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RMG Capital Corporation: RMG Capital Corporation Discussions of 2008 at Annual Shareholders Meeting

^{Published on 2009-05-20 19:23:01, Last Modified on 2009-05-20 19:26:16 - Market Wire}
 

FULLERTON, CA--(Marketwire - May 20, 2009) - RMG Capital Corporation (OTCBB: [ RMGC ]), the holding company for Fullerton Community Bank, F.S.B. in Fullerton, California, held its 2009 Annual Shareholders Meeting on April 22nd. Below is a summary of Management's Discussion and Analysis of 2008.

MANAGEMENT'S DISCUSSION & ANALYSIS OF 2008

As most of you are aware, we lost our great leader, Carl Gregory, who passed away March 30, 2009 after a long and valiant fight against cancer. His accomplishments include leading FCB through the severe early '90s recession, and leading our transformation from a conservative savings and loan to a full service community bank. He made Fullerton Community Bank a great place to work!

At last's year's meeting, we noted the worsening economic environment. We had been concerned about it since 2004, when signs of the real estate bubble become apparent. We noted the rapidly deteriorating fundamental of the large banks as well as California thrifts. We noted that this was clearly the worst liquidity crisis, and credit crunch since 1974. We noted that many of our competitors were nearly insolvent. We also noted (warned?), that we would be facing deteriorating conditions in our land and construction portfolios during 2008.

We were concerned about, but did not predict the rapid deterioration across all asset categories during 2008 nor did we predict that the subprime woes would so dramatically spread to all sectors of the economy. We did predict the retrenchment of consumer spending in response to the decline in household wealth. This consumer retrenchment and deleveraging could subtract $1 trillion per annum in economic activity, as consumers return to traditional savings rates. Long-term, this is not unhealthy for the economy.

EARNINGS

For 2008, RMG Capital Corporation reported a loss of $354 thousand, or $0.26 per share compared with a profit of $4,587 thousand or $1.47 per share during 2007. Our wholly owned subsidiary, Fullerton Community Bank, managed to generate a small profit of $1.9 million for 2008, despite substantially increased reserves and REO expenses.

Fullerton Community Bank increased our allowance for loan losses by $9.2 million during 2008, which is a dramatic increase compared to previous years. This reserve allowance plus a deferred compensation charge more than offset a nearly $4 million increase in operating income during 2008. Additionally, RMG Corporation incurred a write off of $1.83 million (nearly 50% of the total real estate investments) for its real estate development activities for those ventures where we believed that we would be unable to recoup our original investment.

LOANS

We encountered severe weakness in our construction and land portfolio during 2008, especially loans we extended for the entitlement of raw land; and to a lesser extent our SBA portfolio. Construction and land loans comprised 9.3% of FCB's total loan portfolio as of December 31, 2008.

One year ago at this meeting, I mentioned that our delinquent loans were 1% of total loans. At the end of 2008, the delinquent loan ratio increased to 4.7%.

At year end nearly one half of our $51.5 million land and construction loan portfolio was impaired. We are currently valuing our Inland Empire land at less than 40% of original value. Another $14 million of SBA loans were also impaired at year end. We made a few bets, which in hindsight have not worked out favorably, on growth "stories" in the SBA. By definition, many SBA customers do not have the experience or financial depth to weather the downturn in sales. Fortunately, this segment of the portfolio, approximating $6.0 million, carries a 75% U.S. guarantee.

The diversity and quality of the remainder of the loan portfolio remained solid at year end. Delinquencies in Single Family Residence loans, Income Property loans, Consumer loans & Business Banking loans all remain under 1% of each segment.

During 2008, the bank suspended extending new land and construction loans. Our immediate objective is to cut this segment of our portfolio in half by year end. So far, we have achieved 1/3 of our objective ($8.8 million), with another $7.8 million scheduled to be sold or refinanced by the end of May.

RETAIL BANK

Despite major issues that surfaced in our loan portfolio during 2008, and continue to be our primary focus this year, the retail bank enjoyed success during 2008.

 1) FCB's cost of funds declined to 2.10% during the year. We resisted the temptation to match high cost CDs in the marketplace, and instead increased our business checking accounts, introduced the Option and Access CD, and used low cost FHLB borrowings, to relentlessly reduce the cost of funds. The net interest margin increased from 3.58% to 3.96% during 2008 which is exceptional for this competitive environment. 2) The retail bank continued to progress in electronic banking services offerings. We made significant progress including lowering our postage charges and increasing interchange fees by increased customer utilization of e-statements, e-banking, business debit cards, and increased business cash management services. 3) Continued investment in our retail branches. a) Garden Grove remodeling b) Pending Placentia move to Yorba Linda 

Our customers notice and appreciate the investments being made, and the increased Garden Grove office visibility has been noted. When completed these investments will provide boosts for us in the local marketplace.

2009 OUTLOOK

Obviously we are hopeful that the local economy hits bottom soon. And we are seeing signs that the "pace of deterioration is decelerating."

 -- Home sales (especially at the lower end) are stabilizing. Inventory levels are less than 4 months for homes priced below $500,000. -- Retail sales, while still down, seem to be flattering out -- Stock market up nearly 30% past two months -- Debt markets are showing signs of life 

While we hope for the best, management is still preparing for the worst. Our most important initiatives this year are 1) to increase capital reserves, 2) increase liquidity and funding sources, and 3) reduce exposures in construction and land loans and control costs. Additionally, our Chief Credit Officer has been "stress testing" the loan portfolio to better anticipate future credit concerns, if any.

ACTIONS

 1) Unfortunately, due to the pressures of the credit cycle, we will need to suspend dividends for the remainder of 2009. 2) Our risk weighted assets have decreased the past 4 months, thereby increasing our regulatory capital cushion. 3) We are working hard to reduce operating costs, which will become more evident later this year. 

RMG Capital Corporation is the holding company for Fullerton Community Bank. The Bank is a community focused full-service bank which is headquartered in Fullerton, California and has been serving southern California since 1927. The Bank currently has eight retail branches, two regional business banking offices, and an SBA division operating in southern California.

The statements contained in this news release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about RMG Capital Corporation and its subsidiary Fullerton Community Bank's business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, the Company's actual results or performance may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including but not limited to the general business environment, the California real estate market, competitive conditions in the business and geographic areas in which the Company conducts its business and regulatory actions or changes. The Company disclaims any obligation to subsequently revise or update 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.

 RMG Capital Corporation and Subsidiaries Consolidated Statements of Financial Condition (Unaudited) Assets 12/31/08 12/31/07 ------------- -------------- Cash and Due from Banks $ 15,630,000 $ 10,595,000 Federal Funds Sold $ 0 $ 0 ------------- -------------- Total Cash and Cash Equivalents $ 15,630,000 $ 10,595,000 Loans, net $ 691,380,000 $ 633,826,000 Investment Securities HTM $ - $ 996,000 Mortgage-backed Securities AFS, at fair value $ 2,755,000 $ 4,269,000 Mortgage-backed Securities HTM $ 19,228,000 $ 24,179,000 Accrued Interest Receivable $ 3,282,000 $ 3,688,000 Investments in Real Estate, net $ 2,026,000 $ 3,222,000 Real Estate Acquired through Foreclosure $ 3,065,000 $ - Federal Home Loan Bank Stock, at cost $ 9,800,000 $ 7,741,000 Cash Surrender Value of Life Insurance $ 7,877,000 $ 7,602,000 Premises and Equipment, net $ 5,887,000 $ 5,973,000 Other Assets $ 7,459,000 $ 6,284,000 Land and Other Development Costs $ 2,293,000 $ - ------------- -------------- Total Assets $ 770,682,000 $ 708,375,000 ============= ============== Liabilities and Stockholders' Equity Liabilities Deposit Accounts $ 507,239,000 $ 474,191,000 FHLB Borrowings $ 186,100,000 $ 152,300,000 Other Borrowings $ 1,234,000 $ 1,945,000 Junior Subordinated Debentures $ 18,558,000 $ 18,558,000 Accounts Payable and Other Liabilities $ 9,811,000 $ 11,901,000 ------------- -------------- Total Liabilities $ 722,942,000 $ 658,895,000 ------------- -------------- Minority Interest and Noncontrolling Interest in Consolidated Subsidiary $ 0 $ 577,000 StockHolders' Equity Preferred stock, no par value: 1,000,000 shares authorized: 5,000 issued and outstanding $ 4,823,000 $ 4,823,000 Common Stock, no par value; 10,000,000 shares authorized: 2,808,633 shares issued and outstanding $ 3,327,000 $ 3,164,000 Accumulated other comprehensive Income (Loss) $ (4,000) $ 28,000 Retained earnings $ 39,594,000 $ 40,888,000 ------------- -------------- Total Stockholders' Equity $ 47,740,000 $ 48,903,000 ------------- -------------- $ 770,682,000 $ 708,375,000 ============= ============== RMG Capital Corporation and Subsidiaries Consolidated Statement of Income (Unaudited) 2008 2007 ------------- -------------- Interest Income: Interest on loans $ 44,321,000 $ 45,016,000 Interest and dividends on investments $ 1,521,000 $ 2,208,000 ------------- -------------- Total Interest Income $ 45,842,000 $ 47,224,000 ------------- -------------- Interest Expense: Interest on deposit accounts $ 9,019,000 $ 16,500,000 Other interest expense $ 8,348,000 $ 6,991,000 ------------- -------------- Total Interest Expense $ 17,367,000 $ 23,491,000 ------------- -------------- Net Interest Income before provision for loan losses $ 28,475,000 $ 23,733,000 ------------- -------------- Provision for loan losses $ 9,256,000 $ 725,000 ------------- -------------- Net Interest Income $ 19,219,000 $ 23,008,000 ------------- -------------- Noninterest Income: Loan servicing and other fees $ 2,882,000 $ 2,660,000 Real estate operations, net $ (1,401,000) $ 119,000 Gain on sale of loans, net $ 124,000 $ 423,000 Other $ (176,000) $ 358,000 ------------- -------------- Total Noninterest Income $ 1,429,000 $ 3,560,000 ------------- -------------- Noninterest Expense: Compensation and other employee benefits $ 15,733,000 $ 13,135,000 Occupancy $ 1,485,000 $ 1,398,000 Equipment rental and data processing $ 1,041,000 $ 1,009,000 Other expense and supplies $ 568,000 $ 564,000 Other $ 3,642,000 $ 3,385,000 ------------- -------------- Total Noninterest Expense $ 22,469,000 $ 19,491,000 ------------- -------------- Income before income tax provision $ (1,821,000) $ 7,077,000 Income tax provision $ (1,002,000) $ 2,490,000 ------------- -------------- Income (loss) before minority interest and noncontrolling interests in net (loss) income of consolidated subsidiaries $ (819,000) $ 4,587,000 Minority and noncontrolling interests in net (income) loss of consolidated subsidiaries $ 465,000 $ 0 ------------- -------------- Net Income $ (354,000) $ 4,587,000 ============= ==============