UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
x
|
Quarterly
report under Section 13 or 15 (d) of the Securities Exchange Act of
1934
|
|
|
|
|
|
For the quarterly period ended
March 31, 2008
|
|
|
|
|
o
|
Transition report under Section 13
or 15 (d) of the Exchange Act
|
|
|
|
|
|
For the transition period from
to
|
|
|
|
|
|
Commission File Number
000-51112
|
|
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
(Exact Name of
Small Business Issuer as Specified in Its Charter)
GEORGIA
|
|
20-2118147
|
(State or Other
Jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation or
Organization)
|
|
Identification
No.)
|
1701 Bass Road
Macon, Georgia 31210
(Address of
Principal Executive Offices)
(478)
476-2170
(Issuers
Telephone Number, Including Area Code)
Not Applicable
(Former Name,
Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting
company
o
|
(Do not check if a
smaller reporting company)
|
|
|
Indicate by checkmark
whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the number of
shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date: Common Stock $5 par value, 4,151,780 shares
outstanding at May 5, 2008
ATLANTIC SOUTHERN FINANCIAL
GROUP, INC.
INDEX
ATLANTIC SOUTHERN FINANCIAL
GROUP, INC.
Consolidated Balance Sheets
March 31, 2008
(Unaudited) and
December 31, 2007
(Audited)
|
|
As of
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
Cash and due
from banks
|
|
$
|
7,964,103
|
|
$
|
8,059,524
|
|
Interest-bearing
deposits in other banks
|
|
465,175
|
|
514,654
|
|
Federal funds
sold
|
|
15,928,000
|
|
11,350,000
|
|
Total cash and
cash equivalents
|
|
24,357,278
|
|
19,924,178
|
|
Securities
available for sale, at fair value
|
|
76,170,524
|
|
74,387,100
|
|
Federal Home
Loan Bank stock, restricted, at cost
|
|
3,355,200
|
|
3,153,000
|
|
Loans held for
sale
|
|
2,068,296
|
|
679,427
|
|
Loans, net of
unearned income
|
|
721,416,116
|
|
697,145,715
|
|
Less - allowance
for loan losses
|
|
(9,158,280
|
)
|
(8,878,795
|
)
|
Loans, net
|
|
712,257,836
|
|
688,266,920
|
|
Bank premises
and equipment, net
|
|
28,224,519
|
|
27,899,376
|
|
Accrued interest
receivable
|
|
6,810,915
|
|
7,239,571
|
|
Cash surrender
value of life insurance
|
|
12,054,178
|
|
4,442,044
|
|
Goodwill and
other intangible assets, net of amortization
|
|
22,716,404
|
|
22,806,983
|
|
Other assets
|
|
3,899,628
|
|
3,680,465
|
|
Total
Assets
|
|
$
|
891,914,778
|
|
$
|
852,479,064
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
47,663,881
|
|
$
|
46,075,374
|
|
Money market and
NOW accounts
|
|
111,982,883
|
|
111,029,210
|
|
Savings
|
|
8,013,676
|
|
7,808,443
|
|
Time deposits
|
|
574,954,851
|
|
540,318,896
|
|
Total deposits
|
|
742,615,291
|
|
705,231,923
|
|
Federal Home
Loan Bank advances
|
|
40,500,000
|
|
40,500,000
|
|
Junior
subordinated debentures
|
|
10,310,000
|
|
10,310,000
|
|
Accrued interest
payable
|
|
6,015,278
|
|
5,446,473
|
|
Accrued expenses
and other liabilities
|
|
1,878,765
|
|
1,908,156
|
|
Total
liabilities
|
|
801,319,334
|
|
763,396,552
|
|
Shareholders
Equity:
|
|
|
|
|
|
Preferred stock,
authorized 2,000,000 shares, no outstanding shares
|
|
|
|
|
|
Common stock, $5
par value, authorized 10,000,000 shares, issued and outstanding 4,151,780 in
2008 and 2007
|
|
20,758,900
|
|
20,758,900
|
|
Paid-in capital
surplus
|
|
53,419,186
|
|
53,413,202
|
|
Retained
earnings
|
|
15,671,283
|
|
14,606,121
|
|
Accumulated
other comprehensive income
|
|
746,075
|
|
304,289
|
|
Total
shareholders equity
|
|
90,595,444
|
|
89,082,512
|
|
Total
Liabilities and Shareholders Equity
|
|
$
|
891,914,778
|
|
$
|
852,479,064
|
|
See Accompanying Notes to
Consolidated Financial Statements (Unaudited).
2
ATLANTIC SOUTHERN FINANCIAL
GROUP, INC.
Consolidated Statements of Earnings
For the Three Months Ended March 31, 2008 and
2007
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Interest
and Dividend Income:
|
|
|
|
|
|
Interest and
fees on loans
|
|
$
|
13,429,239
|
|
$
|
12,814,056
|
|
Interest on
securities:
|
|
|
|
|
|
Taxable income
|
|
637,022
|
|
563,347
|
|
Non-taxable
income
|
|
200,272
|
|
157,460
|
|
Income on
federal funds sold
|
|
80,553
|
|
242,729
|
|
Other interest
and dividend income
|
|
78,883
|
|
88,378
|
|
Total interest
and dividend income
|
|
14,425,969
|
|
13,865,970
|
|
Interest
Expense:
|
|
|
|
|
|
Deposits
|
|
7,546,835
|
|
6,601,613
|
|
Junior
subordinated debentures
|
|
176,094
|
|
190,969
|
|
Federal funds
purchased
|
|
24,892
|
|
24,848
|
|
FHLB borrowings
and other interest expense
|
|
400,737
|
|
394,149
|
|
Total interest
expense
|
|
8,148,558
|
|
7,211,579
|
|
|
|
|
|
|
|
Net interest
income
|
|
6,277,411
|
|
6,654,391
|
|
Provision
for loan losses
|
|
402,000
|
|
444,000
|
|
Net interest
income after provision for loan losses
|
|
5,875,411
|
|
6,210,391
|
|
Noninterest
Income:
|
|
|
|
|
|
Service charges
on deposit accounts
|
|
416,442
|
|
281,008
|
|
Other service
charges, commissions and fees
|
|
109,883
|
|
61,336
|
|
(Loss) gain on
sale of other assets
|
|
(13,650
|
)
|
1,287
|
|
Gain on sales /
calls of investment securities
|
|
31,840
|
|
75
|
|
Mortgage
origination income
|
|
237,826
|
|
206,120
|
|
Other income
|
|
207,082
|
|
139,552
|
|
Total
noninterest income
|
|
989,423
|
|
689,378
|
|
Noninterest
Expense:
|
|
|
|
|
|
Salaries
|
|
2,129,856
|
|
1,679,271
|
|
Employee
benefits
|
|
734,225
|
|
554,920
|
|
Occupancy
expense
|
|
448,798
|
|
323,329
|
|
Equipment rental
and depreciation of equipment
|
|
264,014
|
|
180,176
|
|
Other expenses
|
|
1,597,074
|
|
1,264,213
|
|
Total
noninterest expense
|
|
5,173,967
|
|
4,001,909
|
|
|
|
|
|
|
|
Earnings
Before Income Taxes
|
|
1,690,867
|
|
2,897,860
|
|
Provision for
income taxes
|
|
501,151
|
|
1,014,602
|
|
Net
Earnings
|
|
$
|
1,189,716
|
|
$
|
1,883,258
|
|
Earnings
per share:
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
$
|
0.47
|
|
Diluted
|
|
$
|
0.27
|
|
$
|
0.44
|
|
Dividends
declared per share:
|
|
$
|
0.03
|
|
$
|
|
|
See Accompanying Notes to
Consolidated Financial Statements (Unaudited).
3
ATLANTIC SOUTHERN FINANCIAL
GROUP, INC.
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2008 and
2007
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Net earnings
|
|
$
|
1,189,716
|
|
$
|
1,883,258
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
Unrealized
holding gains on investment securities available for sale
|
|
701,213
|
|
183,583
|
|
Unrealized
holding gains on derivative financial instruments classified as cash flow
hedges
|
|
|
|
54,411
|
|
Reclassification
adjustment for gains realized in net earnings
|
|
(31,840
|
)
|
(75
|
)
|
Total other
comprehensive income, before tax
|
|
669,373
|
|
237,919
|
|
Income taxes
related to other comprehensive income:
|
|
|
|
|
|
Unrealized
holding gains on investment securities available for sale
|
|
(238,413
|
)
|
(62,418
|
)
|
Unrealized
holding gains on derivative financial instruments classified as cash flow
hedges
|
|
|
|
(18,500
|
)
|
Reclassification
adjustment for gains realized in net earnings
|
|
10,826
|
|
26
|
|
Total income
taxes related to other comprehensive income
|
|
(227,587
|
)
|
(80,892
|
)
|
Total other
comprehensive income, net of tax
|
|
441,786
|
|
157,027
|
|
Total
comprehensive income
|
|
$
|
1,631,502
|
|
$
|
2,040,285
|
|
See Accompanying Notes to
Consolidated Financial Statements (Unaudited).
4
ATLANTIC SOUTHERN FINANCIAL
GROUP, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2008 and
2007
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net earnings
|
|
$
|
1,189,716
|
|
$
|
1,883,258
|
|
Adjustments to
reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
Provision for
loan losses
|
|
402,000
|
|
444,000
|
|
Depreciation
|
|
339,221
|
|
225,053
|
|
Stock based
compensation
|
|
5,984
|
|
5,984
|
|
Amortization and
(accretion), net
|
|
80,492
|
|
59,424
|
|
Loss (gain) on
sales of assets
|
|
13,650
|
|
(1,287
|
)
|
Gain on sales /
calls of investment securities
|
|
(31,840
|
)
|
(75
|
)
|
Earnings on cash
surrender value of life insurance
|
|
(112,134
|
)
|
(40,933
|
)
|
Changes in
assets and liabilities, net of effects of purchase acquisition in 2007:
|
|
|
|
|
|
Loans held for
sale
|
|
(1,388,869
|
)
|
(2,115,625
|
)
|
Changes in
accrued income and other assets
|
|
466,983
|
|
905,603
|
|
Changes in
accrued expenses and other liabilities
|
|
311,827
|
|
239,183
|
|
Net cash
provided by operating activities
|
|
1,277,030
|
|
1,604,585
|
|
Cash
Flows from Investing Activities, net of effects of purchase acquisition in
2007:
|
|
|
|
|
|
Net change in
loans to customers
|
|
(24,654,286
|
)
|
(46,217,409
|
)
|
Purchase of
available for sale securities
|
|
(9,794,389
|
)
|
(2,588,124
|
)
|
Proceeds from
sales, calls, maturities and paydowns of available for sale securities
|
|
8,712,495
|
|
3,573,561
|
|
Purchase of FHLB
stock
|
|
(202,200
|
)
|
(292,900
|
)
|
Purchase of cash
surrender value of life insurance
|
|
(7,500,000
|
)
|
|
|
Cash received
from First Community, net of cash paid of $235,034
|
|
|
|
5,556,520
|
|
Cash paid to
Sapelo shareholders
|
|
|
|
(5,322,492
|
)
|
Property and
equipment expenditures
|
|
(664,364
|
)
|
(2,700,963
|
)
|
Proceeds from
sales of assets
|
|
|
|
4,672
|
|
Net cash used in
investing activities
|
|
(34,102,744
|
)
|
(47,987,135
|
)
|
Cash
Flows from Financing Activities, net of effects of purchase acquisition in
2007:
|
|
|
|
|
|
Net change in
deposits
|
|
37,383,368
|
|
33,298,492
|
|
Advances on FHLB
borrowings
|
|
6,000,000
|
|
6,000,000
|
|
Payments on FHLB
borrownings
|
|
(6,000,000
|
)
|
(7,000,000
|
)
|
Payment for
fractional shares
|
|
|
|
(10,320
|
)
|
Proceeds from
issuance of common stock, net of Payment for issuance cost of common stock
|
|
|
|
(76,878
|
)
|
Dividends paid
|
|
(124,554
|
)
|
|
|
Net cash
provided by financing activities
|
|
37,258,814
|
|
32,211,294
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
4,433,100
|
|
(14,171,256
|
)
|
Cash
and Cash Equivalents, Beginning of Year
|
|
19,924,178
|
|
42,911,477
|
|
Cash
and Cash Equivalents, End of Quarter
|
|
$
|
24,357,278
|
|
$
|
28,740,221
|
|
See Accompanying Notes to
Consolidated Financial Statements (Unaudited).
5
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
Notes to
Consolidated Financial Statements
(Unaudited)
(1)
Basis of Presentation
The accompanying
unaudited consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and changes in financial position in
conformity with generally accepted accounting principles. The interim financial statements furnished
reflect all adjustments, which are, in the opinion of management, necessary to
a fair statement of the results for the interim periods presented. The interim consolidated financial statements
should be read in conjunction with the Companys Annual Report on Form 10-K
for the year ended December 31, 2007.
(2)
Stock-Based
Compensation
The
Company granted 8,000 options during the first quarter 2007. The Company did not grant any options during
the first quarter of 2008.
The Company recognized $5,984 of
stock-based employee compensation expense during the first quarter of 2008 and
2007 associated with its stock option grants.
The Company is recognizing the compensation expense for stock option
grants with graded vesting schedules on a straight-line basis over the
requisite service period of the award as permitted by SFAS No. 123
(R). As of March 31, 2008, there
was $89,760 of unrecognized compensation cost related to stock option
grants. The cost is expected to be
recognized over the remaining vesting period of approximately four years.
The weighted average grant-date fair value of each
option granted during the first quarter 2007 was $14.96. The fair value of each option is estimated on
the date of grant using the Black-Scholes Model. The following weighted average assumptions
were used for grants in the first quarter 2007:
Dividend yield
|
|
0.00
|
%
|
Expected volatility
|
|
21.58
|
%
|
Risk-free interest rate
|
|
4.75
|
%
|
Expected term
|
|
7.5 years
|
|
(3)
Net Earnings per Share
Basic
earnings per share are based on the weighted average number of common shares
outstanding during the period while the effects of potential shares outstanding
during the period are included in diluted earnings per share.
The reconciliation of the amounts
used in the computation of both basic earnings per share and diluted
earnings per share for each period is presented as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
1,189,716
|
|
$
|
1,883,258
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
4,151,780
|
|
3,971,102
|
|
Shares
issued from assumed exercise of common stock equivalents
|
|
261,041
|
|
340,609
|
|
Weighted
average number of common and common equivalent shares outstanding
|
|
4,412,821
|
|
4,311,711
|
|
Earnings
per share:
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
$
|
0.47
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.27
|
|
$
|
0.44
|
|
6
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(4) Fair Value
Effective January 1,
2008, the Company adopted Financial Accounting Standards Board (FASB)
Statement No. 157,
Fair Value Measurements
(SFAS No. 157), which provides a framework for measuring fair value
under generally accepted accounting principles.
SFAS No. 157 applies to all financial instruments that are being
measured and reported on a fair value basis.
The Company utilizes fair
value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at
fair value on a recurring basis.
Additionally, from time to time, the Company may be required to record
at fair value other assets on a nonrecurring basis, such as loans held for sale,
loans held for investment and certain other assets. These nonrecurring fair value adjustments
typically involve application of lower of cost or market accounting or
write-downs of individual assets.
Fair Value
Hierarchy
Under SFAS 157, the
Company groups assets and liabilities at fair value in three levels, based on
the markets in which the assets and liabilities are traded and the reliability
of the assumptions used to determine fair value. These levels are:
Level
1 Valuation is based upon quoted prices for identical instruments traded in
active markets.
Level
2 Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are
not active, and model-based valuation techniques for which all significant
assumptions are observable in the market.
Level
3 Valuation is generated from model-based techniques that use at least one
significant assumption not observable in the market. These unobservable assumptions reflect
estimates of assumptions that market participants would use in pricing the
asset or liability. Valuation techniques
include use of option pricing models, discounted cash flow models and similar
techniques.
Following is a
description of valuation methodologies used for assets and liabilities recorded
at fair value.
Securities
Available-for-Sale
Securities
available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted
prices, if available. If quoted prices
are not available, fair values are measured using independent pricing models or
other model-based valuation techniques such as the present value of future cash
flows, adjusted for the securitys credit rating, prepayment assumptions and
other factors such as credit loss assumptions.
Level 1 securities include those traded on an active exchange, such as
the New York Stock Exchange and U.S. Treasury securities that are traded by
dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed
securities issued by government sponsored enterprises and municipal bonds. Securities classified as Level 3 include
asset-backed securities in less liquid markets.
Loans Held for
Sale
Loans held for sale are
recorded at the lower of cost or market value.
The fair value of loans held for sale is based on what secondary markets
are currently offering for portfolios with similar characteristics. As such, the Company classifies loans held
for sale subjected to nonrecurring fair value adjustments as Level 2.
Loans
The Company does not
record loans at fair value on a recurring basis. However, from time to time, a loan is
considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment
of interest and principal will not be made in accordance with the contractual
terms of the loan agreement are considered impaired. Once a loan is identified as individually
impaired, management measures impairment in accordance with SFAS 114,
Accounting by Creditors for Impairment of a Loan
, (SFAS 114). The fair value
7
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
of impaired loans is
estimated using one of several methods, including collateral value, market
value of similar debt, enterprise value, liquidation value and discounted cash
flows. Those impaired loans not
requiring an allowance represent loans for which the fair value of the expected
repayments or collateral exceed the recorded investments in such loans. At March 31, 2008, only a small portion
of the impaired loans were evaluated based on the fair value of the
collateral. In accordance with SFAS 157,
impaired loans where an allowance is established based on the fair value of
collateral require classification in the fair value hierarchy. When the fair value of the collateral is
based on an observable market price or a current appraised value, the Company
records the impaired loan as nonrecurring Level 2. When an appraised value is not available or
management determines the fair value of the collateral is further impaired
below the appraised value and there is no observable market price, the Company
records the impaired loan as nonrecurring Level 3.
Foreclosed Assets
Foreclosed assets are
adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried
at the lower of carrying value or fair value.
Fair value is based upon independent market prices, appraised values of
the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is
based on an observable market price or a current appraised value, the Company
records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or
management determines the fair value of the collateral is further impaired
below the appraised value and there is no observable market prices, the Company
records the foreclosed asset as nonrecurring Level 3.
Goodwill and Other
Intangible Assets
Goodwill and identified
intangible assets are subject to impairment testing. A projected cash flow valuation method is
used in the completion of impairment testing.
This valuation method requires a significant degree of management
judgment. In the event the projected
undiscounted net operating cash flows are less than the carrying value, the
asset is recorded at fair value as determined by the valuation model. As such, the Company classifies goodwill and
other intangible assets subjected to nonrecurring fair value adjustments as
Level 3.
Assets Recorded at
Fair Value on a Recurring Basis
The table below presents
the recorded amount of assets measured at fair value on a recurring basis.
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale
|
|
$
|
76,170,524
|
|
$
|
20,293,790
|
|
$
|
55,626,734
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
76,170,524
|
|
$
|
20,293,790
|
|
$
|
55,626,734
|
|
$
|
250,000
|
|
There was no change in
the unrealized gain/loss for the Level 3 assets during the period.
Assets Recorded at
Fair Value on a Nonrecurring Basis
The Company may be
required, from time to time, to measure certain assets at fair value on a
nonrecurring basis in accordance with U.S. generally accepted accounting
principles. These include assets that
are measured at the lower of cost or market that were recognized at fair value
below cost at the end of the period.
Assets measured at fair value on a nonrecurring basis are included in
the table below.
8
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
8,857,300
|
|
$
|
|
|
$
|
8,857,300
|
|
$
|
|
|
Other
assets (1)
|
|
186,100
|
|
|
|
186,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
9,043,400
|
|
$
|
|
|
$
|
9,043,400
|
|
$
|
|
|
(1) Includes
foreclosed assets.
(5) Nonperforming Assets
Nonperforming assets consist of non-accrual loans,
accruing loans 90 days past due and other real estate owned. The following
summarizes non-performing assets:
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Accruing
loans 90 days past due
|
|
$
|
|
|
$
|
504,783
|
|
Non-accrual
loans
|
|
3,891,819
|
|
4,276,950
|
|
Other
real estate
|
|
747,225
|
|
758,787
|
|
Total
non-performing assets
|
|
$
|
4,639,044
|
|
$
|
5,540,520
|
|
Nonperforming assets
decreased $901,476 or 16.3% from December 31, 2007 to March 31, 2008
due to several non-accrual loans tied to one customer relationship being paid
off during the first quarter of 2008.
The nonperforming assets mainly consist of one loan acquired from our
acquisition of Sapelo National Bank with a balance of approximately $2.9
million on non-accrual that is secured by single-family residential real estate
appraised at approximately $5.1 million.
The borrower filed for bankruptcy protection on April 2, 2007. On May 6, 2008, the Bank foreclosed on
the property and is currently marketing the property for sale.
On
April 25, 2008, management placed two loans with a balance of
approximately $4.5 million on non-accrual that were secured by 708 acres of
land and timber appraised at approximately $6.0 million. In addition, on April 28, 2008,
management placed five loans from one customer relationship with a balance of
approximately $739 thousand on non-accrual that were secured by several
residential construction and land development properties and two single family
residential properties appraised at approximately $1.0 million.
The customer has marketed the
collateral for sale in order to pay off the loans.
These
loans are not reflected in the table above.
Management is continuously monitoring these loans in order to
minimize any losses.
Other real estate
consists of nine properties totaling $747,225 at March 31, 2008. At March 31, 2008, the Companys other
real estate consisted of the following:
1-4
Family residential properties
|
|
$
|
57,305
|
|
Construction &
land development properties
|
|
689,920
|
|
Total
|
|
$
|
747,225
|
|
All properties are being
actively marketed for sale and management is continuously monitoring these
properties in order to minimize any losses.
The
Companys policy is to place loans on non-accrual status when it appears that
the collection of interest in accordance with the terms of the loan is
doubtful. Any loan which becomes 90 days
past due as to principal or interest is automatically placed on
non-accrual. Exceptions are allowed for
90-day past due loans when such
9
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
loans are well secured and in process of
collection. Other Real Estate is defined
as real estate acquired as salvage on uncollectible loans. At the time of foreclosure, an appraisal is
obtained on the real estate. The amount
charged to Other Real Estate will be the lower of appraised value or recorded
investment in the loan satisfied. The
recorded investment is the unpaid balance of the loan, increased by accrued and
uncollected interest, unamortized premium, finance charges, and loan
acquisition costs, if any, and decreased by previous direct write down and
unamortized discount. Any excess of the
recorded investment in the loan satisfied over the appraised value of the
property must be charged to allowance for loan losses.
(6) Recent Accounting Pronouncements
Disclosures about Derivative Instruments and
Hedging Activities
In
March 2008, the FASB issued SFAS No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
. SFAS No. 161 is an amendment to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
. The objective of
SFAS No. 161 is to expand the disclosure requirements of SFAS No. 133
with the intent to improve the financial reporting of how and why an entity
uses derivative instruments; how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related
interpretations; and how derivative instruments and related hedged items affect
an entitys financial position, financial performance and cash flows. The statement is effective for financial
statements issued for fiscal years beginning after November 15, 2008.
The Company
does not anticipate the new accounting principle to have a material effect on
its financial position or results of operation.
10
ATLANTIC SOUTHERN
FINANCIAL GROUP, INC.
Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations
For Each of the Three Months in the Period Ended
March 31, 2008
and
2007
The following discussion of financial
condition as of March 31, 2008
compared to December 31, 2007,
and the results of operations for the three months ended March 31, 2008 compared to the three
months ended March 31, 2007
should be read in conjunction with the condensed financial statements and
accompanying footnotes appearing in this report.
Advisory Note Regarding Forward-Looking Statements
The statements contained in this report on Form 10-Q that
are not historical facts are forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. We caution readers of this report that such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
to be materially different from those expressed or implied by such
forward-looking statements. Although we
believe that our expectations of future performance is based on reasonable
assumptions within the bounds of our knowledge of our business and operations,
there can be no assurance that actual results will not differ materially from
our expectations.
Factors which could cause actual results to differ from
expectations include, among other things:
·
the challenges, costs and
complications associated with the continued development of our branches;
·
the potential that loan
charge-offs may exceed the allowance for loan losses or that such allowance will
be increased as a result of factors beyond our control;
·
our dependence on senior
management;
·
competition from existing
financial institutions operating in our market areas as well as the entry into
such areas of new competitors with greater resources, broader branch networks
and more comprehensive services;
·
adverse conditions in the stock
market, the public debt market, and other capital markets (including changes in
interest rate conditions);
·
the effect of any mergers,
acquisitions or other transactions to which we or our subsidiary may from time
to time be a party, including, without limitation, our ability to successfully
integrate any businesses that we acquire;
·
changes in deposit rates, the net
interest margin, and funding sources;
·
inflation, interest rate, market,
and monetary fluctuations;
·
risks inherent in making loans
including repayment risks and value of collateral;
·
the strength of the United States
economy in general and the strength of the local economies in which we conduct
operations may be different than expected resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit, including the
resultant effect on our loan portfolio and allowance for loan losses;
·
fluctuations in consumer spending
and saving habits;
·
the demand for our products and
services;
·
technological changes;
·
the challenges and uncertainties
in the implementation of our expansion and development strategies;
·
the ability to increase market
share;
·
the adequacy of expense
projections and estimates of impairment loss;
·
the impact of changes in
accounting policies by the Securities and Exchange Commission;
·
unanticipated regulatory or
judicial proceedings;
·
the potential negative effects of
future legislation affecting financial institutions (including, without
limitation, laws concerning taxes, banking, securities, and insurance);
·
the effects of, and changes in,
trade, monetary and fiscal policies and laws, including interest rate policies
of the Board of Governors of the Federal Reserve System;
·
the timely development and
acceptance of products and services, including products and services offered
through alternative delivery channels such as the Internet;
·
the impact on our business, as
well as on the risks set forth above, of various domestic or international
military or terrorist activities or conflicts;
·
other factors described in this
report and in other reports we have filed with the Securities and Exchange
11
Commission; and
·
Our success at managing the risks
involved in the foregoing.
Forward-looking
statements speak only as of the date on which they are made. We undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which the statement is made to reflect the occurrence of unanticipated events.
Executive
Summary and Recent Developments
The Companys total assets at March 31,
2008, were approximately $891,915,000, which represented an increase of
approximately $39,436,000 or 5% from December 31, 2007. Net earnings decreased 37% for the three
months ended March 31, 2008 to $1,189,716 or $0.27 per diluted share
compared to $1,833,258 or $0.44 per diluted share for the three months ended March 31,
2007.
On
January 10, 2008, the Company declared its first dividend of $0.03 per
share to all shareholders of record as of February 1, 2008. The Company has announced a second quarter
dividend of $0.03 per share to all shareholders of record as of May 1, 2008. While the dividends are small in comparison
to overall earnings, the Company expects to continue to grow the Bank and wants
to retain appropriate amounts of capital to facilitate that sustained growth. Any future determination relating to the
Company declaring dividends will be made at the discretion of our Board of
Directors and will depend on any statutory and regulatory limitations.
During
the first quarter of 2008, the Company added a wealth management division in
anticipation of increasing non-interest income.
The Company has hired a seasoned financial advisor to provide financial
services including retirement planning, estate planning and asset allocation
strategies.
Management
has developed a strategy for asset growth and expansion of its financial
services through branching into selective markets in the South Georgia region,
in the coastal Georgia region and in the northeast Florida region. In the South Georgia region, we have
expanded our loan production office in Valdosta, Georgia into a full-service
branch during the first quarter of 2008.
Construction on a permanent branch location has now started and should
be completed in early 2009. In the
coastal Georgia region, we have started construction on our Pooler branch, near
Savannah, Georgia. In the northeast
Florida region, our Jacksonville branch opened December 3, 2007 in a
temporary branch location with plans to move to a permanent location during the
second quarter of 2008. Our senior
management team in northeast Florida is looking at a possible second location
in Duval County in hopes of increasing our presence in this region.
12
Financial Condition
The composition of assets
and liabilities for the Company is as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
% Change
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
7,964,103
|
|
$
|
8,059,524
|
|
$
|
(95,421
|
)
|
-1.18
|
%
|
Federal
funds sold
|
|
15,928,000
|
|
11,350,000
|
|
4,578,000
|
|
40.33
|
%
|
Securities
available for sale
|
|
76,170,524
|
|
74,387,100
|
|
1,783,424
|
|
2.40
|
%
|
Loans,
net of unearned income
|
|
721,416,116
|
|
697,145,715
|
|
24,270,401
|
|
3.48
|
%
|
Cash
surrender value of life insurance
|
|
12,054,178
|
|
4,442,044
|
|
7,612,134
|
|
171.37
|
%
|
Goodwill
and other intangible assets
|
|
22,716,404
|
|
22,806,983
|
|
(90,579
|
)
|
-0.40
|
%
|
Total
assets
|
|
891,914,778
|
|
852,479,064
|
|
39,435,714
|
|
4.63
|
%
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
742,615,291
|
|
$
|
705,231,923
|
|
$
|
37,383,368
|
|
5.30
|
%
|
FHLB
advances
|
|
40,500,000
|
|
40,500,000
|
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
1,878,765
|
|
1,908,156
|
|
(29,391
|
)
|
-1.54
|
%
|
|
|
|
|
|
|
|
|
|
|
Loan
to Deposit Ratio
|
|
97.15
|
%
|
98.85
|
%
|
|
|
|
|
One significant change in
the composition of assets was the increase in loans of $24.3 million due to
continued growth of the Company. We were
able to generate loan growth by increasing loan growth in the middle Georgia,
coastal Georgia and south Georgia regions.
Another significant change in the composition of assets was the $7.6
million increase in the cash surrender value of life insurance. The majority of the increase is due to the
Companys purchase of $7.5 million additional life insurance policies on
several senior bank officers. The most
significant change in the composition of liabilities was the increase in
deposits, especially time deposits, to fund loan growth. Time deposits, including wholesale and core
deposits, are our principal source of funds for loans and investing in
securities.
Because of our strong
loan demand, we have chosen to obtain a portion of our deposits from outside
our market. Our wholesale time deposits represented 44.0% of our deposits
as of March 31, 2008 when compared to 40.2% of our deposits as of December 31,
2007. The Companys Fund Management
Policy allows for the ratio of wholesale deposits to total deposits to be
60%. The Company has been successful in
replacing maturing brokered deposits and does not expect to experience
significant disintermediation as the brokered deposits mature.
Asset Quality
Management considers asset quality to be of primary
importance. Management has a credit
administration and loan review process, which monitor, control and measure our
credit risk, standardized credit analyses and our comprehensive credit policy. As a result, management believes they have a
good understanding of the asset quality, an established warning and early
detection system regarding the loans and a comprehensive analysis of the
allowance for loan losses.
13
The
following table presents a summary of changes in the allowance for loan losses
for the three-month periods ended March 31, 2008 and 2007.
Analysis
of Changes in Allowance for Loan Losses
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Amounts in Thousands)
|
|
|
|
|
|
|
|
Balance
beginning of period
|
|
$
|
8,879
|
|
$
|
7,258
|
|
Loans
charged-off
|
|
(132
|
)
|
(529
|
)
|
Recoveries
|
|
9
|
|
17
|
|
Net
charge-offs
|
|
(123
|
)
|
(512
|
)
|
Provision
for loan losses
|
|
402
|
|
444
|
|
Allowance
from purchase acquisition
|
|
|
|
1,640
|
|
Balance
end of period
|
|
$
|
9,158
|
|
$
|
8,830
|
|
|
|
|
|
|
|
Total
Loans:
|
|
|
|
|
|
At
period end
|
|
$
|
721,416
|
|
$
|
628,080
|
|
Average
|
|
704,639
|
|
607,327
|
|
|
|
|
|
|
|
As a
percentage of average loans (annualized):
|
|
|
|
|
|
Net
charge-offs
|
|
0.07
|
%
|
0.34
|
%
|
Provision
for loan losses
|
|
0.23
|
%
|
0.29
|
%
|
Allowance
as a percentage of period end loans
|
|
1.27
|
%
|
1.41
|
%
|
Allowance
as a percentage of non-performing loans
|
|
235.32
|
%
|
259.47
|
%
|
Management believes that the allowance for loan
losses at March 31, 2008 is adequate to absorb losses inherent in the loan
portfolio. This assessment involves
uncertainty and judgment; therefore, the adequacy of the allowance for loan
losses cannot be determined with precision and may be subject to change in
future periods. In addition, bank
regulatory authorities, as part of their periodic examination of the Bank, may
require adjustments to the provision for loan losses in future periods if, in
their opinion, the results of their review warrant such additions.
Nonperforming assets consist of non-accrual loans,
accruing loans 90 days past due and other real estate owned. The following
summarizes non-performing assets:
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Accruing loans 90 days
past due
|
|
$
|
|
|
$
|
504,783
|
|
Non-accrual loans
|
|
3,891,819
|
|
4,276,950
|
|
Other real estate
|
|
747,225
|
|
758,787
|
|
Total
non-performing assets
|
|
$
|
4,639,044
|
|
$
|
5,540,520
|
|
Nonperforming assets
decreased $901,476 or 16.3% from December 31, 2007 to March 31, 2008
due to several non-accrual loans tied to one customer relationship being paid
off during the first quarter of 2008.
The nonperforming assets mainly consist of one loan acquired from our
acquisition of Sapelo National Bank with a balance of approximately $2.9
million on non-accrual that is secured by single-family residential real estate
appraised at approximately $5.1 million.
The borrower filed for bankruptcy protection on April 2, 2007. On May 6, 2008, the Bank foreclosed on
the property and is currently marketing the property for sale.
On
April 25, 2008, management placed two loans with a balance of approximately
$4.5 million on non-accrual that were secured by 708 acres of land and timber
appraised at approximately $6.0 million.
In addition, on April 28, 2008, management placed five loans from
one customer relationship with a balance of approximately $739 thousand
14
on
non-accrual that were secured by several residential construction and land
development properties and two single family residential properties appraised
at approximately $ 1.0 million.
The
customer has marketed the collateral for sale in order to pay off the
loans.
These loans are not reflected in the table above. Management is continuously monitoring
these loans in order to minimize any losses.
Other real estate
consists of nine properties totaling $747,225 at March 31, 2008. At March 31, 2008, the Companys other
real estate consisted of the following:
1-4
Family residential properties
|
|
$
|
57,305
|
|
Construction &
land development properties
|
|
689,920
|
|
Total
|
|
$
|
747,225
|
|
All properties are being
actively marketed for sale and management is continuously monitoring these
properties in order to minimize any losses.
Our
policy is to place loans on non-accrual status when it appears that the collection
of interest in accordance with the terms of the loan is doubtful. Any loan which becomes 90 days past due as to
principal or interest is automatically placed on non-accrual. Exceptions are allowed for 90-day past due
loans when such loans are well secured and in process of collection. Other Real Estate is defined as real estate
acquired as salvage on uncollectible loans.
At the time of foreclosure, an appraisal is obtained on the real
estate. The amount charged to Other Real
Estate will be the lower of appraised value or recorded investment in the loan
satisfied. The recorded investment is
the unpaid balance of the loan, increased by accrued and uncollected interest,
unamortized premium, finance charges, and loan acquisition costs, if any, and decreased
by previous direct write down and unamortized discount. Any excess of the recorded investment in the
loan satisfied over the appraised value of the property must be charged to
allowance for loan losses.
Results of Operations
General
The Companys
results of operations are determined by its ability to effectively manage
interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Since interest rates are determined by market
forces and economic conditions beyond the control of the Company, the ability
to generate interest income is dependent upon the Banks ability to obtain an
adequate spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities.
The
following table shows the significant components of net earnings:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
% Change
|
|
Interest
and Dividend Income
|
|
$
|
14,425,969
|
|
$
|
13,865,970
|
|
$
|
559,999
|
|
4.04
|
%
|
Interest
Expense
|
|
8,148,558
|
|
7,211,579
|
|
936,979
|
|
12.99
|
%
|
Net
Interest Income
|
|
6,277,411
|
|
6,654,391
|
|
(376,980
|
)
|
-5.67
|
%
|
Provision
for Loan Losses
|
|
402,000
|
|
444,000
|
|
(42,000
|
)
|
-9.46
|
%
|
Net
Earnings
|
|
1,189,716
|
|
1,883,258
|
|
(693,542
|
)
|
-36.83
|
%
|
Net
Earnings Per Diluted Share
|
|
$
|
0.27
|
|
$
|
0.44
|
|
(0.17
|
)
|
-38.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Net
Interest Income
Our primary source of
income is interest income from loans and investment securities. Our profitability depends largely on net
interest income, which is the difference between the interest received on
interest-earning assets and the interest paid on deposits, borrowings, and
other interest-bearing liabilities. Net
interest income decreased $377,000 or 6% for the three months ended March 31,
2008 compared to March 31, 2007.
Total interest and
dividend income for the three months ended March 31, 2008 increased
approximately $560,000 or 4% when compared to the three months ended March 31,
2007. This increase is partially the
result of the average loan portfolio for the three months ended March 31,
2008 increasing approximately $97 million or 16% when compared to average loan
portfolio for the three months ended March 31, 2007. The average yield on loans decreased during
the three months ended March 31, 2008 to 7.62% compared to an average
yield of 8.45 % for the three months ended March 31, 2007 primarily due to
the Federal Reserve decreasing the federal funds rate which affects a majority
of the interest rates for our loans.
Total interest expense
for the three months ended March 31, 2008 increased approximately $937,000
or 13% when compared to the three months ended March 31, 2007. Two factors impact interest expense: average
balances of deposit and borrowing portfolios and average rates paid on
each. Average deposit balances increased
approximately $90.6 million when comparing the three months ended March 31,
2008 to the three months ended March 31, 2007. The increase of $90.6 million includes
approximately $1.4 million in non-interest bearing balances in regular demand
deposit accounts. The average rate paid
on the deposit portfolios for the three months ended March 31, 2008
decreased to 4.53% from 4.57% when compared to the three months ended March 31,
2007. Average borrowing balances
increased approximately $7.3 million when comparing the three months ended March 31,
2008 to the three months ended March 31, 2007. Average interest rates paid on borrowings
were 4.47% for the three months ended March 31, 2008 compared to 5.23% for
the three months ended March 31, 2007.
The banking industry uses
two key ratios to measure relative profitability of net interest income, which
are net interest spread and net interest margin. The interest rate spread measures the
difference between the average yield on earning assets and the average rate
paid on interest-bearing liabilities.
The interest rate spread eliminates the impact of non-interest-bearing
funding sources and gives a direct perspective on the effect of market interest
rate movements. The net interest margin
is an indication of the profitability of our investments, and is defined as net
interest revenue as a percentage of total average earning assets, which
includes the positive impact of funding a portion of earning assets with
customers non-interest-bearing deposits and with shareholders equity.
For the three months
ended March 31, 2008 and 2007, our tax equivalent net interest spread was
2.82% and 3.35%, respectively, while the tax equivalent net interest margin was
3.22% and 3.85%, respectively. The
decreases in net interest spread and net interest margin from first quarter
2007 to first quarter 2008 were due to our promotions of higher short-term
yields on retail time deposits in order to fund loan growth and to invest in
investment securities and the effect of the Federal Reserves action in
lowering short-term rates starting in the second quarter of 2007 and continuing
in the first quarter of 2008 on the Companys slightly asset-sensitive balance
sheet.
16
The following table shows
the relationship between interest revenue and interest expense and the average
balances of interest-earning assets and interest-earning liabilities.
Average Consolidated Balance
Sheet and Net Interest Margin Analysis
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Dollar amounts in thousands)
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of
unearned income (4) (5) (6)
|
|
$
|
704,639
|
|
$
|
13,429
|
|
7.62
|
%
|
$
|
607,327
|
|
$
|
12,814
|
|
8.45
|
%
|
Federal funds
sold
|
|
10,927
|
|
81
|
|
2.97
|
%
|
19,134
|
|
243
|
|
5.08
|
%
|
Investment
securities - taxable (7)
|
|
51,045
|
|
637
|
|
4.99
|
%
|
52,141
|
|
563
|
|
4.32
|
%
|
Investment
securities - tax-exempt (6) (7)
|
|
20,271
|
|
200
|
|
5.98
|
%
|
18,304
|
|
158
|
|
5.23
|
%
|
Other interest
and dividend income
|
|
5,111
|
|
79
|
|
6.18
|
%
|
3,941
|
|
88
|
|
8.93
|
%
|
Total Earning
Assets
|
|
791,993
|
|
14,426
|
|
7.34
|
%
|
700,847
|
|
13,866
|
|
7.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
loan losses
|
|
-9,054
|
|
|
|
|
|
-8,862
|
|
|
|
|
|
Cash and due
from banks
|
|
9,274
|
|
|
|
|
|
13,074
|
|
|
|
|
|
Premises and
equipment
|
|
28,050
|
|
|
|
|
|
20,919
|
|
|
|
|
|
Accrued interest
receivable
|
|
7,420
|
|
|
|
|
|
5,967
|
|
|
|
|
|
Other assets
|
|
38,451
|
|
|
|
|
|
20,759
|
|
|
|
|
|
Total Assets
|
|
$
|
866,134
|
|
|
|
|
|
$
|
752,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
demand
|
|
$
|
108,038
|
|
$
|
648
|
|
2.40
|
%
|
$
|
109,170
|
|
$
|
832
|
|
3.05
|
%
|
Savings
|
|
7,864
|
|
11
|
|
0.56
|
%
|
8,357
|
|
11
|
|
0.53
|
%
|
Time deposits
|
|
550,936
|
|
6,888
|
|
5.00
|
%
|
460,184
|
|
5,759
|
|
5.01
|
%
|
Total interest
bearing deposits
|
|
666,838
|
|
7,547
|
|
4.53
|
%
|
577,711
|
|
6,602
|
|
4.57
|
%
|
Federal Home
Loan Bank advances
|
|
40,440
|
|
401
|
|
3.97
|
%
|
34,355
|
|
394
|
|
4.59
|
%
|
Other borrowings
|
|
3,149
|
|
25
|
|
3.18
|
%
|
1,957
|
|
25
|
|
5.11
|
%
|
Trust Preferred
Securities
|
|
10,310
|
|
176
|
|
6.83
|
%
|
10,310
|
|
191
|
|
7.41
|
%
|
Total borrowed
funds
|
|
53,899
|
|
602
|
|
4.47
|
%
|
46,622
|
|
610
|
|
5.23
|
%
|
Total
interest-bearing liabilities
|
|
720,737
|
|
8,149
|
|
4.52
|
%
|
624,333
|
|
7,212
|
|
4.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
47,175
|
|
|
|
|
|
45,737
|
|
|
|
|
|
Other
liabilities
|
|
8,413
|
|
|
|
|
|
7,230
|
|
|
|
|
|
Stockholders
equity
|
|
89,809
|
|
|
|
|
|
75,404
|
|
|
|
|
|
Total
Liabilities and Stockholders Equity
|
|
$
|
866,134
|
|
|
|
|
|
$
|
752,704
|
|
|
|
|
|
Net interest
revenue (1)
|
|
|
|
$
|
6,277
|
|
|
|
|
|
$
|
6,654
|
|
|
|
Net interest
spread (2) (6)
|
|
|
|
|
|
2.82
|
%
|
|
|
|
|
3.35
|
%
|
Net interest
margin (3) (6)
|
|
|
|
|
|
3.22
|
%
|
|
|
|
|
3.85
|
%
|
(1) Net interest revenue is computed by
subtracting the expense from the average interest-bearing liabilities from the
income from the average earning assets.
(2) Net interest spread is computed by
subtracting the yield from the expense of the average interest-bearing
liabilities from the yield from the average earning assets.
(3) Net
interest margin is computed by dividing net interest revenue by average total
earning assets.
(4) Average loans are shown net of unearned
income. Included in the average balance
of loans outstanding are loans where the accrual of interest has been
discounted.
(5) Interest
income includes loan fees as follows (in thousands): 2008 - $447; 2007 - $551
(6) Reflects
taxable equivalent adjustments using a tax rate of 34 percent.
(7) Investment
securities are stated at amortized or accreted cost.
17
The following table
provides a detailed analysis of the changes in interest income and interest
expense due to changes in rate and volume for the three months ended March 31,
2008 compared to March 31, 2007.
Change
in Interest Revenue and Expense on a Taxable Equivalent Basis
|
|
Three Months Ended March 31, 2008
|
|
|
|
Compared to 2007
|
|
|
|
Changes due to (a)
|
|
|
|
|
|
Yield/
|
|
Net
|
|
|
|
Volume
|
|
Rate
|
|
Change
|
|
|
|
(Amounts in thousands)
|
|
Interest earned
on:
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,049
|
|
$
|
(1,434
|
)
|
$
|
615
|
|
Investment
securities:
|
|
|
|
|
|
|
|
Taxable
investment securities
|
|
(12
|
)
|
86
|
|
74
|
|
Tax-exempt
investment securities
|
|
18
|
|
24
|
|
42
|
|
Interest earning
deposits and fed funds sold
|
|
(68
|
)
|
(103
|
)
|
(171
|
)
|
Total interest
income
|
|
1,987
|
|
(1,427
|
)
|
560
|
|
|
|
|
|
|
|
|
|
Interest paid
on:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Interest bearing
demand deposits
|
|
(21
|
)
|
(163
|
)
|
(184
|
)
|
Savings
|
|
(1
|
)
|
1
|
|
|
|
Time deposits
|
|
1,199
|
|
(70
|
)
|
1,129
|
|
Other borrowings
and FHLB advances
|
|
77
|
|
(70
|
)
|
7
|
|
Trust Preferred
Securities
|
|
|
|
(15
|
)
|
(15
|
)
|
Total interest
expense
|
|
1,254
|
|
(317
|
)
|
937
|
|
|
|
|
|
|
|
|
|
Increase in net
interest revenue
|
|
$
|
733
|
|
$
|
(1,110
|
)
|
$
|
(377
|
)
|
(a) Volume and rate
components are in proportion to the relationship of the absolute dollar amount
of the change in each.
Provision
for Loan Losses
The provision for loan
losses for the three months ended March 31, 2008, was $402,000 compared to
$444,000 for the same period of 2007.
This is due to continued loan growth for the respective periods. Net charge-offs as an annualized percentage
of average outstanding loans for the three months ended March 31, 2008
were 0.07%, as compared with 0.34% for the first quarter of 2007. Net loan charge-offs decreased significantly
this quarter as compared to the first quarter of 2007 due to the Company
charging off $300,000 in the first quarter of 2007 for one participation
purchased loan with the Companys portion of the foreclosed property being
recorded to other real estate at fair market value.
The provision for loan
losses is based on managements evaluation of inherent risks in the loan
portfolio and the corresponding analysis of the allowance for loan losses. Additional discussion on loan quality and the
allowance for loan losses are included in the Asset Quality section of this
report.
18
Non-interest
Income
Composition of other
noninterest income is as follows:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
% Change
|
|
Service charges
on deposit accounts
|
|
$
|
416,442
|
|
$
|
281,008
|
|
$
|
135,434
|
|
48.20
|
%
|
Other service
charges, commissions and fees
|
|
109,883
|
|
61,336
|
|
48,547
|
|
79.15
|
%
|
(Loss) gain on
sale of other assets
|
|
(13,650
|
)
|
1,287
|
|
(14,937
|
)
|
-1160.61
|
%
|
Gain on sales /
calls of investment securities
|
|
31,840
|
|
75
|
|
31,765
|
|
42353.33
|
%
|
Mortgage
origination income
|
|
237,826
|
|
206,120
|
|
31,706
|
|
15.38
|
%
|
Other income
|
|
207,082
|
|
139,552
|
|
67,530
|
|
48.39
|
%
|
Total
noninterest income
|
|
$
|
989,423
|
|
$
|
689,378
|
|
$
|
300,045
|
|
43.52
|
%
|
Service charges on
deposit accounts are evaluated against service charges from other banks in the
local market and against the Banks own cost structure in providing the deposit
services. This income should grow with
the growth in the Banks demand deposit account base. Total service charges, including non-sufficient
funds fees, were $416 thousand, or 42% of total noninterest income for the
first quarter of 2008 compared with $281 thousand, or 41% for the first quarter
of 2007. The year-over-year increase in
service charges on deposit accounts is directly related to the increase in the
number of our core transaction deposit accounts. The number of deposit accounts for the three
months ended March 31, 2008 was 12,709 accounts when compared to the same
period of 2007 with 12,223 accounts. The
most significant change in other income for the first quarter of 2008 is
$112,134 of income from the net earnings on cash surrender value of life
insurance on bank owned life insurance (BOLI) policies as compared to $40,933
for the three months ended March 31, 2007.
During the first quarter of 2008, the Bank purchased an additional $7.5
million in BOLI policies on several senior bank officers. The increase in the gain on sales/calls of
investment securities is due to several investment securities being called
before their maturity date.
Non-interest
Expense
Composition of other
noninterest expense is as follows:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
|
% Change
|
|
Salaries
|
|
$
|
2,129,856
|
|
$
|
1,679,271
|
|
$
|
450,585
|
|
26.83
|
%
|
Employee
benefits
|
|
734,225
|
|
554,920
|
|
179,305
|
|
32.31
|
%
|
Occupancy
expense
|
|
448,798
|
|
323,329
|
|
125,469
|
|
38.81
|
%
|
Equipment rental
and depreciation of equipment
|
|
264,014
|
|
180,176
|
|
83,838
|
|
46.53
|
%
|
Other expenses
|
|
1,597,074
|
|
1,264,213
|
|
332,861
|
|
26.33
|
%
|
Total
noninterest expense
|
|
$
|
5,173,967
|
|
$
|
4,001,909
|
|
$
|
1,172,058
|
|
29.29
|
%
|
The increases in
non-interest expenses are primarily due to the growth of the bank. The most significant increases in the first
quarter of 2008 are increases in salaries and employee benefits. The increase in salaries and employees
benefits represents normal increases in salaries and an increase in the number
of employees. At March 31, 2008,
the number of full-time equivalent employees was 170 compared to 151 at March 31,
2007. The increase in the number of
full-time equivalent employees is directly related to the growth of the bank
and the hiring for two new branches in Macon, Georgia and Jacksonville,
Florida. For the quarter ended March 31,
2008, the Bank also experienced three full months of non-interest expense from
the branches acquired from the First Community Bank acquisition in January 2007
versus having two months of expenses for the quarter ending March 31,
2007. The Bank operates
19
from seventeen facilities
as of March 31, 2008 compared to fifteen facilities as of March 31,
2007. The increases in other expenses
are not attributable to any one particular item, but represent increases
related to physical facility expansion.
Income
Tax Expense
Income tax expense
expressed as a percentage of earnings before income taxes was 29.64% and 35.01%
for the three months ended March 31, 2008 and 2007, respectively. The fluctuation in the percentage can be
attributed to the tax-free income versus the pretax income and tax credits
received from affordable housing investments.
For the three months ended March 31, 2008, the tax-free income
expressed as a percentage of earnings before income taxes was 12.11% when
compared to 6.35% for the three months ended March 31, 2007. The increase in tax-free income is due to an
increase in the interest revenue on certain investment securities and loans
that are exempt from income taxes.
Liquidity
Liquidity management
involves the matching of the cash flow requirements of customers, either
depositors withdrawing funds or borrowers needing loans, and the ability of the
Company to meet those requirements.
The Companys liquidity
program is designed and intended to provide guidance in funding the credit and
investment activities of the Company while at the same time ensuring that the
deposit obligations of the Company are met on a timely basis. In order to
permit active and timely management of assets and liabilities, these accounts
are monitored regularly in regard to volume, mix, and maturity.
The Companys liquidity
position depends primarily upon the liquidity of its assets relative to its
need to respond to short-term demand for funds caused by withdrawals from
deposit accounts and loan funding commitments. Primary sources of liquidity are
scheduled repayments on the Companys loans and interest on and maturities of
its investment securities. Sales of investment securities available for sale
represent another source of liquidity to the Company. The Company may also
utilize its cash and due from banks and federal funds sold to meet liquidity
requirements as needed.
The Company also has the
ability, on a short-term basis, to purchase federal funds from other financial
institutions up to $25 million. At March 31, 2008, the Company had no
federal funds purchased. The Company has a total available line of $42,290,000,
subject to available collateral, from the Federal Home Loan Bank. The Company
has $40,500,000 in advances on this line at March 31, 2008.
The Banks liquidity
policy requires that the ratio of cash and certain short-term investments to
net withdrawable deposit accounts be at least 10%. The Banks liquidity ratios
at March 31, 2008 and 2007 were 12.62% and 12.54%, respectively.
Capital
Resources
We are subject to various
regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimal
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, we must meet specific capital guidelines that involve
quantitative measures of our assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Our capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures
established by regulations to ensure capital adequacy require us to maintain
minimum amounts and ratios (set forth below in the table) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined), and
of Tier I capital (as defined) to average assets (as defined). Management believes,
20
as of March 31, 2008
and as of December 31, 2007, that the Company and the Bank met all capital
adequacy requirements to which they are subject.
As of March 31,
2008, the most recent notifications from both the Federal Deposit Insurance
Corporation and the Federal Reserve Bank of Atlanta categorized the Bank as
well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that
notification that management believes have changed the Banks categories.
The Companys and the
Banks actual capital amounts and ratios as of March 31, 2008 and December 31,
2007 follow:
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
|
For Capital
|
|
Under Prompt Corrective
|
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Action Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
|
|
Ratio
|
|
Amount
|
|
|
|
Ratio
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based
Capital To Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
86,105,000
|
|
11.30
|
%
|
$
|
60,959,292
|
|
>
|
|
8.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
84,116,000
|
|
11.05
|
%
|
60,898,462
|
|
>
|
|
8.0
|
%
|
76,123,077
|
|
>
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
To Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
76,947,000
|
|
10.10
|
%
|
$
|
30,474,059
|
|
>
|
|
4.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
74,958,000
|
|
9.85
|
%
|
30,439,797
|
|
>
|
|
4.0
|
%
|
45,659,695
|
|
>
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
To Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
76,947,000
|
|
9.12
|
%
|
$
|
33,748,684
|
|
>
|
|
4.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
74,958,000
|
|
8.90
|
%
|
33,688,989
|
|
>
|
|
4.0
|
%
|
42,111,236
|
|
>
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based
Capital To Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
84,800,000
|
|
11.62
|
%
|
$
|
58,382,100
|
|
>
|
|
8.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
82,541,000
|
|
11.32
|
%
|
58,332,862
|
|
>
|
|
8.0
|
%
|
72,916,078
|
|
>
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
To Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
75,921,000
|
|
10.40
|
%
|
$
|
29,200,385
|
|
>
|
|
4.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
73,662,000
|
|
10.11
|
%
|
29,144,214
|
|
>
|
|
4.0
|
%
|
43,716,320
|
|
>
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
To Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
75,921,000
|
|
9.34
|
%
|
$
|
32,514,347
|
|
>
|
|
4.0
|
%
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
73,662,000
|
|
9.08
|
%
|
32,450,220
|
|
>
|
|
4.0
|
%
|
40,562,775
|
|
>
|
|
5.0
|
%
|
We have
outstanding junior subordinated debentures commonly referred to as Trust
Preferred Securities totaling $10.3 million at March 31, 2008. The Trust Preferred Securities qualify as a
Tier I capital under risk-based capital guidelines provided that total Trust
Preferred Securities do not exceed certain quantitative limits. At March 31, 2008, all of the Trust
Preferred Securities qualify as a Tier I capital.
21
ATLANTIC SOUTHERN
FINANCIAL GROUP, INC.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
For the Three months Ended March 31, 2008
As of March 31,
2008, there were no substantial changes in the composition of the Companys
market-sensitive assets and liabilities or their related market values from
that reported as of December 31, 2007. The foregoing disclosures related
to the market risk of the Company should be read in conjunction with the
Companys audited consolidated financial statements, related notes and
managements discussion and analysis of financial condition and results of
operations for the year ended December 31, 2007 included in the Companys
2007 Annual Report on Form 10-K.
22
ATLANTIC SOUTHERN
FINANCIAL GROUP, INC.
Item 4. Controls and Procedures
For the Three months Ended March 31, 2008
The Companys management, including the Chief Executive Officer and Chief
Financial Officer, supervised and participated in an evaluation of the
effectiveness of its disclosure controls and procedures (as defined in federal
securities rules) as of the end of the period covered by this report. Based on, and as of the date of, that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that the Companys disclosure controls and procedures were
effective in accumulating and communicating information to management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosures of that
information under the Securities and Exchange Commissions rules and forms
and that the Companys disclosure controls and procedures are designed to
ensure that the information required to be disclosed in reports that are filed
or submitted by the Company under the Securities Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.
During the first quarter of 2008, there were no significant
changes in the Companys internal control over financial reporting or, to the
Companys knowledge, in other factors that could significantly affect those
internal controls subsequent to the date the Company carried out its evaluation
that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.
23
ATLANTIC SOUTHERN
FINANCIAL GROUP, INC.
Part II.
Other Information
For the Three months Ended March 31, 2008
PART II: OTHER
INFORMATION:
Item
1. Legal Proceedings
There
are no material legal proceedings to which the Company is a party or of which
their property is the subject.
Item
1A. Risk Factors
In
addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31,
2007, which could materially affect our business, financial condition or future
results. The risks described in our
Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and / or
operation results.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults Upon Senior Securities
Not
Applicable
Item
4. Submission of Matters to a Vote of Security-Holders
None
Item
5. Other Information
None
Item
6. Exhibits
(a)
Exhibits:
31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as
amended
31.2
Certification
of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934, as amended
32
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ATLANTIC SOUTHERN FINANCIAL GROUP, INC.
/s/ Mark A. Stevens
|
|
|
|
Mark A. Stevens
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: May 9, 2008
|
|
24
Atlantic Southern Financial Grp., Inc. (MM) (NASDAQ:ASFN)
Graphique Historique de l'Action
De Avr 2024 à Mai 2024
Atlantic Southern Financial Grp., Inc. (MM) (NASDAQ:ASFN)
Graphique Historique de l'Action
De Mai 2023 à Mai 2024