(Registrant's
Telephone Number, Including Area Code)
N/A
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer,”“large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act) (Check one):
Large
Accelerated Filer o
Accelerated
Filer o
Non-Accelerated
Filer o
Smaller
reporting company o
(Do
not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common
Stock $0.01 Par Value as of August 6, 2010: Issued 1,809,912 Shares;
Outstanding: 1,770,139 Shares
Notes to
the Consolidated Financial Statements (Unaudited)
NOTE
1 – BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity with
U.S. generally accepted accounting principles. However, all
adjustments, consisting of normal recurring accruals, which, in the opinion of
management, are necessary for fair presentation of the consolidated financial
statements, have been included. The results of operations for the
period ended June 30, 2010, are not necessarily indicative of the results which
may be expected for the entire fiscal year or for any other
period. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 2009 included
in Horizon Bancorporation, Inc.'s Form 10-K.
The
consolidated financial statements include the accounts of the Company and its
subsidiary. Significant intercompany transactions and balances have
been eliminated in consolidation.
In
preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate, contingent assets and liabilities and
deferred tax assets.
NOTE
2 – SUMMARY OF ORGANIZATION
Horizon
Bancorporation, Inc., Bradenton, Florida (the "Company"), is a one-bank holding
company with respect to Horizon Bank, Bradenton, Florida (the "Bank"). The
Company commenced banking operations on October 25, 1999 when the Bank commenced
operations. The Bank is primarily engaged in the business of obtaining deposits
and providing commercial, consumer and real estate loans to the general public.
The Bank's depositors are each insured up to $250,000 by the Federal Deposit
Insurance Corporation (the "FDIC") subject to certain limitations imposed by the
FDIC. This $250,000 limit has been extended permanently by an act of
Congress. The Bank has also chosen to opt in to the FDIC's "Temporary
Liquidity Guarantee Program" for unlimited deposit insurance coverage for
non-interest bearing transaction accounts.
The
Company is authorized to issue up to 25.0 million shares of its $.01 par value
per share common stock. Each share is entitled to one vote and shareholders have
no preemptive or conversion rights. As of June 30, 2010, and December 31, 2009,
there were 1,809,912 shares issued respectively and 1,770,139 shares
outstanding, respectively. Additionally, the Company has authorized the issuance
of up to 1.0 million shares of its $.01 par value per share preferred stock. The
Company's Board of Directors may, without further action by the shareholders,
direct the issuance of preferred stock for any proper corporate purpose with
preferences, voting powers, conversion rights, qualifications, special or
relative rights and privileges which could adversely affect the voting power or
other rights of shareholders of common stock. Effective October 23, 2009, the
Board of Directors did designate, by amending the Company’s Articles of
Incorporation, a series of preferred stock.
Activity
in the allowance for loan losses for the quarter ended June 30, are as
follows:
2010
2009
Balance
at beginning of period
$
5,318,554
$
1,652,301
Provision
for loan losses
-0-
8,571,842
Loans
charged-off
(364,591
)
(5,116,678
)
Recoveries
44,254
-0-
Balance
at end of period
$
4,998,217
$
5,107,465
Activity
in the allowance for loan losses for the six months ended June 30, are as
follows
2010
2009
Balance
at beginning of period
$
4,731,280
$
1,502,823
Provision
for loan losses
2,697,973
8,791,842
Loans
charged-off
(2,502,636
)
(5,187,200
)
Recoveries
71,600
-0-
Balance
at end of period
$
4,998,217
$
5,107,465
NOTE
4 – SECURITIES HELD-TO-MATURITY
Information
pertaining to securities with gross unrealized losses at June 30, 2010,
aggregated by investment category and further segregated by length of time (less
than or over twelve months) that the securities have been in a continuous loss
position follows:
Less Than
Over
Twelve Months
Twelve Months
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
State,
County and Municipal
$
-0-
$
(-0-
)
$
6,304,433
$
(709,916
)
$
6,304,433
$
(709,916
)
Corporate
Securities
-0-
(-0-
)
800,000
(130,000
)
800,000
(130,000
)
Total
$
-0-
$
(-0-
)
$
7,104,443
$
(839,916
)
$
7,104,433
$
(839,916
)
8
At June30, 2010 unrealized losses on held-to-maturity securities amounted to $839,916
representing 7.7% of the total held to maturity portfolio. Management
evaluates securities for other-than-temporary impairment on a quarterly basis,
or more frequently when economic or market concerns warrant such
evaluation. In analyzing an issuer's financial condition, management
considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating entities have occurred, the severity
and duration of the impairment and the volatility of the security's fair
value. As management has the intent and ability to hold the
securities until maturity, or for the foreseeable future and due to the fact
that the unrealized losses relate primarily to the lack of liquidity in the
market rather than the expected cash flows of the underlying collateral or
issuer, no declines are deemed to be other than temporary.
NOTE
5 – SECURITIES AVAILABLE FOR SALE
Information
pertaining to securities with gross unrealized losses at June 30, 2010,
aggregated by investment category and further segregated by the length of time
(less than or over twelve months) that the securities have been in a continuous
loss position follows:
Less than
Twelve Months
Greater than
Twelve Months
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S.
Agency
$
-0-
$
(-0-
)
$
-0-
$
-0-
$
-0-
$
(-0-
)
Mortgage
backed securities
676,793
(10,534
)
49,278
(92,842
)
726,071
(103,376
)
Collateralized
mortgage securities
250,856
(3,261
)
-0-
-0-
250,856
(3,261
)
Trust
preferred securities & other corporate notes
-0-
-0-
174,968
(277,012
)
174,968
(277,012
)
Total
$
927,649
$
(13,795
)
$
224,246
$
(369,854
)
$
1,151,895
$
(383,649
)
At June30, 2010, unrealized losses in the securities portfolio amounted to $383,649
representing 3.3 % of the total available for sale
portfolio. Management evaluates securities for other-than-temporary
impairment on a quarterly basis, or more frequently when economic or market
concerns warrant such evaluation. In analyzing an issuer's financial
condition, management considers whether the securities are issued by the federal
government or its agencies, whether downgrades by bond rating entities have
occurred, the severity and duration of the impairment and the volatility of the
security's fair value. As management has the intent and ability to
hold the securities until maturity, or for the foreseeable future and due to the
fact that the unrealized losses relate primarily to the lack of liquidity in the
market rather than the expected cash flows of the underlying collateral or
issuer, no declines are deemed to be other than temporary.
9
NOTE
6 - EARNINGS PER SHARE
The
following summarizes the computation of basic and diluted earnings per
share.
Dilutive
effect of assumed exercise of stock options/warrants
-0-
24,961
Diluted
average shares outstanding
1,770,139
1,795,053
Diluted
earnings/(loss) per share
$
(0.99
)
$
(3.77
)
NOTE
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Assets
and liabilities are grouped for fair value in three level 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 -
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted
assets or liabilities;
Level 2
- Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level 3 -
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no
market activity).
10
The
following table summarizes fair value measurements as of June 30, 2010: (in
thousands)
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
Significant Other
Observable Input
Significant
Unobservable
Inputs
Descriptions
6/30/2010
(Level 1)
(Level 2)
(Level 3)
Held
to maturity securities
$
10,097
$
800
$
9,297
Available-for-sale
securities
$
11,346
$
3,801
$
7,545
Impaired
Loans
$
31,695
$
31,695
Total
$
53,138
$
800
$
13,098
$
39,240
The types
of instruments valued based on quoted market prices in active markets include
most U.S. Government debt and agency debt securities. Such instruments are
generally classified within level 1 or level 2 of the fair value hierarchy.
As required by SFAS No. 157, the Company does not adjust the quoted price
for such instruments.
The types
of instruments valued based on quoted prices in markets that are not active,
broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency include state and
municipal obligations, mortgage backed securities and collateralized
mortgage obligations. Such instruments are generally classified within level 2
of the fair value hierarchy.
Impaired
loans are evaluated and valued at the time the loan is identified as impaired,
at the lower of cost or market value, and classified at level 3 in the fair
value hierarchy. Market value is measured based on the value of the collateral
securing these loans or techniques that are not supported by market activity for
loans that are not collateral dependent
and require management’s judgment. Collateral may be real estate and/or
business assets including equipment, inventory and/or accounts receivable. The value of real estate
collateral is determined based on appraisals by qualified licensed appraisers
hired by the
Company. The value of business equipment may be based on an appraisal by
qualified licensed appraisers hired by the Company if significant, or may be
valued based on the equipment’s net book value on the business’ financial
statements. Inventory and accounts receivable collateral
may be valued based on independent field
examiner review or aging reports, if significant. Field examiner reviews
may be conducted based on the loan exposure and reliance on this type of
collateral. Appraised and reported values may be discounted based on
management’s historical knowledge, changes in market conditions from the
time of valuation, and/or management’s expertise and knowledge of the
client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly, based on the same
factors identified above.
NOTE
8 - RECENT ACCOUNTING PRONOUNCEMENTS
Effective
July 1, 2009, the Company adopted a new accounting guidance related to U.S. GAAP
[FASB Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting
Principles]. This guidance establishes FASB ASC as the source
of authoritative U.S. GAAP recognized by FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. FASB ASC
supersedes all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature
not included in the ASC has become non-authoritative. FASB will no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASU”), which will serve to update the ASC, provide
background information about the guidance, and provide the basis for conclusions
on the changes to the ASC. The ASC is not intended to change U.S.
GAAP or any requirements of the SEC. This guidance is effective for
the Company as of December 31, 2009.
In April
2009, the FASB issued the following three FASB Staff Position (“FSPs”) intended
to provide additional application guidance and enhance disclosures regarding
fair value measurements and impairments of securities.
11
1) FSP
SFAS No. 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and identifying Transactions That Are Not Orderly,”
codification standard ASC 820-10-65-4 (“ASC 820”), transition related to FSP
SFAS No. 157-4, provides additional guidance for estimating fair value in
accordance with ASC 820 when the volume and level of activity for the asset or
liability have decreased significantly. This ASC also provides
guidance on identifying circumstances that indicate a transaction is not
orderly. The provisions of this ASC are effective for the Company’s
interim period ending on June 30, 2009. The adoption of ASC 820 at
June 30, 2009 did not have a material impact on this Company’s financial
condition or results of operations.
2) FSP
SFAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair
Value of Financial Instruments,” codification standard ASC 825-10-65-1,
transition related to FSP SFAS No. 107-1 and APB 28-1, requires disclosures
about fair value of financial instruments in interim reporting periods of
publicly traded companies that were previously only required to be
disclosed in annual financial statements. The provisions of this ASC
are effective for the Company’s interim period ending on June 30, 2009, and only
amend the disclosure requirements about fair value of financial instruments in
interim periods.
3) FSP
SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” codification standard ASC 320-10-65-1,
transition related to FSP SFAS No 115-2 and SFAS No. 124-2, amends current
other-than-temporary impairment guidance in GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This ASC does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The provisions of this ASC are effective for the
Company’s interim period ending on June 30, 2009. Adoption of this
provision had a material impact on the Company’s financial condition or results
of operations.
In May
2009, the FASB issued SFAS no. 165, “Subsequent Events,”
codification standard ASC 855. ASC 855 establishes general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. In particular, this statement sets forth: (1) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. The Company adopted this standard effective for
the quarterly period ended June 30, 2009, and its adoption had no material
impact on the Company’s financial condition or results of
operations.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurements and
Disclosures,” codification standard ASC 820. This ASU provides
amendments for fair value measurements of liabilities. It provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more techniques. ASU 2009-05 also
clarifies that when estimating a fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. ASU 2009-05 is effective for the first reporting period
(including interim periods) beginning after issuance of fourth quarter 2009
financial statement information. The Company is assessing the impact
of ASU 2009-05 on its financial condition, results of operations, and
disclosures.
Other
accounting standards that have been issued or proposed by the FASB or other
standard-setting bodies are not expected to have a material impact on the
Company’s financial statements.
12
NOTE
9 – REGULATORY MATTERS, COMPANY LOAN, EQUITY OFFERING AND GOING CONCERN
CONSIDERATION
Regulatory
Matters
(a) Written
Agreement
On
November 10, 2009, the Federal Reserve Bank of Atlanta (the “Atlanta Fed”), the
State of Florida Office of Financial Regulation (the “OFR”) and the Bank have
entered into a Written Agreement (“the Agreement”). The Agreement
requires the Bank to:
·
Submit
a written plan to strengthen Board oversight of the management and
operations of the Bank.
·
Submit
a written plan to strengthen the Bank’s management of commercial real
estate concentrations, including steps to reduce the risk of
concentrations.
·
Submit
a written plan to strengthen credit risk management
practices.
·
Submit
a written plan to strengthen lending and credit administration policies,
procedures, and practices.
·
Retain
an independent consultant acceptable to the regulators to assess the level
of risk or exposure in the portion of the Bank’s loan portfolio not
reviewed at the most recent regulatory
examination.
·
Submit
a written plan to provide for the ongoing review and grading of the Bank’s
loan portfolio by a qualified independent
party.
·
The
Bank shall not, directly or indirectly, extend or renew any credit to or
for the benefit of any borrower, including related interest of the
borrower, who is obligated to the Bank on any extension of credit that
have been charged off by the Bank, or classified “loss” in the most recent
report of examination or in any subsequent report of examination so long
as such credit remains uncollected.
·
The
Bank shall not, directly or indirectly, extend or renew any credit to or
for the benefit of any borrower, including related interest of the
borrower, whose extension of credit has been classified as “doubtful” or
“substandard” in the most recent report of examination or in any
subsequent report of examination without the prior approval of the Bank’s
Board of Directors.
·
Submit
a written plan for each problem loan and for other real estate exceeding
$250,000 that is designed to improve the Bank’s position with respect to
the above assets.
·
Provide
a written report after each calendar quarter updating each asset
improvement plan; in addition, provide the problem loan list, a listing of
past due/non-accrual loans, and a list of all loan renewals and extensions
for which the Bank did not collect the full
interest.
·
Eliminate
from the Bank’s balance sheet all assets or portions of assets classified
“loss” in the most recent report of examination as well as in future
reports of examination.
·
Review
and revise the methodology used to construct the allowance for loan and
lease losses (“the ALLL”). Upon completion, submit the ALLL
methodology to the regulators for their
review.
·
Submit
a written plan for the maintenance of an adequate ALLL, with periodic
updates incorporating all changes.
·
Submit
a written plan for maintaining sufficient capital at the Bank, including
an analysis of current and future capital needs as well as compliance with
capital adequacy guidelines and ratios, where measuring capital adequacy,
consideration of the volume and severity of classified credits, portfolio
concentration, adequacy of the ALLL, projected growth in assets and
earnings, among others, should be taken into
account.
·
Notify
the regulators, in writing, shortly after the end of each calendar quarter
if any of the Bank’s capital ratios (total risk-based, Tier 1, or
leverage) had fallen below the approved capital plan’s minimum ratios and,
contemporaneously, provide a plan that details steps to be taken by the
Bank to increase the affected capital ratios to or above the approved
capital plan’s minimums.
·
Provide
a written plan to strengthen the oversight of the Bank’s audit program by
the Audit Committee.
·
Submit
a written plan to improve management of the Bank’s liquidity position and
funds management practices.
·
Submit
written policies and procedures to strengthen the management of the Bank’s
investment portfolio.
·
Submit
a business plan for calendar year 2010 to improve the Bank’s earnings and
overall condition, such plan to include a realistic and comprehensive
operational budget and balance sheet
projections.
13
·
Not
declare or pay dividends without the prior approval of the
regulators.
·
Ascertain
full compliance with respect to appointments of new directors, and new
executive officers, including the assumption of new responsibilities by an
existing executive officer and compliance with restrictions on
indemnification and severance
payments.
·
Form
a new Board Committee, the Compliance Committee, to monitor and coordinate
the Bank’s compliance with the provisions of the Agreement. The
Compliance Committee shall include a majority of outside directors who are
not executive officers or principal shareholders. Shortly after
the end of each calendar quarter, the Bank shall submit a written progress
report detailing the form and manner of all actions taken to secure
compliance with the Agreement.
All
written plans, programs, policies and procedures that are submitted by the Bank
pursuant to the Agreement must be acceptable to the regulators, and submitted
within the prescribed time period. Once approved by the regulators,
the Bank must adopt the approved plans, programs, policies and procedures within
ten days and implement them promptly. As of the date of this report,
management believes that the Bank is in compliance with all but one of the items
in the Agreement, i.e. increasing the capital accounts, primarily through a
capital injection from the Company, to an acceptable level.
(b) Prompt
Corrective Action Directive
On May27, 2010, the Board of Governors of the Federal Reserve System (the “Board of
Governors”) issued to the Bank a Prompt Corrective Action Directive Issued
Pursuant to Section 38 of the Federal Deposit Insurance (“FDI”) Act, as Amended
(the “PCA Directive”). The PCA Directive was issued in response to
and in replacement of the Bank’s appeal of a similar directive from the Federal
Reserve dated March 4, 2010. The PCA Directive states that the Bank
has been significantly undercapitalized and directs the Bank and the Company
to:
·
Not
later than 7 days from May 27, 2010, increase the Bank’s equity through
the sale of shares or contribution to surplus sufficient to make the Bank
adequately capitalized, enter into and close a contract to be acquired or
combine with another depository institution, or take other necessary
measures to make the Bank adequately
capitalized.
·
Comply
fully with the provisions of Section 38 of the FDI Act restricting the
Bank from making any capital
distributions.
·
Refrain,
without prior written approval of the Atlanta Fed, from soliciting,
accepting or renewing time deposits bearing an interest rate exceeding the
prevailing interest rates in the Bank’s market area, and, within 7 days,
submit an acceptable plan and timetable to the Atlanta Fed for conforming
such interest rates to the prevailing interest
rates.
·
Comply
with the provisions of Section 38 of the FDI Act requiring that all
transactions between the Bank and any affiliate comply with Section 23A of
the Federal Reserve Act.
·
Comply
with the provisions of Section 38 of the FDI Act restricting the payment
of bonuses to senior executive officers and increases in compensation of
such officers, and
·
Comply
with the provisions of Section 38 of the FDI Act restricting asset growth,
acquisitions, branching and new lines of
business.
As of the
date of this report, the Bank has complied with all but the first of the
directives quoted above.
(c) Notice
from the Atlanta Fed
On June16, 2010, the Atlanta Fed delivered to the Bank and the Company a letter (the
“Notice”) notifying the Bank that, based on the Bank’s Call Report for the
quarter ended March 31, 2010, the Bank’s tangible equity ratio being less than
2.0%, the Bank is considered critically undercapitalized. The Notice
states that unless the Bank is no longer critically undercapitalized, the Board
of Governors may, pursuant to Section 38 of the FDI Act, within 90 days of the
date of the letter, i.e. on or about September 16, 2010., take such action that
the Board of Governors determines, with the concurrence of the FDIC, would
achieve the purposes of the FDI Act, which could include the appointment of a
receiver for the Bank.
14
Any
material failure to comply with the provisions of the Agreement, the PCA
Directive or the Notice is very likely to result in further enforcement actions
by the regulators.
Company
Loan
The
Company has been unable to pay back a $1.1 million loan secured by all of the
outstanding shares of Bank’s common stock (the “Company Loan”). This
loan matured on December 31, 2009, but was eventually extended through a
forbearance agreement until August 15, 2010, with the provision that if the Bank
were to receive a directive, on or before June 15, 2010, from the Atlanta Fed or
the OFR requiring the Bank to raise additional capital, the forbearance period
would be automatically extended for the period of time the Bank is given to
raise the required capital. In the event the Company Loan is not
repaid, the lender could sell the common stock of the Bank at a public
sale. The purchaser in such sale would, subject to approval by the
banking regulators, become the sole shareholder of the Bank.
Equity
Offering
On July15, 2010, the Company commenced an offering of its common stock (the
“Offering”), where it is offering to sell to accredited investors in a private
placement a minimum of 5,567,000 shares and a maximum of 13,334,000 shares, at
$1.50 per share, for gross proceeds of a minimum of $8,500,500, and a maximum of
$20,001,000. The term of the Offering ends on September 15, 2010, but
may be extended until November 15, 2010. The Offering replaced the
offering by the Company of shares of 7% Series A Cumulative Convertible
Preferred Stock, which was terminated on June 30, 2010. In connection
with the Offering, the Company engaged Cappello Capital Corp., a Santa Monica,
California-based investment banking firm, to provide financial advisory
services.
Going
Concern
As
discussed above, the Company faces a number of challenges that may be difficult
to overcome in a timely manner. These challenges include, but are not
limited to, the achievement of full compliance with the requirements of the
Written Agreement, the PCA Directive and the Notice, as well as the repayment or
further extension of the Company Loan. To satisfy these requirements,
including the projected costs associated with a capital raise,, a minimum of
approximately $8.5 million in additional capital will be necessary.
The
Company’s ability to raise the necessary capital by means of the Offering or
otherwise will depend on conditions in the capital markets at this time, which
are outside the Company’s control. Accordingly, the Company cannot be
certain of its ability to raise such additional capital on terms acceptable to
the Company. Inability to raise such capital and
thus comply with the terms of the Written Agreement, the PCA
Directive and the Notice and to repay the Company Loan raise substantial doubt
about the Company’s ability to continue as a going concern.
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future, and do
not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets, and the amounts of classification of
liabilities that may result from the outcome of any regulatory action including
being placed into receivership or conservatorship.
15
Item
2: Management's Discussion and Analysis of Financial Condition and
Operations
Forward
Looking Statements
This
Quarterly Report on Form 10-Q contains or incorporates by reference statements
that are “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking
statements discuss future expectations, describe future plans and strategies,
contain projections of results of operations or of financial condition or state
other forward-looking information. Forward-looking statements are generally
identifiable by the use of forward-looking terminology such as “anticipate,”“assume,”“believe,”“continue,”“could,”“would,”“endeavor,”“estimate,”“expect,”“forecast,”“goal,”“intend,”“may,”“objective,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“target,”“will” and other similar words
and expressions of future intent.
Our
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Although we believe that the expectations reflected in
such forward-looking statements are based on reasonable assumptions, our actual
results and performance could differ materially from those set forth in the
forward-looking statements. Factors that could cause actual results and
performance to differ from those expressed in our forward-looking statements we
make or incorporate by reference in this Quarterly Report on Form 10-Q include,
but are not limited to:
·
the effects of the current global
economic crisis, including, without limitation, the dramatic deterioration
of real estate values, the subprime mortgage, credit and liquidity
markets, as well as the Federal Reserve’s actions with respect to interest
rates, may lead to a further deterioration in credit quality, thereby
requiring continued increases in our provision for loan losses, or a
reduced demand for credit, which will continue to negatively impact our
earnings;
·
the imposition of enforcement
orders, capital directives or other enforcement actions by the Federal
Reserve, including restrictions and limitations that might be placed on
the Bank pursuant to the Written Agreement described
below;
·
possible changes in trade,
monetary and fiscal policies, as well as legislative and regulatory
changes, including changes in accounting standards and banking, securities
and tax laws and regulations and governmental intervention in the U.S.
financial system, as well as changes affecting financial institutions’
ability to lend and otherwise do business with
consumers;
·
increases in our nonperforming
assets, or our inability to recover or absorb losses created by such
nonperforming assets;
·
our ability to effectively manage
liquidity risk, interest rate risk and other market risk, credit risk and
operational risk
·
our ability to manage negative
developments and disruptions in the credit and lending markets, including
the impact of the ongoing credit crisis on our business and on the
businesses of
our customers
as well as other financial institutions with which we have commercial
relationships;
·
the continuation of the recent
unprecedented volatility in the credit markets and overall
economy;
·
possible changes in the quality
or composition of our loans or investment portfolios, including further
adverse developments in the real estate markets, the borrowers’ industries
or in the repayment ability of individual borrowers or
issuers;
·
changes in the interest rate
yield curve such as flat, inverted or steep yield curves, or changes in
the interest rate environment that impact interest margins and may impact
prepayments on the mortgage-backed securities
portfolio;
·
our
ability to manage fluctuations in the value of assets and liabilities and
off-balance sheet exposure so as to maintain sufficient capital and
liquidity to support our
business;
16
·
the failure of our assumptions
underlying the establishment of allowances for loan losses and other
estimates, or dramatic changes in those underlying assumptions or
judgments in future periods, that, in either case, render the allowance
for loan losses inadequate or require that further provisions for loan
losses be made;
·
unexpected outcomes of existing
or new litigation;
·
the threat or occurrence of war
or acts of terrorism and the existence or exacerbation of general
geopolitical instability and
uncertainty;
·
management’s ability to develop
and execute plans to effectively respond to the Orders and any unexpected
events in the future; and
·
other factors and information
contained in this Quarterly Report on Form 10-Q and other reports that we
file with the Securities and Exchange Commission (SEC) under the Exchange
Act.
The
cautionary statements in this Quarterly Report on Form 10-Q also identify
important factors and possible events that involve risk and uncertainties that
could cause our actual results to differ materially from those contained in the
forward-looking statements. These forward-looking statements speak only as of
the date on which the statements were made. We do not intend, and undertake no
obligation, to update or revise any forward-looking statements contained in this
Quarterly Report on Form 10-Q, whether as a result of differences in actual
results, changes in assumptions or changes in other factors affecting such
statements, except as required by law.
Readers
should carefully review all disclosures we file from time to time with the
SEC.
Overview
The
Company serves as the holding company for the Bank. The Bank’s
business activities involve attracting deposits from the general public and
using these funds to originate consumer, commercial, and real estate loans, from
its four offices, two in Bradenton, Florida, one in Brandon, Florida and one in
Palmetto, Florida.
The
Company's earnings are primarily dependent upon three sources: net interest
income, which is the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities; fee income from
customers; and gains realized on sales of loans. These revenues are
in turn significantly affected by factors such as changes in prevailing interest
rates and in the yield curve (that is, the difference between prevailing
short-term and long-term interest rates).
Recent
Developments
As
previously reported, during the last three quarters of 2009 and the first
quarter of 2010, the Bank charged off a significant amount of commercial and
real estate loans, placed additional loans into non-accrual, reclassified
certain other loans, wrote down certain investment securities and increased its
reserves for loan losses. These actions negatively affected the
Bank’s three key capital ratios and the Bank became classified as “significantly
undercapitalized,” as of December 31, 2009 and “critically undercapitalized,” as
of March 31, 2010, respectively. These classifications triggered the
issuance of the PCA Directive and Notice described in Note 9 to the financial
statements set forth in Part I of this report.
As
reported in detail immediately below, in the second quarter of 2010 the Company
reversed the recent negative trend and recorded no write downs in value of
investment securities or additions to the ALLL, resulting in net income of
$117,000 and slight improvements in the three key capital ratios for the
Bank. Management anticipates these positive trends to continue for
the rest of 2010. Nevertheless, whether the Bank’s capital ratios
allow it to be classified at least as ‘adequately capitalized,’ and thus whether
it ultimately survives as an independent entity, will depend entirely on whether
subscriptions to the Offering equal to the $8.5 million minimum are received by
us during the term of the Offering, i.e. as it may be extended until November15, 2010. There is no complete assurance that the Offering will
succeed to a degree and within the time frame which would boost the Bank’s
capital ratios sufficiently to ensure its survival.
17
Results
of Operations
Overall Net
Income
The
Company reported net income of $117,000 for the quarter ended June 30, 2010,
compared to a net loss of $6,905,000 for the quarter ended June 30,2009. Basic and diluted earnings per share were $0.07 for the three
months ended June 30, 2010. By comparison, basic and diluted losses per share
for the three months ended June 30, 2009 were $3.90 and $3.86,
respectively.
For the
six months ended June 30, 2010, the Company reported a net loss of $1,754,000,
compared to a net loss of $6,762,000 for the same period in
2009. Basic and diluted losses per share were identical at $0.99 for
the six months ended June 30, 2010, compared to losses of $3.82 and $3.77,
respectively, for the six months ended June 30, 2009.
Net Interest
Income.
Net
interest income was $1.27 million and $1.55 million for the three months ended
June 30, 2010 and 2009, respectively. Decreasing rates and volumes
led to this decrease of $281,000 between these two periods. For the
six months ended June 30, 2010 and 2009 net interest income rounded was $2.77
million and $3.07 million, respectively. Slightly increasing rates
offset by decreased volumes led to this decrease of $298,000 between these two
periods.
The
effect on interest income, interest expenses and net interest income during the
periods indicated from changes in average balances and rates from the
corresponding prior period, is shown below. The effect of a change in
average balance has been determined by applying the average rate in the earlier
period to the change in the average balance in the later
period. Changes resulting from average balance/rate variances are
included in changes resulting from rate.
The
balance of the change in interest income or expense and net interest income has
been attributed to a change in average rate:
The
following tables summarize the average yields earned on interest-earning assets
and the average rates paid on interest-bearing liabilities for the Bank and
helps to further explain the decrease in net interest income.
Net
interest income represents the excess of income on interest-earning assets over
interest expense on interest bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of FHLB
borrowings, time deposits, interest-bearing checking accounts (NOW accounts),
savings deposits and money market accounts. Funds attracted by these
interest-bearing liabilities are invested in interest-earning
assets. Accordingly, net interest income depends upon the volume of
average interest-earning assets and average interest bearing liabilities and the
interest rates earned or paid on them.
19
Noninterest
Income.
Noninterest
income of $449,000 was recorded for the three months ended June 30,2010. This income compares to a $904,000 loss for the same period in
2009, for an increase of $1,353,000. For the three months ended June30, 2010, the Bank recognized gains on the sale of loans of $212,000, other real
estate owned of $26,000, and on land taken by Manatee County for road expansion
of $49,000. The Bank also recognized $64,000 in loan servicing income
for the period. By comparison, during the three months ended June 30,2009, the Bank realized security losses of $1,015,000 and impairment of other
real estate owned of $365,000, which losses were partially offset by a gain on
sale of loans of $124,000 and a gain on sale of servicing of loans of
$200,000. Also during the three months ended June 30, 2009, as a
result of the FDIC's closing of Silverton Bank (the Bank's correspondent bank),
the Company realized a loss of $425,000 in connection with a Silverton holding
company trust preferred security it owned and had to write off $87,000 in
Silverton's common stock it held. In addition, during that period,
the Bank realized a loss of $503,000 in value of a private issue mortgage backed
security it owns.
Noninterest
income for the six months ended June 30, 2010, was $465,000. This
income compares to $844,000 of loss for the same period in 2009, a net increase
of $1,309,000. The items identified in the preceding paragraph
account for the majority of this period-to-period change, although in 2010 the
Bank experienced an increase in gains on the sale of loans of $228,000 and a
decrease in other real estate owned impairments of $124,000. The Bank
also recorded year to date loan servicing income of $113,000, while no such
income was realized in 2009. The year to date impairment on
securities has declined by $954,000, when compared to the corresponding period
in 2009.
The gains
on loans and servicing are related to loans that are partially guaranteed by an
agency of the United States government, such as the SBA (Small Business
Administration) and the USDA (United States Department of Agriculture).
Generally, we sell these loans neither because of credit quality deterioration
or liquidity but in order to mitigate the risk of early payoffs and thus the
risk of adverse impact on our net income. Specifically, in case of a
government-guaranteed loan exceeding $1.5 million, we generally sell the
guaranteed portion and, at nearly the same time, acquire from an unrelated party
the guaranteed portion of several loans that are much smaller. We
believe that by exchanging guaranteed portion of a large loan for the guaranteed
portion of several smaller loans we are, in effect, spreading the risk of an
early pay-off.
Noninterest
Expense.
Total
noninterest expense for the three months ended June 30, 2010, was $1,652,000,
compared to $1,330,000 for the same period in 2009, an increase of approximately
$322,000. The majority of this increase was attributable to increased
legal expenses of $194,000 and a $65,000 increase in the FDIC assessment as well
as increases in other real owned property expenses.
Total
noninterest expense for the six months ended June 30, 2010, was $3,222,000,
compared to $2,527,000 for the same period in 2009, an increase of approximately
$695,000. Legal expenses increased in 2010 by $286,000 as costs were
incurred for foreclosures. The expenses for other real estate owned
properties increased by $200,000 in 2010 as properties were improved for sale or
rent. An increase of $220,000 for the year to date FDIC assessment
was also experienced during this period.
Balance
Sheet Analysis
The
following is a discussion of the consolidated balance sheet of the
Company.
Total
Assets
As of
June 30, 2010, total assets of the Company were $187,825,153, compared to
$199,499,006 at December 31, 2009, a decrease of $11.7 million. The
decrease is primarily attributable to a $15 million decrease in the loan
portfolio, as $7 million in loans were sold during the period, approximately $2
million was charged off and approximately $6 million moved to other real estate
owned as a result of foreclosures. During this six month period
deposits decreased by $10 million.
20
Investment
Securities
As of
June 30, 2010, the available-for-sale and held-to-maturity securities comprised
approximately 12% of the Company's assets. The Bank invests primarily in
obligations of the United States, or obligations guaranteed as to principal and
interest by the United States, and other taxable securities. In
addition, the Bank enters into Federal Funds transactions with its principal
correspondent banks, and acts as a net seller of such funds. The sale
of Federal Funds amounts to a short-term loan from the Bank to another
bank.
The
following table presents, for the periods ended June 30, 2010 and December 31,2009, the approximate market value of the Company's investments, classified by
category and by whether they are considered available-for-sale or
held-to-maturity (in thousands):
The Bank
engages in a full complement of lending activities, including commercial,
consumer installment and real estate loans.
Commercial
lending is directed principally towards businesses whose demands for funds fall
within the Company's legal lending limits and which are potential deposit
customers of the Bank. These loans include loans obtained for a
variety of business purposes, and are made to individual, partnership or
corporate borrowers. The Bank places particular emphasis on loans to
small and medium-sized businesses.
The
Bank's consumer loans consist primarily of installment loans to individuals for
personal, family and household purposes, including automobile loans and
pre-approved lines of credit to individuals. This category of loans
includes lines of credit and term loans secured by second mortgages on
residences for a variety of purposes, including home improvements, education and
other personal expenditures.
The
Bank's real estate loans consist of residential and commercial first and second
mortgages.
21
The
following table presents various categories of loans contained in the Bank's
loan portfolio as of June 30, 2010 and December 31, 2009 and the total amount of
all loans for such periods (in thousands):
The Bank
has developed policies and procedures for evaluating the overall quality of our
credit portfolio and the timely identification of potential problem
loans. The Bank's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events that it believes to be
reasonable, but which may or may not be valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the loan loss allowance will not be
required.
Asset
Classification.
Commercial
banks are required to review and, when appropriate, classify their assets on a
regular basis. The State of Florida and the Federal Reserve have the
authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets:
substandard, doubtful, and loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets
with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions, and
values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. If
an asset or portion thereof is classified as loss, the insured institution must
establish a specific reserve for the full amount of the portion of the asset
classified as loss. All or a portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not warrant classification in the
aforementioned categories, but possess weaknesses, must be classified as special
mention and monitored.
22
The
following table presents information regarding non-accrual, past due and
restructured loans as of June 30, 2010 and December 31, 2009 (dollars in
thousands):
Accruing
loans which are contractually past due 90 days or more as to principal and
interest payments:
Number:
Five
Amount:
$
937
None
Loans
which were renegotiated to provide a reduction or deferral of interest or
principal because of deterioration in the financial position of the
borrower:
Number:
None
Amount:
None
Loans
for which there are serious doubts as to the borrower's ability to comply
with existing terms:
Number:
Thirty-four
Forty-four
Amount:
$
17,326
$
24,210
At June30, 2010, there were no loans classified for regulatory purposes as doubtful,
substandard or special mention that have not been disclosed in the above table,
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment
terms.
Allowance for Loan
Losses (ALLL).
The ALLL
is established through a provision for loan losses charged against
income. Loans are charged against the allowance when the Bank
believes that the collectibility of principal is unlikely. The
provision is an estimated amount that the Bank believes will be adequate to
absorb probable losses inherent in the loan portfolio based on evaluations of
its collectibility. The evaluations take into consideration such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality, specific problem loans and commitments, and current anticipated
economic conditions that may affect the borrower's ability to
pay. While the Bank uses the best information available to recognize
losses on loans, future additions to the ALLL may be necessary based on
changes in economic conditions.
23
A summary
of balances in the ALLL, nonperforming assets and key ratios follows (dollars in
thousands):
For the Six
For the Twelve
Months Ended
Months Ended
June 30,
December, 31
2010
2009
2009
End
of period loans (net of deferred fees)
$
142,229
$
165,798
$
157,122
End
of period allowance for loan losses
$
4,998
$
5,107
$
4,731
Percentage
of ALLL to total loans
3.51
%
3.08
%
3.01
%
Average
loans for the period
$
151,044
$
173,166
$
168,569
Net
charge-offs as a percentage of average loans for the
period
1.61
%
3.00
%
4.73
%
Nonperforming
assets
Nonaccrual
loans
$
13,296
$
15,470
$
15,685
Loans
past due 90 days or more and still accruing
$
937
$
394
$
0
Other
real estate
$
8,649
$
2,121
$
2,580
$
22,882
$
17,985
$
18,265
Nonperforming
assets to period end loans
16.09
%
10.85
%
11.62
%
Nonperforming
assets to period end total assets
12.18
%
8.71
%
9.16
%
Liquidity
and Capital Resources
Liquidity
is the Company's ability to meet all deposit withdrawals immediately, while also
providing for the credit needs of customers. The June 30, 2010, financial
statements evidence a marginally satisfactory liquidity position, as total cash
and cash equivalents amounted to $8.6 million, representing 5% of total assets.
Investment securities, which amounted to $22.3 million or 11.9% of total assets,
provide a secondary source of liquidity because they can be converted into cash
in a timely manner. The Bank is a member of the Federal Reserve System and
maintains relationships with several correspondent banks and, thus, could obtain
funds from those banks on short notice. The Company's management closely
monitors and maintains appropriate levels of interest earning assets and
interest bearing liabilities, so that maturities of assets can provide adequate
funds to meet customer withdrawals and loan demand.
The
Bank’s capital ratios as of June 30, 2010, compared to the minimum regulatory
requirements were as follows:
As stated
above, these ratios have caused the Bank to be classified as “critically
undercapitalized.”
24
As
discussed above, the Company is currently conducting a private placement of its
common stock, i.e. the Offering. Based on certain assumptions
regarding transaction fees payable to Cappello Capital and other expenses of the
Offering, the Company’s uses of proceeds from the Offering are projected to be
as follows:
The
projected minimum capital contribution to the Bank of $6,804,178 and the
projected maximum capital contribution to the Bank of $16,461,715, respectively,
when added to the Bank’s existing capital would cause the Bank’s three key
regulatory capital ratios to be as follows:
After
Minimum
Offering
Regulatory
Requirements
for Adequately
Capitalized
Regulatory
Requirements
for Well
Capitalized
After
Maximum
Offering
Leverage
Ratio
5.25
%
4.0
%
5.0
%
10.43
%
Total
Risk-Based Assets Ratio
8.13
%
8.0
%
10
%
14.89
%
Tier
1 Risk-Based Assets Ratio
6.85
%
4.0
%
6.0
%
13.61
%
Accordingly,
based on the foregoing, a successful minimum Offering will restore the Bank’s
status as “adequately capitalized” and a successful maximum Offering will
classify the Bank as “well capitalized.”
Other
than as stated above, the Company knows of no trends, demands, commitments,
events or uncertainties that will result in or are reasonably likely to result
in its liquidity increasing or decreasing in any material way.
In the
normal course of business, the Bank has various commitments outstanding to
extend credit in the form of unused loan commitments and standby letters of
credit that are not reflected in the Company’s consolidated financial
statements. Since these commitments may expire without being
exercised, they do not necessarily represent future funding
requirements. The Bank uses the same credit and collateral policies
in making commitments as those it uses in making loans.
As of
June 30, 2010, the Bank had outstanding loan commitments of approximately
$846,000. Various assets collateralize the majority of these
commitments. The Bank does not anticipate that it will suffer any
material losses as a result of these transactions.
Item
3: Quantitative and Qualitative Disclosure About Market
Risk
Not
applicable.
25
Item
4T. Controls and Procedures
Evaluation of
Disclosure Controls and Procedures.
The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon management’s
evaluation of those controls and procedures performed within the 90 days
preceding the filing of this Report, the Chief Executive Officer and Chief
Financial Officer of the Company concluded that, subject to the limitations
noted below, the Company’s disclosure controls and procedures (as defined in
Rule 13a-14 under the Securities Exchange Act of 1934) are effective to ensure
that the information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
Changes in Internal Controls
Over Financial Reporting.
There
have been no changes in the Company’s internal control over financial reporting
during the first quarter of 2010 that have materially affected or are reasonably
likely to materially affect the Company’s internal control over financial
reporting.
Limitations on the
Effectiveness of Controls.
Our
management (including our Chief Executive Officer and Chief Financial Officer)
does not expect that our financial reporting, disclosure controls and other
internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override or the control.
The
design of the system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
26
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
There
have been no material changes to the pending legal proceedings to which the
Company or the Bank is a party since the filing of the Registrant’s Form 10-K
for the year ended December 31, 2009.
Item 1A. Risk
Factors
Not
applicable.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Not
Applicable.
Item
3. Defaults Upon Senior Securities
Not
Applicable.
Item
4. Submission of Matters to a Vote of Security
Holders
The
Company held its 2010 Annual Meeting of Shareholders on June 23,2010. The following directors were elected at the annual meeting to
serve a three year term:
For
Withheld/Abstentions
C.
Donald Miller
1,055,089
85,388
Charles
S. Conoley
1,054,439
86,038
Clarence
R. Urban
1,055,689
84,788
The
following directors did not stand for reelection at the 2010 Annual Meeting of
Shareholders as their term of office continued after the Annual Meeting: David
K. Scherer, Elizabeth Thomason, DMD, Mary Ann Turner, Michael S. Glasgow,
Barclay Kirkland, DDS, and Bruce E. Shackelford.
A vote
was taken to ratify the appointment of Francis & Co., CPA's as independent
auditors for the fiscal year ending December 31, 2010. The
appointment was ratified by the following votes: 1,371,919 for and
84,678 against/abstentions.
Item
5. Other Information
None
Item
6. Exhibits
31.1
Certification
of Chief Executive Officer
31.2
Certification
of Chief Financial Officer
32.1
Certification
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
27
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
