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| FMTB.OB > SEC Filings for FMTB.OB > Form 10-Q on 14-Feb-2012 | All Recent SEC Filings |
14-Feb-2012
Quarterly Report
Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company's current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as "expects", "believes", "anticipates", "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed beginning on page 9 of the Company's prospectus dated August 12, 2011 under the section titled "Risk Factors". These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.
Critical Accounting Policies
During the three month period ended December 31, 2011, there was no significant change in the Company's critical accounting policies or the application of critical accounting policies as disclosed in the Company's audited consolidated financial statements and related footnotes for the year ended September 30, 2011 included in the Company's Annual Report on 10-K.
Comparison of Financial Condition at December 31, 2011 and September 30, 2011
Total assets increased by $7,076,000, or 9.72%, to $79,863,000 at December 31, 2011 from $72,787,000 at September 30, 2011. The increase was primarily the results of increases in investment securities, cash and cash equivalents, loans receivable and premises and equipment of $4,078,000, $1,315,000, $918,000 and $816,000, respectively.
The increase in the Company's total assets was primarily funded by increases in total deposits of $5,821,000, or 11.43%, and stockholders' equity of $1,429,000, or 12.45% in association with the Fullerton acquisition.
Cash and cash equivalents increased from $6,189,000 at September 30, 2011 to $7,504,000 at December 31, 2011. This was an increase of $1,315,000, or 21.25%. The increase in cash and cash equivalents was due to increases in total deposits in association with the Fullerton acquisition.
Certificates of deposit increased by $1,076,000 at December 31, 2011. The increase was due to the investment of available liquidity in FDIC insured certificates of deposits with maturities greater than one year.
Investment securities increased by $3,002,000, or 38.46%, to $10,807,000 at December 31, 2011, from $7,805,000 at September 30, 2011. The increase was primarily the result of $3,795,000 in purchases offset by $723,000 in sales, maturities, payments and calls.
Total net loans increased from $53,758,000 at September 30, 2011 to $54,676,000 at December 31, 2011. This represented an increase of $918,000, or 1.71%. The increase was primarily attributable to loans added of $2,415,000 in association with the Fullerton acquisition. This increase from the acquisition was offset primarily by a decrease of $1,220,000, or 27.14%, in construction and land development loans.
Total liabilities at December 31, 2011 were $66,957,000, an increase of $5,647,000, or 9.21%, from $61,310,000 at September 30, 2011. The increase was primarily attributable to deposits added of $7,333,000 in association with the Fullerton acquisition offset by fluctuating deposit balances during the quarter.
Deposits increased from $50,647,000 at September 30, 2011 to $56,768,000 at December 31, 2011. The increases were primarily the result of increases in savings deposits of $3,405,000, or 32.65% and increases in certificates of deposit of $2,283,000, or 6.35%.
Stockholders' equity was $12,906,000, or 16.16% of total assets at December 31, 2011, compared to $11,477,000, or 15.77%, of total assets at September 30, 2011. The primary reason for the $1,429,000, or 12.45% increase in equity was the $1,022,000 extraordinary gain recorded as the result of the Fullerton acquisition. Also in October 2011, the Company completed a stock offering related to the Fullerton conversion merger in which 56,276 shares of the Company's common stock were issued and sold at a price of $14.10 per share, resulting in net proceeds of approximately $452,000. Several factors also contributed to the changes in stockholders' equity including net income before extraordinary gain of $90,000 for the three months ended December 31, 2011, offset by deductions for ESOP shares of $63,000 and RRP shares of $37,000, as well as a decrease of $35,000 in other comprehensive income related to the interest rate fluctuations on the Company's available for sale securities portfolio.
Results of Operations for the Three Months Ended December 31, 2011 and 2010
Overview. Net income increased by $991,000, to $1,112,000 for the three months ended December 31, 2011 from $121,000 for the three months ended December 31, 2010. This increase in net income included an extraordinary gain of $1,022,000 recorded in association with the acquisition of Fullerton. Net interest income increased by $71,000, or 11.34%, to $697,000 for the three months ended December 31, 2011 from $626,000 for the three months ended December 31, 2010. Provision for loan and lease losses increased by $45,000, or 81.82%, to $100,000 for the three months ended December 31, 2011 from $55,000 for the three months ended December 31, 2010. Non-interest income decreased $8,000, or 29.63%, from $27,000 for the three months ended December 31, 2010 to $19,000 for the three months ended December 31, 2011. Non-interest expense increased $71,000, or 17.44%, to $478,000 for the three months ended December 31, 2011 from $407,000 for the three months ended December 31, 2010.
Net Interest Income. Net interest income increased $71,000, or 11.34%, to $697,000 for the three months ended December 31, 2011 from $626,000 for the three months ended December 31, 2010. The increase primarily resulted from the combined effects of an increase of $26,000, or 2.81%, in interest and dividend income to $951,000 for the three months ended December 31, 2011 from $925,000 for the three months ended December 31, 2010, and a decrease of $45,000, or 15.05%, in interest expense to $254,000 for the three months ended December 31, 2011 from $299,000 for the three months ended December 31, 2010. The increase in interest and dividend income was mainly the result of increases in the average balances of loans and investments. Interest expense decreased primarily as a result of the decrease in average rates paid on deposits and borrowings.
Provision for Loan and Lease Losses. The provision for loan and lease losses increased $45,000 to $100,000 for the three months ended December 31, 2011, from $55,000 for the three months ended December 31, 2010. The primary factors that contributed to the increase in the provision for loan and lease losses were the increase in substandard rated loans from September 2011, increases in the specific allowance for our impaired loans and the uncertainty regarding the housing market. The Company recorded $18,000 in charge-offs during the three months ended December 31, 2011. The Company did not record charge-offs during the three months ended December 31, 2010.
Non-Interest Income. Non-interest income was $19,000 for the three months ended December 31, 2011, which was a decrease of $8,000, or 29.63%, from $27,000 for the three months ended December 31, 2010. The decrease was primarily the result of a decrease in service charges and fees, which decreased due to a decline in one-to four-family non-owner occupied loan settlements during the comparable three month periods.
Non-Interest Expense. Non-interest expense increased by $71,000, or 17.44%, to $478,000 for the three months ended December 31, 2011 from $407,000 for the three months ended December 31, 2010. The
increase was primarily the result of increases in salaries, fees and employment expenses of $39,000, or 15.29%, from $255,000 for the three months ended December 31, 2010 to $294,000 for the three months ended December 31, 2011. The increase in salaries, fees and employment expenses can be attributed to the additional personnel associated with the Fullerton acquisition that occurred in October 2011. Increases in premises and equipment of $7,000, or 16.67%, increases in data processing of $6,000, or 30.00%, and increases in stationery, printing and supplies of $8,000, or 160.00%, can also be attributed to the Fullerton acquisition and the additional expenses associated with the additional bank branch. Professional fees increased from $25,000 for the three months ended December 31, 2010, to $31,000 for the three months ended December 31, 2011. This increase of $6,000, or 24.00%, was the result of the increased reporting requirements associated with the Company's public company status.
Income Taxes. The provision for income taxes decreased by $22,000, or 31.43%, to $48,000 for the three months ended December 31, 2011 from $70,000 for the three months ended December 31, 2010. The decrease in provision for income taxes was due to the decrease in the Company's income before income taxes of $191,000 for the three months ended December 31, 2010 to $138,000 for the three months ended December 31, 2011. This was a decrease of $53,000, or 27.75%.
Extraordinary item. The Company recognized $1,022,000 of extraordinary income during the three months ended December 31, 2011 relating to the acquisition of Fullerton. The extraordinary income, also defined as negative goodwill, was the result of the sum of the fair values of assets acquired less the liabilities assumed exceeding the acquisition cost.
Total Comprehensive Income. Total comprehensive income for the periods presented consisted of net income and the change in unrealized gains (losses) on securities available for sale, net of tax. Total comprehensive income was $1,077,000 and $78,000 for the three months ended December 31, 2011 and 2010, respectively. The increase in total comprehensive income resulted from an increase of $991,000 in net income, including the extraordinary gain of $1,022,000 and an increase of $8,000 in adjustments to accumulated other comprehensive income from the change in unrealized gains (losses) on securities available for sale.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company's primary sources of funds consist of deposit inflows, loan repayments, and maturities of securities. In addition, Company the has the ability to borrow funds from the Federal Home Loan Bank of Atlanta, and it has credit availability with a correspondent bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Board of Directors is responsible for establishing and monitoring the Company's liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of its customers as well as unanticipated contingencies. The Company believes that it has enough sources of liquidity to satisfy its short and long-term liquidity needs as of December 31, 2011.
The Company regularly monitors and adjusts its investments in liquid assets
based upon its assessment of: (1) expected loan demand; (2) expected deposit
flows; (3) yields available on interest-earning deposits and securities; and
(4) the objectives of its asset/liability management program. Excess liquid
assets are invested generally in interest-earning deposits and short and
intermediate term assets.
The Company's most liquid assets are cash and cash equivalents, which include federal funds sold and interest-bearing deposits in other banks. The levels of these assets are dependent on its operating, financing, lending and investing activities during any given period. At December 31, 2011, cash and cash-equivalents totaled $7,504,000. Certificates of deposit of $1,076,000 and securities classified as available for sale, totaling $7,172,000 provide additional sources of liquidity. In addition, at December 31, 2011, the Company had the ability to borrow a total of approximately $24,000,000 from the Federal Home Loan Bank of Atlanta. At December 31, 2011, the Company had $10,000,000 in Federal Home Loan Bank advances outstanding. The Company also has a credit availability of $1,500,000 with a correspondent bank. There were no borrowings outstanding at December 31, 2011.
At December 31, 2011, the Company had $5,271,000 in unused lines of credit to borrowers and standby letters of credit. Certificates of deposit due within one year of December 31, 2011, totaled $23,742,000, or 41.82% of total deposits. If these deposits do not remain with the Company, the Company will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank advances. Depending on market conditions, the Company may be required to pay higher rates on such deposits or borrowings than it currently pays on certificates of deposit on or before December 31, 2012. The Company believes, however, based on past experience that a significant portion of such deposits will remain with it. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.
The Bank is required to maintain specific amounts of capital pursuant to OCC regulatory requirements. As of December 31, 2011, the Bank was in compliance with all regulatory capital requirements, which were effective as of such date, with tier 1 core, tier 1 risk-based, and total risk-based capital ratios of 12.81%, 24.04% and 25.29%, respectively. The regulatory requirements as of that date were 4.0%, 4.0% and 8.0% respectively.
The Company is a separate legal entity from the Bank and has to provide for its own liquidity to pay its operating expenses and other financial obligations. The Company's primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OTS but with the prior notice to the OTS, cannot exceed net income for that year to date plus retained net income for the preceding two calendar years. At December 31, 2011, the Company had liquid assets of $1,733,000.
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