þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Missouri
(State or other jurisdiction of incorporation or organization) |
43-1626350
(I.R.S. Employer Identification No. ) |
|
300 Southwest Longview Boulevard, Lees Summit, Missouri
(Address of principal executive offices) |
64081
(Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
None | N/A |
Large accelerated filer o | Accelerated filer þ |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
| On April 7, 1993 our Company acquired all of the issued and outstanding capital stock of The Exchange National Bank of Jefferson City, a national banking association, pursuant to a corporate reorganization involving an exchange of shares; | ||
| On November 3, 1997, our Company acquired Union State Bancshares, Inc., and Unions wholly-owned subsidiary, Union State Bank and Trust of Clinton; | ||
| Following the May 4, 2000 acquisition of Citizens State Bank of Calhoun by Union State Bank, Citizens State Bank merged into Union State Bank to form Citizens Union State Bank & Trust; | ||
| On January 3, 2000, our Company acquired Osage Valley Bank; | ||
| On June 16, 2000, Hawthorn acquired City National Savings Bank, FSB, which was then merged into Exchange National Bank; and | ||
| On May 2, 2005, our Company acquired all of the issued and outstanding capital stock of Bank 10, a Missouri state bank. |
2
3
| taking any action that causes a bank to become a controlled subsidiary of the bank holding company; | ||
| acquiring direct or indirect ownership or control of voting shares of any bank or bank holding company, if the acquisition results in the acquiring bank holding company having control of more than 5% of the outstanding shares of any class of voting securities of such bank or bank holding company, and such bank or bank holding company is not majority-owned by the acquiring bank holding company prior to the acquisition; | ||
| acquiring substantially all of the assets of a bank; or | ||
| merging or consolidating with another bank holding company. |
| securities underwriting, dealing and market making; | ||
| sponsoring mutual funds and investment companies; | ||
| insurance underwriting and insurance agency activities; | ||
| merchant banking; and | ||
| activities that the FRB determines to be financial in nature or incidental to a financial activity or which is complementary to a financial activity and does not pose a safety and soundness risk. |
4
5
Leverage Ratio
(3% minimum requirement) |
Tier 1 Risk-Based
Capital Ratio (4% minimum requirement) |
Total Risk-Based
Capital Ratio (8% minimum requirement) |
||
10.80% | 13.55% | 16.01% |
6
Leverage Ratio
(5% minimum requirement) |
Tier 1 Risk-Based
Capital Ratio (6% minimum requirement) |
Total Risk-Based
Capital Ratio (10% minimum requirement) |
||
8.82% | 11.13% | 12.35% |
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| conducting open market operations in United States government securities; | ||
| changing the discount rates of borrowings of depository institutions; | ||
| imposing or changing reserve requirements against depository institutions deposits; and | ||
| imposing or changing reserve requirements against certain borrowings by bank and their affiliates. |
9
| customers may not want or need the products and services of our Bank, | ||
| borrowers may be unable to repay their loans, | ||
| the value of the collateral security of our Banks loans to borrowers may decline, | ||
| the number of loan delinquencies and foreclosures may increase, and | ||
| the overall quality of our Banks loan portfolio may decline. |
| our Banks ability to originate loans, | ||
| the value of our Banks loan and securities portfolios, | ||
| our Banks ability to realize gains from the sale of loans and securities, | ||
| the average life of our Banks deposits, and | ||
| our Banks ability to obtain deposits. |
10
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| the borrowers may not be able to repay their loans; | ||
| the value of the collateral securing our loans to borrowers may decline further; | ||
| the quality of our loan portfolio may decline further; and | ||
| customers may not want or need our products and services. |
12
13
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| other commercial banks | ||
| savings banks | ||
| savings and loan associations | ||
| mortgage banking companies | ||
| finance companies | ||
| credit unions |
| other commercial banks | ||
| savings banks | ||
| savings and loan associations | ||
| credit unions | ||
| brokerage firms | ||
| insurance companies | ||
| money market mutual funds | ||
| mutual funds (such as corporate and government securities funds) |
| potential exposure to liabilities of the banks and businesses acquired; | ||
| difficulty and expense of integrating the operations and personnel of the banks and businesses acquired; | ||
| difficulty and expense of instituting the necessary systems and procedures, including accounting and financial reporting systems, to manage the combined enterprises on a profitable basis; | ||
| potential disruption to our existing business and operations; | ||
| potential diversion of the time and attention of our management; and | ||
| impairment of relationships with and the possible loss of key employees and customers of the banks and businesses acquired. |
15
| telecommunications | ||
| data processing | ||
| automation | ||
| Internet-based banking | ||
| telebanking | ||
| debit cards and so-called smart cards |
16
Net Book Value at | ||||||||||||
Approximate | Owned or | December 31, 2008 | ||||||||||
Location | Square Footage | Leased | (in thousands) | |||||||||
8127 East 171
st
Street
|
13,000 | Owned | $ | 2,447 | ||||||||
Belton, Missouri
|
||||||||||||
4675 Gretna Road
|
11,000 | Owned | $ | 1,683 | ||||||||
Branson, Missouri
|
||||||||||||
1000 West Buchanan Street
|
2,270 | Owned | $ | 395 | ||||||||
California, Missouri
|
||||||||||||
102 North Second Street
|
11,524 | Owned | $ | 1,784 | ||||||||
Clinton, Missouri
|
||||||||||||
115 North Main Street
|
1,500 | Owned | $ | 305 | ||||||||
Clinton, Missouri
|
||||||||||||
1603 East Ohio
|
5,760 | Owned | $ | 162 | ||||||||
Clinton, Missouri
|
||||||||||||
1400 East Ohio Street
|
13,551 | Owned | $ | 3,579 | ||||||||
Clinton, Missouri
|
||||||||||||
1712 East Ohio Street
|
600 | Leased (1) | N/A | |||||||||
Clinton, Missouri
(inside a Wal-Mart store) |
||||||||||||
1101 North Highway 13
|
1,500 | Owned | $ | 23 | ||||||||
Collins, Missouri
|
||||||||||||
1110 Club Village Drive
|
5,000 | Owned | $ | 1,809 | ||||||||
Columbia, Missouri
|
||||||||||||
115 South 2
nd
Street
|
4,000 | Owned | $ | 304 | ||||||||
Drexel, Missouri
|
||||||||||||
100 Plaza Drive
|
4,000 | Owned | $ | 333 | ||||||||
Harrisonville, Missouri
|
||||||||||||
17430 East 39
th
Street
|
4,070 | Owned | $ | 789 | ||||||||
Independence, Missouri
|
||||||||||||
220 West White Oak
|
1,800 | Owned | $ | 110 | ||||||||
Independence, Missouri
|
||||||||||||
132 East High Street
|
34,800 | Owned | $ | 3,909 | ||||||||
Jefferson City, Missouri
|
||||||||||||
3701 West Truman
Boulevard |
21,000 | Owned | $ | 387 | ||||||||
Jefferson City, Missouri
|
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Net Book Value at | ||||||||||||
Approximate | Owned or | December 31, 2008 | ||||||||||
Location | Square Footage | Leased | (in thousands) | |||||||||
211 West Dunklin Street
|
2,400 | Owned | $ | 16 | ||||||||
Jefferson City, Missouri
|
||||||||||||
800 Eastland Drive
|
4,100 | Owned | $ | 873 | ||||||||
Jefferson City, Missouri
|
||||||||||||
300 S.W. Longview Boulevard
|
11,700 | Owned | $ | 2,500 | ||||||||
Lees Summit, Missouri
|
||||||||||||
335 Chestnut
|
1,580 | Owned | $ | 61 | ||||||||
Osceola, Missouri
|
||||||||||||
500 North Mott Drive,
|
462 | Leased (2) | N/A | |||||||||
# 103C
Raymore, Missouri
(in the Foxwood Springs Seniors Center) |
||||||||||||
595 VFW Memorial Drive
|
2,236 | Owned | $ | 64 | ||||||||
St. Robert, Missouri
|
||||||||||||
321 West Battlefield
|
12,500 | (3) | Owned | $ | 709 | |||||||
Springfield, Missouri
|
||||||||||||
445 South Moreau
|
1,962 | Owned | $ | 79 | ||||||||
Tipton, Missouri
|
||||||||||||
200 West Main Street
|
8,900 | Owned | $ | 190 | ||||||||
Warsaw, Missouri
|
||||||||||||
1891 Commercial Drive
|
11,000 | Owned | $ | 1,961 | ||||||||
Warsaw, Missouri
|
||||||||||||
125 South Main
|
3,600 | Owned | $ | 344 | ||||||||
Windsor, Missouri
|
(1) |
The term of this lease began in January 1999 and ends in January 2014.
|
|
(2) | The term of this lease can be terminated at any time upon thirty days notice. | |
(3) | Of the 12,500 square feet of space, 6,600 square feet of space is leased to a non-affiliate. |
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Name | Age | Position | ||||
James E. Smith
|
64 | Chairman, Chief Executive Officer and Director | ||||
David T. Turner
|
52 | President and Director | ||||
Richard G. Rose
|
57 | Chief Financial Officer | ||||
Kathleen L. Bruegenhemke
|
43 | Senior Vice President and Secretary |
19
(d) Maximum Number | ||||||||||||||||
(c) Total Number of | (or Approximate | |||||||||||||||
Shares (or Units) | Dollar Value) of | |||||||||||||||
Purchased as Part | Shares (or Units) | |||||||||||||||
(a) Total Number of | (b) Average Price | of Publicly | that May Yet Be | |||||||||||||
Shares (or Units) | Paid per Share | Announced Plans or | Purchased Under the | |||||||||||||
Period | Purchased | (or Unit) | Programs | Plans or Programs * | ||||||||||||
October 1-31, 2008
|
| | | $ | 333,038 | |||||||||||
November 1-30, 2008
|
| | | $ | 333,038 | |||||||||||
December 1-31, 2008
|
| | | $ | 333,038 | |||||||||||
Total
|
| | | $ | 333,038 |
* | On August 22, 2001, our Company announced that our Board of Directors authorized the purchase, through open market transactions, of up to $2,000,000 market value of our Companys common stock. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as, the timing of any such purchases. On November 26, 2002, our Company announced that our board of directors authorized an additional $2,000,000 for the purchase of our Companys stock through open market transactions. As a result of our participation in the U.S. Treasurys Capital Purchase Program, however, our ability to redeem, purchase or acquire any shares of our common stock is limited. Specifically, until December 19, 2011 we will not be permitted to redeem, purchase or acquire any shares of our common stock without the Treasurys approval unless the shares of our Fixed Rate Cumulative Perpetual Preferred Stock issued to the Treasury have been redeemed or transferred. Further, we will not be able to redeem, purchase or acquire any shares of our common stock if we are in arrears in the payment of dividends on the preferred stock issued to the Treasury. |
(i) | 30,255 shares of our Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series 2008, $0.01 par value per share, having a liquidation preference of $1,000 per share; and | ||
(ii) | a warrant to purchase 245,443 shares of our Companys common stock at an initial exercise price of $18.49 per share, subject to certain anti-dilution and other adjustments. |
20
| statements that are not historical in nature, and | ||
| statements preceded by, followed by or that include the words believes, expects, may, will, should, could, anticipates, estimates, intends or similar expressions. |
| competitive pressures among financial services companies may increase significantly, | ||
| changes in the interest rate environment may reduce interest margins, | ||
| general economic conditions, either nationally or in Missouri, may be less favorable than expected and may adversely affect the quality of our loans and other assets, | ||
| increases in non-performing assets in our loan portfolios and adverse economic conditions may necessitate increases to our provisions for loan losses, | ||
| costs or difficulties related to the integration of the business of Hawthorn and its acquisition targets may be greater than expected, | ||
| legislative or regulatory changes may adversely affect the business in which Hawthorn and its subsidiaries are engaged, and | ||
| changes may occur in the securities markets. |
21
(i) | the information under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations Interest Sensitivity and Liquidity in our Companys 2008 Annual Report to Shareholders; and | ||
(ii) | the information under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk in our Companys 2008 Annual Report to Shareholders. |
22
23
(i) | the information under the caption Item 1: Election of DirectorsWhat is the structure of our board and how often are directors elected? in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; | ||
(ii) | the information under the caption Item 1: Election of DirectorsWho are this years nominees? in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; | ||
(iii) | the information under the caption Item 1: Election of DirectorsWhat is the business experience of the nominees and of our continuing board members? in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; |
24
(iv) | the information under the caption Executive Officers of the Registrant in Part I of this report; | ||
(v) | the information under the caption Section 16(a) Beneficial Ownership Reporting Compliance in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; | ||
(vi) | the information under the caption Corporate Governance and Board MattersConsideration of Director Nominees in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and | ||
(vii) | the information under the caption Corporate Governance and Board MattersCommittees of the BoardAudit Committee in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. |
(i) | the information under the caption Executive Compensation and Related Matters in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; | ||
(ii) | the information under the caption Corporate Governance and Board MattersDirector Compensation in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and | ||
(iii) | the information under the caption Corporate Governance and Board MattersCompensation Committee Interlocks and Insider Participation in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. |
25
Number of | ||||||||||||
securities | ||||||||||||
remaining available | ||||||||||||
Number of | for future issuance | |||||||||||
securities to be | under equity | |||||||||||
issued upon | Weighted-average | compensation plans | ||||||||||
exercise of | exercise price of | (excluding | ||||||||||
outstanding | outstanding | securities | ||||||||||
options, warrants | options, warrants | reflected in column | ||||||||||
Plan category | and rights | and rights | (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation
plans approved by
security holders
|
266,835 | * | $ | 26.10 | 569,980 | ** | ||||||
Equity compensation
plans not approved
by security holders
|
-0- | -0- | -0- | |||||||||
|
||||||||||||
Total
|
266,835 | * | $ | 26.20 | 569,980 | ** | ||||||
|
* | Consists of shares reserved for issuance pursuant to outstanding stock option grants under our Companys incentive stock option plan. | |
** | Consists of 169,980 shares available for future issuance under our Companys incentive stock option plan and 400,000 shares available for future issuance under our Companys 2007 omnibus incentive plan. |
(i) | the information under the caption Related Party Transactions in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; | ||
(ii) | the information under the caption Item 1: Election of DirectorsWhat is the structure of our board and how often are directors elected? in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and | ||
(iii) | the information under the caption Corporate Governance and Board MattersCommittees of the Board in our Companys definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. |
(a) | Exhibits, Financial Statements and Financial Statement Schedules: | ||
1. | Financial Statements: |
26
2. | Financial Statement Schedules: |
3. | Exhibits: |
Exhibit No. | Description | |
|
||
3.1
|
Restated Articles of Incorporation of our Company (filed as Exhibit 3.1 to our Companys current report on Form 8-K on August 9, 2007 and incorporated herein by reference). | |
|
||
3.1.1
|
Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series 2008, dated December 17, 2008 (filed as Exhibit 3.1 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference). | |
|
||
3.2
|
Amended and Restated Bylaws of our Company (filed as Exhibit 3.2 to our Companys current report on Form 8-K on November 1, 2007 and incorporated herein by reference). | |
|
||
4.1
|
Specimen certificate representing shares of our Companys $1.00 par value Common Stock (filed as Exhibit 4 to our Companys Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). | |
|
||
4.2
|
Specimen certificate representing shares of our Fixed Rate Cumulative Perpetual Preferred Stock, Series 2008 (filed as Exhibit 4.2 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference). | |
|
||
4.3
|
Warrant to purchase shares of our Companys $1.00 par value Common Stock, dated December 19, 2008 (filed as Exhibit 4.1 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference). | |
|
||
10.1
|
Employment Agreement, dated November 3, 1997, between our Company and James E. Smith (filed as Exhibit 10.4 to our Companys Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference).* | |
|
||
10.2
|
Exchange National Bancshares, Inc. Incentive Stock Option Plan (filed as Exhibit 10.2 to our Companys Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).* |
27
Exhibit No. | Description | |
10.3
|
Form of Change of Control Agreement and schedule of parties thereto (filed as Exhibit 10.2 to our Companys Quarterly Report on Form 10-Q for the quarterly period March 31, 2005 and incorporated herein by reference).* | |
|
||
10.4
|
Letter Agreement dated December 19, 2008 by and between our Company and the United States Department of the Treasury, including the Securities Purchase Agreement Standard Terms (filed as Exhibit 10.1 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference). | |
|
||
10.5
|
Form of Waiver of our Companys Senior Executive Officers (filed as Exhibit 10.2 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference).* | |
|
||
10.6
|
Form of Letter Agreement between our Companys Senior Executive Officers and our Company (filed as Exhibit 10.3 to our Companys current report on Form 8-K on December 23, 2008 and incorporated herein by reference).* | |
|
||
13
|
Our Companys 2008 Annual Report to Shareholders (only those portions of this Annual Report to Shareholders which are specifically incorporated by reference into this Annual Report on Form 10-K shall be deemed to be filed with the Commission). | |
|
||
14
|
Code of Business Conduct and Ethics of our Company (filed as Exhibit 14 to our Companys Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference). | |
|
||
21
|
List of Subsidiaries | |
|
||
23
|
Consent of Independent Registered Public Accounting Firm. | |
|
||
24
|
Power of Attorney (included on the signature page to this Annual Report on Form 10-K). | |
|
||
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
|
||
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
|
||
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
||
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Management contracts or compensatory plans or arrangements required to be identified by Item 15(a). | |
(b) | Exhibits. | |
See exhibits identified above under Item 15(a)3. | ||
(c) | Financial Statement Schedules. | |
See financial statement schedules identified above under Item 15(a)2, if any. |
28
29
30
HAWTHORN BANCSHARES, INC.
Dated: March 13, 2009
By
/s/ James E. Smith
James E. Smith, Chairman of the Board
and Chief Executive Officer
Date
Signature and Title
/s/ James E. Smith
James E. Smith, Chairman of the Board and Chief
Executive Officer (Principal Executive Officer)
/s/ Richard G. Rose
Richard G. Rose, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
/s/ David T. Turner
David T. Turner, Director
/s/ Charles G. Dudenhoeffer, Jr.
Charles G. Dudenhoeffer, Jr., Director
/s/ Philip D. Freeman
Philip D. Freeman, Director
/s/ Kevin L. Riley
Kevin L. Riley, Director
/s/ Julius F. Wall,
Julius F. Wall, Director
/s/ Gus S. Wetzel, II
Gus S. Wetzel, II, Director
Table of Contents
Exhibit No.
Description
Page No.
Our Companys 2008 Annual Report to Shareholders (only
those portions of this Annual Report to Shareholders which
are specifically incorporated by reference into this Annual
Report on Form 10-K shall be deemed to be filed with
the Commission).
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (included on the signature page to this
Annual Report on Form 10-K).
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
Certification of Chief Executive Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
| statements that are not historical in nature, and | |
| statements preceded by, followed by or that include the words believes, expects, may, will, should, could, anticipates, estimates, intends or similar expressions. |
| competitive pressures among financial services companies may increase significantly, | |
| changes in the interest rate environment may reduce interest margins, | |
| general economic conditions, either nationally or in Missouri, may be less favorable than expected and may adversely affect the quality of our loans and other assets, | |
| increases in non-performing assets in our loan portfolios and adverse economic conditions may necessitate increases to our provisions for loan losses, | |
| costs or difficulties related to the integration of the business of Hawthorn and its acquisition targets may be greater than expected, | |
| legislative or regulatory changes may adversely affect the business in which Hawthorn and its subsidiaries are engaged, and | |
| changes may occur in the securities markets. |
3
4
Income Statement Data | ||||||||||||||||||||
( In thousands, except per share data) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Interest income
|
$ | 69,715 | $ | 74,207 | $ | 71,423 | $ | 57,340 | $ | 41,091 | ||||||||||
Interest expense
|
31,599 | 37,175 | 32,766 | 23,673 | 13,387 | |||||||||||||||
Net interest income
|
38,116 | 37,032 | 38,657 | 33,667 | 27,704 | |||||||||||||||
Provision for loan losses
|
8,211 | 1,154 | 1,326 | 1,322 | 942 | |||||||||||||||
Net interest income after
provision for loan losses
|
29,905 | 35,878 | 37,331 | 32,345 | 26,762 | |||||||||||||||
Security gains (losses), net
|
3 | (2 | ) | (18 | ) | (25 | ) | (8 | ) | |||||||||||
Other noninterest income
|
9,294 | 10,223 | 8,618 | 7,290 | 5,741 | |||||||||||||||
Total noninterest income
|
9,297 | 10,221 | 8,600 | 7,265 | 5,733 | |||||||||||||||
Noninterest expense
|
75,975 | 35,054 | 30,148 | 25,368 | 20,383 | |||||||||||||||
Income (loss) before income taxes
|
(36,773 | ) | 11,045 | 15,783 | 14,242 | 12,112 | ||||||||||||||
Income taxes (benefit)
|
(6,146 | ) | 3,245 | 4,908 | 4,327 | 3,807 | ||||||||||||||
Net income (loss)
|
(30,627 | ) | 7,800 | 10,875 | 9,915 | 8,305 | ||||||||||||||
Less: preferred stock dividends
|
66 | | | | | |||||||||||||||
Net income available to
common shareholders
|
$ | (30,693 | ) | $ | 7,800 | $ | 10,875 | $ | 9,915 | $ | 8,305 | |||||||||
|
||||||||||||||||||||
Dividends
|
||||||||||||||||||||
Declared on common stock
|
$ | 3,486 | $ | 3,504 | $ | 3,503 | $ | 3,503 | $ | 3,378 | ||||||||||
Paid on common stock
|
3,486 | 3,504 | 3,503 | 3,378 | 3,378 | |||||||||||||||
Ratio of total dividends
declared to net income
|
N.M. | 44.92 | % | 32.21 | % | 35.33 | % | 40.67 | % | |||||||||||
|
||||||||||||||||||||
Per Share Data
|
||||||||||||||||||||
Basic earnings (loss) per common share
|
$ | (7.39 | ) | $ | 1.87 | $ | 2.61 | $ | 2.38 | $ | 1.99 | |||||||||
Diluted earnings (loss) per common share
|
(7.39 | ) | 1.85 | 2.59 | 2.36 | 1.98 | ||||||||||||||
Basic weighted average shares of
common stock outstanding
|
4,155,749 | 4,171,163 | 4,169,847 | 4,169,847 | 4,169,847 | |||||||||||||||
Diluted weighted average shares of
common stock outstanding
|
4,155,749 | 4,210,844 | 4,204,547 | 4,198,859 | 4,204,752 | |||||||||||||||
5
(In thousands, except per share data) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Balance Sheet Data (at period end)
|
||||||||||||||||||||
Total assets
|
$ | 1,279,699 | $ | 1,195,804 | $ | 1,142,712 | $ | 1,126,470 | $ | 923,874 | ||||||||||
Loans
|
1,009,104 | 911,278 | 812,312 | 813,535 | 636,637 | |||||||||||||||
Investment securities
|
158,276 | 157,368 | 189,773 | 179,692 | 171,718 | |||||||||||||||
Total deposits
|
955,296 | 921,257 | 899,865 | 881,455 | 726,649 | |||||||||||||||
Subordinated notes
|
49,486 | 49,486 | 49,486 | 49,486 | 25,774 | |||||||||||||||
Other borrowed money
|
129,057 | 77,915 | 47,368 | 52,180 | 39,525 | |||||||||||||||
Common stockholders equity
|
78,530 | 111,199 | 104,945 | 96,733 | 91,771 | |||||||||||||||
Total stockholders equity
|
106,418 | 111,199 | 104,945 | 96,733 | 91,771 | |||||||||||||||
Balance Sheet Data (average balances)
|
||||||||||||||||||||
Total assets
|
$ | 1,251,496 | $ | 1,156,500 | $ | 1,146,150 | $ | 1,083,746 | $ | 896,044 | ||||||||||
Loans
|
963,252 | 848,771 | 824,706 | 743,382 | 601,363 | |||||||||||||||
Investment securities
|
165,310 | 177,062 | 189,720 | 208,760 | 197,933 | |||||||||||||||
Total deposits
|
914,218 | 921,257 | 899,865 | 982,360 | 799,787 | |||||||||||||||
Subordinated notes
|
49,486 | 49,486 | 49,486 | 44,614 | 20,352 | |||||||||||||||
Other borrowed money
|
124,025 | 53,626 | 56,757 | 48,430 | 35,502 | |||||||||||||||
Common stockholders equity
|
112,307 | 108,052 | 100,821 | 94,663 | 90,625 | |||||||||||||||
Total stockholders equity
|
113,375 | 108,052 | 100,821 | 94,663 | 90,625 | |||||||||||||||
|
||||||||||||||||||||
Key Ratios
|
||||||||||||||||||||
|
||||||||||||||||||||
Earnings Ratios
|
||||||||||||||||||||
Return (loss) on average total assets
|
(2.45 | )% | 0.67 | % | 0.95 | % | 0.91 | % | 0.01 | % | ||||||||||
Return (loss) on average
common stockholders equity
|
(27.33 | ) | 7.22 | 10.79 | 10.47 | 9.16 | ||||||||||||||
Efficiency ratio (3)
|
160.25 | 74.18 | 63.80 | 61.98 | 60.96 | |||||||||||||||
|
||||||||||||||||||||
Asset Quality Ratios
|
||||||||||||||||||||
Allowance for loan losses to loans
|
1.26 | 1.02 | 1.11 | 1.12 | 1.18 | |||||||||||||||
Nonperforming loans to loans (1)
|
2.46 | 0.67 | 0.62 | 1.11 | 0.96 | |||||||||||||||
Allowance for loan losses to
nonperforming loans (1)
|
50.94 | 152.54 | 177.95 | 100.39 | 123.05 | |||||||||||||||
Nonperforming assets to loans
and foreclosed assets (2)
|
3.21 | 0.92 | 0.96 | 1.30 | 0.97 | |||||||||||||||
Net loan charge-offs to average loans
|
0.50 | 0.10 | 0.17 | 0.15 | 0.29 | |||||||||||||||
|
||||||||||||||||||||
Capital Ratios
|
||||||||||||||||||||
Average stockholders equity to
average total assets
|
9.06 | % | 9.34 | % | 8.80 | % | 8.73 | % | 10.11 | % | ||||||||||
Period-end common stockholders equity to
period-end assets
|
6.14 | 9.30 | 9.18 | 8.59 | 9.93 | |||||||||||||||
Period-end tangible common stockholders
equity to period-end tangible assets
|
5.89 | 5.81 | 5.42 | 6.07 | 7.16 | |||||||||||||||
Period-end stockholders equity to
period-end assets
|
8.31 | 9.30 | 9.18 | 8.59 | 9.93 | |||||||||||||||
Total risk-based capital ratio
|
16.01 | 13.24 | 13.84 | 12.70 | 14.58 | |||||||||||||||
Tier 1 risk-based capital ratio
|
13.55 | 11.08 | 11.28 | 9.83 | 13.47 | |||||||||||||||
Leverage ratio
|
10.80 | 9.12 | 8.77 | 7.88 | 10.39 | |||||||||||||||
(1) | Nonperforming loans consist of nonaccrual loans and loans contractually past due 90 days or more and still accruing interest. | |
(2) | Nonperforming assets consist of nonperforming loans and foreclosed assets. | |
(3) | Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total revenue includes net interest and non-interest income. |
6
7
$ Change | % Change | |||||||||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 08-07 | 07-06 | 08-07 | 07-06 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
Net interest income (loss)
|
$ | 38,116 | $ | 37,032 | $ | 38,657 | $ | 1,084 | $ | (1,625 | ) | 2.9 | % | (0.0 | )% | |||||||||||||
Provision for loan losses
|
8,211 | 1,154 | 1,326 | 7,057 | (172 | ) | 611.5 | (13.0 | ) | |||||||||||||||||||
Noninterest income
|
9,294 | 10,223 | 8,618 | (929 | ) | 1,605 | (9.1 | ) | 18.6 | |||||||||||||||||||
Investment securities
gains (losses), net
|
3 | (2 | ) | (18 | ) | 5 | 16 | (250.0 | ) | (88.9 | ) | |||||||||||||||||
Noninterest expense
|
75,975 | 35,054 | 30,148 | 40,921 | 4,906 | 116.7 | 16.3 | |||||||||||||||||||||
Income (loss) before
income taxes
|
(36,773 | ) | 11,045 | 15,783 | (47,818 | ) | (4,738 | ) | (432.9 | ) | (30.0 | ) | ||||||||||||||||
Income taxes (benefit)
|
(6,146 | ) | 3,245 | 4,908 | (9,391 | ) | (1,663 | ) | (289.4 | ) | (33.9 | ) | ||||||||||||||||
Net income (loss)
|
$ | (30,627 | ) | $ | 7,800 | $ | 10,875 | $ | (38,427 | ) | $ | (3,075 | ) | (492.7 | )% | (28.3 | )% | |||||||||||
Less: preferred dividends
|
66 | | | 66 | | | | |||||||||||||||||||||
Net income (loss) available
to common shareholders
|
$ | (30,693 | ) | $ | 7,800 | $ | 10,875 | $ | (38,493 | ) | $ | (3,075 | ) | (493.5 | )% | (28.3 | )% | |||||||||||
8
$Change | %Change | |||||||||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 08-07 | 07-06 | 08-07 | 07-06 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
Non-interest expense (GAAP)
|
$ | 75,975 | $ | 35,054 | $ | 30,148 | $ | 40,921 | $ | 4,906 | 116.7 | % | 0.2 | % | ||||||||||||||
Goodwill impairment
|
(40,324 | ) | | | (40,324 | ) | | N.M | N.M | |||||||||||||||||||
Non-interest expense (non-GAAP)
|
35,651 | 35,054 | 30,148 | 597 | 4,906 | 1.7 | 16.3 | |||||||||||||||||||||
Net income (loss) (GAAP)
|
$ | (30,627 | ) | $ | 7,800 | $ | 10,875 | $ | (38,427 | ) | $ | (3,075 | ) | (492.7 | )% | (28.3 | )% | |||||||||||
Goodwill impairment, net of tax effect
|
33,211 | | | 33,211 | | N.M | N.M | |||||||||||||||||||||
Less: preferred dividends
|
66 | | | 66 | | N.M | N.M | |||||||||||||||||||||
Net income available to
common shareholders (non-GAAP)
|
$ | 2,518 | $ | 7,800 | $ | 10,875 | $ | (5,282 | ) | $ | (3,075 | ) | (67.7 | )% | (28.3 | )% | ||||||||||||
GAAP basis:
|
||||||||||||||||||||||||||||
Basic earnings (loss) per share
|
$ | (7.39 | ) | $ | 1.87 | $ | 2.61 | $ | (9.26 | ) | $ | (0.74 | ) | (495.2 | )% | (28.4 | )% | |||||||||||
Diluted earnings (loss) per share
|
(7.39 | ) | 1.85 | 2.59 | (9.24 | ) | (0.74 | ) | (499.5 | ) | (28.6 | ) | ||||||||||||||||
Return (loss) on average assets
|
(2.45 | )% | 0.67 | % | 0.95 | % | ||||||||||||||||||||||
Return (loss) on average common equity
|
(27.33 | )% | 7.22 | % | 10.79 | % | ||||||||||||||||||||||
Efficiency ratio
|
160.25 | % | 74.18 | % | 63.80 | % | ||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Non-GAAP basis:
|
||||||||||||||||||||||||||||
Basic earnings per share
|
$ | 0.61 | $ | 1.87 | $ | 2.61 | $ | (1.26 | ) | $ | (0.74 | ) | (67.4 | )% | (28.4 | )% | ||||||||||||
Diluted earnings per share
|
0.61 | 1.85 | 2.59 | (1.24 | ) | (0.74 | ) | (67.0 | ) | (28.6 | ) | |||||||||||||||||
Return on average assets
|
0.20 | % | 0.67 | % | 0.95 | % | ||||||||||||||||||||||
Return on average common equity
|
2.24 | % | 7.22 | % | 10.79 | % | ||||||||||||||||||||||
Efficiency ratio
|
75.20 | % | 74.18 | % | 63.80 | % | ||||||||||||||||||||||
9
(1) | Interest income and yields are presented on a fully taxable equivalent basis using the Federal statutory income tax rate of 35%, net of nondeductible interest expense. Such adjustments totaled $871,000, $997,000 and $1,009,000 for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(2) | Non-accruing loans are included in the average amounts outstanding. | |
(3) | Average balances based on amortized cost. | |
(4) | Fees and costs on loans are included in interest income. |
10
11
2008 | 2007 | |||||||||||||||||||||||
Change due to | Change due to | |||||||||||||||||||||||
Total | Average | Average | Total | Average | Average | |||||||||||||||||||
(Dollars In thousands) | Change | Volume | Rate | Change | Volume | Rate | ||||||||||||||||||
Interest income on a fully
taxable equivalent basis:
|
||||||||||||||||||||||||
Loans: (1) (3)
|
$ | (2,870 | ) | $ | 8,212 | $ | (11,082 | ) | $ | 2,907 | $ | 1,850 | $ | 1,057 | ||||||||||
Investment securities:
|
||||||||||||||||||||||||
Government sponsored entities
|
(697 | ) | (295 | ) | (402 | ) | (31 | ) | (558 | ) | 527 | |||||||||||||
State and municipal(2)
|
(466 | ) | (433 | ) | (33 | ) | 75 | 27 | 48 | |||||||||||||||
Other
|
4 | 112 | (108 | ) | (4 | ) | (46 | ) | 42 | |||||||||||||||
Federal funds sold
|
(555 | ) | (302 | ) | (253 | ) | (133 | ) | (183 | ) | 50 | |||||||||||||
Interest bearing deposits
in other financial institutions
|
(34 | ) | 67 | (101 | ) | (42 | ) | (56 | ) | 14 | ||||||||||||||
Total interest income
|
(4,618 | ) | 7,361 | (11,979 | ) | 2,772 | 1,034 | 1,738 | ||||||||||||||||
Interest expense:
|
||||||||||||||||||||||||
NOW accounts
|
(165 | ) | 88 | (253 | ) | 92 | 54 | 38 | ||||||||||||||||
Savings
|
(34 | ) | (13 | ) | (21 | ) | (38 | ) | (30 | ) | (8 | ) | ||||||||||||
Money market
|
(2,328 | ) | 292 | (2,620 | ) | 482 | 71 | 411 | ||||||||||||||||
Time deposits of 100,000 and over
|
(1,347 | ) | 53 | (1,400 | ) | 1,794 | 881 | 913 | ||||||||||||||||
Other time deposits
|
(1,954 | ) | 68 | (2,022 | ) | 2,360 | 140 | 2,220 | ||||||||||||||||
Federal funds purchased and
securities sold under agreements
to repurchase
|
(512 | ) | 373 | (885 | ) | (430 | ) | (500 | ) | 70 | ||||||||||||||
Interestbearing demand notes to
U.S. Treasury
|
(11 | ) | (5 | ) | (6 | ) | (20 | ) | (26 | ) | 6 | |||||||||||||
Subordinated notes
|
(571 | ) | | (571 | ) | 89 | | 89 | ||||||||||||||||
Other borrowed money
|
1,346 | 2,708 | (1,362 | ) | 80 | (160 | ) | 240 | ||||||||||||||||
Total interest expense
|
(5,576 | ) | 3,564 | (9,140 | ) | 4,409 | 430 | 3,979 | ||||||||||||||||
Net interest income on a fully
taxable equivalent basis
|
$ | 958 | $ | 3,797 | $ | (2,839 | ) | $ | (1,637 | ) | $ | 604 | $ | (2,241 | ) | |||||||||
(1) | Interest income and yields are presented on a fully taxable equivalent basis using the Federal statutory income tax rate of 35%, net of nondeductible interest expense. Such adjustments totaled $871,000, $997,000 and $1,009,000 for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(2) | Non-accruing loans are included in the average amounts outstanding. | |
(3) | Fees and costs on loans are included in interest income. |
12
$ Change | % Change | |||||||||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 08-07 | 07-06 | 08-07 | 07-06 | |||||||||||||||||||||
Non-interest Income
|
||||||||||||||||||||||||||||
Service charges on deposit accounts
|
$ | 6,164 | $ | 5,707 | $ | 5,730 | $ | 457 | $ | (23 | ) | 8.0 | % | (0.4 | )% | |||||||||||||
Trust department income
|
827 | 968 | 799 | (141 | ) | 169 | (14.6 | ) | 21.2 | |||||||||||||||||||
Mortgage loan servicing fees, net
|
135 | 341 | 433 | (206 | ) | (92 | ) | (60.4 | ) | (21.2 | ) | |||||||||||||||||
Gain on sales of mortgage loans
|
973 | 666 | 432 | 307 | 234 | 46.1 | 54.2 | |||||||||||||||||||||
Other
|
1,195 | 2,541 | 1,224 | (1,346 | ) | 1,317 | (53.0 | ) | 107.6 | |||||||||||||||||||
Total non-interest income
|
$ | 9,294 | $ | 10,223 | $ | 8,618 | $ | (929 | ) | $ | 1,605 | (9.1 | )% | 18.6 | % | |||||||||||||
|
||||||||||||||||||||||||||||
Investment securities
gains (losses), net
|
$ | 3 | $ | (2 | ) | $ | (18) | $ | 5 | $ | 16 | (250.0 | )% | (88.9 | )% | |||||||||||||
|
||||||||||||||||||||||||||||
Non-interest income as a
% of total revenue *
|
19.6 | % | 21.6 | % | 18.2 | % | ||||||||||||||||||||||
Total revenue per full time
equivalent employee
|
$ | 137.8 | $ | 135.4 | $ | 133.2 | ||||||||||||||||||||||
* | Total revenue is calculated as net interest income plus non-interest income |
13
$ Change | % Change | |||||||||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 08-07 | 07-06 | 08-07 | 07-06 | |||||||||||||||||||||
Non-interest Expense
|
||||||||||||||||||||||||||||
Salaries
|
$ | 14,099 | $ | 14,261 | $ | 12,833 | $ | (162 | ) | $ | 1,428 | (1.1 | )% | 11.1 | % | |||||||||||||
Goodwill impairment
|
40,324 | | | 40,324 | | N.M | N.M | |||||||||||||||||||||
Employee beneftis
|
4,151 | 4,472 | 4,186 | (321 | ) | 286 | (7.2 | ) | 6.8 | |||||||||||||||||||
Occupancy expense, net
|
2,440 | 2,202 | 1,994 | 238 | 208 | 10.8 | 10.4 | |||||||||||||||||||||
Furniture and equipment expense
|
2,438 | 2,879 | 2,301 | (441 | ) | 578 | (15.3 | ) | 25.1 | |||||||||||||||||||
Legal, examination, and
professional fees
|
1,193 | 1,583 | 1,431 | (390 | ) | 152 | (24.6 | ) | 10.6 | |||||||||||||||||||
Advertising and promotion
|
1,117 | 1,196 | 897 | (79 | ) | 299 | (6.6 | ) | 33.3 | |||||||||||||||||||
Postage, printing, and supplies
|
1,221 | 1,297 | 1,147 | (76 | ) | 150 | (5.9 | ) | 13.1 | |||||||||||||||||||
Processing expense
|
3,102 | 1,470 | 1,009 | 1,632 | 461 | 111.0 | 45.7 | |||||||||||||||||||||
Donations
|
816 | 225 | 301 | 591 | (76 | ) | 262.7 | (25.2 | ) | |||||||||||||||||||
Amortization of intangible assets
|
701 | 922 | 1,033 | (221 | ) | (111 | ) | (24.0 | ) | (10.7 | ) | |||||||||||||||||
Impairment and other real-estate
owned expense
|
810 | 681 | 119 | 129 | 562 | 18.9 | 472.3 | |||||||||||||||||||||
Other
|
3,563 | 3,866 | 2,897 | (303 | ) | 969 | (7.8 | ) | 33.4 | |||||||||||||||||||
Total non-interst expense
|
$ | 75,975 | $ | 35,054 | $ | 30,148 | $ | 40,921 | $ | 4,906 | 116.7 | % | 16.3 | % | ||||||||||||||
Efficiency ratio*
|
75.2 | % | 74.2 | % | 63.8 | % | ||||||||||||||||||||||
Salaries and benefits as a % of
total non-interst expense *
|
51.2 | % | 53.4 | % | 56.5 | % | ||||||||||||||||||||||
Number of full-time equivalent
employees
|
344 | 349 | 355 | |||||||||||||||||||||||||
* | Goodwill impairment not included in ratio calculation |
14
15
16
Balance at December 31, | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||
Commercial, financial
and agricultural
|
$ | 153,386 | 15.2 | % | $ | 151,488 | 16.6 | % | $ | 145,697 | 17.9 | % | $ | 154,868 | 19.0 | % | $ | 141,151 | 22.2 | % | ||||||||||||||||||||
Real estate
|
||||||||||||||||||||||||||||||||||||||||
Construction
|
129,639 | 12.9 | 147,432 | 16.2 | 150,891 | 18.6 | 139,316 | 17.1 | 65,075 | 10.2 | ||||||||||||||||||||||||||||||
Real estate
|
||||||||||||||||||||||||||||||||||||||||
Mortgage
|
692,530 | 68.6 | 575,552 | 63.2 | 478,854 | 59.0 | 480,531 | 59.1 | 392,656 | 61.7 | ||||||||||||||||||||||||||||||
Installment loans
to individuals
|
33,548 | 3.3 | 36,806 | 4.0 | 36,870 | 4.5 | 38,820 | 4.8 | 37,755 | 5.9 | ||||||||||||||||||||||||||||||
Total loans
|
$ | 1,009,103 | 100.0 | % | $ | 911,278 | 100.0 | % | $ | 812,312 | 100.0 | % | $ | 813,535 | 100.0 | % | $ | 636,637 | 100.0 | % | ||||||||||||||||||||
17
Principal Payments Due | ||||||||||||||||
Over One | Over | |||||||||||||||
One Year | Year Through | Five | ||||||||||||||
Or Less | Five Years | Years | Total | |||||||||||||
Commercial, financial, and agricultural
|
$ | 93,944 | $ | 55,124 | $ | 4,318 | $ | 153,386 | ||||||||
Real estate construction
|
129,639 | | | 129,639 | ||||||||||||
Real estate mortgage
|
185,859 | 440,198 | 66,473 | 692,530 | ||||||||||||
Installment loans to individuals
|
16,741 | 16,089 | 718 | 33,548 | ||||||||||||
Total loans net of unearned income
|
$ | 426,183 | $ | 511,411 | $ | 71,509 | $ | 1,009,103 | ||||||||
|
||||||||||||||||
Loans with fixed rates
|
333,301 | 438,301 | 38,053 | 809,655 | ||||||||||||
Loans with floating rates
|
92,882 | 73,110 | 33,456 | 199,448 | ||||||||||||
Total loans net of unearned income
|
$ | 426,183 | $ | 511,411 | $ | 71,509 | $ | 1,009,103 | ||||||||
18
Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Analysis of allowance for loan losses:
|
||||||||||||||||||||
Balance beginning of year
|
$ | 9,282 | $ | 9,015 | $ | 9,085 | $ | 7,496 | $ | 8,267 | ||||||||||
Allowance for loan losses of acuired
companies at date of acquisitions
|
| | | 1,418 | | |||||||||||||||
Charge-offs:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
3,571 | 524 | 809 | 589 | 1,596 | |||||||||||||||
Real estate construction
|
681 | 56 | 84 | 185 | | |||||||||||||||
Real estate mortgage
|
532 | 413 | 474 | 286 | 26 | |||||||||||||||
Installment loans to individuals
|
656 | 314 | 484 | 261 | 236 | |||||||||||||||
Total charge-offs
|
5,440 | 1,307 | 1,851 | 1,321 | 1,858 | |||||||||||||||
Recoveries:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
153 | 151 | 206 | 40 | 18 | |||||||||||||||
Real estate construction
|
35 | 11 | 13 | | | |||||||||||||||
Real estate mortgage
|
81 | 100 | 91 | 28 | | |||||||||||||||
Installment loans to individuals
|
345 | 158 | 145 | 102 | 127 | |||||||||||||||
Total recoveries
|
614 | 420 | 455 | 170 | 145 | |||||||||||||||
Net charge-offs
|
4,826 | 887 | 1,396 | 1,151 | 1,713 | |||||||||||||||
Provision for loan losses
|
8,211 | 1,154 | 1,326 | 1,322 | 942 | |||||||||||||||
Balance at end of year
|
$ | 12,667 | $ | 9,282 | $ | 9,015 | $ | 9,085 | $ | 7,496 | ||||||||||
Loans outstanding:
|
||||||||||||||||||||
Average
|
$ | 963,252 | $ | 848,772 | $ | 824,706 | $ | 743,382 | $ | 601,363 | ||||||||||
End of period
|
1,009,104 | 911,278 | 812,312 | 813,535 | 636,637 | |||||||||||||||
Allowance for loan
losses to loans outstanding:
|
||||||||||||||||||||
Average
|
1.32 | % | 1.09 | % | 1.09 | %1.22 | %1.25 | % | ||||||||||||
End of period
|
1.26 | 1.02 | 1.11 | 1.12 | 1.18 | |||||||||||||||
Net charge-offs to average
loans outstanding
|
0.50 | 0.10 | 0.17 | 0.15 | 0.29 | |||||||||||||||
19
Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Allocation of allowance for
loan losses at end of period:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 1,712 | $ | 3,762 | $ | 3,114 | $ | 2,687 | $ | 3,700 | ||||||||||
Real estate construction
|
2,490 | 590 | 755 | 764 | 288 | |||||||||||||||
Real estate mortgage
|
6,571 | 3,873 | 3,526 | 4,138 | 2,563 | |||||||||||||||
Installment loans to individuals
|
391 | 419 | 529 | 473 | 429 | |||||||||||||||
Unallocated
|
1,503 | 638 | 1,091 | 1,023 | 516 | |||||||||||||||
Total
|
$ | 12,667 | $ | 9,282 | $ | 9,015 | $ | 9,085 | $ | 7,496 | ||||||||||
Percent of categories to total loans:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
15.2 | % | 16.6 | % | 17.9 | % | 19.0 | % | 22.2 | % | ||||||||||
Real estate construction
|
12.9 | 16.2 | 18.6 | 17.1 | 10.2 | |||||||||||||||
Real estate mortgage
|
68.6 | 63.2 | 59.0 | 59.1 | 61.7 | |||||||||||||||
Installment loans to individuals
|
3.3 | 4.0 | 4.5 | 4.8 | 5.9 | |||||||||||||||
Total
|
100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
20
Years Ended December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Nonaccrual loans:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 2,071 | $ | 2,983 | $ | 2,495 | $ | 5,705 | $ | 4,213 | ||||||||||
Real estate construction
|
10,347 | 866 | 1,657 | 1,760 | | |||||||||||||||
Real estate mortgage
|
7,850 | 658 | 644 | 1,090 | 1,246 | |||||||||||||||
Installment loans to individuals
|
119 | 32 | 73 | 56 | 30 | |||||||||||||||
Total nonaccrual loans
|
20,387 | 4,539 | 4,869 | 8,611 | 5,489 | |||||||||||||||
Loans contractually past due 90 days
or more and still accruing:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
140 | 454 | 5 | 238 | 12 | |||||||||||||||
Real estate construction
|
52 | 158 | | | | |||||||||||||||
Real estate mortgage
|
547 | 864 | 170 | 187 | 591 | |||||||||||||||
Installment loans to individuals
|
4 | 70 | 22 | 14 | | |||||||||||||||
Total loans contractually past -due
90 days or more and still accruing
|
743 | 1,546 | 197 | 439 | 603 | |||||||||||||||
Restructured troubled loans
|
3,736 | | | | | |||||||||||||||
Total nonperforming loans
|
24,866 | 6,085 | 5,066 | 9,050 | 6,092 | |||||||||||||||
Other real estate
|
7,828 | 2,337 | 2,720 | 1,568 | 30 | |||||||||||||||
Repossessions
|
| | 15 | | 42 | |||||||||||||||
Total nonperforming assets
|
$ | 32,694 | $ | 8,422 | $ | 7,801 | $ | 10,618 | $ | 6,164 | ||||||||||
|
||||||||||||||||||||
Loans
|
$ | 1,009,103 | 911,278 | 812,313 | 813,535 | 636,637 | ||||||||||||||
Allowance for loan losses to loans
|
1.26 | % | 1.02 | % | 1.11 | % | 1.12 | % | 1.18 | % | ||||||||||
Nonperforming loans to loans
|
2.46 | % | 0.67 | % | 0.62 | % | 1.11 | % | 0.96 | % | ||||||||||
Allowance for loan losses to
nonperforming loans
|
50.94 | % | 152.54 | % | 177.95 | % | 100.39 | % | 123.05 | % | ||||||||||
Nonperforming assets to loans and
foreclosed assets
|
3.21 | % | 0.92 | % | 0.96 | % | 1.30 | % | 0.97 | % | ||||||||||
21
22
23
December 31, | ||||||||||||
(In thousands) | 2008 | 2007 | 2006 | |||||||||
U.S. Treasuries
|
$ | | $ | | $ | 1,068 | ||||||
Government sponsored enterprises
|
55,545 | 87,370 | 121,769 | |||||||||
Asset-backed securities
|
50,091 | 10,892 | 5,068 | |||||||||
Obligations of states and political subdivisions
|
43,765 | 53,480 | 55,661 | |||||||||
Other debt securities
|
| | | |||||||||
Total available for sale debt securities
|
149,401 | 151,742 | 183,566 | |||||||||
|
||||||||||||
Federal Home Loan Bank of Des Moines Stock
|
7,228 | 3,979 | 3,808 | |||||||||
Federal Reserve Bank Stock
|
| | 752 | |||||||||
Midwest Independent Bank Stock
|
151 | 151 | 151 | |||||||||
Federal Agricultural Mortgage Corporation
|
10 | 10 | 10 | |||||||||
Other equity securities
|
1,486 | 1,486 | 1,486 | |||||||||
Total equity securities
|
8,875 | 5,626 | 6,207 | |||||||||
Total available for sale investment securities
|
$ | 158,276 | $ | 157,368 | $ | 189,773 | ||||||
Over One | Over Five | Weighted | ||||||||||||||||||
One Year | Through | Through | Over | Average | ||||||||||||||||
(In thousands) | Or Less | Five Years | Ten Years | Ten Years | Yield (1) | |||||||||||||||
Available-for-Sale
|
||||||||||||||||||||
|
||||||||||||||||||||
Government sponsored enterprises
|
$ | 14,466 | $ | 38,023 | $ | 2,805 | $ | 251 | 4.06 | % | ||||||||||
Asset-backed (2)
|
580 | 46,636 | 2,095 | 779 | 4.63 | |||||||||||||||
States and political subdivisions (3)
|
3,454 | 16,273 | 16,892 | 7,146 | 5.49 | |||||||||||||||
Total available-for-sale debt securities
|
$ | 18,500 | $ | 100,932 | $ | 21,792 | $ | 8,176 | 4.67 | % | ||||||||||
|
||||||||||||||||||||
Weighted average yield (1)
|
3.71 | % | 4.66 | % | 5.27 | % | 5.40 | % |
(1) | Weighted average yield is based on amortized cost. | |
(2) | Asset-backed securities have been included using historic repayment speeds. Repayment speeds were determined from actual portfolio experience during the twelve months ended December 31, 2008 calculated separately for each mortgage-backed security. These repayment speeds are not necessarily indicative of future repayment speeds and are subject to change based on changing mortgage interest rates. | |
(3) | Rates on obligations of states and political subdivisions have been adjusted to fully taxable equivalent rates using the statutory Federal income tax rate of 34%. |
24
25
December 31, | ||||||||
(Dollars in thousands) | 2008 | 2007 | ||||||
Three months or less
|
$ | 39,041 | $ | 41,533 | ||||
Over three months through six months
|
27,215 | 35,565 | ||||||
Over six months through twelve months
|
48,556 | 44,271 | ||||||
Over twelve months
|
28,160 | 18,374 | ||||||
|
$ | 142,972 | $ | 139,743 | ||||
At End of Period | For the Period Ending | |||||||||||||||||||
Weighted | Maximum | Weighted | ||||||||||||||||||
Average | Month-end | Average | Average | |||||||||||||||||
(Dollars in thousands) | Balance | Interest Rate | Balance | Balance | Interest Rate | |||||||||||||||
December 31, 2008
|
$ | 29,139 | 0.48 | % | $ | 56,710 | $ | 37,802 | 2.01 | % | ||||||||||
December 31, 2007
|
18,365 | 3.24 | 28,705 | 26,807 | 4.23 | |||||||||||||||
December 31, 2006
|
27,320 | 4.35 | 56,027 | 41,309 | 4.25 | |||||||||||||||
26
Amount of Commitment Expiration per Period | ||||||||||||||||||||
Less than 1 | 1-3 | 3-5 | Over 5 | |||||||||||||||||
(Dollars in thousands) | Total | Year | Years | Years | Years | |||||||||||||||
Unused loan commitments
|
$ | 143,917 | $ | 110,150 | $ | 20,347 | $ | 6,631 | $ | 6,789 | ||||||||||
Standby letters of credit
|
5,436 | 1,856 | 769 | 2,811 | | |||||||||||||||
27
Payments due by Period | ||||||||||||||||||||
Less than 1 | 1-3 | 3-5 | Over 5 | |||||||||||||||||
(Dollars in thousands) | Total | Year | Years | Years | Years | |||||||||||||||
Time deposits
|
$ | 453,680 | $ | 379,927 | $ | 64,780 | $ | 8,843 | $ | 130 | ||||||||||
Other borrowed money
|
77,915 | 48,158 | 28,797 | 834 | 126 | |||||||||||||||
28
29
Page | ||||
|
||||
Report of Independent Registered Public Accounting Firm.
|
31 | |||
|
||||
Consolidated Balance Sheets as of December 31, 2008 and 2007.
|
32 | |||
|
||||
Consolidated Statements of Operations for each of the years ended
December 31, 2008, 2007 and 2006.
|
33 | |||
|
||||
Consolidated Statements of Stockholders Equity and Comprehensive
Income for each of the years ended December 31, 2008, 2007 and 2006.
|
34 | |||
|
||||
Consolidated Statements of Cash Flows for each of the years ended
December 31, 2008, 2007 and 2006.
|
35 | |||
|
||||
Notes to Consolidated Financial Statements.
|
36 |
30
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
Hawthorn Bancshares, Inc.:
/s/ KPMG LLP
St. Louis, Missouri
March 13, 2009
Consolidated Balance Sheets
December 31,
2008
2007
$
1,009,103,532
$
911,278,111
(12,666,546
)
(9,281,848
)
996,436,986
901,996,263
149,400,929
151,742,455
8,875,250
5,626,050
158,276,179
157,368,505
104,393
664,184
53,723,075
35,209,201
39,260,220
40,543,546
7,828,278
2,337,107
7,476,093
8,764,196
1,171,225
1,184,868
40,323,775
2,130,097
2,831,540
1,852,902
1,820,532
11,439,419
2,760,362
$
1,279,698,867
$
1,195,804,079
$
125,245,200
$
138,355,520
342,626,702
329,221,663
142,972,489
139,742,676
344,451,998
313,937,432
955,296,389
921,257,291
29,138,623
25,729,863
49,486,000
49,486,000
129,057,483
77,915,027
3,847,415
4,723,965
6,454,574
5,493,110
1,173,280,484
1,084,605,256
27,888,294
4,298,353
4,298,353
25,144,323
22,530,191
51,598,678
85,728,114
1,005,553
1,356,538
(3,516,818
)
(2,714,373
)
106,418,383
111,198,823
$
1,279,698,867
$
1,195,804,079
Consolidated Statements of Operations
Years ended December 31,
2008
2007
2006
$
62,636,558
$
65,533,873
$
62,578,814
4,989,794
5,702,806
5,750,751
1,688,871
1,986,171
1,935,987
60,550
614,571
748,419
23,755
57,963
100,171
315,685
311,723
309,150
69,715,213
74,207,107
71,423,292
4,883,042
7,411,043
6,874,535
5,698,073
7,045,209
5,251,329
12,871,957
14,825,176
12,465,782
868,528
1,380,328
1,810,667
10,734
30,785
3,046,238
3,617,254
3,528,418
4,231,062
2,885,119
2,804,892
31,598,900
37,174,863
32,766,408
38,116,313
37,032,244
38,656,884
8,211,000
1,154,216
1,325,733
29,905,313
35,878,028
37,331,151
6,163,650
5,706,934
5,729,972
826,546
967,774
798,832
135,322
341,377
432,517
973,095
665,817
432,112
1,195,438
2,540,839
1,224,982
9,294,051
10,222,741
8,618,415
2,773
(1,747
)
(18,351
)
18,250,469
18,733,125
17,019,086
40,323,775
2,440,082
2,201,809
1,994,592
2,437,558
2,878,810
2,300,872
1,192,933
1,582,763
1,431,354
1,117,403
1,196,216
896,686
1,220,938
1,296,518
1,146,896
3,101,562
1,470,475
1,008,673
816,416
224,855
300,935
701,443
922,337
1,032,583
809,488
680,832
119,171
3,563,391
3,866,067
2,897,295
75,975,458
35,053,807
30,148,143
(36,773,321
)
11,045,215
15,783,072
(6,145,965
)
3,245,239
4,907,867
(30,627,356
)
7,799,976
10,875,205
66,090
$
(30,693,446
)
$
7,799,976
$
10,875,205
$
(7.39
)
$
1.87
$
2.61
$
(7.39
)
$
1.85
$
2.59
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
Accumulated
Total
other
Stock -
Preferred
Common
Retained
Comprehensive
Treasury
holders
Stock
Stock
Surplus
Earnings
Income (Loss)
Stock
Equity
$
$
4,298,353
$
22,030,074
$
74,129,117
$
(1,072,170
)
$
(2,652,509
)
$
96,732,865
10,875,205
10,875,205
392,712
392,712
11,928
11,928
404,640
11,279,845
218,245
218,245
(69,937
)
286,244
216,307
(3,502,672
)
(3,502,672
)
$
$
4,298,353
$
22,248,319
$
81,431,713
$
(381,286
)
$
(2,652,509
)
$
104,944,590
7,799,976
7,799,976
1,403,925
1,403,925
1,136
1,136
61,701
61,701
234,562
234,562
36,500
36,500
1,737,824
9,537,800
264,881
264,881
16,991
83,436
100,427
(145,300
)
(145,300
)
(3,503,575
)
(3,503,575
)
$
$
4,298,353
$
22,530,191
$
8
5,728,114
$
1
,356,538
$
(2,714,373
)
$
1
11,198,823
(30,627,356
)
(30,627,356
)
1,325,559
1,325,559
(1,692
)
(1,692
)
(1,696,706
)
(1,696,706
)
21,854
21,854
(350,985
)
(30,978,341
)
231,761
231,761
27,872,629
2,382,371
30,255,000
15,665
(15,665
)
(802,445
)
(802,445
)
(3,486,415
)
(3,486,415
)
$
27,888,294
$
4,298,353
$
25,144,323
$
51,598,678
$
1,005,553
$
(3,516,818
)
$
106,418,383
Consolidated Statements of Cash Flows
Years ended December 31,
2008
2007
2006
$
(30,627,356
)
$
7,799,976
$
10,875,205
40,323,775
8,211,000
1,154,216
1,325,733
2,158,740
2,050,122
1,910,070
(15,372
)
(46,306
)
(13,488
)
701,443
922,337
1,032,583
231,761
264,881
218,245
1,288,103
9,490
(1,001,113
)
(32,370
)
(70,112
)
(67,584
)
(2,007,842
)
(749,866
)
(199,226
)
(876,550
)
357,715
1,227,120
(1,820,022
)
7,232
472,775
(2,773
)
1,747
18,351
(54,892,543
)
(39,575,067
)
(20,457,303
)
55,865,638
40,240,884
20,889,415
(973,095
)
(665,817
)
(432,112
)
49,830
323,752
31,033
(6,493,604
)
651,591
807,639
437,681
710,763
11,526,444
13,387,538
16,637,343
(115,310,652
)
(103,830,110
)
(2,205,010
)
(280,670,587
)
(65,747,670
)
(146,710,971
)
212,071,519
66,572,206
129,177,143
42,282,640
26,288,700
5,985,038
30,920,778
6,910,634
1,985,257
(5,040,800
)
(2,015,900
)
(1,008,150
)
1,791,600
2,597,025
1,103,700
(1,034,021
)
(8,948,850
)
(3,931,811
)
51,450
738,287
174,759
6,809,258
3,996,405
865,151
(108,128,815
)
(73,439,273
)
(14,564,894
)
(13,110,320
)
(530,363
)
4,521,095
13,405,039
20,348,280
(14,949,968
)
33,744,379
1,574,640
28,838,401
3,408,760
(3,730,629
)
(7,535,243
)
(1,735,638
)
637,301
345,300,000
137,000,000
176,624,684
(294,157,544
)
(106,453,288
)
(181,436,030
)
100,427
30,255,000
(802,445
)
(145,300
)
(3,486,415
)
(3,503,575
)
(3,502,672
)
114,556,454
42,924,554
3,197,568
17,954,083
(17,127,181
)
5,270,017
35,873,385
53,000,566
47,730,549
$
53,827,468
$
35,873,385
$
53,000,566
$
32,475,450
$
36,817,148
$
31,524,523
$
2,240,000
$
3,507,000
$
5,033,881
$
12,658,929
$
3,977,012
$
2,031,998
AND SUBSIDIARIES
(1)
Summary of Significant Accounting Policies
Hawthorn Bancshares, Inc. (the Company) provides a broad range of banking services to
individual and corporate customers located within the communities in and surrounding Jefferson
City, Clinton, Warsaw, Springfield, Branson and Lees Summit, Missouri. The Company is subject
to competition from other financial and nonfinancial institutions providing financial
products. Additionally, the Company and its subsidiaries are subject to the regulations of
certain regulatory agencies and undergo periodic examinations by those regulatory agencies.
The consolidated financial statements of the Company have been prepared in conformity with
U.S. generally accepted accounting principles and conform to predominant practices within the
banking industry. The preparation of the consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make estimates and
assumptions, including the determination of the allowance for loan losses, real estate
acquired in connection with foreclosure or in satisfaction of loans, and fair values of
investment securities available-for-sale that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The significant accounting policies used by the Company in the preparation of the consolidated
financial statements are summarized below:
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
Fair Value Measurements
At December 31, 2008 Using
Quoted Prices
in Active
Markets for
Other
Significant
Identical
Observable
Unobservable
Fair Value
Assets
Inputs
Inputs
Description
December 31, 2008
(Level 1)
(Level 2)
(Level 3)
$
149,400,929
$
$
149,400,929
$
$
26,096,354
$
$
26,096,354
$
2008
2007
2006
$
(30,627,356
)
$
7,799,976
$
10,875,205
66,090
(30,693,446
)
7,799,976
10,875,205
4,155,749
4,171,163
4,169,847
39,681
34,700
$
4,155,749
$
4,210,844
$
4,204,547
$
(7.39
)
$
1.87
$
2.61
(7.39
)
1.85
2.59
AND SUBSIDIARIES
Years Ended December 31,
2008
2007
2006
58,371
6,082
4,482
AND SUBSIDIARIES
AND SUBSIDIARIES
(2)
Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements administered
by federal and state 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 Companys consolidated financial
statements. Under capital adequacy guidelines, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The capital
amounts and classification of the Company and the Bank are subject to qualitative judgments by
the regulators about components, risk-weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the following table)
of total and Tier I capital to risk-weighted assets, and of Tier I capital to adjusted-average
assets. Management believes, as of December 31, 2008 and 2007, the Company and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 2008, 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
AND SUBSIDIARIES
capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since the notifications that management believes have changed the
Banks categories.
The actual and required capital amounts and ratios for the Company and the Bank as of December
31, 2008 and 2007 are as follows (dollars in thousands):
Minimum
Well-Capitalized
Actual
Capital requirements
Capital Requirements
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
163,949
16.01
%
$
81,912
8.00
%
125,510
12.35
81,310
8.00
$
101,638
10.00
%
$
138,756
13.55
$
40,956
4.00
%
113,158
11.13
40,655
4.00
$
60,983
6.00
%
$
138,756
10.80
$
38,543
3.00
%
113,158
8.82
38,497
3.00
$
64,162
5.00
%
Minimum
Well-Capitalized
Actual
Capital requirements
Capital Requirements
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
123,970
13.24
%
$
74,925
8.00
%
115,395
12.35
74,740
8.00
$
93,425
10.00
%
$
103,754
11.08
%
$
37,463
4.00
%
106,113
11.36
37,370
4.00
$
56,055
6.00
%
$
103,754
9.12
%
$
34,148
3.00
%
106,113
9.33
34,126
3.00
$
56,876
5.00
%
Bank dividends are the principal source of funds for payment of dividends by the Company to it
stockholders. The Bank is subject to regulations which require the maintenance of minimum
capital requirements. As a result of the goodwill impairment charge, as described in Note 1,
the Banks unappropriated retained earnings balance at December 31, 2008 is negative. As a
result, the Bank must obtain regulatory approval prior to paying dividends to the Company
until such time as the unappropriated retained earnings balance is restored to a positive
balance.
AND SUBSIDIARIES
(3)
Loans and Allowance for Loan Losses
A summary of loans, by major classification within the Companys loan portfolio, at December
31, 2008 and 2007 are as follows:
2008
2007
$
153,386,062
$
151,487,677
129,638,759
147,432,123
692,530,252
575,551,891
33,404,048
36,738,062
144,411
68,358
$
1,009,103,532
$
911,278,111
The Bank grants real estate, commercial, installment, and other consumer loans to customers
located within the communities surrounding Jefferson City, Clinton, Warsaw, Springfield,
Branson and Lees Summit, Missouri. As such, the Bank is susceptible to changes in the
economic environment in these communities. The Bank does not have a concentration of credit in
any one economic sector. Installment and other consumer loans consist primarily of the
financing of vehicles.
Following is a summary of activity in 2008 of loans made by the Bank to executive officers and
directors or to entities in which such individuals had a beneficial interest. Such loans were
made in the normal course of business on substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the same time for comparable
transactions with other persons, and did not involve more than the normal risk of
collectability or present unfavorable features.
$
6,476,314
6,327,756
(5,196,048
)
$
7,608,022
Changes in the allowance for loan losses for 2008, 2007 and 2006 are as follows:
2008
2007
2006
$
9,281,848
9,015,378
9,084,774
8,211,000
1,154,216
1,325,733
(5,439,827
)
(1,307,644
)
(1,850,904
)
613,525
419,898
455,775
$
12,666,546
9,281,848
9,015,378
AND SUBSIDIARIES
A summary of nonaccrual and other impaired loans at December 31, 2008 and 2007 is as follows:
2008
2007
$
20,387,859
$
4,538,364
9,545,914
4,026,976
$
29,933,773
$
8,565,340
$
3,837,419
$
3,256,342
11,451,625
500,236
$
744,123
$
1,545,030
$
3,736,105
$
The average balance of impaired loans during 2008 and 2007 was $20,646,000 and $8,915,000,
respectively.
A summary of interest income on nonaccrual and other impaired loans for 2008, 2007, and 2006
is as follows:
Impaired
loans
Nonaccrual
continuing to
loans
accrue interest
Total
$
239,320
$
116,521
$
355,841
1,521,701
116,521
1,638,222
329,566
359,229
688,795
744,675
359,229
1,103,904
62,793
578,766
641,559
896,102
578,766
1,474,868
AND SUBSIDIARIES
(4)
Investment in Debt and Equity Securities
The amortized cost and fair value of debt securities classified as available-for-sale at
December 31, 2008 and 2007 are as follows:
Gross
Gross
Amortized
unrealized
unrealized
cost
gains
losses
Fair value
$
54,018,436
$
1,526,240
$
$
55,544,676
48,801,151
1,292,982
3,148
50,090,985
43,201,999
755,091
191,822
43,765,268
$
146,021,586
$
3,574,313
$
194,970
$
149,400,929
Gross
Gross
Amortized
unrealized
unrealized
cost
gains
losses
Fair value
$
86,862,693
$
583,028
$
75,323
$
87,370,398
10,861,809
50,869
20,442
10,892,236
52,883,289
646,153
49,621
53,479,821
$
150,607,791
$
1,280,050
$
145,386
$
151,742,455
AND SUBSIDIARIES
Amortized
Fair
cost
value
$
17,761,210
$
17,920,078
52,711,226
54,295,654
19,295,127
19,696,890
7,452,872
7,397,322
97,220,435
99,309,944
48,801,151
50,090,985
$
146,021,586
$
149,400,929
4.67
%
2008
2007
2006
$
30,920,778
$
6,910,634
$
1,985,257
2,733
(1,747
)
(18,351
)
$
2,733
$
(1,747
)
$
(18,351
)
Less than 12 months
12 months or more
Total
Number of
Fair
Unrealized
Fair
Unrealized
Investment
Fair
Unrealized
Value
Losses
Value
Losses
Positions
Value
Losses
$
$
$
$
$
890,039
(1,904
)
210,667
(1,244
)
11
1,100,706
$
(3,148
)
7,674,965
(191,822
)
27
7,674,965
(191,822
)
$
8,565,004
$
(193,726
)
$
210,667
$
(1,244
)
38
$
8,775,671
$
(194,970
)
AND SUBSIDIARIES
Government sponsored enterprises: The Company had no unrealized losses in any government
sponsored enterprise securities.
Asset-backed securities: The unrealized losses on asset-backed securities were caused by
interest rate increases. The contractual cash flows of these securities are guaranteed by
various government or government sponsored enterprises. It is expected that the securities
would not be settled at a price less than the amortized cost of the investment. Because the
decline in fair value is attributable to changes in interest rates and not credit quality, and
because the Company has the ability and intent to hold these investments until a market price
recovery or maturity, these investments are not considered other-than-temporarily impaired.
Obligations of states and political subdivisions: The unrealized losses on investments in
obligations of states and political subdivisions were caused by interest rate increases. The
contractual terms of these investments do not permit the issuer to settle the securities at a
price less than the amortized cost of the investment. Because the Company has the ability and
intent to hold these investments until a market price recovery or maturity, these investments
are not considered other-than-temporarily impaired.
(5)
Premises and Equipment
A summary of premises and equipment at December 31, 2008 and 2007 is as follows:
2008
2007
$
10,136,974
$
10,155,282
31,460,592
31,190,973
11,096,332
11,241,357
418,922
166,318
53,112,820
52,753,930
13,852,600
12,210,384
$
39,260,220
$
40,543,546
For the Years Ended December 31,
2008
2007
2006
$
2,158,740
$
2,050,122
$
1,910,070
AND SUBSIDIARIES
(6)
Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, the Companys goodwill is tested annually for potential
impairment. SFAS No. 142 has a two-step process to test goodwill for impairment. The first
step is to compare the Companys estimated fair value, including goodwill, to its net book
value. If the estimated fair value is less than the net book value, a second step is required.
Under the second step, the estimated fair value of all the Companys tangible and identifiable
intangible net assets must be determined. That amount is compared to the Companys estimated
fair value to determine the amount of implied goodwill. Impairment, if any, is equal to the
excess of the recorded goodwill over the implied goodwill. During the 2008 annual review, the
results of the first step of the process gave an indication of probable goodwill impairment.
This was primarily due to the deterioration of general market conditions experienced during
the
fourth quarter of 2008 and corresponding declines in the Companys stock price
to levels well below book value. In the second step of the process, the implied fair value of
the Companys goodwill (determined by comparing the estimated fair value of the Company to the
sum of the fair values of the Companys tangible and separately identifiable intangible net
assets) was compared with the carrying value of goodwill in order to determine the amount of
impairment. As a result of the second step of the process, the Company determined that the
goodwill was fully impaired as of December 31, 2008, and recorded an impairment charge of
$40,323,775, before tax in the fourth quarter of 2008.
A summary of goodwill and other intangible assets at and for the years ended December 31, 2008
and 2007 is as follows:
For the Years Ended December 31,
2008
2007
Gross
Gross
Carrying
Accumulated
Net
Carrying
Accumulated
Net
Amount
Amortization
Amount
Amount
Amortization
Amount
$
7,060,224
$
(4,930,127
)
$
2,130,097
$
7,060,224
$
(4,228,684
)
$
2,831,540
2,767,180
(1,595,955
)
1,171,225
2,562,793
(1,377,925
)
1,184,868
9,827,404
(6,526,082
)
3,301,322
9,623,017
(5,606,609
)
4,016,408
40,323,775
40,323,775
$
9,827,404
$
(6,526,082
)
$
3,301,322
$
49,946,792
$
(5,606,609
)
$
44,340,183
AND SUBSIDIARIES
Core Deposit
Mortgage
Intangible
Servicing
Asset
Rights
$
3,753,877
$
1,350,375
285,273
(922,337
)
(450,780
)
2,831,540
1,184,868
627,397
(701,443
)
(641,040
)
$
2,130,097
$
1,171,225
Core Deposit
Mortgage
Intangible
Servicing
Asset
Rights
$
626,111
$
371,000
526,477
250,000
434,763
191,000
408,062
146,000
134,684
112,000
For the Years Ended December 31,
Aggregate amortization expense
2008
2007
2006
$
701,443
$
922,337
$
1,032,583
641,040
450,780
425,829
AND SUBSIDIARIES
(7)
Deposits
The scheduled maturities of time deposits are as follows (in thousands):
(In thousands)
2008
2007
$
362,059
$
379,927
62,484
36,868
32,505
27,912
4,634
5,790
25,674
3,053
68
130
$
487,424
$
453,680
Year End
Average
Average
Maximum
Weighted
Weighted
Balance
Outstanding at
Balance at
Rate
Rate
Outstanding
any Month End
December 31,
%
2.8
%
$
3,831,120
$
17,757,000
$
0.5
2.0
37,802,343
56,709,965
29,138,623
29,138,623
5.1
%
5.3
%
$
7,041,300
$
14,950,000
$
7,365,000
3.2
4.2
26,806,926
28,704,922
18,364,863
25,729,863
AND SUBSIDIARIES
Year End
Maturity
Weighted
Year End
Borrower
Date
Rate
Balance
FHLB advances
2009
5.3
%
$
12,765
2010
4.6
%
22,331
2011
3.6
%
38,576
2012
4.4
%
258
2013
4.1
%
127
2014-18
2.5
%
10,000
FHLB repurchase agreements
2009
1.0
%
45,000
Total
129,057
Subordinated notes
2034
4.6
%
25,774
2035
6.3
%
23,712
Total
$
49,486
AND SUBSIDIARIES
the event of default,
however, the Company would be precluded from paying dividends until the default is cured.
On March 17, 2004, Exchange Statutory Trust I, a newly formed Delaware business trust and
subsidiary of the Company issued $25,000,000 of floating TPS to a TPS Pool. The floating rate
is equal to the three-month LIBOR rate plus 2.70% and reprices quarterly (4.57% at December
31, 2008). The TPS are fully, irrevocably, and unconditionally guaranteed on a subordinated
basis by the Company. The proceeds of the TPS were invested in junior subordinated debentures
of the Company. Distributions on the TPS are payable quarterly on March 17, June 17, September
17, and December 17 of each year that the TPS are outstanding. The TPS mature on March 17,
2034. That maturity date may be shortened to a date not earlier than March 17, 2009 if
certain conditions are met. A portion of the proceeds from the offering were used to repay
outstanding indebtedness with the remaining available for cash operating reserves at the
holding company level.
The Exchange Statutory Trusts are not consolidated in the Companys financial statements.
Accordingly, the Company does not report the securities issued by the Exchange Statutory
Trusts as liabilities, and instead reports the subordinated notes issued by the Company and
held by the Exchange Statutory Trusts as liabilities. The amount of the subordinated notes as
of December 31, 2008 and 2007 was $49,486,000. The Company has recorded the investments in
the common securities issued by the Exchange Statutory Trusts aggregating $1,486,000, and the
corresponding obligations under the subordinated notes, as well as the interest income and
interest expense on such investments and obligations in its consolidated financial statements.
(9)
Reserve Requirements and Compensating Balances
The Federal Reserve Bank required the Bank to maintain cash or balances of $17,962,000 and
$14,545,000 at December 31, 2008 and 2007, respectively, to satisfy reserve requirements.
Average compensating balances held at correspondent banks were $899,000 and $1,333,000 at
December 31, 2008 and 2007, respectively. The Bank maintains such compensating balances with
correspondent banks to offset charges for services rendered by those banks.
AND SUBSIDIARIES
(10)
Income Taxes
The composition of income tax expense (benefit) for 2008, 2007, and 2006 is as follows:
2008
2007
2006
$
1,236,327
$
3,549,527
$
4,252,932
60,297
177,491
1,236,327
3,609,824
4,430,423
(6,625,134
)
(364,585
)
477,444
(757,158
)
(7,382,292
)
(364,585
)
477,444
$
(6,145,965
)
$
3,245,239
$
4,907,867
2008
2007
2006
Amount
%
Amount
%
Amount
%
$
(36,773,321
)
$
11,045,215
$
15,783,072
$
(12,502,929
)
34.00
%
$
3,765,825
34.10
%
$
5,447,567
34.51
%
7,112,827
(19.34
)
(570,506
)
1.55
(628,158
)
(5.69
)
(685,580
)
(4.34
)
39,796
0.36
115,369
0.73
(185,357
)
0.50
67,776
0.61
30,511
0.19
$
(6,145,965
)
16.71
%
$
3,245,239
29.38
%
$
4,907,867
31.09
%
AND SUBSIDIARIES
The components of deferred tax assets and deferred tax liabilities at December 31, 2008 and
2007 are as follows:
2008
2007
$
4,939,953
$
3,619,921
270,265
237,133
697,040
560,243
3,979,134
126,670
142,715
136,789
1,105,844
400,843
11,134,951
5,081,599
855,698
725,693
176,175
111,849
102,921
102,921
1,317,944
443,228
2,260,390
139,083
34,895
507,668
2,626,716
4,151,749
$
8,508,235
$
929,850
The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the periods in which
the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these temporary differences at
December 31, 2008 and, therefore, has not established a valuation reserve.
At December 31, 2008, the accumulation of prior years earnings representing tax bad debt
deductions of the Bank was $2,931,503. If these tax bad debt reserves were charged for losses
other than bad debt losses, the Bank would be required to recognize taxable income in the
amount of the charge. It is not contemplated that such tax-restricted retained earnings will
be used in a manner that would create federal income tax liabilities. In accordance with SFAS
No. 142, the Companys goodwill is tested annually for potential impairment. As a result of
the annual test, the Company determined that the goodwill was fully impaired and recorded an
impairment charge of $40,323,775, before tax. The impairment write-down reduced the book
basis of tax deductible goodwill to zero. Accordingly, the entire deferred tax liability was
reversed and a deferred tax asset for the benefit of the remaining deductible goodwill was
recognized.
AND SUBSIDIARIES
Effective January 1, 2007, the Company adopted FIN 48. The interpretation defines the
threshold for recognizing the financial impact of uncertain tax provisions in accordance with
FAS 109. An enterprise must recognize, in its financial statements, the best estimate of the
impact of a tax position if that position is more-likely-than-not of being sustained on
audit based solely on the technical merits of the position on the reporting date.
In evaluating whether the probable recognition threshold has been met, FIN 48 requires the
presumption that the tax position will be evaluated during an audit by taxing authorities.
The term more-likely-than-not is defined as a likelihood of more than 50 percent.
Individual tax positions that fail to meet the recognition threshold will generally result in
(a) reductions in deferred tax assets or increases in deferred tax liabilities or (b)
increases in a liability for income taxes payable or reduction of an income tax refund
receivable. As of December 31, 2008, the Company had $749,000 of gross unrecognized tax
benefits of which $487,000 would impact the effective tax rate, if recognized. The Company
expects a reduction of $187,000 in gross unrecognized tax benefits during 2009 as a result of
the state statute of limitations closing for the 2005 tax year. At December 31, 2008,
unrecognized tax benefits relate to various federal and state tax positions.
FIN 48 also provides guidance on disclosure, accrual of interest and penalties, accounting in
interim periods, and transition. As of December 31, 2008, interest accrued was approximately
$131,000. The unrecognized tax benefits are as follows:
2008
2007
$
956,577
$
1,015,361
(164,793
)
340,351
(207,635
)
(234,342
)
$
748,942
$
956,577
AND SUBSIDIARIES
(11)
Employee Benefit Plans
Employee benefits charged to operating expenses are summarized in the table below.
2008
2007
2006
$
1,119,073
$
1,399,321
$
954,001
1,466,232
1,245,059
1,311,038
294,098
854,407
837,288
882,039
205,515
757,561
835,788
211,500
232,929
203,312
$
4,150,825
$
4,472,158
$
4,186,178
Prior to 2008, the Company provided a non-contributory profit-sharing plan which covered all
full-time employees. Beginning in 2008, the Companys profit-sharing plan was amended to
include a matching 401k portion, in which the Company matches the first 3% of eligible
employee contributions. The Company made annual contributions in an amount up to 6% of income
before income taxes and before contributions to the profit-sharing and pension plans for all
participants, limited to the maximum amount deductible for Federal income tax purposes. In
addition, employees were able to make additional tax-deferred contributions.
The Company also provides a noncontributory defined benefit pension plan for all full-time
employees. The following items are components of the net pension expense for the years ended
December 31, 2008, 2007, and 2006:
2008
2007
2006
$
820,401
$
797,675
$
620,564
452,524
364,406
318,142
(454,344
)
(385,269
)
(369,164
)
78,628
78,628
78,628
(42,802
)
(18,152
)
(2,601
)
$
854,407
$
837,288
$
645,569
SFAS No. 158,
Employers Accounting for Defined Pension and Other Postretirement Plans,
requires an employer to recognize the funded status of a defined benefit postretirement plan
as an asset or liability in its balance sheet and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income. Under the Companys
funding policy for the defined benefit pension plan, contributions are made to a trust as
necessary to provide for current service and for any unfunded accrued actuarial liabilities
over a reasonable period. To the extent that these requirements are fully covered by assets in
the trust, a contribution might not be made in a particular year. The Company made a
$1,500,000 contribution to the defined benefit plan in 2008, and the minimum required
contribution for 2009 is estimated to be $12,000. The company has not determined whether it
will make any contributions other than the minimum required funding contribution for 2009.
AND SUBSIDIARIES
A summary of the activity in the Plans projected benefit obligation, assets, funded status,
accumulated benefit obligation, and amounts recognized in the Companys consolidated balance
sheets at December 31, 2008 and 2007 are as follows:
2008
2007
$
7,293,000
$
6,855,269
820,401
797,675
452,524
364,406
116,690
(451,125
)
(261,768
)
(273,225
)
8,420,847
7,293,000
6,968,205
6,256,681
(2,210,452
)
359,932
1,500,000
594,817
(261,768
)
(273,225
)
5,995,985
6,938,205
8,420,847
7,293,000
5,995,985
6,938,205
$
2,424,862
$
354,795
$
6,269,427
$
5,495,000
Amounts not yet reflected in net periodic benefit cost and included in accumulated other
comprehensive income at December 31, 2008 and 2007 are shown below on a pre-tax basis:
2008
2007
$
78,628
$
78,628
(42,802
)
(18,152
)
$
35,826
$
60,476
The prior service cost for the defined benefit pension plan that will be amortized from
accumulated other comprehensive income into net periodic benefit pension cost in 2009 is
approximately $79,000. For 2009, there is no amount of actuarial gain or loss subject to
amortization in the net periodic benefit pension cost.
AND SUBSIDIARIES
Assumptions utilized to determine benefit obligations as of December 31, 2008, 2007 and 2006
and to determine pension expense for the year then ended are as follows:
2008
2007
2006
6.15
%
6.25
%
5.50
%
4.50
%
4.50
%
4.50
%
6.25
%
5.50
%
5.25
%
4.50
%
4.50
%
5.00
%
7.00
%
7.00
%
7.00
%
The expected long-term rate of return is based on the portfolio as a whole and not on the
sum of the returns on individual asset categories or plan assets. The approximate
weighted-average asset allocation of the plans assets at December 31, 2008 and 2007 were as
follows:
2008
2007
54
%
79
%
15
%
14
%
31
%
7
%
100
%
100
%
The investment policy of the pension plan is designed for growth in value while minimizing
risk to the overall portfolio. The Company diversifies the assets through investments in
domestic and international fixed income securities and domestic and international equity
securities. The assets are readily marketable and can be sold to fund benefit payment
obligations as they become payable. The Companys long-term investment target mix for the
plan is 70% equity securities and 30% fixed income. As noted in the above table, cash
equivalents were more heavily weighted due to a large contribution at the end of
2008 that was in the process of being invested. The Company regularly reviews its policies
on the investment mix and may make changes depending on economic conditions and perceived
investment mix.
The following future benefit payments are expected to be paid:
Year
Pension benefits
$
277,309
309,765
337,170
335,289
335,924
2,079,610
AND SUBSIDIARIES
(12)
Stock Compensation
The Companys stock option plan provides for the grant of options to purchase up to 450,000
shares of the Companys common stock to officers and other key employees of the Company and
its subsidiaries. All options have been granted at exercised prices equal to fair value and
vest over periods ranging from four to five years, except 4,821 options issued in 2002, and
9,519 options issued in 2008 to acquire shares that vested immediately.
The following table summarizes the Companys stock option activity:
Weighted average
Number of shares
exercise price
December 31
December 31
2008
2007
2006
2008
2007
2006
242,968
202,739
160,809
$
27.23
$
24.54
$
24.54
37,537
48,104
44,276
21.01
33.50
29.95
(4,649
)
20.13
(13,670
)
32.08
(3,226
)
(2,346
)
32.08
30.53
29.95
266,835
242,968
202,739
$
26.10
$
27.23
$
25.66
182,693
140,186
111,025
$
25.21
$
23.63
$
21.82
Options outstanding at December 31, 2008 had a weighted average remaining contractual life of
approximately six years and an intrinsic value of $31,000. Options outstanding at December 31,
2007 had a remaining contractual life of approximately seven years and an intrinsic value of
$495,000.
Options exercisable at December 31, 2008 had a weighted average remaining contractual life of
approximately five years and an intrinsic value of approximately $31,000. Options exercisable
at December 31, 2007 had a weighted average remaining contractual life of approximately five
years and an intrinsic value of approximately $495,000. During 2007, 4,649 stock options were
exercised. No stock options were exercised during 2008 or 2006.
Total stock-based compensation expense for the years ended December 31, 2008, 2007, and 2006
was $232,000, $265,000, and $218,000, respectively. As of December 31, 2008, the total
unrecognized compensation expense related to non-vested stock awards was $374,000 and the
related weighted average period over which it is expected to be recognized is approximately
two years.
AND SUBSIDIARIES
The weighted average grant-date fair values of stock options granted during the following
years and the weighted average significant assumptions used to determine those fair values,
using the Black-Scholes option-pricing model, are as follows:
2008
2007
2006
$
4.53
$
7.13
$
6.13
3.14
%
4.49
%
4.61
%
4.00
2.50
2.80
30
20
20
6.24
6.25
6.25
(13)
Preferred Stock
On December 19, 2008, the Company announced its participation in the U.S. Treasury
Departments Capital Purchase Program, CPP, a voluntary program that provides capital to
financially healthy banks. This program is designed to attract broad participation by banking
institutions to help stabilize the financial
system by encouraging lending. The Company plans to use the funds received, as discussed
below, to continue to provide loans to its customers and to look for ways to deploy additional
funds to benefit the communities in the Companys market area.
Participating in this program included the Companys issuance of 30,255 shares of senior
preferred stock (with a par value of $1,000 per share) and a ten year warrant to purchase
approximately 245,443 shares of common stock (see below for additional information) to the
U.S. Department of Treasury in exchange for $30,255,000. The proceeds received were allocated
between the preferred stock and the common stock warrants based upon their relative fair
values. This resulted in the recording of a discount on the preferred stock upon issuance that
reflects the value allocated to the warrant. The discount on the preferred stock will be
accreted over five years, consistent with managements estimate of the life of the preferred
stock. Such accretion will be treated as additional dividends on the preferred stock. The
allocated carrying values of the senior preferred stock and common stock warrants on December
19, 2008 was $27,872,629 and $2,382,371, respectively.
The preferred shares carry a 5% cumulative dividend for the first five years and 9% thereafter if
not redeemed. The preferred shares are redeemable after three years at par plus accrued dividends,
or before three years if the Company raises Tier 1 capital in an amount equal to the preferred
stock issued. The preferred stock generally does not have any voting rights, subject to an
exception in the event the Company fails to pay dividends on the preferred stock for six or more
quarterly periods, whether or not consecutive. Under such circumstances, the Treasury will be
entitled to vote to elect two directors to the board until all unpaid dividends have been paid or
declared and set apart for payment. The Company is prohibited from paying any dividends with
respect to shares of common stock unless all accrued and unpaid dividends are paid in full on the
senior preferred stock for all past dividend periods. The Treasury Department may also transfer the
senior preferred stock to a third party at any time.
AND SUBSIDIARIES
The common stock warrants are exercisable immediately with a ten year term, in whole or in
part, at an exercise price of $18.49 per share. The amount of warrants is reduced by one half
if the Company raises equity capital of at least $30,255,000 by December 31, 2009. The
Treasury Department may not exercise or transfer the common stock warrants with respect to
more than half of the initial shares of common stock underlying the common stock warrants
prior to the earlier of the date on which the Company receives aggregate gross proceeds of not
less than $30,255,000 from one or more qualified equity offerings or before December 31, 2009.
Assumptions were used in estimating the fair value of common stock warrants on the date of its
issuance. The weighted average expected life of the common stock warrant represents the period
of time that common stock warrants are expected to be outstanding. The-risk free interest rate
is based on the U.S. Treasury yield curve in effect at the time of issuance. The expected
volatility is based on the average expected life the warrants. The following assumptions were
used in estimating the fair value for the common stock warrants using the Black-Scholes
option-pricing model:
$
7.02
2.29
%
33.9
10.00
The accounting for preferred stock and warrants is classified as permanent equity in the
consolidated balance sheet and qualifies, for regulatory capital purposes, as Tier I capital.
Through December 31, 2008, the Company had not declared any dividends on the preferred stock.
The first quarterly dividend is due February 17, 2009.
As of December 31, 2008, $10,000,000 of the CPP proceeds were used to capitalize a newly
formed subsidiary, Hawthorn Real Estate, LLC, established to hold workout assets purchased
from the Companys subsidiary bank, Hawthorn Bank. Hawthorn Real Estate, LLC. purchased
workout loans and other real estate owned properties from the Bank. The $20,255,000 balance of
the CPP funds continues to be held in the Companys non-interest bearing account at the Bank.
AND SUBSIDIARIES
(14)
Condensed Financial Information of the Parent Company Only
Following are the condensed financial statements of Hawthorn Bancshares, Inc. (Parent only) as
of and for the years indicated:
December 31,
2008
2007
$
29,968,196
$
10,388,672
1,486,000
1,486,000
127,148,243
150,009,972
7,864
13,106
685,440
336,364
424,959
$
159,632,107
$
162,322,709
$
49,486,000
$
49,486,000
96,214
3,727,724
1,541,672
106,418,383
111,198,823
$
159,632,107
$
162,322,709
For the Years Ended December 31,
2008
2007
2006
$
8,188,422
$
8,086,795
$
6,079,171
1,308,622
105,954
8,188,422
9,395,417
6,185,125
3,046,238
3,617,254
3,528,418
3,564,043
3,692,462
819,721
6,610,281
7,309,716
4,348,139
1,578,141
2,085,701
1,836,986
1,980,100
1,908,564
1,349,640
(34,185,597
)
3,805,711
7,688,579
$
(30,627,356
)
$
7,799,976
$
10,875,205
AND SUBSIDIARIES
2008
2007
2006
$
(30,627,356
)
$
7,799,976
$
10,875,205
5,242
3,276
34,185,596
(3,805,711
)
(7,688,579
)
231,761
264,881
218,245
(181,859
)
973,726
22,750
3,613,384
5,236,148
3,427,621
(16,382
)
(10,000,000
)
(10,000,000
)
(16,382
)
30,255,000
100,427
(802,445
)
(145,300
)
(3,486,415
)
(3,503,575
)
(3,502,672
)
25,966,140
(3,548,448
)
(3,502,672
)
19,579,524
1,671,318
(75,051
)
10,388,672
8,717,354
8,792,405
$
29,968,196
$
10,388,672
$
8,717,354
During 2007, the Company changed the name of Citizen Union State Bank to Hawthorn Bank, and
combined Osage Valley Bank, Bank 10 and Exchange National Bank into Hawthorn Bank. Concurrent with
each combination, the underlying bank charters were sold to unrelated third parties for cash. Included
in other income for 2007 is a gain from the sales of charters aggregating $1,200,000.
AND SUBSIDIARIES
(15)
Disclosures About Financial Instruments
The Company issues financial instruments with off-balance-sheet risk in the normal course of
business of meeting the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments may involve, to
varying degrees, elements of credit and interest rate risk in excess of the amounts recognized
in the consolidated balance sheets.
The Companys extent of involvement and maximum potential exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making commitments and conditional
obligations as it does for financial instruments included on its consolidated balance sheets.
At December 31, 2008, no amounts have been accrued for any estimated losses for these
financial instruments.
The contractual amount of off-balance-sheet financial instruments as of December 31, 2008 and
2007 is as follows:
2008
2007
$
143,936,230
141,414,349
5,417,161
5,680,483
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Of the total
commitments to extend credit at December 31, 2008, approximately $63,584,000 represents
fixed-rate loan commitments. Of the total commitments to extend credit at December 31, 2007,
approximately $78,012,000 represents fixed-rate loan commitments. Since certain of the
commitments and letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company
evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based on
managements credit evaluation of the customer. Collateral held varies, but may include
accounts receivable, inventory, furniture and equipment, and real estate.
Standby letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. These standby letters of credit are primarily
issued to support contractual obligations of the Companys customers. The credit risk involved
in issuing letters of credit is essentially the same as the risk involved in extending loans
to customers. The approximate remaining term of standby letters of credit range from one month
to ten years at December 31, 2008.
AND SUBSIDIARIES
2008
2007
Carrying
Fair
Carrying
Fair
amount
value
amount
value
$
996,436,986
$
1,000,594,000
$
901,996,263
$
911,309,000
158,276,179
158,276,179
157,368,505
157,368,505
104,393
104,393
664,184
664,184
53,723,075
53,723,075
35,209,201
35,209,201
1,171,225
2,455,000
1,184,868
2,750,000
7,476,093
7,476,093
8,764,196
8,764,196
$
1,217,187,951
$
1,222,628,740
$
1,105,187,217
$
1,116,065,086
$
125,245,200
$
125,245,200
$
138,355,520
$
138,355,520
123,288,896
123,288,896
116,635,508
116,635,508
43,370,172
43,370,172
43,183,790
43,183,790
176,038,478
176,038,478
169,402,365
169,402,365
487,353,643
494,427,000
453,680,108
458,141,000
29,138,623
29,138,623
25,729,863
25,729,863
49,486,000
35,180,000
49,486,000
49,486,000
129,057,483
130,454,000
77,915,027
78,821,000
3,847,415
3,847,415
4,723,965
4,723,965
$
1,166,825,910
$
1,160,989,784
$
1,079,112,146
$
1,084,479,011
AND SUBSIDIARIES
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate such value:
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics.
Loans are segregated by type, such as real estate, installment and other consumer,
commercial, and bankers acceptances. Each loan category is further segmented into fixed
and adjustable interest rate terms and by performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled cash flows
through estimated maturity using estimated market discount rates that reflect the credit
and interest rate risk inherent in the loan. The estimate of maturity is based on the
Companys historical experience with repayments for each loan classification, modified,
as required, by an estimate of the effect of current economic and lending conditions.
The fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted using a
rate commensurate with the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows, and discount rates are judgmentally determined using
available market and specific borrower information.
Investment in Debt and Equity Securities
Fair values are based on quoted market prices or dealer quotes.
Federal Funds Sold, Cash, and Due from Banks
For federal funds sold, cash, and due from banks, the carrying amount is a reasonable
estimate of fair value, as such instruments reprice in a short time period.
Mortgage Servicing Rights
The fair value of mortgage servicing rights is based on the discounted value of
contractual cash flows utilizing servicing rate, constant prepayment rate, servicing
cost, and discount rate factors.
Accrued Interest Receivable and Payable
For accrued interest receivable and payable, the carrying amount is a reasonable estimate
of fair value because of the short maturity for these financial instruments.
Deposits
The fair value of deposits with no stated maturity, such as noninterest-bearing demand,
NOW accounts, savings, and money market, is equal to the amount payable on demand. The
fair value of time deposits is based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for deposits of similar
remaining maturities.
AND SUBSIDIARIES
Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to
U.S. Treasury
For securities sold under agreements to repurchase and interest-bearing demand notes to
U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such
instruments reprice in a short time period.
Other Borrowings
The fair value of other borrowings, which include subordinated notes and Federal Home
Loan borrowings, is based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for other borrowed money of similar
remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit and standby letters of credit are
estimated using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements, the likelihood of the counterparties
drawing on such financial instruments, and the present creditworthiness of such
counterparties. The Company believes such commitments have been made on terms, which are
competitive in the markets in which it operates.
The fair value estimates provided are made at a point in time based on market information
and information about the financial instruments. Because no market exists for a portion
of the Companys financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the fair value estimates.
(16)
Litigation
Various legal claims have arisen in the normal course of business, which, in the opinion of
management of the Company, will not result in any material liability to the Company.
AND SUBSIDIARIES
(17)
Quarterly Financial Information
Year Ended December 31, 2008
(unaudited)
Year
First
Second
Third
Fourth
to
(In thousands except per share data)
quarter
quarter
quarter
quarter
Date
$
18,425
$
17,121
$
17,430
$
16,739
$
69,715
8,881
7,605
7,575
7,538
31,599
9,544
9,516
9,855
9,201
38,116
1,650
1,300
1,000
4,261
8,211
2,368
2,322
2,321
2,286
9,297
8,644
8,626
8,382
50,323
75,975
531
595
780
(8,052)
(6,146)
$
1,087
$
1,317
$
2,014
$
(35,045)
$
(30,627)
66
66
$
1,087
$
1,317
$
2,014
$
(35,111)
$
(30,693)
$
0.26
$
0.32
$
0.49
$
(8.46)
$
(7.39)
0.26
0.31
0.48
(8.46)
(7.39)
Year Ended December 31, 2007
(unaudited)
Year
First
Second
Third
Fourth
to
(In thousands except per share data)
quarter
quarter
quarter
quarter
Date
$
18,031
$
18,137
$
18,992
$
19,047
$74,207
8,895
9,052
9,667
9,561
37,175
9,136
9,085
9,325
9,486
37,032
225
154
225
550
1,154
2,524
2,849
2,095
2,753
10,221
8,134
8,445
8,161
10,314
35,054
994
972
897
382
3,245
$
2,307
$
2,363
$
2,137
$
993
$7,800
$
0.55
$
0.57
$
0.51
$0.24
$1.87
0.55
0.56
0.51
0.24
1.85
2008
High
Low
29.50
23.78
28.15
23.75
26.48
19.27
24.39
14.00
2007
High
Low
36.66
36.20
36.30
31.04
33.70
29.85
31.85
24.50
$
0.21
0.21
0.21
0.21
$
0.84
$
0.21
0.21
0.21
0.21
$
0.84
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
$
100.00
$
81.91
$
86.17
$
94.58
$
77.14
$
55.24
$
100.00
$
108.59
$
110.08
$
120.56
$
132.39
$
78.72
$
100.00
$
123.42
$
121.31
$
140.38
$
102.26
$
84.81
Name
Position with Our Company
Position with Subsidiary Bank
Principal Occupation
Chairman, Chief
Executive Officer and
Director-Class I
Chairman, Chief Executive
Officer, and Director of
Hawthorn Bank
Position with
Hawthorn Bancshares
and Hawthorn Bank
President and
Director-Class III
President of East Region and
Director of Hawthorn Bank
Position with
Hawthorn Bancshares
and Hawthorn Bank
Director-Class I
Director of Hawthorn Bank
Retired
Director-Class I
Director of Hawthorn Bank
Owner/Manager,
Freeman Mortuary,
Jefferson City,
Missouri
Director-Class III
Director of Hawthorn Bank
Co-owner, Riley
Chevrolet, Inc. and
Riley Toyota,
Scion, Cadillac,
Inc., Jefferson
City, Missouri
Director-Class II
Director of Hawthorn Bank
Attorney, Poague,
Wall, Eshelman, Cox
& Adams, Clinton,
Missouri
Director-Class II
Director of Hawthorn Bank
Physician, Wetzel
Clinic, Clinton,
Missouri
Chief Financial Officer
Senior Vice President and
Chief Financial Officer of
Hawthorn Bank
Position with
Hawthorn Bancshares
and Hawthorn Bank
Senior Vice President,
Chief Risk Officer and
Corporate Secretary
Senior Vice President and
Chief Risk Officer
Position with
Hawthorn Bancshares
and Hawthorn Bank
Name of Subsidiary | Jurisdiction of Organization | |
|
||
Union State Bancshares, Inc.
|
Missouri | |
|
||
Hawthorn Bank
|
Missouri | |
|
||
Hawthorn Real Estate, LLC.
|
Missouri (limited liability company) | |
|
||
Jefferson City IHC, LLC
|
Missouri (limited liability company) | |
|
||
Exchange National Statutory Trust I
|
Connecticut | |
|
||
Exchange National Statutory Trust II
|
Delaware |
1
/s/ KPMG
St. Louis, Missouri |
||||
March 13, 2009 |
1
Date: March 13, 2009 | /s/ James E. Smith | |||
James E. Smith | ||||
Chairman of the Board and Chief
Executive Officer |
2
1
Date: March 13, 2009 | /s/ Richard G. Rose | |||
Richard G. Rose | ||||
Chief Financial Officer |
2
Dated: March 13, 2009 | /s/ James E. Smith | |||
James E. Smith | ||||
Chairman of the Board and Chief
Executive Officer |
||||
1
Dated: March 13, 2009 | /s/ Richard G. Rose | |||
Richard G. Rose | ||||
Chief Financial Officer | ||||
1