or
newly formed subsidiaries or through acquisition or merger with other financial institutions. The Company qualifies as a unitary savings institution holding company and is subject to regulation by the Office of Thrift Supervision (OTS).
The Companys principal business is the business of the Bank. At June 30, 2005, the Company had total consolidated assets of $104.8 million, deposits of $81.7 million, net loans receivable of $35.5 million and stockholders equity of
$16.7 million, or 15.9% of total assets.
On December 9,
2003, the Company filed an application with the Securities and Exchange Commission (SEC) to withdraw the Companys common stock from listing and registration on the American Stock Exchange. On January 7, 2004, the SEC ordered
that the application be granted, effective at the opening of business on January 8, 2004.
The Company is continuing to voluntarily submit reports to the Commission under the Securities Exchange Act of 1934 until the Board of Directors determines whether to terminate the Companys filings.
Since January 8, 2004, the Companys common stock has traded in the
over-the-counter market on the OTC Bulletin Board® (OTCBB) under the symbol
SRNN.
The Companys executive offices are
located at 221 S. 6th Street, Gadsden, Alabama 35901, and its telephone number is (256) 543-3860.
The Southern Bank Company. The Bank is an independent community-oriented savings institution dedicated to providing quality customer service. The
Bank was organized in 1936 as a federally chartered mutual savings and loan association, at which time it also became a member of the Federal Home Loan Bank (FHLB) System and obtained federal deposit insurance.
In 1999, the Bank changed its corporate title from First Federal
Savings and Loan Association of Gadsden to The Southern Bank Company. The change of name was made to increase public awareness of the expanded banking services which the Bank is authorized to offer. The Bank currently operates
through four full-service banking offices located in Gadsden, Albertville, Guntersville and Centre, Alabama.
As a federally chartered savings institution, the Bank is subject to extensive regulation by the OTS. The lending activities and other investments of the
Bank must comply with various federal regulatory requirements, and the OTS periodically examines the Bank for compliance with various regulatory requirements. The Federal Deposit Insurance Corporation (FDIC) also has the authority to
conduct special examinations. The Bank must file reports with OTS describing its activities and financial condition and is also subject to certain reserve requirements promulgated by the Board of Governors of the Federal Reserve System
(Federal Reserve Board).
2
Special Note Regarding Forward Looking Statements
Certain matters discussed in this document are forward looking statements, intended to qualify for the safe
harbors from liability established by the Private Securities Legislation Reform Act of 1995. These forward looking statements can generally be identified as such because the context of the statement will include words such as the Company
believes, anticipates, expects, estimates, or words of similar import. Similarly, statements that describe the Companys future plans, objectives or goals are also forward looking statements. Such
forward looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report.
Stockholders, potential investors, and other readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes
no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Business Strategy
The Banks business strategy has been to operate as a profitable and independent community-oriented savings institution dedicated to providing
quality customer service. Generally, the Bank has sought to implement this strategy by using retail deposits as its sources of funds and maintaining most of its assets in loans secured by owner-occupied one-to-four-family residential real estate
located in the Banks market area, mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), the Government National Mortgage Association (GNMA) and the Federal National Mortgage
Association (FNMA), U.S. government and agency securities, interest-earning deposits, cash and equivalents, and consumer loans. The Banks business strategy incorporates the following key elements: (1) remaining a
community-oriented financial institution while maintaining a strong core customer base by providing quality service and offering customers the access to senior management and services that a community-based institution can offer; (2) attracting
a retail deposit base from the communities served by the Banks four banking offices; (3) maintaining asset quality by emphasizing investment in local residential mortgage loans and consumer loans, mortgage-backed securities and other
securities issued or guaranteed by the U.S. government or agencies thereof; and (4) maintaining liquidity and capital substantially in excess of regulatory requirements.
Market Area
The Bank considers its primary market area to consist of Etowah, Cherokee, and Marshall Counties in Northeast Alabama. The Banks four offices are
located in these three counties. The City of Gadsden, where the Banks main office is located, is in Etowah County, approximately 60 miles northeast of Birmingham, Alabama. Etowah County, with an area of approximately 555 square miles, is the
second smallest of Alabamas 67 counties in area, but ranks ninth in population. According to 2004 Census Bureau data, the combined population of Etowah, Cherokee and Marshall Counties was approximately 211,162.
The economy in the Banks market area includes a mixture of
manufacturing and agriculture. The largest employer in Etowah County is Goodyear Tire and Rubber Company, presently employing around 1,400 workers. In Talladega County, 17 miles from Etowah County, Honda Motor Company began automobile and engine
production in November 2001. Presently Honda employs approximately 4,400 workers. Honda officials estimate that approximately 20% of the plants work forces are residents of Etowah County with approximately 9% coming from Marshall and Cherokee
Counties. Several other
3
new projects and industries have been announced in the past year which could boost the economy in the Banks primary market area. According to the
Alabama Department of Industrial Relations, the unemployment rates for June 2005 in Etowah, Cherokee, and Marshall Counties were 5.1%, 4.9% and 4.2%, respectively, compared to 4.4% for the state of Alabama.
Competition
The Bank experiences substantial competition both in attracting and retaining savings deposits and in the making of mortgage
and other loans.
Direct competition for savings deposits comes
from other savings institutions, credit unions, regional bank holding companies and commercial banks located in its primary market area. Significant competition for the Banks other deposit products and services come from money market mutual
funds and brokerage firms. The primary factors in competing for loans are interest rates and loan origination fees and the range of services offered by various financial institutions. Competition for origination of real estate loans normally comes
from other savings institutions, commercial banks, credit unions, mortgage bankers, and mortgage brokers.
The Banks primary competition comes from institutions headquartered in the Banks market area as well as numerous additional commercial banks
which have branch offices located in the Banks market area. Many competing financial institutions have financial resources substantially greater than the Bank and offer a wider variety of deposit and loan products.
Lending Activities
General. The Banks principal lending activity consists of the origination of loans secured by mortgages on
existing one-to-four-family residences and a variety of consumer loans in the Banks market area. The Bank also makes limited amounts of non-residential real estate and commercial loans.
With certain limited exceptions, the maximum amount that a savings
institution such as the Bank may lend to any borrower (including certain related entities of the borrower) at one time may not exceed 15% of the unimpaired capital and surplus of the institution, plus an additional 10% of unimpaired capital and
surplus for loans fully secured by readily marketable collateral. Savings institutions are additionally authorized to make loans to one borrower, for any purpose, in an amount not to exceed $500,000 or, by order of the Director of OTS, in an amount
not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided: (i) the purchase price of each single-family dwelling in the development does not exceed $500,000; (ii) the savings
institution is in compliance with its fully phased-in capital requirements; (iii) the loans comply with applicable loan-to-value requirements, and; (iv) the aggregate amount of loans made under this authority does not exceed 15% of
unimpaired capital and surplus.
At June 30, 2005, the
maximum amount that the Bank could have loaned to any one borrower without prior OTS approval was approximately $4.1 million. At such date, the largest aggregate amount of loans that the Bank had outstanding to any one borrower was approximately
$434,000.
4
Loan Portfolio Composition. The following table sets forth selected data relating to the
composition of the Banks loan portfolio by type of loan at the dates indicated. At June 30, 2005, the Bank had no concentrations of loans exceeding 10% of total loans that are not disclosed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
|
(Dollars in thousands) |
|
Type of Loan: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family residential |
|
$ |
24,598 |
|
68.76 |
% |
|
$ |
27,542 |
|
72.69 |
% |
Non-residential |
|
|
1,299 |
|
3.63 |
|
|
|
1,164 |
|
3.07 |
|
Consumer loans(1) |
|
|
7,729 |
|
21.60 |
|
|
|
8,055 |
|
21.26 |
|
Commercial loans |
|
|
1,306 |
|
3.65 |
|
|
|
413 |
|
1.09 |
|
Savings account loans |
|
|
843 |
|
2.36 |
|
|
|
714 |
|
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
35,775 |
|
100.00 |
% |
|
|
37,888 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
83 |
|
|
|
|
|
246 |
|
|
|
Deferred loan fees (costs), net |
|
|
25 |
|
|
|
|
|
21 |
|
|
|
Allowance for loan losses |
|
|
136 |
|
|
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,531 |
|
|
|
|
$ |
37,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Consumer loans include home equity line of credit loans of approximately $1,747,000 and $2,135,000, at June 30, 2005 and 2004, respectively. |
The following table sets forth information at June 30, 2005 regarding
the dollar amount of loans maturing or repricing in the Banks portfolio, based on contractual terms to maturity or repricing period. Demand loans, loans having no schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Within 1 Year After 6/30/05
|
|
Due After 1 through 5 Years After 6/30/05
|
|
Due After 5 Years After 6/30/05
|
|
Total
|
|
|
(In thousands) |
|
|
Real estate mortgage |
|
$ |
721 |
|
$ |
1,564 |
|
$ |
23,612 |
|
$ |
25,897 |
Consumer, commercial and savings account loans |
|
|
3,617 |
|
|
4,681 |
|
|
1,580 |
|
|
9,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,338 |
|
$ |
6,245 |
|
$ |
25,192 |
|
$ |
35,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5
The following table sets forth at June 30, 2005, the dollar amount of gross loans due after one year
after that date, based upon contractual maturity dates or period to reprice, and whether such loans have fixed or adjustable rates.
|
|
|
|
|
|
|
|
|
Predetermined Rate
|
|
Floating or Adjustable Rates
|
|
|
(In thousands) |
Real estate |
|
$ |
25,695 |
|
$ |
202 |
Consumer, commercial and savings account loans |
|
|
7,598 |
|
|
2,280 |
|
|
|
|
|
|
|
Total |
|
$ |
33,293 |
|
$ |
2,482 |
|
|
|
|
|
|
|
Scheduled contractual
principal repayments of loans do not necessarily reflect the actual life of such assets. The average life of long-term loans is substantially less than their contractual terms, due to prepayments. The average life of mortgage loans tends to increase
when current mortgage loan market rates are higher than rates on existing mortgage loans and tends to decrease when current mortgage loan market rates are lower than rates on existing mortgage loans.
Originations, Purchases and Sales of Loans. The
Banks loans are primarily originated by salaried loan officers of the Bank, although, from time to time, the Bank purchases loans. During fiscal 2005, the Bank purchased no loans. During the fiscal year ended June 30, 2005, the Bank
originated and sold a total of $1,657,140 in loans to the secondary market.
One-to-Four-Family Residential Lending. Historically, the Banks principal lending activity has been the origination of fixed rate loans secured by first mortgages on existing one-to-four-family residences
in the Banks market area. The purchase price or appraised value of most of such residences generally has been between $58,000 and $391,000, with the Banks loan amounts averaging approximately $79,000. At June 30, 2005, $24.6
million, or 68.8%, of the Banks total loans were secured by one-to-four-family residences, a substantial portion of which were existing, owner-occupied, single-family residences in the Banks market area. At June 30, 2005, $25.7
million, or 99.2% of the Banks real estate loans, had fixed rates, and $202,000 or 0.80%, had adjustable rates.
The Banks one-to-four-family residential mortgage loans generally are for terms of up to 30 years, amortized on a monthly basis, with principal and
interest due each month. The majority of the Banks one-to-four-family mortgage loans are underwritten with terms of 15 years or less. Residential real estate loans often remain outstanding for significantly shorter periods than their
contractual terms. These loans customarily contain due-on-sale clauses which permit the Bank to accelerate repayment of a loan upon transfer of ownership of the mortgaged property.
The Bank previously offered a mortgage loan product which provided for a term
of up to 21 years with the interest rate increasing one percentage point every seven years. This increase is not contingent upon any corresponding increase in market interest rates. As of June 30, 2005, the Bank had originated $7.4 million of
these graduated rate loans. The Bank no longer offers the graduated rate loan program.
The Banks lending policies generally limit the maximum loan-to-value ratio on one-to-four-family residential mortgage loans secured by owner-occupied properties to 100% of the lesser of the appraised
value or purchase price. The Banks lending policies generally require private mortgage insurance for any loan that exceeds an 80% loan-to-value ratio.
6
The Bank has not originated any adjustable rate, one-to-four-family residential mortgage loans in
recent years. However, total loans at June 30, 2005 included adjustable rate, one-to-four-family residential loans with an aggregate principal balance of $202,000, substantially all of which were purchased during fiscal 1996. The rates at which
interest accrues on these loans are adjustable annually, generally with limitations on adjustments of 2.0% per adjustment period and 6.0% - 6.5% over the life of the loan. While such loans may include initial discounted rates, they were
underwritten and borrowers were qualified based on the fully indexed interest rate. The Banks adjustable rate loans do not permit negative amortization.
The Bank also originates second mortgage loans. Such loans, when combined with the first mortgage, generally are
limited to 75% of the appraised value. Such loans have a fixed rate and a maximum term of 10 years.
The retention of adjustable and graduated rate loans in the Banks portfolio helps reduce the Banks exposure to increases in prevailing market
interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of such loans. It is possible that during periods of rising interest rates, the risk of default
on adjustable and graduated rate loans may increase due to increases in interest costs to borrowers. Adjustable and graduated rate loans which provide for initial rates of interest below the fully indexed rates may be subject to increased risk of
delinquency or default as the higher, fully indexed rate of interest subsequently replaces the lower, initial rate. Further, although adjustable rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in
interest rates, the extent of this interest sensitivity is limited by the initial fixed rate period before the first adjustment, the periodic and lifetime interest rate adjustment limitations, and the ability of borrowers to convert the loans to
fixed rates. Accordingly, there can be no assurance that yields on the Banks adjustable rate loans will fully adjust to compensate for increases in the Banks cost of funds. Finally, adjustable rate loans increase the Banks exposure
to decreases in prevailing market interest rates, although decreases in the Banks cost of funds tend to offset this effect.
Consumer Lending. At June 30, 2005, the Banks total consumer loan portfolio was approximately $9.9 million and consisted primarily of
new and used automobile loans, home equity lines of credit, and both secured and unsecured demand loans. These loans totaled approximately $4.2 million, $1.8 million, $3.8 million and $127,000, respectively, at June 30, 2005. Management plans
to continue the Banks expansion of these programs as part of the Banks plan to provide a wider range of financial services to the Banks customers while increasing the Banks portfolio yields.
The Bank makes home equity lines of credit secured by the borrowers
residence. These loans, combined with the first mortgage loan, which usually is from the Bank, generally are limited to 75% of the appraised value of the residence as long as the first mortgage is held by the Bank and 70% if the first mortgage is
held by another lender. Home equity lines of credit are open-end with the rate on such loans adjusting monthly based on the Prime Rate as published in The Wall Street Journal as of the first day of the month.
The Banks new and used automobile loans generally are underwritten in
amounts up to 85% of the purchase price, dealer cost or the loan value as published by the National Automobile Dealers Association (i.e., the Black Book). The terms of such loans generally do not exceed 60 months with loans for older
used cars underwritten for shorter terms. The Bank requires that the vehicles be insured and that the Bank be listed as loss payee on the insurance policy. The Bank originates a portion of its automobile loans on an indirect basis through various
dealerships located in its market area. See Loan Solicitation and Processing.
7
The Bank generally makes savings account loans for up to 80% of the balance of the account. The interest
rate on these loans is generally two percentage points above the rate paid on the account, and interest is billed on a monthly basis. These loans are payable on demand, and the account must be pledged as collateral to secure the loan.
Consumer loans generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance as a result of damage, loss or depreciation, and the remaining deficiency often does not warrant further substantial
collection efforts against the borrower. In addition, loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
Further, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered. These loans may also give rise to claims and defenses by a borrower against the
Bank, and a borrower may be able to assert against the Bank claims and defenses which it has against the seller of the underlying collateral. In underwriting consumer loans, the Bank considers the borrowers credit history, an analysis of the
borrowers income, expenses and ability to repay the loan, and the value of the collateral.
Loan Solicitation and Processing. The Banks loan originations are derived from a number of sources, including referrals by realtors,
builders, depositors, borrowers, as well as walk-in customers. In addition, the Bank originates a portion of its automobile loans on an indirect basis through various dealerships located in the Banks market area. The Banks solicitation
programs consist of calls by the Banks officers to local realtors and builders and advertisements in local media, television, newspapers, billboards and real estate-related periodicals. Loan applications are accepted at each of the Banks
offices for processing and approval.
Upon receipt of a loan
application from a prospective borrower, the Banks staff obtains the necessary information and then prepares the file for processing. Once in processing, a credit report is requested and the Bank verifies the loan applicants employment,
income and credit standing. It is the Banks policy to obtain an appraisal of the real estate intended to secure a proposed mortgage loan from a Bank-approved appraiser. The Bank generally does not obtain a formal environmental report on the
real estate at the time a loan is made, except if the Bank is aware of a particular risk of environmental contamination.
It is the Banks policy to record a lien on the real estate securing the loan and, in most instances, to obtain a title insurance policy which
insures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a designated flood plain, paid flood insurance policies are required.
The Board of Directors has the overall responsibility and authority
for general supervision of the Banks loan policies. The Board has established written lending policies for the Bank. The Bank has established a loan committee which is comprised of Board members and Executive Officers. Any loan committee
member has the authority to approve mortgage loans of $200,000 or under. Mortgage loans over $200,000 require the approval of one committee member accompanied by the approval of the Chairman of the Board. Consumer loans up to $20,000 may be approved
by individual loan officers. Consumer loans greater than $20,000 must be approved by at least two members of the Banks consumer loan committee which is comprised of all of the Banks loan officers. Loan applicants are promptly notified of
the decision of the Bank. It has been managements experience that substantially all approved loans are funded.
Interest Rates and Loan Fees. Interest rates charged by the Bank on mortgage loans are primarily determined by competitive loan rates offered in
its market area and the Banks minimum yield
8
requirements. Mortgage loan rates reflect factors such as prevailing market interest rate levels, the supply of money available to the savings industry and
the demand for such loans. These factors are in turn affected by general economic conditions, the monetary policies of the federal government, including the Federal Reserve Board, the general supply of money in the economy, tax policies and
governmental budget matters.
The Bank receives fees in
connection with loan originations, loan modifications, late payments, changes of property ownership, and for miscellaneous services related to its loans. Loan origination fees are calculated as a percentage of the loan principal. The Bank typically
receives fees of up to 1.0% in connection with the origination of fixed rate mortgage loans. The excess, if any, of loan origination fees over direct loan origination expenses is deferred and accreted into income over the contractual life of the
loan using the interest method. If a loan is prepaid, refinanced or sold, all remaining deferred fees with respect to such loan are taken into income at such time.
Collection Policies. When a borrower fails to make a payment on a loan, the Bank generally takes prompt steps to have
the delinquency cured and the loan restored to current status. Once the payment grace period has expired (in most instances 15 days after the due date), a late notice is mailed to the borrower, and a late charge is imposed, if applicable. Loans on
which payments are 30 or more days delinquent and possess credit deficiencies or potential weaknesses are designated as special mention. The Banks Board of Directors reviews a list of all classified assets on a monthly basis. See
Asset Classification, Allowances for Losses and Non-performing Assets. If a loan remains delinquent 90 days or more, the Bank generally makes demand for payment and/or initiates foreclosure or other legal proceedings.
Asset Classification, Allowances for Losses and Non-performing
Assets. Federal regulations require savings institutions to classify their assets on the basis of quality on a regular basis. An asset is classified as substandard if it is determined to be inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. An asset is classified as doubtful if full collection is highly questionable or improbable. An asset is classified as loss if it is considered uncollectible, even if a partial
recovery could be expected in the future. The regulations also provide for a special mention designation, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving managements close attention. Assets classified as substandard or doubtful require an institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss,
an institution must either establish a specific allowance for loss in the amount of the portion of the asset classified loss, or charge off such amount. Federal examiners may disagree with an institutions classifications. If an institution
does not agree with an examiners classification of an asset, it may appeal this determination to the OTS Regional Director. The Bank regularly reviews its assets to determine whether any assets require classification or re-classification. The
Board of Directors reviews and approves all classifications on a monthly basis. At June 30, 2005, the Bank had no assets classified as loss, no assets classified as doubtful, $36,193 of assets classified as substandard and $152,533 of assets
designated as special mention.
In extending credit, the Bank
recognizes that losses will occur and that the risk of loss will vary with, among other things, the type of credit being extended, the creditworthiness of the obligor over the term of the obligation, general economic conditions and, in the case of a
secured obligation, the quality of the security. It is managements policy to maintain allowances for losses based on, among other things, regular reviews of delinquencies and credit portfolio quality, character and size, the Banks
historical loss experience and current and forecasted economic conditions. The Bank increases its allowance for loan losses by charging provisions for losses against the Banks income.
9
Management actively monitors the Banks asset quality and charges off loans against the allowance
for losses on such loans and makes additional loss provisions in its discretion. Allowances are provided for individual assets, or portions of assets, when ultimate collection is considered improbable by management based on the current payment
status of the assets and the fair value or net realizable value of the collateral. Although management believes it uses the best information available to make determinations with respect to the allowance for losses, future adjustments may be
necessary if economic conditions differ substantially from the economic conditions in the assumptions used in making the initial determinations.
At the date of foreclosure or other repossession, the Bank transfers the property to real estate acquired in settlement of loans at the lower of recorded
investment in the loan or fair value, net of estimated cost of disposition. Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a property would yield in a current sale between a willing buyer and a
willing seller. Fair value is measured by market transactions. If a market does not exist, fair value of the property is estimated based on selling prices of similar properties in active markets or, if there are no active markets for similar
properties, by discounting a forecast of expected cash flows at a rate commensurate with the risk involved. Fair value generally is determined through an appraisal at the time of foreclosure. Any amount of the recorded investment in the loan in
excess of fair value is charged-off against the allowance for loan losses. Subsequent to foreclosure, the property is periodically evaluated by management and an allowance is established if the estimated fair value of the property, less estimated
costs to sell, declines. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate may be recorded if certain conditions are met. At June 30, 2005, the Bank
held $5,627 in real estate owned pending settlement.
The
following table sets forth an analysis of the Banks allowance for loan losses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands) |
|
Balance at beginning of period |
|
$ |
144 |
|
|
$ |
140 |
|
Charge-offs |
|
|
(27 |
) |
|
|
(7 |
) |
Recoveries |
|
|
3 |
|
|
|
0 |
|
Provision for loan losses |
|
|
15 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
135 |
|
|
$ |
144 |
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the period to average loans outstanding during the period |
|
|
0.08 |
% |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
10
The following table allocates the allowance for loan losses by asset category at the dates indicated. The
allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
Percent of Loans in Category to Total Loans
|
|
|
Amount
|
|
Percent of Loans in Category to Total Loans
|
|
|
|
(Dollars in thousands) |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
50 |
|
68.60 |
% |
|
$ |
55 |
|
73.41 |
% |
Non-residential |
|
|
|
|
3.63 |
|
|
|
|
|
2.25 |
|
Consumer, commercial and savings account loans |
|
|
85 |
|
27.77 |
|
|
|
89 |
|
24.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
135 |
|
100.00 |
% |
|
$ |
144 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank ceases
accrual of interest on a loan when payment on the loan is delinquent in excess of 90 days. Income is subsequently recognized only to the extent that cash payments are received until, in managements judgment, the borrowers ability to make
periodic interest and principal payments has been reestablished, in which case the loan is returned to accrual status.
11
The following table sets forth information with respect to the Banks non-performing assets at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands) |
|
Loans accounted for on a non-accrual basis:(1) |
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
One-to-four-family residential |
|
$ |
8 |
|
|
$ |
109 |
|
Non-residential |
|
|
|
|
|
|
|
|
Consumer, commercial and savings account loans |
|
|
22 |
|
|
|
34 |
|
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30 |
|
|
$ |
143 |
|
|
|
|
|
|
|
|
|
|
Accruing loans which are contractually past due 90 days or more: |
|
|
|
|
|
|
|
|
Real Estate loans: |
|
|
|
|
|
|
|
|
One-to-four-family residential |
|
$ |
|
|
|
$ |
|
|
Non-residential |
|
|
|
|
|
|
|
|
Consumer, commercial and savings account loans |
|
|
|
|
|
|
|
|
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Total of non-accrual and accruing loans 90 days past due loans |
|
$ |
30 |
|
|
$ |
143 |
|
|
|
|
|
|
|
|
|
|
Percentage of total loans |
|
|
0.08 |
% |
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
Other non-performing assets(2) |
|
$ |
6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Percentage of total assets |
|
|
0.03 |
% |
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
(1) |
The Bank ceases accrual of interest on a loan when payment on the loan is delinquent in excess of 90 days. Income is subsequently recognized only to the extent that cash payments
are received until, in managements judgment, the borrowers ability to make periodic interest and principal payments has been reestablished, in which case the loan is returned to accrual status. |
(2) |
Other non-performing assets may include real estate or other assets acquired by the Bank through foreclosure or repossession. Real estate owned is recorded at the lower of the
recorded investment in the loan or fair value of the property, less estimated costs of disposition. |
Neither cash basis interest income nor interest income foregone on non-accrual loans was considered significant for the years ended June 30, 2005 and
June 30, 2004.
At June 30, 2005, management had
identified no loans which were not reflected in the preceding table but as to which known information about possible credit problems of borrowers caused management to have doubts as to the ability of the borrowers to comply with present loan
repayment terms.
12
Investment Activities
The Bank is permitted under federal law to make certain investments, including investments in securities issued by FNMA, FHLMC, GNMA, various federal
agencies and state and municipal governments; deposits at the FHLB of Atlanta; certificates of deposit in federally insured institutions; certain bankers acceptances; and federal funds. The Bank may also invest, subject to certain limitations,
in commercial paper having one of the two highest investment ratings of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds. Federal regulations require the Bank to maintain an
investment in FHLB of Atlanta stock and a minimum amount of liquid assets which may be invested in cash and specified securities. From time to time, the OTS adjusts the percentage of liquid assets which savings institutions are required to maintain.
The Bank invests in investment securities in order to
diversify its assets, manage cash flow and interest rate risk, obtain yields, and maintain the minimum levels of qualified and liquid assets required by regulatory authorities. The investment activities of the Bank consist primarily of investments
in mortgage-backed securities, U.S. Treasury securities and U.S. Government agency securities, and other securities. Investment decisions are generally made by the President of the Bank and are ratified by the Board of Directors. Investment and
aggregate investment limitations and credit quality parameters of each class of investment are prescribed in the Banks investment policy. The Banks investment policy does not permit the Bank to invest in any futures, options or other
investments that exhibit a high degree of price volatility.
Securities designated as available for sale are carried at their fair value with unrealized gains or losses, net of tax effect, recognized in equity. At June 30, 2005, investment securities with an aggregate amortized cost
of approximately $59.8 million and an aggregate fair value of approximately $59.4 million were included in the portfolio of securities designated as available for sale. The aggregate impact on equity was a net decrease of approximately $114,000 for
the year ended June 30, 2005. The net unrealized pre-tax loss on securities available for sale at June 30, 2005 was approximately $402,000. For additional information, see Consolidated Statements of Stockholders Equity and Note 2 to
Consolidated Financial Statements in the Annual Report filed as Exhibit 13 to this Report. Securities designated as held to maturity are those assets which the Bank has the ability and management has the intent to hold to maturity and
are carried at amortized cost. At June 30, 2005, securities designated as held to maturity had an aggregate amortized cost of approximately $3.7 million and an aggregate fair value of approximately $3.8 million. Upon acquisition, securities are
classified as to the Banks intent.
Mortgage-Backed
Securities. The Bank maintains a substantial portfolio of mortgage-backed securities in the form of GNMA, FHLMC and FNMA participation certificates. GNMA, FHLMC and FNMA certificates are each guaranteed by their respective agencies as to
principal and interest, and GNMA certificates are backed by the full faith and credit of the U.S. Government. Mortgage-backed securities generally entitle the Bank to receive a pro rata portion of the cash flows from an identified pool of mortgages.
Although mortgage-backed securities generally yield less than the underlying loans, they present substantially lower credit risk, they are more liquid than individual mortgage loans, and they may be used to collateralize obligations of the Bank. In
addition, the Banks portfolio of mortgage-backed securities qualify as Qualified Thrift Investments for purposes of determining the Banks compliance with the Qualified Thrift Lender test and may also be considered
for purposes of meeting certain definitional tests prescribed by the Internal Revenue Code which entitle thrift institutions to favorable tax treatment. See Regulation Regulation of the Bank Qualified Thrift Lender Test and
Taxation Federal Income Taxation.
Mortgage-backed securities typically are issued with stated principal amounts and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have similar maturities. The underlying pool
of mortgages can be composed of either fixed-rate or adjustable-
13
rate mortgage loans. Mortgage-backed securities generally are referred to as mortgage participation certificates or pass-through certificates. As a result,
the interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal
to the life of the underlying mortgages.
The actual maturity
of a mortgage-backed security varies, depending on when the mortgagors prepay or repay the underlying mortgages. Prepayments of the underlying mortgages may shorten the life of the investment, thereby affecting its yield to maturity and the related
market value of the mortgage-backed security. The yield is based upon the interest income and the amortization of the premium or accretion of the discount related to the mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accreted over the estimated life of the securities using a level yield method. Prepayments of the underlying mortgages depend on many factors, including the type of mortgage, the coupon rate, the age of the mortgages, the
geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates. The difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates is an
important determinant in the rate of prepayments. During periods of falling mortgage interest rates, prepayments generally increase, and, conversely, during periods of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying mortgage significantly exceeds the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages. Prepayment experience is more
difficult to estimate for adjustable-rate mortgage-backed securities.
The Banks mortgage-backed securities portfolio consists primarily of seasoned fixed-rate and adjustable rate mortgage-backed securities. At June 30, 2005, the Bank had approximately $2.7 million in mortgage-backed securities
which are considered to be held to maturity and which are insured or guaranteed by FNMA, FHLMC or GNMA. At June 30, 2005, the carrying value of mortgage-backed securities designated as available for sale was approximately $44.9 million and the
carrying value of U.S. Government agency securities designated as available for sale and U. S. Treasury securities was approximately $7.9 million. See Notes 2 and 3 of Notes to Consolidated Financial Statements in the Annual Report.
14
The following table sets forth the carrying value of the Banks investment portfolio at the dates
indicated.
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
2005
|
|
2004
|
|
|
(In thousands) |
Securities available for sale:(1) |
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
|
|
$ |
|
U.S. Government agency securities |
|
|
7,659 |
|
|
7,006 |
Mortgage-backed securities |
|
|
44,345 |
|
|
46,942 |
Other |
|
|
7,399 |
|
|
2,769 |
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
59,403 |
|
$ |
56,717 |
|
|
|
|
|
|
|
Securities held to maturity:(2) |
|
|
|
|
|
|
U.S. Government agency securities |
|
$ |
|
|
$ |
61 |
Mortgage-backed securities |
|
|
2,656 |
|
|
4,133 |
Other |
|
|
1,004 |
|
|
0 |
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
3,660 |
|
$ |
4,194 |
|
|
|
|
|
|
|
Total securities |
|
$ |
63,063 |
|
$ |
60,911 |
|
|
|
|
|
|
|
(1) |
The carrying value is the approximate fair value of the security at each reporting date. |
(2) |
The carrying value is the amortized cost of the security at each reporting date. |
15
The following table sets forth information regarding the scheduled maturities, amortized costs, fair
values and weighted average yields for the Banks investment securities at June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
|
One to Five Years
|
|
|
Five to Ten Years
|
|
|
More than Ten Years
|
|
|
Total Investment Portfolio
|
|
|
|
Carrying Value
|
|
Average Yield
|
|
|
Carrying Value
|
|
Average Yield
|
|
|
Carrying Value
|
|
Average Yield
|
|
|
Carrying Value
|
|
Average Yield
|
|
|
Amortized Cost
|
|
Fair Value
|
|
Average Yield
|
|
|
|
(Dollars in Thousands) |
|
Securities available for sale:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency Securities |
|
$ |
|
|
0.0 |
% |
|
$ |
2,944 |
|
3.4 |
% |
|
$ |
1,019 |
|
5.0 |
% |
|
$ |
3,697 |
|
4.0 |
% |
|
$ |
7,934 |
|
$ |
7,660 |
|
3.9 |
% |
Mortgage-backed securities |
|
|
108 |
|
6.0 |
|
|
|
4,267 |
|
4.7 |
|
|
|
10,658 |
|
4.6 |
|
|
|
29,311 |
|
4.8 |
|
|
|
44,915 |
|
|
44,344 |
|
4.7 |
|
Other(3) |
|
|
12 |
|
6.9 |
|
|
|
255 |
|
6.8 |
|
|
|
6,504 |
|
4.6 |
|
|
|
628 |
|
6.2 |
|
|
|
6.957 |
|
|
7,399 |
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
120 |
|
6.1 |
% |
|
$ |
7,466 |
|
4.3 |
% |
|
$ |
18,181 |
|
4.6 |
% |
|
$ |
33,636 |
|
4.7 |
% |
|
$ |
59,806 |
|
$ |
59,403 |
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
51 |
|
7.0 |
% |
|
$ |
1,562 |
|
6.9 |
% |
|
$ |
496 |
|
7.4 |
% |
|
$ |
547 |
|
7.6 |
% |
|
$ |
2,656 |
|
$ |
2,781 |
|
7.1 |
% |
Other |
|
|
1,000 |
|
3.1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,004 |
|
|
1,004 |
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,051 |
|
3.3 |
% |
|
$ |
1,566 |
|
6.9 |
% |
|
$ |
496 |
|
7.4 |
% |
|
$ |
547 |
|
7.6 |
% |
|
$ |
3,660 |
|
$ |
3,785 |
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
1,171 |
|
3.6 |
% |
|
$ |
9,032 |
|
4.7 |
% |
|
$ |
18,677 |
|
4.7 |
% |
|
$ |
34,183 |
|
4.8 |
% |
|
$ |
63,466 |
|
$ |
63,188 |
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Carrying value of securities available for sale is their approximate fair value at the reporting date. Average yield on securities available for sale is based on their amortized
historical costs at the reporting date. |
(2) |
Carrying value of securities held to maturity is their amortized historical cost at their reporting date. Average yield on securities held to maturity is based on their amortized
historical cost at the reporting date. |
(3) |
Other securities include the Banks investment in other common stock. |
For additional information, see Notes 2 and 3 of Notes to Consolidated Financial Statements in the Annual Report filed as Exhibit 13 to this Report.
16
Deposit Activity and Other Sources of Funds
General. Deposits are the primary source of the Banks funds for lending and other investment purposes. In
addition to deposits, the Bank derives funds from loan principal repayments, interest payments, maturing investments and FHLB advances. Loan repayments and interest payments are a relatively stable source of funds, while deposit inflows and outflows
are significantly influenced by prevailing market interest rates and money market conditions.
Deposits. The Bank attracts deposits principally from within its market area by offering a variety of deposit instruments, including regular checking, passbook, statement savings accounts and certificates of
deposit which range in term from seven days to ten years. Deposit terms vary, principally on the basis of the minimum balance required, the length of time the funds must remain on deposit and the interest rate. The Bank also offers Individual
Retirement Accounts (IRAs).
The Banks
policies are designed primarily to attract deposits from local residents through the Banks branch network rather than from outside the Banks market area. The Banks interest rates, maturities, service fees and withdrawal penalties
on deposits are established by management on a periodic basis. Management determines deposit interest rates and maturities based on the Banks funds acquisition and liquidity requirements, the rates paid by the Banks competitors, the
Banks growth goals, and applicable regulatory restrictions and requirements. The Bank does not solicit deposits from brokers and currently does not bid for public unit funds.
The Bank plans to remain competitive in its primary market area by introducing new products and services which include
various checking account products, enhancements to the savings portfolio, offering competitive interest rates and fees, and to attract new customers by providing full service banking.
17
Deposits in the Bank as of June 30, 2005 were represented by the various programs described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
Minimum Term
|
|
Category
|
|
Minimum Amount
|
|
Balances
|
|
Percentage of Total Savings
|
|
|
|
|
|
|
|
(In thousands) |
|
0.250% |
|
None |
|
NOW Accounts |
|
$ |
100 |
|
$ |
460 |
|
0.56 |
% |
0.312 |
|
None |
|
Passbook Statement Accounts |
|
|
100 |
|
|
3,305 |
|
4.04 |
|
0.499 |
|
None |
|
Gold Star Savings Account |
|
|
100 |
|
|
1,571 |
|
1.92 |
|
0.250 |
|
None |
|
Money Market Deposit Account |
|
|
1,500 |
|
|
93 |
|
0.11 |
|
0.250 |
|
None |
|
High Yield Account |
|
|
100 |
|
|
1,004 |
|
1.23 |
|
0.250 |
|
None |
|
Best Checking Account |
|
|
50 |
|
|
90 |
|
0.11 |
|
0.248 |
|
None |
|
Merit Checking |
|
|
50 |
|
|
774 |
|
0.95 |
|
0.250 |
|
None |
|
Classic 55 Checking |
|
|
50 |
|
|
1,792 |
|
2.19 |
|
0.000 |
|
None |
|
Free Checking |
|
|
|
|
|
145 |
|
0.18 |
|
0.000 |
|
None |
|
Business Checking |
|
|
50 |
|
|
298 |
|
0.36 |
|
0.249 |
|
None |
|
First Checking |
|
|
50 |
|
|
4,382 |
|
5.36 |
|
2.976 |
|
None |
|
Premium MMDA |
|
|
10,000 |
|
|
7,973 |
|
9.75 |
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.794% |
|
91 Days |
|
3-Month Money Market |
|
|
1,000 |
|
|
254 |
|
0.31 |
% |
1.632 |
|
5 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
535 |
|
0.66 |
|
1.000 |
|
182 Days |
|
6-Month Money Market |
|
|
1,000 |
|
|
243 |
|
0.30 |
|
1.971 |
|
7 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
471 |
|
0.58 |
|
1.000 |
|
8 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
12 |
|
0.01 |
|
1.000 |
|
9 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
2 |
|
0.00 |
|
1.000 |
|
10 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
44 |
|
0.05 |
|
1.000 |
|
12 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
339 |
|
0.41 |
|
1.264 |
|
14 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
620 |
|
0.76 |
|
1.500 |
|
18 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
224 |
|
0.27 |
|
2.356 |
|
18 Month-IRA |
|
Fixed Term, Fixed Rate - IRA |
|
|
250 |
|
|
786 |
|
0.96 |
|
2.495 |
|
20 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
6,322 |
|
7.73 |
|
2.164 |
|
24 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
3,212 |
|
3.93 |
|
1.692 |
|
30 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
6,596 |
|
8.07 |
|
2.265 |
|
36 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
1,263 |
|
1.55 |
|
2.090 |
|
48 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
9,329 |
|
11.41 |
|
3.136 |
|
60 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
16,179 |
|
19.79 |
|
4.151 |
|
72 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
108 |
|
0.13 |
|
2.095 |
|
96 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
7 |
|
0.01 |
|
5.227 |
|
120 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
39 |
|
0.05 |
|
2.815 |
|
3-Month-State |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
1,325 |
|
1.62 |
|
2.732 |
|
11 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
11,576 |
|
14.16 |
|
1.000 |
|
17 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
255 |
|
0.31 |
|
1.000 |
|
19 Month |
|
Fixed Term, Fixed Rate |
|
|
1,000 |
|
|
109 |
|
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
81,737 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following tables set forth the average balances and average interest rates paid for deposits in the
Bank as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Passbook Savings
|
|
|
Interest- Bearing Demand Deposits
|
|
|
Certificates of Deposit
|
|
|
Passbook Savings
|
|
|
Interest- Bearing Demand Deposits
|
|
|
Certificates of Deposit
|
|
|
|
(Dollars in thousands) |
|
Average balance |
|
$ |
5,393 |
|
|
$ |
16,366 |
|
|
$ |
60,737 |
|
|
$ |
5,937 |
|
|
$ |
15,450 |
|
|
$ |
60,147 |
|
Average interest rate |
|
|
0.57 |
% |
|
|
1.32 |
% |
|
|
2.80 |
% |
|
|
0.72 |
% |
|
|
0.59 |
% |
|
|
2.73 |
% |
The following table
sets forth the certificates of deposit in the Bank classified by rates at the dates indicated.
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
2005
|
|
2004
|
|
|
(In thousands) |
0.01 2.00% |
|
$ |
6,945 |
|
$ |
20,525 |
2.01 4.00% |
|
|
47,369 |
|
|
36,405 |
4.01 6.00% |
|
|
5,535 |
|
|
3,458 |
6.01 8.00% |
|
|
0 |
|
|
0 |
|
|
|
|
|
|
|
|
|
$ |
59,849 |
|
$ |
60,388 |
|
|
|
|
|
|
|
The following table
indicates the amount of the certificates of deposit of $100,000 or more in the Bank by time remaining until maturity at June 30, 2005.
|
|
|
|
Maturity Period
|
|
Certificates of Deposits
|
|
|
(In thousands) |
Three months or less |
|
$ |
3,122 |
Over three through six months |
|
|
1,284 |
Over six through twelve months |
|
|
2,152 |
Over twelve months |
|
|
7,537 |
|
|
|
|
Total |
|
$ |
14,095 |
|
|
|
|
19
Borrowings. Savings deposits historically have been the primary source of funds for the
Banks lending, investment and general operating activities. The Bank is authorized, however, to use advances from the FHLB of Atlanta to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Atlanta
functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member of the FHLB system, the Bank is required to own stock in the FHLB of Atlanta and is authorized to apply for
advances. Advances are made pursuant to several different programs, each of which has its own interest rate and range of maturities. As of June 30, 2005, Federal Home Loan Bank advances were approximately $6.1 million.
Subsidiary Activities
Federally chartered savings institutions are permitted to invest up to 2% of their assets in subsidiary service
corporations, plus an additional 1% in subsidiaries engaged in specific community purposes. Under such limitation, as of June 30, 2005, the Bank was authorized to invest approximately $2.0 million in the stock of or loans to subsidiaries. The
Bank currently does not have a subsidiary.
20
REGULATION
The following discussion is intended to be a summary of certain statutes, rules and regulations affecting the Company and the Bank. A number of other
statutes and regulations have an impact on their operations. The following summary of applicable statutes and regulations does not purport to be complete and is qualified in its entirety by reference to such statutes and regulations.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (the SOX Act) provides for
sweeping changes with respect to corporate governance, accounting policies and disclosure requirements for public companies, and also for their directors and officers. The SOX Act required the SEC to adopt new rules to implement its requirements,
including new financial reporting requirements and rules concerning corporate governance. SEC rules require a reporting companys chief executive and chief financial officers to certify certain financial and other information included in the
companys quarterly and annual reports. The rules also require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the companys disclosure controls and
procedures; that they have made certain disclosures to the auditors and to the audit committee of the board of directors about the companys controls and procedures; and that they have included information in their quarterly and annual filings
about their evaluation and whether there have been significant changes to the controls and procedures or other factors which would significantly impact these controls subsequent to their evaluation. Certifications by the Companys Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) of the financial statements and other information are included as an exhibit to this Form 10-KSB. See Item 8A. Controls and Procedures hereof for the
Companys evaluation of disclosure controls and procedures. The certifications required by Section 906 of the SOX Act also have been filed as an Exhibit to this Form 10-KSB.
USA Patriot Act
The USA Patriot Act authorizes new regulatory powers to combat international terrorism. The provisions that affect financial institutions most directly
provide the federal government with enhanced authority to identify, deter, and punish international money laundering and other crimes. Among other things, the USA Patriot Act prohibits financial institutions from doing business with foreign
shell banks and requires increased due diligence for private banking transactions and correspondent accounts for foreign banks. In addition, financial institutions have to follow new minimum verification of identity standards for all new
accounts and are permitted to share information with law enforcement authorities under circumstances that were not previously permitted.
Regulation of the Company
Activities Restrictions. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, should such subsidiaries be
formed, which authority also permits the OTS to restrict or prohibit activities that are determined to be serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of
the Bank and not for the benefit of the stockholders of the Company.
As a unitary savings and loan holding company, the Company generally is not subject to any restrictions on its business activities. While the Gramm-Leach-Bliley Act (the GLB Act) terminated the unitary thrift holding
company exemption from activity restrictions on a prospective basis, the Company enjoys grandfathered status under this provision of the GLB Act. As a result, the Companys
21
freedom from activity restrictions as a unitary savings and loan holding company was not affected by the GLB Act. However, if the Company were to acquire
control of an additional savings association, its business activities would be subject to restriction under the Home Owners Loan Act. Furthermore, if the Company were in the future to sell control of the Bank to any other company, such company
would not succeed to the Companys grandfathered status under the GLB Act and would be subject to the same activity restrictions. The continuation of the Companys exemption from restrictions on business activities as a unitary savings and
loan holding company is also subject to the Companys continued compliance with the Qualified Thrift Lender (QTL) test. See -Regulation of the Bank- Qualified Thrift Lender Test.
Restrictions on Acquisitions. The Company must obtain approval from
the OTS before acquiring control of any other saving institution or saving and loan holding company, substantially all the assets thereof or in excess of 5% of the outstanding shares of another savings institution or saving and loan holding company.
The Companys directors and officers or persons owning or controlling more than 25% of the Companys stock must also obtain approval of the OTS before acquiring control of any savings institution or savings and loan holding company.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings institution,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Bank is also subject to certain reserve requirements
promulgated by the Federal Reserve Board.
The OTS regularly
examines the Bank and prepares reports for the consideration of the Banks Board of Directors on any deficiencies that are found in the Banks operations. The Banks relationship with its depositors and borrowers is also regulated to
a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Banks mortgage documents.
The Bank must file reports with the OTS concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
Branching. Subject to certain limitations, OTS regulations currently permit a federally chartered savings institution like the Bank to establish
branches in any state of the United States, provided that the federal savings institution qualifies as a domestic building and loan associations under the Internal Revenue Code. See Qualified Thrift Lender Test. The authority for
a federal savings institution to establish an interstate branch network would facilitate a geographic diversification of the institutions activities.
Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital
equal to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total adjusted assets for savings institutions that receive the highest supervisory rating for safety and soundness and 4% of total adjusted assets for all other
thrifts, and (3) risk-based capital equal to 8% of total risk-weighted assets. At June 30, 2005, the Bank was in compliance with its regulatory capital requirements.
22
For purposes of the OTS capital regulations, tangible capital is defined as core capital less all
intangible assets, less certain mortgage servicing rights and less certain investments. Core, or Tier 1, capital includes common stockholders equity, noncumulative perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less nonqualifying intangible assets, certain mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the maintenance of total risk-based capital of 8% of risk-weighted assets. Risk-based
capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediateterm preferred stock, the portion of the allowance for loan losses not designated for specific loan losses, and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable
in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. A savings institution must calculate its risk-weighted assets by multiplying each asset and
off-balance sheet item by various risk factors as determined by the OTS, which range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets.
In addition to the above regulatory capital requirements, the OTS
prompt corrective action regulation classifies savings institutions by capital levels and provides that the OTS will take various corrective actions, including imposing significant operational restrictions, against any savings institution that fails
to meet the regulations capital standards. Under this regulation, a well capitalized savings institution is one that has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a
leverage capital ratio of 5%, and is not subject to any capital order or directive. A savings institution is deemed adequately capitalized category if it has a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital
ratio of at least 4%, and a leverage capital ratio of at least 4%. Institutions with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending
on their capital levels. A savings institution that falls within any of the three undercapitalized categories is subject to severe regulatory sanctions under the prompt corrective action regulation. At June 30, 2005, the Bank was classified as
well capitalized.
Insurance of Deposit
Accounts. The deposit accounts held by the Bank are insured by the SAIF to a maximum of $100,000 for each insured member (as defined by law and regulation). Insurance of deposits may be terminated by the FDIC upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institutions primary regulator.
The Bank is required to pay insurance premiums based on a
percentage of its insured deposits to the FDIC for insurance of its deposits by the SAIF. The FDIC has set the deposit insurance assessment rates for SAIF-member institutions for the first six months of 2001 at 0% to .027% of insured deposits on an
annualized basis, with the assessment rate for most savings institutions set at 0%. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate of approximately .0212% of insured deposits to fund interest
payments on bonds issued by the Financing Corporation (FICO), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017.
23
Qualified Thrift Lender Test. Federal savings institutions must meet one of two Qualified Thrift
Lender (QTL) tests. To qualify as a QTL, a savings institution must either (i) be deemed a domestic building and loan association under the Internal Revenue code by maintaining at least 60% of its total assets in
specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL
test set forth in the Home Owners Loan Act by maintaining at least 65% of its portfolio assets in certain Qualified Thrift investments (defined to include residential mortgages and related equity investments, certain
mortgage-related securities, small business loans, student loans and credit card loans, and 50% of certain community development loans). For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible assets,
property used by the institution in conducting its business, and liquid assets equal to 10% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every 12 months. A failure to qualify as
a QTL would result in a number of sanctions, including certain operating restrictions. At June 30, 2005, the Bank was in compliance with its QTL requirement.
Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the
ability of savings institutions to make capital distributions, including cash dividends. A savings institution, such as the Bank, that is a subsidiary of a savings and loan holding company, must file an application or a notice with the OTS at least
30 days before making a capital distribution. Savings institutions are not required to file an application for permission to make a capital distribution and need only file a notice if the following conditions are met: (1) they are eligible for
expedited treatment under OTS regulations. (2) they would remain adequately capitalized after the distribution, (3) the annual amount of capital distribution does not exceed net income for that year to date added to retained net income for
the two preceding years, and (4) the capital distribution would not violate any agreements between the OTS and the savings institution or any OTS regulations. Any other situation would require an application to the OTS.
The OTS may disapprove an application or notice if the proposed capital
distribution would: (i) make the savings institution undercapitalized, significantly undercapitalized, or critically undercapitalized; (ii) raise safety or soundness concerns; or (iii) violate a statue, regulation, or agreement with
the OTS (or with the FDIC), or a condition imposed in an OTS approved application or notice. Further, a federal savings institution, like the Bank, cannot distribute regulatory capital that is needed for its liquidation account.
Loans to One Borrower. A savings institution may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of the institutions unimpaired capital and surplus. An additional amount may be lent, equal to 10% of the unimpaired capital and surplus, under certain circumstances. At
June 30, 2005, the Registrants lending limit for loans to one borrower was approximately $4.1 million and had no outstanding commitments that exceeded the loans to one borrower limit at the time originated or committed.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB
of Atlanta in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Banks advances from the FHLB. At June 30,
2005, the Bank was in compliance with this requirement.
24
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. At June 30, 2005, the Bank was in compliance with these Federal Reserve Board requirements.
Taxation
General. The Company and the Bank file a consolidated federal income tax return on a calendar year basis.
Consolidated returns have the effect of eliminating intercompany distributions, including dividends, from the computation of consolidated taxable income for the taxable year in which the distributions occur.
Federal Income Taxation. Savings institutions, such as the Bank,
generally are subject to the provisions of the Internal Revenue Code of 1986, as amended, in the same manner as other corporations. For tax years beginning before December 31, 1995, however, by meeting certain definitional tests and other
conditions prescribed by the Internal Revenue Code, thrift institutions could benefit from special deductions for annual additions to tax bad debt reserves with respect to loans. For purposes of the bad debt reserve deduction, loans were separated
into qualifying real property loans, which generally were loans secured by interests in improved real property, and nonqualifying loans, which were all other loans. The bad debt reserve deduction with respect to
nonqualifying loans was based on actual loss experience. The bad debt reserve deduction with respect to qualifying real property loans could he based upon actual loss experience (the experience method) or a percentage of taxable income
determined without regard to such deduction (the percentage of taxable income method). The Bank historically used whichever method resulted in the highest bad debt reserve deduction in any given year.
Beginning with the first taxable year beginning after December 31, 1995,
savings institutions, such as the Bank, have been treated the same as commercial banks. Institutions with $500 million or more in assets are able to take a tax deduction only when a loan is actually charged off. Institutions with less than $500
million in assets are still permitted to make deductible bad debt additions to reserves, but only using the experience method. As a result, thrifts must recapture into taxable income the amount of their post-1987 tax bad debt allowance over a
six-year period beginning after 1995. This recapture can be deferred for up to two years if the thrift satisfies a residential loan portfolio test. All of the bad debt reserve was recaptured in 2001.
Under the experience method, the bad debt deduction to an addition to the
reserve for qualifying real property loans is an amount determined under a formula based generally on the bad debts actually sustained by a savings institution over a period of years. Under the percentage of taxable income method, the bad debt
reserve deduction for qualifying real property loans was computed as 8% of the thrifts taxable income. The maximum deduction could be taken as long as not less than 60% of the total dollar amount of the assets of an institution fell within
certain designated categories. If the amount of qualifying assets fell below 60%, the institution would get no deduction and could be required to recapture, generally over a period of years, its existing bad debt reserves (although net operating
loss carryforwards could be used to offset such recapture).
The bad debt deduction under the percentage of taxable income method was limited to the extent that the amount accumulated in the reserve for losses on qualifying real property loans exceeded 6% of such loans outstanding at the end of the
taxable year. In addition, the amount claimed as a bad debt deduction when added to accumulated loss reserves was limited to the excess, if any, of 12% of total deposits or withdrawable accounts of depositors at year-end in excess of the sum of
surplus, undivided profits and reserves at the beginning of the year. The percentage bad debt deduction was reduced by the deduction for losses on nonqualifying loans.
25
Earnings appropriated to the Banks tax bad debt reserves and claimed as tax deductions will not be
available for the payment of cash dividends or other distributions to the Company (including distributions made upon dissolution or liquidation), unless the Bank includes the amounts distributed in taxable income, along with the amounts deemed
necessary to pay the resulting federal income tax. At June 30, 2005, the Bank had approximately $2.8 million of pre-1988 accumulated bad debt reserves for which federal income taxes have not been provided.
The Internal Revenue Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences (alternative minimum taxable income or AMTI) and is payable to the extent such AMTI exceeds an exemption
amount. The Internal Revenue Code provides that an item of tax preference is the excess of the bad debt deduction allowable for a taxable year pursuant to the percentage of taxable income method over the amount allowable under the experience method.
The other items of tax preference that constitute AMTI include (a) tax-exempt interest on newly-issued private activity bonds other than certain qualified bonds and (b) for taxable years including 1987 through 1989, 50% of the excess of
(i) the taxpayers pre-tax adjusted net book income over (ii) AMTI (determined without regard to this latter preference and prior to reduction by net operating losses). For taxable years beginning after 1989, this latter preference
has been replaced by 75% of the excess (if any) of (i) adjusted current earnings as defined in the Internal Revenue Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). For any
taxable year beginning after 1986, net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum taxes may be used as credits against regular tax liabilities in future years. In addition, for taxable years after
1986 and before 1992, corporations, including savings institutions, are also subject to an environmental tax equal to 0.12% of the excess of AMTI for the taxable year (determined without regard to net operating losses and the deduction for the
environmental tax) over $2.0 million. The Bank is not currently paying any amount of alternative minimum tax but may depending on future results of operations, be subject to this tax.
The Banks federal income tax returns have not been examined by the regulatory authorities within the past five years.
For additional information, see Note 8 of Notes to Consolidated Financial Statements in the Annual Report filed as Exhibit 13 to this Report.
Employees
As of June 30, 2005, the Company and the Bank had 31 full-time employees none of whom was represented by a collective bargaining agreement.
26
Item 2. Description of Property
The following table sets forth information regarding the Banks offices
at June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
Year Opened
|
|
Net Book Value at June 30, 2004
|
|
Approximate Square Footage
|
|
Owned or Leased
|
Main Office: |
|
|
|
|
|
|
|
|
|
221 South 6th Street Gadsden, Alabama 35901 |
|
1968 |
|
$ |
182,816 |
|
6,500 |
|
Owned |
|
|
|
|
|
Branch Offices: |
|
|
|
|
|
|
|
|
|
202 Sand Mountain Drive Albertville, Alabama 35950 |
|
1965 |
|
|
883 |
|
1,405 |
|
Leased |
|
|
|
|
|
2204 Henry Street Guntersville, Alabama 35976 |
|
2000 |
|
|
206,818 |
|
1,100 |
|
Owned |
|
|
|
|
|
390 W. Main Street Centre, Alabama 35960 |
|
1994 |
|
|
57,257 |
|
2,263 |
|
Owned |
The net book value of
the Banks investment in furnishings and equipment totaled $161,066 at June 30, 2005.
Item 3. Legal Proceedings
From time to time, the Bank is a party to various legal proceedings incident to its business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims will not be material to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2005.
PART II
Item 5. Market for Common Equity, Related
Stockholder Matters and Small Business Issuer Purchases of Equity Securities
The information required by this item is incorporated by reference to Item 1. Description of Business Regulation Regulation of the Bank Dividend and Other Capital Distribution
Limitations herein and Market for Common Stock and Related Stockholder Matters and Note 11 of the Notes to Consolidated Financial Statements in the portions of the Annual Report filed as Exhibit 13 to this Report.
27
The following table details stock repurchases by the Company during the quarter ended June 30, 2005.
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased As Part of Publicly Announced Programs
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Program
|
April 1-30, 2005 |
|
500 |
|
$ |
15.50 |
|
|
|
|
May 1-31, 2005 |
|
2,038 |
|
$ |
15.46 |
|
|
|
|
June 1-30, 2005 |
|
27,800 |
|
$ |
17.99 |
|
27,800 |
|
3,450 |
|
|
|
|
|
Total |
|
30,338 |
|
$ |
17.21 |
|
27,800 |
|
3,450 |
|
|
|
|
|
|
|
|
|
|
Item 6. Managements
Discussion and Analysis or Plan of Operation
The
information required by this item is incorporated by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations in the portions of the Annual Report filed as Exhibit 13 to this Report.
Item 7. Financial
Statements
The financial statements required by this
item are incorporated by reference to the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Independent Auditors Report in the portions of the Annual Report filed as Exhibit 13 to this Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
The information required by this item is
incorporated by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations-Changes in Certifying Accountant in the portions of the Annual Report filed as Exhibit 13 to this Report.
Item 8A. Controls and Procedures
An evaluation was carried out under the supervision and with the
participation of the Companys management, including the CEO and CFO, of the effectiveness of the Companys disclosure controls and procedures as of June 30, 2005. Based on that evaluation, the CEO and CFO concluded that the
Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
In addition, the Company reviewed its internal controls. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect the internal controls of the Company.
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also
designed with the objective of ensuring that such information is accumulated and communicated to the Companys management, including the CEO and CFO to allow timely decisions regarding required disclosures. Disclosure controls include internal
controls that are designed to provide
28
reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly
recorded and unauthorized or improper use and transactions are properly recorded and reported.
Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the
controls cost relative to their benefits. Additionally, controls can be circumvented. No post-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.
Item 8B. Other Information
On September 28, 2005, the registrant announced its results of
operations for the quarter and fiscal year ended June 30, 2005. A copy of the press release is attached as Exhibit 99 to this Annual Report on Form 10-KSB and is incorporated by reference.
29
PART III
Item 9. Directors and Executive Officers of the Registrant
General
The Nominating and Corporate Governance Committee of the Board of Directors has nominated Thomas F. Dowling, III, Gates
Little and Fred Taylor to serve as directors for a three-year period. All nominees are currently members of the Board and will be considered and voted upon at the Annual Meeting of the Stockholders to be held on November 9, 2005.
The following table sets forth the names of the nominees for election as
directors and the directors whose terms expire in future years. Also set forth is certain other information with respect to each persons age, the year he first became a director, the expiration of his term as a director, and the number and
percentage of shares of Common Stock beneficially owned.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age at June 30, at 2005
|
|
Year First Elected as Director (1)
|
|
|
Current Term to Expire
|
|
Shares of Common Stock Beneficially Owned at the Record Date (2)
|
|
Percent of Class
|
|
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2007 |
|
Thomas F. Dowling, III |
|
68 |
|
1972 |
|
|
2005 |
|
12,123 |
|
1.4 |
% |
Gates Little |
|
35 |
|
1994 |
|
|
2005 |
|
49,214 |
|
5.7 |
% |
Fred Taylor |
|
78 |
|
1993 |
|
|
2005 |
|
13,962 |
|
1.6 |
% |
|
DIRECTORS CONTINUING IN OFFICE |
|
Craig G. Cantrell |
|
76 |
|
1961 |
|
|
2006 |
|
12,271 |
|
1.4 |
% |
James B. Little, Jr. |
|
75 |
|
1957 |
|
|
2006 |
|
63,123 |
|
7.3 |
% |
Grady Gillam |
|
81 |
|
1989 |
|
|
2007 |
|
14,451 |
|
1.7 |
% |
Rex G. Keeling, Jr. |
|
62 |
|
1974 |
|
|
2007 |
|
8,542 |
|
1.0 |
% |
James B. Little, III |
|
44 |
|
2000 |
(3) |
|
2007 |
|
1,454 |
|
0.2 |
% |
(1) |
Except for James B. Little, III, includes term of office as director of the Bank prior to formation of the Company as holding company for the Bank. All directors, other than James
B. Little, III, were initially appointed as directors of the Company in 1995 in connection with the incorporation of the Company and also serve as directors of the Bank. |
(2) |
Includes exercisable stock options for 10,455, 1,362, 4,771, 9,407, 2,600, 6,362 and 291 shares held by Messrs. Gates Little, Taylor, Cantrell, Little, Jr., Gillam, Keeling, and
Little III, respectively; does not include unallocated shares held by the ESOP; does not include shares held by the Companys stock option and incentive plan trust. See Voting Securities and Beneficial Ownership above.
|
(3) |
James B. Little, III was appointed to the Board of Directors of the Company in 2000 to fill a vacancy. He does not serve as a director of the Bank. |
Set forth below is information concerning the Companys nominees for
election as directors and continuing directors. Unless otherwise stated, all directors have held the positions indicated for at least the past five years.
30
Thomas F. Dowling, III is a dentist in private practice in Gadsden. He is a deacon of the First
Baptist Church of Gadsden.
Gates Little joined the Bank
in 1993 and served as Executive Vice President from 1998 until September 2000, when he was elected President and Chief Operating Officer. Previously, he served as Vice President of the Bank. In March 2001, he became Chief Executive Officer of the
Bank. Mr. Little served as Vice President of the Company from 1995 until April 2001 when he was elected President, Chief Executive Officer, and Chairman of the Board. Mr. Little is the son of James B. Little, Jr. and the brother of James
B. Little, III.
Fred Taylor is a realtor and owner of
Taylor Realty, located in Albertville. Mr. Taylor is a member of the First Baptist Church in Albertville, the National Real Estate Association, the Alabama Realtors and the Marshall County Board of Realtors.
Craig G. Cantrell is a retired physician. From 1957 to 1994,
Dr. Cantrell was in private practice specializing in internal medicine. Dr. Cantrell is a Deacon of the First Baptist Church in Gadsden.
James B. Little, Jr. joined the Bank in 1957 and served as its Chief Executive Officer from 1966 until March 2001 and its Chairman of the Board
from 1976 until March 2001. Mr. Little also served as President of the Bank from 1966 until September 2000. He is currently Investment Officer of the Bank. Mr. Little served as Chairman of the Board, President and Chief Executive Officer
of the Company from 1995 until April 2001 when he became a Vice President of the Company. Mr. Little is a member of the Gadsden Chamber of Commerce. Mr. Little is the father of Gates Little and James B. Little, III.
Grady Gillam is retired. Prior to his retirement in 1984,
Mr. Gillam was employed as President of the American National Bank of Gadsden, Alabama.
Rex G. Keeling, Jr. is a pharmacy consultant and former pharmacy owner for over 30 years. Mr. Keeling is an investor in residential and commercial real estate. He also serves as a volunteer football coach
for local high schools and colleges. Mr. Keeling serves on The Riverview Medical Center Hospital Board, in Gadsden, Alabama.
James B. Little, III is founder and has been a partner of New Capital Partners, LLC, a private equity firm which invests in privately held
companies throughout the southeast, since May 2000. Previously, Mr. Little founded and was President and Chief Executive Officer of Momentum Health Services, Inc. (1997-1999) and, prior to that, was President and Chief Executive Officer of
Trident Health Systems, L.L.C. (1995-1996). Mr. Little also serves on the boards of Electronic Healthcare Systems, Inc. and Cogent Partners, LP. Mr. Little is the son of James B. Little, Jr. and the brother of Gates Little.
Corporate Governance and Other Matters
Board of Director and Stockholder Meetings. The Boards of Directors
of the Company and the Bank hold regular monthly meetings and special meetings as needed. The Board of Directors of the Company and the Bank met six (6) and twelve (12) times, respectively, during the fiscal year ended June 30, 2005.
All directors attended at least 75% of the Board of Directors meetings and assigned committee meetings during the fiscal year. The Company expects all members of the Board of Directors to attend annual meetings. All members of the Board of Directors
attended the 2004 Annual Meeting of Stockholders.
31
Board of Director Independence. Each year, the Board of Directors reviews the relationships that
each director has with the Company and with other parties. Only those directors who do not have any of the categorical relationships that preclude them from being independent and who the Board of Directors affirmatively determines have no
relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director are considered to be independent directors. The Board of Directors has reviewed a number of factors to
evaluate the independence of each of its members. These factors include its members relationships with the Company and its competitors, suppliers and customers; their relationships with management and other directors; the relationships their
current and former employers have with the Company; and the relationships between the Company and other companies of which the Companys Board members are directors or executive officers. After evaluating these factors, the Board of Directors
has determined that Messrs. Cantrell, Dowling, Gillam, Keeling and Taylor are independent directors of the Company within the meaning of NASDAQ rules.
Independent members of the Board of Directors of the Company meet in executive session without management present.
Stockholder Communications. Stockholders may communicate directly with
members of the Board of Directors or the individual chairman of standing Board of Directors committees by writing directly to those individuals at the following address: The Southern Banc Company, Inc., 221 S. 6th Street, Gadsden, Alabama 35901. The Companys general policy is to forward, and not to intentionally screen, any mail received at the
Companys corporate office that is sent directly to an individual, unless the Company believes the communication may pose a security risk.
Code of Ethics. The Board of Directors has adopted a Code of Ethics that applies to all officers, other employees and directors.
Committees of The Board Of Directors
The Boards of Directors has a standing Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee. The Board of Directors has determined that all of the directors who serve on these committees are independent within the meaning of NASDAQ rules.
The Board of Directors has adopted a charter for each of the three standing
committees.
Audit Committee. The members of the Audit
Committee are the independent directors of the Company. The Board of Directors has determined that, while the Board believes that each of the members of the Audit Committee is highly qualified to discharge his duties, it is appropriate to disclose
that the Board has not designated any particular member of the Audit Committee as qualifying as an audit committee financial expert under the SECs rules. The Board of Directors has determined that each of the members of the Audit
Committee is capable of (i) understanding accounting principles generally accepted in the United States (GAAP) and financial statements, (ii) assessing the general application of GAAP in connection with the accounting for
estimates, accruals and reserves, (iii) analyzing and evaluating the Companys consolidated financial statements, (iv) understanding internal control over financial reporting, and (v) understanding audit committee functions, all
of which are attributes of an audit committee financial expert under the SECs rules. As the Board of Directors, and more specifically the Nominating and Corporate Governance Committee, consider new directors, one of the criteria to
be considered will be the financial background and expertise of prospective Board members. It is the Companys long-term intention to continue to strengthen the financial expertise of the Board of Directors through the normal course of adding
new directors.
32
The Audit Committee has oversight responsibility for the quality and integrity of the Companys
financial statements. The committee meets privately with the independent auditors, has the sole authority to retain and dismiss the independent auditors and reviews their performance and independence from management. The independent auditors have
unrestricted access and report directly to the committee. The Audit Committee met four times during the fiscal year ended June 30, 2005. The primary functions of the Audit Committee are to oversee: (i) the audit of the financial statements
of the Company provided to the SEC, the shareholders and the general public; (ii) the Companys internal financial and accounting processes; and (iii) the independent audit process. Additionally, the Audit Committee has
responsibilities relating to: (i) registered public accounting firms; (ii) complaints relating to accounting, internal accounting controls or auditing matters; (iii) authority to engage advisors; and (iv) funding as determined by
the audit committee. These and other aspects of the Audit Committees authority are more particularly described in the Audit Committee Charter adopted by the Board of Directors and attached to 2003s Proxy Statement.
The Audit Committee approves audit and non-audit services to be provided to
the Company by its independent auditor. All services to be provided by the independent auditor, including audit services and permitted audit-related and non-audit services, must be pre-approved by the Audit Committee. The Audit Committee approved
all audit and non-audit services provided during the fiscal year ended June 30, 2005. See Independent Public Accountants.
Compensation Committee. The members of the Compensation Committee are Messrs. Cantrell, Taylor and Keeling, each of whom is a non-employee director
and is also independent within the meaning of NASDAQ rules. The Compensation Committee met one time during the fiscal year ended June 30, 2005. The functions of the Compensation Committee include making recommendations to the Board of Directors
concerning compensation, including incentive compensation, of the executive officers. The Compensation Committee also administers the stock option plans.
Nominating and Corporate Governance Committee. The independent members of the Board of Directors serve as the Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance Committee is responsible for evaluating and recommending individuals for election or re-election to the Board of Directors, including those recommendations submitted by stockholders, the evaluation
of the performance of the Board of Directors and its committees, and the evaluation of the performance of the Board of Directors and its committees, and the evaluation and recommendation of corporate governance policies. In the year ended
June 30, 2005, the full Board of Directors held one meeting in its capacity as a Nominating Committee for selecting management nominees for election as directors. The Nominating Committee has been renamed and reconstituted as a fully
independent Nominating and Corporate Governance Committee.
It
is a policy of the Nominating and Corporate Governance Committee that candidates for director possess the highest personal and professional integrity, have demonstrated exceptional ability and judgment and have skills and expertise appropriate for
the Company and serving the long-term interests of the Companys stockholders. The committees process for identifying and evaluating nominees is as follows: (1) in the case of incumbent directors whose terms of office are set to
expire, the committee reviews such directors overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance, and any related party transactions with the Company
during the applicable time period (incumbent directors whose terms are to expire do not participate in such review): and (2) in the case of new director candidates, the committee first conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates after considering the function and needs of the Board of Directors. The committee meets to discuss and consider such candidates qualifications, including whether the nominee is independent,
and then selects a candidate for recommendation to the Board of Directors by majority vote. In seeking potential nominees, the Nominating and Corporate Governance Committee uses its and managements network of contacts to
33
compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. To date, the Nominating and Corporate
Governance Committee has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates, nor has the committee rejected a timely director nominee from a stockholder(s) holding more than 5% of the
Companys voting stock.
The Nominating and Corporate Governance Committee
will consider director candidates recommended by stockholders, provided the stockholders follow the procedures set forth in the Companys Certificate of Incorporation. The committee does not intend to alter the manner in which it evaluates
candidates, including the criteria set forth above, based on whether the candidate was recommended by a stockholder or otherwise.
The Companys Certificate of Incorporation provides that, to be timely, a stockholders notice of nomination must be delivered or mailed to the
Secretary of the Company not less than 30 days nor more than 60 days prior to an annual meeting; provided, however, that in the event that less than 40 days notice of the meeting is given or made to stockholders, notice by the stockholder, to
be timely, must be not later than close of business on the 10th day following the date on which notice is mailed. A stockholders notice of nomination must also set forth as to each person who the stockholder proposes to nominate for election
as a director, (a) the name, age, business address and, if known, residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Company which are beneficially
owned by such person, and (d) any other information reasonably requested by the Company. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the
Company that information required to be set forth in a stockholders notice of nomination which pertains to the nominee. Stockholder nominations may be proposed by any shareholder eligible to vote at an annual meeting provided the notice is
timely and complies with the informational requirements of the Certificate of Incorporation. To be timely under the Certificate of Incorporation, nominations by any stockholder eligible to vote at the Meeting must be received by the Company on or
before October 10, 2005.
The Nominating and Corporate
Governance Committee may reject any nomination by a stockholder not made in accordance with the requirements of the Companys Certificate of Incorporation. Notwithstanding the foregoing procedures, if neither the Board of Directors nor such
committee makes a determination as to the validity of any nominations by a stockholder, the chairman of the annual meeting shall, if the facts warrant, determine at the annual meeting whether the nomination was made in accordance with the terms of
the Certificate of Incorporation.
Item 10. Executive Compensation
Director
Compensation
The Companys directors meet on a
quarterly basis and receive $300 per meeting. For fiscal 2005, the Companys directors fees totaled $9,600. The Banks directors receive fees of $700 per monthly meeting attended and $350 per committee meeting attended. Directors may
miss up to two monthly meetings and still receive the monthly fee. For fiscal 2005, the Banks directors fees totaled $59,850.
Executive Compensation
Summary Compensation Table. The following table sets forth cash and non-cash compensation for each of the fiscal years ended June 30, 2005,
2004 and 2003 awarded to or earned by the Companys President and Chief Executive Officer for services rendered in all capacities to the Company and its subsidiaries. No other executive officer earned in excess of $100,000 in salary and bonus.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
Long-Term Compensation Awards
|
|
|
Name and Principal Position
|
|
Fiscal Year
|
|
Salary (1)
|
|
Bonus
|
|
Other Annual Compensation
|
|
Restricted Stock Awards
|
|
Securities Underlying Options
|
|
All Other Compensation (2)
|
Gates Little |
|
2005 |
|
$ |
109,600 |
|
$ |
7,500 |
|
$ |
162 |
|
$ |
|
|
|
|
$ |
22,673 |
President & |
|
2004 |
|
$ |
109,600 |
|
$ |
7,500 |
|
$ |
144 |
|
|
|
|
|
|
$ |
23,667 |
Chief Executive |
|
2003 |
|
$ |
109,600 |
|
|
|
|
$ |
144 |
|
|
|
|
|
|
$ |
21,343 |
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes directors fees of $9,600 for each of the fiscal years 2005, 2004 and 2003. |
(2) |
Includes contributions to the Banks defined contribution qualified pension plan, pursuant to which the Bank contributes 5% of each employees annual salary and bonus to
an IRA account, and ESOP share allocations, valued at the respective fiscal year ends. |
Stock Options
The
following table sets forth information regarding the number and value of options held by the Companys President and Chief Executive Officer at the end of fiscal 2005. No options were granted to or exercised by such officer during the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Underlying Unexercised Options at Fiscal Year-End
|
|
Value of Unexercised In-the-Money Options at Fiscal Year-End (1)
|
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Gates Little |
|
10,455 |
|
|
|
$ |
51,622 |
|
$ |
|
(1) |
Based on difference between exercise prices of $11.69 and $14.56 and closing price on June 30, 2005 ($18.00). |
|
Options are in-the-money if the fair market value of the underlying securities exceeds the exercise price of the option. |
Employment Agreements
In 2001, the Company amended its employment agreement with Gates Little, its former Vice President, to provide that
thereafter Mr. Little shall serve as President and Chief Executive Officer of the Company. In addition, the Bank amended its separate employment agreement with Mr. Little to provide that he shall serve thereafter as President and Chief
Executive Officer of the Bank.
The agreements provide for
terms of three years, with a minimum annual base salary of $100,000 per year. On each anniversary date from the date of commencement of the agreements, the terms of employment will be extended to a date up to 36 months thereafter, upon a
determination by the Boards of Directors that the performance of the employee has met the required performance standards and that such agreements should be extended. Additionally, the agreements provide for an automatic 36-month extension of the
term upon the occurrence of a Change in Control (as defined below). The agreements provide for a salary review by the Boards of Directors not less often than annually, as well as inclusion in any discretionary bonus plans, retirement and
medical plans, customary fringe benefits and vacation and sick leave. The agreements will terminate upon the employees death or disability and are terminable for just cause as defined in the agreements (for example, personal
dishonesty, willful misconduct or material breach of the agreements). In the event of termination for
35
just cause, no severance benefits are available. If the Company or the Bank terminates the employee without just cause, he will be entitled to a continuation
of his salary and benefits from the date of termination through the remaining terms of the agreements plus his salary only for an additional 12-month period (but not in an aggregate amount in excess of three times his five years average annual
compensation). If the agreements are terminated due to the employees disability (as defined in the employment agreements), his salary and benefits will terminate. In the event of the employees death during the terms of the agreements,
his estate will be entitled to receive his salary through the end of the month in which his death occurs. Severance benefits will be paid in a lump sum or in installments, as he elects. The employee is able to terminate the agreements voluntarily by
providing 90 days written notice to the Boards of Directors of the Company and the Bank, in which case he is entitled to receive only his compensation, vested rights and benefits up to the date of termination. However, in the event the
employee voluntarily terminates his employment within 90 days following the occurrence of one of the following events (other than in connection with a Change in Control) (i) a material reduction in his base compensation,
(ii) the failure to continue to provide him with the compensation and benefits provided for under the agreements or with benefits substantially similar to those provided to him under an employee benefit plan of the Bank in which he is a
participant, or the taking of any action that would directly or indirectly reduce any of such benefits or deprive him of any material fringe benefit enjoyed by him, (iii) the assignment to him of duties and responsibilities materially different
from those normally associated with his position, or (iv) a material diminution or reduction in his responsibilities or authority, he will be entitled to those benefits and payments he would be entitled to receive if he had been involuntarily
terminated without just cause.
The agreements contain
provisions stating that in the event of the employees involuntary or constructive termination of employment in connection with, or within 6 months before or 24 months after, any Change in Control of the Company or the Bank, other
than for just cause, he will be paid within 10 days of such termination an amount equal to the difference between (i) 2.99 times his base amount (as defined in Section 280G(b)(3) of the Internal Revenue Code) and (ii) the sum of any
other parachute payments (as defined under Section 280G(b)(2) of the Internal Revenue Code) that he receives on account of the change in control. Under the agreements, a Change in Control is defined as (i) the acquisition, by
any person or entity, of the ownership or power to vote more than 25% of the Companys or the Banks voting stock, (ii) the control of the election of a majority of the Companys or the Banks directors, (iii) the
exercise of a controlling influence over the management or policies of the Company or the Bank, or (iv) during any consecutive two-year period, directors of the Company or the Bank at the beginning of such period cease to constitute two-thirds
of the Board of Directors of the Company or the Bank, unless the election of replacement directors was approved by a two-thirds vote of the initial directors then in office. The agreements provide that the amount to be paid to the employee in the
event of such an involuntary termination will be paid in one lump sum within 10 days of such termination. The agreements also provide for a similar lump sum payment to be made in the event of the employees voluntary termination of employment
for any reason within 30 days of a Change in Control upon the occurrence, or within 90 days thereafter, of certain specified events following the Change in Control which have not been consented to in advance in writing by him, including (i) the
requirement that he move his personal residence or perform his principal executive functions more than 30 miles from the Banks primary office as of the date of the Change in Control, (ii) a material reduction in his base compensation as
then in effect, (iii) the failure to continue to provide him with compensation and benefits substantially similar to those provided to him under any of the employee benefit plans in which he is or becomes a participant or under his employment
agreements, or the taking of any action by the Company or the Bank which would directly or indirectly deprive him of any material fringe benefit enjoyed by him as of the date of the Change in Control, (iv) the assignment to him of duties and
responsibilities which are other than those normally associated with his position with the Bank, (v) a material reduction in his authority and responsibility, (vi) the failure to re-elect him to the Board of Directors, or (vii) a
material reduction in his secretarial or administrative support. The aggregate payments that would be made assuming termination of
36
employment under the foregoing circumstances at June 30, 2005 would have been approximately $300,000. These provisions may have an anti-takeover effect
by making it more expensive for a potential acquirer to obtain control of the Company. If the employee were to prevail over the Company and the Bank in a legal dispute with respect to the agreements, he would be reimbursed for his legal and other
expenses.
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Equity Compensation
Plans
The following table provides information as of
September 16, 2005 with respect to the shares of Common Stock that may be issued under the Companys existing equity compensation plans.
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities to be issued upon Exercise of Outstanding, Options, Warrants and Rights
|
|
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
|
|
Number of Securities Remaining for Future Issuance Under Equity Compensation Plans
(2)
|
Equity Compensation Plans Approved by Stockholders(1) |
|
35,248 |
|
$ |
12.25 |
|
18,051 |
Equity Compensation Plans Not Approved by Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
35,248 |
|
$ |
12.25 |
|
18,051 |
(1) |
Consists of the 1996 Stock Option and Incentive Plan (the Option Plan). |
(2) |
Includes shares available for future issuance under the Option Plan. As of September 16, 2005, an aggregate of 18,051 shares of Common Stock were available for issuance under
the Option Plan. In addition, shares of Common Stock subject to options which remain unissued after the cancellation, expiration or exchange of such options shall again become available for grant under the Option Plan. Excludes shares available for
issuance under the ESOP. |
Item 12. Certain Relationships and Related Transactions
Transactions with Management
The Bank offers
loans to directors, officers and other employees of the Company and the Bank. These loans are made in the ordinary course of business on substantially the same terms, including collateral, interest rates and repayment terms as those prevailing for
comparable transactions with non-affiliated persons. It is managements belief that these loans do not involve more than the normal risk of collectibility or present other unfavorable features. At June 30, 2005, the Banks loans to
directors and executive officers totaled approximately $49,965.
37
Item 13. Exhibits
|
|
|
No.
|
|
Description
|
3.1 * |
|
Certificate of Incorporation of The Southern Banc Company, Inc.(as amended) |
|
|
3.2 ** |
|
Bylaws of The Southern Banc Company, Inc. (as amended) |
|
|
4.1 *** |
|
Specimen Common Stock Certificate of The Southern Banc Company, Inc. |
|
|
4.2 **** |
|
Rights Agreement |
|
|
10.1 ***** |
|
Employment Agreements between The Southern Banc Company, Inc. and First Federal Savings and Loan Association of Gadsden and James B. Little Jr. |
|
|
10.2 ***** |
|
First Federal Savings and Loan Association of Gadsden Supplemental Executive Retirement Agreement |
|
|
10.3 ****** |
|
The Southern Banc Company, Inc. 1996 Stock Option and Incentive Plan and trust |
|
|
10.4 ****** |
|
First Federal Savings and Loan Association of Gadsden Management Recognition Plan and trust |
|
|
10.5 ******* |
|
1997 Amendments to Employment Agreements between the Southern Banc Company, Inc. and First Federal Savings and Loan Association and James B. Little Jr. |
|
|
10.6 ******* |
|
Employment Agreements between The Southern Banc Company, Inc. and First Federal Savings and Loan Association of Gadsden and Gates Little. |
|
|
13 |
|
Annual Report to Stockholders. Except for these portions of the Annual Report to Stockholders which are expressly incorporated herein by reference, such Annual Report is furnished for the
information of the Commission and is not to be deemed filed as part of this Report. |
|
|
14 ******** |
|
Code of Ethics |
|
|
21 |
|
Subsidiaries |
|
|
23.1 |
|
Consent of KPMG LLP |
|
|
23.2 |
|
Consent of Barfield, Murphy, Shank & Smith, P.C. |
|
|
31 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
32 |
|
Certification pursuant to 18 U.S.C. Section 1350 |
|
|
99 |
|
Press Release dated September 28, 2005 announcing results of operations. |
* |
Incorporated by reference to Annual Report on Form 10-KSB for fiscal year ended June 30, 2001. |
** |
Incorporated by reference to Annual Report on Form 10-KSB for fiscal year ended June 30, 2003. |
*** |
Incorporated by reference to Registration Statement on Form 8-A (No. 1-13964). |
**** |
Incorporated by reference to Current Report on Form 8-K dated July 15, 1999. |
***** |
Incorporated by reference to Registration Statement on Form S-1 (No. 33-93218). |
****** |
Incorporated by reference to Registration Statement on Form S-8 (No. 333-3546). |
******* |
Incorporated by reference to Annual Report on Form 10-KSB for fiscal year ended June 30, 1998. |
******** |
Incorporated by reference to Annual Report on Form 10-KSB for fiscal year ended June 30, 2004. |
38
Item 14. Principal Accountant Fees and Services
Audit Fees and Other Matters
KPMG LLP (KPMG) provided audit services to the Company
consisting of reviews of the financial statements contained in the Companys Quarterly Reports on Form 10-QSB for fiscal year 2004 and the first and second quarters of fiscal year 2005.
Barfield, Murphy, Shank & Smith PC (BMSS) provided audit
services for the annual audit of the Companys 2005 consolidated financial statements contained in the Companys Annual Reports on Form 10-KSB and a review of the financial statements contained in the Companys Quarterly Report on
Form 10-QSB for the third quarter of fiscal year 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee Category
|
|
Fiscal Year 2005
|
|
% of Total
|
|
|
Fiscal Year 2004
|
|
% of Total
|
|
|
|
|
|
KPMG: |
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees |
|
$ |
43,000 |
|
66 |
% |
|
$ |
46,152 |
|
79 |
% |
Audit-Related Fees |
|
|
|
|
|
% |
|
|
|
|
|
% |
Tax Fees |
|
|
6,300 |
|
10 |
% |
|
|
12,600 |
|
21 |
% |
All Other Fees |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
BMSS: |
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees |
|
|
15,509 |
|
24 |
% |
|
|
|
|
|
% |
Audit-Related Fees |
|
|
|
|
|
% |
|
|
|
|
|
% |
Tax Fees |
|
|
725 |
|
1 |
% |
|
|
|
|
|
% |
All Other Fees |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
65,534 |
|
100 |
% |
|
$ |
58,752 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees.
These are fees related to professional services rendered in connection with the audit of the Companys annual financial statements, reviews of the financial statements included in each of the Companys Quarterly Reports on Form 10-QSB, and
accounting consultations that relate to the audited financial statements and are necessary to comply with generally accepted auditing standards. The total fees paid to KPMG for the fiscal year ended June 30, 2005 was $49,300. The total fees
paid to Barfield, Murphy, Shank & Smith PC for the fiscal year ended June 30, 2005 was $16,234.
Tax Fees. These are fees billed for professional services related to tax compliance, tax advice and tax planning, including services provided in
connection with assistance in the preparation and filing of tax returns.
Pre-approval Policy
The Audit Committee is
authorized to pre-approve all audit and permissible non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent accountants and management are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also
39
pre-approve particular services on a case-by-case basis. For the fiscal year ended June 30, 2005, pre-approved non-audit services included only those
services described above for Audit-Related Fees and Tax Fees.
Change in Independent Registered Public Accounting Firm
On December 3, 2004, the Audit Committee dismissed the Companys independent registered public accounting firm, KPMG, and appointed BMSS as its new independent registered public accounting firm. This
determination followed the Companys decision to seek proposals from independent accountants to audit the Companys financial statements for the fiscal year ended June 30, 2005. The decision not to renew the engagement of KPMG and to
retain BMSS was approved by the Audit Committee. KPMGs report on the Companys 2004 financial statements dated August 3, 2004, was issued in conjunction with the filing of the Companys Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2004.
During the
Companys two most recent fiscal years ended June 30, 2004, and the subsequent interim period through December 3, 2004, there were no disagreements between the Company and KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to KPMGs satisfaction, would have caused KPMG to make reference thereto in their reports on the financial statements for such fiscal years.
The audit reports of KPMG on the consolidated financial
statements of the Company and subsidiary as of and for the fiscal years ended June 30, 2004 and 2003 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting
principle.
During the Companys two most recent fiscal
years ended June 30, 2004 and the subsequent interim period through December 3, 2004, there have been no reportable events (as defined in Regulation S-B Item 304(a)(1)(iv)(B)).
The Company requested that KPMG furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not KPMG agrees with the above statements. A copy of such letter, dated December 9, 2004, was filed as Exhibit 16.1 to the Companys Current Report on Form 8-K dated December 3,
2004, as amended.
During the Companys two most recent
fiscal years ended June 30, 2004, and the subsequent interim period through December 3, 2004, the Companys did not consult with BMSS regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of
Regulation S-B.
40
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
|
THE SOUTHERN BANC COMPANY, INC. |
|
|
|
Date: September 28, 2005 |
|
By: |
|
/s/ Gates Little
|
|
|
|
|
Gates Little |
|
|
|
|
Chairman of the Board, President |
|
|
|
|
and Chief Executive Officer |
|
|
|
|
(Duly Authorized Representative) |
In accordance with the
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
|
|
|
|
|
|
By: |
|
/s/ Gates Little
|
|
By: |
|
/s/ Thomas F. Dowling
|
|
|
Gates Little |
|
|
|
Thomas F. Dowling |
|
|
Chairman of the Board, President and Chief Executive |
|
|
|
Director |
|
|
Officer (Principal Executive, Financial and Accounting Officer) |
|
Date: |
|
September 28, 2005 |
Date: |
|
September 28, 2005 |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ Craig G. Cantrell
|
|
By: |
|
/s/ James B. Little III
|
|
|
Craig G. Cantrell |
|
|
|
James B. Little III |
|
|
Director |
|
|
|
Director |
Date: |
|
September 28, 2005 |
|
Date: |
|
September 28, 2005 |
|
|
|
|
|
|
|
By: |
|
/s/ Grady Gillam
|
|
By: |
|
/s/ James B. Little, Jr.
|
|
|
Grady Gillam |
|
|
|
James B. Little, Jr. |
|
|
Director |
|
|
|
Investment Officer and Director |
Date: |
|
September 28, 2005 |
|
Date: |
|
September 28, 2005 |
|
|
|
|
|
|
|
By: |
|
/s/ Rex G. Keeling, Jr.
|
|
By: |
|
/s/ Fred Taylor
|
|
|
Rex G. Keeling, Jr. |
|
|
|
Fred Taylor |
|
|
Director |
|
|
|
Director |
Date: |
|
September 28, 2005 |
|
Date: |
|
September 28, 2005 |
41
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d)
OF THE EXCHANGE ACT BY
NON-REPORTING ISSUERS
No annual report to security holders
covering the registrants list fiscal year and no proxy soliciting materials with respect to the 2005 Annual Meeting of Stockholders has been sent to security holders as of the date of filing this Annual Report on Form 10-KSB. The registrant
shall furnish copies of such material to the Commission when it is sent to security holders.
42
EX-13
2
dex13.htm
ANNUAL REPORT TO STOCKHOLDERS
ANNUAL REPORT TO STOCKHOLDERS
Exhibit 13
2005
A N N U A L
R E P O R T
THE SOUTHERN BANC COMPANY, INC.
Dear Fellow Shareholders,
Once again it is my privilege to report the results of our latest fiscal year. In 2005, we fought to maintain our interest rate margin while offering our
customers value and service. As short-term rates on deposits increased and long-term rates on loans did not, our business did not create the profits that we would have hoped. However, due to a lucky turn of events, an investment in our data
processing service bureau created a large windfall. Because of this good fortune, our results are better than we deserve.
It is not our practice to comment on future results, but we do not expect to be so fortunate next year and will wait out this painful but necessary shift
in monetary policy. We continue to invest in the future of the company and look to long-term results rather than managing for the next quarter. We invest only where we think it prudent and spend on those services which add value to your company.
This policy, combined with an effort to reduce costs, should provide us with years of solid returns.
Please call me with any questions or comments and thank you again for your support of the company.
Sincerely,
Gates Little
President and Chairman
The Southern Banc Company, Inc.
THE SOUTHERN BANC COMPANY, INC.
The Southern Banc Company, Inc. (the Company) was incorporated at the direction of management of The Southern
Bank Company, formerly First Federal Savings and Loan Association of Gadsden, Alabama (the Bank), for the purpose of serving as the holding company of the Bank upon the acquisition of all of the capital stock issued by the Bank upon its
conversion from mutual to stock form in 1995. The Company is classified as a unitary savings institution holding company and is subject to regulation by the Office of Thrift Supervision (OTS). At June 30, 2005, the Company had total
consolidated assets of $104.8 million, deposits of $81.7 million and stockholders equity of $16.7 million, or 15.9% of total assets.
The Bank was organized in 1936 as a federally chartered mutual savings and loan association, at which time it also became a member of the Federal Home
Loan Bank (FHLB) System and obtained federal deposit insurance. The Bank currently operates through four banking offices located in Gadsden, Albertville, Guntersville and Centre, Alabama. In 1999, the Bank adopted its current corporate
title.
The Banks business strategy has been to operate
as a profitable and independent community-oriented financial institution dedicated to providing quality customer service. Generally, the Bank has sought to implement this strategy by using retail deposits as its sources of funds and maintaining most
of its assets in loans secured by owner-occupied one-to-four-family residential real estate properties located in the Banks market area, consumer loans, mortgage-backed securities issued by Federal Home Loan Mortgage Corporation (Freddie
Mac), the Government National Mortgage Association (GNMA) and Federal National Mortgage Association (Fannie Mae), U.S. government and agency securities, interest-earning deposits, and cash and equivalents. The
Banks business strategy incorporates the following key elements: (1) remaining a community-oriented financial institution while maintaining a strong core customer base by providing quality service and offering customers the access to
senior management and services that a community-based institution can offer; (2) attracting a retail deposit base from the communities served by the Banks four banking offices; (3) maintaining asset quality by emphasizing investment
in local residential mortgage loans, consumer loans, mortgage-backed securities and other securities issued or guaranteed by the U.S. government or agencies thereof; and (4) maintaining liquidity and capital substantially in excess of
regulatory requirements.
As a federally chartered savings
institution, the Bank is subject to extensive regulation by the OTS. The lending activities and other investments of the Bank must comply with various federal regulatory requirements, and the OTS periodically examines the Bank for compliance with
various regulatory requirements. The Federal Deposit Insurance Corporation (FDIC) also has the authority to conduct examinations. The Bank must file reports with the OTS describing its activities and financial condition and is also
subject to certain reserve requirements promulgated by the Board of Governors of the Federal Reserve System.
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
At June 30, 2005, there were 859,660 shares of the Common Stock outstanding and approximately 216 stockholders of record. This total does not reflect the number of persons or entities who hold Common Stock in
nominee or street name through various brokerage firms.
In January 2004, The Southern Banc Company, Inc. announced that its application to voluntarily delist its Common Stock from trading on the American Stock Exchange had been approved by the Securities and Exchange Commission
(SEC). In approving this action, the Companys Board of Directors determined that it was in the best interests of the Company and its stockholders to delist. The Board considered several factors, including the following:
(a) the limited number of stockholders of record, (b) the costs associated with maintaining the Companys status as a listed company, (c) the limited volume of trading of the shares, and (d) no analysts currently covering
the Company and its shares. The Board of Directors determined that the costs of remaining a listed company outweighed the benefits. Due to the Companys small number of stockholders and limited trading volume, the Company did not enjoy many of
the traditional benefits of being an exchange-listed company. The cost reductions associated with delisting are expected to make the Company more profitable and bring more long-term value to its stockholders.
The Companys common stock trades in the over-the-counter market on the
OTC Bulletin Board® (OTCBB) under the symbol SRNN. The following companies
have agreed to make a market in the common stock as long as the volume of trading and certain other market making considerations justify such activity- Sterne, Agee & Leach, Inc., Crown Financial Group, Inc., Hill Thompson Magid &
Co., Inc., Monroe Securities, Inc., and Knight Equity Markets, L.P.
Since delisting, the Board of Directors has considered terminating the Companys annual, quarterly and other periodic reports to the SEC. The Company will continue to submit these reports until a final determination is made.
The payment of dividends on the Common Stock is subject to
determination and declaration by the Board of Directors of the Company. The Board of Directors has adopted a policy of paying quarterly cash dividends on the Common Stock. In addition, from time to time, the Board of Directors may pay special cash
dividends in addition to, or in lieu of, regular cash dividends. The payment of future dividends will be subject to the requirements of applicable law and the determination by the Board of Directors of the Company that the net income, capital and
financial condition of the Company and the Bank, thrift industry trends and general economic conditions, justify the payment of dividends. There can be no assurance that future dividends will be paid. The Companys principal source of funds for
dividend payments is dividends from the Bank. See Note 11 of Notes to Consolidated Financial Statements.
The following table sets forth information as to high and low sales prices of the Companys Common Stock and cash dividends declared per share of
Common Stock for the calendar quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Price Per Share
|
|
Dividends Per Share
|
|
|
High
|
|
Low
|
|
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
19.00 |
|
$ |
15.20 |
|
$ |
.0875 |
Second Quarter |
|
$ |
16.99 |
|
$ |
15.89 |
|
$ |
.0875 |
Third Quarter* |
|
$ |
16.25 |
|
$ |
15.53 |
|
$ |
.0875 |
Fourth Quarter* |
|
$ |
17.50 |
|
$ |
16.00 |
|
$ |
.0875 |
|
|
|
|
Fiscal 2005 |
|
|
|
|
|
|
|
|
|
First Quarter* |
|
$ |
17.75 |
|
$ |
16.75 |
|
$ |
.0875 |
Second Quarter* |
|
$ |
17.60 |
|
$ |
17.00 |
|
$ |
.0875 |
Third Quarter* |
|
$ |
17.00 |
|
$ |
15.75 |
|
$ |
.0875 |
Fourth Quarter* |
|
$ |
18.00 |
|
$ |
15.10 |
|
$ |
.0875 |
* |
On January 8, 2004, the Company voluntarily delisted its Common Stock from trading on the American Stock Exchange. Since that date, the Common Stock trades in the OTCBB.
Over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not reflect actual transactions. |
2
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In thousands, except per share data) |
|
INCOME STATEMENT DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
4,967 |
|
|
$ |
5,007 |
|
|
$ |
5,890 |
|
|
$ |
6,299 |
|
|
$ |
6,812 |
|
Interest expense |
|
|
2,236 |
|
|
|
2,119 |
|
|
|
2,898 |
|
|
|
3,566 |
|
|
|
4,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
2,731 |
|
|
|
2,888 |
|
|
|
2,992 |
|
|
|
2,733 |
|
|
|
2,467 |
|
Provision for loan losses |
|
|
15 |
|
|
|
12 |
|
|
|
13 |
|
|
|
27 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
2,716 |
|
|
|
2,876 |
|
|
|
2,979 |
|
|
|
2,706 |
|
|
|
2,437 |
|
Non-interest income |
|
|
536 |
|
|
|
235 |
|
|
|
524 |
|
|
|
183 |
|
|
|
200 |
|
Non-interest expense |
|
|
2,209 |
|
|
|
2,153 |
|
|
|
2,013 |
|
|
|
1,853 |
|
|
|
1,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
1,043 |
|
|
|
958 |
|
|
|
1,490 |
|
|
|
1,036 |
|
|
|
745 |
|
Provision for income taxes |
|
|
393 |
|
|
|
381 |
|
|
|
596 |
|
|
|
403 |
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
650 |
|
|
$ |
577 |
|
|
$ |
894 |
|
|
$ |
633 |
|
|
$ |
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.78 |
|
|
$ |
0.66 |
|
|
$ |
1.02 |
|
|
$ |
0.69 |
|
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.76 |
|
|
$ |
0.63 |
|
|
$ |
1.00 |
|
|
$ |
0.69 |
|
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In thousands) |
|
BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
104,811 |
|
|
$ |
106,353 |
|
|
$ |
111,701 |
|
|
$ |
110,002 |
|
|
$ |
97,164 |
|
Loans receivable, net |
|
|
35,531 |
|
|
|
37,477 |
|
|
|
38,918 |
|
|
|
34,515 |
|
|
|
37,587 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
59,403 |
|
|
|
56,717 |
|
|
|
53,723 |
|
|
|
53,753 |
|
|
|
35,635 |
|
Held to maturity |
|
|
3,660 |
|
|
|
4,194 |
|
|
|
7,215 |
|
|
|
11,527 |
|
|
|
17,513 |
|
Federal Home Loan Bank stock |
|
|
509 |
|
|
|
792 |
|
|
|
886 |
|
|
|
1,449 |
|
|
|
724 |
|
Deposits |
|
|
81,737 |
|
|
|
82,005 |
|
|
|
84,357 |
|
|
|
81,557 |
|
|
|
79,843 |
|
Federal Home Loan Bank advances. |
|
|
6,083 |
|
|
|
6,917 |
|
|
|
7,750 |
|
|
|
9,583 |
|
|
|
0 |
|
Stockholders equity |
|
|
16,703 |
|
|
|
17,253 |
|
|
|
18,866 |
|
|
|
18,344 |
|
|
|
17,046 |
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
KEY OPERATING DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.61 |
% |
|
|
0.54 |
% |
|
|
0.80 |
% |
|
|
0.58 |
% |
|
|
0.48 |
% |
Return on average equity |
|
|
3.73 |
% |
|
|
3.25 |
% |
|
|
4.68 |
% |
|
|
3.48 |
% |
|
|
2.74 |
% |
Average equity to average assets |
|
|
16.27 |
% |
|
|
16.67 |
% |
|
|
17.02 |
% |
|
|
16.62 |
% |
|
|
17.59 |
% |
Dividend payout ratio |
|
|
43.75 |
% |
|
|
53.03 |
% |
|
|
31.31 |
% |
|
|
48.61 |
% |
|
|
66.04 |
% |
Number of offices |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
3
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The principal
business of the Company consists of accepting deposits from the general public through the Banks main and branch offices and investing those funds in loans secured by one-to-four family residential properties and consumer loans located in the
Banks primary market area. Due to the competition for one-to-four family mortgage loans and consumer loans in the Banks market area, the Bank maintains a substantial portfolio of investment and mortgage-backed securities. The Banks
mortgage-backed securities are all guaranteed as to principal and interest by GNMA, Freddie Mac or Fannie Mae. The Banks securities portfolio consists primarily of mortgage backed securities, government agency securities, including agency
notes and U. S. Treasury Notes. See Notes 2 and 3 of Notes to Consolidated Financial Statements. The Bank maintains a substantial amount in interest-bearing deposits in other banks, primarily interest-bearing accounts with the FHLB of Atlanta and
Compass Bank.
The Companys net income is dependent
primarily on the Banks net interest income, which is the difference between interest income earned on its loans, mortgage-backed securities and securities portfolio and interest paid on customers deposits and any other borrowings. The
Companys net income is also affected by the Banks level of non-interest income, such as service charges on customers deposit accounts, net gains or losses on the sale of securities and other fees. In addition, net income is
affected by the level of non-interest expense, primarily consisting of compensation and employee benefit expense, data processing expense, professional service expense, office building and equipment expense, and other expenses.
The operations of the Company and the financial institution industry as a
whole are significantly affected by prevailing economic conditions, competition and the monetary and fiscal policies of governmental agencies. Lending activities are influenced by the economy and supply of housing and competition among lenders and
the level of interest rates in the Banks market area. The Banks deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities, and the levels of personal
income and savings in the Banks market area.
Comparison of Financial
Condition at June 30, 2005 and June 30, 2004
Total assets decreased approximately $1.5 million, or 1.5%, from $106.4 million at June 30, 2004 to $104.8 million at June 30, 2005. During the year ended June 30, 2005, net loans decreased approximately $2.0 million, or
5.2%, from $37.5 million to $35.5 million. The decrease in net loans was primarily attributable to loan repayments and a decrease in origination of new loans. For the period ended June 30, 2005, securities available for sale increased
approximately $2.7 million, or 4.7%, from $56.7 million to $59.4 million. During the period ended June 30, 2005, securities held to maturity decreased approximately $534,000, or 12.7%, from $4.2 million to $3.7 million.
Cash and cash equivalents decreased approximately $1.6 million, or 28.4%,
from $5.7 million at June 30, 2004 to $4.1 million at June 30, 2005. This decrease was primarily attributable to purchases of securities available for sale and decreases in deposits and FHLB advances.
Accrued interest and dividends receivable increased approximately $1,000, or
0.3%, from $440,000 at June 30, 2004 to $441,000 at June 30, 2005. This increase was primarily attributable to an increase in interest receivable on securities available for sale. Prepaid expenses and other assets increased approximately
$38,000, or 7.3%, from $514,000 at June 30, 2004 to $552,000 at June 30, 2005.
Total deposits decreased approximately $269,000, or 0.3%, from $82.0 million at June 30, 2004 to $81.7 million at June 30, 2005. This decrease was primarily attributable to the competitive interest rate
market. FHLB advances decreased approximately $833,000, or 12.1%, from $6.9 million at June 30, 2004 to $6.1 million at June 30, 2005. The decrease in FHLB Advances was attributable to repayments based on the fixed payment schedule. Other
liabilities during the fiscal year ended June 30, 2005 increased approximately $110,000, or 61.2%, from $179,000 at June 30, 2004 to $289,000 at June 30, 2005. The increase in other liabilities was primarily attributable to an
increase in accrued expenses for federal and state income taxes.
4
Total equity decreased approximately $550,000, or 3.2%, from $17.3 million at June 30, 2004 to $16.7
million at June 30, 2005. This decrease was primarily attributable to an increase in the unrealized losses on securities available for sale, payment of cash dividends on common stock, and stock repurchases, offset by the amortization of
unearned compensation and an increase in retained earnings resulting from current year earnings of $650,000.
Comparison of Results of Operations for the Fiscal Years Ended June 30, 2005 and 2004
The Company reported net income for the fiscal years ended June 30, 2005 and 2004 of approximately $672,000 and $577,000, respectively. The increase
in net income for the fiscal year ended June 30, 2005 was primarily attributable to an increase in non-interest income of approximately $301,000, or 128.2%, offset in part by a decrease in the net interest margin of approximately $160,000 and
an increase in non-interest expense of approximately $56,000. The increase in non-interest income was primarily attributable to a gain on the sale of stock owned by the Company in its data processing service bureau. The decrease in the net interest
margin was primarily attributable to a decrease in interest income of approximately $40,000, primarily interest and dividends on securities, and an increase in interest on deposits of approximately $116,000, during a period of rising interest rates.
The increase in non-interest expense was primarily due to an increase in office building and equipment expense related to an upgrade of the teller platform and operating system.
Net Interest Income. Net interest income decreased approximately $156,000, or 5.4%, from $2.9 million at
June 30, 2004 to $2.7 million at June 30, 2005. This decrease was primarily attributable to decreases in interest and fees on loans and securities held to maturity of approximately $202,000, or 9.0% and $128,000, or 32.6% respectively.
Total interest income decreased approximately $40,000, or 0.8%, for the fiscal year ended June 30, 2005. The decrease in interest income was primarily due to the decrease in average yields on interest earning assets. Total interest
expense increased approximately $116,000, or 5.5%, for the fiscal year ended June 30, 2005 compared with the fiscal year ended June 30, 2004. The increase in total interest expense was primarily attributable to an increase in the average
cost of interest-bearing liabilities during a period of rising interest rates.
Provision for Loan Losses. During the fiscal year ended June 30, 2005, the provision for loan losses increased approximately $4,000, or 29.3%, from $11,000 at June 30, 2004 to approximately $15,000 at
June 30, 2005. The allowance for loan losses is based on managements evaluation of possible loan losses inherent in the Banks loan portfolio. Management considers, among other factors, past loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, and other relevant factors.
Non-Interest Income. Non-interest income increased approximately $301,000, or 128.2%, for the fiscal year ended June 30, 2005, from $235,000 for the year ended June 30, 2004 to $536,000. The increase
in non-interest income was primarily attributable to a gain on the sale of stock owned by the Company in its data processing service bureau of approximately $329,000 offset in part by a decrease in gains on available for sale securities of
approximately $29,000.
Non-Interest Expense.
Non-interest expense increased approximately $56,000, or 2.6%, for the fiscal year ended June 30, 2005. This increase was primarily attributable to an increase in salaries and employee benefits of approximately $28,000, or 2.3%, an increase in
office building and equipment expenses of approximately $97,000, or 119.3%, and an increase in data processing expense of approximately $24,000, or 11.23%, offset by a decrease in professional service expense of approximately $38,000 or 16.0%, and a
decrease in other operating expenses of approximately $54,000, or 14.4%. The increases were primarily attributable to purchases of computer equipment and services associated with the upgrade of the banks core processing system. The decreases were
primarily attributable to reduced expenses related to employee benefits, legal fees and other miscellaneous one time fees associated with the delisting of the Companys common stock.
Provision for Income Taxes. During the fiscal year ended June 30, 2005, the provision for income tax expense
increased approximately $13,000, or 3.4%. This increase was primarily attributable to an increase in taxable net income for the year ended June 30, 2005, as compared to the year ended June 30, 2004. Income tax expense was approximately
$394,000 for the year ended June 30, 2005, compared to approximately $381,000 for the year ended June 30, 2004, resulting in an effective tax rate of 38% and 40%, respectively. The statutory federal tax rate in both years was 34%. See Note
8 of Notes to Consolidated Financial Statements for reconciliation between statutory tax rate and effective tax rate.
5
Asset/Liability Management
Net interest income, the primary component of the Companys net income, is determined by the difference or
spread between the yields earned on the Banks interest-earning assets and the rates paid on its interest-bearing liabilities and the relative amounts of such assets and liabilities. Key components of a successful asset/liability
strategy are the monitoring and managing of interest rate sensitivity on both the interest-earning assets and interest-bearing liabilities. The matching of the Banks assets and liabilities may be analyzed by examining the extent to which its
assets and liabilities are interest rate sensitive and by monitoring the expected effects of interest rate changes on an institutions net portfolio value.
An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Banks
assets mature or reprice more quickly or to a greater extent than its liabilities, the Banks net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling
interest rates. If the Banks assets mature or reprice more slowly or to a lesser extent than its liabilities, the Banks net portfolio value and net interest income would tend to decrease during periods of rising interest rates but
increase during periods of falling interest rates. The Banks policy has been to seek to mitigate the interest rate risk inherent in the historical savings institution business of originating long term loans funded by short term deposits by
pursuing the following strategies: (i) the Bank has historically maintained substantial liquidity and capital levels to sustain unfavorable movements in market interest rates; and (ii) in order to minimize the adverse effect of interest
rate risk on future operations, the Bank purchases adjustable- and fixed-rate securities with maturities of primarily five to fifteen years and originates limited amounts of shorter term consumer loans.
The OTS requires the Bank to measure its interest rate risk by computing
estimated changes in the net present value (NPV) of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. These computations estimate the effect on the
Banks NPV of sudden and sustained 100 basis point to 400 basis point increases and decreases in market interest rates. The Banks Board of Directors has adopted an interest rate risk policy which establishes maximum increases and
decreases in the Banks estimated NPV of 25%, 50% and 77% and 25%, 35% and 50% in the event of 100, 200 and 300 basis point increases and decreases in market interest rates, respectively. At June 30, 2005, based on the most recent
information provided by the OTS, management estimated that the Banks NPV would decrease 11%, 22% and 33% and increase 7% and 9% in the event of 100, 200 and 300 basis point increases and a 100 and 200 basis point decreases in market interest
rates, respectively. These calculations indicate that the Banks net portfolio value could be adversely affected by increases in interest rates. Changes in interest rates also may affect the Banks net interest income, with increases in
rates expected to decrease income and decreases in rates expected to increase income, as the Banks interest-bearing liabilities would be expected to mature or reprice more quickly than the Banks interest-earning assets.
While management cannot predict future interest rates or their effects on the
Banks NPV or net interest income, management does not expect current interest rates to have a material adverse effect on the Banks NPV or net interest income in the future. Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments and deposit run-offs and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally
have features which restrict changes in interest rates on a short term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making
calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. Finally, virtually all of the adjustable rate loans in the
Banks portfolio contain conditions which restrict the periodic change in interest rate.
6
The Banks Board of Directors is responsible for reviewing the Banks asset and liability
policies. On at least a quarterly basis, the Board reviews interest rate risk and trends, as well as liquidity and capital ratios and requirements. The Banks management is responsible for administering the policies and determinations of the
Board of Directors with respect to the Banks asset and liability goals and strategies. Management expects that the Banks asset and liability policies and strategies will continue as described above so long as competitive and regulatory
conditions in the financial institution industry continue as they have in recent years.
Average Balance, Interest and Average Yields and Rates
The following table sets forth certain information relating to the Companys average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and the average cost of liabilities for the periods
and at the dates indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively, for the periods indicated.
The table also presents information for the periods indicated and at
June 30, 2005 with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or interest rate spread, which savings
institutions have traditionally used as an indicator of profitability. Another indicator of an institutions net interest income is its net yield on interest-earning assets, which is its net interest income divided by the average
balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate net interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Average Balance
|
|
Interest
|
|
Average Yield/ Cost
|
|
|
Average Balance
|
|
Interest
|
|
Average Yield/ Cost
|
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
35,868 |
|
$ |
2,042 |
|
5.69 |
% |
|
$ |
37,544 |
|
$ |
2,243 |
|
5.97 |
% |
Securities |
|
|
63,233 |
|
|
2,865 |
|
4.53 |
|
|
|
60,136 |
|
|
2,721 |
|
4.52 |
|
Other interest-earning assets |
|
|
2,598 |
|
|
60 |
|
2.31 |
|
|
|
4,296 |
|
|
43 |
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
101,699 |
|
|
4,967 |
|
4.89 |
|
|
|
101,976 |
|
|
5,007 |
|
4.91 |
|
Non-interest-earning assets |
|
|
5,058 |
|
|
|
|
|
|
|
|
4,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
106,757 |
|
|
|
|
|
|
|
$ |
106,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
82,273 |
|
|
1,937 |
|
2.36 |
|
|
$ |
81,079 |
|
|
1,780 |
|
2.20 |
|
FHLB advances |
|
|
6,555 |
|
|
299 |
|
4.56 |
|
|
|
6,913 |
|
|
340 |
|
4.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
88,828 |
|
|
2,236 |
|
2.52 |
|
|
|
87,992 |
|
|
2,120 |
|
2.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
521 |
|
|
|
|
|
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
89,349 |
|
|
|
|
|
|
|
|
88,429 |
|
|
|
|
|
|
Stockholders Equity |
|
|
17,408 |
|
|
|
|
|
|
|
|
17,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
106,757 |
|
|
|
|
|
|
|
$ |
106,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
2,731 |
|
|
|
|
|
|
|
$ |
2,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
2.37 |
% |
|
|
|
|
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
2.69 |
% |
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
114.49 |
% |
|
|
|
|
|
|
|
115.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For
each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by old rate) and (ii) changes in rates (changes in rate
multiplied by old volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2005 vs. 2004
|
|
|
|
Increase (Decrease) Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(In thousands) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(101 |
) |
|
$ |
(100 |
) |
|
$ |
(201 |
) |
Securities |
|
|
4 |
|
|
|
140 |
|
|
|
144 |
|
Other interest-earning assets |
|
|
71 |
|
|
|
(54 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
(26 |
) |
|
|
(14 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
131 |
|
|
|
26 |
|
|
|
157 |
|
Interest on FHLB advances |
|
|
(23 |
) |
|
|
(18 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
108 |
|
|
|
8 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
(134 |
) |
|
$ |
(22 |
) |
|
$ |
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
As a thrift holding company, the Company conducts its
business through its subsidiary, the Bank, which is required to maintain minimum levels of liquid assets as defined by regulations of the OTS. The requirement, which varies from time to time depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required ratio currently is 4.0%. The Bank adjusts its liquidity levels in order to meet funding needs of deposit outflows, repayment of borrowings and loan commitments. The Bank
also adjusts liquidity as appropriate to meet its asset and liability management objectives.
The Banks primary sources of funds are deposits, payment of loans and mortgage-backed securities, maturities of investment securities and other investments. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank invests in short-term interest-earning assets
which provide liquidity to meet lending requirements.
The Bank
continues to maintain a high level of liquid assets in order to meet its funding requirements. At June 30, 2005, the Bank had approximately $4.1 million in cash on hand and interest-bearing deposits in other banks, which represented 3.9% of
total assets. The Banks average liquidity ratio well exceeded the required minimum at and during the fiscal year ended June 30, 2005. At June 30, 2005, the Banks level of liquid assets, as measured for regulatory compliance
purposes, was $13.9 million, or 16.7% of total liquid assets of the Bank.
At June 30, 2005, the Bank had $15.8 million of total equity, or 15.0% of total assets. The Bank continued to exceed its regulatory capital requirement ratios at June 30, 2005. Tangible capital and core capital were
each $15.8 million, which represented 14.8% of adjusted total assets, and risk-based capital was $15.9 million, which represented 43.1% of total risk-weighted assets at June 30, 2005. Such amounts exceeded the respective minimum required ratios
of 1.5%, 4.0% and 8.0% by 13.4%, 10.9% and 35.1%, respectively. At June 30, 2005, the Bank continued to meet the definition of a well-capitalized institution, the highest of the five categories under the prompt corrective action
standards adopted by the OTS. See Note 11 of Notes to Consolidated Financial Statements.
8
Contractual Obligations
The following table sets forth the contractual obligations of the Bank as of June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
Over One through Three Years
|
|
Over Three through Five Years
|
|
Over Five Years
|
|
Total
|
|
|
(In thousands) |
|
|
FHLB advances (1) |
|
$ |
2,833 |
|
$ |
3,250 |
|
$ |
0 |
|
$ |
0 |
|
$ |
6,083 |
Operating leases (2) |
|
|
4 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
4 |
Certificates of deposit (3) |
|
|
29,312 |
|
|
15,757 |
|
|
14,731 |
|
|
49 |
|
|
59,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,316 |
|
$ |
19,840 |
|
$ |
14,731 |
|
$ |
49 |
|
$ |
65,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See Note 9 of Notes to Consolidated Financial Statements. |
(2) |
See Note 10 of Notes to Consolidated Financial Statements. |
(3) |
See Note 7 of Notes to Consolidated Financial Statements. |
Off-Balance Sheet Arrangements
The following table sets forth off-balance sheet arrangements of the Bank as of June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
Over One through Three Years
|
|
Over Three through Five Years
|
|
Over Five Years
|
|
Total
|
|
|
(In thousands) |
Lines of credit consumer |
|
$ |
0 |
|
$ |
0 |
|
$ |
1,171 |
|
$ |
0 |
|
$ |
1,171 |
Lines of creditcommercial |
|
|
197 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
197 |
Commitments to originate real estate loans |
|
|
972 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
972 |
Overdraft protection |
|
|
6 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,175 |
|
$ |
0 |
|
$ |
1,171 |
|
$ |
0 |
|
$ |
2,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the normal course
of business, the Bank is a party to activities that contain credit, market and operational risk that are not reflected in the Companys Consolidated Financial Statements. The Bank provides customers with off-balance sheet credit support through
loan commitments and lines of credit. Many of the commitments expire unused or are only partially used. Therefore, the total amount of commitments does not necessarily represent future cost requirements. The Company anticipates that the Bank will
continue to have sufficient funds together with available borrowings to satisfy its commitments. At June 30, 2005, the Bank had approximately $972,000 in outstanding commitments to originate residential real estate. See Note 10(b) of Notes to
Consolidated Financial Statements.
Critical Accounting Policy
The accounting principles followed by the Company and the
methods of applying principles conform with accounting principles generally accepted in the United States and with general practices followed by the banking industry. The most critical accounting policy relates to the allowance for loan losses.
The allowance for loan losses is maintained at a level which
management considers to be adequate to absorb losses inherent in the loan portfolio. Managements estimation of the amount of the allowance is based on a continuing evaluation of the loan portfolio and includes such factors as economic
conditions, analysis of individual loans, overall portfolio characteristics, delinquencies and balance of any impaired loans (generally considered to be nonperforming loans, excluding residential mortgages and other homogeneous loans).
Management reviews the adequacy of the allowance for loan losses on a
continuous basis by assessing the quality of the loan portfolio and adjusting the allowance when appropriate. Managements evaluation of certain specifically identified loans includes a review of the financial condition and capacity of the
borrower, the value of the collateral, current economic trends, historical losses, workout and collective arrangements, and possible
9
concentrations of credit. The loan review process also includes a collective evaluation of credit quality within the mortgage and installment loan
portfolios. In establishing the allowance, loss percentages are applied to groups of loans with similar risk characteristics. These loss percentages are determined by historical experience, portfolio mix, regulatory influence, and other economic
factors. Each month this review is quantified in a report to management, which uses it to determine whether an appropriate allowance is being maintained. This report is then submitted to the Board of Directors monthly.
Changes in the allowance can result from changes in economic events or
changes in the creditworthiness of the borrowers. The effect of these changes is reflected when known. Though management believes the allowance for loan losses to be adequate, ultimate losses may vary from estimations. Specific allowances for
impaired loans are generally based on comparisons of the carrying values of the loans to the estimated fair value of the collateral.
Impaired loans (generally considered to be nonperforming loans, excluding residential mortgages and other homogeneous loans) are measured based on the
present value of expected future cash flows discounted at each loans original effective interest rate. As a practical expedient, impairment is measured based on the loans observable market price or the fair value of the collateral if the
loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment of the loan, the impairment is recorded through a valuation allowance.
The Company ceases accrual of interest on a loan when payment on the loan is in excess of 90 days past due. Income is
subsequently recognized only to the extent that cash payments are received until, in managements judgment, the borrowers ability to make periodic interest and principal payments has been reestablished, in which case the loan is returned
to accrual status.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment. The Statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Option
No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. The Statement establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. The
Statement focuses primarily on accounting for transactions in which an entity obtains employee service in share-based payment transactions. The Statement requires a public entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
The Statement eliminates the alternative to use APB Opinion 25s intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in
recognition of no compensation cost. This Statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The
Statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, and for public entities that file as small business
issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company currently accounts for its stock options under APB No. 25, and is currently evaluating the impact the adoption of
this statement will have on its statement of condition and results of operations.
Forward-Looking Statements
Managements
discussion and analysis includes certain forward-looking statements addressing, among other things, the Companys prospects for earnings, asset growth and net interest margin. Forward-looking statements are accompanied by, and identified with,
such terms as anticipates, believes, expects, intends, and similar phrases. Managements expectations for the Companys future involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein include: substantial changes in interest rates, and changes in the general economy; and changes in the Banks strategies for credit-risk management, interest-rate risk
management and investment activities. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized.
10
Change in Independent Registered Public Accounting Firm
On December 3, 2004, the Audit Committee dismissed the Companys
independent registered public accounting firm, KPMG LLP (KPMG), and appointed Barfield, Murphy, Shank & Smith, P.C. (BMSS) as its new independent registered public accounting firm. This determination followed the
Companys decision to seek proposals from independent accountants to audit the Companys financial statements for the fiscal year ended June 30, 2005. The decision not to renew the engagement of KPMG and to retain BMSS was approved by
the Audit Committee. KPMGs report on the Companys 2004 financial statements dated August 3, 2004, was issued in conjunction with the filing of the Companys Annual Report on Form 10-KSB for the fiscal year ended June 30,
2004.
During the Companys two most recent fiscal years
ended June 30, 2004, and the subsequent interim period through December 3, 2004, there were no disagreements between the Company and KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement(s), if not resolved to KPMGs satisfaction, would have caused KPMG to make reference thereto in their reports on the financial statements for such fiscal years.
The audit reports of KPMG on the consolidated financial statements of the
Company and subsidiary as of and for the fiscal years ended June 30, 2004 and 2003 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principle.
During the Companys two most recent fiscal years ended
June 30, 2004 and the subsequent interim period through December 3, 2004, there have been no reportable events (as defined in Regulation S-B Item 304(a)(1)(iv)(B)).
The Company requested that KPMG furnish it with a letter addressed to the Securities and Exchange Commission stating whether
or not KPMG agrees with the above statements. A copy of such letter, dated December 9, 2004, was filed as Exhibit 16.1 to the Companys Current Report on Form 8-K dated December 3, 2004, as amended.
During the Companys two most recent fiscal years ended June 30,
2004, and the subsequent interim period through December 3, 2004, the Companys did not consult with BMSS regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-B.
11
THE SOUTHERN BANC COMPANY, INC.
Consolidated Financial Statements
June 30, 2005 and 2004
(With Independent Auditors Report Thereon)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of The Southern Banc Company, Inc.
We have audited the accompanying consolidated statement of financial condition of The Southern Banc Company, Inc. (a Delaware corporation) and subsidiaries as of
June 30, 2005, and the related consolidated statements of income, stockholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of The Southern Banc Company, Inc. as of June 30, 2004 were audited by other independent accountants,
whose report dated August 3, 2004 expressed an unqualified opinion on those consolidated financial statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the 2005 consolidated financial
statements referred to above present fairly, in all material respects, the financial position of The Southern Banc Company, Inc. and subsidiaries as of June 30, 2005, and the results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of America.
Birmingham, Alabama
August 12, 2005
Report of Independent Registered Public Accounting Firm
The Board of Directors
The Southern Banc Company, Inc.:
We have audited the accompanying consolidated statement of financial condition of The Southern Banc Company, Inc. (a Delaware corporation) and subsidiaries as of
June 30, 2004, and the related consolidated statements of income, stockholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of The Southern Banc Company, Inc. and subsidiaries as of June 30, 2004, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Birmingham, Alabama
August 3, 2004
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Financial Condition
June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
Cash on hand and in other banks |
|
$ |
2,364,078 |
|
|
3,169,215 |
|
Interestbearing deposits in other banks |
|
|
1,742,422 |
|
|
2,564,790 |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
4,106,500 |
|
|
5,734,005 |
|
|
|
|
Securities available for sale, at fair value |
|
|
59,403,333 |
|
|
56,717,031 |
|
Securities held to maturity (fair value of $3,788,749 and $4,474,510, respectively) |
|
|
3,660,129 |
|
|
4,194,141 |
|
Federal Home Loan Bank stock |
|
|
508,900 |
|
|
792,300 |
|
Loans receivable, net of allowance for loan losses of $135,472 and $144,298 , respectively |
|
|
35,530,975 |
|
|
37,476,587 |
|
Accrued interest and dividends receivable |
|
|
440,952 |
|
|
439,616 |
|
Premises and equipment, net |
|
|
608,840 |
|
|
485,565 |
|
Prepaid expenses and other assets |
|
|
551,744 |
|
|
514,140 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
104,811,373 |
|
|
106,353,385 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
81,736,517 |
|
|
82,005,081 |
|
Federal Home Loan Bank advances |
|
|
6,083,334 |
|
|
6,916,667 |
|
Other liabilities |
|
|
288,579 |
|
|
178,970 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
88,108,430 |
|
|
89,100,718 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share. Authorized 500,000 shares; no shares issued and outstanding |
|
|
|
|
|
|
|
Common stock, par value $0.01 per share. Authorized 3,500,000 shares; issued 1,454,750 shares in 2005 and 2004 |
|
|
14,548 |
|
|
14,548 |
|
Additional paid-in capital |
|
|
13,997,847 |
|
|
13,910,384 |
|
Retained earnings |
|
|
11,696,782 |
|
|
11,340,830 |
|
Unearned compensation |
|
|
|
|
|
(70,715 |
) |
Shares held in trust, at cost, 49,355 and 34,799 shares in 2005 and 2004, respectively |
|
|
(868,350 |
) |
|
(495,412 |
) |
Treasury stock, at cost, 595,090 and 562,452 shares in 2005 and 2004, respectively |
|
|
(7,923,346 |
) |
|
(7,346,782 |
) |
Accumulated other comprehensive loss |
|
|
(214,538 |
) |
|
(100,186 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
16,702,943 |
|
|
17,252,667 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
104,811,373 |
|
|
106,353,385 |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated
financial statements.
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Income
Years ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
2005
|
|
2004
|
Interest income: |
|
|
|
|
|
Interest and fees on loans |
|
$ |
2,041,503 |
|
2,242,975 |
Interest and dividends on securities available for sale |
|
|
2,601,573 |
|
2,329,473 |
Interest and dividends on securities held to maturity |
|
|
263,843 |
|
391,719 |
Other interest income |
|
|
59,999 |
|
43,145 |
|
|
|
|
|
|
Total interest income |
|
|
4,966,918 |
|
5,007,312 |
|
|
|
Interest expense: |
|
|
|
|
|
Interest on deposits |
|
|
1,937,155 |
|
1,779,908 |
Interest on borrowed funds |
|
|
298,534 |
|
339,687 |
|
|
|
|
|
|
Total interest expense |
|
|
2,235,689 |
|
2,119,595 |
|
|
|
|
|
|
Net interest income before provision for loan losses |
|
|
2,731,229 |
|
2,887,717 |
|
|
|
Provision for loan losses |
|
|
15,000 |
|
11,600 |
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
2,716,229 |
|
2,876,117 |
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
Customer service fees |
|
|
122,494 |
|
124,937 |
Gain on sale of available for sale securities |
|
|
361,650 |
|
62,490 |
Other income |
|
|
51,661 |
|
47,358 |
|
|
|
|
|
|
Total noninterest income |
|
|
535,805 |
|
234,785 |
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
Salaries and employee benefits |
|
|
1,271,604 |
|
1,243,546 |
Data processing expense |
|
|
237,257 |
|
213,312 |
Professional service expense |
|
|
199,767 |
|
238,105 |
Office building and equipment expense |
|
|
177,861 |
|
81,103 |
Other expense |
|
|
322,256 |
|
376,599 |
|
|
|
|
|
|
Total noninterest expense |
|
|
2,208,745 |
|
2,152,665 |
|
|
|
|
|
|
Income before provision for income taxes |
|
|
1,043,289 |
|
958,237 |
|
|
|
Provision for income taxes |
|
|
393,693 |
|
380,883 |
|
|
|
|
|
|
Net income |
|
$ |
649,596 |
|
577,354 |
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
Basic |
|
$ |
0.78 |
|
0.66 |
Diluted |
|
|
0.76 |
|
0.63 |
|
|
|
Average shares outstanding basic |
|
|
836,034 |
|
878,391 |
Average shares outstanding diluted |
|
|
854,353 |
|
912,704 |
See accompanying notes to consolidated
financial statements.
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Stockholders Equity
Years ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
|
Unearned compensation
|
|
|
Shares held in trust
|
|
|
Treasury stock
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
Total
|
|
Balance, June 30, 2003 |
|
$ |
14,548 |
|
13,818,230 |
|
11,082,024 |
|
|
(156,495 |
) |
|
(852,141 |
) |
|
(6,182,391 |
) |
|
1,142,003 |
|
|
18,865,778 |
|
Net income |
|
|
|
|
|
|
577,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
577,354 |
|
Change in unrealized loss on securities available for sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,242,189 |
) |
|
(1,242,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(664,835 |
) |
Amortization of unearned compensation |
|
|
|
|
92,154 |
|
|
|
|
85,780 |
|
|
|
|
|
|
|
|
|
|
|
177,934 |
|
Purchase of 69,200 shares of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,164,391 |
) |
|
|
|
|
(1,164,391 |
) |
Stock Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
356,729 |
|
|
|
|
|
|
|
|
356,729 |
|
Dividends paid ($0.35 per share) |
|
|
|
|
|
|
(318,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(318,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2004 |
|
|
14,548 |
|
13,910,384 |
|
11,340,830 |
|
|
(70,715 |
) |
|
(495,412 |
) |
|
(7,346,782 |
) |
|
(100,186 |
) |
|
17,252,667 |
|
Net income |
|
|
|
|
|
|
649,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
649,596 |
|
Change in unrealized loss on securities available for sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,352 |
) |
|
(114,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535,244 |
|
Amortization of unearned compensation |
|
|
|
|
87,463 |
|
|
|
|
70,715 |
|
|
|
|
|
|
|
|
|
|
|
158,178 |
|
Purchase of 32,638 shares of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(576,564 |
) |
|
|
|
|
(576,564 |
) |
Purchase of 49,073 shares of common stock to fund Trust |
|
|
|
|
|
|
|
|
|
|
|
|
(778,080 |
) |
|
|
|
|
|
|
|
(778,080 |
) |
Stock Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
405,142 |
|
|
|
|
|
|
|
|
405,142 |
|
Dividends paid ($0.35 per share) |
|
|
|
|
|
|
(293,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(293,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005 |
|
$ |
14,548 |
|
13,997,847 |
|
11,696,782 |
|
|
|
|
|
(868,350 |
) |
|
(7,923,346 |
) |
|
(214,538 |
) |
|
16,702,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Cash Flows
Years ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
649,596 |
|
|
577,354 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
|
60,125 |
|
|
44,989 |
|
Amortization of premiums on securities, net |
|
|
71,725 |
|
|
253,465 |
|
Amortization of intangible asset |
|
|
|
|
|
12,115 |
|
Amortization of unearned compensation |
|
|
158,178 |
|
|
177,934 |
|
Provision for loan losses |
|
|
15,000 |
|
|
11,600 |
|
Deferred income tax provision |
|
|
15,888 |
|
|
1,230 |
|
Gain on loans held for sale |
|
|
(12,598 |
) |
|
(18,953 |
) |
Proceeds from sale of loans held for sale |
|
|
1,849,738 |
|
|
1,265,653 |
|
Loans originated for sale |
|
|
(1,837,140 |
) |
|
(1,196,700 |
) |
Gain on sale of available for sale securities |
|
|
(358,231 |
) |
|
(62,490 |
) |
Change in assets and liabilities: |
|
|
|
|
|
|
|
(Increase) decrease in accrued interest and dividends receivable |
|
|
(1,336 |
) |
|
43,343 |
|
(Increase) decrease in prepaid expenses and other assets |
|
|
(37,604 |
) |
|
730 |
|
Increase in other liabilities |
|
|
109,609 |
|
|
977 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
682,950 |
|
|
1,111,247 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchase of securities available for sale |
|
|
(19,707,703 |
) |
|
(29,144,626 |
) |
Purchase of securities held to maturity |
|
|
(1,000,000 |
) |
|
|
|
Proceeds from maturities and principal payments on securities available for sale |
|
|
14,225,146 |
|
|
21,172,190 |
|
Proceeds from sales of securities available for sale |
|
|
2,974,330 |
|
|
2,983,710 |
|
Proceeds from maturities and principal payments on securities held to maturity |
|
|
1,542,949 |
|
|
3,030,968 |
|
Sale of Federal Home Loan Bank stock |
|
|
283,400 |
|
|
93,700 |
|
Loan repayments, net |
|
|
1,930,612 |
|
|
1,429,420 |
|
Capital expenditures, net |
|
|
(183,400 |
) |
|
(23,778 |
) |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
65,334 |
|
|
(458,416 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(576,564 |
) |
|
(1,164,391 |
) |
Purchase of shares of common stock to fund Trust |
|
|
(863,826 |
) |
|
|
|
Federal Home Loan Bank repayments |
|
|
(833,333 |
) |
|
(833,333 |
) |
Cash dividends paid |
|
|
(293,644 |
) |
|
(318,548 |
) |
Decrease in deposits, net |
|
|
(268,564 |
) |
|
(2,352,228 |
) |
Proceeds from short-term borrowings |
|
|
55,000 |
|
|
|
|
Proceeds from exercise of stock options |
|
|
405,142 |
|
|
356,729 |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,375,789 |
) |
|
(4,311,771 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,627,505 |
) |
|
(3,658,940 |
) |
Cash and cash equivalents, beginning of year |
|
|
5,734,005 |
|
|
9,392,945 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
4,106,500 |
|
|
5,734,005 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
Income taxes, net of refund received |
|
$ |
279,168 |
|
|
357,785 |
|
Interest |
|
|
2,234,355 |
|
|
2,124,322 |
|
See accompanying notes to consolidated
financial statements.
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
(1) |
Organization and Summary of Significant Accounting Policies |
|
(a) |
Organization, Nature of Operations, and Principles of Consolidation |
The Southern Banc Company, Inc. (the Company) was incorporated in the State of Delaware in May 1995, for the
purpose of becoming a holding company to own all of the outstanding capital stock of The Southern Bank Company (the Bank), formerly First Federal Savings and Loan Association of Gadsden, upon the Banks conversion from a federally
chartered mutual savings association to a federally chartered stock savings association (the Conversion). The accompanying consolidated financial statements include the accounts of the Company and its two wholly owned subsidiaries, the Bank and
First Service Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
The Bank is primarily engaged in the business of obtaining funds in the form of various savings deposit products and investing those funds in mortgage
loans or single family real estate and, to a lesser extent, in consumer loans. The Bank operates from its four offices in the northeast portion of Alabama and originates the majority of its loans in this market area.
The accounting principles and reporting policies of the Company, and the methods of applying these principles, conform with accounting principles
generally accepted in the United States of America (GAAP) and general practices within the banking industry. In preparing the consolidated 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 consolidated statement of financial condition and income and expense for the period. Actual results could differ significantly from those estimates. A material estimate that is particularly
susceptible to significant changes in the near term is the determination of the allowance for loan losses. A substantial portion of the Companys loans are secured by real estate in its primary market area. Accordingly, the ultimate
collectibility of a substantial portion of the Companys loan portfolio is susceptible to changes in economic conditions in the Companys primary market area.
Securities have been classified as either available for sale or held to maturity based on managements intentions at the time of purchase. Securities
classified as available for sale are carried at fair value. The unrealized difference between amortized cost and fair value on securities available for sale is excluded from earnings and is reported, net of deferred taxes, as a separate component of
stockholders equity. The available for sale classification includes securities that management intends to use as part of its asset/liability management strategy or that may be sold in response to changes in interest rates, liquidity needs, or
for other purposes.
Securities designated as held to maturity
are carried at amortized cost, as the Company has both the ability and the positive intent to hold these securities to maturity.
Federal Home Loan Bank stock is carried at cost, as there is no readily available market for this stock.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Amortization of premiums and accretion of discounts on mortgagebacked securities and other
investments are computed using the level yield method. The adjusted cost of the specific security sold is used to compute gain or loss on the sale of securities.
Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be
other than temporary, if any, are reflected in earnings as realized losses. In estimating other than temporary impairment losses, management considers independent price quotations, projected target prices of investment analysts within the short term
and the financial condition of the issuer.
|
(d) |
Loans and Allowance for Loan Losses |
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to income. All loans sold in the secondary market are sold servicing released. There were no secondary market loans pending sale at June 30, 2005 and 2004.
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, discounts on loans, unearned interest income, and net deferred loan fees/costs. Unearned interest income on consumer loans is amortized to income by use of a method which approximates level yield over the lives of the related loans.
The allowance for loan losses is established through a
provision charged to earnings when losses are estimated to have occurred. Loan losses are charged against the allowance when the loss is recognized. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level which management
considers adequate to absorb losses inherent in the loan portfolio at each reporting date. To serve as a basis for establishing the allowance each quarter, the Bank maintains an extensive credit risk monitoring process that considers several factors
including: current economic conditions affecting the Banks customers, the payment performance of individual large loans and pools of homogeneous small loans, distribution of loans by risk class, portfolio seasoning, changes in collateral
values, and detailed reviews of specific large loan relationships. Though management believes the allowance for loan losses is adequate, ultimate losses may vary from estimates; however, estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the periods in which they become known.
Impaired loans (generally considered to be nonperforming loans, excluding residential mortgages and other homogeneous loans) are measured based on the present value of expected future cash flows discounted at each
loans original effective interest rate. As a practical expedient, impairment is measured based on the loans observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired
loan is less than the recorded investment of the loan, the impairment is recorded through a valuation allowance. The Company had no loans designated as impaired at either June 30, 2005 or 2004.
The Company ceases accrual of interest on a loan when payment on the loan is
in excess of 90 days past due. Income is subsequently recognized only to the extent that cash payments are received until, in managements judgment, the borrowers ability to make periodic interest and principal payments has been
reestablished, in which case the loan is returned to accrual status.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
The Company enters into interest rate locks, where customers have locked into mortgages at a set
interest rate, and forward sales commitments, which are sales of mortgage loans to third parties at a specified price. These interest rate locks and forward sales commitments qualify as derivatives; however, the change in fair value of these
derivatives during the year did not have a material impact on the Companys financial position or results of operations.
|
(e) |
Loan Origination Fees and Related Costs and Discounts |
Loan fees and certain direct costs of loan origination are deferred, and the net fee or cost is recognized as an adjustment to interest and fees on loans
in the accompanying consolidated statements of income using the level yield method over the contractual life of the loans. Discounts associated with loans purchased are deferred and accreted to income over the contractual life of the loans using the
level yield method.
|
(f) |
Premises and Equipment |
Land is reported at cost. Building, furniture and equipment, and automobiles are stated at cost, less accumulated depreciation. Leasehold improvements are
amortized using the straightline method over the shorter of the estimated lives or the applicable lease periods. Depreciation methods and estimated service lives are as follows:
|
|
|
|
|
Building and improvements |
|
10 40 years |
|
Accelerated/Straightline |
Leasehold improvements |
|
10 years |
|
Straightline |
Furniture and equipment |
|
5 20 years |
|
Accelerated/Straightline |
Automobile |
|
3 years |
|
Straightline |
At June 30, 2005 and 2004, core deposit premiums were $0, net of accumulated amortization of $344,341. Core deposit premiums were being amortized
over a period of ten years using an accelerated method. Amortization of core deposit premiums was $0 and $12,115 in fiscal years 2005 and 2004, respectively.
|
(h) |
Stock Based Compensation |
The Company applies Accounting Principles Bulletin (APB) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for employee stock compensation plans and, accordingly, does not recognize compensation cost for stock options granted when the option price is greater than or equal to the underlying stock price. This accounting method is referred to as
the intrinsic value method. The Company follows the proforma disclosures of Statement of Financial Accounting Standards (SFAS) No. 123, as amended by SFAS No. 148, Accounting for StockBased Compensation Transition and
Disclosure, using the fair value method of accounting for stockbased compensation.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
If the Company had elected to recognize compensation cost for options based on the fair value of the
options as permitted by SFAS No. 123, net income and earnings per share would have remained unchanged as indicated below:
|
|
|
|
|
|
|
|
2005
|
|
2004
|
Net income: |
|
|
|
|
|
As reported |
|
$ |
649,596 |
|
577,354 |
Less stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
649,596 |
|
577,354 |
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
As reported: |
|
|
|
|
|
Basic |
|
$ |
0.78 |
|
0.66 |
Diluted |
|
|
0.76 |
|
0.63 |
Pro forma: |
|
|
|
|
|
Basic |
|
|
0.78 |
|
0.66 |
Diluted |
|
|
0.76 |
|
0.63 |
|
(i) |
Statements of Cash Flows |
The Company considers cash on hand and in other banks and interestbearing deposits in other banks to be cash and cash equivalents.
|
(j) |
Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004)
Share-Based Payment. The Statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Option No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. The Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. The Statement focuses primarily on accounting for transactions in which an
entity obtains employee service in share-based payment transactions. The Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for
the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The Statement eliminates the alternative to use APB Opinion
25s intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities
to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The Statement is effective for public
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005,
and for public entities that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company currently accounts for its stock options under APB No. 25, and
is currently evaluating the impact the adoption of this statement will have on its statement of condition and results of operations.
(2) |
Securities Available for Sale |
The amortized cost, gross unrealized gain and loss, and estimated fair value of securities designated as available for sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
Amortized cost
|
|
Gross unrealized gain
|
|
Gross unrealized (loss)
|
|
|
Fair value
|
U.S. Government agency securities |
|
$ |
7,934,201 |
|
29,142 |
|
(304,218 |
) |
|
7,659,125 |
Mortgagebacked securities |
|
|
44,914,301 |
|
1,122,801 |
|
(1,692,200 |
) |
|
44,344,902 |
Other |
|
|
6,957,138 |
|
509,003 |
|
(66,835 |
) |
|
7,399,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,805,640 |
|
1,660,946 |
|
(2,063,253 |
) |
|
59,403,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2004
|
|
|
Amortized cost
|
|
Gross unrealized gain
|
|
Gross unrealized (loss)
|
|
|
Fair value
|
U.S. Government agency securities |
|
$ |
6,911,086 |
|
123,923 |
|
(28,839 |
) |
|
7,006,170 |
Mortgagebacked securities |
|
|
47,210,716 |
|
369,044 |
|
(637,414 |
) |
|
46,942,346 |
Other |
|
|
2,805,831 |
|
114 |
|
(37,430 |
) |
|
2,768,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
56,927,633 |
|
493,081 |
|
(703,683 |
) |
|
56,717,031 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
The amortized cost and estimated fair value of debt securities available for sale by contractual
maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
Amortized cost
|
|
Fair value
|
U.S. Government agency securities: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
Due after one year through five years |
|
|
2,978,539 |
|
2,943,282 |
Due after five years through ten years |
|
|
1,000,000 |
|
1,019,185 |
Due after ten years |
|
|
3,955,662 |
|
3,696,658 |
|
|
|
|
|
|
|
|
|
7,934,201 |
|
7,659,125 |
Mortgage-backed securities |
|
|
44,914,301 |
|
44,344,902 |
Other |
|
|
6,957,138 |
|
7,399,306 |
|
|
|
|
|
|
|
|
$ |
59,805,640 |
|
59,403,333 |
|
|
|
|
|
|
Proceeds from sales
of available for sale securities were $2,974,330 and $2,983,710 in 2005 and 2004, respectively. Gross gains of $361,650 and $62,490 were realized on these sales in 2005 and 2004, respectively. Gross losses of $3,419 and $0 were realized on these
sales in 2005 and 2004, respectively.
Securities designated
as available for sale with carrying values (fair values) of $2,565,129 have been pledged as collateral for certain large deposits (public funds) with an aggregate balance of $1,325,000 at June 30, 2005.
The following table shows the Companys combined investments
gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Fair value
|
|
Unrealized gross losses
|
|
|
Fair value
|
|
Unrealized gross losses
|
|
|
Fair value
|
|
Unrealized gross losses
|
|
U.S. Government agency securities |
|
$ |
1,965,654 |
|
(34,346 |
) |
|
2,474,256 |
|
(209,057 |
) |
|
4,439,910 |
|
(243,403 |
) |
Mortgagebacked securities |
|
|
9,813,050 |
|
(522,530 |
) |
|
20,163,753 |
|
(1,232,581 |
) |
|
29,976,803 |
|
(1,755,111 |
) |
Other |
|
|
968,867 |
|
(39,155 |
) |
|
567,910 |
|
(25,584 |
) |
|
1,536,777 |
|
(64,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,747,571 |
|
(596,031 |
) |
|
23,205,919 |
|
(1,467,222 |
) |
|
35,953,490 |
|
(2,063,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2005, the Company has 84 individual availableforsale securities that were in an unrealized loss position. All of these securities impairments are deemed not to be other than temporary impairment and is primarily due to the fact
that these securities have experienced volatility in their market prices as a result of current market conditions, with no credit concerns related to the entities that issued the securities.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
(3) |
Securities Held to Maturity |
The amortized cost, gross unrealized gain and loss, and estimated fair value of securities designated as held to maturity are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
Amortized cost
|
|
Gross unrealized gain
|
|
Gross unrealized (loss)
|
|
Fair value
|
Mortgagebacked securities |
|
$ |
2,656,198 |
|
124,784 |
|
|
|
2,780,982 |
Other |
|
|
1,003,931 |
|
71 |
|
|
|
1,004,002 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,660,129 |
|
124,855 |
|
|
|
3,784,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2004
|
|
|
Amortized cost
|
|
Gross unrealized gain
|
|
Gross unrealized (loss)
|
|
Fair value
|
U.S. Government agency securities |
|
$ |
61,459 |
|
2,113 |
|
|
|
63,572 |
Mortgagebacked securities |
|
|
4,132,682 |
|
278,256 |
|
|
|
4,410,938 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,194,141 |
|
280,369 |
|
|
|
4,474,510 |
|
|
|
|
|
|
|
|
|
|
The amortized cost
and estimated fair value of debt securities held to maturity by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
Amortized cost
|
|
Fair value
|
U.S. Government agency securities: |
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
Due after one year through five years |
|
|
|
|
|
Due after five years through ten years |
|
|
|
|
|
Due after ten years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgagebacked securities |
|
|
2,656,198 |
|
2,780,982 |
Other |
|
|
1,003,931 |
|
1,004,002 |
|
|
|
|
|
|
|
|
$ |
3,660,129 |
|
3,784,984 |
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
(4) |
Loans Receivable, Net |
Loans receivable are summarized as follows:
|
|
|
|
|
|
|
|
June 30
|
|
|
2005
|
|
2004
|
Mortgage loans: |
|
|
|
|
|
Secured by onetofour family residential properties |
|
$ |
24,598,109 |
|
27,541,741 |
Secured by nonresidential properties |
|
|
1,298,292 |
|
1,164,000 |
Consumer loans |
|
|
7,729,154 |
|
8,054,443 |
Savings account loans |
|
|
843,369 |
|
714,397 |
Commercial loans |
|
|
1,306,165 |
|
413,453 |
|
|
|
|
|
|
|
|
|
35,775,089 |
|
37,888,034 |
Less: |
|
|
|
|
|
Unearned interest income |
|
|
83,489 |
|
246,342 |
Deferred loan costs, net |
|
|
25,153 |
|
20,807 |
Allowance for loan losses |
|
|
135,472 |
|
144,298 |
|
|
|
|
|
|
Loans receivable, net |
|
$ |
35,530,975 |
|
37,476,587 |
|
|
|
|
|
|
Loans secured by
onetofour family residential properties include second mortgage loans on properties for which the Bank holds the first mortgage. The proceeds on these second mortgage loans were used for improvements and consumer purposes.
As a savings and loan institution, the Bank has a credit concentration in
residential real estate mortgage loans. Substantially all of the Banks customers are located in its trade area of Etowah, Marshall, and Cherokee Counties in Alabama. Although management believes that the Bank has generally conservative
underwriting standards, including a collateral policy of low loan to collateral values, the ability of its borrowers to meet their residential mortgage obligations is dependent upon local economic conditions.
In the normal course of business, loans are made to officers, directors, and
employees of the Company and the Bank. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with others. As of June 30, 2005 and 2004, $335,316 and
$456,428, respectively, of these loans were outstanding. The change from June 30, 2004 to June 30, 2005 reflects payments amounting to $169,653 and advances of $48,541 made during the year.
An analysis of the Companys allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
Years ended June 30
|
|
|
|
2005
|
|
|
2004
|
|
Balance, beginning of year |
|
$ |
144,298 |
|
|
139,573 |
|
Provision for loan losses |
|
|
15,000 |
|
|
11,600 |
|
Chargeoffs |
|
|
(23,826 |
) |
|
(6,875 |
) |
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
135,472 |
|
|
144,298 |
|
|
|
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
At June 30, 2005 and 2004, nonaccrual loans totaled $30,567 and $143,445, respectively. Neither
cash income recognized nor interest income foregone on nonaccrual loans was significant for fiscal years 2005 and 2004, respectively.
(5) |
Accrued Interest and Dividends Receivable |
Accrued interest and dividends receivable is summarized as follows:
|
|
|
|
|
|
|
|
June 30
|
|
|
2005
|
|
2004
|
Securities available for sale |
|
$ |
288,915 |
|
285,703 |
Securities held to maturity |
|
|
29,082 |
|
24,953 |
Loans receivable, net |
|
|
117,246 |
|
122,065 |
Federal Home Loan Bank stock |
|
|
5,709 |
|
6,895 |
|
|
|
|
|
|
|
|
$ |
440,952 |
|
439,616 |
|
|
|
|
|
|
(6) |
Premises and Equipment, Net |
Premises and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
2005
|
|
|
2004
|
|
Land |
|
$ |
340,486 |
|
|
340,486 |
|
Building and improvements |
|
|
487,031 |
|
|
468,059 |
|
Leasehold improvements |
|
|
11,390 |
|
|
11,390 |
|
Furniture, fixtures, and equipment |
|
|
414,967 |
|
|
295,629 |
|
|
|
|
|
|
|
|
|
|
|
|
1,253,874 |
|
|
1,115,564 |
|
Less accumulated depreciation and leasehold amortization |
|
|
(645,034 |
) |
|
(629,999 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
608,840 |
|
|
485,565 |
|
|
|
|
|
|
|
|
|
Depreciation and
leasehold amortization expense charged to office building and equipment expense in 2005 and 2004 totaled approximately $60,125 and $44,989, respectively.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
June 30, 2004
|
|
|
|
Amount
|
|
Percent
|
|
|
Amount
|
|
Percent
|
|
Demand, NOW, and money market accounts, including noninterest bearing deposits of $396,932 and $548,415 at June 30, 2005 and 2004
respectively |
|
$ |
17,011,465 |
|
20.81 |
% |
|
14,735,265 |
|
17.97 |
% |
Passbook savings |
|
|
4,875,818 |
|
5.97 |
% |
|
6,881,697 |
|
8.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,887,283 |
|
26.78 |
% |
|
21,616,962 |
|
26.36 |
% |
|
|
|
|
|
Certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
0.01 2.00% interest rate |
|
|
6,945,662 |
|
8.50 |
% |
|
20,525,383 |
|
25.03 |
% |
2.01 4.00% interest rate |
|
|
47,369,228 |
|
57.95 |
% |
|
36,404,409 |
|
44.39 |
% |
4.01 6.00% interest rate |
|
|
5,534,344 |
|
6.77 |
% |
|
3,458,327 |
|
4.22 |
% |
6.01 8.00% interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,849,234 |
|
73.22 |
% |
|
60,388,119 |
|
73.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
81,736,517 |
|
100.00 |
% |
|
82,005,081 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount
of jumbo certificates of deposit with a minimum denomination of $100,000 was $14,095,187 and $13,441,055 at June 30, 2005 and 2004, respectively.
At June 30, 2005, the scheduled maturities of time deposits are as follows:
|
|
|
|
2006 |
|
$ |
29,311,770 |
2007 |
|
|
10,937,432 |
2008 |
|
|
4,819,776 |
2009 |
|
|
8,949,155 |
2010 |
|
|
5,782,041 |
Thereafter |
|
|
49,060 |
|
|
|
|
Total |
|
$ |
59,849,234 |
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Interest expense on deposits consisted of the following:
|
|
|
|
|
|
|
|
Years ended June 30
|
|
|
2005
|
|
2004
|
Passbook savings |
|
$ |
30,864 |
|
42,834 |
NOW and money market accounts |
|
|
216,527 |
|
91,330 |
Certificates of deposit |
|
|
1,689,764 |
|
1,645,744 |
|
|
|
|
|
|
|
|
$ |
1,937,155 |
|
1,779,908 |
|
|
|
|
|
|
The provision for income taxes for the periods indicated is summarized as follows:
|
|
|
|
|
|
|
|
Years ended June 30
|
|
|
2005
|
|
2004
|
Current provision: |
|
|
|
|
|
Federal |
|
$ |
336,040 |
|
335,143 |
State |
|
|
41,765 |
|
44,510 |
|
|
|
|
|
|
|
|
|
377,805 |
|
379,653 |
Deferred provision |
|
|
15,888 |
|
1,230 |
|
|
|
|
|
|
|
|
$ |
393,693 |
|
380,883 |
|
|
|
|
|
|
The differences
between the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to income before taxes were as follows:
|
|
|
|
|
|
|
|
|
|
Years ended June 30
|
|
|
|
2005
|
|
|
2004
|
|
Pretax income at statutory rates |
|
$ |
354,718 |
|
|
325,800 |
|
Add: |
|
|
|
|
|
|
|
State income tax, net of federal tax benefit |
|
|
30,639 |
|
|
29,505 |
|
Other, net |
|
|
8,336 |
|
|
25,578 |
|
|
|
|
|
|
|
|
|
|
|
$ |
393,693 |
|
|
380,883 |
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
38 |
% |
|
40 |
% |
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
The components of the net deferred tax asset or liability at June 30, 2005 and 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
2005
|
|
|
2004
|
|
Accumulated amortization of intangibles |
|
$ |
33,260 |
|
|
41,954 |
|
Allowance for loan losses, net |
|
|
23,967 |
|
|
27,144 |
|
Accruals for employee benefit plans |
|
|
138,279 |
|
|
124,388 |
|
Unrealized net loss on securities available for sale |
|
|
157,522 |
|
|
80,169 |
|
Other |
|
|
16,748 |
|
|
16,833 |
|
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
369,776 |
|
|
290,488 |
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock dividend |
|
|
(20,152 |
) |
|
(31,373 |
) |
Accretion of discount on securities |
|
|
(235,019 |
) |
|
(226,602 |
) |
Deferred loan fees and costs, net |
|
|
(155,043 |
) |
|
(134,415 |
) |
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
(410,214 |
) |
|
(392,390 |
) |
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(40,438 |
) |
|
(101,902 |
) |
|
|
|
|
|
|
|
|
The portion of a
thrifts tax bad debt allowance that was not recaptured under the provisions of the Small Business Job Protection Act of 1996 is only subject to recapture at a later date under certain circumstances. These circumstances include stock
repurchases and redemptions by the thrift or conversion of the thrift to a type of institution (such as a credit union) that is not considered a bank for tax purposes. However, no further recapture would be required if the thrift converted to a
commercial bank charter or was acquired by a bank. The Bank does not anticipate engaging in any transactions at this time that would require the recapture of its pre1988 tax bad debt allowance of approximately $2.8 million.
(9) |
Federal Home Loan Bank Advances |
Federal Home Loan Bank advances at June 30, 2005 consisted of the following:
|
|
|
|
5.22% note payable, due March 20, 2006 |
|
$ |
2,000,000 |
3.22% note payable, due December 4, 2006 |
|
|
1,000,000 |
4.08% note payable, due October 17, 2007 |
|
|
961,845 |
4.16% note payable, due October 17, 2007 |
|
|
1,121,489 |
5.72% note payable, due March 19, 2008 |
|
|
1,000,000 |
|
|
|
|
|
|
$ |
6,083,334 |
|
|
|
|
The Federal Home Loan
Bank notes are payable to the Federal Home Loan Bank of Atlanta and are secured by the Federal Home Loan Bank stock owned by the Bank with a carrying value of $508,900, as well as a pledge of certain securities with a carrying value of $15,169,294
at June 30, 2005. Interest rates on the notes are fixed and interest is payable monthly. Principal on the notes is payable at maturity or in semiannual principal reductions until maturity.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
|
Scheduled |
principal payments required for Federal Home Loan Bank advances are as follows: |
|
|
|
|
2006 |
|
|
2,833,333 |
2007 |
|
|
1,833,333 |
2008 |
|
|
1,416,668 |
|
|
|
|
|
|
$ |
6,083,334 |
|
|
|
|
(10) |
Commitments and Contingencies |
The Company has operating lease agreements for one of its branch offices. Rental expense under these leases aggregated $7,364 for fiscal years 2005 and
2004. The aggregate annual minimum rental commitments under the terms of all noncancelable leases at June 30, 2005 are as follows:
|
|
|
|
|
|
Amount
|
Fiscal year: |
|
|
|
2006 |
|
$ |
3,682 |
2007 |
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
$ |
3,682 |
|
|
|
|
|
(b) |
OffBalanceSheet Items |
The Companys policies as to collateral and assumption of credit risk for offbalance sheet items are essentially the same as those for
extension of credit to its customers. Generally, the offbalance sheet exposures the Bank has are its commitments to fund unused lines of credit. At June 30, 2005, the Company had $972,400 in outstanding commitments to originate
residential real estate loans. Additionally, at June 30, 2005, the Bank had provided approximately $1,368,338 in unused lines of credit.
The Company is a party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not be material to the consolidated financial statements.
(11) |
Stockholders Equity |
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Banks financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
measures of the Banks assets, liabilities, and certain offbalance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table which follows) of Total and Tier 1 capital (as defined in the regulations) to riskweighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of June 30, 2005 and 2004, that the Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 2005 and 2004, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total riskbased, Tier 1 riskbased, and Tier 1 leverage ratios as set forth in the tables which follow.
Actual capital amounts and ratios are presented in the table
below for the Company and the Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital adequacy purposes
|
|
|
To be well capitalized under prompt corrective action provisions
|
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
|
(Dollars in thousands) |
|
June 30,2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
17,054 |
|
46.3 |
% |
|
$ |
2,945 |
|
8.0 |
% |
|
$ |
N/A |
|
N/A |
|
Southern Bank Company |
|
|
15,877 |
|
43.1 |
% |
|
|
2,945 |
|
8.0 |
% |
|
|
3,681 |
|
10.0 |
% |
Tier 1 (core) capital (to risk weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
16,918 |
|
46.0 |
% |
|
|
1,472 |
|
4.0 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
15,741 |
|
42.8 |
% |
|
|
1,472 |
|
4.0 |
% |
|
|
2,208 |
|
6.0 |
% |
Tier 1 (core) capital (to adjusted total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
16,918 |
|
16.0 |
% |
|
|
4,241 |
|
4.0 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
15,741 |
|
14.8 |
% |
|
|
4,241 |
|
4.0 |
% |
|
|
5,302 |
|
5.0 |
% |
Tangible capital (to adjusted total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
16,918 |
|
16.0 |
% |
|
|
1,590 |
|
1.5 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
15,741 |
|
14.8 |
% |
|
|
1,590 |
|
1.5 |
% |
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
June 30,2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
17,497 |
|
47.2 |
% |
|
$ |
2,967 |
|
8.0 |
% |
|
$ |
N/A |
|
N/A |
|
Southern Bank Company |
|
|
16,595 |
|
44.7 |
% |
|
|
2,967 |
|
8.0 |
% |
|
|
3,709 |
|
10.0 |
% |
Tier 1 (core) capital (to risk weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
17,353 |
|
46.8 |
% |
|
|
1,483 |
|
4.0 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
16,451 |
|
44.4 |
% |
|
|
1,483 |
|
4.0 |
% |
|
|
2,225 |
|
6.0 |
% |
Tier 1 (core) capital (to adjusted total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
17,353 |
|
16.2 |
% |
|
|
4,284 |
|
4.0 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
16,451 |
|
15.4 |
% |
|
|
4,284 |
|
4.0 |
% |
|
|
5,355 |
|
5.0 |
% |
Tangible capital (to adjusted total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
17,353 |
|
16.2 |
% |
|
|
1,607 |
|
1.5 |
% |
|
|
N/A |
|
N/A |
|
Southern Bank Company |
|
|
16,451 |
|
15.4 |
% |
|
|
1,607 |
|
1.5 |
% |
|
|
N/A |
|
N/A |
|
Pursuant to
regulations, an institution that exceeds all fully phasedin capital requirements before and after a proposed capital distribution and has not been advised by the Office of Thrift Supervision (OTS) that it is in need of more than the normal
supervision can, after prior notice but without the approval of the OTS, make capital distributions during a calendar year equal to the greater of
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
(i) 100% of its net income to date during the calendar year plus the amount that would reduce by onehalf its surplus capital ratio
(the excess capital over its fully phasedin capital requirements) at the beginning of the calendar year, or (ii) 75% of its net income over the most recent fourquarter period. Any additional capital distributions require prior
regulatory approval.
The Companys principal source of
funds for dividend payments is dividends from the Bank. Certain restrictions exist regarding the ability of the Bank to pay dividends to the Company. At July 1, 2005, dividend payments by the Bank were subject to regulatory approval. The
Companys ability to pay dividends will be largely dependent upon dividends to the Company from the Bank. Pursuant to the OTS regulations, the Bank will not be permitted to pay dividends on its capital stock or repurchase shares of its stock if
its stockholders equity would be reduced below the amount required for the liquidation account or if stockholders equity would be reduced below the amount required by the OTS.
Comprehensive income is the change in equity during a period from transaction and other events and circumstances from nonowner sources. For the
Company, comprehensive income includes changes in unrealized gains and losses on securities availableforsale and net income.
In the determination of comprehensive income, certain reclassification adjustments are made to avoid doublecounting items that are displayed as part
of the net income and accumulated other comprehensive income in that period or earlier periods. The following table reflects the reclassification amounts and the related tax effects for the two years ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
Before tax amount
|
|
|
Tax effect
|
|
|
After tax amount
|
|
Unrealized gains arising during the year |
|
$ |
166,526 |
|
|
(57,700 |
) |
|
108,826 |
|
Reclassification for adjustments for gains included in net earnings |
|
|
(358,231 |
) |
|
135,053 |
|
|
(223,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities |
|
$ |
(191,705 |
) |
|
77,353 |
|
|
(114,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
Before tax amount
|
|
|
Tax effect
|
|
|
After tax amount
|
|
Unrealized losses arising during the year |
|
$ |
(1,731,940 |
) |
|
532,918 |
|
|
(1,199,022 |
) |
Reclassification for adjustments for gains included in net earnings |
|
|
(62,490 |
) |
|
19,323 |
|
|
(43,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities |
|
$ |
(1,794,430 |
) |
|
552,241 |
|
|
(1,242,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Basic earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the years ended
June 30, 2005 and 2004. Common stock outstanding consists of issued shares less treasury stock, unallocated Employee Stock Ownership Plan (ESOP) shares (see Note 13), and shares held in trust. Diluted earnings per share for the years ended
June 30, 2005 and 2004 was computed by dividing net income by the weighted average number of shares of common stock outstanding and the dilutive effects of the shares awarded under the Management Recognition Plan (MRP) and the Stock Option
Plan, based on the treasury stock method, using an average fair market value of the stock during the respective periods.
The following table represents the earnings per share calculations for the years ended June 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per share amount
|
2005: |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
649,596 |
|
836,034 |
|
$ |
0.78 |
Dilutive securities: |
|
|
|
|
|
|
|
|
Incentive stock option plan shares |
|
|
|
|
18,319 |
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings per share |
|
$ |
649,596 |
|
854,353 |
|
|
0.76 |
|
|
|
|
|
|
|
|
|
2004: |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
577,354 |
|
878,391 |
|
$ |
0.66 |
Dilutive securities: |
|
|
|
|
|
|
|
|
Incentive stock option plan shares |
|
|
|
|
34,313 |
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings per share |
|
$ |
577,354 |
|
912,704 |
|
|
0.63 |
|
|
|
|
|
|
|
|
|
(13) |
Employee Retirement and Savings Plans |
(a) Employee Stock Ownership Plan
In connection with the Conversion, the Bank established an ESOP for eligible employees. The ESOP purchased 116,380 shares of the Companys common
stock with the proceeds of a $1,163,800 note payable to the Bank and secured by the common stock owned by the ESOP. The note due from the ESOP has been reflected as a separate component of stockholders equity as unearned compensation.
Principal payments under the note are due in equal annual installments through December 2005; interest is payable annually at a variable rate which is adjusted each January 1.
Expense related to the ESOP was approximately $124,000 and $147,000 for 2005 and 2004. Unearned compensation related to the
ESOP was $0 and $70,715 at June 30, 2005 and 2004, respectively, and is shown as a reduction of stockholders equity in the accompanying consolidated statements of financial condition.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
The difference between the fair value of shares committed to be released and the cost of those shares
to the ESOP (i.e. unearned compensation) is charged/credited to additional paidin capital in accordance with AICPA Statement of Position 936, Employers Accounting for Employee Stock Ownership Plans. Unearned compensation is
amortized into compensation expense based on employee services rendered in relation to shares which are committed to be released based on the fair value of shares.
(b) Management Recognition Plan (MRP)
During fiscal 1996, the Bank established an MRP which purchased 58,190 shares of the Companys common stock on the open
market. The MRP provides for awards of common stock to directors and officers of the Bank. As of June 30, 2005, all awarded shares related to the MRP were allocated to directors and officers of the Bank.
Shares held in trust related to the MRP totaled 0 and 14,430 at
June 30, 2005 and 2004, respectively. These shares, which were purchased for an average price per share of $12.84, amounted to $185,234 at June 30, 2004 and are shown as a reduction of stockholders equity in the accompanying
consolidated statements of financial condition. During the regular meeting of the Board of Directors held July 15, 2004, the Board voted to transfer the remaining 14,430 unallocated shares held in trust from the MRP to the Stock Option and
Incentive Plan.
|
(c) |
Simplified Employee Pension Plan |
The Company established a Simplified Employee Pension Plan (SEP) for all employees who have completed one year of service, pursuant to
Section 408(k) of the Internal Revenue Code of 1986. The Company can make a discretionary contribution to the SEP each year. The cost to the Company under the SEP was $49,208 and $43,583 for fiscal years 2005 and 2004, respectively.
(d) Employment Agreements
The Company has a 36month employment agreement with its President and
Vice President. These agreements provide that if employment under the agreement is terminated by the Company in connection with or within 12 months after any change in control of the Company, each employee will be paid approximately three times
his salary.
(14) |
StockBased Compensation Plan |
The Company has a stockholderapproved Option Plan. The Option Plan provides for the grant of incentive stock options (ISOs) to employees and
nonincentive stock options (nonISOs) to nonemployee directors. The Company utilizes the intrinsic value method of accounting for stock option grants. As the option price is equal to the fair value of the stock at the date of grant, no
compensation cost is recognized.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Under the Option Plan, the Company may grant options up to 145,745 shares and has granted options
outstanding of 46,980 shares through June 30, 2005. Under the Option Plan, the options vest 20% per year and become exercisable upon the participants completion of five years of service.
The Company purchased shares in the open market to be issued upon exercise
of stock options. Such shares are reflected at cost as shares held in trust in the accompanying consolidated statements of financial condition. During 2005 and 2004, the Company purchased 49,073 and 0 shares, respectively, to be used for the
exercise of options. The total number of shares held in trust related to the Option Plan was 49,355 and 20,369 and amounted to $719,565 and $310,178 at June 30, 2005 and 2004, respectively.
A summary of the status of the Companys Option Plan at June 30,
2005 and 2004 and the changes during the years then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
Shares
|
|
|
Weighted average exercise price
|
|
Shares
|
|
|
Weighted average exercise price
|
Outstanding at beginning of year: |
|
81,496 |
|
|
$ |
12.09 |
|
125,031 |
|
|
$ |
11.91 |
Forfeitures |
|
|
|
|
|
|
|
(12,596 |
) |
|
|
11.69 |
Exercised |
|
(34,516 |
) |
|
|
11.74 |
|
(30,939 |
) |
|
|
11.53 |
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
46,980 |
|
|
$ |
12.35 |
|
81,496 |
|
|
$ |
12.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
46,980 |
|
|
$ |
12.35 |
|
81,206 |
|
|
$ |
12.11 |
|
|
|
|
|
Weighted average fair value of the options granted |
|
N/A |
|
|
|
|
|
N/A |
|
|
|
|
(15) |
Fair Value of Financial Instruments |
The Company has a variety of financial instruments which include items recorded on the consolidated statement of financial condition and items which, by
their nature, are not recorded on the consolidated statement of financial condition. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. In cases where quoted market prices are not available,
fair values have been estimated using present value or other valuation techniques. These methods are highly sensitive to the assumptions used by management, such as those concerning appropriate discount rates and estimates of future cash flows.
Different assumptions could significantly affect the estimated fair value amounts presented below. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be
realized in the immediate settlement of the instrument. Further, assets that are not financial instruments are not included in the following table. Accordingly, the aggregated estimated fair value amounts presented do not represent the underlying
value of the Company.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
This table summarizes the Companys carrying amount and fair value of financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
2005
|
|
2004
|
|
|
Carrying amount
|
|
Estimated fair value
|
|
Carrying amount
|
|
Estimated fair value
|
|
|
(in thousands) |
|
(in thousands) |
Assets: |
|
|
|
|
|
|
|
|
|
Cash on hand and in banks |
|
$ |
4,107 |
|
4,107 |
|
5,734 |
|
5,734 |
Securities available for sale |
|
|
59,403 |
|
59,403 |
|
56,717 |
|
56,717 |
Securities held to maturity |
|
|
3,660 |
|
3,789 |
|
4,194 |
|
4,475 |
Federal Home Loan Bank stock |
|
|
509 |
|
509 |
|
792 |
|
792 |
Loans held for sale |
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
|
35,531 |
|
38,144 |
|
37,477 |
|
38,956 |
Accrued interest and dividends receivable |
|
|
441 |
|
441 |
|
440 |
|
440 |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Deposits |
|
|
81,737 |
|
81,403 |
|
82,005 |
|
82,760 |
Federal Home Loan Bank advances |
|
|
6,083 |
|
6,159 |
|
6,917 |
|
7,123 |
Accrued interest payable |
|
|
36 |
|
36 |
|
35 |
|
35 |
The following methods
and assumptions were used by the Company in estimating the fair values provided above:
|
(a) |
Cash and Cash Equivalents |
The carrying value of highly liquid instruments, such as cash on hand and cash equivalents, are considered to approximate their fair value.
|
(b) |
Securities Available for Sale and Securities Held to Maturity |
Substantially all of the Companys securities available for sale and held to maturity have a readily determinable fair value. Fair values for
these securities are based on quoted market prices, where available. If not available, fair values are based on market prices of comparable instruments. The carrying value of accrued interest on these instruments approximates fair value.
|
(c) |
Federal Home Loan Bank Stock |
The Federal Home Loan Bank has historically repurchased its stock at cost. Therefore, the carrying amount is considered a reasonable estimate of its fair
value.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
The fair value of loans held for sale is estimated using market rates, which approximate carrying values.
|
(e) |
Loans Receivable, Net |
For loans with rates which are repriced in coordination with movements in market rates and with no significant change in credit risk, fair value estimates
are based on carrying values. The fair values for certain mortgage loans are based on quoted market prices of similar loans sold in conjunction with securitizing transactions, adjusted for differences in loan characteristics. The fair values of
other loans are estimated by discounting future cash flows using current rates at which loans with similar terms would be made to borrowers of similar credit ratings.
|
(f) |
Accrued Interest Receivable |
The carrying amount of accrued interest receivable approximates its fair value.
The fair value of deposits with no stated maturity, such as interest and noninterest demand deposits, NOW accounts, savings accounts, and money
market accounts, is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow analysis that applies rates currently
offered for certificates of similar remaining maturities.
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing FHLB
advances.
|
(i) |
Accrued Interest Payable |
The carrying amount of accrued interest payable approximates its fair value.
|
(j) |
OffBalanceSheet Instruments |
Offbalancesheet financial instruments include commitments to extend credit. The fair value of such commitments is not material to the
Companys financial condition since there is no known credit risk for the Company to consider in its valuation.
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
(16) |
Parent Company Financial Statements |
Separate condensed financial statements of The Southern Banc Company, Inc. (the Parent Company) as of and for the years ended June 30, 2005 and
2004 are presented below:
Statements of Financial Condition
June 30, 2005 and 2004
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
429 |
|
|
744 |
|
Investment in subsidiary |
|
|
16,212 |
|
|
16,397 |
|
ESOP loan receivable |
|
|
20 |
|
|
126 |
|
Other assets |
|
|
74 |
|
|
8 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,735 |
|
|
17,275 |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Other liabilities |
|
$ |
32 |
|
|
22 |
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
Common stock |
|
|
15 |
|
|
15 |
|
Additional paidin capital |
|
|
13,997 |
|
|
13,910 |
|
Retained earnings |
|
|
11,697 |
|
|
11,341 |
|
Unearned compensation |
|
|
|
|
|
(71 |
) |
Shares held in trust |
|
|
(868 |
) |
|
(495 |
) |
Treasury stock |
|
|
(7,923 |
) |
|
(7,347 |
) |
Accumulated other comprehensive income |
|
|
(215 |
) |
|
(100 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
16,703 |
|
|
17,253 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
16,735 |
|
|
17,275 |
|
|
|
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Statements of Income
Years ended June 30, 2005 and 2004
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Income: |
|
|
|
|
|
|
|
Interest |
|
$ |
8 |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
19 |
|
Expense |
|
|
(77 |
) |
|
(120 |
) |
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity in undistributed income of subsidiaries |
|
|
(69 |
) |
|
(101 |
) |
|
|
|
Benefit for income taxes |
|
|
27 |
|
|
39 |
|
|
|
|
|
|
|
|
|
(Loss) income before equity in undistributed income of subsidiaries |
|
|
(42 |
) |
|
(62 |
) |
Equity in undistributed current year income of subsidiaries |
|
|
692 |
|
|
639 |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
650 |
|
|
577 |
|
|
|
|
|
|
|
|
|
(Continued)
THE SOUTHERN BANC COMPANY, INC.
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
Statements of Cash Flows
Years ended June 30, 2005 and 2004
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
650 |
|
|
577 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Equity in undistributed current years earnings of subsidiaries |
|
|
(692 |
) |
|
(639 |
) |
(Increase) decrease in other assets |
|
|
(66 |
) |
|
3 |
|
Increase in other liabilities |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(98 |
) |
|
(59 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Payments received on ESOP loan |
|
|
112 |
|
|
106 |
|
Purchase of treasury stock |
|
|
(576 |
) |
|
(1,164 |
) |
Dividends received from subsidiary |
|
|
1,000 |
|
|
|
|
Cash dividends paid to shareholders |
|
|
(294 |
) |
|
|
|
Purchase of shares to fund option trust |
|
|
(864 |
) |
|
|
|
Proceeds from stock options exercised |
|
|
405 |
|
|
(357 |
) |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(217 |
) |
|
(1,415 |
) |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(315 |
) |
|
(1,474 |
) |
|
|
|
Cash and cash equivalents, beginning of year |
|
|
744 |
|
|
2,218 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
429 |
|
|
744 |
|
|
|
|
|
|
|
|
|
CORPORATE INFORMATION
Directors and Executive Officers:
Gates Little
Chairman of the Board, President and Chief
Executive Officer of the Company and of the Bank
Craig G. Cantrell
Retired
Thomas F. Dowling, III
Dentist
Grady Gillam
Retired
Rex G. Keeling, Jr.
Pharmacy Consultant and Real Estate Investor
James B. Little, Jr.
Investment Officer of the Bank and Vice
President of the Company
James B. Little, III
New Capital Partners, LLC
Founder and
Partner
Fred Taylor
Owner of Taylor Realty
Officers:
Rodney Rich
Vice President of the Bank
Janice Stephens
Comptroller of
the Bank
Teresa Elkins
Vice President of the Bank
Peggy Smith
Secretary-Treasurer of the Company and of the
Bank
Martha Garrett
Vice President of the Bank
Annette Espy
Vice President of the Bank
Judy Cater
Vice President of the Bank
Main Office:
221 S. 6th Street
Gadsden, Alabama
Branch Offices:
202 Sand Mountain Drive
Albertville, Alabama
2204 Henry Street
Guntersville, Alabama
390 W. Main Street
Centre, Alabama
Independent Registered Public Accountants:
Barfield Murphy Shank & Smith PC
Birmingham, Alabama
General Counsel:
Inzer, Haney & McWhorter, P.A.
Gadsden, Alabama
Securities and Regulatory Counsel:
Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P.
Washington, D.C.
Annual Stockholders Meeting:
November 9, 2005 - 5:00 p.m.
The
Southern Bank Company
221 S. 6th Street
Gadsden, Alabama
Record Date September 16, 2005
A copy of the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005 as filed with the SEC will be furnished to stockholders as of the Record Date upon written request to the Secretary of the Company, 221 South 6th Street, Gadsden, AL 35901.
THE SOUTHERN BANC COMPANY, INC.
221 SOUTH 6TH STREET GADSDEN, ALABAMA 35901 (256) 543-3860
EX-21
3
dex21.htm
SUBSIDIARIES
SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
The Southern Banc Company, Inc.
|
|
|
|
|
|
Subsidiaries (1)
|
|
State or Other Jurisdiction of Incorporation
|
|
Percentage Ownership
|
|
The Southern Bank Company |
|
United States |
|
100 |
% |
|
|
|
First Service Corporation |
|
Alabama |
|
100 |
% |
(1) |
The assets, liabilities and operations of the subsidiaries are included in the consolidated
financial statements attached hereto as an exhibit. |
EX-23.1
4
dex231.htm
CONSENT OF KPMG
CONSENT OF KPMG
EXHIBIT 23.1
CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
of The Southern Banc Company, Inc.
We consent to the incorporation by reference in the registration statement No. 333-3546 on Form S-8 of The Southern Banc Company, Inc.
of our report dated August 12, 2005 with respect to the consolidated statement of financial condition of The Southern Banc Company, Inc. as of June 30, 2005, and the related consolidated statements of income, stockholders equity, and
cash flows for the year then ended, which report appears in the June 30, 2005 annual report on Form 10-KSB of The Southern Banc Company, Inc.
|
/s/ Barfield, Murphy, Shank & Smith, P.C. |
|
Birmingham, Alabama |
September 27, 2005 |
EX-23.2
5
dex232.htm
CONSENT OF BARFIELD, MURPHY, SHANK & SMITH
CONSENT OF BARFIELD, MURPHY, SHANK & SMITH
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
The Southern Banc Company, Inc.
We consent to the incorporation by reference in the Registration Statement No. 3333546 on Form S8 of The Southern Banc Company, Inc. of our report dated
August 3, 2004, with respect to the consolidated statement of financial condition of The Southern Banc Company, Inc. as of June 30, 2004 and the related consolidated statements of income, stockholders equity, and cash flows for the
year then ended, which report appears in the June 30, 2005 Annual Report on Form 10KSB of The Southern Banc Company, Inc.
|
/s/ KPMG LLP |
|
Birmingham, Alabama |
September 27, 2005 |
EX-31
6
dex31.htm
CERTIFICATIONS
CERTIFICATIONS
EXHIBIT 31
CERTIFICATIONS
I, Gates Little, certify that:
1. |
I have reviewed this annual report on Form 10-KSB of The Southern Banc Company, Inc.; |
2. |
Based on my knowledge, this 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 report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the small business issuer as of, and for, the periods presented in this report; |
4. |
The small business issuers 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)) for the small business issuer and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
evaluated the effectiveness of the small business issuers 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 |
|
c) |
disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent
fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial
reporting; and |
5. |
The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small
business issuers auditors and the audit committee of the small business issuers board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers
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 small business issuers internal control over financial
information. |
|
|
|
|
|
Date: September 28, 2005 |
|
By: |
|
/s/ Gates Little
|
|
|
|
|
Gates Little |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
(Chief Executive Officer and Chief Financial Officer) |
|
|
|
|
|
EX-32
7
dex32.htm
CERTIFICATIONS
CERTIFICATIONS
EXHIBIT 32
CERTIFICATION PURSUANT TO
18
U.S.C. SECTION 1350
In connection with the Annual Report
on Form 10-KSB for the period ended June 30, 2004 (the Report) of The Southern Banc Company, Inc. (the Company), as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Chief Executive
Officer and Chief Financial Officer of the Company, hereby certifies that to the best of my knowledge:
|
1) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered
in the Report. |
|
|
|
|
|
Date: September 28, 2005 |
|
By: |
|
/s/ Gates Little
|
|
|
|
|
Gates Little |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
(Chief Executive Officer and Chief Financial Officer) |
A signed original of
the written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The
information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
EX-99
8
dex99.htm
PRESS RELEASE
PRESS RELEASE
EXHIBIT 99
|
|
|
For Immediate Release |
|
Contact: Gates Little |
|
|
(256) 543-3860 |
|
|
September 28, 2005 |
THE SOUTHERN BANC
COMPANY, INC. ANNOUNCES
2005 ANNUAL EARNINGS
The Southern Banc Company, Inc. (OTCBB: SRNN), the holding company for The Southern Bank Company, formerly First Federal
Savings and Loan Association of Gadsden, Alabama, announced net income of $650,000, or $0.78 per basic and $0.76 per diluted share, for the year ended June 30, 2005, as compared to net income of $577,000, or $0.66 per basic and $0.63 per
diluted share, for the year ended June 30, 2004.
Gates
Little, President and Chief Executive Officer of the Company, stated that the increase in net income and earnings per share for the year ended June 30, 2005, was primarily attributable to an increase in non-interest income of approximately
$301,000, or 128.2%, offset in part by a decrease in the net interest margin of approximately $157,000 and an increase in non-interest expense of approximately $56,000. The increase in non-interest income was primarily attributable to a gain on the
sale of stock owned by the Company in its data processing service bureau. The decrease in the net interest margin was primarily attributable to a decrease in interest income of approximately $40,000 (primarily interest and dividends on securities),
and an increase in total interest expense of approximately $116,000, during a period of rising interest rates. The increase in non-interest expense was primarily due to an increase in office building and equipment expense related to an upgrade of
the teller platform and operating system.
For the three month
period ended June 30, 2005, the Company reported net income of $288,000, or $0.35 per basic and $0.34 per diluted share, as compared to net income of $121,000, or $0.14 per basic and diluted share. The increase in net income and earnings per
share for the three month period ended June 30, 2005, were primarily attributable to a gain on the sale of stock owned by the Company in its data processing service bureau of approximately $329,000, offset in part by a decrease in the net
interest margin of $44,000, an increase in provision for income tax of approximately $74,000 and an increase in non-interest expense of approximately $35,000 due to an operating system upgrade.
The Companys total assets at June 30, 2005 were $104.8 million, as
compared to $106.4 million at June 30, 2004. Total stockholders equity at June 30, 2005, was $16.7 million, or 15.9% of total assets.
The Bank has four offices located in Gadsden, Albertville, Guntersville, and Centre, Alabama. The stock of The Southern Banc Company, Inc. is listed on
the OTC Bulletin Board.
Certain statements in this release contain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements can generally be identified by the use of forward-looking terminology, such as may, will,
expect, estimate, anticipate, believe, target, plan, project, continue, or the negatives thereof, or other variations thereon or similar terminology, and
are made on the basis of managements plans and current analyses of the Company, its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors, in some cases, have affected, and in the future could affect the Companys financial performance and could cause actual
results to differ materially from those expressed or implied in such forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
(Selected financial data attached)
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Financial Condition
June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
Cash on hand and in other banks |
|
$ |
2,364,078 |
|
|
3,169,215 |
|
Interestbearing deposits in other banks |
|
|
1,742,422 |
|
|
2,564,790 |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
4,106,500 |
|
|
5,734,005 |
|
|
|
|
Securities available for sale, at fair value |
|
|
59,403,333 |
|
|
56,717,031 |
|
|
|
|
Securities held to maturity (fair value of $3,788,749 and $4,474,510, respectively) |
|
|
3,660,129 |
|
|
4,194,141 |
|
Federal Home Loan Bank stock |
|
|
508,900 |
|
|
792,300 |
|
Loans receivable, net of allowance for loan losses of $135,472and $144,298 , respectively |
|
|
35,530,975 |
|
|
37,476,587 |
|
Accrued interest and dividends receivable |
|
|
440,952 |
|
|
439,616 |
|
Premises and equipment, net |
|
|
608,840 |
|
|
485,565 |
|
Prepaid expenses and other assets |
|
|
551,744 |
|
|
514,140 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
104,811,373 |
|
|
106,353,385 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
Deposits |
|
$ |
81,736,517 |
|
|
82,005,081 |
|
|
|
|
Federal Home Loan Bank advances |
|
|
6,083,334 |
|
|
6,916,667 |
|
Other liabilities |
|
|
288,579 |
|
|
178,970 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
88,108,430 |
|
|
89,100,718 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share. Authorized 500,000shares; no shares issued and outstanding |
|
|
|
|
|
|
|
Common stock, par value $0.01 per share. Authorized 3,500,000shares; issued 1,454,750 shares in 2005 and 2004 |
|
|
14,548 |
|
|
14,548 |
|
Additional paid-in capital |
|
|
13,997,847 |
|
|
13,910,384 |
|
Retained earnings |
|
|
11,696,782 |
|
|
11,340,830 |
|
Unearned compensation |
|
|
|
|
|
(70,715 |
) |
Shares held in trust, at cost, 49,355 and 34,799 shares in |
|
|
|
|
|
|
|
2005 and 2004, respectively |
|
|
(868,350 |
) |
|
(495,412 |
) |
Treasury stock, at cost, 595,090 and 562,452 shares in |
|
|
|
|
|
|
|
2005 and 2004, respectively |
|
|
(7,923,346 |
) |
|
(7,346,782 |
) |
Accumulated other comprehensive loss |
|
|
(214,538 |
) |
|
(100,186 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
16,702,943 |
|
|
17,252,667 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
104,811,373 |
|
|
106,353,385 |
|
|
|
|
|
|
|
|
|
THE SOUTHERN BANC COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Twelve Months Ended June 30,
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
509 |
|
536 |
|
2,041 |
|
2,243 |
Interest and dividends on securities available for sale |
|
|
658 |
|
589 |
|
2,602 |
|
2,329 |
Interest and dividends on securities held to maturity |
|
|
59 |
|
80 |
|
264 |
|
392 |
Other interest income |
|
|
19 |
|
7 |
|
60 |
|
43 |
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,245 |
|
1,212 |
|
4,967 |
|
5,007 |
|
|
|
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
511 |
|
428 |
|
1,937 |
|
1,780 |
Interest on borrowings |
|
|
71 |
|
77 |
|
299 |
|
340 |
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
582 |
|
505 |
|
2,236 |
|
2,120 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
663 |
|
707 |
|
2,731 |
|
2,887 |
Provision for loan losses |
|
|
10 |
|
|
|
15 |
|
11 |
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
653 |
|
707 |
|
2,716 |
|
2,876 |
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
Customer Service Fees |
|
|
34 |
|
30 |
|
122 |
|
125 |
Gain on sale of securities |
|
|
329 |
|
|
|
362 |
|
63 |
Miscellaneous Income, net |
|
|
11 |
|
14 |
|
52 |
|
47 |
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
374 |
|
44 |
|
536 |
|
235 |
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
329 |
|
323 |
|
1,272 |
|
1,244 |
Office building and equipment expenses |
|
|
55 |
|
19 |
|
178 |
|
81 |
Professional Service Expense |
|
|
48 |
|
49 |
|
200 |
|
238 |
Data Processing Expense |
|
|
64 |
|
53 |
|
237 |
|
213 |
Other operating expense |
|
|
80 |
|
97 |
|
322 |
|
377 |
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
576 |
|
541 |
|
2,209 |
|
2,153 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
451 |
|
210 |
|
1,043 |
|
958 |
Provision for income taxes |
|
|
163 |
|
89 |
|
393 |
|
381 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
288 |
|
121 |
|
650 |
|
577 |
|
|
|
|
|
|
|
|
|
|
Earnings per share - Basic |
|
$ |
0.35 |
|
0.14 |
|
0.78 |
|
0.66 |
Earnings per share - Diluted |
|
$ |
0.34 |
|
0.14 |
|
0.76 |
|
0.63 |
|
|
|
|
|
Dividends declared per share |
|
$ |
0.0875 |
|
0.0875 |
|
0.3500 |
|
0.3500 |
THE SOUTHERN BANC COMPANY, INC.
Consolidated Statements of Cash Flows
Years ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
649,596 |
|
|
577,354 |
|
Adjustments to reconcile net income to net cash provided byoperating activities: |
|
|
|
|
|
|
|
Depreciation |
|
|
60,125 |
|
|
44,989 |
|
Amortization of premiums on securities, net |
|
|
71,725 |
|
|
253,465 |
|
Amortization of intangible asset |
|
|
|
|
|
12,115 |
|
Amortization of unearned compensation |
|
|
158,178 |
|
|
177,934 |
|
Provision for loan losses |
|
|
15,000 |
|
|
11,600 |
|
Deferred income tax provision |
|
|
15,888 |
|
|
1,230 |
|
Gain on loans held for sale |
|
|
(12,598 |
) |
|
(18,953 |
) |
Proceeds from sale of loans held for sale |
|
|
1,849,738 |
|
|
1,265,653 |
|
Loans originated for sale |
|
|
(1,837,140 |
) |
|
(1,196,700 |
) |
Gain on sale of available for sale securities |
|
|
(358,231 |
) |
|
(62,490 |
) |
Change in assets and liabilities: |
|
|
|
|
|
|
|
Decrease (increase) in accrued interest and dividends receivable |
|
|
(1,336 |
) |
|
43,343 |
|
Decrease (increase) in prepaid expenses and other assets |
|
|
(37,604 |
) |
|
730 |
|
Increase in other liabilities |
|
|
109,609 |
|
|
977 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
682,950 |
|
|
1,111,247 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchase of securities available for sale |
|
|
(19,707,703 |
) |
|
(29,144,626 |
) |
Purchase of securities held to maturity |
|
|
(1,000,000 |
) |
|
|
|
Proceeds from maturities and principal payments on securitiesavailable for sale |
|
|
14,225,146 |
|
|
21,172,190 |
|
Proceeds from sales of securities available for sale |
|
|
2,974,330 |
|
|
2,983,710 |
|
Proceeds from maturities and principal payments on securitiesheld to maturity |
|
|
1,542,949 |
|
|
3,030,968 |
|
Sale of Federal Home Loan Bank stock |
|
|
283,400 |
|
|
93,700 |
|
Loan repayments, net |
|
|
1,930,612 |
|
|
1,429,420 |
|
Capital expenditures, net |
|
|
(183,400 |
) |
|
(23,778 |
) |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
65,334 |
|
|
(458,416 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(576,564 |
) |
|
(1,164,391 |
) |
Purchase of shares of common stock to fund Trust |
|
|
(863,826 |
) |
|
|
|
Federal Home Loan Bank (repayments) advances |
|
|
(833,333 |
) |
|
(833,333 |
) |
Cash dividends paid |
|
|
(293,644 |
) |
|
(318,548 |
) |
Decrease in deposits, net |
|
|
(268,564 |
) |
|
(2,352,228 |
) |
Proceeds from short-term borrowings |
|
|
55,000 |
|
|
|
|
Proceeds from exercise of stock options |
|
|
405,142 |
|
|
356,729 |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,375,789 |
) |
|
(4,311,771 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,627,505 |
) |
|
(3,658,940 |
) |
|
|
|
Cash and cash equivalents, beginning of year |
|
|
5,734,005 |
|
|
9,392,945 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
4,106,500 |
|
|
5,734,005 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
Income taxes, net of refund received |
|
$ |
279,168 |
|
|
357,785 |
|
Interest |
|
|
2,234,355 |
|
|
2,124,322 |
|
GRAPHIC
9
g34960image001.jpg
GRAPHIC
begin 644 g34960image001.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````9```_^X`#D%D
M;V)E`&3``````?_;`(0``0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!
M`0$!`0$!`0$!`0$!`0("`@("`@("`@("`P,#`P,#`P,#`P$!`0$!`0$"`0$"
M`@(!`@(#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#`P,#
M`P,#`P,#`P,#_\``$0@`(0#K`P$1``(1`0,1`?_$`'(``0`"`@,!`0$`````
M```````'"`4)!`8*`@$#`0$`````````````````````$``!!`,``00"`0`(
M!P`````&`P0%!P$""``1$A0)$Q46(4$B(R07-UFN/7.<8\"I=2?8IP]?=EMZBI7I
MVJ+3.WSB691#$%(,$<&0R4%![E$S#BYK&H+A)3.Q8NEO*+L(Z1=/$XU/=UE/
M#?393`70\#IM@V&"U.%D5BV86P`*""4?O*$I:42;6'@H6/T431^2_D'BB2"&
MFZZVB>F,Y]RBF^NFN,[;8QD.XZ[8VUQMKG&VNV,;:YQ_3C.,X]<9QG^O&<>!
M7-STX!)]80G'C)@22UFOZ(*.A9V3CV#;<0"PF".!``AV1/,+/$54"8WFRA;>
M*9((KJ*-(EXLK^)/5+*@9^QNBJ@JJS*/ILU+FT=9W1A&3#51!C=NZD)LHR*_H.\^:^>R`//R
M0\ZEDS*-KUW`;UQ`B,?L!:C*Y'K.E5I6-7,8_FTXXGT>M!^!S-E$BQ9/5VD8
MLFU5VP$SE5WT^#SI"+E]E!@X2"573=VE$%+3\>TEA^H1MWNPG+)F&"BV',>&
MQKU+=)1^KKJAA1/?7&V@=Y'""&+1^"*AQ^C*CQ-#19!`RC?"FK>2AIID
MA)1;]#"VB:N$7C%SHIKC;77;V[8]<8S_`$>!F?`>`\!X#P-3KT]M2U?M2'@J
M).RB`JGFZ$*VTQ6T3(9CQHVE9"D1(@+S`Y09Z**$'Q7G2P"T&FKM1-%HXB)I
MQJGLIE%3(7,YSZLK'J-6W-ZM:&&\/4-DKUH[)B,>_1P!VZ0'X0@U+ZW-<,7SL++>!@QZR:N4T\[9TP%
M:.J[HL,<(0.CJ7GA8)L4_'#RSBZUS>(P1BM*4/4BHPE8Y^H-8D8S!(6O)$RC
M(N"9N%4X_5PZ6>.]MD&6S9R$X\ZS5DD?/M%$-S,THZX)ZFZQFK6CT(W],@QL
MF4"81\=,T8C\BOZI)L4+NM-6WNV_!C7V>N?;Z^!(L,5"Y$\(8\?)(&=?B,Q@
M>*V,-,1\F\&)_,FF,[;[[[[9QKKIKKCUSG/]&,>!"?./0E;=54
ML#W[4+V7?UW8324=CKB?@Y`:FLZ0T]*C<@E)0,JFC(QCE"6AE],IK::[>W7&
MWIZ9QX$W^`\")[R&:8*:J,F_0@B!&U/P<4H;&T)9@S"EX4G&`>^ACK-S,"0L
M9**=:CCB$T?I;J([Y16;ZJ:^FVN,X#RQ\56-=]1=P&/1?<,>`NZKL&AKA[-Y
M2I8/8V9PP919
MA*RA^-,!)G#PVSU-_-33;9B]=M-M'&X<_P"Q(B$.@+YY[X??2<5*`T4K*]6=
M;M_V+;:*`Z:I=^+R0[O9F^NJN@_%E$I++N8O#A1LX4D(UL[0U52;+[)AQJR^
MR`4L+M85ICF1@8](@O0ZX%:IL>SQ]M`0%"@4_P`E5W:T$_JZKY8/_EF`-R%D
MH%,D"LHM#LVY'9K-LVW\2:2Z<[*ZTCZA*+FMRW[WN7F3D^K1
MF6&!Y^9@/.Q)%@MJGTB7$$OJ.!E>*P$TWQ!(*?BT)%G+)@V=R$HQ:O0^OJ
MDM1[]H/8-\_9A95;)UJ]YHAI?Z_J9K)0Q2/H\-*X`IE"OHFR(&<_0"ZBVI]A
M^/1K5RI'M7.6;%REMK[,XSD-U76HI0A=SA<#3IV('I:CH0'GC,^4)?1%I`1(
M4P7*/Y='R>GM?#Y")JQ>LA&R3/=)\P>MTUVV^BVFFV`\=EE/;N-`+GKFJ\YN
M5)NO?LHY=J)G;4Z^W4Q-#_/%SVF%TQ5;.==J*KHO&(H1!@,J:,%LZHRCXQ(,
MY3]KU=+P/8&"WYS9`F8[RX%&$3'EPLYG:J%*_:1LYIKKM3E=5X6$\+"/\QN8
MAZP`PRP(%-ZX3<;-VSMUACLI\U-5#0,(S[4I*4HX7OF'E'([6ZG4K6THE\[BF%?+P/\`*,%,VM*[MM(.+;CO^,7W
M=92RV1QME7&F==L8#RN7;W38M`.^XNS@\")FP]VUT[5_*P8P?R\5`]!5DP4Y
M+YRE:;LFI`,G=1,?/2-D55*392H*/=X\GC")U$1[U'+A%PT;AM@^MGIVBWH0
MQ%0YN9S1S9,RI8=K1@;5EH;A',";7Y=!U71EOSI$)#NP`>5/7W/;`.F6#YHS
M?HR0^O*/V<>R?MEE`V&IA7M6NS1RS=+1D_A"`R/Y
MI@$3S>OX&T#$9#*^&)<@Y^%(\*-&K2>)V:>Y#&1+1EEN]PLOC1!NHX\"C7V1
MW_2@EU[3CBPK6:A'.:H*7\W=K'+B%=2HG'M#?(ET%5%$(D,>XPNT,KFAJSE6
M,A8'F@^ZS;R$4^CHR2NDBA2@7!FX57T+'13E4[,IN>)(-G(O]E]=V2T_!Z>
MQSH^V4:!KKWZZ/I?LGZ[>8>H9IR^M&NQP(LKH@8KZ.01AI+M?HP3*W50TTT;
M,7C)N]">>JNCS@!
MV];_`-AZLJN1">?;RLAS8576`@-,+OMZF)BI`(U:$LI0]?DDTZ5S4;"Q9&7G5B*/"0%&.344T=K-]7ZKG5';*
M.-/`V$^!KWZ[^OV/ZS_S!:*=-]+TD,V]6S2J;9!*B(J^3!ST8;*S.JCQ_#'=
M2_P!17,\Y2\M4C\VZ(T(BFW16
M\#KH>/MYY%])'1\#QJN
M`@T%^A+D6NJ_@`89M+J).0K\EK0@ID_E+)$IXRHUG4A&6&`:+5>E-5P_#XL=
MU+3-W+2&'D2^>2DOHV?N7"CMJW63"!:D^BV@#B_OLDF^GQ.Z;&&K;GJAJVI[
M1L+H:WY>U#NMXOF2O%+!,YTM8FK+)$J\N`MFV3=K)-%HR.V@DT6;-%HGHED+
MZS7U#\BR16-F<,[ONNYUE5E4TM8J]2]"6C5B?0M:TF.L12MAOH1,%GX/_,M,
M>'F/P]5ULH.56JRS=139!79+(8"5^F_EE(_5.*K.NGN:X]:&G1K-:\[,A.LJ#&'<$U!7UAUB*D<35\_$L)M%OEH7R&95JSEWSJ1VUE
M&K!OLYQNLEA78.Y]"3$"5G-:
MN'+:1BT(6.M6:'D64RXPFZ26AG#UI\?;5U[DPZ#U_P`.#]S.WE[U9%CT3UN#
M#5+,*@*R=W((".&?/G0@WTR+5O-(1Z#S>"$C\R&,1,V^9-E7B4:[]^FBNS=)
M/(560^J`_?6MITB*=C7C0EE$._04@H!P\%41\.55&]?DB%E7V+B,Z[$8Q[,F
M[.P4&>L$8/-G*D=&0K%HFRW13S[@H`.?7\06']B9=R72'7MXT_2_UF@L'T=1
M3@#@0=RG1'3?:1$7O5PZ7T+(XFCK3B$:>B2IQLQD$6:;9@?Y323TQC*KD+6)
M_17Q/"H5HWZ=O_HCH"[7+"SJ[IFQK2M1A'E0[8MH$KVZB`]H4$&H)A`"=MBY
M%#292C,,&3EZT3T>O)!1=JVUV;!(G7WUQ([4MT-TV3]4]93_`%H$.541=RL[)69'BD=IJC
MKGX[!=RMOCVZ>G@56N?ZHXBP9703K7I2_P"B^;RHG6.K2YX$"85*:JDB"')!
MTQ%X,!KZT`,]&P`#E2YF\DB&$993@Y/?;#?>.40<.,8"1!/ZV0H4OSF:TE[`
M+SH-YBA+X*1T;LQZN:F9KTU?L[&[D71M@&[Y9%*<+8,+_9PT2EHP13B6LGE)
ME\9J@@VT#7^Q^D,U*G8CN;]$&(U7%I]NVMV'WMSD-D"3NL.BB(@7LE.`;1$X
MU%84Y:B9EJY&/Y$)2DBZ'%8Y)VGAON\]'"H6W!OKH@BN4.N
M)T`EK+#+!YGBK"8AT=4(JY!JJ%:E<"EGU0@/"XN)/-VV6D@WD]=EO[Y/\6-]
MT]@Y=??4V'TB&45N.UFE]5C,Z;CY
MZ*$5JS[^98,='3)[`*.->+I:*)[[:JZA"787)`#U!Q
M3>7'.1<8C`NS*:FZR%X!!MJ/"PF]1B]<5\^CFD&QW3AV8.21\>^:)M6_M1V9
M)XTT],8QX&EIA]`-IR=9\H\X7%W>^OCECF'J43OW_*/]4FVD9^9-5%?_#8;AF-/H]MQ^^Z$L:$Z!!ZHN'JT
MR^RD;N`C6`R"VEX'G7M2_A*R@('J67P:5BZ$90&':]^0X053%3>OHO5A&L!>P9RT
M&LUS\FZ422_-D>V?.]D$M4,/,(^_3
U98#
M^\R"=L?G@RB(43@YTLJBQ"EN0F#@GL-@',VI$\(G<[F3B]/UN^F(_'QO`FBZ
M*>LSG(&(NBH^XND^P+V!!S4*YTKFQU!52NHBU[0>-*LDKZC:UKQG)NV2A
MALG,S\CHZ4BQU:2V1V:Z*K[;!8R)Y+A'O356]>V*4R!I')S5\)1[/^Y5T3;1B.[?'OU5V]`P-S\O6;9;VMK0%
MKU:@'2=*$5O+UG9*-:LIL%=5W:TKCYE2V16;@E:."P9U&86!1<.VDU%R*DO"
M)2*"C?W[M?\`A*)GYJ.F
M5K6%*V01P[B);8CVV[V,9,FZKU/VJ[N]5D`FK^*VU_NU%_Z2_P`5_P!.(_\`
MU:_W:_\`8/\`Q?\`\W_T_P#W?@2SX#P'@/`>`\!X#P'@/`Z(+UB`!1391L*B
MD1!EMPD4*6V<0,D-M),T(AP*&JZ@9.:<;[[[+*Q(2'QL>AIK[$]$6V,XU]^Z
MFVX5`ZCM."YSONB^A;4BR%*B(2KKSJPPL>#%9HNC:B+;$+J#GQ,D.6@W&2\R
M/`\]'5W)L74[E'X$6XPAH[422=?DU"&.E^PJAZCJ$NY>XSLT4Z!N'HT7DJJ3
MD*AEX\\&:;!;"8J#9O`\!X#
MP'@/`>`\!X#P'@/`>`\!X#P'@/`>`\!X#P'@/`>`\!X#P'@/`>`\!X#P'@/`
/>`\!X#P'@/`>`\!X'__9
`
end
-----END PRIVACY-ENHANCED MESSAGE-----