UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
FORM
10-K
|
|
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
For
the fiscal year ended December 31, 2009
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|
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
Commission
File Number: 001-33009
|
|
Britton
& Koontz Capital Corporation
|
(Exact
name of registrant as specified in its charter)
|
|
|
|
Mississippi
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64-0665423
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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|
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500
Main Street
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Natchez,
Mississippi 39120
|
(Address
of principal executive offices) (Zip Code)
|
|
(601)
445-5576
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(Registrant’s
Telephone Number, Including Area
Code)
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Securities
registered pursuant to Section 12(b) of the Exchange
Act:
|
Title
of each class
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Common
Stock, $2.50 Par Value
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Name
of each exchange on which registered
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The
NASDAQ Capital Market
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|
Securities
registered pursuant to Section 12(g) of the Exchange
Act:
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None
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act.
[ ]
Yes [X] No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
[ ] Yes
[X] No
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. [X] Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). [ ] Yes [ ] No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form10-K or any amendment to this
Form 10-K. [ ]
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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer [ ]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
(Do
not check if a smaller reporting company)
|
Smaller
reporting company [X]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ]
Yes [X]
No
The
aggregate market value of the registrant’s common equity held by non-affiliates
at March 13, 2010, computed by reference to the price of $11.80 per share, the
price at which the registrant’s common equity was last sold as of June 30, 2009,
is $22,123,017.
The
registrant had 2,135,466 shares of common stock outstanding as of March 13,
2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Definitive Proxy Statement of Britton & Koontz Capital Corporation
with respect to its 2010 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
C
ROSS REFERENCE INDEX
TO
FORM
10-K
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Page
No.
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ITEM 1.
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Included herein.
**
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Incorporated
by reference from Britton & Koontz Capital Corporation’s Definitive
Proxy Statement for its 2010 Annual Meeting of Shareholders in accordance
with Instruction G(3) of Form 10-K.
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(THIS
PAGE INTENTIONALLY LEFT BLANK)
P
ART I
This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although
Britton & Koontz Capital Corporation (the “Company”) believes that the
expectations reflected in such forward-looking statements are reasonable, such
forward-looking statements are based on numerous assumptions (some of which may
prove to be incorrect) and are subject to risks and uncertainties which could
cause the actual results to differ materially from the Company’s
expectations. Such statements are based on management’s beliefs as
well as assumptions made by and information currently available to
management. When used in the Company’s documents or oral
presentations, the words “anticipate,” “estimate,” “expect,” “objective,”
“projection,” “forecast,” “goal” and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the Company’s actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, increased competition, regulatory factors,
economic conditions, changing market conditions, availability or cost of
capital, employee workforce factors, costs and other effects of legal and
administrative proceedings, and changes in federal, state or local legislative
requirements. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of changes in actual
results or changes in assumptions or on account of other factors affecting such
statements.
The
information set forth in this Annual Report on Form 10-K is as of March 12,
2010, unless otherwise indicated herein.
I
tem 1. Business.
General
The
Company
Britton & Koontz Capital Corporation
was organized as a Mississippi business corporation in
July 1982. Later that year, the Company became a one-bank holding
company registered under the Bank Holding Company Act of 1956, as amended, when
it acquired all of the issued and outstanding shares of
Britton & Koontz Bank, National
Association
, a national banking association
headquartered in Natchez, Mississippi (the “Bank”). The Bank is a
wholly-owned subsidiary of the Company, and stock of the Bank is the Company’s
most significant asset.
Dividends
received by the Company from the Bank for the year ended December 31, 2008 were
$2.8 million, while no dividends were paid by the Bank to the Company for the
year ended December 31, 2009, due to the national recession and its impact on
regional and local economies. Over the past several years, the Bank
paid dividends to the Company in excess of the amount needed to satisfy
dividends declared by the Company. Thus the Company accumulated cash
and it used this cash to pay dividends in 2009. The Company expects
dividend payments to resume in 2010 and continue to be the Company’s major
source of income.
As of
December 31, 2009, the Company had total consolidated assets of approximately
$393 million and total consolidated stockholders’ equity of approximately $40
million. Financial information about the Company, including
information with respect to revenues from external customers, profit and loss
and total assets for 2009 and 2008, is contained in Item 8, Financial Statements
and Supplementary Data.
The Company entered into a Trust Services Agreement with National Independent
Trust Company, a national banking association doing business as Argent Trust
Company, headquartered in Ruston, Louisiana. Effective January 1,
2007, Argent Trust Company assumed all responsibilities associated with the
Bank’s trust services, having been duly appointed successor trustee for all Bank
trust accounts. Argent Trust Company performs certain fiduciary
services for customers transferred from and referred by the Bank to Argent
Trust Company. In return, the Bank receives a specified
percentage of the fee income generated by Argent Trust Company.
During the third quarter of 2009, the
Company entered into a networking arrangement with Argent Financial Group, an
affiliate of Argent Trust Company also based in Ruston, Louisiana, to move the
Company’s brokerage business and related networking arrangements from its prior
provider. Under the new networking arrangement, Argent Financial
Group leases space from the Company in its Baton Rouge and Natchez
offices. The Company and Argent Financial Group may refer business to
their respective financial specialists; however, unlike the terms of the prior
arrangement, financial consultant personnel are not employees of the
Company. The Company also is no longer responsible for the office
expenses and other related selling expenses associated with networking
activities. The majority of the revenue the Company receives from
this relationship is derived from lease payments by Argent Financial
Group.
The
Bank
The Bank
provides commercial and consumer banking to customers in Adams and Warren
Counties, Mississippi, and East Baton Rouge Parish, Louisiana, and the adjoining
counties and parishes in Mississippi and Louisiana. The Bank conducts
its full-service banking business from its main office and two branch offices in
Natchez, Adams County, Mississippi, two branches in Vicksburg, Warren County,
Mississippi, and three branch offices in Baton Rouge, East Baton Rouge Parish,
Louisiana. The geographical area serviced by the Bank is economically
diverse and includes public and private sector industries, including government
service, manufacturing, tourism, agriculture and oil and gas
exploration. The Bank is not dependent on any one customer or group
of customers in any of its activities, and it has no foreign
operations.
The products and services offered by
the Bank include personal and commercial checking accounts, money market deposit
accounts, savings accounts, automated clearinghouse services, safe deposit box
facilities, and brokerage services through Argent Financial
Group. The Bank also offers access to automated teller machines and
cash management services including remote deposit, money transfer, direct
deposit payroll and sweep accounts. The Bank is a full-service
residential and commercial mortgage lender and engages in other commercial and
consumer lending activities, including, among other things, the issuance of VISA
credit cards and letters of credit.
Income
from the Bank’s lending activities, including loan interest, fees and gains on
sales of mortgage loans, represent the largest component of the Bank’s total
operating revenue. This source accounted for 58% and 62% of the
Bank’s total operating revenue during 2009 and 2008,
respectively. The Company expects that income from lending activities
will continue in 2010 to be the leading source of income related to the Bank’s
activities. In addition to business and consumer lending, the Bank
invests a portion of its total assets in the securities market in order to earn
a higher return compared to overnight positions. Investment security
purchases are monitored closely and managed on a monthly basis by an asset
liability committee comprised of three non-employee directors along with the
Bank’s Chief Executive Officer and Chief Financial
Officer. Investment income represents the second largest source of
revenue for the Bank. For the 2009 and 2008 fiscal years, revenue in
this segment amounted to 33% and 28% of the Bank’s total operating revenue,
respectively. The bulk of the remainder of the Bank’s revenue in each
of the last two years was fees related to deposit services.
Competition
There is
significant competition among banks and bank holding companies in the Bank’s
market areas and throughout Mississippi and Louisiana. The Bank
competes with both national and state banks, savings and loan associations and
credit unions for loans and deposits. The Bank also competes with
large national banks from the principal cities in Louisiana and Mississippi for
certain commercial loans. All of these numerous institutions,
including the Bank, compete in the delivery of products and services on the
basis of availability, quality and pricing. Many of our competitors
are likely to be better capitalized than the Bank and the
Company. Most institutions track total deposits as an appropriate
measure of penetration in each market. As of June 30, 2009, the last
date such information is available, the Bank’s market share in relation to total
deposits, according to data collected from the Federal Deposit Insurance
Corporation, was approximately 19.55% and 2.25% for Adams and Warren Counties in
Mississippi, respectively, and .31% in East Baton Rouge Parish in
Louisiana.
The
deregulation of depository institutions as well as the increased ability of
non-banking financial institutions, such as finance companies, investment
companies, insurance companies, brokerage companies and several governmental
agencies, to provide services previously reserved to commercial banks has
further intensified competition and we expect such competition to
increase. Accordingly, the Bank now competes with these non-banking
financial institutions, all of which are engaged in marketing various types of
loans, commercial paper, short-term obligations, investments and other
services. Because non-banking financial institutions are not subject
to the same regulatory restrictions as banks and bank holding companies, in many
instances they operate with greater flexibility.
Employees
As of
December 31, 2009, the Company had three full-time employees, who are
also employees of the Bank and compensated by the Bank.
The Bank’s employees
increased from 99 full-time and 11 part-time
employees at December
31, 2008, to 105 full-time and 8 part-time employees at December 31,
2009. The employees are not represented by a collective bargaining
agreement. The Company believes that its relationship with its
employees is good.
Supervision
and Regulation
General
The
banking industry is extensively regulated under federal and state
law. As a bank holding company, the Company is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and to
supervision by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). Pursuant to the BHCA, the Company may not
directly or indirectly acquire the ownership or control of more than 5% of any
class of voting shares or substantially all of the assets of any other company,
including a bank, without the prior approval of the Federal
Reserve. The BHCA further limits the activities of both the Company
and the Bank to the business of banking and activities closely related or
incidental to banking.
As a
national bank, the Bank is subject to supervision and regular examination by the
Office of the Comptroller of the Currency (the “Comptroller”). The
examinations are undertaken to ensure the protection of the Deposit Insurance
Fund (the “DIF”). In February, 2006, the Federal Deposit Insurance
Reform Act of 2005 was signed into law. Among the highlights of this
law was merging the Bank Insurance Fund and the Savings Association Insurance
Fund into the newly-created DIF. This change was effective March 31,
2006. The FDIC maintains the DIF by assessing depository institutions
an insurance premium. The amount each institution is assessed is
based on the balance of the insured deposits as well as on the degree of risk
the institution poses to the insurance fund.
In 1991,
Congress enacted the Federal Deposit Insurance Corporation Improvement Act
(“FDICIA”), which, among other things, substantially revised the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act. FDICIA also expanded the regulatory and enforcement powers of
bank regulatory agencies. Most significantly, FDICIA mandates annual
examinations of banks by their primary regulators and requires the federal
banking agencies to take prompt “corrective action” whenever financial
institutions do not meet minimum capital requirements. FDICIA
establishes five capital tiers: “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically
undercapitalized.” A depository institution’s capitalization status
will depend on how well its capital levels compare to various relevant capital
measures and certain other factors, as established by regulation. As
of December 31, 2009, the Bank maintained a capital level which qualified it as
being “well capitalized” under such regulations.
FDICIA
also prohibits a depository institution from making any capital distribution
(including payment of a dividend) or paying any management fee to its holding
company if the depository institution would thereafter be
“undercapitalized.”
The
banking industry is affected by the policies of the Federal
Reserve. An important function of the Federal Reserve is to regulate
the national supply of bank credit to moderate recessions and to curb
inflation. Among the instruments of monetary policy used by the
Federal Reserve to implement its objectives are: open-market operations in U.S.
Government securities, changes in the discount rate on bank borrowings and
changes in reserve requirements on bank deposits. Changes in any of these
policies can affect how the Bank operates and generates revenues.
Finally,
the Company elected not to participate in the U.S. Treasury Department’s Capital
Purchase Program, which is part of the federal government’s Troubled Asset
Relief Program. Thus, it will not be subject to any of the
regulations enacted (and to be enacted) with respect to such
program. The Company has, however, opted to participate in the FDIC’s
Transaction Account Guarantee Program, which is a part of the FDIC’s Temporary
Liquidity Guarantee Program. The regulations the Company currently is
subject to on account of its participation in this program have not had a
material effect on the Company’s business or operations. The Company
is unable to predict whether additional regulations will be imposed upon it
because of its participation in this program, or the impact of any such
regulations on the Company’s business or operations.
Interstate
Banking and Branching Legislation
Federal
Law
. In 1994, Congress passed the Riegle-Neal Interstate
Banking and Branching Efficiency Act (“Riegle-Neal”), which affected the
interstate banking and branching abilities of bank holding companies and
banks. Riegle-Neal authorizes a national bank domiciled in one state
to establish branches in any other state as long as neither state has opted out
of interstate branching between the date of enactment of Riegle-Neal and May 31,
1997. Riegle-Neal, however, does allow states to preserve certain
restrictions on the entry of out-of-state banks, such as the fashion in which
entry can be made, an age requirement for a bank being merged or acquired, and a
deposit cap. Under Riegle-Neal, once a bank has established a branch
in another state, it may exercise the same rights in that state as enjoyed by
national and state banks headquartered in that state, including the ability to
branch intra-state.
Riegle-Neal
also permits states to allow banks to enter the state by establishing a de novo
branch in that state. In order to allow de novo entry into a
particular state, that state’s banking laws must expressly provide for de novo
branching. Once a bank has established a branch in a host state
through de novo branching, it may exercise the same rights in that state as
national and state banks enjoy, including the ability to branch
intra-state. If a state opts out of interstate branching, no bank
domiciled in that state may establish branches in other states, and no bank
domiciled in another state may establish branches in that state.
Mississippi
Law
. On March 29, 1996, the Governor of Mississippi signed
into law a bill in which Mississippi elected to opt in to interstate branching,
effective May 1, 1997. As enacted, the bill (1) allows all
Mississippi banks to establish branches in any other state pursuant to the entry
rules in the potential host state, and (2) allows out-of-state banks to
establish branches in Mississippi pursuant to Mississippi’s entry
rules. The bill does not authorize de novo branching into
Mississippi. An out-of-state bank can establish branches in
Mississippi only by (1) merging with a Mississippi-domiciled bank, (2) buying
all of the assets of a Mississippi-domiciled bank, or (3) buying all of the
assets in Mississippi of an out-of-state bank which has branches in
Mississippi. All interstate branching transactions require
appropriate regulatory approval.
On
December 1, 2000, the Bank acquired its first interstate branch office in Baton
Rouge, Louisiana. Under applicable law, the Bank, with the approval
of the Comptroller, can establish additional de novo branch offices within the
States of Mississippi and Louisiana. The Company from time to time
evaluates merger and acquisition opportunities, as well as opportunities to
establish additional branch offices, and it anticipates that it will continue to
evaluate such opportunities.
Financial
Modernization
The
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLB Act”)
was enacted into law on November 12, 1999. The GLB Act potentially
affects every facet of a depository institution’s operations. The GLB
Act does three fundamental things affecting the banking industry: (1) repeals
key provisions of the Glass-Steagall Act to permit commercial banks to affiliate
with securities firms, insurance companies and other financial service
providers; (2) establishes a statutory framework pursuant to which full
affiliations can occur between these entities; and (3) provides financial
services organizations with flexibility in structuring these new financial
affiliations through a new entity called a “financial holding company” or
through a financial subsidiary.
As a
result of the GLB Act, banks will be able to offer customers a wide range of
financial products and services without the restraints of previous legislation.
In addition, bank holding companies and other financial services providers will
be able to commence new activities or new affiliations much more readily. To
take advantage of the new provisions of the GLB Act, a bank holding company must
elect to become a financial holding company. The Company has elected to become a
financial holding company.
Anti-Money
Laundering
The USA
PATRIOT Act of 2001 contains the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA
substantially broadens existing anti-money laundering legislation and the
extraterritorial jurisdiction of the United States, imposes new compliance and
due diligence obligations, creates new crimes and penalties, compels the
production of documents located both inside and outside the United States,
including those of foreign institutions that have a correspondent relationship
in the United States, and clarifies the safe harbor from civil liability to
customers. The U.S. Treasury Department has issued a number of
regulations implementing the USA PATRIOT Act that apply certain of its
requirements to financial institutions such as the Bank. The
regulations impose new obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing. The IMLAFA requires all
“financial institutions,” as defined, to establish anti-money laundering
compliance and due diligence programs. Such programs must include,
among other things, adequate policies, the designation of a compliance officer,
employee training programs, and an independent audit function to review and test
the program. The Company believes that it has complied with the
IMLAFA requirements as currently in effect.
Further
Changes in Regulatory Requirements
The
United States Congress and the Mississippi legislature have periodically
considered and adopted legislation that has adversely affected the profitability
of the banking industry. See “Competition” above. Future
legislation could further modify or eliminate geographic and other business
restrictions on banks and bank holding companies and current prohibitions
affecting other financial institutions, including mutual funds, securities
brokerage firms, insurance companies, banks from other states and investment
banking firms. In addition, the United States in general, and the
financial services industry in particular, is currently experiencing an economic
downturn. In response to this downturn, numerous significant
legislative and regulatory changes have been proposed. The Company
cannot accurately predict the ultimate outcome of such proposals or the effects
of any new legislation or regulations on the business of the Company or the
Bank.
Restrictions
on Dividends
The
Company is a legal entity separate and distinct from the Bank, and substantially
all of the Company’s revenues result from amounts paid by the Bank, as
dividends, to the Company. The payment of dividends by the Bank is,
of course, dependent upon its earnings and financial condition. The
Bank, however, as a national bank, is also subject to legal limitations on the
amount of its earnings that it may pay as dividends. Under federal
law, the directors of a national bank, after making proper deduction for all
expenses and other deductions required by the Comptroller, may credit net
profits to the Bank’s undivided profits account and may declare a dividend from
that account of so much of the net profits as they judge
expedient. The Comptroller and the Federal Reserve have each
indicated that banking organizations should generally pay dividends only out of
current operating earnings.
Further,
in connection with the Company’s acquisition of Natchez First Federal in 1993,
the Bank assumed a liquidation account of approximately $2.8 million which has
the effect of prohibiting the payment of dividends if the Bank’s net worth would
thereby be reduced below $2.8 million.
Corporate
Governance
The Sarbanes-Oxley Act of 2002 (the
“Sarbanes Act”) requires publicly traded companies to adhere to several
directives designed to prevent corporate misconduct. Additional
duties have been placed on officers, directors, auditors and attorneys of public
companies. The Sarbanes Act requires certifications regarding
financial statement accuracy and internal control adequacy by the chief
executive officer and chief financial officer of the Company in periodic and
annual reports filed with the Securities and Exchange Commission (the
“SEC”). The Sarbanes Act also accelerates insider reporting
obligations under Section 16 of the Securities Exchange Act of 1934, as amended,
restricts certain executive officer and director transactions, imposes new
obligations on corporate audit committees and provides for enhanced review by
the SEC.
It
em 1A. Risk Factors.
No disclosure is required hereunder as
the Company is a “smaller reporting company,” as defined in Item 10(f) of
Regulation S-K.
I
tem 1B. Unresolved Staff Comments.
No disclosure is required hereunder as
the Company is neither an “accelerated filer” or a “large accelerated filer,” as
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, nor
a “well-known seasoned issuer,” as defined in Rule 405 under the Securities Act
of 1933, as amended.
It
em 2. Properties.
The
Company has its principal offices in its headquarters building at 500 Main
Street, Natchez, Adams County, Mississippi 39120, which is owned and occupied by
the Bank. The Bank owns the property on five additional branches and
leases the property for two of its branches. The Bank also owns a
vacant lot in Vidalia, Louisiana that was purchased in May 2004 for future
branch expansion. In the judgment of management, the facilities of
the Company and the Bank are generally suitable, adequately insured and provide
for the continuing needs of the Company and the Bank. All branches
are full service.
The list
below describes the locations and general character of the properties owned and
leased by the Company and the Bank:
Location
|
Own/Lease
|
Use
|
Approximate
Office
Space (square feet)
|
Natchez
|
|
|
|
500
Main Street
Natchez,
Mississippi 39120
|
Owned
|
Main
Office
|
33,790
|
|
|
|
|
411
Highway 61 N.
Natchez,
Mississippi 39120
|
Owned
|
Branch
Office
|
1,671
|
|
|
|
|
55A
Sgt. Prentiss Drive
Natchez,
Mississippi 39120
|
Owned
|
Branch
Office
|
10,720
|
Vicksburg
|
|
|
|
2059
Highway 61 N.
Vicksburg,
Mississippi 39183
|
Owned
|
Branch
Office
|
3,050
|
|
|
|
|
2150
S. Frontage Road
Vicksburg,
Mississippi 39180
|
Owned
|
Branch
Office
|
4,570
|
Baton
Rouge
|
|
|
|
8810
Bluebonnet
Suites
A & B
Baton
Rouge, Louisiana 70810
|
Lease
|
Branch
Office
|
5,112
|
|
|
|
|
4703
Bluebonnet Blvd
Baton
Rouge, Louisiana
|
Owned
|
Branch
Office
|
4,080
|
|
|
|
|
7415
Corporate Blvd
Suite
935 Building H
Baton
Rouge, Louisiana 70809
|
Lease
|
Branch
Office
|
1,256
|
The lease for the Company’s branch
located at 8810 Bluebonnet Boulevard, in Baton Rouge, Louisiana is for a ten
year period, which commenced October 1, 2003. The lease at the branch
located at 7415 Corporate Boulevard, in Baton Rouge, Louisiana is for a five
year period, which commenced October 1, 2009. The Company has the
right to terminate the latter lease at the end of the 36
th
month by providing the landlord written notice no later than 180 days prior to
the end of the 36
th
month of the lease term.
It
em 3. Legal Proceedings.
The
Company and the Bank are currently not involved in any material pending legal
proceedings, and no material legal proceedings were terminated in the fourth
quarter of 2009.
It
em 4. Reserved.
P
ART II
Ite
m 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Information
Regarding our Common Stock
The Company’s common stock is listed on
The NASDAQ Capital Market (“NASDAQ”), and trades under the symbol
“BKBK.” The table below sets forth dividends per share and the high
and low sales prices for the Company’s common stock, as reported by NASDAQ, for
each quarter of the last two fiscal years
.
|
|
Dividends
Per
Share
|
|
|
High
|
|
|
Low
|
|
2009
|
|
|
|
|
|
|
|
|
|
4th
Quarter
|
|
$
|
.18
|
|
|
$
|
12.28
|
|
|
$
|
10.62
|
|
3rd
Quarter
|
|
|
.18
|
|
|
|
12.75
|
|
|
|
10.94
|
|
2nd
Quarter
|
|
|
.18
|
|
|
|
12.99
|
|
|
|
9.60
|
|
1st
Quarter
|
|
|
.18
|
|
|
|
13.07
|
|
|
|
8.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Per
Share
|
|
|
High
|
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
4th
Quarter
|
|
$
|
.18
|
|
|
$
|
13.49
|
|
|
$
|
10.10
|
|
3rd
Quarter
|
|
|
.18
|
|
|
|
16.00
|
|
|
|
11.05
|
|
2nd
Quarter
|
|
|
.18
|
|
|
|
16.40
|
|
|
|
12.00
|
|
1st
Quarter
|
|
|
.18
|
|
|
|
18.00
|
|
|
|
15.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 13, 2010, there were 472
shareholders of record of the Company’s common stock, and the price of the
Company’s common stock was $11.99.
Historically the Company has declared
dividends on a quarterly basis. Funds for the payment of cash dividends are
obtained from dividends received by the Company from the
Bank. Accordingly, the declaration and payment of cash dividends by
the Company depends upon the Bank’s earnings, financial condition, general
economic conditions, compliance with regulatory requirements and other
factors. Restrictions on the Bank’s ability to transfer funds to the
Company in the form of cash dividends exist under federal and state law and
regulations. See Note N, “Regulatory Matters”, in the Notes to the
Consolidated Financial Statements of the Company in Item 8, Financial Statements
and Supplementary Data, for a discussion of these restrictions. These
restrictions do not, and are not expected in the future to, materially limit the
Company’s ability to pay dividends to its shareholders consistent with
historical dividend payments.
Please refer to the information under
“Equity Compensation Plan Information” in Item 12, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters, for a
discussion of the securities authorized for issuance under the Company’s equity
compensation plans.
The
Company did not repurchase any equity securities during the 4
th
quarter of 2009. No options were exercised in 2009.
Ite
m 6. Selected Financial Data.
No disclosure is required hereunder
as the Company is a “smaller reporting company,” as defined in Item 10(f) of
Regulation S-K.
Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
This discussion presents a review of
the major factors that have affected the financial condition, changes in
financial condition and results of operations the Company and its subsidiaries,
principally the Bank, as of and for the years ended December 31, 2009 and
December 31, 2008.
Summary
In 2009, the Company reported net
income of $1.6 million, or $.76 per basic and diluted share, compared to net
income of $3.5 million, or $1.65 per basic and diluted share, reported at
December 31, 2008. Returns on average assets and equity for the year
ended December 31, 2009, were .40% and 4.01%, respectively, compared to .91% and
9.57% for same period in 2008.
During 2009, the Company’s asset
quality declined primarily as a result of the effects of the economic downturn
affecting the United States as a whole and the local markets in which we
operate. The Company acted to recognize probable losses in the loan
portfolio and is attempting to resolve these loans quickly through foreclosure
and sale of collateral. We expect actions the Company will be
required to take in 2010 to maintain an adequate allowance for loan losses and
otherwise to address asset quality issues will have a lesser impact on the
Company’s earnings in 2010 than in 2009.
The Company’s current level of
capital significantly exceeds the amount that regulators consider
“Well-Capitalized.” It is this strength of capital along with our
conservative credit standards that, in our opinion, allowed us to weather the
economic downturn that swept through the United States and our local markets in
2009. We believe the Company has capital and financial strength
sufficient to allow us to continue engaging in prudent lending activity and to
expand our franchise as opportunities are presented in the upcoming
year.
Financial
Condition
Assets
Total assets decreased $20 million to
$393 million at December 31, 2009 as compared to total assets at December 31,
2008. The change is due mostly to decreases in investment securities
from $171 million at December 31, 2008, to $147 million at December 31, 2009,
offset by an increase in cash and due from banks. The decrease in
investment securities is due to a lack of attractive re-investment opportunities
during the year; instead, liquidity from the securities portfolio was used to
repay debt.
Average Earning
Assets.
Interest income from earning assets represents the
Company’s main source of revenue. Average earning assets for the year
ended December 31, 2009, totaled $384 million, a $17 million, or 5%, increase
compared to $367 million at December 31, 2008. The increase was due
to the Company’s purchases of investment securities, which grew average
investment securities by $19 million, notwithstanding that the balance of
investment securities at December 31, 2009 was lower than the balance at
December 31, 2008. These increases were offset by slight decreases in
average loans of $2 million. The average earning asset mix shifted
during 2009 compared to 2008. In 2009, loans comprised 58% of average
earning assets compared to 61% in 2008, while investments increased to 41% of
average earning assets in 2009 from 38% in 2008. The balance, in
short-term funds, remained relatively unchanged.
Investment Securities.
The Company’s securities at
December 31, 2009, consist primarily of mortgage-backed securities, municipal
investments and equity securities. Securities deemed to be
held-to-maturity (“HTM”) are accounted for by the amortized cost method and
represented approximately 31% of total securities at December 31,
2009. Securities designated as available-for-sale (“AFS”) are
accounted for at fair value with valuation adjustments recorded in the equity
section of the Company’s balance sheet through other comprehensive
income/(loss). AFS securities comprised approximately 67% of total
investment securities at December 31, 2009. There were no securities
categorized as trading at December 31, 2009. Equity securities
accounted for the remaining 2%. The Company classifies its security
purchases at acquisition.
Total investment securities decreased
$24 million to $147 million at December 31, 2009, from $171 million at December
31, 2008. The decrease in securities was a result of the interest
rate yield curve in 2008 which made purchases of investment securities more
attractive in 2008. The Company directed its cash flows, along with
borrowings from the Federal Home Loan Bank (“FHLB”), back into the securities
market, resulting in an approximate $45 million increase in the investment
securities portfolio from December 31, 2007, compared to December 31,
2008. As the economy turned in 2009, the low interest rate
environment through most of the year discouraged reinvestment of cash flows from
investment securities; instead, these cash flows were used to repay
debt.
Equity securities at December 31,
2009, are comprised primarily of Federal Reserve Bank stock of $522 thousand,
FHLB stock of $2.4 million, the Company’s $155 thousand interest in its B&K
Bank Statutory Trust and the Enterprise Corporation of the Delta Investments,
LLC membership interests of $100 thousand. These securities decreased
$748 thousand to $3.3 million in 2009 from $4.0 million in 2008, primarily due
to the redemption FHLB stock as borrowing throughout the year
declined.
The
amortized cost of the Bank’s investment securities at December 31, 2009, 2008
and 2007, are summarized below:
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government Agencies and Corporations
|
|
$
|
99,111,627
|
|
|
$
|
123,834,755
|
|
|
$
|
84,741,030
|
|
Obligations
of State and Political Subdivisions
|
|
|
40,600,366
|
|
|
|
39,529,246
|
|
|
|
38,004,634
|
|
Total
|
|
$
|
139,711,993
|
|
|
$
|
163,364,001
|
|
|
$
|
122,745,664
|
|
The amortized cost and approximate
market value of the Company’s investment debt securities (including
mortgage-backed securities) at December 31, 2009, by contractual maturity, is
set forth in Note B, “Investment Securities,” in the Notes to the Consolidated
Financial Statements of the Company, in Item 8, Financial Statements and
Supplementary Data.
Loans.
Loans represent the Company’s largest source of
revenue. Total loans at December 31, 2009 of $224.6 million remained
relatively stable, declining only $910 thousand compared to $225.5 million at
December 31, 2008. The Company’s Baton Rouge, Louisiana market
continued to see demand for loans from both businesses and households offsetting
further weakening in other markets. Loan growth in the Company’s
Baton Rouge market was $18 million during 2009 offset by declines in both
Mississippi markets of $19 million, including a $6 million decline in the
residential portfolio. The Company generally does not hold
residential loans in its loan portfolio. Rather, the focus is on
originating 1-4 family residential mortgage loans that can be sold in the
secondary market. As a result, its existing portfolio of residential
loans has continued to decline during 2009. Total residential loans
originated and sold during 2009 were $26 million, up from $24 million in
2008. The Company has increased its lending personnel in Baton Rouge,
Louisiana and expects a significant increase in total originations and fee
income generated in 2010.
In 2010, loan growth in the Baton
Rouge market is expected to be consistent with growth in 2009, while we
anticipate that the Natchez and Vicksburg, Mississippi markets will be
challenged to maintain present levels of loans as economic activity throughout
these markets continues to shrink.
The composition of the Bank’s loan
portfolio, including loans held for sale, at the end of the last five years is
presented below. The Company has no foreign loan
activities. “Real estate-other” below primarily includes mortgage
lending for non-residential properties.
|
|
12/31/09
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
Commercial,
financial and agricultural
|
|
$
|
25,606,000
|
|
|
$
|
25,128,000
|
|
|
$
|
25,884,000
|
|
|
$
|
28,385,000
|
|
|
$
|
32,868,000
|
|
Real
estate-construction
|
|
|
31,341,000
|
|
|
|
30,910,000
|
|
|
|
45,097,000
|
|
|
|
44,592,000
|
|
|
|
30,069,000
|
|
Real
estate-residential
|
|
|
67,213,000
|
|
|
|
74,923,000
|
|
|
|
72,438,000
|
|
|
|
83,256,000
|
|
|
|
98,488,000
|
|
Real
Estate-other
|
|
|
95,511,000
|
|
|
|
88,341,000
|
|
|
|
72,123,000
|
|
|
|
76,473,000
|
|
|
|
70,875,000
|
|
Installment
|
|
|
4,806,000
|
|
|
|
6,038,000
|
|
|
|
7,550,000
|
|
|
|
10,680,000
|
|
|
|
12,478,000
|
|
Other
|
|
|
124,000
|
|
|
|
171,000
|
|
|
|
261,000
|
|
|
|
203,000
|
|
|
|
306,000
|
|
Total
loans
|
|
$
|
224,601,000
|
|
|
$
|
225,511,000
|
|
|
$
|
223,353,000
|
|
|
$
|
243,589,000
|
|
|
$
|
245,084,000
|
|
The following table sets forth as of
December 31, 2009, (1) the periods in which the Bank’s commercial, financial and
agricultural loans and its real estate-construction loans mature or reprice and
(2) the total amount of all such loans due after one year having (a)
predetermined interest rates and (b) floating or adjustable
rates. Loan maturities are based upon contract terms and specific
maturity dates. Loans with balloon payments and longer amortizations
are often repriced and extended beyond the initial maturity when credit
conditions remain satisfactory. Demand loans, loans with no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less.
|
|
|
|
|
Due
after
|
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
one
year
|
|
|
|
|
|
|
|
|
|
one
year
|
|
|
through
|
|
|
Due
after
|
|
|
|
|
|
|
or
less
|
|
|
five
years
|
|
|
five
years
|
|
|
Total
|
|
Commercial,
financial and agricultural
|
|
$
|
15,100,000
|
|
|
$
|
10,433,000
|
|
|
$
|
73,000
|
|
|
$
|
25,606,000
|
|
Real
estate-construction
|
|
|
24,684,000
|
|
|
|
6,532,000
|
|
|
|
125,000
|
|
|
|
31,341,000
|
|
Total
|
|
$
|
39,784,000
|
|
|
$
|
16,965,000
|
|
|
$
|
198,000
|
|
|
$
|
56,947,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined
interest rates
|
|
|
|
|
|
$
|
16,928,000
|
|
|
$
|
198,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
or adjustable interest rates
|
|
|
|
|
|
$
|
37,000
|
|
|
$
|
-
|
|
|
|
|
|
Asset
Quality
Management continually monitors
the diversification of the loan portfolio and assesses loan
quality. When the assessment of an individual loan relationship
indicates that the borrower has a defined weakness in the ability to repay and
collection of all outstanding principal and/or interest is in doubt, the debt is
placed on non-accrual. By placing loans on non-accrual the Company
recognizes a problem credit, foregoes interest that is likely uncollectible, and
adjusts the carried loan balance to reflect the collection amount
expected. When problem credits are transferred to non-accrual status,
the accrual of interest income is discontinued and all previously accrued and
uncollected interest for the year is reversed against interest
income. A non-accrual loan may be restored to accrual status when it
is no longer delinquent and management no longer doubts the collectibility of
interest and principal.
Several key measures are used to
evaluate and monitor the Company’s asset quality. These measures
include the levels and percentages of total nonperforming assets, loan
delinquencies, non-accrual loans, foreclosed assets and
charge-offs. Nonperforming assets, consisting of non-accrual loans,
loans past due 90 days or more and other real estate owned, increased to $10.5
million at December 31, 2009, compared to $5.0 million at December 31,
2008. During the fourth quarter of 2009, non-performing assets
increased $2.2 million due primarily to the addition of one commercial real
estate credit in the Baton Rouge market. The borrower filed for Chapter 11
bankruptcy in December, 2009. The Company received the initial plan
for reorganization in February, 2010, which it expects will be effective early
in the third quarter of 2010. Non-performing assets as a percent of
average assets increased to 2.62% in 2009 compared to 1.31% in
2008. Nonperforming loans as a percent of total loans, net of
unearned income and loans held for sale, increased to 4.34% at December 31,
2009, compared to 1.81% at December 31, 2008. Net charge-offs as a
percent of average loans increased to .87% at December 31, 2009, from .34% at
December 31, 2008. In spite of these increases, management believes
that the Company’s asset quality is equal to or exceeds industry and peer
levels, based on Federal Deposition Insurance Corporation (“FDIC”) year-end call
report data.
The increase in nonperforming
assets in 2009 is generally due to the economic downturn affecting the
United States and the related decline of economic activity in the Company’s
markets. A breakdown of nonperforming loans at the end of each of the
last five years is presented below:
(Dollars
in thousands)
|
|
12/31/09
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
Non-accrual
loans by type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
$
|
8,510
|
|
|
$
|
3,364
|
|
|
$
|
992
|
|
|
$
|
829
|
|
|
$
|
413
|
|
Installment
|
|
|
12
|
|
|
|
86
|
|
|
|
87
|
|
|
|
13
|
|
|
|
72
|
|
Commercial
and all other loans
|
|
|
187
|
|
|
|
118
|
|
|
|
223
|
|
|
|
351
|
|
|
|
574
|
|
Total
non-accrual loans
|
|
|
8,709
|
|
|
|
3,568
|
|
|
|
1,302
|
|
|
|
1,193
|
|
|
|
1,059
|
|
Loans
past due 90 days or more
|
|
|
1,004
|
|
|
|
518
|
|
|
|
12
|
|
|
|
232
|
|
|
|
201
|
|
Total
nonperforming loans
|
|
|
9,713
|
|
|
|
4,086
|
|
|
|
1,314
|
|
|
|
1,425
|
|
|
|
1,260
|
|
Other
real estate owned (net)
|
|
|
815
|
|
|
|
919
|
|
|
|
747
|
|
|
|
1,257
|
|
|
|
1,471
|
|
Total
nonperforming assets
|
|
$
|
10,528
|
|
|
$
|
5,005
|
|
|
$
|
2,061
|
|
|
$
|
2,682
|
|
|
$
|
2,731
|
|
Nonperforming
loans as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
loans, net of unearned interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
loans held for sale
|
|
|
4.34
|
%
|
|
|
1.81
|
%
|
|
|
.59
|
%
|
|
|
.59
|
%
|
|
|
.51
|
%
|
Additional
interest income foregone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
non-accrual loans
|
|
$
|
425
|
|
|
$
|
191
|
|
|
$
|
36
|
|
|
$
|
31
|
|
|
$
|
24
|
|
Loan classification is an on-going, dynamic process, and the migration of loans
into an impaired status cannot be predicted with total accuracy, especially in
light of the current economic climate in the United States. As
of December 31, 2009, the table above reflects all loans that the Company had
doubts as to the ability of the borrower to comply with current repayment
terms. There were no loans in any of the reported periods above
classified as “troubled debt restructurings” as defined in the
Financial Accounting
Standards Board
Accounting Standards
Codification (which is discussed in more detail in Note A, “Summary of
Significant Accounting Policies,” in the Notes to the Consolidated Financial
Statements of the Company, in Item 8, Financial Statements and Supplementary
Data). As of December 31, 2009, if non-accrual loans had been current
in accordance with their terms, interest in the amount of approximately $425,000
would have accrued on such loans. Approximately $526,000 in interest
income on such loans was recognized on a cash basis for 2009.
In 2010, the economic environment in the Company’s three markets is expected to
remain sluggish, in keeping with national trends. Collection efforts
on problem credits during 2009 were vigorous. These intensified
efforts have increased charge-offs and non-performing assets since December 31,
2008. Although resolution of problem credits has been impeded by the
decreasing demand and falling prices for both commercial and residential real
estate, the Company expects resolution of such problem credits to accelerate
during 2010. While asset quality has weakened during 2009, overall
problem loan levels in the present environment remain relatively low for the
Company, while its capital is very strong.
Allowance
for Loan Losses
The allowance for loan losses is
available to absorb probable credit losses inherent in the entire loan
portfolio. The appropriate level of the allowance is based on an ongoing
analysis of the loan portfolio and represents an amount that management deems
adequate to provide for inherent losses. The balance of the loans
determined to be impaired under ASC 310 and the related allowance is included in
management’s estimation and analysis of the allowance for loan losses. The
determination of the appropriate level of the allowance is sensitive to a
variety of internal factors, primarily historical loss ratios and assigned risk
ratings, and external factors, primarily the economic environment. Additionally,
the estimate of the allowance required to absorb credit losses in the entire
portfolio may change due to shifts in the mix and level of loan balances
outstanding and in prevailing economic conditions, as evidenced by changes in
real estate demand and values, interest rates, unemployment rates and energy
costs. While no one factor is dominant, each could cause actual loan losses to
differ materially from originally estimated amounts.
For portfolio balances of consumer,
consumer mortgage and certain other similar loan types, allowance factors are
determined based on historical loss ratios by portfolio and may be adjusted by
other qualitative criteria. For larger commercial and commercial real estate
secured loans, risk-rating grades are assigned by lending, credit administration
or loan review personnel, based on an analysis of the financial and collateral
strength and other credit attributes underlying each loan. The allowance factors
are established based on historical loss ratios experienced by the Company for
these loan types, as well as the credit quality criteria underlying each grade,
adjusted for trends and expectations about losses inherent in our existing
portfolios. In making these adjustments to the allowance factors, management
takes into consideration factors which it believes are causing, or are likely in
the future to cause, losses within our loan portfolio but which may not be fully
reflected in our historical loss ratios.
A
loan is considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal and interest when due according to the contractual terms of the loan
agreement. Impairment is measured on a loan-by-loan basis for problem loans of
$100,000 or greater by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market
price or the fair value of the collateral if the loan is collateral
dependent. For real estate collateral, the fair market value of the
collateral is based upon a recent appraisal by a qualified and licensed
appraiser of the underlying collateral. The process by which
management determines the appropriate level of the allowance, and the
corresponding provision for probable credit losses, involves considerable
judgment; therefore, no assurance can be given that future losses will not vary
from current estimates.
The Company increased the allowance for probable loan losses by $3.4 million in
2009, which more than offset net charge-offs of $1.9 million for
2009. The $3.4 million in provision expense covered net charge-offs
and additional potential exposures identified in the credit review process and
reserving methodology. The Company re-evaluated its potential
exposure with respect to two commercial loans secured by commercial real
estate. Both of these loans were identified as impaired at December
31, 2009; however, based upon its re-evaluation, the Company determined
that it was appropriate to increase the level of impairment on each
loan. The Company determined that the increased levels of impairment,
and the associated increase in the allowance for loan losses necessary to
properly reserve for these loans based on the new impairment levels, should be
accounted for in the Company’s 2009 financial statements.
For one of the loans, the Bank
foreclosed on the commercial real estate securing the loan in January,
2010. Upon gaining access to the property, the Bank discovered
substantial damage and theft that occurred sometime during the weeks preceding
the completion of the foreclosure proceedings. The Company believes
that such damage and theft is covered by insurance, and an insurance claim has
been filed in connection with the loss (as well as a police
report). As of the date of this report, however, the Company cannot
be sure that it will fully recover the previously-appraised value of the
collateral. As to the other loan, the Company determined that
complete provisioning will be needed on the loan, rather than the partial
provision estimated at year-end, because of alleged borrower fraud involving the
borrower’s claim of clean title to the commercial real estate securing the
loan. The Company demanded payment under the loan’s title insurance
policy and brought suit against the title insurer in December,
2009. In light of the possible prolonged legal delays that could be
associated with resolving the Company’s claims against the title insurer, the
Company fully reserved for the loan. The additional reserves required
on account of the events described above have resulted in an additional $1
million in provision expense being incurred in the fourth quarter of 2009.
At December 31, 2009, management believes the allowance for loan losses of
$3.9 million is adequate, under prevailing economic conditions, to absorb
probable losses on existing loans. The allowance includes allocation
of approximately $2.1 million on total impaired loans of $8.7
million.
Activity
in the allowance for loan losses for the last five years is presented
below.
(Dollars
in thousands)
|
|
12/31/09
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/06
|
|
|
12/31/05
|
|
Balance
at beginning of year
|
|
$
|
2,398
|
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
|
$
|
2,237
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial & agricultural
|
|
|
(140
|
)
|
|
|
(541
|
)
|
|
|
(87
|
)
|
|
|
(571
|
)
|
|
|
(54
|
)
|
Real
Estate-construction
|
|
|
(276
|
)
|
|
|
(166
|
)
|
|
|
(25
|
)
|
|
|
(3
|
)
|
|
|
(0
|
)
|
Real
Estate-residential
|
|
|
(138
|
)
|
|
|
(410
|
)
|
|
|
(257
|
)
|
|
|
(5
|
)
|
|
|
(40
|
)
|
Real
Estate-other
|
|
|
(1,456
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(109
|
)
|
Installment
and other
|
|
|
(60
|
)
|
|
|
(39
|
)
|
|
|
(136
|
)
|
|
|
(64
|
)
|
|
|
(48
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
financial & agricultural
|
|
|
25
|
|
|
|
190
|
|
|
|
110
|
|
|
|
26
|
|
|
|
22
|
|
Real
Estate-construction
|
|
|
10
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real
Estate-residential
|
|
|
89
|
|
|
|
83
|
|
|
|
5
|
|
|
|
26
|
|
|
|
22
|
|
Real
Estate-other
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
|
|
51
|
|
|
|
14
|
|
Installment
and other
|
|
|
7
|
|
|
|
87
|
|
|
|
39
|
|
|
|
31
|
|
|
|
34
|
|
Net
(charge-offs) / recoveries
|
|
|
(1,939
|
)
|
|
|
(763
|
)
|
|
|
(353
|
)
|
|
|
(509
|
)
|
|
|
(159
|
)
|
Provision
charged to operations
|
|
|
3,420
|
|
|
|
730
|
|
|
|
440
|
|
|
|
475
|
|
|
|
300
|
|
Balance
at end of year
|
|
$
|
3,879
|
|
|
$
|
2,398
|
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
Allowance
for loan losses as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
loans, net of unearned interest and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
held for sale
|
|
|
1.73
|
%
|
|
|
1.06
|
%
|
|
|
1.09
|
%
|
|
|
.96
|
%
|
|
|
.97
|
%
|
Net
charge-offs as a percent of average loans
|
|
|
.87
|
%
|
|
|
.34
|
%
|
|
|
.15
|
%
|
|
|
.21
|
%
|
|
|
.07
|
%
|
In establishing the amounts of provision for each year charged to operating
expense, management uses the basic methodologies described above. The
allocation of the allowance for loan losses applicable to each loan category for
the previous five years is presented below. Approximately $300
thousand of unallocated reserves is included in the other category as of
December 31, 2009.
|
|
Amounts
as of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
$
|
631
|
|
|
$
|
536
|
|
|
$
|
473
|
|
|
$
|
426
|
|
|
$
|
502
|
|
Real
estate-construction
|
|
|
1,264
|
|
|
|
241
|
|
|
|
265
|
|
|
|
187
|
|
|
|
77
|
|
Real
estate-residential
|
|
|
301
|
|
|
|
225
|
|
|
|
353
|
|
|
|
248
|
|
|
|
162
|
|
Real
Estate-other
|
|
|
1,212
|
|
|
|
842
|
|
|
|
735
|
|
|
|
663
|
|
|
|
787
|
|
Installment
|
|
|
161
|
|
|
|
247
|
|
|
|
335
|
|
|
|
331
|
|
|
|
354
|
|
Other
|
|
|
310
|
|
|
|
307
|
|
|
|
270
|
|
|
|
489
|
|
|
|
496
|
|
Total
loans
|
|
$
|
3,879
|
|
|
$
|
2,398
|
|
|
$
|
2,431
|
|
|
$
|
2,344
|
|
|
$
|
2,378
|
|
|
|
Percent
of loans in each category to total loans
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
|
11.40
|
%
|
|
|
11.14
|
%
|
|
|
11.59
|
%
|
|
|
11.65
|
%
|
|
|
13.41
|
%
|
Real
estate-construction
|
|
|
13.97
|
|
|
|
13.71
|
|
|
|
20.19
|
|
|
|
18.31
|
|
|
|
12.27
|
|
Real
estate-residential
|
|
|
29.93
|
|
|
|
33.22
|
|
|
|
32.29
|
|
|
|
34.18
|
|
|
|
40.18
|
|
Real
Estate-other
|
|
|
42.51
|
|
|
|
39.17
|
|
|
|
32.43
|
|
|
|
31.40
|
|
|
|
28.92
|
|
Installment
|
|
|
2.14
|
|
|
|
2.68
|
|
|
|
3.38
|
|
|
|
4.38
|
|
|
|
5.09
|
|
Other
|
|
|
.05
|
|
|
|
.08
|
|
|
|
.12
|
|
|
|
.08
|
|
|
|
.13
|
|
Total
loans
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
In the fourth quarter of 2009, the Company hired a certified real estate
appraiser to oversee the internal appraisal review process. Also,
effective January 1, 2010, the Company adopted a new policy that governs the
ordering, scope, independence and review of real estate appraisals used in the
lending function, which is designed to reduce the Company’s risks in real estate
secured loans.
Under the new policy, with respect to
the renewal of any loan over $50,000, our lenders may use commercial real estate
appraisals or complying evaluations performed by external, competent
professional appraisers dated no more than two years prior to the date of the
renewal. Appraisals older than two years but less than five years may
be reused but are subjected to heightened internal scrutiny to maintain
appropriate lending margin and knowledge of the collateral.
The new policy and related procedures
also extend to impaired loan situations. However, in the
context of default, renewals, and restructures of impaired loans, any number of
circumstances may dictate that either we obtain updates to existing appraisal or
we undertake completely new appraisals of the collateral, regardless of the age
of the existing appraisal. These circumstances include, among other things, the
following: the receipt and analysis of additional financial information from the
borrower; a negative change in the scope or timing of a project or guarantor; or
an unacceptable payment pattern. In determining specific exposures on
impaired commercial real estate loans, and therefore the amount and timing of
the provision for loan losses with respect thereto, the Company focuses
primarily on recent, detailed collateral information obtained through appraisal
updates or new appraisals, as the case may be. In addition to collateral
information, the Company considers the financial strength and character of the
guarantors along with the past performance history and nature of the
business. Finally, the Company evaluates the general economic climate
as well as the nature of the credit and the specific line of business of the
borrower.
In foreclosures situations, the Bank
obtains independent appraisals. Foreclosed properties are moved to
Other Real Estate at the appraised value less sales commission and related
marketing costs. The remaining balance of the impaired loan is
charged off.
When the Company determines that a loan
is nonperforming or impaired through its ongoing loan review process or, less
frequently, receives notice of the occurrence of events impacting the
collectability of a loan, its emphasis promptly shifts to the evaluation of the
loan collateral. The evaluation of such collateral involves input
from several parties within the bank: loan review, credit
administration, the in-house appraisal review officer, and the relevant lending
officer. Following such input, the Company’s chief credit policy
officer makes the final determination regarding whether to order new appraisals
of the real estate collateral or an update to an existing
appraisal. Write-downs and charge-offs resulting from the credit
review and collection processes are reviewed monthly by the independent members
of the board of directors. There is typically no significant timing
difference in ordering appraisals and the recognition of provision or related
charge-off.
The Company places
collateral-dependent, impaired loans on nonaccrual and reserves for any specific
exposures identified from the collateral valuation. As exposures
become clearly defined, charge-down of the previously estimated exposure follows
immediately. Factors defining exposures might include bankruptcy,
extended project delay, limitation of refinancing opportunities, sudden local
market events or any other event which substantially eliminates the original,
primary source of repayment.
Other
Real Estate
The balance of other real estate (ORE) decreased $104 thousand to $815 thousand
in 2009 from $919 thousand in 2008. Activity during 2009, set forth
below, includes new foreclosures of $1.1 million offset by write-downs/reserves
of $203 thousand, proceeds from sales of $741 thousand and losses on the sales
of property of $80 thousand. The balance at December 31, 2009, was
made up of one commercial property in Baton Rouge, Louisiana in the amount of
$534 thousand that was moved into ORE during 2009 with the remaining balance
primarily in residential lots and vacant land. As reflected in the
table below, liquidation of ORE properties kept pace with new additions in
2009.
Balance
at December 31, 2008
|
|
|
|
|
$
|
919
|
|
Write-downs/Reserves,
net
|
|
|
(203
|
)
|
|
|
|
|
Proceeds
from sales, net of gains and losses
|
|
|
(741
|
)
|
|
|
|
|
Gains/(losses)
on sales of ORE
|
|
|
(80
|
)
|
|
|
|
|
Foreclosures
|
|
|
1,128
|
|
|
|
(104
|
)
|
Balance
at December 31, 2009
|
|
|
|
|
|
$
|
815
|
|
Funding
Deposits.
Deposits
are the Company’s primary source of funding for earning assets. Total
deposits decreased to $251 million at December 31, 2009, compared to $257
million at December 31, 2008. Non-interest bearing deposits decreased
to $50 million at December 31, 2009 compared to $51 million at December 31,
2008. Deposits at December 31, 2009 and 2008, consist of the
following:
|
|
12/31/09
|
|
|
12/31/08
|
|
|
|
|
|
|
|
|
Non-interest
bearing demand deposits
|
|
$
|
49,847,304
|
|
|
$
|
51,119,827
|
|
NOW
accounts
|
|
|
57,815,246
|
|
|
|
48,338,323
|
|
Money
market deposit accounts
|
|
|
30,563,856
|
|
|
|
33,662,518
|
|
Savings
accounts
|
|
|
18,259,388
|
|
|
|
17,736,516
|
|
Certificates
of deposit
|
|
|
94,456,326
|
|
|
|
106,357,236
|
|
|
|
$
|
250,942,120
|
|
|
$
|
257,214,420
|
|
The decrease in deposits in 2009 was
primarily due to decreases in non-core deposits such as public funds, brokered
and special promotion CD’s amounting to approximately $8.4
million. During 2009, deposits that the Bank considers core deposits
increased approximately $2.2 million, including deposits into a new rewards
checking that was initiated in the second quarter of 2009.
The Company maintains wholesale
deposit funding sources to provide additional liquidity if
necessary. The Company belongs to a network that allows access to
national deposits and has the ability to gather these deposits as
needed. It also is a member of the Certificate of Deposit Account
Registry Service (“CDARS”), a deposit placement network. Deposits in
the CDARS program are federally insured and are considered
brokered. Because of the brokered classification, the Company
considers these deposits as non-core, however, they have remained relatively
stable over the past several years ending December 31, 2009, at $11.4 million,
an increase over the $8.5 million at December 31, 2008.
Maturities
of certificates of deposits of $100,000 or more at December 31, 2009, and 2008,
are summarized below.
|
|
12/31/09
|
|
|
12/31/08
|
|
Time
remaining until maturity:
|
|
|
|
|
|
|
Three
months or less
|
|
$
|
16,319,474
|
|
|
$
|
21,104,104
|
|
Over
three through six months
|
|
|
6,517,440
|
|
|
|
10,266,988
|
|
Over
six through twelve months
|
|
|
14,213,515
|
|
|
|
12,796,081
|
|
Over
twelve months
|
|
|
3,628,905
|
|
|
|
3,417,858
|
|
|
|
$
|
40,679,334
|
|
|
$
|
47,585,031
|
|
Other time deposits of $100,000 or
more, including savings and money market demand accounts, at December 31, 2009,
were $21,554,000. For all such deposits, the time remaining until
maturity was three months or less.
Borrowings.
In
addition to the deposit base described above, the Company utilizes short and
long-term borrowings as an additional funding source. Short-term
borrowings include overnight funding through established lines of credit with
correspondent banks, customer repurchase agreements and overnight and other
advances from the FHLB. The Company collateralizes short-term funding
from the FHLB with a portion of the Bank’s one-to-four family residential
mortgage portfolio, certain secured commercial loans and certain investment
securities in accordance with the Advance Security and Collateral Agreement with
the FHLB.
Also included in short-term
borrowings are the Company’s junior subordinated debentures. See Note I,
“Borrowings,” in the Notes to the Consolidated Financial Statements of the
Company, in Item 8, Financial Statements and Supplementary Data. The
Company has the right to call these debentures on a quarterly
basis. They are included in short-term borrowings at December 31,
2009 and December 31, 2008. The Company will consider calling the
debentures if it determines they are not needed as a capital base to support the
asset growth of the Company.
Total
short-term borrowings at December 31, 2009, 2008 and 2007 are presented
below:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Year-end
balance
|
|
$
|
50,234,000
|
|
|
$
|
71,563,000
|
|
|
$
|
39,964,000
|
|
Maximum
month-end balance
|
|
|
69,490,000
|
|
|
|
86,688,000
|
|
|
|
67,385,000
|
|
Year
to date average balance
|
|
|
58,761,000
|
|
|
|
60,190,000
|
|
|
|
50,488,000
|
|
Weighted
average rate
|
|
|
.90
|
%
|
|
|
2.39
|
%
|
|
|
5.07
|
%
|
The
information regarding our short-term FHLB borrowings for 2009, 2008 and 2007, is
presented below:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Year-end
balance
|
|
$
|
32,018,000
|
|
|
$
|
54,929,000
|
|
|
$
|
26,735,000
|
|
Maximum
month-end balance
|
|
|
55,680,000
|
|
|
|
68,864,000
|
|
|
|
48,153,000
|
|
Year
to date average balance
|
|
|
42,596,000
|
|
|
|
44,533,000
|
|
|
|
36,378,000
|
|
Weighted
average rate
|
|
|
.37
|
%
|
|
|
1.98
|
%
|
|
|
4.67
|
%
|
Long-term borrowings in 2008 of $40 million primarily consisted of Structured
Repurchase Agreements with JPMorgan Chase Bank, N.A. In 2009, the
Company continued this long-term debt structure and added an additional $9
million in 5 year term advances from the FHLB in an effort to further protect
against rising rates. See Note M, “Securities Sold Under Repurchase
Agreements” in the Notes to the Consolidated Financial Statements in Item 8,
Financial Statements and Supplementary Data for further information on the
Company’s Structured Repurchase Agreements.
Average
Balances and Yield Analysis
The following table presents the
Bank’s average balance sheets during 2009, 2008 and 2007. Dividing
income or expense by the average balance of assets and liabilities,
respectively, derives yields and costs. Average non-accrual loans of
$5.8 million, $2.5 million and $1.4 million at December 31, 2009, 2008 and 2007,
respectively, are included in loans for yield computations. Loan fees
and late charges in the amount of approximately $680 thousand for 2009, $720
thousand for 2008 and $591 thousand for 2007 are included in both income and
yield computations in loans. Income and expense resulting from
interest rate caps and swaps used to manage interest rate risk are included
appropriately in loans and certificates of deposit. No tax-equivalent
adjustments have been made. All averages are derived from monthly
average balances.
|
|
Britton
& Koontz Capital Corporation
|
|
|
|
Average
Balance Report
|
|
|
|
Twelve
Months Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
Average
|
|
|
Income/
|
|
|
%
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield/Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
223,802
|
|
|
$
|
13,296
|
|
|
|
5.94
|
%
|
|
$
|
225,633
|
|
|
$
|
15,477
|
|
|
|
6.86
|
%
|
|
$
|
237,512
|
|
|
$
|
19,010
|
|
|
|
8.00
|
%
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Backed Securities
|
|
|
114,817
|
|
|
|
5,835
|
|
|
|
5.08
|
%
|
|
|
98,987
|
|
|
|
5,234
|
|
|
|
5.29
|
%
|
|
|
67,345
|
|
|
|
3,514
|
|
|
|
5.22
|
%
|
State
& municipal-non taxable
|
|
|
39,508
|
|
|
|
1,737
|
|
|
|
4.40
|
%
|
|
|
37,341
|
|
|
|
1,668
|
|
|
|
4.47
|
%
|
|
|
36,367
|
|
|
|
1,654
|
|
|
|
4.55
|
%
|
State
& municipal-taxable
|
|
|
947
|
|
|
|
57
|
|
|
|
6.00
|
%
|
|
|
945
|
|
|
|
57
|
|
|
|
6.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Other
|
|
|
4,064
|
|
|
|
51
|
|
|
|
1.25
|
%
|
|
|
3,086
|
|
|
|
94
|
|
|
|
3.05
|
%
|
|
|
4,959
|
|
|
|
271
|
|
|
|
5.47
|
%
|
Total
investment securities
|
|
|
159,336
|
|
|
|
7,679
|
|
|
|
4.82
|
%
|
|
|
140,359
|
|
|
|
7,054
|
|
|
|
5.03
|
%
|
|
|
108,671
|
|
|
|
5,439
|
|
|
|
5.01
|
%
|
Interest
bearing bank balances
|
|
|
1,150
|
|
|
|
4
|
|
|
|
0.34
|
%
|
|
|
1,026
|
|
|
|
27
|
|
|
|
2.62
|
%
|
|
|
3,045
|
|
|
|
140
|
|
|
|
4.61
|
%
|
Federal
funds sold
|
|
|
268
|
|
|
|
1
|
|
|
|
0.19
|
%
|
|
|
218
|
|
|
|
5
|
|
|
|
2.17
|
%
|
|
|
306
|
|
|
|
15
|
|
|
|
4.86
|
%
|
Total
earning assets
|
|
|
384,556
|
|
|
|
20,980
|
|
|
|
5.46
|
%
|
|
|
367,236
|
|
|
|
22,563
|
|
|
|
6.14
|
%
|
|
|
349,534
|
|
|
|
24,605
|
|
|
|
7.04
|
%
|
Allowance
for loan losses
|
|
|
(2,799
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,440
|
)
|
|
|
|
|
|
|
|
|
Cash
& due from banks, non-interest bearing
|
|
|
5,899
|
|
|
|
|
|
|
|
|
|
|
|
5,968
|
|
|
|
|
|
|
|
|
|
|
|
6,435
|
|
|
|
|
|
|
|
|
|
Bank
premises & equipment
|
|
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
7,067
|
|
|
|
|
|
|
|
|
|
|
|
7,565
|
|
|
|
|
|
|
|
|
|
Cash
Value Life Insurance and other
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,985
|
|
|
|
|
|
|
|
|
|
|
|
4,257
|
|
|
|
|
|
|
|
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
401,126
|
|
|
|
|
|
|
|
|
|
|
$
|
383,163
|
|
|
|
|
|
|
|
|
|
|
$
|
366,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
18,129
|
|
|
$
|
128
|
|
|
|
0.71
|
%
|
|
$
|
17,778
|
|
|
$
|
148
|
|
|
|
0.83
|
%
|
|
$
|
18,207
|
|
|
$
|
186
|
|
|
|
1.02
|
%
|
Interest
bearing checking
|
|
|
56,828
|
|
|
|
977
|
|
|
|
1.72
|
%
|
|
|
27,744
|
|
|
|
270
|
|
|
|
0.97
|
%
|
|
|
25,028
|
|
|
|
408
|
|
|
|
1.63
|
%
|
Money
rate savings
|
|
|
32,084
|
|
|
|
471
|
|
|
|
1.47
|
%
|
|
|
35,495
|
|
|
|
689
|
|
|
|
1.94
|
%
|
|
|
36,380
|
|
|
|
1,049
|
|
|
|
2.88
|
%
|
Certificates
of deposit and other time deposits
|
|
|
100,800
|
|
|
|
2,305
|
|
|
|
2.29
|
%
|
|
|
112,731
|
|
|
|
4,228
|
|
|
|
3.75
|
%
|
|
|
129,857
|
|
|
|
6,066
|
|
|
|
4.67
|
%
|
Total interest bearing
deposits
|
|
|
207,841
|
|
|
|
3,881
|
|
|
|
1.87
|
%
|
|
|
193,748
|
|
|
|
5,335
|
|
|
|
2.75
|
%
|
|
|
209,472
|
|
|
|
7,708
|
|
|
|
3.68
|
%
|
Short
term borrowed funds
|
|
|
58,761
|
|
|
|
529
|
|
|
|
0.90
|
%
|
|
|
60,190
|
|
|
|
1,439
|
|
|
|
2.39
|
%
|
|
|
50,488
|
|
|
|
2,560
|
|
|
|
5.07
|
%
|
Long
term debt
|
|
|
44,368
|
|
|
|
2,050
|
|
|
|
4.62
|
%
|
|
|
40,989
|
|
|
|
1,980
|
|
|
|
4.83
|
%
|
|
|
22,865
|
|
|
|
997
|
|
|
|
4.36
|
%
|
Total
interest bearing liabilities
|
|
|
310,970
|
|
|
|
6,460
|
|
|
|
2.08
|
%
|
|
|
294,927
|
|
|
|
8,754
|
|
|
|
2.97
|
%
|
|
|
282,825
|
|
|
|
11,265
|
|
|
|
3.98
|
%
|
Non-interest
bearing deposits
|
|
|
44,253
|
|
|
|
|
|
|
|
|
|
|
|
47,355
|
|
|
|
|
|
|
|
|
|
|
|
45,598
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,456
|
|
|
|
|
|
|
|
|
|
|
|
4,262
|
|
|
|
|
|
|
|
|
|
|
|
4,188
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
40,448
|
|
|
|
|
|
|
|
|
|
|
|
36,619
|
|
|
|
|
|
|
|
|
|
|
|
34,153
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES & SHAREHOLDERS' EQUITY
|
|
$
|
401,126
|
|
|
$
|
6,460
|
|
|
|
|
|
|
$
|
383,163
|
|
|
$
|
8,754
|
|
|
|
|
|
|
$
|
366,765
|
|
|
$
|
11,265
|
|
|
|
|
|
Interest
income and rate earned
|
|
|
|
|
|
$
|
20,980
|
|
|
|
5.46
|
%
|
|
|
|
|
|
$
|
22,563
|
|
|
|
6.14
|
%
|
|
|
|
|
|
$
|
24,605
|
|
|
|
7.04
|
%
|
Interest
expense and rate paid
|
|
|
|
|
|
|
6,460
|
|
|
|
2.08
|
%
|
|
|
|
|
|
|
8,754
|
|
|
|
2.97
|
%
|
|
|
|
|
|
|
11,265
|
|
|
|
3.98
|
%
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.38
|
%
|
|
|
|
|
|
|
|
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
NET
INTEREST INCOME & NET YIELD ON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
EARNING ASSETS
|
|
|
|
|
|
$
|
14,520
|
|
|
|
3.78
|
%
|
|
|
|
|
|
$
|
13,809
|
|
|
|
3.76
|
%
|
|
|
|
|
|
$
|
13,340
|
|
|
|
3.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
The Company’s capital base remains
strong at $39.8 million as of December 31, 2009, compared to $39.5 million at
December 31, 2008. The change in stockholders’ equity from 2008 to
2009 is primarily due to net income of $1.6 million in 2009 and an increase of
accumulated other comprehensive income of $169 thousand offset by dividend
payments totaling $1.5 million.
Other comprehensive income is the
result of unrealized gains or losses on AFS securities and the recognition of
the fair value of certain derivative instruments. The Company’s AFS
portfolio, representing approximately 67% of total investment securities, is
marked to market each month, and the result of these unrealized gains or losses,
net of deferred taxes, is reported as a component of comprehensive income in
stockholders’ equity. Stockholders’ equity to assets ratio at
December 31, 2009, increased to 10.1% compared to 9.6% at December 31,
2008.
During 2009, the Company opened two
new branch offices in its Baton Rouge, Louisiana market. The first
location in The Oaks at Bluebonnet Parc occupies approximately 4,400 square
feet, offers convenient depository services and includes a conference layout to
accommodate select meetings of professional and commercial
customers. This new facility also houses the Company’s mortgage
center, a professional client services department and key company-wide credit
administration personnel. The second new location, in the Towne
Center area, occupies approximately 1,256 square feet and its high visibility is
expected to enhance the Company’s current retail presence in the
city. The Company’s fixed assets increased $1.1 million to $8.0
million at December 31, 2009, compared to the previous year in part due to these
two new locations. The Company continues to look for ways to use its
excess capital in relation to expansion in its current markets or in other
markets through acquisition. The Company currently has no additional
expansion plans in the Baton Rouge market and intends to target a per share
dividend payout amount in 2010 in the range of 40-50%.
Capital levels for the Company and
the Bank substantially exceeded the minimum requirements of the regulatory
agencies for well-capitalized institutions in all three categories in both 2009
and 2008. Both the Company and the Bank maintain levels in total
capital to risk-weighted assets, Tier 1 capital to risk-weighted assets and a
leverage ratio (Tier 1 capital to average assets) in excess of the minimum
requirements of 10.00%, 6.00% and 5.00%, respectively.
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Company
|
|
|
Bank
|
|
|
Company
|
|
|
Bank
|
|
Risk-based
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,376
|
|
|
$
|
42,118
|
|
|
$
|
44,283
|
|
|
$
|
39,335
|
|
Tier
1
|
|
|
42,123
|
|
|
|
38,867
|
|
|
|
41,885
|
|
|
|
36,937
|
|
Leverage
|
|
|
42,123
|
|
|
|
38,867
|
|
|
|
41,885
|
|
|
|
36,937
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
average assets
(1)
|
|
|
394,593
|
|
|
|
389,343
|
|
|
|
399,321
|
|
|
|
394,715
|
|
Risk-weighted
assets
|
|
|
259,644
|
|
|
|
259,415
|
|
|
|
255,841
|
|
|
|
255,619
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
|
17.48
|
%
|
|
|
16.24
|
%
|
|
|
17.31
|
%
|
|
|
15.39
|
%
|
Tier
1 risk-based capital
|
|
|
16.22
|
%
|
|
|
14.98
|
%
|
|
|
16.37
|
%
|
|
|
14.45
|
%
|
Leverage
|
|
|
10.68
|
%
|
|
|
9.98
|
%
|
|
|
10.49
|
%
|
|
|
9.36
|
%
|
(1)
|
Excludes
disallowed assets
|
Pursuant
to Mississippi law, the Company’s Board of Directors may authorize the Company
to pay cash dividends to its shareholders. The only limitation on
dividends is that no distribution may be made if, after giving effect to the
distribution (1) the Company would not be able to pay its debts as they come due
in the usual course of business, or (2) the Company's total assets would be less
than the sum of its total liabilities plus the amount that would be needed, if
the Company were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of any shareholders whose preferential
rights are superior to those receiving the distribution. The
principal source of the Company’s cash revenues are dividends from the
Bank. There are certain limitations on the Bank’s ability to pay
dividends to the Company. See the disclosures under the heading
“Liquidity.”
Dividends for the last two fiscal
years have remained the same at $.72 per share. Historical dividend
payout ratios, expressed as a percentage of net income, for 2009 and 2008 were
94.30% and 43.54%, respectively.
The declaration of future dividends
is at the discretion of the Company and generally will be dependent upon the
earnings of the Bank, the assessment of capital requirements, considerations of
safety and soundness, applicable law and regulation and other
factors. Subject to the limitations referenced above, it is the
present policy of the Board of Directors of the Company to continue the
declaration of cash dividends on the Company’s common stock on a quarterly
basis, to the extent practicable.
Retained earnings of the Bank available for payment of cash dividends under
applicable dividend regulations was $4.2 million and $5.5 million as of December
31, 2009 and December 31, 2008, respectively. The Bank intends to
retain most of these funds for capital and not pay them out as
dividends.
RESULTS
OF OPERATIONS
The following are measurements of the
Company’s earnings in relation to assets, equity and earnings per share for
December 31, 2009, 2008 and 2007
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
.40
|
%
|
|
|
.91
|
%
|
|
|
.82
|
%
|
Return
on average equity
|
|
|
4.01
|
%
|
|
|
9.57
|
%
|
|
|
8.80
|
%
|
Dividend
payout ratio
|
|
|
94.30
|
%
|
|
|
43.54
|
%
|
|
|
50.70
|
%
|
Average
equity to average assets
|
|
|
10.08
|
%
|
|
|
9.56
|
%
|
|
|
9.31
|
%
|
Net
interest margin
|
|
|
3.78
|
%
|
|
|
3.76
|
%
|
|
|
3.82
|
%
|
Basic
income per share
|
|
$
|
.76
|
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
Diluted
income per share
|
|
$
|
.76
|
|
|
$
|
1.65
|
|
|
$
|
1.42
|
|
Non-Interest
Income/Non-Interest Expense
Non-interest income primarily
includes service charges on deposit accounts, fees and gains on sales of
mortgage loans originated and sold in the secondary market and other
non-interest fee generating services. The Company continues to seek
to increase income in this category by broadening its financial services,
including offering business Internet banking and commercial cash management
services, such as remote deposit, which allows Bank customers to make deposits
electronically from their offices.
Non-interest income for the year ended December 31, 2009, was $2.8 million
compared to $3.0 million in 2008. The decrease is primarily related
to lower revenue from networking arrangements resulting from the transfer of our
brokerage business and related arrangements to Argent Financial Group, as
described above, and reduced income from service charges on deposit
accounts. Additionally, gains on investment securities decreased in
2009 compared to the previous year.
Non-interest expenses primarily
include personnel, occupancy and equipment costs along with other operating
expenses related to transacting the Company’s business. Total
non-interest expense of $12.4 million for the year ended December 31, 2009,
increased from $11.3 million for the year ended December 31,
2008. The increases are mainly due to higher FDIC assessments, an
increase in employees, higher employee salaries and benefits and increased
occupancy and equipment costs. The increases in salary, occupancy and
equipment costs are primarily related to the opening of two new branches in
Baton Rouge, Louisiana, and the expansion of the Company’s loan origination
staff in Baton Rouge, Louisiana, during the third and fourth quarters of
2009.
Net
Interest Income/Margins
Net interest income, the amount by
which interest income on loans, investments and other interest earning assets
exceeds interest expense on deposits and other borrowed funds, is the largest
component of the Company’s earnings and is affected by several factors,
including the volume of earning assets and costing liabilities, the mix of these
assets and liabilities, and interest rates. Net Interest Margin
represents net interest income expressed as a percentage of average earning
assets. In the following discussion, tax-equivalent margins (“TEY”)
are in parenthesis.
Net interest income for the twelve
months ended December 31, 2009, increased 5% to $14.5 million compared to the
same period in 2008, while net interest margin increased slightly during this
period to 3.78%. The increase was due primarily to the increase in
the volume of earning assets exceeding the increase in the volume of interest
bearing liabilities; this accounted for $745 thousand of the year-over-year
increase. The higher volume of earning assets for 2009 is a result of
the increase in purchases of investment securities undertaken in 2008 to take
advantage of attractive yields on such assets; as investment securities paid
down throughout 2009, the market had reversed and the yields prevailing in the
market discouraged reinvestment of investment securities proceeds, which instead
were used to repay debt. The positive effects of increased volume
were offset by this lower interest rate environment during 2009, which narrowed
the interest rate spread for earning assets by a greater degree than the
interest rate spread for interest bearing liabilities. Net interest
margins for 2009 and 2008 were 3.78% (4.01% TEY) and 3.76% (3.99% TEY),
respectively.
The
following table presents the dollar amount of changes in interest income and
interest expense for the major components of the Company’s interest earning
assets and interest bearing liabilities. It distinguishes between the
changes related to outstanding balances and those due to changes in interest
rates. For each category of interest earning assets and interest
bearing liabilities, information is provided on changes attributable to (a)
changes in volume (i.e., changes in volume multiplied by the old rate) and (b)
changes in rates (i.e., changes in rates multiplied by the old
volume.) For purposes of this table, changes attributable to both
rate and volume have been allocated proportionately to the change due to volume
and the change due to rates.
|
Volume/Rate
Analysis
|
|
|
2009
change from 2008
|
|
2008
change from 2007
|
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
ASSETS
|
(dollars
in thouands)
|
|
Loans
|
$
|
(2,181
|
)
|
$
|
(125
|
)
|
$
|
(2,056
|
)
|
$
|
(3,533
|
)
|
$
|
(916
|
)
|
$
|
(2,617
|
)
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Backed Securities
|
|
600
|
|
|
811
|
|
|
(211
|
)
|
|
1,721
|
|
|
1,673
|
|
|
48
|
|
State
& municipal-non taxable
|
|
68
|
|
|
96
|
|
|
(28
|
)
|
|
14
|
|
|
44
|
|
|
(30
|
)
|
State
& municipal-taxable
|
|
-
|
|
|
-
|
|
|
-
|
|
|
57
|
|
|
57
|
|
|
-
|
|
Other
|
|
(43
|
)
|
|
24
|
|
|
(67
|
)
|
|
(177
|
)
|
|
(82
|
)
|
|
(95
|
)
|
Total
investment securities
|
|
625
|
|
|
931
|
|
|
(306
|
)
|
|
1,615
|
|
|
1,692
|
|
|
(77
|
)
|
Interest
bearing bank balances
|
|
(23
|
)
|
|
3
|
|
|
(26
|
)
|
|
(114
|
)
|
|
(69
|
)
|
|
(45
|
)
|
Federal
funds sold
|
|
(4
|
)
|
|
1
|
|
|
(5
|
)
|
|
(10
|
)
|
|
(3
|
)
|
|
(7
|
)
|
Total
earning assets
|
|
(1,583
|
)
|
|
810
|
|
|
(2,393
|
)
|
|
(2,042
|
)
|
|
704
|
|
|
(2,746
|
)
|
Interest
bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
$
|
(20
|
)
|
$
|
3
|
|
$
|
(23
|
)
|
$
|
(37
|
)
|
$
|
(4
|
)
|
$
|
(33
|
)
|
Interest
bearing checking
|
|
707
|
|
|
408
|
|
|
299
|
|
|
(138
|
)
|
|
40
|
|
|
(178
|
)
|
Money
rate savings
|
|
(218
|
)
|
|
(62
|
)
|
|
(156
|
)
|
|
(360
|
)
|
|
(25
|
)
|
|
(335
|
)
|
Certificates
of deposit and other time deposits
|
|
(1,923
|
)
|
|
(410
|
)
|
|
(1,513
|
)
|
|
(1,838
|
)
|
|
(737
|
)
|
|
(1,101
|
)
|
Total interest bearing
deposits
|
|
(1,454
|
)
|
|
(61
|
)
|
|
(1,393
|
)
|
|
(2,373
|
)
|
|
(726
|
)
|
|
(1,647
|
)
|
Short
term borrowed funds
|
|
(910
|
)
|
|
(33
|
)
|
|
(877
|
)
|
|
(1,121
|
)
|
|
423
|
|
|
(1,544
|
)
|
Long
term debt
|
|
70
|
|
|
159
|
|
|
(89
|
)
|
|
983
|
|
|
865
|
|
|
118
|
|
Total
interest bearing liabilities
|
|
(2,294
|
)
|
|
65
|
|
|
(2,359
|
)
|
|
(2,511
|
)
|
|
562
|
|
|
(3,073
|
)
|
Change
in Interest Earning Assets
|
$
|
(1,583
|
)
|
$
|
810
|
|
$
|
(2,393
|
)
|
$
|
(2,042
|
)
|
$
|
704
|
|
$
|
(2,746
|
)
|
Change
in Interest Bearing Liabilities
|
|
(2,294
|
)
|
|
65
|
|
|
(2,359
|
)
|
|
(2,511
|
)
|
|
562
|
|
|
(3,073
|
)
|
Change
in Net Interest Income
|
$
|
711
|
|
$
|
745
|
|
$
|
(34
|
)
|
$
|
469
|
|
$
|
142
|
|
$
|
327
|
|
Provision
for Loan Losses
The provision for loan losses is a
charge to earnings to maintain the reserve for loan losses at a level consistent
with management’s assessment of the risk of loss in the loan portfolio in light
of current risk management strategies, economic conditions and market
trends. Net charge-offs increased during 2009 to $1.9 million
compared to $763 thousand at December 31, 2008. The Company increased
its provision for the twelve months ended December 31, 2009, to $3.4 million to
cover net charge-offs and additional potential exposures identified in the
credit review process and reserving methodology. As detailed in the
discussion of the Allowance for Loan Losses, subsequent to year-end the Company
revised its estimate of its potential exposure on two impaired commercial loans.
These revised estimates have resulted in additional provision expense of $1
million for the fourth quarter of 2009. The revised 2009 provision
expense of $3.4 million compares to $730 thousand provided in
2008. As noted earlier, the current economic climate for the Company
and the industry as a whole continues to be extremely
challenging. The Company has recognized known losses in the loan
portfolio and anticipates net charge-offs in 2010 to remain near 2009 levels. In
absence of negotiated settlements with the insurance companies involved in the
two commercial loans described above, charge-off of some or all of the
identified credit exposures of approximately $1.4 million may occur at the end
of the first quarter.
Liquidity
Liquidity is a measure of the
Company’s ability to fund loan commitments and meet deposit maturities and
withdrawals in a timely and cost-effective manner. These needs can be met by
generating profits, attracting new deposits, converting assets (including
short-term investments, mortgage loans held for sale and securities available
for sale) to cash through sales or securitizations, and increasing
borrowings. To minimize funding risks, management monitors liquidity
monthly through reviews of basic surplus which includes investment securities
available for pledging or borrowing offset by short-term liabilities, along with
projections of loan and deposits for the next 90 days.
Principal sources of liquidity, both
short and long-term, for the Company are asset cash flows, customer deposits and
the ability to borrow against investment securities and loans. The
Company’s cash and cash equivalents increased from $7.0 million at December 31,
2008, to $10.3 million at December 31, 2009. At December 31, 2009,
cash provided by operating and investing activities was $2.9 and $20.5 million,
respectively, while $20.1 million was used by financing activities.
The decline in the Company’s deposit
base during 2009 did not materially affect the amount of funding available
for possible loan commitments. In addition to the Company’s deposit
base, management believes that the current level of short-term investments and
the higher level of projected cash flows from earning assets and securities
available for sale are more than adequate to meet the Company’s current
liquidity needs. Additional sources of liquidity available to the
Company include the ability to issue additional retail brokered certificates of
deposit and the ability to sell or securitize a portion of the Company’s
residential first mortgage portfolio. The Company also has available
federal funds lines and its membership in the FHLB to further augment liquidity
by providing a readily accessible source of funds at competitive
rates.
The Company accepts funds from
various local and state governments. Total public deposits at December 31, 2009,
were $43.9 million compared to $49.3 million at December 31, 2008, and $28.1
million at December 31, 2007. These deposits, considered non-core,
generally are accepted on a bid basis and tend to fluctuate from year to
year.
In the ordinary course of business,
the Company enters into commitments to extend credit to its
customers. See Note O, “Commitments and Contingencies,” in the Notes
to the Consolidated Financial Statements of the Company in Item 8, Financial
Statements and Supplementary Data, for a discussion of the Company’s commitments
to extend credit as of December 31, 2009.
The Company’s liquidity and capital
resources are substantially dependent on the ability of the Bank to transfer
funds to the Company in the form of dividends, loans and
advances. Under federal law, the directors of a national bank, after
making proper deduction for all expenses and other deductions required by the
Comptroller of the Currency, may credit net profits to the bank’s undivided
profits account, and may declare a dividend from that account of so much of the
net profits as they judge expedient. The Comptroller and the Federal
Reserve Board have each indicated that banking organizations should generally
pay dividends only out of current operating earnings. The Bank’s
ability to pay dividends is also limited by prudence, statutory and regulatory
guidelines, and a variety of other factors.
Further, in connection with the acquisition of Natchez First Federal in 1993,
the Bank assumed a liquidation account of approximately $2.8 million which has
the effect of prohibiting the payment of dividends if the Bank’s net worth would
thereby be reduced below the amount required for the liquidation
account. Management does not anticipate that this restriction will
have a material adverse effect on the Bank’s ability to pay dividends to the
Company.
Certain restrictions exist on the
ability of the Bank to transfer such funds to the Company in the form of
loans. Federal Reserve regulations limit the amount the Bank may loan
to the Company unless such loans are collateralized by specific
obligations. At December 31, 2009, the maximum amount available for
transfer from the Bank to the Company in the form of loans on a secured basis
was $3.0 million. There were no loans outstanding from the Bank to
the Company at December 31, 2009.
The Company’s asset/liability
committee (“ALCO”) determines an appropriate level of capital and liquidity
adequate to respond to the needs of depositors and borrowers. At
December 31, 2009, the ALCO, in its report to the Board of Directors, indicated
that it believes that the Company’s current level of liquidity is adequate to
fund foreseeable asset growth or to meet unanticipated deposit
fluctuations.
OFF-BALANCE-SHEET
ARRANGEMENTS
The Bank enters into
off-balance-sheet arrangements in the normal course of its
business. For a discussion of such arrangements, see Note A, “Summary
of Significant Accounting Policies − Off-Balance-Sheet Financial Instruments,”
“− Interest-Rate Cap Agreements,” and “Interest-Rate Swap Agreements,” Note O,
“Commitments and Contingencies,” and Note R, “Interest Rate Risk Management,” in
the Notes to the Consolidated Financial Statements of the Company, in Item 8,
Financial Statements and Supplementary Data. Such discussion is
incorporated by reference into this item.
It
em 7A. Quantitative and Qualitative
Disclosures About Market Risk.
No disclosure is required hereunder
as the Company is a “smaller reporting company,” as defined in Item 10(f) of
Regulation S-K.
Item
8. Financial Statements and Supplementary Data.
BRITTON
& KOONTZ CAPITAL CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
C
ONTENTS
|
|
|
|
Audited
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Britton & Koontz Capital Corporation (the “Company”) and its subsidiaries
has prepared the consolidated financial statements and other information in our
Annual Report on Form 10-K in accordance with generally accepted accounting
principles and is responsible for the accuracy of the financial statements and
other information. The financial statements necessarily include
amounts that are based on management’s best estimates and
judgments.
In
meeting its responsibility, management relies on internal accounting and related
control systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in the Company’s
financial records and to safeguard the Company’s assets from material loss or
misuse. Such assurance cannot be absolute because of inherent
limitations in any internal control system,
including the possibility
that a control can be circumvented or overridden, and misstatements due to error
or fraud may occur and not be detected. Also, because of changes in conditions,
internal control effectiveness may vary over time. The Company’s bank
subsidiary, Britton & Koontz Bank, N.A., contracts with outside audit firms
to monitor compliance in areas such as Information Technology and Bank Secrecy
Act with the Company’s and Bank’s systems of internal controls and reports to
management and to the Audit Committee of the Board of Directors.
The Audit
Committee of the Company’s Board of Directors consists entirely of independent
directors. The Audit Committee meets periodically with the internal
auditor and the independent accountants to discuss audit, internal control,
financial reporting and related matters. The Company’s independent
accountants and the internal audit staff have direct access to the Audit
Committee.
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule
13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended, and further described in interpretive guidance regarding
management’s report on internal control over financial reporting issued by the
Securities and Exchange Commission on June 27, 2007. Under the
supervision and with the participation of the Company’s principal executive
officer and principal financial officer, management of the Company conducted an
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2009, based on criteria for effective internal control over
financial reporting described in
Internal Control – Integrated
Framework
, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our assessment included an assessment of the
design of the internal control system, a review of the documentation of controls
and tests of the effectiveness of internal controls. Based on this
assessment, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2009 and meets the criteria
described in
Internal Control
– Integrated Framework
.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
W. Page
Ogden
/s/ William M. Salters
President
and Chief Executive
Officer EVP
and Chief Financial Officer
R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders
Britton
& Koontz Capital Corporation and Subsidiaries
We have
audited the accompanying Consolidated Balance Sheets of Britton & Koontz
Capital Corporation and Subsidiaries as of December 31, 2009 and 2008, and the
related Consolidated Statements of Income, Changes in Stockholders' Equity, and
Cash Flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Britton & Koontz
Capital Corporation and Subsidiaries as of December 31, 2009 and 2008, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Hannis T. Bourgeois,
LLP
HANNIS
T. BOURGEOIS, LLP
Baton
Rouge, Louisiana
March 22,
2010
BRITTON
& KOONTZ
CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
ASSETS
|
|
2009
|
|
|
2008
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
and Due from Banks:
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
4,702,159
|
|
|
$
|
6,752,462
|
|
Interest
bearing
|
|
|
5,601,482
|
|
|
|
199,081
|
|
Total
Cash and Due from Banks
|
|
|
10,303,641
|
|
|
|
6,951,543
|
|
Federal
funds sold
|
|
|
58,799
|
|
|
|
-
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale
(amortized cost, in 2009 and 2008, of $94,684,079 and $108,548,988,
respectively)
|
|
|
98,300,252
|
|
|
|
111,895,476
|
|
Held-to-maturity
(fair value, in 2009 and 2008, of $45,996,945 and
$54,843,091, respectively)
|
|
|
45,027,914
|
|
|
|
54,815,013
|
|
Equity
securities
|
|
|
3,262,100
|
|
|
|
4,009,938
|
|
Loans,
less allowance for loan losses of $3,878,738 in 2009 and $2,397,802 in
2008
|
|
|
219,938,639
|
|
|
|
223,113,495
|
|
Loans
held for sale
|
|
|
784,063
|
|
|
|
-
|
|
Bank
premises and equipment, net
|
|
|
8,030,900
|
|
|
|
6,922,835
|
|
Other
real estate, net of reserves of $0 and $198,390 in 2009 and 2008,
respectively
|
|
|
815,207
|
|
|
|
919,204
|
|
Accrued
interest receivable
|
|
|
2,002,259
|
|
|
|
2,080,693
|
|
Cash
surrender value of life insurance
|
|
|
1,099,395
|
|
|
|
1,055,627
|
|
Core
deposits, net
|
|
|
450,426
|
|
|
|
558,042
|
|
Other
assets
|
|
|
3,036,554
|
|
|
|
754,959
|
|
TOTAL
ASSETS
|
|
$
|
393,110,149
|
|
|
$
|
413,076,825
|
|
The
accompanying notes are an integral part of these financial
statements.
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
2009
|
|
|
2008
|
|
LIABILITIES:
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
49,847,304
|
|
|
$
|
51,119,827
|
|
Interest
bearing
|
|
|
201,094,816
|
|
|
|
206,094,593
|
|
Total
Deposits
|
|
|
250,942,120
|
|
|
|
257,214,420
|
|
|
|
|
|
|
|
|
|
|
Securities
sold under repurchase agreements
|
|
|
53,211,325
|
|
|
|
51,633,835
|
|
Federal
Home Loan Bank advances
|
|
|
41,022,754
|
|
|
|
54,939,931
|
|
Junior
subordinated debentures
|
|
|
5,155,000
|
|
|
|
5,155,000
|
|
Accrued
interest payable (includes $264,879 and $264,954 on securities
sold under repurchase agreements at December 31, 2009 and 2008,
respectively)
|
|
|
793,141
|
|
|
|
1,167,525
|
|
Advances
from borrowers for taxes and insurance
|
|
|
259,315
|
|
|
|
313,810
|
|
Accrued
taxes and other liabilities
|
|
|
1,885,605
|
|
|
|
3,111,235
|
|
Total
Liabilities
|
|
|
353,269,260
|
|
|
|
373,535,756
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
Common
stock, $2.50 par value per share; 12,000,000 shares authorized; 2,140,966
and 2,132,466 issued and 2,126,466 and 2,117,966 outstanding, as of
December 31, 2009, and December 31, 2008, respectively
|
|
|
5,352,415
|
|
|
|
5,331,165
|
|
Additional
paid-in capital
|
|
|
7,396,211
|
|
|
|
7,319,282
|
|
Retained
earnings
|
|
|
25,082,298
|
|
|
|
25,049,749
|
|
Accumulated
other comprehensive income/(loss)
|
|
|
2,267,340
|
|
|
|
2,098,248
|
|
|
|
|
40,098,264
|
|
|
|
39,798,444
|
|
Less: Treasury
stock, 14,500 shares, at cost
|
|
|
(257,375
|
)
|
|
|
(257,375
|
)
|
Total
Stockholders’ Equity
|
|
|
39,840,889
|
|
|
|
39,541,069
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
393,110,149
|
|
|
$
|
413,076,825
|
|
BR
ITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
|
|
2009
|
|
|
2008
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
13,296,099
|
|
|
$
|
15,477,317
|
|
Interest
on investment securities:
|
|
|
|
|
|
|
|
|
Taxable
interest income
|
|
|
5,946,440
|
|
|
|
5,412,107
|
|
Exempt
from federal income taxes
|
|
|
1,736,504
|
|
|
|
1,668,378
|
|
Other
interest income
|
|
|
416
|
|
|
|
4,735
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
|
20,979,459
|
|
|
|
22,562,537
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
3,880,690
|
|
|
|
5,334,619
|
|
Interest
on Federal Home Loan Bank advances
|
|
|
273,640
|
|
|
|
926,113
|
|
Interest
on trust preferred securities
|
|
|
203,940
|
|
|
|
328,470
|
|
Interest
on securities sold under repurchase agreements
|
|
|
2,101,661
|
|
|
|
2,164,355
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
|
6,459,931
|
|
|
|
8,753,557
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
14,519,528
|
|
|
|
13,808,980
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
3,420,000
|
|
|
|
730,000
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
11,099,528
|
|
|
|
13,078,980
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME:
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
1,677,300
|
|
|
|
1,777,096
|
|
Income
from fiduciary activities
|
|
|
2,236
|
|
|
|
2,484
|
|
Income
from networking arrangements
|
|
|
62,766
|
|
|
|
160,913
|
|
Net
gain on sales of loans
|
|
|
490,666
|
|
|
|
465,019
|
|
Net
gain (loss) on sale of securities
|
|
|
92,432
|
|
|
|
148,116
|
|
Other
|
|
|
494,968
|
|
|
|
460,740
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
2,820,368
|
|
|
|
3,014,368
|
|
Income
before Other Expenses
|
|
|
13,919,896
|
|
|
|
16,093,348
|
|
|
|
2009
|
|
|
2008
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
Salaries
|
|
|
5,456,291
|
|
|
|
5,425,241
|
|
Employee
benefits
|
|
|
764,393
|
|
|
|
730,614
|
|
Director
fees
|
|
|
146,545
|
|
|
|
166,050
|
|
Net
occupancy expense
|
|
|
958,517
|
|
|
|
946,737
|
|
Equipment
expense
|
|
|
1,243,036
|
|
|
|
1,141,943
|
|
Other
real estate, net
|
|
|
353,030
|
|
|
|
127,159
|
|
FDIC
assessment
|
|
|
719,405
|
|
|
|
49,590
|
|
Advertising
|
|
|
236,492
|
|
|
|
219,544
|
|
Stationery
and supplies
|
|
|
174,917
|
|
|
|
172,059
|
|
Amortization
|
|
|
107,616
|
|
|
|
107,616
|
|
Audit
expense
|
|
|
252,847
|
|
|
|
219,877
|
|
Other
|
|
|
1,952,851
|
|
|
|
1,974,161
|
|
|
|
|
|
|
|
|
|
|
Total
Other Expenses
|
|
|
12,365,940
|
|
|
|
11,280,591
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAX EXPENSE
|
|
|
1,553,956
|
|
|
|
4,812,757
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE/(BENEFIT)
|
|
|
(69,673
|
)
|
|
|
1,309,994
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
1,623,629
|
|
|
$
|
3,502,763
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.76
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted shares outstanding
|
|
|
2,125,371
|
|
|
|
2,117,966
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.76
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted shares outstanding
|
|
|
2,125,799
|
|
|
|
2,117,966
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
The
accompanying notes are an integral part of these financial
statements.
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(loss)
|
|
|
Stock
|
|
|
Total
|
|
BALANCE,
December 31, 2007
|
|
|
|
2,117,966
|
|
|
$
|
5,331,165
|
|
|
$
|
7,305,970
|
|
|
$
|
23,071,921
|
|
|
$
|
349,184
|
|
|
$
|
(257,375
|
)
|
|
$
|
35,800,865
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,502,763
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,502,763
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes of $1,110,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,865,967
|
|
|
|
-
|
|
|
|
1,865,967
|
|
Change in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives, net of tax benefit of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(69,545)
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(116,903
|
)
|
|
|
-
|
|
|
|
(116,903
|
)
|
Total
Comprehensive Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,251,827
|
|
Fair
value of unexercised stock options
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,312
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,312
|
|
Cash
Dividends ($0.72 per share)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,935
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,524,935
|
)
|
BALANCE
at December 31, 2008
|
|
|
|
2,117,966
|
|
|
$
|
5,331,165
|
|
|
$
|
7,319,282
|
|
|
$
|
25,049,749
|
|
|
$
|
2,098,248
|
|
|
$
|
(257,375
|
)
|
|
$
|
39,541,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,623,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,623,629
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $100,592
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,092
|
|
|
|
-
|
|
|
|
169,092
|
|
Total
Comprehensive Income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,792,721
|
|
Common
Stock issued
|
|
|
|
8,500
|
|
|
|
21,250
|
|
|
|
65,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,700
|
|
Unearned
Compensation
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,023
|
)
|
Fair
value of unexercised stock options
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,479
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,479
|
|
Cash
Dividends ($0.72 per share)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,531,057
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,531,057
|
)
|
BALANCE
at December 31, 2009
|
|
|
|
2,126,466
|
|
|
$
|
5,352,415
|
|
|
$
|
7,396,211
|
|
|
$
|
25,082,298
|
|
|
$
|
2,267,340
|
|
|
$
|
(257,375
|
)
|
|
$
|
39,840,889
|
|
The
accompanying notes are an integral part of these financial
statements.
(THIS
PAGE INTENTIONALLY LEFT BLANK)
BR
ITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,623,629
|
|
|
$
|
3,502,763
|
|
Adjustments
to reconcile net income to
|
|
|
|
|
|
|
|
|
net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
(444,865
|
)
|
|
|
(171,022
|
)
|
Provision
for loan losses
|
|
|
3,420,000
|
|
|
|
730,000
|
|
Provision
for depreciation
|
|
|
798,158
|
|
|
|
764,645
|
|
Provision
for losses on foreclosed real estate
|
|
|
216,700
|
|
|
|
140,040
|
|
Stock
dividends received
|
|
|
(7,200
|
)
|
|
|
(61,600
|
)
|
Write-down
of other real estate
|
|
|
194,723
|
|
|
|
-
|
|
(Gain)
on sale of loans
|
|
|
(205,946
|
)
|
|
|
(229,001
|
)
|
(Gain)
Loss on sale of other repossessed assets
|
|
|
-
|
|
|
|
22,000
|
|
(Gain)
Loss on disposition of premises and equipment
|
|
|
-
|
|
|
|
3,980
|
|
(Gain)
Loss on sale of securities
|
|
|
(92,432
|
)
|
|
|
(148,116
|
)
|
(Gain)
Loss on sale of other real estate
|
|
|
79,642
|
|
|
|
(84,195
|
)
|
(Gain)
Loss on sale of other securities
|
|
|
(1,262
|
)
|
|
|
1,285
|
|
Net
amortization (accretion) of securities
|
|
|
25,667
|
|
|
|
(99,897
|
)
|
Amortization
of acquisition premium
|
|
|
107,616
|
|
|
|
107,616
|
|
Unearned
compensation
|
|
|
(60,023
|
)
|
|
|
-
|
|
Proceeds
from sales, principal paydowns and maturities
of
investment securities held for trading
|
|
|
-
|
|
|
|
19,349,806
|
|
Net
change in:
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
784,063
|
|
|
|
-
|
|
Accrued
interest receivable
|
|
|
78,434
|
|
|
|
213,542
|
|
Cash
surrender value of life insurance
|
|
|
(43,768
|
)
|
|
|
(41,944
|
)
|
Other
assets
|
|
|
(2,281,594
|
)
|
|
|
(977,867
|
)
|
Accrued
interest payable
|
|
|
(374,384
|
)
|
|
|
(902,549
|
)
|
Accrued
taxes and other
liabilities
|
|
|
(881,356
|
)
|
|
|
1,778,759
|
|
Net
Cash Provided by Operating Activities
|
|
|
2,935,802
|
|
|
|
23,898,245
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in federal funds sold
|
|
|
(58,799
|
)
|
|
|
245,192
|
|
Proceeds
from sales, principal paydowns and maturities
|
|
|
|
|
|
|
|
|
of
investment securities held-to-maturity
|
|
|
14,003,991
|
|
|
|
4,058,669
|
|
Proceeds
from sales, principal paydowns and maturities
|
|
|
|
|
|
|
|
|
of
investment securities available-for-sale
|
|
|
33,108,600
|
|
|
|
10,661,369
|
|
Proceeds
from redemption of Federal Home Loan
|
|
|
|
|
|
|
|
|
Bank
stock
|
|
|
756,300
|
|
|
|
945,400
|
|
Purchases
of investment securities held-to-maturity
|
|
|
(4,131,731
|
)
|
|
|
(18,918,362
|
)
|
Purchases
of investment securities available-for-sale
|
|
|
(19,262,088
|
)
|
|
|
(55,467,275
|
)
|
Purchase
of other equity securities
|
|
|
-
|
|
|
|
(2,374,000
|
)
|
Net
(increase)/decrease in loans
|
|
|
(2,735,776
|
)
|
|
|
(4,024,927
|
)
|
Proceeds
from sales of other repossessed assets
|
|
|
-
|
|
|
|
8,000
|
|
Proceeds
from sale of other real estate
|
|
|
741,383
|
|
|
|
1,073,908
|
|
Purchases
of premises and equipment
|
|
|
(1,906,223
|
)
|
|
|
(333,675
|
)
|
Net
Cash provided by (Used in) Investing Activities
|
|
|
20,515,657
|
|
|
|
(64,125,701
|
)
|
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
(Continued)
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Net
increase (decrease) in customer deposits
|
|
|
(6,468,182
|
)
|
|
|
17,219,779
|
|
Net
increase (decrease) in brokered deposits
|
|
|
195,881
|
|
|
|
(6,399,507
|
)
|
Net
increase (decrease) in Federal Home Loan Bank
|
|
|
|
|
|
|
|
|
advances
|
|
|
(13,917,177
|
)
|
|
|
25,779,200
|
|
Net
increase (decrease) in securities sold under
|
|
|
|
|
|
|
|
|
repurchase
agreements
|
|
|
1,577,490
|
|
|
|
3,404,536
|
|
Increase
(decrease) in advances from borrowers
|
|
|
|
|
|
|
|
|
for
taxes and insurance
|
|
|
(54,495
|
)
|
|
|
(45,691
|
)
|
Cash
dividends paid
|
|
|
(1,531,057
|
)
|
|
|
(1,524,936
|
)
|
Common
stock issued
|
|
|
86,700
|
|
|
|
-
|
|
Fair
value of unexercised stock options
|
|
|
11,479
|
|
|
|
13,312
|
|
Net
Cash Provided by/(Used in) Financing Activities
|
|
|
(20,099,361
|
)
|
|
|
38,446,693
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS
|
|
|
3,352,098
|
|
|
|
(1,780,763
|
)
|
CASH
AND DUE FROM BANKS AT BEGINNING OF YEAR
|
|
|
6,951,543
|
|
|
|
8,732,306
|
|
CASH
AND DUE FROM BANKS AT END OF YEAR
|
|
$
|
10,303,641
|
|
|
$
|
6,951,543
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
payments for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
1,254,865
|
|
|
$
|
615,136
|
|
Interest
on deposits and borrowings
|
|
$
|
6,834,315
|
|
|
$
|
9,656,107
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Transfers
to other real estate/other repossessed assets
|
|
$
|
1,128,452
|
|
|
$
|
1,302,159
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized (gains) losses on
|
|
|
|
|
|
|
|
|
securities
available-for-sale
|
|
$
|
269,684
|
|
|
$
|
2,976,024
|
|
|
|
|
|
|
|
|
|
|
Change
in the deferred tax effect in unrealized
|
|
|
|
|
|
|
|
|
gains
(losses) on securities available-for-sale
|
|
$
|
100,592
|
|
|
$
|
1,110,057
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains on derivatives
|
|
|
-
|
|
|
$
|
(186,448
|
)
|
|
|
|
|
|
|
|
|
|
Change
in the deferred tax effect in unrealized gains on
derivatives
|
|
|
-
|
|
|
$
|
(69,545
|
)
|
The
accompanying notes are an integral part of these financial
statements.
B
RITTON & KOONTZ CAPITAL CORPORATION AND
SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation
The
consolidated financial statements include the accounts of Britton & Koontz
Capital Corporation (the “Company”) and its wholly-owned subsidiaries, Britton
& Koontz Bank, National Association (the “Bank”) and B & K Title
Insurance Agency, Inc. (the “Agency”). All material inter-company
profits, balances and transactions have been eliminated.
Nature of Operations
The Bank
operates under a national bank charter and provides full banking
services. The primary area served by the Bank is the southwest region
of Mississippi and East Baton Rouge Parish in Louisiana. Services are
provided at three locations in Natchez, Mississippi, two locations in Vicksburg,
Mississippi, and three locations in Baton Rouge, Louisiana. The
Agency’s operations were discontinued during 2006.
Use of Estimates
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as 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 relate to the
determination of the allowance for loan losses. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties.
While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Bank’s allowance for loan
losses. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination. Because of these factors, it is
reasonably possible that the allowance for loan losses may change materially in
the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
Investment Securities
Management
determines the appropriate classification of securities at the time of
purchase. If management has the positive intent and the Bank has the
ability at the time of purchase to hold debt securities until maturity, they are
classified as held-to-maturity and carried at cost, adjusted for amortization of
premiums and accretion of discounts using methods approximating the interest
method. Available-for-sale securities include securities that
management intends to use as part of its asset and liability management strategy
and that may be sold in response to changes in interest rates,
40
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
resultant
prepayment risk and other related factors. These securities are
carried at fair value. Trading securities are also carried at fair
value. Equity securities primarily include stock in the Federal
Reserve Bank and the Federal Home Loan Bank (“FHLB”), which are restricted and
are carried at cost.
Realized
gains and losses on dispositions of investment securities are based on the net
proceeds and the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment securities
available-for-sale are based on the difference between book value and fair value
of each security. These unrealized gains and losses are reported as a
component of comprehensive income in stockholders’ equity, net of the related
deferred tax effect. The Bank marks to market its trading portfolio
at the end of each quarter with gains or losses reported to net
income. Such changes in the fair value due to market changes may
contribute to volatility in quarterly earnings. The Bank sold its
portfolio of trading securities in early 2008 and does not currently intend to
classify future securities purchases into this category.
Loans
Loans are
stated at the amount of principal outstanding, reduced by unearned income and an
allowance for loan losses. Unearned income on certain installment
loans is recognized as income over the terms of the loans by a method which
approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Loans are ordinarily placed on
non-accrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more; however, management may
elect to continue the accrual when the estimated net realizable value of
collateral is sufficient to cover the principal balance and the accrued
interest. Any unpaid interest previously accrued on non-accrual loans
is reversed from income. Interest income, generally, is not
recognized on specific impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied as a
reduction of the loan principal balance. Interest income on other
non-accrual loans is recognized only to the extent of interest payments
received.
Loans Held-for-Sale
Loans
held-for-sale primarily consist of ten, fifteen and thirty-year fixed-rate,
one-to-four family real estate loans which are valued at the lower of cost or
market, as determined by outstanding commitments from investors or current
investor yield requirements, calculated on an individual basis. These
loans are originated with the intent of selling them in the secondary
market.
Unrealized
losses on loans held-for-sale are charged against income in the period of
decline. Such declines are recorded in a valuation allowance account and
deducted from the cost basis of the loans.
Gains on
loans held-for-sale are recognized when realized. There were no gains
or losses in the loans held-for-sale portfolio at December 31,
2009.
41
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
The
allowance is an amount that management believes will be adequate to absorb
probable losses inherent in the loan portfolio as of the balance sheet date
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower’s ability to pay. A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan
agreement. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash
flows. Credits deemed uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans
previously charged off are adjusted to the allowance. Past due status
is determined based on contractual terms.
Bank Premises and
Equipment
Bank
premises and equipment are stated at cost, less accumulated depreciation.
Depreciation expense is computed by the straight-line method and is charged to
expense over the estimated useful lives of the assets, which range from 3 to 40
years.
Other Real Estate
Properties
acquired through foreclosure or in settlement of loans and in lieu of loan
foreclosures are classified as foreclosed properties and are valued at the lower
of the loan value or estimated fair value of the property acquired less
estimated selling costs. At the time of foreclosure, the excess, if
any, of the loan value over the estimated fair value of the property acquired
less estimated selling costs, is charged to the allowance for loan
losses. Additional decreases in the carrying values of foreclosed
properties or changes in estimated selling costs, subsequent to the time of
foreclosure, are recognized through provisions charged to
operations. Revenues and expenses from operations and gains and
losses on dispositions of such assets are recorded in earnings in the period
incurred.
The fair
value of foreclosed properties is determined based upon appraised value,
utilizing either the estimated replacement cost, the selling price of properties
utilized for similar purposes, or discounted cash flow analyses of the
properties’ operations.
Compensated Absences
Employees
of the Bank are entitled to paid vacation, emergency and sick days off,
depending on length of service in the banking industry. Vacation,
emergency and sick days are granted on an annual basis to eligible
employees. Unused vacation and emergency days expire on December 31
of each year. Unused sick days expire on each employee’s employment
anniversary date each year. The estimated amount of compensation for
future absences is deemed immaterial to the consolidated financial statements;
accordingly, no liability has been recorded in the accompanying financial
statements. The Bank’s policy is to recognize the cost of compensated
absences when actually paid to employees.
42
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The
provision for income taxes is based on amounts reported in the statements of
income after exclusion of nontaxable income such as interest on state and
municipal securities. Also, certain items of income and expenses are
recognized in different time periods for financial statement purposes than for
income tax purposes. Thus, provisions for deferred taxes are recorded
in recognition of such temporary differences.
Deferred
taxes are determined utilizing a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
The
Company and its subsidiaries file a consolidated federal income tax
return. Consolidated income tax expense is allocated on the basis of each
company’s income adjusted for permanent
differences.
|
On
January 1, 2007, the Company adopted the provisions of accounting for
uncertainty in income taxes recognized in financial statements. The
Company does not believe it has any unrecognized tax benefits included in its
consolidated financial statements. The Company has not recognized any
interest or penalties in the consolidated financial statements, nor has it
recorded an accrued liability for interest or penalty payments.
The
Company files income tax returns in the U. S. federal jurisdiction and various
state jurisdictions. With few exceptions, the Company is no longer
subject to federal and state income tax examinations by tax authorities for
years before 2006.
Earnings Per Share
Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of shares of common stock outstanding during the
period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. All shares held by the Employee Stock Ownership Plan are
treated as outstanding in computing the earnings per share. Stock
options are used in the calculation of diluted earnings per share if they are
dilutive. Earnings per common share has been computed as
follows:
43
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2009
|
|
|
2008
|
|
Basic
weighted average shares outstanding
|
|
|
2,125,371
|
|
|
|
2,117,966
|
|
Dilutive
effect of stock options
|
|
|
428
|
|
|
|
0
|
|
Dilutive
weighted average shares outstanding
|
|
|
2,125,799
|
|
|
|
2,117,966
|
|
Net
income
|
|
$
|
1,623,629
|
|
|
$
|
3,502,763
|
|
Net
income per share-basic
|
|
$
|
0.76
|
|
|
$
|
1.65
|
|
Net
income per share-dilutive
|
|
$
|
0.76
|
|
|
$
|
1.65
|
|
The
Company has granted options to purchase various amounts of the Company’s common
stock at various prices ranging from $10.20 to $19.02 per
share. Those options whose exercise price exceeded the average market
price of the common shares are not included in the options adjustment for
diluted earnings per share.
Off-Balance-Sheet Financial
Instruments
In the
ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of interest-rate swap and cap agreements,
commitments to extend credit and standby letters of credit. Financial
instruments related to loans are recorded in the financial statements when they
become payable.
Statement of Cash Flows
For
purposes of the statements of cash flows, the Company considers only cash and
due from banks to be cash equivalents.
Advertising Costs
Advertising
and marketing costs are recorded as expenses in the year in which they are
incurred. Advertising and marketing costs charged to operations
during 2009 and 2008 were $236,492 and $219,544, respectively.
Interest-Rate Cap
Agreements
The
Company uses these financial instruments to manage interest rate
risk. The only caps currently used are embedded in Structured
Repurchase Agreements as an increase in the interest rate.
44
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest-Rate
Swap Agreements
The Bank
enters into interest-rate swap agreements to modify the interest rate
characteristics of its assets and liabilities. These agreements may
involve the receipt or payment of fixed rate amounts in exchange for floating
rate interest receipts or payments over the life of the agreement without an
exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest income or expense. The related amount payable
to or receivable from counter-parties is included in other liabilities or
assets. There were no interest-rate swap agreements in place at
December 31, 2009 or 2008.
Amortization of Core
Deposits
During
1999, the Company acquired certain assets and liabilities of three Union
Planters, N.A. branches in Natchez and Vicksburg, Mississippi, which were
accounted for as a purchase. The Bank paid a premium for the
depositor relationship of $1,614,210. This premium is included
in other assets and is being amortized over 15 years, which is the
estimated life of the customer
base.
|
Stock Compensation Plans
The
Company measures the cost of employee services received in exchange for an award
of equity based instruments based on the grant-date fair value of the award and
recognizes the cost over the period during which an employee is required to
provide service in exchange for the award. Note J below sets forth
information with respect to stock based awards.
Comprehensive
Income
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance sheet,
such items, along with net income, are components of comprehensive
income.
45
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Recent
Accounting Pronouncements
|
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (ASU) No. 2009-01, (Topic 105) “Generally Accepted Accounting
Principles amendments based on Statement of Financial Accounting Standards No.
168 – The FASB Accounting Standards Codification™ and the Hierarchy of Generally
Accepted Accounting Principles.” The FASB Accounting Standards Codification™
(the “Codification”) became the source of authoritative U.S. generally accepted
accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this Statement, September
15, 2009, the Codification superseded all then-existing non-SEC accounting and
reporting standards.
Following
this Statement, the 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. The FASB does not consider
Accounting Standards Updates as authoritative in their own right. Accounting
Standards Updates serve only to update the Codification, provide background
information about the guidance, and provide the bases for conclusions on changes
in the Codification. The adoption of the Codification and ASU 2009-01
did not have any effect on the Company’s results of operations or financial
position.
In April
2009, the FASB issued FASB Staff Position No. 115-2 and 124-2 “Recognition,
Measurement and Disclosure of Other than Temporary Impairment” (included Topic
320 of the Codification). This accounting guidance amends the
recognition guidance for other-than-temporary impairments of debt securities and
expands the financial statement disclosures for other-than-temporary
impairment losses on debt and equity securities. The recent guidance
replaced the “intent and ability” indication in current guidance by specifying
that (1) if a company does not have the intent to sell a debt security prior to
recovery and (2) it is more likely than not that it will not have to sell the
debt security prior to recovery, the security would not be considered
other-than-temporarily impaired unless there is a credit loss. When
an entity does not intend to sell the security, and it is more likely than not
that the entity will not have to sell the security before recovery of its cost
basis, it will recognize the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other
comprehensive income. At December 31, 2009, the Company had no credit
losses of an other-than-temporary impairment of securities.
Certain
reclassifications have been made to the 2008 consolidated financial statements
in order to conform to the classifications adopted for reporting in
2009.
Subsequent Event
The
Company evaluated subsequent events and transactions for potential recognition
or disclosure in the financial statements.
46
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B. INVESTMENT
SECURITIES
The
amortized cost and approximate fair value of investment securities classified as
held-to-maturity
at December 31, 2009, are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
$
|
33,621,558
|
|
|
$
|
758,162
|
|
|
$
|
(253,581
|
)
|
|
$
|
34,126,138
|
|
Mortgage-Backed
Securities
|
|
|
11,406,356
|
|
|
|
464,451
|
|
|
|
-
|
|
|
|
11,870,807
|
|
Total
|
|
$
|
45,027,914
|
|
|
$
|
1,222,613
|
|
|
$
|
(253,581
|
)
|
|
$
|
45,996,945
|
|
The
amortized cost and approximate fair value of investment securities classified as
available-for-sale
at December 31, 2009, are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
$
|
6,978,808
|
|
|
$
|
171,975
|
|
|
$
|
(317,748
|
)
|
|
$
|
6,833,035
|
|
Mortgage-Backed
Securities
|
|
|
84,105,117
|
|
|
|
3,899,723
|
|
|
|
(12,283
|
)
|
|
|
87,992,557
|
|
Obligations
of Other U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
Sponsored Agencies
|
|
|
3,600,154
|
|
|
|
-
|
|
|
|
(125,494
|
)
|
|
|
3,474,660
|
|
Total
|
|
$
|
94,684,079
|
|
|
$
|
4,071,698
|
|
|
$
|
(455,525
|
)
|
|
$
|
98,300,252
|
|
47
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B.
|
INVESTMENT
SECURITIES (Continued)
|
The
amortized cost and approximate fair value of investment securities classified as
held-to-maturity
at December 31,
2008, are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Obligations
of State and
|
|
|
|
|
|
|
|
|
|
|
|
|
Political
Subdivisions
|
|
$
|
39,529,246
|
|
|
$
|
573,387
|
|
|
$
|
(842,953
|
)
|
|
$
|
39,259,680
|
|
Mortgage-Backed
Securities
|
|
|
15,285,767
|
|
|
|
297,645
|
|
|
|
-
|
|
|
|
15,583,412
|
|
Total
|
|
$
|
54,815,013
|
|
|
$
|
871,032
|
|
|
$
|
(842,953
|
)
|
|
$
|
54,843,091
|
|
The
amortized cost and approximate fair value of investment securities classified as
available-for-sale
at December 31, 2008, are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Mortgage-Backed
Securities
|
|
$
|
108,548,988
|
|
|
$
|
3,365,814
|
|
|
$
|
(19,325
|
)
|
|
$
|
111,895,476
|
|
Total
|
|
$
|
108,548,988
|
|
|
$
|
3,365,814
|
|
|
$
|
(19,325
|
)
|
|
$
|
111,895,476
|
|
48
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B.
|
INVESTMENT
SECURITIES (Continued)
|
|
The
aggregate fair value and aggregate unrealized losses on securities whose
fair values are below book values as of December 31, 2009, are summarized
below. Due to the nature of the investment and current market
prices, these unrealized losses are considered a temporary impairment of
the securities.
|
|
As
of December 31, 2009, there were twenty-five securities included in
held-to-maturity and fifteen securities included in
available-for-sale.
|
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions
(25)
|
|
$
|
5,753,701
|
|
|
$
|
(39,094
|
)
|
|
$
|
4,466,850
|
|
|
$
|
(214,487
|
)
|
|
$
|
10,220,551
|
|
|
$
|
(253,581
|
)
|
Total
|
|
$
|
5,753,701
|
|
|
$
|
(39,094
|
)
|
|
$
|
4,466,850
|
|
|
$
|
(214,487
|
)
|
|
$
|
10,220,551
|
|
|
$
|
(253,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions
(12)
|
|
$
|
3,647,027
|
|
|
$
|
(317,748
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,647,027
|
|
|
$
|
(317,748
|
)
|
Mortgaged-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
(1)
|
|
|
924,524
|
|
|
|
(12,283
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
924,524
|
|
|
|
(12,283
|
)
|
Obligations
of Other U.S. Government Sponsored Agencies
(2
)
|
|
|
3,474,660
|
|
|
|
(125,494
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,474,660
|
|
|
|
(125,494
|
)
|
Total
|
|
$
|
8,046,211
|
|
|
$
|
(455,526
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
8,046,211
|
|
|
$
|
(455,526
|
)
|
The
aggregate fair value and aggregate unrealized losses on securities whose fair
values are below book values as of December 31, 2008, are summarized
below. Due to the nature of the investment and current market prices,
these unrealized losses are considered a temporary impairment of the
securities.
As of
December 31, 2008, there were thirty-eight securities included in
held-to-maturity and two securities included in available-for-sale.
49
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B.
|
INVESTMENT
SECURITIES (Continued)
|
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and Political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subdivisions
(38)
|
|
$
|
10,348,081
|
|
|
$
|
(541,309
|
)
|
|
$
|
2,897,458
|
|
|
$
|
(301,645
|
)
|
|
$
|
13,245,539
|
|
|
$
|
(842,954
|
)
|
Total
|
|
$
|
10,348,081
|
|
|
$
|
(541,309
|
)
|
|
$
|
2,897,458
|
|
|
$
|
(301,645
|
)
|
|
$
|
13,245,539
|
|
|
$
|
(842,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgaged-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
(2)
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
Total
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1,262,919
|
|
|
$
|
(19,325
|
)
|
The
unrealized losses in the Company’s investment portfolio, caused by interest rate
increases, are not credit issues and are deemed to be temporary. Cash
flows from mortgage-backed securities and other U.S. government sponsored
agencies are guaranteed by the full faith and credit of the United States or by
an agency of the United States government. The Company also has
the ability to hold these securities until maturity and does not have the intent
to sell and more likely will not be required to sell these securities prior to
maturity. Thus the Company is not required to record any loss on the
securities.
Equity
securities at December 31, 2009 and 2008, include the following: FHLB stock of
$2,437,600 and $3,186,700 for 2009 and 2008, respectively; Federal Reserve Bank
stock of $521,700 for 2009 and 2008; First National Bankers Bank stock in the
amount of $47,800 for 2009 and 2008; an investment in Enterprise Corporation of
the Delta investments, LLC of $100,000 in 2009 and $98,738 in 2008 and a
$155,000 investment in B&K Statutory Trust for both years. Redemptions of
stock in the FHLB during 2009 and 2008 amounted to $756,300 and $945,000,
respectively, due to the declining borrowed funds level. The FHLB,
Federal Reserve Bank and First National Bankers Bank stocks are considered
restricted stock as only banks, which are members of these organizations, may
acquire or redeem them. The stock is redeemable at its face value;
therefore, there are no gross unrealized gains or losses associated with these
investments.
Investment
securities with an amortized cost of approximately $108,047,000 (approximate
fair value $111,626,000) at December 31, 2009, and approximately $115,847,000
(approximate fair value $117,909,000) at December 31, 2008, were pledged to
collateralize public deposits and for other
purposes
as required or permitted by law or agreement.
50
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B.
|
INVESTMENT
SECURITIES (Continued)
|
The
amortized cost and approximate fair value of investment debt securities at
December 31, 2009, by contractual maturity are shown below. Actual maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties. Yields on tax-exempt municipal securities have been
computed on a tax equivalent basis which takes into account the coupon rate paid
by the issuer adjusted by any premium paid or discount received on the security
at settlement date.
|
|
Mortgage
Backed Securities
|
|
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due
after 5 years through 10
|
|
|
5.240
|
%
|
|
$
|
887,288
|
|
|
$
|
939,328
|
|
|
|
3.808
|
%
|
|
$
|
1,143,214
|
|
|
$
|
1,172,568
|
|
Due
after 10 years
|
|
|
5.256
|
%
|
|
|
10,519,068
|
|
|
|
10,931,479
|
|
|
|
5.295
|
%
|
|
|
82,961,903
|
|
|
|
86,819,989
|
|
Total
|
|
|
5.255
|
%
|
|
$
|
11,406,356
|
|
|
$
|
11,870,807
|
|
|
|
5.275
|
%
|
|
$
|
84,105,117
|
|
|
$
|
87,992,557
|
|
|
|
Obligations
of Other U.S. Government Sponsored Entities
|
|
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due
after 10 years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.929
|
%
|
|
$
|
3,600,154
|
|
|
$
|
3,474,660
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.929
|
%
|
|
$
|
3,600,154
|
|
|
$
|
3,474,660
|
|
|
|
Obligations
of State and Political Subdivisions
|
|
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Weighted
Average Yield
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due
in 1 year or less
|
|
|
6.918
|
%
|
|
$
|
604,946
|
|
|
$
|
606,686
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
after 1 year through 5
|
|
|
6.738
|
%
|
|
|
3,321,285
|
|
|
|
3,406,168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Due
after 5 years through 10
|
|
|
6.998
|
%
|
|
|
13,825,719
|
|
|
|
14,367,144
|
|
|
|
5.147
|
%
|
|
|
956,447
|
|
|
|
934,528
|
|
Due
after ten years
|
|
|
6.366
|
%
|
|
|
15,869,608
|
|
|
|
15,746,140
|
|
|
|
7.036
|
%
|
|
|
6,022,361
|
|
|
|
5,898,507
|
|
Total
|
|
|
6.673
|
%
|
|
$
|
33,621,558
|
|
|
$
|
34,126,138
|
|
|
|
6.780
|
%
|
|
$
|
6,978,808
|
|
|
$
|
6,833,035
|
|
51
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B.
|
INVESTMENT
SECURITIES (Continued)
|
The
following provides the fair value hierarchy table for fair value measurements of
Available-for-sale securities at December 31, 2009 and 2008:
Description
|
|
Fair
Value Measurement
|
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant
Other Observable Inputs (Level 2)
|
|
Significant
Unobservable Inputs (Level 3)
|
December
31, 2009
|
|
$
|
98,300,252
|
|
|
|
$
|
98,300,252
|
|
|
December
31, 2008
|
|
$
|
111,895,476
|
|
|
|
$
|
111,895,476
|
|
|
Level
1
includes
the most reliable sources, and includes quoted prices in active
markets. Level 2
includes
observable inputs. Observable inputs are defined to include
inputs other than quoted prices that are observable for the asset or
liability (for example, interest rates and yield curves at commonly quoted
intervals, volatilities, prepayment speeds, loss severities, credit risks,
and default rates) as well as inputs that are derived principally from or
corroborated by observable market data by correlation or other means
(market-corroborated inputs). Level 3
includes
unobservable inputs and should be used only when observable inputs are
unavailable.
|
NOTE
C. LOANS
The
Bank’s loan portfolio (rounded to the nearest thousand) at December 31, 2009 and
2008, consists of the following:
|
|
2009
|
|
|
2008
|
|
Commercial,
Financial and Agricultural
|
|
$
|
25,606,000
|
|
|
$
|
25,128,000
|
|
Real
Estate-Construction
|
|
|
31,341,000
|
|
|
|
30,910,000
|
|
Real
Estate-Residential
|
|
|
67,213,000
|
|
|
|
74,923,000
|
|
Real
Estate-Other
|
|
|
95,511,000
|
|
|
|
88,341,000
|
|
Installment
|
|
|
4,806,000
|
|
|
|
6,038,000
|
|
Overdrafts
|
|
|
124,000
|
|
|
|
171,000
|
|
Total
loans
|
|
$
|
224,601,000
|
|
|
$
|
225,511,000
|
|
Impaired
loans on which accrual of interest has been discontinued or reduced were
approximately $8,709,000 and $3,568,000 at December 31, 2009, and 2008,
respectively. If interest on these impaired loans had been
accrued, the income would have approximated $425,000 in 2009 and $191,000
in 2008. The related allowance amount on impaired loans at
December 31, 2009, was approximately $2,112,836 compared to $408,073 at
December 31, 2008. Loans which are contractually 90 days or
more past due as of December 31, 2009 and 2008 were approximately
$1,003,944 and $517,779,
respectively.
|
52
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
C. LOANS (Continued)
In
the ordinary course of business, the Bank makes loans to its executive
officers, principal stockholders, directors and to companies in which
these borrowers are principal owners. Loans outstanding to such
borrowers (including companies in which they are principal owners)
amounted to $957,807 and $1,394,093 at December 31, 2009 and 2008,
respectively. These loans were made on substantially the same
terms, including interest rate and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve
more than normal risk of collectibility or present other unfavorable
features.
|
The
aggregate amount of loans to such related parties for 2009 and 2008 is as
follows:
|
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$
|
1,394,093
|
|
|
$
|
2,406,672
|
|
New
Loans
|
|
|
418,645
|
|
|
|
949,898
|
|
Repayments
|
|
|
(854,931
|
)
|
|
|
(1,616,796
|
)
|
Transfers
out
|
|
|
-
|
|
|
|
(345,681
|
)
|
Balance
at December 31
|
|
$
|
957,807
|
|
|
$
|
1,394,093
|
|
NOTE
D. ALLOWANCE
FOR LOAN LOSSES
An
analysis of the allowance for loan losses is as follows:
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$
|
2,397,802
|
|
|
$
|
2,430,936
|
|
Credits
charged off:
|
|
|
|
|
|
|
|
|
Commercial,
Financial and Agricultural
|
|
|
(139,581
|
)
|
|
|
(541,044
|
)
|
Real
Estate – Construction
|
|
|
(275,364
|
)
|
|
|
(165,916
|
)
|
Real
Estate – Residential
|
|
|
(138,421
|
)
|
|
|
(410,109
|
)
|
Real
Estate – Other
|
|
|
(1,456,360
|
)
|
|
|
(6,915
|
)
|
Installment
Loans
|
|
|
(59,873
|
)
|
|
|
(38,590
|
)
|
Total
Charge-Offs
|
|
|
(2,069,599
|
)
|
|
|
(1,162,574
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
Commercial,
Financial and Agricultural
|
|
|
25,159
|
|
|
|
189,689
|
|
Real
Estate – Construction
|
|
|
10,033
|
|
|
|
6,305
|
|
Real
Estate – Residential
|
|
|
88,490
|
|
|
|
82,748
|
|
Real
Estate - Other
|
|
|
-
|
|
|
|
33,772
|
|
Installment
Loans
|
|
|
6,853
|
|
|
|
86,926
|
|
Total
Recoveries
|
|
|
130,535
|
|
|
|
399,440
|
|
Net
Credits Charged Off
|
|
|
(1,939,064
|
)
|
|
|
(763,134
|
)
|
Provision
for Loan Losses
|
|
|
3,420,000
|
|
|
|
730,000
|
|
Balance
at December 31
|
|
$
|
3,878,738
|
|
|
$
|
2,397,802
|
|
53
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
E. LOAN
SERVICING
Loans
serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of these loans were
approximately $10,509,814 and $9,555,670 in 2009 and 2008,
respectively.
|
NOTE
F.
BANK PREMISES AND
EQUIPMENT
A summary
of Bank premises and equipment is as follows:
|
|
2009
|
|
|
2008
|
|
Buildings
and Improvements
|
|
$
|
8,124,305
|
|
|
$
|
7,440,015
|
|
Furniture
and Equipment
|
|
|
6,149,909
|
|
|
|
5,225,219
|
|
|
|
|
14,274,214
|
|
|
|
12,665,234
|
|
Less:
Accumulated Depreciation
|
|
|
(7,612,867
|
)
|
|
|
(6,856,953
|
)
|
Land
|
|
|
1,369,553
|
|
|
|
1,114,553
|
|
Bank
Premises and Equipment, Net
|
|
$
|
8,030,900
|
|
|
$
|
6,922,835
|
|
The
provision for depreciation charged to operating expenses was $798,158 and
$764,645 for the years ended December 31, 2009 and 2008,
respectively.
NOTE
G. TRUST
DEPARTMENT ASSETS
The
Company has entered into a Trust Services Agreement with National Independent
Trust Company, a national banking association doing business as Argent Trust
Company, headquartered in Ruston, Louisiana. Effective January 1,
2007, Argent Trust Company assumed all responsibilities associated with trust
services, having been duly appointed successor trustee for all trust
accounts. Argent Trust Company performs certain fiduciary services
for customers transferred from and referred by the Bank to Argent Trust
Company. In return the Bank receives a specified percentage of
fee income paid to Argent Trust Company by those customers.
NOTE
H. DEPOSITS
Deposits
at December 31, 2009 and 2008, consisted of the following:
|
|
2009
|
|
|
2008
|
|
Non-Interest
Bearing Demand Deposits
|
|
$
|
49,847,304
|
|
|
$
|
51,119,827
|
|
NOW
Accounts
|
|
|
57,815,246
|
|
|
|
48,338,323
|
|
Money
Market Deposit Accounts
|
|
|
30,563,856
|
|
|
|
33,662,518
|
|
Savings
Accounts
|
|
|
18,259,388
|
|
|
|
17,736,516
|
|
Certificates
of Deposit
|
|
|
94,456,326
|
|
|
|
106,357,236
|
|
|
|
$
|
250,942,120
|
|
|
$
|
257,214,420
|
|
54
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
H. DEPOSITS
(Continued)
Maturities
of certificates of deposit of $100,000 or more outstanding at December 31, 2009
and 2008, are summarized as follows:
|
|
2009
|
|
|
2008
|
|
Time
Remaining Until Maturity:
|
|
|
|
|
|
|
Three
Months or Less
|
|
$
|
16,319,474
|
|
|
$
|
21,104,104
|
|
Over
Three Through Six Months
|
|
|
6,517,440
|
|
|
|
10,266,988
|
|
Over
Six Through Twelve Months
|
|
|
14,213,515
|
|
|
|
12,796,081
|
|
Over
Twelve Months
|
|
|
3,628,905
|
|
|
|
3,417,858
|
|
|
|
$
|
40,679,334
|
|
|
$
|
47,585,031
|
|
|
The
approximate scheduled maturities of certificates of deposits for each of
the next five years are:
|
2010
|
|
$
|
83,442,674
|
|
2011
|
|
|
5,086,285
|
|
2012
|
|
|
2,105,583
|
|
2013
|
|
|
1,911,072
|
|
2014
|
|
|
1,910,712
|
|
|
|
$
|
94,456,326
|
|
Interest
expense on certificates of deposit greater than $100,000 was approximately
$1,106,000 and $1,901,000 for the years ended December 31, 2009 and 2008,
respectively. The public fund deposits were $43,882,717 and
$49,346,709 at December 31, 2009 and 2008, respectively.
NOTE
I. BORROWINGS
Federal
Home Loan Bank Advances:
During
2009 and 2008, the Bank received advances from and remitted payments to the
FHLB. These advances are collateralized by a portion of the Bank’s
one-to-four family residential mortgage portfolio, certain secured commercial
loans and certain investment securities in accordance with the Advance Security
and Collateral Agreement with the FHLB. The following provides
information regarding outstanding FHLB advances:
Advances
outstanding at December 31, 2009, consist of five fixed-rate loans totaling
$9,000,000 with interest rates ranging from 2.658% to 3.546%. The
maturities on these loans are longer-term and range from May 29, 2012, to
October 6, 2014. The Bank had one amortizing loan with a balance of
$4,754 with a rate of 4.963% and a maturity of September 1, 2010.
In
addition to the term advances, the Company had overnight borrowings of
$32,018,000.
55
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
I. BORROWINGS
(Continued)
Advances
outstanding at December 31, 2008, consist of
two amortizable
fixed-rate loans totaling $829,931 with interest rates ranging from 3.997% to
4.963%. The maturities on these loans range from June 1, 2009, to
September 1, 2010.
In
addition to the term advances, the Company had overnight borrowings of
$54,110,000.
Annual
maturities for the next five years as of December 31, 2009, are as
follows:
2010
|
|
$
|
32,022,754
|
|
2011
|
|
|
-
|
|
2012
|
|
|
2,000,000
|
|
2013
|
|
|
-
|
|
2014
|
|
|
7,000,000
|
|
|
|
$
|
41,022,754
|
|
Junior
Subordinated Debentures:
In 2003,
the Company issued $5,000,000 of junior subordinated
debentures. These junior subordinated debentures qualify as Tier 1
capital for regulatory capital purposes but are classified as a liability under
accounting principles generally accepted in the United States of
America. These securities carry an interest rate of LIBOR + 3.15%,
adjusted quarterly, with interest paid quarterly in arrears and mature in March,
2033. The Company has the right to call these debentures
quarterly.
NOTE
J. EMPLOYEE
BENEFIT PLANS
The Bank
has an employee stock ownership plan which is designed to invest primarily in
employer stock. All employees of the Bank with one year of service
and who are at least 21 years old are covered, and are fully vested after six
years of service. Employer contributions are determined annually at
the discretion of the Board of Directors and are allocated among participants on
the basis of their total annual compensation. Dividends on stock
owned by the plan are recorded as a reduction of retained
earnings. There were no Company contributions to the plan for the
years 2009 or 2008. The plan owned 86,645 and 79,527 shares of
Company stock, as of December 31, 2009 and 2008, respectively.
The
overall cost to the plan for the years ended December 31, 2009 and 2008, was
$9.36 and $9.14 per share, respectively.
Employees
age 21 and older are eligible to participate in a 401(k) plan established by the
Bank. Under this plan, employees may defer a percentage of their
salaries, subject to limits based on federal tax laws. These deferrals are
immediately vested. Employer matching and profit sharing
contributions are non-mandatory and 100% vested after six
years. Employer contributions to the plan are made at the discretion
of the Board of Directors and aggregated $120,294 and $126,654 for the years
ended December 31, 2009 and 2008, respectively.
56
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
J. EMPLOYEE
BENEFIT PLANS (Continued)
The
Company maintains a long-term incentive plan, the Britton Koontz Capital
Corporation 2007 Long-Term Incentive Compensation Plan (the “2007 LTIP”), in
which all employees of the Company and its subsidiaries may participate.
The plan is administered
by a committee of at least two non-employee directors appointed by the full
Board of Directors. The 2007 LTIP was approved by the Company’s
shareholders on April 24, 2007, and replaced the Company’s 1996 Long-Term
Incentive Plan (the “1996 LTIP”). There were 86,630 shares remaining
available for grant or award under the 1996 LTIP that have been added to the
shares available for grant or award under the 2007 LTIP. The Company
has granted options to purchase a total of 126,143 shares, including 98,643 from
the 1996 LTIP and 27,500 from the 2007 LTIP. An aggregate of 74,880
shares remained available for grant or award at December 31, 2009, under the
2007 LTIP. The Company awarded 8,500 shares of restricted stock
during 2009. Options to acquire 32,120 shares were outstanding and
exercisable as of December 31, 2009.
The
summary of stock option activity is shown below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
Outstanding
|
|
|
Exercise
Price
|
|
December
31, 2007
|
|
|
27,870
|
|
|
$
|
17.40
|
|
Options
granted
|
|
|
-
|
|
|
|
-
|
|
Options
expired
|
|
|
-
|
|
|
|
-
|
|
Options
forfeited
|
|
|
(750
|
)
|
|
|
14.50
|
|
December
31, 2008
|
|
|
27,120
|
|
|
$
|
17.48
|
|
Options
granted
|
|
|
5,000
|
|
|
|
10.20
|
|
Options
expired
|
|
|
-
|
|
|
|
-
|
|
Options
forfeited
|
|
|
-
|
|
|
|
-
|
|
December
31, 2009
|
|
|
32,120
|
|
|
$
|
16.35
|
|
The
following table summarizes information about stock options outstanding at
December 31, 2009:
Exercise
Price
|
Options
Outstanding
|
Remaining
Contractual Life
|
$
10.20
|
5,000
|
2.1
years
|
19.02
|
14,000
|
2.4
years
|
18.00
|
5,000
|
.3
years
|
14.50
|
8,120
|
1.9
years
|
57
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
J. EMPLOYEE
BENEFIT PLANS (Continued)
The fair
value of each option is estimated on the grant date using the Black-Scholes
option pricing model. The following assumptions were made in
estimating fair values in 2009. No options were granted in
2008.
Assumption
|
|
2009
|
|
Dividend
yield
|
|
|
5.45
|
%
|
Risk
free rate
|
|
|
1.33
|
%
|
Expected
life
|
|
2.5
years
|
|
Expected
volatility
|
|
|
72.94
|
%
|
Share-based
transactions are measured at the fair value of the equity instrument
issued. Net income after tax for 2009 and 2008 was reduced by $38,000
and $13,000, respectively, due to valuing stock options.
The Bank
maintains a Salary Continuation Agreement with its chief executive
officer. The agreement provides equal annual benefits for a period of
15 years following the later of (1) his attainment of age 65, or (2) his
retirement. The amount of the benefit is fixed and is based on the
chief executive’s age when his employment ceases; the maximum annual benefit
that he may receive under the plan is $40,000. The chief executive is
fully vested in his benefit. If the chief executive dies while he is
employed, his beneficiaries will be paid an annual benefit equal to $40,000
during the 15-year period following his date of death. If he dies
after his installment payments have commenced, his beneficiaries will receive
the remaining payments. The benefit under the Salary Continuation
Agreement is subject to forfeiture if the chief executive is terminated for
cause. The agreement also contains a non-competition covenant during
the three-year period after his employment ceases for any reason. If
he breaches this covenant, the Bank may cease all further
payments. The Bank is also currently paying benefits to a retired
executive officer pursuant to a salary continuation agreement. The
financial statements for the years ended December 31, 2009 and 2008 include
salary continuation expenses of $37,080 and $35,388, respectively.
NOTE
K. LEASES
The Bank
leases two branch offices as well as parking space under operating leases which
expire in various years through 2014. Rent expense was $114,715 and
$106,992 in 2009 and 2008, respectively.
The
future minimum rental commitments for these leases at December 31, 2009, are as
follows:
2010
|
$ 140,960
|
2011
|
140,960
|
2012
|
140,960
|
2013
|
119,012
|
2014
|
39,876
|
|
$ 581,768
|
58
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
L. INCOME
TAXES
The
provision/(benefit) for income taxes included in the consolidated statements of
income is as follows for the years ended December 31, 2009 and
2008:
|
|
2009
|
|
|
2008
|
|
Current
|
|
$
|
375,192
|
|
|
$
|
1,481,016
|
|
Deferred
|
|
|
(444,865
|
)
|
|
|
(171,022
|
)
|
|
|
$
|
(69,673
|
)
|
|
$
|
1,309,994
|
|
The
provision/(benefit) for federal income taxes differs from that computed by
applying the federal statutory rate of 34% in 2009 and 2008 as indicated in the
following analysis:
|
|
2009
|
|
|
2008
|
|
Tax
Based on Statutory Rate
|
|
$
|
528,345
|
|
|
$
|
1,636,337
|
|
State
Taxes
|
|
|
30,328
|
|
|
|
153,470
|
|
Effect
of Tax-Exempt Income
|
|
|
(599,389
|
)
|
|
|
(571,665
|
)
|
Other
|
|
|
(28,957
|
)
|
|
|
91,852
|
|
|
|
$
|
(69,673
|
)
|
|
$
|
1,309,994
|
|
The net
deferred tax liability of $1,052,725 in 2009 and $1,396,998 in 2008 is included
in accrued taxes and other liabilities. The net deferred tax asset
and liabilities consist of the following components at December 31, 2009 and
2008:
|
|
2009
|
|
|
2008
|
|
Deferred
Tax Liabilities:
|
|
|
|
|
|
|
Unrealized
gain on available-for-sale securities
|
|
$
|
(1,348,832
|
)
|
|
$
|
(1,248,240
|
)
|
Depreciation
|
|
|
(948,554
|
)
|
|
|
(916,118
|
)
|
Federal
Home Loan Bank dividends
|
|
|
(100,809
|
)
|
|
|
(129,121
|
)
|
|
|
|
(2,398,195
|
)
|
|
|
(2,293,479
|
)
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,156,968
|
|
|
|
604,579
|
|
Other
real estate
|
|
|
-
|
|
|
|
111,635
|
|
Deferred
Compensation
|
|
|
136,751
|
|
|
|
-
|
|
Other
|
|
|
51,751
|
|
|
|
180,267
|
|
|
|
|
1,345,470
|
|
|
|
896,481
|
|
Net
Deferred Tax Liability
|
|
$
|
(1,052,725
|
)
|
|
$
|
(1,396,998
|
)
|
59
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
L. INCOME
TAXES (Continued)
A summary
of the changes in the net deferred tax asset (liability) for the years ended
December 31, 2009 and 2008 is as follows:
|
|
2009
|
|
|
2008
|
|
Balance
at beginning of year
|
|
$
|
(1,396,998
|
)
|
|
$
|
(527,508
|
)
|
Deferred
tax expense, charged to operations
|
|
|
444,865
|
|
|
|
171,022
|
|
Other
comprehensive income, charged to equity
|
|
|
(100,592
|
)
|
|
|
(1,040,512
|
)
|
Balance
at end of year
|
|
$
|
(1,052,725
|
)
|
|
$
|
(1,396,998
|
)
|
NOTE
M. SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS
At
December 31, 2009 and 2008, the Bank had sold various investment securities with
an agreement to repurchase these securities at various times. The
underlying securities are U.S. Government obligations and obligations of other
U.S. Government agencies and corporations with a book value of approximately $58
million, and an approximate fair value of $61 million. These
securities generally remain under the Bank's control and are included in
investment securities. At December 31, 2009, these securities had
coupon rates ranging from 4.50% to 5.50% and maturity dates ranging from 2018 to
2037.
The
related liability to repurchase these securities, included in securities sold
under repurchase agreements, was $53 million at December 31, 2009, and $52
million at December 31, 2008. The Company has entered into two $20
million transactions with JPMorgan Chase Bank, N.A. (“Chase”). The
remaining liability of $13 million in 2009 and $12 million in 2008 primarily
includes agreements that the Company has entered into with local customers for
overnight sweep accounts and term repurchase agreements with rates ranging from
.25% to 2.68%. The maximum amount of outstanding agreements at any
month-end was $53 million and $54 million during 2009 and 2008,
respectively. The monthly average amount of outstanding agreements
was $51 million during both 2009 and 2008.
NOTE
N.
|
REGULATORY
MATTERS
|
The
primary source of the Company’s revenue is dividends from the
Bank. Federal banking regulations place certain restrictions on
dividends paid and loans or advances made by the Bank to the
Company. Under federal law, the directors of a national bank, after
making proper deduction for all expenses and other deductions required by the
Comptroller of the Currency, may credit net profits to the bank’s undivided
profits account, and may declare a dividend from that account of so much of the
net profits as they judge expedient. The Comptroller and the Federal
Reserve Board have each indicated that banking organizations should generally
pay dividends only out of current operating earnings. The Bank’s
ability to pay dividends is also limited by prudence, statutory and regulatory
guidelines, and a variety of other factors. At December 31, 2009,
$3.6 million was available for dividends out of current operating
earnings.
60
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
N.
|
REGULATORY
MATTERS (Continued)
|
Federal
Reserve regulations limit the amount the Bank may loan to the Company unless
such loans are collateralized by specific obligations. At December
31, 2009, the maximum amount available for transfer from the Bank to the Company
in the form of loans on a secured basis was $3.0 million. There were
no loans outstanding from the Bank to the Company at December 31,
2009. Any such distribution is also subject to the requirements
described in the following paragraphs.
In
accordance with Office of Thrift Supervision regulations, a special “Liquidation
Account” has been established for the benefit of certain Qualifying Depositors
of Natchez First Federal Savings Bank (acquired by the Bank in 1993) in an
initial amount of approximately $2.8 million. The Liquidation Account
serves as a restriction on the distribution of stockholders’ equity in the Bank
and no cash dividend may be paid on its capital stock if the effect thereof
would be to cause the regulatory capital of the Bank to be reduced below an
amount equal to the adjusted Liquidation Account balance.
In
the event of a complete liquidation of the Bank, each Qualifying Depositor
would be entitled to his or her pro rata interest in the Liquidation
Account. Such claims would be paid before payment to the
Company as the Bank’s sole shareholder. A merger,
consolidation, purchase of assets and assumption of deposits and/or other
liabilities or similar transaction, with an FDIC-insured institution,
would not be a complete liquidation for the purpose of paying the
Liquidation Account. In such a transaction, the Liquidation
Account would be required to be assumed by the surviving
institution.
|
The
Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and Bank’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions
are not applicable to bank holding companies.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total capital and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 2009, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
The most
recent regulatory notification categorized the Bank as well capitalized under
the regulatory capital framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the Bank’s category.
The
Company’s (consolidated) and the Bank’s actual capital amounts and ratios as of
December 31, 2009 and 2008, are presented in the following table.
61
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
N. REGULATORY
MATTERS (Continued)
|
|
Actual
|
|
|
Minimum
Capital Requirement
|
|
|
Minimum
To Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
As
of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
45,376
|
|
|
|
17.48
|
%
|
|
$
|
20,772
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
42,118
|
|
|
|
16.24
|
%
|
|
$
|
20,753
|
|
|
|
8.00
|
%
|
|
$
|
25,942
|
|
|
|
10.00
|
%
|
Tier
I Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
42,123
|
|
|
|
16.22
|
%
|
|
$
|
10,386
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
38,867
|
|
|
|
14.98
|
%
|
|
$
|
10,377
|
|
|
|
4.00
|
%
|
|
$
|
15,565
|
|
|
|
6.00
|
%
|
Tier
I Capital (to Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
42,123
|
|
|
|
10.68
|
%
|
|
$
|
15,784
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
38,867
|
|
|
|
9.98
|
%
|
|
$
|
15,574
|
|
|
|
4.00
|
%
|
|
$
|
19,467
|
|
|
|
5.00
|
%
|
|
|
Actual
|
|
|
Minimum
Capital Requirement
|
|
|
Minimum
To Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
44,283
|
|
|
|
17.31
|
%
|
|
$
|
20,467
|
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
39,335
|
|
|
|
15.39
|
%
|
|
$
|
20,450
|
|
|
|
8.00
|
%
|
|
$
|
25,562
|
|
|
|
10.00
|
%
|
Tier
I Capital (to Risk-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
41,885
|
|
|
|
16.37
|
%
|
|
$
|
10,234
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
36,937
|
|
|
|
14.45
|
%
|
|
$
|
10,225
|
|
|
|
4.00
|
%
|
|
$
|
15,337
|
|
|
|
6.00
|
%
|
Tier
I Capital (to Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
41,885
|
|
|
|
10.49
|
%
|
|
$
|
15,973
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Bank
|
|
$
|
36,937
|
|
|
|
9.36
|
%
|
|
$
|
15,789
|
|
|
|
4.00
|
%
|
|
$
|
19,736
|
|
|
|
5.00
|
%
|
62
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
O.
COMMITMENTS AND
CONTINGENCIES
The Bank
is a party to financial instruments with off-balance-sheet risk entered into in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit, which are not included in the accompanying
consolidated financial statements.
Commitments
to extend credit are agreements to lend money at fixed and variable rates
with fixed expiration dates or termination clauses. The Bank
applies the same credit standards used in the lending process when
extending these commitments, and periodically reassesses the customer’s
creditworthiness through ongoing credit reviews. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Collateral is obtained based on the Bank’s
assessment of the transaction. At December 31, 2009 and 2008,
the Bank’s commitments to extend credit totaled $43,423,096 and
$52,133,219, respectively.
|
Standby
letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The
credit risk and collateralization policy involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers. The Bank had total unfunded letters of credit of
$4,373,546 and $3,575,427 as of December 31, 2009 and 2008,
respectively.
|
The Bank
is required to maintain average reserves at the Federal Reserve
Bank. This requirement approximated $275,000 at December 31,
2009. The Bank is in compliance with this requirement.
There
were $784,063 and $0 loans held for sale at December 31, 2009 and December 31,
2008, respectively.
The Bank
has outstanding lines of credit with several of its correspondent banks
available to assist in the management of short-term liquidity. At
December 31, 2009, the total available lines of credit were $38 million with an
outstanding balance of $ -0- as reflected on the consolidated balance
sheet.
The
Company and its wholly owned subsidiary, the Bank, are involved in certain
litigation incurred in the normal course of business. In the opinion
of management and legal counsel, liabilities arising from such claims, if any,
would not have a material effect upon the Company's consolidated financial
statements.
NOTE
P. CONCENTRATIONS
OF CREDIT
Substantially
all of the Bank’s loans, commitments, and standby letters of credit have been
granted to customers in the Bank’s market area. The majority of
investments in state and municipal securities involve governmental entities in
and around the Bank's market area. The concentrations of credit by
type of loan are set forth in Note C, and there are no other concentrations of
credit other than those in the categories set forth in Note C. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit are granted primarily to
commercial borrowers. The Bank maintains deposit accounts and federal
funds sold with correspondent banks which may, periodically, exceed the
federally insured amount.
63
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
Q. DIVIDENDS
The Bank
paid dividends to the Company amounting to $0 and $2,800,000 for the years ended
December 31, 2009 and 2008, respectively.
NOTE
R. INTEREST
RATE RISK MANAGEMENT
There
were no interest rate swaps at December 31, 2009.
NOTE
S. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the
fair value estimates may not be realized in an immediate settlement of the
instrument. In accordance with generally accepted accounting principles, certain
financial instruments and all non-financial instruments are excluded from
these disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair value of the
Company.
The
following methods and assumptions were used by the Company in estimating
fair value disclosures for financial
instruments:
|
Cash and
Due From Banks - Fair value equals the carrying value of such
assets.
Federal
Funds Sold - Due to the short-term nature of this asset, the carrying value of
this item approximates its fair value.
Investment
Securities - Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
Cash
Surrender Value of Life Insurance - The fair value of this item approximates its
carrying value.
Loans,
Net - For variable-rate loans which are repricing immediately, fair values
are based on carrying values. Other variable-rate loans, fixed-rate
commercial loans, installment loans, and mortgage loans are valued using
discounted cash flows. The discount rates used to determine the
present value of these loans are based on interest rates currently being
charged by the Bank on loans with comparable credit risk and
terms.
|
Deposits
- The fair values of demand deposits are equal to the carrying value of such
deposits. Demand deposits include non-interest bearing demand
deposits, savings accounts, NOW accounts, and money market demand
accounts. Discounted cash flows have been used to value fixed rate
term
64
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
S. FAIR
VALUE OF FINANCIAL INSTRUMENTS (Continued)
deposits. The
discount rate used is based on interest rates currently being offered by the
Bank on deposits with comparable amounts and terms.
Long-Term
Borrowings - The fair values of the Company’s long-term borrowings are estimated
using discounted cash flow analysis based on the Company’s current incremental
borrowing ratio for similar types of borrowing arrangements.
Federal
Funds Purchased and Securities Sold Under Repurchase Agreements - The fair value
of these items approximates their carrying values.
Off-Balance
Sheet Instruments - Loan commitments are negotiated at current market rates and
are relatively short-term in nature. Therefore, the estimated value
of loan commitments approximates the face amount. Fair values for interest rate
swaps and caps are based on quoted market prices where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
The
estimated fair values of the Company's financial instruments, rounded to
the nearest thousand, are as
follows:
|
65
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
S. FAIR
VALUE OF FINANCIAL INSTRUMENTS (Continued)
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
(dollars
in Thousands)
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
10,304
|
|
|
$
|
10,304
|
|
|
$
|
6,951
|
|
|
$
|
6,951
|
|
Federal
funds sold
|
|
|
59
|
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
45,028
|
|
|
|
45,997
|
|
|
|
54,815
|
|
|
|
54,843
|
|
Available-for-sale
|
|
|
98,300
|
|
|
|
98,300
|
|
|
|
111,895
|
|
|
|
111,895
|
|
Equity
securities
|
|
|
3,262
|
|
|
|
3,262
|
|
|
|
4,010
|
|
|
|
4,010
|
|
Cash
surrender value of life insurance
|
|
|
1,099
|
|
|
|
1,099
|
|
|
|
1,056
|
|
|
|
1,056
|
|
Loans,
net
|
|
|
220,723
|
|
|
|
223,095
|
|
|
|
223,114
|
|
|
|
224,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
250,942
|
|
|
|
251,628
|
|
|
|
257,214
|
|
|
|
258,320
|
|
Short-term
borrowings
|
|
|
32,023
|
|
|
|
32,019
|
|
|
|
54,121
|
|
|
|
54,107
|
|
Long-term
borrowings
|
|
|
9,000
|
|
|
|
9,074
|
|
|
|
819
|
|
|
|
825
|
|
Securities
sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase
agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
13,211
|
|
|
|
13,210
|
|
|
|
11,634
|
|
|
|
11,638
|
|
Structured
|
|
|
40,000
|
|
|
|
43,348
|
|
|
|
40,000
|
|
|
|
44,185
|
|
Junior
subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
$
|
43,423
|
|
|
$
|
43,423
|
|
|
$
|
52,133
|
|
|
$
|
52,133
|
|
Standby
letters of credit
|
|
|
4,374
|
|
|
|
4,374
|
|
|
|
3,575
|
|
|
|
3,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
T.
|
CONDENSED
FINANCIAL INFORMATION OF
|
|
BRITTON
& KOONTZ CAPITAL CORPORATION
|
The
financial information of Britton & Koontz Capital Corporation, parent
company only, is as follows:
BALANCE
SHEETS
|
|
December
31
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
3,010,844
|
|
|
$
|
4,659,463
|
|
Investment
in subsidiaries
|
|
|
41,894,066
|
|
|
|
39,903,724
|
|
Other
assets
|
|
|
93,901
|
|
|
|
136,849
|
|
TOTAL
ASSETS
|
|
$
|
44,998,811
|
|
|
$
|
44,700,036
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Junior
subordinated debentures
|
|
$
|
5,155,000
|
|
|
$
|
5,155,000
|
|
Other
liabilities
|
|
|
2,922
|
|
|
|
3,967
|
|
TOTAL
LIABILITIES
|
|
|
5,157,922
|
|
|
|
5,158,967
|
|
STOCKHOLDERS’
EQUITY
|
|
|
39,840,889
|
|
|
|
39,541,069
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’
|
|
|
|
|
|
|
|
|
EQUITY
|
|
$
|
44,998,811
|
|
|
$
|
44,700,036
|
|
STATEMENTS
OF INCOME
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
REVENUE:
|
|
|
|
|
|
|
Dividend
Received:
|
|
|
|
|
|
|
Britton
& Koontz Bank, N.A.
|
|
$
|
-
|
|
|
$
|
2,800,000
|
|
Other
income
|
|
|
3,383
|
|
|
|
3,633
|
|
|
|
|
3,383
|
|
|
|
2,803,633
|
|
EXPENSES
|
|
|
319,993
|
|
|
|
439,234
|
|
|
|
|
(316,610
|
)
|
|
|
2,364,399
|
|
INCOME
TAX EXPENSE (BENEFIT)
|
|
|
(118,989
|
)
|
|
|
(163,551
|
)
|
|
|
|
(197,621
|
)
|
|
|
2,527,950
|
|
EQUITY
IN UNDISTRIBUTED EARNINGS:
|
|
|
|
|
|
|
|
|
Britton
& Koontz Bank, N.A.
|
|
|
1,821,699
|
|
|
|
975,255
|
|
B&K
Title Insurance Agency, Inc.
|
|
|
(449
|
)
|
|
|
(442
|
)
|
NET
INCOME
|
|
$
|
1,623,629
|
|
|
$
|
3,502,763
|
|
67
BRITTON
& KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
T.
|
CONDENSED
FINANCIAL INFORMATION OF
|
|
BRITTON
& KOONTZ CAPITAL CORPORATION
(Continued)
|
STATEMENTS
OF CASH FLOWS
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,623,629
|
|
|
$
|
3,502,763
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Equity
on undistributed earnings
|
|
|
|
|
|
|
|
|
and
losses of affiliates
|
|
|
(1,821,250
|
)
|
|
|
(974,813
|
)
|
(Increase)/decrease
in other assets
|
|
|
42,948
|
|
|
|
2,781
|
|
Increase/(decrease)
in other liabilities
|
|
|
(1,045
|
)
|
|
|
(41,035
|
)
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
(155,718
|
)
|
|
|
2,489,696
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
(1,531,057
|
)
|
|
|
(1,524,936
|
)
|
Fair
value of stock options
|
|
|
11,479
|
|
|
|
13,312
|
|
Common
stock issued
|
|
|
86,700
|
|
|
|
-
|
|
Unearned
Compensation
|
|
|
(60,023
|
)
|
|
|
-
|
|
Net
Cash (Used in) Financing Activities
|
|
|
(1,492,901
|
)
|
|
|
(1,511,624
|
)
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(1,648,619
|
)
|
|
|
978,072
|
|
CASH
AT BEGINNING OF YEAR
|
|
|
4,659,463
|
|
|
|
3,681,391
|
|
CASH
AT END OF YEAR
|
|
$
|
3,010,844
|
|
|
$
|
4,659,463
|
|
Ite
m 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
Item
9A(T). Controls and
Procedures.
The
Company carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer of the Company (“CEO”) and the
Chief Financial Officer of the Company (“CFO”), of the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of
December 31, 2009. Based on this evaluation, the CEO and CFO
concluded that as of December 31, 2009, the Company’s disclosure controls and
procedures are effective for ensuring that information the Company is required
to disclose in reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms.
Management’s
Annual Report on Internal Control over Financial Reporting is contained in Item
8, Financial Statements and Supplementary Data, and is incorporated herein by
reference. There were no changes to internal control over financial
reporting during the fourth quarter of 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
It
em 9B. Other Information.
None.
PA
RT III
It
em 10. Directors, Executive Officers and
Corporate Governance.
The
following tables set forth the names and principal
occupations of each director and executive officer of the
Company.
DIRECTORS
|
|
Robert R. Punches
Partner, Gwin, Lewis & Punches,
LLP
Chairman, Britton & Koontz Capital
Corporation
|
|
|
W. W. Allen
,
Jr.
President,
Allen Petroleum Services,
Inc
Vice Chairman, Britton & Koontz Capital
Corporation
|
|
|
W. Page Ogden
President & Chief Executive
Officer
Britton & Koontz Capital
Corporation
Britton & Koontz Bank, National
Association
|
|
|
Craig
A. Bradford, D.M.D.
Pediatric Dentist
|
|
|
George R. Kurz
Principal, Kurz &
Hebert
|
|
|
Gordon
S. LeBlanc, Jr.
Managing
Director-Stonehenge Capital Company, LLC
|
|
|
Bethany L. Overton
President, Lambdin-Bisland Realty
Co.
|
|
|
Vinod K. Thukral, Ph.D.
Chairman, Global
Bancorp and Global Trust
Bank
|
EXECUTIVE OFFICERS
|
|
W. Page Ogden
President & Chief Executive
Officer
Britton & Koontz Capital
Corporation
Britton & Koontz Bank, National
Association
|
|
|
William M. Salters
Treasurer, Chief Financial & Accounting
Officer
Britton & Koontz Capital
Corporation
Britton & Koontz Bank, National
Association
|
|
|
Jarrett E. Nicholson
Credit Policy Officer and Chief Operations
Officer
Britton & Koontz Capital
Corporation
Britton
& Koontz Bank, National
Association
|
The
additional information required in response to this item is incorporated into
this report by reference to the material under the headings “Stock Ownership,”
“Board of Directors,” “Committees of the Board of Directors” and “Executive
Officers” in the Company’s Definitive Proxy Statement for its 2010 Annual
Meeting of Shareholders (the “2010 Proxy Statement”).
Code
of Ethics
The Board
of Directors has adopted a code of business conduct and ethics in compliance
with Item 406 of Regulation S-K that applies to the principal executive officer,
principal financial officer, principal accounting officer and controller of the
Company and the Bank. Access to the Company’s Code of Ethics is
available to shareholders of the Company and customers of the Bank through the
Bank’s website at www.bkbank.com under “investor relations.” Amendments to or
waivers from provisions of the Company’s Code of Ethics will be disclosed on the
Company’s website.
It
em 11. Executive Compensation.
The
information required in response to this item is incorporated into this report
by reference to the material under the headings “Board of Directors” and
“Executive Compensation” in the 2010 Proxy Statement.
It
em 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
Equity
Compensation Plan Information
The
following table summarizes our equity compensation plan information as of
December 31, 2009. The Britton & Koontz Capital Corporation 2007
Long-Term Incentive Compensation Plan (the “2007 LTIP”) was approved by the
Company’s shareholders on April 24, 2007 and replaced the Company’s 1996
Long-Term Incentive Plan (the “1996 LTIP”), which was effective as of May 16,
1996 and expired during 2006. As of December 31, 2009, an aggregate
of 13,120 options granted under the 1996 LTIP remain outstanding and are
exercisable in accordance with their terms. Stock options and restricted stock
are available for grant and award under the 2007 LTIP.
Plan category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and
rights
|
|
|
Weighted-average
exercise price of outstanding options,
warrants and
rights
|
|
|
Number
of securities remaining available
for future
issuance
|
|
Equity
compensation plans approved by security holders
(1)
|
|
|
32,120
|
|
|
$
|
16.35
|
|
|
|
74,380
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
32,120
|
|
|
$
|
16.35
|
|
|
|
74,380
|
|
_________________________
(1)
|
An
aggregate of 115,000 shares of common stock are authorized for issuance
under the 2007 LTIP in the form of stock options and restricted
stock.
|
Additional
information required in response to this item is incorporated into this report
by reference to the material under the heading “Stock Ownership” in the 2010
Proxy Statement.
Ite
m 13. Certain Relationships and Related
Transactions, and Director Independence.
The
information required in response to this item is incorporated into this report
by reference to the material under the heading “Board of Directors” in the 2010
Proxy Statement.
Item
14. Principal Accounting Fees and
Services.
The
information required in response to this item is incorporated into this report
by reference to the material under the heading “Independent Registered Public
Accountants” in the 2010 Proxy Statement.
P
ART IV
Ite
m 15. Exhibits, Financial Statement
Schedules.
1.
|
Consolidated
Financial Statements and Supplementary Information for Years Ended
December 31, 2009 and 2008, which include the following:
|
2.
|
Financial
Statement Schedules
|
None
3.
|
Exhibits
required by Item 601 of Regulation
S-K
|
Exhibit
|
|
Description of Exhibit
|
|
|
|
3.1
|
*
|
Amended
and Restated Articles of Incorporation of Britton & Koontz Capital
Corporation, incorporated by reference to Exhibit 3.01 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission (the “Commission”) on February 20, 2009.
|
|
|
|
3.2
|
*
|
By-Laws
of Britton & Koontz Capital Corporation, as amended, incorporated by
reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed
with the Commission on October 22, 2008.
|
|
|
|
4.1
|
*
|
Shareholder
Rights Agreement dated June 1, 1996 between Britton & Koontz Capital
Corporation and Britton & Koontz First National Bank, as Rights Agent,
incorporated by reference to Exhibit 4.3 to Registrant’s Registration
Statement on Form S-8, Registration No. 333-20631, filed with the
Commission on January 29, 1997, as amended by Amendment No. 1 to Rights
Agreement dated as of August 15, 2006, incorporated by reference to
Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the
Commission on August 17, 2006.
|
|
|
|
10.01
|
*†
|
Employment
Agreement dated February 17, 2009, between Britton & Koontz Capital
Corporation and W. Page Ogden, incorporated by reference to Exhibit 10.01
to Registrant’s Current Report on Form 8-K filed with the Commission on
February 20, 2009.
|
|
|
|
10.02
|
*†
|
Britton
& Koontz Capital Corporation Long-Term Incentive Compensation Plan and
Amendment, incorporated by reference to Exhibit 4.4 to Registrant’s
Registration Statement on Form S-8, Registration No. 333-20631, filed with
the Commission on January 29, 1997.
|
|
|
|
10.03
|
*†
|
Britton
& Koontz Capital Corporation 2007 Long-Term Incentive Compensation
Plan, incorporated by reference to Appendix B to Registrant’s Definitive
Proxy Statement filed with the Commission on March 21, 2007.
|
10.04
|
*†
|
Salary
Continuation Agreement dated December 18, 2007, between Britton &
Koontz Bank, N.A. and W. Page Ogden, incorporated by reference to Exhibit
10.04 to Registrant’s Current Report on Form 8-K filed with the Commission
on February 27, 2008.
|
|
|
|
21
|
|
|
|
|
|
23
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
32.2
|
|
|
|
*
|
As
indicated in the column entitled “Description of Exhibit,” this exhibit is
incorporated by reference to another filing or
document.
|
|
†
|
Management
contract or compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10-K pursuant to Item 15 of Form
10-K.
|
The
Company does not have any un-registered long-term debt exceeding ten percent of
the total assets of the Company and its subsidiaries on a consolidated
basis. The Company will file with the SEC, upon request, a copy of
all long-term debt instruments.
SI
GNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
BRITTON & KOONTZ CAPITAL
CORPORATION
Date:
March 16,
2010 By:
/s/ Robert R.
Punches
Robert R. Punches
Chairman of the Board
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
/s/
Robert R. Punches
|
|
|
|
|
Robert
R. Punches
|
|
Chairman
and Director
|
|
March
16, 2010
|
/s/
W. W. Allen, Jr.
|
|
|
|
|
W.
W. Allen, Jr.
|
|
Vice
Chairman and Director
|
|
March
16, 2010
|
/s/
W. Page Ogden
|
|
|
|
|
W.
Page Ogden
|
|
Principal
Executive Officer and Director
|
|
March
16, 2010
|
|
|
|
|
|
/s/
Craig A. Bradford, DMD
|
|
|
|
|
Craig
A. Bradford, DMD
|
|
Director
|
|
March
16, 2010
|
/s/
Bethany L. Overton
|
|
|
|
|
Bethany
L. Overton
|
|
Director
|
|
March
16, 2010
|
/s/
George R. Kurz
|
|
|
|
|
George
R. Kurz
|
|
Director
|
|
March
16, 2010
|
/s/
Vinod K. Thukral, Ph.D.
|
|
|
|
|
Vinod
K. Thukral, Ph.D.
|
|
Director
|
|
March
16, 2010
|
|
|
|
|
|
/s/
Gordon S. LeBlanc, Jr.
|
|
|
|
|
Gordon
S. LeBlanc, Jr.
|
|
Director
|
|
March
16, 2010
|
/s/
William M. Salters
|
|
|
|
|
William
M. Salters
|
|
Treasurer,
Principal Financial Officer and Principal Accounting Officer
|
|
March
16, 2010
|
Exhibit
|
|
Description
of Exhibit
|
|
|
|
21
|
|
|
|
|
|
23
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
32.2
|
|
|