UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Quarterly Period Ended March 31, 2010
or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ___________ to ___________
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BRITTON & KOONTZ CAPITAL CORPORATION
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(Exact name of Registrant as Specified in Its Charter)
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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 Number)
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500 Main Street, Natchez, Mississippi 39120
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(Address of Principal Executive Offices) (Zip Code)
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(Registrant’s Telephone Number, Including Area Code)
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
(Do not check if a smaller reporting company)
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o
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,135,466 Shares of Common Stock, Par Value $2.50, were outstanding as of May 1, 2010.
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B
RITTON & KOONTZ CAPITAL CORPORATION
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INDEX
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PART I.
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FINANCIAL INFORMATION
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Item 1. Financial Statements
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PART II.
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OTHER INFORMATION
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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B
RITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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AS OF
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A S S E T S
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March 31,
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December 31,
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ASSETS:
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2010
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2009
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Cash and due from banks:
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Non-interest bearing
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$
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5,086,552
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$
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4,702,159
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Interest bearing
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1,030,708
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5,601,482
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Total cash and due from banks
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6,117,260
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10,303,641
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Federal funds sold
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39,841
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58,799
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Investment Securities:
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Available-for-sale (amortized cost, in 2010 and 2009,
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of $77,343,120 and $94,684,079, respectively)
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80,782,910
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98,300,252
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Held-to-maturity (market value, in 2010 and 2009,
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of $44,337,368 and $45,996,945, respectively)
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43,236,969
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45,027,914
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Equity securities
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3,264,400
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3,262,100
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Loans, less allowance for loan losses of $3,145,401
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in 2010 and $3,878,738 in 2009
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218,065,845
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219,938,639
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Loans held for sale
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1,844,827
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784,063
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Bank premises and equipment, net
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7,872,639
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8,030,900
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Other real estate
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1,763,965
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815,207
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Accrued interest receivable
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1,944,129
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2,002,259
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Cash surrender value of life insurance
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1,109,113
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1,099,395
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Core Deposits, net
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423,522
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450,426
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Other assets
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3,389,241
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3,036,554
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TOTAL ASSETS
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$
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369,854,661
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$
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393,110,149
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LIABILITIES AND STOCKHOLDERS' EQUITY
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LIABILITIES:
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Deposits
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Non-interest bearing
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$
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45,683,381
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$
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49,847,304
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Interest bearing
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206,048,791
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201,094,816
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Total deposits
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251,732,172
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250,942,120
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Federal Home Loan Bank advances
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16,697,189
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41,022,754
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Securities sold under repurchase agreements
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54,187,266
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53,211,325
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Accrued interest payable
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689,645
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793,141
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Advances from borrowers for taxes and insurance
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148,299
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259,315
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Accrued taxes and other liabilities
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1,819,333
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1,885,605
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Junior subordinated debentures
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5,155,000
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5,155,000
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Total liabilities
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330,428,904
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353,269,260
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STOCKHOLDERS' EQUITY:
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Common stock - $2.50 par value per share;
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12,000,000 shares authorized; 2,149,966 and 2,140,966 issued
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and 2,135,466 and 2,126,466 outstanding, for March 31, 2010,
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and December 31, 2009, respectively
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5,374,915
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5,352,415
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Additional paid-in capital
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7,482,454
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7,396,211
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Retained earnings
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24,669,015
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25,082,298
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Accumulated other comprehensive income
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2,156,748
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2,267,340
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39,683,132
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40,098,264
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Cost of 14,500 shares of common stock held by the company
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(257,375
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)
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(257,375
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)
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Total stockholders' equity
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39,425,757
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39,840,889
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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369,854,661
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$
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393,110,149
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B
RITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended
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March 31,
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2010
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2009
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INTEREST INCOME:
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Interest and fees on loans
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$
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3,249,316
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$
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3,296,529
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Interest on investment securities:
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Taxable interest income
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1,203,805
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1,685,347
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Exempt from federal taxes
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421,024
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425,093
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Interest on federal funds sold
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45
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89
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Total interest income
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4,874,190
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5,407,058
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INTEREST EXPENSE:
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Interest on deposits
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849,274
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1,066,179
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Interest on Federal Home Loan Bank advances
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78,258
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111,117
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Interest on trust preferred securities
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42,537
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57,496
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Interest on securities sold under repurchase agreements
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520,488
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516,213
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Total interest expense
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1,490,557
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1,751,005
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NET INTEREST INCOME
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3,383,633
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3,656,053
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Provision for loan losses
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1,099,996
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700,000
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NET INTEREST INCOME AFTER PROVISION
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FOR LOAN LOSSES
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2,283,637
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2,956,053
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OTHER INCOME:
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Service charges on deposit accounts
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359,213
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407,440
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Income from fiduciary activities
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777
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611
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Income from networking arrangements
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-
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22,210
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Gain/(loss) on sale of mortgage loans
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28,973
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46,099
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Gain/(loss) on sale of securities
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447,530
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-
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Other real estate income, net
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7,036
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-
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Other
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279,313
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200,933
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Total other income
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1,122,842
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677,293
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BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
(Continued)
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Three Months Ended
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March 31,
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2010
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2009
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OTHER EXPENSES:
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Salaries
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1,552,385
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1,368,283
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Employee benefits
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222,548
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190,567
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Director fees
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36,850
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36,250
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Net occupancy expense
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256,602
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222,112
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Equipment expenses
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318,608
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296,845
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FDIC assessment
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127,964
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115,355
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Advertising
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46,048
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56,559
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Stationery and supplies
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41,331
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38,654
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Audit expense
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63,456
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60,250
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Other real estate expense, net
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-
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58,742
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Amortization of deposit premium
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26,904
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26,904
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Other
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834,180
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479,065
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Total other expenses
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3,526,876
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2,949,586
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INCOME/(LOSS) BEFORE INCOME TAX EXPENSE
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(120,397
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)
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683,760
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Income tax expense/(benefit)
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(183,690
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)
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83,745
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NET INCOME
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$
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63,293
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$
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600,015
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EARNINGS PER SHARE DATA:
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Basic earnings per share
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$
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0.03
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$
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0.28
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Basic weighted shares outstanding
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2,130,866
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2,122,027
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Diluted earnings per share
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$
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0.03
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$
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0.28
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Diluted weighted shares outstanding
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2,131,706
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2,122,199
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Cash dividends per share
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$
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0.18
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$
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0.18
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B
RITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
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Accumulated
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Common Stock
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Additional
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Other
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Total
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Paid-in
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Retained
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Comprehensive
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Treasury
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Stockholders'
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Shares
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Amount
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Capital
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Earnings
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Income
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Stock
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Equity
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Balance at December 31, 2008
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2,117,966
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$
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5,331,165
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$
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7,319,282
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$
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25,049,748
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$
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2,098,248
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$
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(257,375
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)
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$
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39,541,068
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|
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Comprehensive Income:
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Net income
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-
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|
|
-
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|
-
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600,015
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|
-
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-
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|
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600,015
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Other comprehensive
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income (net of tax):
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-
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-
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|
|
-
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-
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|
|
-
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|
|
-
|
|
|
|
-
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Net change in unrealized gain/(loss)
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on securities available for sale, net
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|
|
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|
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of taxes of $397,353
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|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
667,938
|
|
|
-
|
|
|
|
667,938
|
|
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Total Comprehensive income
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
1,267,953
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|
|
Cash Dividend paid $0.18 per share
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(381,234
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)
|
|
-
|
|
|
-
|
|
|
|
(381,234
|
)
|
|
Common stock issued
|
|
8,500
|
|
|
21,250
|
|
|
65,450
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
86,700
|
|
|
Unearned compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(80,030
|
)
|
|
-
|
|
|
-
|
|
|
|
(80,030
|
)
|
|
Fair Value unexercised stock options
|
|
-
|
|
|
-
|
|
|
2,092
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
2,092
|
|
|
Balance at March 31, 2009
|
|
2,126,466
|
|
$
|
5,352,415
|
|
$
|
7,386,824
|
|
$
|
25,188,499
|
|
$
|
2,766,186
|
|
$
|
(257,375
|
)
|
|
$
|
40,436,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
63,293
|
|
|
-
|
|
|
-
|
|
|
|
63,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (net of tax):
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
Net change in unrealized gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on securities available for sale, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of taxes of $(65,791)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(110,592
|
)
|
|
-
|
|
|
|
(110,592
|
)
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,299
|
)
|
|
Cash Dividend paid $0.18 per share
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(384,384
|
)
|
|
-
|
|
|
-
|
|
|
|
(384,384
|
)
|
|
Common stock issued
|
|
9,000
|
|
|
22,500
|
|
|
84,600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
107,100
|
|
|
Unearned compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(92,192
|
)
|
|
-
|
|
|
-
|
|
|
|
(92,192
|
)
|
|
Fair Value unexercised stock options
|
|
-
|
|
|
-
|
|
|
1,643
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
1,643
|
|
|
Balance at March 31, 2010
|
|
2,135,466
|
|
$
|
5,374,915
|
|
$
|
7,482,454
|
|
$
|
24,669,015
|
|
$
|
2,156,748
|
|
$
|
(257,375
|
)
|
|
$
|
39,425,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
RITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
PERIODS ENDED MARCH 31,
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net income
|
$
|
63,293
|
|
$
|
600,015
|
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
(262,544
|
)
|
|
(270,428
|
)
|
|
Provision for loan losses
|
|
1,099,996
|
|
|
700,000
|
|
|
Provision for losses on foreclosed real estate
|
|
-
|
|
|
35,010
|
|
|
Provision for depreciation
|
|
195,258
|
|
|
191,154
|
|
|
Stock dividends received
|
|
(2,300
|
)
|
|
(3,500
|
)
|
|
(Gain)/loss on sale of other real estate
|
|
(433,693
|
)
|
|
6,411
|
|
|
(Gain)/loss on sale of mortgage loans
|
|
(28,973
|
)
|
|
(46,099
|
)
|
|
(Gain)/loss on sale of investment securities
|
|
447,530
|
|
|
-
|
|
|
(Gain)/loss on sale of other securities
|
|
-
|
|
|
(1,262
|
)
|
|
Net amortization (accretion) of securities
|
|
28,526
|
|
|
(16,441
|
)
|
|
Amortization of deposit premium
|
|
26,904
|
|
|
26,904
|
|
|
Writedown of other real estate
|
|
780,168
|
|
|
15,000
|
|
|
Net change in:
|
|
|
|
|
|
|
|
Loans held for sale
|
|
675,474
|
|
|
|
|
|
Accrued interest receivable
|
|
58,130
|
|
|
95,112
|
|
|
Cash surrender value of life insurance
|
|
(9,718
|
)
|
|
(14,192
|
)
|
|
Other assets
|
|
38,462
|
|
|
(389,343
|
)
|
|
Unearned compensation
|
|
(92,192
|
)
|
|
(80,031
|
)
|
|
Accrued interest payable
|
|
(103,496
|
)
|
|
(94,304
|
)
|
|
Accrued taxes and other liabilities
|
|
(129,085
|
)
|
|
(518,309
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
1,456,680
|
|
|
235,697
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
(Increase)/decrease in federal funds sold
|
|
18,958
|
|
|
(89,615
|
)
|
|
Proceeds from sales, maturities and paydowns of securities:
|
|
|
|
|
|
|
|
Available-for-sale
|
|
17,768,745
|
|
|
6,761,262
|
|
|
Held-to-maturity
|
|
1,782,163
|
|
|
1,922,188
|
|
|
Purchase of securities:
|
|
|
|
|
|
|
|
Available-for-sale
|
|
-
|
|
|
(7,732,408
|
)
|
|
(Increase)/decrease in loans
|
|
(2,668,393
|
)
|
|
3,211,274
|
|
|
Proceeds from sale and transfers of other real estate
|
|
438,693
|
|
|
4,900
|
|
|
Purchase of premises and equipment
|
|
(36,997
|
)
|
|
(8,376
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
17,303,169
|
|
|
4,069,225
|
|
|
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
PERIODS ENDED MARCH 31,
(Continued)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
2010
|
|
2009
|
|
|
Increase /(decrease) in customer deposits
|
|
867,365
|
|
|
4,203,342
|
|
|
Increase /(decrease) in brokered deposits
|
|
(77,313
|
)
|
|
73,722
|
|
|
Increase /(decrease) in securities sold under
|
|
|
|
|
|
|
|
repurchase agreements
|
|
975,941
|
|
|
(454,774
|
)
|
|
Increase /(decrease) in FHLB advances
|
|
(24,325,565
|
)
|
|
(9,172,000
|
)
|
|
Increase /(decrease) in advances from borrowers
|
|
|
|
|
|
|
|
for taxes and insurance
|
|
(111,016
|
)
|
|
(147,580
|
)
|
|
Cash dividends paid
|
|
(384,384
|
)
|
|
(381,234
|
)
|
|
Common stock issued
|
|
107,100
|
|
|
86,700
|
|
|
Fair value of unexercised stock options
|
|
1,643
|
|
|
2,092
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
(22,946,229
|
)
|
|
(5,789,732
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS
|
|
(4,186,380
|
)
|
|
(1,484,810
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD
|
|
10,303,641
|
|
|
6,951,543
|
|
|
|
|
|
|
|
|
|
|
CASH AND DUE FROM BANKS AT END OF PERIOD
|
$
|
6,117,260
|
|
$
|
5,466,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
|
|
|
|
|
|
|
|
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
$
|
1,594,053
|
|
$
|
1,845,309
|
|
|
Cash paid/(refunds) during the period for income taxes
|
$
|
(200,000
|
)
|
$
|
735,773
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE OF NONCASH INVESTING AND
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
|
|
|
|
|
|
|
|
on securities available for sale
|
$
|
(176,383
|
)
|
$
|
1,065,291
|
|
|
|
|
|
|
|
|
|
|
Change in the deferred tax effect in unrealized
|
|
|
|
|
|
|
|
gains (losses) on securities available for sale
|
$
|
(65,791
|
)
|
$
|
397,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
RITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARIES
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2010
|
Note A. Basis of Presentation
The consolidated balance sheet for Britton & Koontz Capital Corporation (the "Company") as of December 31, 2009, has been derived from the audited financial statements of the Company for the year then ended. The accompanying interim consolidated financial statements as of March 31, 2010, are unaudited and reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the Company’s financial position and operating results as of and for the periods presented. Certain 2009 amounts have been reclassified to conform to the 2010 presentation.
Note B. Interest Rate Risk Management
On August 10, 2007, the Company’s wholly-owned subsidiary, Britton & Koontz Bank, N.A. (the “Bank”), entered into a 5 year, no-call 2-year Structured Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase”) for $20 million. The Bank will pay a fixed interest rate of 4.82% over the term of the agreement. On November 13, 2007, the Company entered into a 5 year, no-call 3-year Structured Repurchase Agreement with Chase for an additional $20 million. The Bank will pay a fixed interest rate of 4.71%; however, in the first three years of the agreement, this rate is subject to reduction if 3-Month LIBOR is greater than 4.90% measured two business days prior to the 13
th
of each February, May, August and November. Accordingly, during the term of this agreement, the Bank’s cost of funds cannot exceed the initial interest rate of 4.71%. As to the first repurchase agreement, Chase, in its discretion, may terminate the agreement quarterly; as to the second repurchase agreement, Chase, in its discretion, may terminate the agreement on November 13, 2010 and quarterly thereafter. Under each repurchase agreement, the Bank is required to maintain a margin percentage of 105% on the subject securities. These agreements with Chase were entered into as a means of adding additional leverage and to lock in a fixed rate of interest for a certain period of time. Additionally, both transactions carry a cap embedded into the interest rate that protects the Company in the case of adverse interest rate increases and both transactions are accounted for as collateralized financings. Average and month end balances since inception have been approximately $40 million.
Note C. Investment Securities
The amortized cost of the Bank’s investment securities, including HTM and AFS securities, at March 31, 2010 and December 31, 2009, are summarized below.
COMPOSITION OF INVESTMENT PORTFOLIO
(Amortized Cost)
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
77,069,098
|
|
$
|
95,511,473
|
|
|
Obligations of Other U.S.
|
|
|
|
|
|
|
|
|
Government Sponsored Agencies
|
|
|
3,582,595
|
|
|
3,600,154
|
|
|
Obligations of State and
|
|
|
|
|
|
|
|
|
Political Subdivisions
|
|
|
39,928,396
|
|
|
40,600,366
|
|
|
Total
|
|
$
|
120,580,089
|
|
$
|
139,711,993
|
|
The amortized cost and approximate fair value of investment securities classified as
available-for-sale
at March 31, 2010, are summarized as follows:
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Obligations of State and
|
|
|
|
|
|
|
|
|
|
|
|
Political Subdivisions
|
|
$
|
6,978,583
|
|
$
|
173,787
|
|
$
|
(308,188
|
)
|
|
$
|
6,844,182
|
|
|
Obligations of Other U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Agencies
|
|
|
3,582,595
|
|
|
510
|
|
|
(2,180
|
)
|
|
|
3,580,925
|
|
|
Mortgage-Backed Securities
|
|
|
66,781,942
|
|
|
3,584,013
|
|
|
(8,152
|
)
|
|
|
70,357,803
|
|
|
Total
|
|
$
|
77,343,120
|
|
$
|
3,758,310
|
|
$
|
(318,520
|
)
|
|
$
|
80,782,910
|
|
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
|
|
|
Obligations of Other U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Agencies
|
|
|
3,600,154
|
|
|
-
|
|
|
(125,494
|
)
|
|
|
3,474,660
|
|
|
Mortgage-Backed Securities
|
|
|
84,105,117
|
|
|
3,899,723
|
|
|
(12,283
|
)
|
|
|
87,992,557
|
|
|
Total
|
|
$
|
94,684,079
|
|
$
|
4,071,698
|
|
$
|
(455,525
|
)
|
|
$
|
98,300,252
|
|
The amortized cost and approximate fair value of investment securities classified as
held-to-maturity
at March 31, 2010, are summarized as follows:
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Obligations of State and
|
|
|
|
|
|
|
|
|
|
|
|
Political Subdivisions
|
|
$
|
32,949,813
|
|
$
|
823,127
|
|
$
|
(234,753
|
)
|
|
$
|
33,538,187
|
|
|
Mortgage-Backed Securities
|
|
|
10,287,156
|
|
|
512,025
|
|
|
--
|
|
|
|
10,799,181
|
|
|
Total
|
|
$
|
43,236,969
|
|
$
|
1,335,152
|
|
$
|
(234,753
|
)
|
|
$
|
44,337,368
|
|
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
|
|
|
There were no investment securities classified as trading at March 31, 2010 or December 31, 2009.
|
The aggregate fair value and aggregate unrealized losses on securities whose fair values are below book values as of March 31, 2010 and 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 March 31, 2010, there were twenty-five securities included in held-to-maturity and thirteen securities included in available-for-sale with fair values below book value.
|
|
|
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)
|
|
$
|
5,767,374
|
|
|
$
|
(26,579
|
)
|
|
$
|
4,473,656
|
|
|
$
|
(208,174
|
)
|
|
$
|
10,241,029
|
|
|
$
|
(234,753
|
)
|
|
Total
|
|
$
|
5,767,374
|
|
|
$
|
(26,579
|
)
|
|
$
|
4,473,656
|
|
|
$
|
(208,174
|
)
|
|
$
|
10,241,029
|
|
|
$
|
(234,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Political
Subdivisions (11)
|
|
$
|
3,411,930
|
|
|
$
|
(308,188
|
)
|
|
|
--
|
|
|
|
--
|
|
|
$
|
3,411,930
|
|
|
$
|
(308,188
|
)
|
|
Obligations of Other U.S. Government Sponsored Agencies (1)
|
|
|
2,548,425
|
|
|
|
(2,180
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
2,548,425
|
|
|
|
(2,180
|
)
|
|
Mortgage Backed Securities(1)
|
|
|
922,398
|
|
|
|
(8,152
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
922,398
|
|
|
|
(8,152
|
)
|
|
Total
|
|
$
|
6,882,753
|
|
|
$
|
(318,520
|
)
|
|
|
--
|
|
|
|
--
|
|
|
$
|
6,882,753
|
|
|
$
|
(318,520
|
)
|
|
|
As of December 31, 2009, there were twenty-five securities included in held-to-maturity and fifteen securities included in available-for-sale with fair values below book value.
|
|
|
|
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)
|
|
|
Obligations of Other U.S. Government Sponsored Agencies (2)
|
|
|
3,474,660
|
|
|
|
(125,494
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
3,474,660
|
|
|
|
(125,494
|
)
|
|
Mortgaged-backed Securities (1)
|
|
|
924,524
|
|
|
|
(12,283)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
924,524
|
|
|
|
(12,283)
|
|
|
Total
|
|
$
|
8,046,211
|
|
|
$
|
(455,526
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,046,211
|
|
|
$
|
(455,526
|
)
|
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 the mortgage-backed securities 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; the Company does not have the intent to sell, and more likely than not will not be required to sell, these securities prior to maturity. Thus, the Company is not required to record any loss on the securities.
Note D. Loans Held-for-Sale
The Company originates loans that will be sold in the secondary market and other loans that it plans to hold to maturity. Loans to be held in the portfolio are classified as held to maturity at origination based on the Company’s intent and ability to hold until maturity. These loans are reported at their outstanding balance. Loans held for sale are designated as such at origination and locked in with an approved investor by obtaining a forward commitment to purchase the loan, usually not to exceed 30 days from closing. Management has a clear intent to sell the loan based on the commitment it has obtained from the investor.
Loans held-for-sale are primarily thirty year and fifteen 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 sold to protect earnings and equity from undesirable shifts in interest rates. Unrealized losses on loans held-for-sale, if any, 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. At March 31, 2010, the Company had $1.8 million in loans held-for-sale. There were no losses recorded for the period ended March 31, 2010.
Loans held in the portfolio are periodically analyzed and compiled as to the individual characteristics of each loan. If at any time a decision is made to sell any loan in the portfolio, such loan is reclassified as held-for-sale and carried at the lower of cost or market.
Note E. Junior Subordinated Debentures
On March 26, 2003, the Company finalized its participation in FTN Financial Capital Market’s and Keefe, Bruyette & Woods’ pooled trust preferred offering. The Company established Britton & Koontz Statutory Trust # 1 which issued 5,000 capital securities and 155 common securities with an aggregate liquidation amount of $5 million and $155 thousand, respectively. The term of the capital securities and debentures is 30 years, callable after 5 years at the option of the Company. The initial interest rate was 4.41%, adjusting quarterly at 3-Month LIBOR plus 3.15% and capped at 11.75%. The interest rate at March 31, 2010, was 3.43%. The securities are currently callable at the discretion of the Company on a quarterly basis.
Note F. Loan Commitments
In the ordinary course of business, the Company enters into commitments to extend credit to its customers. Letters of credit at March 31, 2010, and December 31, 2009, were $4.1 million and $4.4 million, respectively. As of March 31, 2010, the Company had entered into other commercial and residential loan commitments with certain customers that had an aggregate unused balance of $46.9 million, an increase from $43.4 million at December 31, 2009. Because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire, the balances on such commitments should not be used to project actual future liquidity requirements. However, the Company does incorporate expectations about the level of draws under all credit-related commitments into its funds management process.
Note G. Earnings per Share
Basic income per share amounts are computed by dividing net income by the weighted average number of common shares outstanding. The computation of diluted income per share assumes the exercise of all outstanding securities potentially convertible into common stock, including options granted, unless the effect is anti-dilutive. The effect will be anti-dilutive when the exercise price per share of an option exceeds the current market price for a share of Company stock. The Company accounts for its options under the recognition and measurement of fair value provisions of Accounting Standards Codification (“ASC”) Topic 718, “Compensation—Stock Compensation.” The Company uses the Black-Scholes method for valuing stock options. The following information sets forth the computation of earnings per share for the three months ended March 31, 2010 and 2009.
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
2,130,866
|
|
|
2,122,027
|
|
|
Dilutive effect of granted options
|
|
840
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
2,131,706
|
|
|
2,122,199
|
|
|
Net income
|
$
|
63,293
|
|
$
|
600,015
|
|
|
Net income per share-basic
|
$
|
0.03
|
|
$
|
0.28
|
|
|
Net income per share-diluted
|
$
|
0.03
|
|
$
|
0.28
|
|
Note H. Fair Value
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. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements under applicable accounting standards. 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.
Investment securities also include equity securities that are not traded in an active market. The fair value of these securities
equals the carrying value of such assets.
|
|
Cash Surrender Value of Life Insurance - The fair value of this item approximates its carrying value.
|
Loans, Net - For variable-rate loans which re-price frequently, 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 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:
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
6,117
|
|
$
|
6,117
|
|
$
|
10,304
|
|
$
|
10,304
|
|
|
Fed Funds Sold
|
|
|
40
|
|
|
40
|
|
|
59
|
|
|
59
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
43,237
|
|
|
44,337
|
|
|
45,028
|
|
|
45,997
|
|
|
Available-for-sale
|
|
|
80,783
|
|
|
80,783
|
|
|
98,300
|
|
|
98,300
|
|
|
Equity securities
|
|
|
3,264
|
|
|
3,264
|
|
|
3,262
|
|
|
3,262
|
|
|
Cash surrender value of life insurance
|
|
|
1,109
|
|
|
1,109
|
|
|
1,099
|
|
|
1,099
|
|
|
Loans, net
|
|
|
219,911
|
|
|
222,589
|
|
|
220,723
|
|
|
223,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
251,732
|
|
|
252,392
|
|
|
250,942
|
|
|
251,628
|
|
|
Short-term borrowings
|
|
|
7,697
|
|
|
7,696
|
|
|
32,023
|
|
|
32,019
|
|
|
Long-term borrowings
|
|
|
9,000
|
|
|
9,176
|
|
|
9,000
|
|
|
9,074
|
|
|
Securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
14,187
|
|
|
14,185
|
|
|
13,211
|
|
|
13,210
|
|
|
Structured
|
|
|
40,000
|
|
|
43,563
|
|
|
40,000
|
|
|
43,348
|
|
|
Junior subordinated debentures
|
|
|
5,155
|
|
|
5,155
|
|
|
5,155
|
|
|
5,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
Amount
|
|
Fair
Value
|
|
Face
Amount
|
|
Fair
Value
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
46,937
|
|
$
|
46,937
|
|
$
|
43,423
|
|
$
|
43,423
|
|
|
Standby letters of credit
|
|
|
4,095
|
|
|
4,095
|
|
|
4,374
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides the fair value hierarchy table for fair value measurements of Available-for-sale securities at March 31, 2010 and December 31, 2009:
|
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)
|
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Backed Securities
|
|
$
|
70,357,802
|
|
|
$
|
0.00
|
|
|
$
|
70,357,802
|
|
|
$
|
0.00
|
|
|
Obligation of State and Political Subdivision
|
|
|
6,844,182
|
|
|
|
0.00
|
|
|
|
6,844,182
|
|
|
|
0.00
|
|
|
Obligations of Other U.S. Government Sponsored Agencies
|
|
|
3,580,925
|
|
|
|
0.00
|
|
|
|
3,580,925
|
|
|
|
0.00
|
|
|
Total
|
|
$
|
80,782,909
|
|
|
$
|
0.00
|
|
|
$
|
80,782,909
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Backed Securities
|
|
$
|
87,992,557
|
|
|
$
|
0.00
|
|
|
$
|
87,992,557
|
|
|
$
|
0.00
|
|
|
Obligation of State and Political Subdivision
|
|
|
6,833,035
|
|
|
|
0.00
|
|
|
|
6,833,035
|
|
|
|
0.00
|
|
|
Obligations of Other U.S. Government Sponsored Agencies
|
|
|
3,474,660
|
|
|
|
0.00
|
|
|
|
3,474,660
|
|
|
|
0.00
|
|
|
Total
|
|
$
|
98,300,252
|
|
|
$
|
0.00
|
|
|
$
|
98,300,252
|
|
|
$
|
0.00
|
|
|
Level 1
includes the most reliable sources, and includes quoted prices for identical instruments 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 I. Subsequent Events
The Company evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion is intended to present a review of the major factors affecting the financial condition of Britton & Koontz Capital Corporation (the “Company”) and its wholly-owned subsidiary, Britton & Koontz Bank, N.A. (the “Bank”), as of March 31, 2010, as compared to the Company’s financial condition as of December 31, 2009, and the results of operations of the Company for the three-month period ended March 31, 2010, as compared to the corresponding period in 2009.
Summary
Net income and earnings per diluted share for the three months ended March 31, 2010, was $63 thousand and $.03 per diluted share, respectively, compared to $600 thousand and $.28 per diluted share for the quarter ended March 31, 2009. The decrease in earnings in the 1
st
quarter of 2010 as compared to the same period in 2009 is attributable to the Company’s increase in the provision for loan losses by $400 thousand in the 1
st
quarter of 2010. Also, we charged down the value of other real estate by $335 thousand after the Bank discovered structural deficiencies in a certain foreclosed property that had already been transferred to other real estate. The Company also incurred a $306 thousand charge after management concluded that loan and related late fees previously believed to be recoverable were ultimately uncollectible. Finally, net interest income during the 1
st
quarter of 2010 decreased $272 thousand compared to the same period in 2009. Offsetting these factors were recoveries of $433 thousand from the Small Business Administration on other real estate and gains of $446 thousand on the sale of mortgage backed securities.
Assets declined $23.3 million during the 1
st
quarter of 2010 to $369.8 million due primarily to the decrease of $19 million in the investment portfolio. Investment securities were $127.3 million at March 31, 2010, compared to $146.6 million at December 31, 2009. Net loans declined slightly to $219.9 million at March 31, 2010, from $220.7 million at December 31, 2009. Total deposits increased $790 thousand to $251.7 million at March 31, 2010 from $250.9 million at December 31, 2009, while borrowings from the Federal Home Loan Bank (“FHLB”) declined $24.3 million to $16.7 million. Total stockholders’ equity decreased $415 thousand to $39.4 million at March 31, 2010, from $39.8 million at December 31, 2009.
The Bank’s provision for loan losses for the three month period ending March 31, 2010, was increased to $1.1 million, compared to $700 thousand during the same period in 2009. The increase in provision was in response to the transfer of one commercial credit to non-accrual and net charge-offs of $1.8 million during the 1
st
quarter of 2010. Total non-performing assets ended the 1
st
quarter of 2010 at $11.1 million compared to $10.5 million at December 31, 2009.
Subsequent to March 31, 2010, a total of approximately $2.3 million of non-accrual loans have been repaid. While resolutions of problem loans after quarter-end have been positive, management still believes that the local markets in which the Company operates have not yet completely stabilized from the recent recession. Therefore, unexpected asset quality issues may still arise. Management continues its efforts to identify and resolve problem credits as quickly as possible.
Investment Securities
The Company’s investment portfolio at March 31, 2010, consisted of mortgage-backed, agency and municipal securities. Investment securities that are classified as held-to-maturity (“HTM”) are accounted for by the amortized cost method while securities in the available-for-sale (“AFS”) category are accounted for at fair value. Changes in value of the AFS securities are recorded in the equity section of the balance sheet in “accumulated other comprehensive income.”
Management determines the classification of its securities at acquisition. Total HTM and AFS investment securities decreased $19.3 million to $124.0 million at March 31, 2010 from $143.3 million at December 31, 2009. The decrease is due to cash flows from monthly pay downs being used to pay down debt rather than being reinvested in investment securities; the sale of approximately $14 million in mortgage backed securities also contributed to the decrease. Equity securities ended both periods at $3.3 million At March 31, 2010, equity securities were comprised primarily of Federal Reserve Bank stock of $522 thousand, FHLB stock of $2.4 million, ECD Investments, LLC (“ECD”) membership interests of $100 thousand and the Company’s $155 thousand investment in B&K Statutory Trust.
Loans
Total loans, net of loans held for sale, decreased $2.6 million to $221.2 million at March 31, 2010, from $223.8 million at December 31, 2009, due to decreases in the commercial real estate portfolio and normal pay-downs in the remainder of the portfolio. The Company originates 1-4 family residential loans to sell in the secondary market. The decision to expand its mortgage operations by hiring new loan originators in 2009 has resulted in increased originations and sales. Loans sold during the 1
st
quarter of 2010 increased $1.9 million to $8.0 million compared to the 1
st
quarter of 2009. Total loans to deposit ratio was 87.9% at March 31, 2010, compared to 89.2% at December 31, 2009. The following table presents the Bank’s loan portfolio composition at March 31, 2010, and December 31, 2009.
COMPOSITION OF LOAN PORTFOLIO
|
|
|
|
|
|
|
Commercial, financial & agricultural
|
$
|
26,218,000
|
|
$
|
25,606,000
|
|
|
Real estate-construction
|
|
29,895,000
|
|
|
31,341,000
|
|
|
Real estate-residential
|
|
67,250,000
|
|
|
67,213,000
|
|
|
Real estate-other
|
|
94,976,000
|
|
|
95,511,000
|
|
|
Installment
|
|
4,465,000
|
|
|
4,806,000
|
|
|
Other
|
|
252,000
|
|
|
124,000
|
|
|
Total loans
|
$
|
223,056,000
|
|
$
|
224,601,000
|
|
The Company’s loan portfolio at March 31, 2010, had no significant concentrations of loans other than in the categories presented in the table above.
Bank Premises
There have been no material changes in the Company’s premises since December 31, 2009.
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 collectability 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, including non-accrual loans of $9.3 million, other real estate of $1.8 million and loans 90 days or more delinquent of $51 thousand, increased $622 thousand to $11.1 million at March 31, 2010, from $10.5 million at December 31, 2009. The increase is due primarily to one commercial credit in the amount of $2.1 million that was classified as nonaccrual in the 1
st
quarter of 2010. The Company has experienced some resolution of problem loans, as a total of approximately $2.3 million of non-accrual loans have been repaid subsequent to the end of the 1
st
quarter of 2010. Nonperforming loans as a percent of total loans, net of unearned income and loans held for sale, decreased to 4.24% at March 31, 2010, compared to 4.34% at December 31, 2009. Net charge-offs during the 1
st
quarter of 2010 increased to $1.8 million compared to $116 thousand during the 4
th
quarter of 2009. 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.
A breakdown of nonperforming assets at March 31, 2010, and December 31, 2009, is shown below.
BREAKDOWN OF NONPERFORMING ASSETS
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Non-accrual loans by type:
|
|
|
|
|
|
Real estate
|
$
|
9,102
|
|
$
|
8,510
|
|
|
Installment
|
|
9
|
|
|
12
|
|
|
Commercial and all other loans
|
|
224
|
|
|
187
|
|
|
Total non-accrual loans
|
|
9,335
|
|
|
8,709
|
|
|
Loans past due 90 days or more
|
|
51
|
|
|
1,004
|
|
|
Total nonperforming loans
|
|
9,386
|
|
|
9,713
|
|
|
Other real estate owned (net)
|
|
1,764
|
|
|
815
|
|
|
Total nonperforming assets
|
$
|
11,150
|
|
$
|
10,528
|
|
|
Nonperforming loans to total loans, net of LHFS
|
|
4.24
|
%
|
|
4.34
|
%
|
|
Nonperforming loans to total assets
|
|
2.54
|
%
|
|
2.47
|
%
|
|
Nonperforming assets to total loans, net of LHFS
|
|
5.04
|
%
|
|
4.70
|
%
|
|
Nonperforming assets to total assets
|
|
3.02
|
%
|
|
2.68
|
%
|
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 Topic 310, “Receivables,” 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 $50,000 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. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of the Company’s policies and procedures regarding the appraisal of collateral securing its loans, including impaired loans.
Based upon this evaluation, management believes the allowance for loan losses of $3.1 million at March 31, 2010, which represents 1.42% of gross loans, is adequate, under prevailing economic conditions, to absorb probable losses on existing loans. At December 31, 2009, the allowance for loan loss was $3.9 million, or 1.73% of gross loans. The allowance includes a specific allocation of approximately $1.5 million on total impaired loans of $9.3 million.
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.
Provision for Loan Losses
The provision for loan losses is a charge to earnings to maintain the allowance 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. The Company increased the provision by $400 thousand to $1.1 million for the 1
st
quarter of 2010 compared to $700 thousand during the 1
st
quarter of 2009 primarily due to increased net charge-offs during the 1
st
quarter of 2010 of $1.8 million. The Company was aware of the charge-offs at December 31, 2009 and had added additional loan loss provision to cover the charge-offs in the 1
st
quarter of 2010.
The Company regularly reviews the allowance account in an effort to maintain it at an adequate level and collects necessary data to make a proper provision expense to earnings. Based upon this evaluation, and considering the increased net charge-offs in the 1
st
quarter of 2010 and possible charge-offs for the remainder of the year, management currently believes that a provision for loan losses of approximately $300 thousand for the second quarter of 2010 will be adequate to provide coverage for possible loan losses that may be inherent in the loan portfolio. However, factors may come to light in the year ahead that may influence management to change its expected provision. The following table details the allowance activity for the three months ended March 31, 2010 and 2009:
ACTIVITY OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Balance at beginning of period
|
$
|
3,878
|
|
$
|
2,398
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
Real Estate
|
|
(1,822
|
)
|
|
(153
|
)
|
|
Commercial
|
|
(10
|
)
|
|
-
|
|
|
Installment and other
|
|
(11
|
)
|
|
(2
|
)
|
|
Recoveries:
|
|
|
|
|
|
|
|
Real Estate
|
|
4
|
|
|
4
|
|
|
Commercial
|
|
5
|
|
|
15
|
|
|
Installment and other
|
|
1
|
|
|
4
|
|
|
Net (charge-offs)/recoveries
|
|
(1,833
|
)
|
|
(132
|
)
|
|
Provision charged to operations
|
|
1,100
|
|
|
700
|
|
|
Balance at end of period
|
$
|
3,145
|
|
$
|
2,966
|
|
|
Allowance for loan losses as a percent of loans, net of unearned interest and loans held for sale
|
|
1.42
|
%
|
|
1.34
|
%
|
|
Net charge-offs (YTD) as a percent of average loans
|
|
.82
|
%
|
|
.06
|
%
|
Potential Problem Loans
At March 31, 2010, the Company had no loans, other than those balances incorporated in the above tables, which management had significant doubts as to the ability of the borrower to comply with current repayment terms.
Deposits
Total deposits increased $790 thousand from $250.9 million at December 31, 2009, to $251.7 million at March 31, 2010. The Company from time to time uses brokered certificates of deposit as an asset liability management tool; such certificates of deposit currently consist of only 4% of the Company’s total deposits.
The composition of the Company’s deposits is described in the following table.
COMPOSITION OF DEPOSITS
|
|
|
|
|
|
|
Non-Interest Bearing
|
$
|
45,683,381
|
|
$
|
49,847,304
|
|
|
NOW Accounts
|
|
67,437,841
|
|
|
57,815,246
|
|
|
Money Market Deposit Accounts
|
|
32,269,211
|
|
|
30,563,856
|
|
|
Savings Accounts
|
|
18,931,877
|
|
|
18,259,388
|
|
|
Certificates of Deposit
|
|
87,409,862
|
|
|
94,456,326
|
|
|
Total Deposits
|
$
|
251,732,172
|
|
$
|
250,942,120
|
|
Borrowings
Total bank borrowings, including FHLB advances, federal funds purchased, customer and structured repurchase agreements, decreased $23.3 million to $70.9 million at March 31, 2010, compared to $94.2 million at December 31, 2009. The decrease in borrowed funds is due primarily to the decline in the investment portfolio from sales of securities along with monthly cash flows used to pay down debt rather than re-invest back into the market. The Company includes in these borrowings balances that the Company has pursuant to agreements with local depositors to sweep overnight funds from their commercial deposit accounts. Because of the nature of the agreements, these sweep accounts are included as borrowings rather than local customer deposits; these amounts are classified as repurchase agreements and included under the “Securities sold under repurchase agreements” line item on the Company’s balance sheet. Management believes these accounts perform more like a core deposit rather than a bank obligation.
Capital
Stockholders' equity totaled $39.4 million at March 31, 2010, compared to $39.8 million at December 31, 2009. Earnings of $63 thousand were offset by a $111 thousand change in unrealized losses in the AFS investment portfolio and by $384 thousand in dividends paid.
The Company and Bank maintained a total capital to risk weighted assets ratio of 17.53% and 16.44%, respectively, a Tier 1 capital to risk weighted assets ratio of 16.30% and 15.22%, respectively, and a leverage ratio of 10.97% and 10.24%, respectively, at March 31, 2010. These levels substantially exceed the minimum requirements of bank regulatory agencies for well-capitalized institutions of 10.00%, 6.00% and 5.00%, respectively. Components of comprehensive income are excluded from the calculation of capital ratios. The ratio of shareholders' equity to assets increased to 10.7% at March 31, 2010, compared to 10.1% at December 31, 2009.
Off-Balance Sheet Arrangements
There have been no changes in the Company’s off-balance sheet arrangements during the three months ended March 31, 2010. See Note B and Note E to the Company’s consolidated financial statements for a description of the Company’s off-balance sheet arrangements.
Results of Operations
Net Interest Income and Net Interest Margin
One of the largest components of the Company’s earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid for deposits and borrowed funds. The net interest margin is net interest income expressed as a percentage of average earning assets.
Net interest income ended March 31, 2010, at $3.4 million compared to $3.7 million at March 31, 2009. This decline was due primarily to the charge-off of interest on loans transferred to non-accrual and lower than expected average earning assets, offset by lower funding costs of interest bearing liabilities during the 1
st
quarter of 2010 compared to the same period in 2009. Contributing to the lower average earning assets was a $34 million decrease in average investment securities. The Federal Reserve’s purchase of securities resulted in lower medium and longer term interest rates and did not provide profitable opportunities for reinvestment. Therefore, cash flows from the investment securities portfolio were used to pay down debt. Even with the decline in net interest income, net interest margin increased from 3.71% at March 31, 2009, to 3.74% at March 31, 2010, due to the lower volume of earning assets.
Non-Interest Income/ Non-Interest Expense
Non-interest income ended March 31, 2010, at $1.1 million compared to $677 thousand at March 31, 2009. The difference was primarily due to a gain of $446 thousand on the sale of approximately $11 million of mortgage-backed securities. Non-interest expense increased $577 thousand as compared to the 1
st
quarter of 2009 and ended the 1
st
quarter of 2010 at $3.5 million. The increase is primarily due to the $306 thousand charge to expense related to the charge-off of loan and late fees receivable, located in the “Other” line item in the Other Expenses section of the income statement, as well as higher occupancy, equipment and salary and benefits costs.
Income Taxes
The Company recorded income tax credit of $184 thousand for the three months ended March 31, 2010, compared to income tax expense of $84 thousand for the same period in 2009. The tax credit arose primarily due to the tax effects resulting from the additional $400 thousand in the provision for loan losses in the 1
st
quarter of 2010.
Liquidity and Capital Resources
The Company utilizes a funds management process to assist management in maintaining net interest income during times of rising or falling interest rates and in maintaining sufficient liquidity. Principal sources of liquidity for the Company are asset cash flows, customer deposits and the ability to borrow against investment securities and loans. Secondary sources of liquidity include the sale of investment and loan assets. All components of liquidity are reviewed and analyzed on a monthly basis.
The Company has established a liquidity contingency plan to guide the Bank in the event of a liquidity crisis. The plan describes the normal operating environment, prioritizes funding options and outlines management responsibilities and board notification procedures. As more emphasis has been directed to liquidity needs, the Company is in the process of enhancing its contingency plan to include stress levels, heightened reporting and monitoring along with testing to better understand and report its liquidity position.
The Company’s cash and cash equivalents decreased $4.2 million to $6.1 million at March 31, 2010, from $10.3 million at December 31, 2009. Cash provided by operating and investing activities during the 1
st
quarter of 2010 was $1.4 million and $17.3 million, respectively, while financing activities used $22.9 million over the same period.
At March 31, 2010, the Company had unsecured federal funds lines with correspondent banks of $38 million and maintained the ability to draw on its available line of credit with the FHLB in the amount of approximately $64 million. In addition to these lines of credit, the bank had approximately $20 million in liquid assets including unencumbered investment securities available for collateralized borrowing and approximately $44 million available from the brokered CD market.
Certain restrictions exist on the ability of the Bank to transfer funds to the Company in the form of dividends and loans. These restrictions are described in detail in Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” and incorporated by reference herein. These restrictions have not had, and are not expected in the future to have, a material impact on the Company’s ability to meet its anticipated cash obligations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report 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 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. Forward-looking statements have been and will be made in written documents and oral presentations of the Company. 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 (including this Report) 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, changes in assumptions or other factors affecting such statements.
It
em 3. 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) (1) of Regulation S-K.
It
em 4T.
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 design and operation 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 March 31, 2010. Based on this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective for ensuring that information that 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 recorded within the time periods specified in the SEC’s rules and forms.
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
It
em 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s ability to pay dividends to its shareholders is substantially dependent on the ability of the Bank to transfer funds to the Company in the form of dividends, loans and advances. Federal law imposes limitations on the payment of dividends by national banks. 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 to the Company is also limited by prudence, statutory and regulatory guidelines and a variety of other factors.
At March 31, 2010, retained earnings available for payment of cash dividends under applicable dividend regulations exceeded $3.1 million.
Certain restrictions also exist on the ability of the Bank to transfer 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 March 31, 2010, the maximum amount available for transfer from the Bank to the Company in the form of loans on a secured basis was $2.5 million. There were no loans outstanding from the Bank to the Company at March 31, 2010.
It
em 6. Exhibits
|
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 Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“Commission”) on February 20, 2009.
|
|
|
|
|
|
3.2
|
*
|
By-Laws of Britton & Koontz Capital Corporation, as amended, incorporated by reference to Exhibit 3.2 to Company’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 Company’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 Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006.
|
|
|
|
|
|
31.1
|
|
Certifications of the Chief Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
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31.2
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Certifications of the Chief Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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|
|
|
|
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32.1
|
|
Certifications of the Chief Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certifications of the Chief Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
*
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As indicated in the column entitled “Description of Exhibits” this exhibit is incorporated by reference to another filing or document.
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S
IGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRITTON & KOONTZ CAPITAL CORPORATION
Date: May 14, 2010
/s/ W. Page Ogden
W. Page Ogden
Chief Executive Officer
Date: May 14, 2010
/s/ William M. Salters
William M. Salters
Chief Financial Officer
Britton & Koontz Capital Corp. (MM) (NASDAQ:BKBK)
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