SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2008
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ___________________
Commission File No. 001-52751
FSB Community Bankshares, Inc.
------------------------------
(Exact name of registrant as specified in its charter)
United States 74-3164710
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
45 South Main Street, Fairport, New York 14450
---------------------------------------- -----
(Address of Principal Executive Offices) Zip Code
(585) 223-9080
--------------
(Registrant's telephone number)
N/A
-------------------------------------------------------
(Former name or former address, if changed since last report)
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
requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
--- ---
As of August 13, 2008 there were 1,785,000 shares of the Registrant's
common stock, par value $0.10 per share, outstanding, 946,050 of which were held
by FSB Community Bankshares, MHC, the Registrant's mutual holding company.
FSB Community Bankshares, Inc.
FORM 10-Q
Index
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Page
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Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 2008
and December 31, 2007 1
Consolidated Statements of Operations for the Three Months Ended
June 30, 2008 and 2007 2
Consolidated Statements of Operations for the Six Months Ended
June 30, 2008 and 2007 3
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 2008 and 2007 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2008 and 2007 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
Part II. Other Information
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits 21
Signature Page 22
Part I. Financial Information
Item 1. Consolidated Financial Statements
FSB COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
June 30, 2008 and December 31, 2007 (unaudited)
(Dollars in thousands, except per share data)
June 30, December 31,
Assets 2008 2007
---------------------- -----------------------
Cash and due from banks $ 1,362 $ 1,159
Interest-earning demand deposits 3,705 8,285
---------------------- -----------------------
Cash and Cash Equivalents 5,067 9,444
Securities available for sale 42,765 244
Securities held to maturity (fair value 2008 - $11,374, 2007- $28,597) 11,394 28,550
Investment in FHLB stock 2,293 1,405
Loans receivable, net of allowance for loan losses of: 2008 - $327,
2007 - $319 131,869 124,326
Accrued interest receivable 1,088 872
Premises and equipment, net 2,414 2,525
262 264
---------------------- -----------------------
Total Assets $ 197,152 $ 167,630
====================== =======================
Liabilities & Stockholders' Equity
Deposits:
Non-interest-bearing $ 3,399 $ 3,169
Interest-bearing 125,764 115,989
---------------------- -----------------------
Total Deposits 129,163 119,158
Borrowings 45,058 25,581
Advances from borrowers for taxes and insurance 2,478 1,898
Other liabilities 598 844
---------------------- -----------------------
Total Liabilities 177,297 147,481
---------------------- -----------------------
Stockholders' Equity
Preferred Stock- no par- 1,000,000 shares authorized;
no shares issued and outstanding - -
Common Stock- $0.10 par value - 10,000,000 shares authorized;
1,785,000 shares issued and outstanding 179 179
Additional paid-in-capital 7,289 7,293
Retained earnings 13,128 13,224
Accumulated other comprehensive income (loss) (94) 118
Unearned ESOP shares - at cost (647) (665)
---------------------- -----------------------
Total Stockholders' Equity 19,855 20,149
---------------------- -----------------------
Total Liabilities and Stockholders' Equity $ 197,152 $ 167,630
====================== =======================
See accompanying notes to consolidated financial statements
1
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Operations
Three Months Ended June 30, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)
For the Three Months
Ended June 30,
2008 2007
--------------- -------------
Interest and Dividend Income
Loans $ 1,847 $ 1,782
Securities - taxable 370 242
Mortgage-backed securities 302 64
Other 16 41
--------------- -------------
Total Interest and Dividend Income 2,535 2,129
--------------- -------------
Interest expense
Deposits 1,065 1,064
Borrowings 431 255
--------------- -------------
Total Interest Expense 1,496 1,319
--------------- -------------
Net Interest Income 1,039 810
Provision for Loan Losses 6 -
--------------- -------------
Net Interest Income After Provision
for Loan Losses 1,033 810
--------------- -------------
Other Income
Service fees 24 25
Fee income 39 20
Other 68 33
--------------- -------------
Total Other Income 131 78
--------------- -------------
Other Expenses
Salaries and employee benefits 547 549
Occupancy expense 114 109
Data processing costs 25 29
Advertising 88 60
Equipment expense 80 84
Electronic banking 17 14
Directors fees 31 24
Mortgage fees and taxes 66 47
Other expense 182 147
--------------- -------------
Total Other Expenses 1,150 1,063
--------------- -------------
Income (Loss) Before Income Taxes 14 (175)
Provision (Benefit) for Income Taxes 4 (63)
--------------- -------------
Net Income (Loss) $ 10 $ (112)
=============== =============
Earnings (Loss) per common share $ 0.01 $ (0.12)
=============== =============
See accompanying notes to consolidated financial statements
2
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Operations
Six Months Ended June 30, 2008 and 2007 (unaudited)
(Dollars in thousands, except per share data)
2008 2007
---------------- ---------------
Interest and Dividend Income
Loans $ 3,664 $ 3,575
Securities - taxable 683 477
Mortgage-backed securities 504 123
Other 90 47
---------------- ---------------
Total Interest and Dividend Income 4,941 4,222
---------------- ---------------
Interest expense
Deposits 2,207 2,027
Short Term Borrowings - 29
Long Term Borrowings 809 516
---------------- ---------------
Total Interest Expense 3,016 2,572
---------------- ---------------
Net Interest Income 1,925 1,650
Provision for Loan Losses 6 -
---------------- ---------------
Net Interest Income After Provision
for Loan Losses 1,919 1,650
---------------- ---------------
Other Income
Service fees 48 49
Fee income 54 42
Other 123 68
---------------- ---------------
Total Other Income 225 159
---------------- ---------------
Other Expenses
Salaries and employee benefits 1,184 1,173
Occupancy expense 228 216
Data processing costs 41 53
Advertising 149 162
Equipment expense 165 178
Electronic banking 35 21
Directors fees 57 53
Mortgage fees and taxes 96 71
Other expense 339 267
---------------- ---------------
Total Other Expenses 2,294 2,194
---------------- ---------------
Loss Before Income Taxes (150) (385)
Income Tax (Benefit) (54) (138)
---------------- ---------------
Net Loss $ (96) $ (247)
================ ---------------
Loss per common share $ (0.06) $ (0.26)
================ ===============
See accompanying notes to consolidated financial statements
3
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 2008 and 2007 (unaudited)
(Dollars in thousands)
Accumulated
Additional Other Unearned
Common Paid in Retained Comprehensive ESOP
Stock Capital Earnings Income (Loss) Shares Total
----------- ------------ ------------- ---------------- ----------- -----------
Balance - January 1, 2007 $ - $ 10 $ 13,505 $ 355 $ - $ 13,870
Comprehensive loss:
Net loss - - (247) - - (247)
Change in net unrealized gain
on securities available
for sale, net of taxes - - - (44) - (44)
-----------
Total Comprehensive Loss - - - - - (291)
----------- ------------ ------------- ---------------- ----------- -----------
Balance - June 30, 2007 $ - $ 10 $ 13,258 $ 311 $ - $ 13,579
=========== ============ ============= ================ =========== ===========
Balance - January 1, 2008 $ 179 $ 7,293 $ 13,224 $ 118 $ (665) $ 20,149
Comprehensive loss:
Net loss - - (96) - - (96)
Change in net unrealized
gain (loss) on securities
available for sale, net of
taxes - - - (212) - (212)
-----------
Total Comprehensive Loss (308)
-----------
ESOP shares committed to
be released - (4) - - 18 14
----------- ------------ ------------- ---------------- ----------- -----------
Balance - June 30, 2008 $ 179 $ 7,289 $ 13,128 $ (94) $ (647) $ 19,855
=========== ============ ============= ================ =========== ===========
See accompanying notes to consolidated financial statements
4
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2008 and 2007 (unaudited) (Dollars
in thousands)
2008 2007
----------------- -----------------
Cash Flows From Operating Activities
Net Loss $ (96) $ (247)
Adjustments to reconcile net loss to net cash used by
operating activities:
Net amortization of premiums and discounts on investments 162 15
Gain on sale of loans (7) -
Amortization of net deferred loan origination fees (12) (13)
Depreciation and amortization 134 151
Provision for loan losses 6 -
Expense related to stock-based compensation plans 14 -
Deferred income tax benefit (35) (23)
Decrease (increase) in accrued interest receivable (216) 65
Derease (increase) in other assets 6 (543)
Decrease in other liabilities (107) (175)
----------------- -----------------
Net Cash Used By Operating Activities (151) (770)
----------------- -----------------
Cash Flows From Investing Activities
Purchase of securities held to maturity (3,001) (5,000)
Proceeds from maturities and calls of securities held to maturity 18,988 3,200
Proceeds from principal paydowns of securities held to maturity 1,149 763
Purchase of securities available for sale (49,948) -
Proceeds from maturities and calls of securities available for sale 5,500 -
Proceeds from principal paydowns of securities available for sale 1,462 -
Net (increase) decrease in loans (9,154) 264
Proceeds from sales of loans 1,627 411
Purchase (redemption) of Federal Home Loan Bank stock (888) 339
Purchase of premises and equipment (23) (646)
----------------- -----------------
Net Cash Used By Investing Activities (34,288) (669)
----------------- -----------------
Cash Flows From Financing Activities
Net increase in deposits 10,005 16,584
Net decrease in short term borrowings - (4,200)
Proceeds from borrowings 21,500 -
Repayments on borrowings (2,023) (3,867)
Net increase in advances from borrowers
for taxes and insurance 580 486
----------------- -----------------
Net Cash Provided By Financing Activities 30,062 9,003
----------------- -----------------
Net Increase (Decrease) in Cash
and Cash Equivalents (4,377) 7,564
Cash and Cash Equivalents- Beginning 9,444 2,182
----------------- -----------------
Cash and Cash Equivalents- End $ 5,067 $ 9,746
================= =================
5
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows, Continued
2008 2007
----------------- -----------------
Supplementary Cash Flows Information
Interest paid $ 3,089 $ 2,576
================= =================
Income taxes paid $ - $ 1
================= =================
See accompanying notes to consolidated financial statements
6
Notes to Consolidated Financial Statements
Note 1-Basis of Presentation
The accompanying unaudited consolidated financial statements of FSB Community
Bankshares, Inc., and its wholly owned subsidiary (the "Company") have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes necessary for a complete presentation of consolidated financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation have been included.
The unaudited consolidated financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should be read in
conjunction with the Company's audited financial statements for the years ended
December 31, 2007 and 2006, included in the Annual Report filed on Form 10-KSB
with the Securities and Exchange Commission ("SEC") on March 31, 2008.
Operating results for the six months ended June 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2008.
The consolidated financial statements at June 30, 2008 and December 31, 2007 and
for the three and six months ended June 30, 2008 and 2007 include the accounts
of the Company, Fairport Savings Bank (the "Bank") and the Bank's wholly-owned
subsidiary, Oakleaf Services Corporation ("Oakleaf"). All inter-company balances
and transactions have been eliminated in consolidation. Certain amounts from
prior periods have been reclassified, when necessary, to conform to current
period presentation.
Note 2-Fair Value Accounting
In September 2006, the FASB issued FASB Statement No. 157, "Fair Value
Measurements" ("SFAS 157"), which defines fair value, establishes a framework
for measuring fair value under GAAP, and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require
or permit fair value measurements. The Company adopted SFAS 157 on January 1,
2008.
7
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to
valuation methods used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under SFAS 157 are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full term
of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e. supported
with little or no market activity).
An asset's or liability's level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement.
For assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used are as follows at
June 30, 2008:
(In Thousands) Total Level 1 Level 2 Level 3
----- ------- ------- -------
Securities available for sale $ 42,765 $ - $ 42,765 $ -
========== ========= ========== ========
The fair values for available-for-sale securities in the table above were based
upon a market approach. Securities that are fixed income instruments that are
not quoted on an exchange, but are traded in active markets, are obtained
through third party data service providers or dealer market participants which
the Company has historically transacted both purchases and sales of investment
securities. Prices obtained from these sources include market quotations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected will
be recognized in earnings at each subsequent reporting date. SFAS 159 was
effective as of January 1, 2008. The Company chose not to elect the fair value
option for any of its financial instruments.
Note 3-Recent Accounting Pronouncements
FASB Statement No. 141 (R) "Business Combinations" was issued in December of
2007. This Statement establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. The Statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. The
guidance will become effective as of the beginning of a company's fiscal year
beginning after December 15, 2008. This new pronouncement will impact our
accounting for business combinations after January 1, 2009.
8
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles." The Company is currently evaluating
the potential impact the new pronouncement will have on its consolidated
financial statements.
Note 4-Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses,
gains, and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the stockholders' equity
section of the consolidated balance sheets, such items, along with net income,
are components of comprehensive income (loss).
The components of other comprehensive income (loss) and related tax effects for
the three and six months ended June 30, 2008 and 2007 are as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2008 2007 2008 2007
---- ---- ---- ----
(In Thousands) (In Thousands)
Unrealized holding gain (loss) on
available for sale securities $ (317) $ 9 (323) $ (67)
Tax effect (109) 3 (111) (23)
----------- ------------ ---------- ---------
Net of tax amount $ (208) $ 6 (212) $ (44)
=========== ============ =========== =========
Note 5- Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is calculated by dividing the net income
(loss) by the weighted-average number of common shares outstanding during the
period. The common shares issued to FSB Community Bankshares, MHC of 946,050 are
assumed to be outstanding for all periods presented, consistent with the
provisions of SFAS No. 128, Earnings per Share, pertaining to changes in capital
structure. The 838,950 shares issued to the public are included in the weighted
average common shares outstanding calculation only from the date such shares
were issued. The Company has not granted any restricted stock awards or stock
options and, during the six months ended June 30, 2008 and 2007, had no
potentially dilutive common stock equivalents. Unallocated common shares held by
the ESOP are not included in the weighted-average number of common shares
outstanding for purposes of calculating basic earnings (loss) per common share
until they are committed to be released. The basic average common shares
outstanding were 1,718,526 for the three months and six months ended June 30,
2008 and 946,050 for the three months and six months ended June 30, 2007.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Throughout the Management's Discussion and Analysis ("MD&A") the term, "the
Company", refers to the consolidated entity of FSB Community Bankshares, Inc.,
Fairport Savings Bank, and Oakleaf Services Corporation, a wholly owned
subsidiary of Fairport Savings Bank. At June 30, 2008, FSB Community Bankshares,
MHC the Company's mutual holding company parent, held 946,050 shares, or 53.0%,
of the Company's common stock, engaged in no significant activities and was not
included in the MD&A.
Forward Looking Statements
This Quarterly Report contains forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties, including, among other things,
changes in economic conditions including real estate values in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market areas and competition,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company does not undertake, and specifically declines any obligation, to
publicly release the results of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Critical Accounting Policies
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements ("the Consolidated Financial
Statements") included in the Company's Annual Report filed on Form 10-KSB with
the Securities and Exchange Commission on March 31, 2008. These policies, along
with the disclosures presented in the other financial statement notes and in
this discussion, provide information on how significant assets and liabilities
are valued in the consolidated financial statements and how those values are
determined. We have identified the accounting for our allowance for loan losses
as our critical accounting policy.
Allowance for Loan Losses. The allowance for loan losses is the amount
estimated by management as necessary to absorb credit losses incurred in the
loan portfolio that are both probable and reasonably estimable at the balance
sheet date. The amount of the allowance is based on significant estimates, and
the ultimate losses may vary from such estimates as more information becomes
available or conditions change. The methodology for determining the allowance
for loan losses is considered a critical accounting policy by management due to
the high degree of judgment involved, the subjectivity of the assumptions used
and the potential for changes in the economic environment that could result in
changes to the amount of the recorded allowance for loan losses.
As a substantial percentage of our loan portfolio is collateralized by real
estate, appraisals of the underlying value of property securing loans are
10
critical in determining the amount of the allowance required for specific loans.
Assumptions are instrumental in determining the value of properties. Overly
optimistic assumptions or negative changes to assumptions could significantly
affect the valuation of a property securing a loan and the related allowance
determined. Management carefully reviews the assumptions supporting such
appraisals to determine that the resulting values reasonably reflect amounts
realizable on the related loans.
Management performs a quarterly evaluation of the adequacy of the allowance for
loan losses. We consider a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic concentrations, the adequacy of the underlying
collateral, the financial strength of the borrower, results of internal loan
reviews and other relevant factors. This evaluation is inherently subjective as
it requires material estimates by management that may be susceptible to
significant change based on changes in economic and real estate market
conditions.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as doubtful, substandard
or special mention. For such loans that are also classified as impaired, an
allowance is generally established when the collateral value of the impaired
loan is lower than the carrying value of that loan. The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect management's estimate of probable losses. The
unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
Actual loan losses may be significantly more than the allowance we have
established which could have a material negative effect on our financial
results.
Comparison of Financial Condition at June 30, 2008 and December 31, 2007
Total Assets. Total assets increased by $29.6 million, or 17.7%, to $197.2
million at June 30, 2008 from $167.6 million at December 31, 2007. The primary
increase in total assets reflected increases in securities and loans receivable,
partially offset by decreases in cash and cash equivalents.
Cash and cash equivalents decreased by $4.3 million, or 45.7% to $5.1 million on
June 30, 2008 from $9.4 million on December 31, 2007. The Federal Reserve
decreased short term interest rates 325 basis point from 5.25% to 2.00% since
September 2007. As a result, management decided to re-invest excess interest
earning demand deposits in higher yielding securities and loans.
Securities increased by $25.4 million, or 88.2%, to $54.2 million at June 30,
2008 from $28.8 million at December 31, 2007. The increase was attributable to
purchases of $33.9 million of United States Government agency securities and
purchases of $19.0 million of mortgage-backed securities, partially offset by
maturities of $24.5 million of United States Government agency securities, $2.6
million of principal payments received from mortgage-backed securities and a
$323,000 decrease in the fair value of equity securities available for sale. In
February 2008, the Company executed a $14.6 million mortgage-backed securities
balance sheet leverage strategy funded by FHLB advances in an effort to increase
earnings, as described below. All securities purchased in 2008, other than $3.0
million of United States Government agency securities purchased in January 2008,
have been classified as securities available for sale. Management's decision to
increase the securities classified as available for sale is intended to provide
greater liquidity as an alternative to borrowings.
Investment in FHLB of New York stock increased by $888,000, or 63.2% to $2.3
million at June 30, 2008, from $1.4 million at December 31, 2007. The FHLB of
New York requires members to purchase additional stock with additional
borrowings.
11
Loans receivable increased by $7.6 million, or 6.1%, to $131.9 million at June
30, 2008 from $124.3 million at December 31, 2007. The increase in loans
receivable was primarily the result of increases in net residential mortgage
loans totaling $8.6 million and home equity loans and lines of credit totaling
$459,000, partially offset by sales of fixed rate 30 year residential mortgages
totaling $1.6 million. The Bank has no exposure to sub-prime lending activities.
Deposits and Borrowings. Total deposits increased by $10.0 million, or
8.4%, to $129.2 million at June 30, 2008 from $119.2 million at December 31,
2007. Certificates of deposit, including IRAs, increased by $5.7 million.
Transaction accounts, including checking, NOW, money market and savings
accounts, increased by $4.3 million. The net deposit growth was attributable to
the Irondequoit branch growth of $5.2 million, Fairport branch growth of $1.8
million and Penfield branch growth of $3.0 million.
Borrowings increased by $19.5 million, or 76.2%, to $45.1 million at June 30,
2008 from $25.6 million on December 31, 2007. The increase in borrowings
included $14.6 million as part of the balance sheet leverage strategy executed
in February 2008 that, at the time of the transaction, generated a positive 149
basis point spread.
Stockholders' Equity. Total stockholders' equity decreased by $294,000, or
1.5%, to $19.8 million at June 30, 2008 from $20.1 million at December 31, 2007.
The decrease resulted principally from a net loss of $96,000 for the six months
ended June 30, 2008, and a $212,000 increase in accumulated other comprehensive
loss.
Non-Performing Assets. At June 30, 2008, there were two home equity lines
of credit secured by real estate totaling $36,000 classified as non-performing
assets compared to $63,000 in one-to-four-family residential mortgage loans
classified as non-performing assets at December 31, 2007.
At June 30, 2008, there were no loans or other assets that are not disclosed or
disclosed as classified or special mention, where known information about
possible credit problems of borrowers caused us to have serious doubts as to the
ability of the borrowers to comply with the present loan repayment terms and
which may result in disclosure of such loans in the future.
Average balances and yields. The following tables set forth average balance
sheets, average yields and costs, and certain other information at and for the
periods indicated. All average balances are daily average balances. Non-accrual
loans were included in the computation of average balances, but have been
reflected in the table as loans carrying a zero yield. The yields set forth
below include the effect of deferred fees, discounts and premiums that are
amortized or accreted to interest income. Yields have been annualized.
12
For the Three Months Ended June 30,
-----------------------------------------------------------------------
2008 2007
--------------------------------- ----------------------------------
Interest Interest
Average Income Yield/ Average Income Yield/
Balance Expense Cost Balance Expense Cost
--------- ----------- ---------- ----------- ------------- -------
(Dollars in thousands)
Interest-earning assets:
Loans............................ $ 126,995 $ 1,847 5.82% $ 120,083 $ 1,782 5.94%
Securities....................... 31,378 370 4.72 18,791 242 5.15
Mortgage-backed securities....... 26,757 302 4.51 6,025 64 4.25
Other............................ 3,158 16 2.03 3,293 41 4.98
--------- ----------- ----------- -------------
Total interest-earning assets.. 188,288 2,535 5.39% 148,192 2,129 5.75%
----------- ---------- ------------- -------
Non-interest-earning assets...... 4,838 4,980
--------- -----------
Total assets.................. $ 193,126 $ 153,172
========= ===========
Interest-bearing liabilities:
NOW accounts..................... $ 6,742 15 0.89% $ 5,390 $ 8 0.59
Passbook savings................. 14,241 32 0.90 13,536 35 1.03
Money market savings............. 11,203 52 1.86 10,604 75 2.83
Individual retirement accounts... 16,275 179 4.40 15,714 173 4.40
Certificates of deposit.......... 76,366 787 4.12 68,265 773 4.53
Borrowings....................... 42,077 431 4.10 20,536 255 4.97
--------- ----------- ----------- -------------
Total interest-bearing
liabilities.................. 166,904 1,496 3.59% 134,045 1,319 3.94%
--------- ----------- ---------- ----------- ------------- -------
Non-interest-bearing liabilities:
Demand deposits.................. 3,303 3,124
Other............................ 2,774 2,351
--------- -----------
Total liabilities........... 172,981 139,520
Stockholders' equity............. 20,145 13,652
--------- -----------
Total liabilities and
stockholders' equity....... $ 193,126 $ 153,172
=========== ============
Net interest income............. $ 1,039 $ 810
========= =============
Interest rate spread (1)........ 1.80% 1.81%
========== =======
Net interest-earning assets (2). $ 21,384 $ 14,147
=========== ============
Net interest margin (3)......... 2.21% 2.18%
========= =============
Average interest-earning assets
to average interest-bearing
liabilities.................. 113% 111%
=========== ============
---------------------
(1) Interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing
liabilities.
(2) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by total
interest-earning assets.
13
For the Six Months Ended June 30,
-----------------------------------------------------------------------
2008 2007
--------------------------------- ----------------------------------
Interest Interest
Average Income Yield/ Average Income Yield/
Balance Expense Cost Balance Expense Cost
--------- ----------- ---------- ----------- ------------- -------
(Dollars in thousands)
Interest-earning assets:
Loans......................... $ 124,979 3,664 5.86% $ 120,277 $ 3,575 5.94%
Securities.................... 28,921 683 4.72 19,101 477 4.99
Mortgage-backed securities.... 22,213 504 4.54 5,899 123 4.17
Other......................... 6,062 90 2.97 1,882 47 4.99
--------- ----------- ----------- -------------
Total interest-earning assets 182,175 4,941 5.42% 147,159 4,222 5.74%
Non-interest-earning assets... 4,887 4,839
--------- -----------
Total assets............... $ 187,062 $ 151,998
========= ===========
Interest-bearing liabilities:
NOW accounts.................. $ 6,206 27 0.87 $ 5,139 16 0.62
Passbook savings.............. 13,851 71 1.03 12,866 77 1.20
Money market savings......... 11,027 120 2.18 10,407 146 2.81
Individual retirement accounts 16,199 360 4.44 15,358 330 4.30
Certificates of deposit....... 75,223 1,629 4.33 66,871 1,458 4.36
Borrowings.................... 38,720 809 4.18 22,355 545 4.88
--------- ----------- ----------- -------------
Total interest-bearing
liabilities.............. 161,226 3,016 3.74% 132,996 2,572 3.87%
--------- ----------- ---------- ----------- ------------- -------
Non-interest-bearing liabilities:
Demand deposits......... 3,193 3,185
Other......................... 2,515 2,132
--------- -----------
Total liabilities........ 166,934 138,313
Stockholders' equity.......... 20,128 13,685
--------- -----------
Total liabilities and
stockholders' equity..... $ 187,062 $ 151,998
=========== ============
Net interest income........... 1,925 1,650
========= =============
Interest rate spread (1)...... 1.68% 1.87%
========== =======
Net interest-earning assets (2) 20,949 14,163
=========== ============
Net interest margin (3)....... 2.11% 2.24%
========= =============
Average interest-earning assets
to average interest-bearing
liabilities................ 113% 111%
=========== ============
Comparison of Operating Results for the Three Months Ended June 30, 2008 and
June 30, 2007
General. We had net income of $10,000 for the three months ended June 30,
2008 compared to a net loss of $112,000 for the three months ended June 30,
2007. Net income for the second quarter of 2008 compared to the loss for the
second quarter of 2007 resulted primarily from an increase in net interest
income of $229,000, other income of $53,000, partially offset by an increase of
other expense of $87,000, increased provision for loan losses of $6,000, and
increased income tax expense of $67,000. The increase in interest earning assets
was primarily the result of funds received from our stock offering that closed
issuance in August 2007, being invested in securities and loans, and a $14.6
million balance sheet leverage strategy whereby we increased FHLB borrowings and
re-invested those funds into higher-yielding mortgage-backed securities, that
was executed in February 2008.
Interest and Dividend Income. Interest and dividend income increased by
$406,000, or 19.1%, to $2.5 million for the three months ended June 30, 2008
from $2.1 million for the three months ended June 30, 2007. The increase in
interest and dividend income resulted from a $65,000, or 3.6%, increase in
interest income from loans, a $128,000, or 52.9%, increase in interest income
from securities, a $238,000, or 371.9% increase in interest income from
mortgage-backed securities, offset by a $25,000 or 61.0% decrease in other
interest income, and also interest earning demand accounts. Average
interest-earning assets increased by $40.1 million, or 27.1%, to $188.3 million
for the three months ended June 30, 2008 from $148.2 million for the three
14
months ended June 30, 2007. The yield on interest-earning assets decreased by 36
basis points to 5.39% for the three months ended June 30, 2008 compared to 5.75%
for the three months ended June 30, 2007, reflecting the effect of the 325 basis
point drop in interest rates by the Federal Reserve since September 2007.
Interest Expense. Interest expense increased $177,000, or 13.4%, to $1.5
million for the three months ended June 30, 2008 from $1.3 million for the three
months ended June 30, 2007. The increase in interest expense resulted from an
increase in the average balances in interest-bearing liabilities of $32.9
million, or 24.5%, to $166.9 million for the three months ended June 30, 2008
compared to $134.0 million for the three months ended June 30, 2007. The average
cost of interest-bearing liabilities decreased by 35 basis points to 3.59% for
the three months ended June 30, 2008 from 3.94% for the three months ended June
30, 2007. The average cost of deposit accounts decreased by 34 basis points to
3.41% for the three months ended June 30, 2008 compared to 3.75% for the three
months ended June 30, 2007. The average cost of borrowings decreased by 87 basis
points to 4.10% for the three months ended June 30, 2008 compared to 4.97% for
the three months ended June 30, 2007. The increase in interest expense reflects
a higher volume of deposits and borrowings.
At June 30, 2008, we had $21.1 million of certificates of deposit, including
individual retirement accounts that will mature during the third quarter of 2008
with a weighted average cost of 4.38%. Based on current market rates, if these
funds remain with Fairport Savings Bank with similar maturities, the rates we
pay on these deposits will decrease.
Net Interest Income. Net interest income increased $229,000, or 28.3%, to
$1.0 million for the three months ended June 30, 2008 from $810,000 for the
three months ended June 30, 2007. The increase in net interest income was due
primarily to an increase in average interest-earning assets of $7.2 million more
than interest-bearing liabilities, due to the investment of the proceeds of our
stock offering that closed in August 2007, as well as the $14.6 million balance
sheet leverage transaction. The Company's net interest margin increased 3 basis
points to 2.21% for the three months ended June 30, 2008 from 2.18% for the
three months ended June 30, 2007. The increase in net interest margin was
primarily attributable to the effect of a normal yield curve in 2008 compared to
the effect of the flat or inverted yield curve that existed for much of 2007. If
the current interest rate environment remains relatively stable through the
remainder of 2008, we anticipate continued improvement in our net interest
margin with certificates of deposits maturing and renewing at lower interest
rates, and new loan volume added to the balance sheet at higher interest rates.
Provision for Loan Losses. Based on management's evaluation of the factors
that determine the level of the allowance for loan losses, we recorded $6,000 in
provision for loan losses for the three month periods ended June 30, 2008
compared to no provision for loan losses for the three months ended June 30,
2007. The allowance for loan losses as of June 30, 2008 was $327,000, or .25% of
total loans, compared to $322,000, or 0.27% of total loans as of June 30, 2007.
We had $36,000, or 0.03% in non-accrual loans as of June 30, 2008 compared to
$238,000, or 0.20% of loans in non-accrual loan status as of June 30, 2007.
Other Income. Total other income increased $53,000, or 67.9%, to $131,000
for the three months ended June 30, 2008 compared to $78,000 for the three
months ended June 30, 2007. Other income grew by $35,000, primarily an increase
in checking account service charge fees associated with the courtesy overdraft
protection at point of sale and ATM's, and an increase of $19,000 in commissions
from Oakleaf Services insurance/annuity and security sales.
Other Expenses. Other expenses increased $87,000, or 8.2%, to $1.1 million
for the three months ended June 30, 2008 compared to $1.1 million for the three
15
months ended June 30, 2007. The increase was the result of an increase of $5,000
in occupancy expenses primarily due to increased lease expense for the Penfield
branch, an increase of $28,000 in advertising and marketing expenses, an
increase of $19,000 in mortgage fees and taxes due to increased mortgage and
home equity origination volume, and an increase of $35,000 in miscellaneous
other expenses, primarily the additional costs associated with being a public
company.
Income Tax Expense/Benefit. We had pre-tax income of $14,000 for the three
months ended June 30, 2008 versus a pre-tax loss of $175,000 for the three
months ended June 30, 2007, which resulted in a $4,000 tax expense for the three
months ended June 30, 2008, versus a $63,000 tax benefit for the three months
ended June 30, 2007, a change of $67,000. The effective tax rate was 28.6% for
the three months ended June 30, 2008 compared to (36.0%) for the three months
ended June 30, 2007.
Comparison of Operating Results for the Six Months Ended June 30, 2008 and June
30, 2007
General. We had a net loss of $96,000 for the six months ended June 30,
2008 compared to a net loss of $247,000 for the six months ended June 30, 2007.
The improvement was attributable to an increase in net interest income of
$275,000, an increase in other income of $66,000, partially offset by an
increase in other expenses of $100,000, a $6,000 provision for loan losses, and
a decrease in income tax benefit of $84,000. The net interest income improvement
was generated by an increase in interest-earning assets due to the investment of
the proceeds of our initial stock offering that closed in August 2007, as well
as the balance sheet leverage transaction.
Interest and Dividend Income. Interest and dividend income increased by
$719,000, or 17.1% to $4.9 million for the six months ended June 30, 2008 from
$4.2 million for the six months ended June 30, 2007. The increase in interest
and dividend income resulted primarily from an $89,000, or 2.5%, increase in
interest income from loans, a $206,000, or 43.2%, increase in interest income
from securities, a $381,000, or 309.8% increase in interest income from
mortgage-backed securities, and a $43,000, or 91.5% increase in interest income
from other sources. Average interest-earning assets increased by $35.0 million,
or 23.8%, to $182.2 million for the six months ended June 30, 2008 from $147.2
million for the six months ended June 30, 2007. The yield on interest earning
assets decreased by 32 basis points to 5.42% for the six months ended June 30,
2008 compared to 5.74% for the six months ended June 30, 2007, reflecting
decreases in interest rates in an asset structure that grew primarily in
securities and adjustable rate mortgage-backed securities.
Interest Expense. Interest expense increased $444,000, or 17.3%, to $3.0
million for the six months ended June 30, 2008 from $2.6 million for the six
months ended June 30, 2007. The increase in interest expense resulted from an
increase in average balances in interest-bearing liabilities of $28.2 million,
or 21.2%, to $161.2 million for the six months ended June 30, 2008 compared to
$133.0 million for the six months ended June 30, 2007. The average cost of
interest-bearing liabilities decreased by 13 basis points to 3.74% for the six
months ended June 30, 2008 from 3.87% for the six months ended June 30, 2007.
The average cost of deposit accounts decreased by 6 basis points to 3.60% for
the six months ended June 30, 2008 compared to 3.66% for the six months ended
June 30, 2007. In addition, the average cost of borrowings decreased by 70 basis
points to 4.18% for the six months ended June 30, 2008 compared to 4.88% for the
six months ended June 30, 2007. The interest expense increase was the result of
increased volume in both deposits and borrowings.
Net Interest Income. Net interest income increased $275,000, or 16.7%, to
$1.9 million for the six months ended June 30, 2008 from $1.6 million for the
six months ended June 30, 2007. The increase in net interest income was due
primarily to an increase of interest bearing assets of $6.8 million more than
interest bearing liabilities. The average cost of our interest-bearing
liabilities decreased by 13 basis points, while the average yield on our
interest-earning assets decreased by 32 basis points, as the deposit growth of
16
the Bank has primarily been in time deposits, which carry higher costs than
other deposit alternatives. Our net interest margin decreased by 13 basis points
to 2.11% for the six months ended June 30, 2008 from 2.24% for the six months
ended June 30, 2007.
Provision for Loan Losses. Based on management's evaluation of the factors
that determine the level of the allowance for loan losses, we recorded a $6,000
provision for loan losses for the six month period ended June 30, 2008 and no
provision for loan losses for the six month period ended June 30, 2007. We
believe that we maintain exceptional credit quality within our loan portfolio
with no charge-offs recorded within the reporting period. The allowance for loan
losses as of June 30, 2008 was $327,000, or 0.25% of total loans, compared to
$322,000, or 0.27% of total loans as of June 30, 2007. We had non-accrual loans
totaling $36,000, or .03% of total loans receivable as of June 30, 2008 compared
to $238,000, or 0.20% of loans in non-accrual status as of June 30, 2007.
Other Income. Other income increased $66,000, or 41.5%, to $225,000 for the
six months ended June 30, 2008 compared to $159,000 for the six months ended
June 30, 2007. The increase in other income was primarily the result of a
$12,000 increase in our Oakleaf subsidiary revenue and a $55,000 increase in
other income from an increase in checking account service charge fees associated
with the courtesy overdraft protection at point of sale and ATM's.
Other Expense. Other expense increased $100,000, or 4.5%, to $2.3 million
for the six months ended June 30, 2008 compared to $2.2 million for the six
months ended June 30, 2007. The increase was mainly the result of an additional
$11,000 in salaries and benefits expense primarily due to annual cost of living
raises effective January 1 of each year, a $25,000 increase in mortgage fees and
taxes due to increased loan volume, a $14,000 increase in electronic banking
after ATM vendor switch credits were applied, a $12,000 increase in occupancy
expense due to property tax and rent increases at the Penfield Branch, and an
increase of $76,000 in other expenses, including directors fees, primarily due
to increased costs associated with being a newly registered public company.
Income Tax Benefit. We had a pre-tax loss of $150,000 for the six months
ended June 30, 2008 versus a pre-tax loss of $385,000 for the six months ended
June 30, 2007, which resulted in a $54,000 tax benefit for the six months ended
June 30, 2008, versus a $138,000 tax benefit for the six months ended June 30,
2007, a change of $84,000. The effective tax rate was (36.0%) for the six months
ended June 30, 2008 compared to (35.8%) for the six months ended June 30, 2007.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Our primary sources of funds consist of deposit inflows,
loan repayments, advances from the Federal Home Loan Bank of New York,
maturities and principal repayments of securities, and recently, but to a lesser
extent, loan sales. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition. Our asset/liability management committee is
responsible for establishing and monitoring our liquidity targets and strategies
in order to ensure that sufficient liquidity exists for meeting the borrowing
needs and deposit withdrawals of our customers as well as unanticipated
contingencies. We seek to maintain a liquidity ratio of 10.0% or greater. For
the quarter ended June 30, 2008, our liquidity ratio averaged 19.4%. We believe
that we have enough sources of liquidity to satisfy our short and long-term
liquidity needs as of June 30, 2008.
We regularly adjust our investments in liquid assets based upon our
assessment of:
17
(i) expected loan demand;
(ii) expected deposit flows;
(iii) yields available on interest-earning deposits and securities; and
(iv) the objectives of our asset/liability management program.
Excess liquid assets are invested generally in interest-earning deposits,
short-term and intermediate-term securities and federal funds sold.
Our most liquid assets are cash and cash equivalents. The levels of these
assets are dependent on our operating, financing, lending and investing
activities during any given period. At June 30, 2008, cash and cash equivalents
totaled $5.1 million.
Our cash flows are derived from operating activities, investing activities
and financing activities as reported in our Consolidated Statements of Cash
Flows included in our Consolidated Financial Statements.
At June 30, 2008, we had $6.9 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $7.7 million in unused lines
of credit to borrowers. Certificates of deposit, including individual retirement
accounts comprised solely of certificates of deposits, due within one year of
June 30, 2008 totaled $67.3 million, or 73.2% of our certificates of deposit and
52.1% of total deposits. If these deposits do not remain with us, we will be
required to seek other sources of funds including loan sales, other deposit
products, including certificates of deposit, and Federal Home Loan Bank
advances. Depending on market conditions, we may be required to pay higher rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before June 30, 2009. We believe, however, based on past
experience that a significant portion of such deposits will remain with us. We
have the ability to attract and retain deposits by adjusting the interest rates
offered.
Our primary investing activity is and will continue to be originating
loans. During the six months ended June 30, 2008, we originated $16.4 million of
loans.
Financing activities consist primarily of activity in deposit accounts and
Federal Home Loan Bank borrowings. We experienced a net increase in total
deposits of $864,000 for the quarter ended June 30, 2008. Deposit flows are
affected by the overall level of interest rates, the interest rates and products
offered by us and our local competitors, and by other factors.
Liquidity management is both a daily and long-term function of business
management. If we require funds beyond our ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of New York, which
provides an additional source of funds. Federal Home Loan Bank borrowings
increased by $19.5 million to $45.1 million for the six months ended June 30,
2008, compared to a net decrease of $8.1 million to $20.0 million for the six
months ended June 30, 2007. Federal Home Loan Bank borrowings have primarily
been used to fund loan demand; however $14.6 million of advances were used to
fund a balance sheet leverage transaction in February 2008 whereby we
re-invested these borrowings into higher-yielding mortgage-backed securities. At
June 30, 2008, we had the ability to borrow approximately $96.8 million from the
Federal Home Loan Bank of New York, of which $45.1 million had been advanced.
Fairport Savings Bank is subject to various regulatory capital
requirements, including a risk-based capital measure. The risk-based capital
18
guidelines include both a definition of capital and a framework for calculating
risk-weighted assets by assigning balance sheet assets and off-balance sheet
items to broad risk categories. At June 30, 2008, Fairport Savings Bank exceeded
all regulatory capital requirements, and was considered "well capitalized" under
regulatory guidelines.
The net proceeds from our 2007 minority stock offering significantly
increased our liquidity and capital resources. Over time, the initial level of
liquidity will be reduced as net proceeds from the stock offering are used for
general corporate purposes, including the funding of loans. Our financial
condition and results of operations will be enhanced by the net proceeds from
the stock offering, resulting in increased net interest-earning assets and net
interest income. However, due to the increase in equity resulting from the net
proceeds raised in the stock offering, our return on equity was adversely
affected following the stock offering.
Off-Balance Sheet Arrangements
In the ordinary course of business, the Bank is a party to credit-related
financial instruments with off-balance sheet risk to meet the financing needs of
our customers. These financial instruments include commitments to extend credit.
We follow the same credit policies in making commitments as we do for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by us, is based on our credit evaluation of
the customer.
At June 30, 2008 and 2007, we had $6.9 million and $4.4 million,
respectively, of commitments to grant loans, and $7.7 million and $7.7 million,
respectively, of unfunded commitments under lines of credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable since the Company is a smaller reporting company.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of
the end of the period covered by this report, our disclosure controls and
procedures were effective to ensure that information required to be disclosed in
the reports that the Company files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
There were no significant changes made in the Company's internal control
over financial reporting or in other factors that could significantly affect the
Company's internal control over financial reporting during the period covered by
this report that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
19
Part II - Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to various legal actions
arising in the normal course of business. In the opinion of management, the
resolution of these legal actions is not expected to have a material adverse
effect on the Company's financial condition or results of operations.
Item 1A. Risk Factors
Not applicable since the Company is a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) There were no sales of unregistered securities during the period covered by
this Report. (b) Not applicable. (c) There were no issuer repurchases of
securities during the period covered by this Report.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held at 2:00 pm on May 21, 2008 at
the Perinton Community Center, 1350 Turk Hill Road, Fairport, NY 14450. The
matters considered and voted on at the annual meeting were as follows:
Proposal No. 1
The election of Gary Lindsay, Terence O'Neil and Lowell T. Twitchell, each to
serve as a director of the Company for a term of three-years, and the election
of Alicia H. Pender, as a director of the Company to serve a one-year term, and
until their successors have been elected and qualified.
For Withheld
-------------------------------------------------
Gary Lindsay 1,453,330 41,550
Terence O'Neil 1,356,578 138,302
Lowell T. Twitchell 1,452,230 41,650
Alicia H. Pender 1,494,630 42,650
Additionally, the following directors remain in office: Thomas J. Hanss,
James E. Smith, Dana C. Gavenda, Robert W. Sturn and Charis W. Warshof.
20
Proposal No. 2
The approval of the ratification of the appointment of Beard Miller Company LLP
as the independent registered public accounting firm for the Company for the
year ending December 31, 2008.
For Against Abstain Broker Non-Votes
------------------------------------------------------------------
Number of shares voted 1,494,630 0 0 0
Percentage of all shares voted 100% 0% 0% 0%
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
3.1 Charter of FSB Community Bankshares, Inc.*
3.2 Bylaws of FSB Community Bankshares, Inc.*
4 Form of Common Stock Certificate of FSB Community Bankshares, Inc.*
10.1 Employment Agreement between FSB Community Bankshares, Inc. and Dana C.
Gavenda*
10.2 Supplemental Executive Retirement Plan*
10.3 Form of Employee Stock Ownership Plan*
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
----------------------
* Filed as exhibits to the Company's Registration Statement on Form SB-2,
and any amendments thereto, with the Securities and Exchange Commission
(Registration No. 333-141380).
21
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FSB COMMUNITY BANKSHARES, INC.
Date: August 13, 2008 /s/ Dana C. Gavenda
----------------------------------------
Dana C. Gavenda
President and Chief Executive Officer
Date: August 13, 2008 /s/ Kevin D. Maroney
----------------------------------------
Kevin D. Maroney
Executive Vice President and Chief
Financial Officer
22