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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
Commission File Number: 001-33682
FIRST ADVANTAGE BANCORP
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (931) 552-6176
Former name, former address and former fiscal year, if changed since last report. N/A
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 ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one): Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] Smaller Reporting Company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ___ No X
The number of shares outstanding of the registrant’s common stock as of May 11, 2012 was 4,326,535.
FIRST ADVANTAGE BANCORP
Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial statements include the accounts of First Advantage Bancorp (the “Company”), First Advantage Bank (the “Bank”) and the Bank’s subsidiaries. First Advantage Bank is a Tennessee chartered commercial bank, formerly known as First Federal Savings Bank, originally founded in 1953 and is headquartered in Clarksville, Tennessee. The Company uses the premises, equipment and other property of the Bank with the payment of appropriate rental fees, as required by applicable laws and regulations, under the terms of an expense allocation agreement. Accordingly, the information set forth in this interim report, including the condensed consolidated financial statements and related financial data contained herein relates primarily to the Bank. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for reporting the interim periods have been included. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period. The condensed consolidated financial statements and notes thereto included in this report should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the United States Securities and Exchange Commission (the “SEC”) on March 9, 2012.
Certain reclassifications considered to be immaterial have been made to prior period consolidated financial statements to conform to the current period consolidated financial statements.
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates.
NOTE 2 – RECENT ACCOUNTING UPDATES
ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have a significant impact on the Company’s consolidated financial position, results of operation, cash flows, or disclosures.
ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011. In connection with the adoption of ASU No. 2011-12, in the first quarter of 2012, the company presented condensed consolidated statements of other comprehensive income in the accompanying financial statements.
NOTE 3 – EARNINGS PER COMMON SHARE
Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock) were vested during the period. The weighted average common shares outstanding equals the gross number of common shares issued less unallocated shares held by the First Advantage Bank Employee Stock Ownership Plan (“ESOP”), nonvested restricted stock awards under the Company’s 2007 Deferred Compensation Plan and nonvested restricted stock awards under the Company’s 2008 Equity Incentive Plan. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares to be issued include any restricted shares authorized under the Company’s 2007 Deferred Compensation Plan and the 2008 Equity Incentive Plan. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are included in the weighted-average number of common shares outstanding for diluted EPS calculations as they are committed to be released.
Basic and diluted earnings per share are computed as follows:
NOTE 4 –LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company’s primary lending activity is the origination of loans secured by real estate. The Company originates one-to-four family mortgage loans, multi-family loans, nonresidential real estate loans, commercial business loans and construction loans. To a lesser extent, we also originate land loans and consumer loans.
The following table summarizes the composition of our total net loans receivable at March 31, 2012 and December 31, 2011:
The following table sets forth certain information at March 31, 2012 and December 31, 2011 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments which may significantly shorten the average life of loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
The following tables set forth the dollar amount of all loans at March 31, 2012 that are due after March 31, 2013, and at December 31, 2011 that are due after December 31, 2012, and have either fixed interest rates or floating or adjustable interest rates:
Our adjustable-rate mortgage loans do not adjust downward below the initial discounted contract rate. When market rates rise the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.
We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Loans are placed on non-accrual status when, in management’s opinion, the borrower is unable to meet payment obligations, which typically occurs when principal and interest payments are 90 days delinquent at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against interest income. Typically, payments received on a non-accrual loan are first applied to the outstanding principal balance. At March 31, 2012 and December 31, 2011, non-accruing loans were $2.6 million and $2.8 million, respectively. Had non-accrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income, net of tax, of approximately $77,000 for the first three months of 2012. No interest income was recognized on non-accrual loans on a cash basis during the first three months of 2012 or during 2011.
Other real estate owned and repossessed assets which are acquired through, or in lieu, of foreclosure are held for sale and initially recorded at fair value, less estimated selling cost, when acquired, establishing a new cost basis. Costs incurred after acquisition are generally expensed. Any changes in fair value below the new cost basis of the asset are recorded through a valuation allowance and charged to expense. The valuations of other real estate owned and repossessed asset are subjective in nature and may be adjusted in the future because of changes in market conditions.
The following table provides information with respect to our nonperforming assets at the dates indicated.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable credit losses in the loan portfolio and represents management’s best estimate of known and inherent losses in the loan portfolio, based upon management’s evaluation of the portfolio’s collectibility. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. The recommendations for increases or decreases to the allowance are approved by the Asset Quality Review Committee and presented to the Board of Directors.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific allowance on identified problem loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Management estimates a range of losses and then makes its best estimate of potential credit losses within that range. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.
Specific Allowance Required for Identified Problem Loans. We establish an allowance on certain identified problem loans based on such factors as: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; and (6) the borrower’s effort to cure the delinquency.
We also identify loans that may need to be charged-off as a loss by reviewing all delinquent loans, classified loans and other loans for which management may have concerns about collectibility. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan or a shortfall in collateral value would result in our allocating a portion of the allowance to the loan that was impaired.
General Valuation Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans that are not currently classified in order to recognize the inherent losses associated with lending activities. This general valuation allowance is determined through two steps. First, we estimate potential losses on the portfolio by analyzing historical losses for each loan category. Second, we look at additional significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures; international, national, regional and local economic conditions; changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management; changes in the volume of past dues, non-accruals and classified assets; changes in the quality of the loan review system; changes in the value of underlying collateral for collateral dependent loans; concentrations of credit, and other factors.
At March 31, 2012, our allowance for loan losses represented 1.7% of total gross loans and 163.3% of nonperforming loans. At December 31, 2011, our allowance for loan losses represented 1.6% of total gross loans and 154.8% of nonperforming loans. The allowance for loan losses decreased $2,000 at March 31, 2012, as compared to December 31, 2011, due to $238,000 in charge offs during the first quarter of 2012 which were partially offset by $227,000 in allowance provision and $9,000 in recoveries from charged off loans during the first quarter of 2012.
The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with accepted accounting principles, there can be no assurance that our regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. Our regulators may require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.
Analysis of Loan Loss Experience
The following table details allowance for loan losses and recorded investment in loans by portfolio segment for the three months ended March 31, 2012 and 2011: